Reassessment beyond four years valid when assessee failed to furnish Form 3CL under section 35(2AB) for eligible expenditure deduction

ITAT Cochin held that reassessment proceedings beyond four years were maintainable where the assessee failed to furnish Form 3CL quantifying eligible expenditure under section 35(2AB). The assessee claimed higher deduction than approved by prescribed authority but did not disclose this variance to AO during original assessment. The Tribunal rejected the assessee's plea that Form 3CL was presumptively known to AO, finding no legal or factual support. The failure to disclose material facts regarding the variance between claimed and approved deduction constituted non-disclosure under section 147, justifying reassessment proceedings.

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Issues Involved:
1. Maintainability of reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. Obligation of the assessee to disclose Form 3CL during assessment proceedings.

Summary of Judgment:

1. Maintainability of Reassessment Proceedings:
The primary issue in the appeals was the maintainability of reassessment proceedings under section 147 read with sections 143(3) and 144C of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals)-1, Kochi (CIT(A)) found the reassessment proceedings to be not maintainable due to the assessee's true and full disclosure of all material facts necessary for assessment, precluding reassessment beyond four years from the end of the relevant assessment year.

2. Obligation to Disclose Form 3CL:
The CIT(A) held that the non-submission of Form 3CL by the assessee did not amount to non-disclosure of all material facts during the assessment proceedings. The assessee had submitted Form 3CM containing details of all expenses incurred for R&D to the Assessing Officer (AO). The scheme of Rule 6(7A) regarding Form 3CL is such that the appellant submits the form to the Competent Authority at DSIR, which then sends the report in Form 3CL to the Principal Chief Commissioner of Income Tax or other relevant authorities. The CIT(A) opined that it was not the duty or responsibility of the appellant to file Form 3CL before the AO during assessment proceedings. Since DSIR forwarded Form 3CL on 30.11.2011, before the date of reopening of assessment under section 147, it was the AO's duty to obtain the same from the competent authority.

3. Reassessment Beyond Four Years:
For AY 2009-10, the reassessment was beyond four years from the end of the relevant assessment year. The CIT(A) found that the disclosure by the assessee was true and full, thus rendering the reassessment proceedings invalid. However, for AY 2011-12, the reassessment was within four years, and the CIT(A)'s decision was found invalid for that year. The Revenue succeeded for AY 2011-12, and the matter was restored to the CIT(A) for deciding it on quantum on merits.

4. Legal Framework and Obligations:
The judgment emphasized that the power under section 147 is wide but not plenary. Assumption of jurisdiction under section 147 must be based on materials justifying the inference of income escapement. The law becomes stringent for reassessment beyond four years, requiring a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The judgment highlighted that the assessee's obligation is to disclose primary facts, not to guide the AO on possible inquiries or verifications.

5. Factual Analysis:
The Tribunal found an incorrect assumption of facts by the CIT(A) for AY 2009-10, as Form 3CM does not contain details of expenditure, which is the subject matter of Form 3CL. The non-furnishing of Form 3CL quantifying eligible expenditure was regarded as non-disclosure within the meaning of the proviso to section 147. The Tribunal held that the assessee did not meet the requirement of a true and full disclosure of all material facts necessary for assessment.

6. Case Law Consideration:
The Tribunal considered various case laws, including the assessee's own case for AY 2012-13, and found that each item of expenditure claimed under section 35(2AB) is to be examined by the AO during assessment. The Tribunal concluded that the assessee's conduct did not meet the requirement of true and full disclosure, and the reassessment for AY 2009-10 was justified.

7. Conclusion:
The Tribunal allowed the Revenue's appeals and the assessee's cross objections, directing the CIT(A) to adjudicate the quantum adjustments in assessment after hearing the parties. The judgment was pronounced on November 30, 2023.

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