Disallowance of Weighted R&D Deduction u/s 35(2AB): ITAT Holds Non-Filing of Form 3CL Not Fatal [Read Order]
ITAT held that non-filing of Form 3CL cannot justify disallowance of R&D deduction under Section 35(2AB) and remanded the case for verification of expenses
Disallowance, Form 3CL, Disallowance of Weighted R&D Deduction
Disallowance, Form 3CL, Disallowance of Weighted R&D Deduction
The Indore Bench of the Income Tax Appellate Tribunal (ITAT) held that non-filing of Form 3CL cannot be a ground to deny deduction under Section 35(2AB) when the assessee’s research activity is duly approved by the Department of Scientific and Industrial Research (DSIR) and is related to its business.
The appeal arose from the order of the Commissioner of Income Tax (Appeals) which had upheld the Assessing Officer’s disallowance of ₹78,72,495 claimed by Malwa Oxygen & Industrial Gases Pvt. Ltd. for the Assessment Year 2018–19.
The assessee, engaged in manufacturing intermediates and specialty chemicals, had claimed a weighted deduction under Section 35(2AB) for expenditure incurred on scientific research. During scrutiny, the Assessing Officer (AO) found that the assessee had furnished Form 3CM and Form 3CLA but failed to furnish Form 3CL, the report issued by DSIR to the Income Tax authorities.
The assessee, acknowledging this lapse, withdrew the claim for weighted deduction and requested the allowance of 100% deduction for revenue expenses of ₹24,79,955 and depreciation of ₹2,65,234 on Research and Development (R&D) assets as an alternative.
The AO rejected the request, stating that scientific research was not part of the assessee’s business and that any additional claim could only be made through a revised return. The CIT(A) agreed, holding that failure to furnish Form 3CL meant non-fulfilment of essential conditions under Section 35(2AB).
On appeal, the Tribunal rejected both grounds advanced by the lower authorities. It held that shifting the claim from Section 35(2AB) to Sections 35(1)(i) and 32 did not constitute a new claim requiring a revised return, and that the research undertaken by the assessee, which was approved by DSIR clearly related to its business as defined under Section 43(4)(iii).
The Bench comprising B.M. Biyani (Accountant Member) and Paresh M. Joshi (Judicial Member) observed that the assessee was entitled to 100% deduction of revenue expenditure under Section 35(1)(i) and depreciation on capital expenditure under Section 32, even though the weighted deduction under Section 35(2AB) was not allowable for want of Form 3CL. However, since the factual verification of expenses was pending, the case was remanded to the Assessing Officer for examination and allowance of eligible claims.
Accordingly, the Tribunal ruled that the disallowance solely for non-filing of Form 3CL was not sustainable, remanding the matter to the Assessing Officer to verify the evidence and grant admissible deductions.
The assessee was represented by Pankaj Shah & Soumya Bomb, while Ashish Porwal appeared for the Revenue.
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