Tribunal grants appeal, allows delay, directs deduction under Income Tax Act

The appeal was allowed by the Tribunal, which condoned the delay in filing the appeal and directed that the deduction under section 35(2AB) of the Income Tax Act be granted as claimed by the assessee.

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Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of deduction under section 35(2AB) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appeal was filed with a delay of 539 days. The assessee submitted affidavits from the former and current Finance Managers explaining that the delay occurred due to the former Finance Manager's resignation and the subsequent lack of follow-up. The delay was further exacerbated by the Covid-19 pandemic. The Tribunal found the reasons to be reasonable and sufficient, relying on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. ISRO Satellite Centre and the Hon'ble Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji & Others, which advocate for a liberal and practical approach in condoning delays. The Tribunal thus condoned the delay and proceeded to address the appeal on its merits.

2. Disallowance of Deduction under Section 35(2AB) of the Income Tax Act:

The core issue was whether the CIT(A) was justified in confirming the disallowance of Rs. 43,12,042 claimed as a deduction under section 35(2AB) of the Income Tax Act. The assessee, engaged in the business of herbal veterinary medicines, had claimed research and development expenses of Rs. 3,17,63,251, but the DSIR approved only Rs. 2,74,51,209 in Form No.3CL. Consequently, the Assessing Officer added back the difference of Rs. 43,12,042 to the assessee's income.

The CIT(A) upheld the Assessing Officer's decision, emphasizing that the DSIR's certification in Form 3CL is crucial for claiming deductions under section 35(2AB). The CIT(A) rejected the assessee's argument that all R&D expenses should be allowed once the facility is approved by the DSIR, stating that the DSIR's certification is essential for the authenticity of the R&D claims.

Upon appeal, the Tribunal noted that the DSIR is empowered to approve only the R&D facility, not the expenditure. The Tribunal referenced section 35(2AB)(1) and various judicial precedents, including the Bangalore Bench of the Tribunal in the cases of M/s. Mahindra Electric Mobility Ltd. v. ACIT and M/s. Indfrag Limited v. ACIT, which held that prior to the amendment on 01.07.2016, Form No.3CL had no legal sanctity. The Tribunal concluded that for the assessment year 2016-2017, the deduction should be allowed based on the expenditure recorded in the books of account, as the law applicable was before the amendment. The Tribunal found that the Assessing Officer had not disputed the correctness of the claimed expenditure. Therefore, the Tribunal directed that the deduction under section 35(2AB) be granted as claimed by the assessee, instead of being restricted to the amount mentioned in Form No.3CL by the DSIR.

Conclusion:

The appeal filed by the assessee was allowed. The Tribunal condoned the delay in filing the appeal and directed that the deduction under section 35(2AB) be granted as claimed by the assessee.

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