The Delhi bench of the Income Tax Appellate Tribunal (ITAT) ruled that the departmental authorities cannot disallow deduction under section 35(2AB) of the Income Tax Act, 1961 by ignoring Form 3CL issued by the competent authority.
Section 35(2AB) of the Income Tax Act deals with deductions related to expenditure incurred by the assessee for research and development approved by the Scientific and Industrial Research, Government of India.
The Assessee Indian Tonners and Developers Ltd. is a resident corporate entity engaged in the manufacturing and sale of inks and toners for photocopiers.
The Assessee filed its return of income claiming deduction under Section 35(2AB) of the Income Tax Act in respect of research and development expenditure.
During the assessment proceedings, the Assessing Officer observed that though the assessee had submitted Form 3CLA and 3CK for the impugned assessment year, however, it has not submitted Form 3CL.
Thus, being of the view that in the absence of Form 3CL issued by the competent authority, the assessee’s claim of deduction under section 35(2AB) was not acceptable.
The Assessing Officer disallowed the deduction claimed under section 35(2AB) of the Act and restricted the deduction to the extent of revenue expenditure incurred.
Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)[CIT(A)] who confirmed the disallowance. Therefore the assessee filed a second appeal before the tribunal.
Pramod Kapur, the counsel appeared for the assessee submitted that before the Assessing Officer, the assessee could not furnish Form 3CL as it was not issued by the competent authority, however, in the course of the proceedings before the first appellate authority, the assessee did furnish Form 3CL issued by the competent authority for assessment years 2018-19, 2019-20 and 2020-21.
Anuj Garg, counsel for the revenue, supported the decision of the lower authorities.
It was observed that during the course of assessment proceedings, the assessee furnished Form 3CLA and Form 3CK for the impugned assessment year. The Form 3CL issued by the competent authority for the assessment year 2017-18 was furnished but it was not furnished for the assessment year 2018-19.
After completion of the assessment, the assessee received Form 3CL issued by the competent authority for the assessment years 2018-19, 2019-20 and 2020-21, which was furnished before the first appellate authority.
Form 3CL was issued by the competent authority on 31st March 2022, which was the post-completion of the assessment but before the order was passed by the first appellate authority.
While deciding the appeal, the first appellate authority completely ignored Form 3CL issued by the competent authority.
Therefore the two-member bench of Saktijit Dey, (Judicial Member) and M. Balaganesh, (Accountant Member) allowed the appeal of the assessee and held that “When the competent authority has issued Form 3CL entitling the assessee to claim a deduction in respect of both capital and revenue expenditure, which is a mandate under section 35(2AB) of the Act, the departmental authorities cannot disentitle the assessee from availing the deduction by ignoring Form 3CL”
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