TaxTMI 
TaxTMI 
2025 (11) TMI 400
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.... circumstances of the case and in law the learned CIT(A) erred in not allowing the deduction under section 35(2AB) of the Act amounting to Rs. 78,72,495 merely for non-furnishing of Form 3CL. He failed to appreciate and ought to have held that the requirement is mere directory and procedural in nature. The Appellant prays that the said disallowance of deduction under section 35(2AB) be directed to be deleted. 3. Without prejudice to Ground 1 above and on the facts and circumstances of the case and in law the learned CIT(A) erred in not allowing the normal deduction of such expenses under section 35(1) and 37(1) of the Act in respect of revenue expenditure incurred amounting to Rs. 24,79,955/-. The Appellant prays that deduction of expenses be directed to be allowed. 4. Without prejudice to Ground 1 above and on the facts and circumstances of the case and in law the learned CIT(A) erred in not allowing the capitalisation of disallowed capital expenditure claimed under section 35(2AB) of the Act. The Appellant prays that the disallowed capital Research and development expenses be capitalised and consequent depreciation be directed to be allowed. 5. On the f....
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....cience and Technology, Govt. of India [referred as "DSIR" in short] as required by sub-section (4) of section 35(2AB), although the assessee filed Form No. 3CM [the order of approval of research-project issued by DSIR] & Form No. 3CLA [the report of a CA] to AO. Ultimately, finding inability to arrange/furnish Form No. 3CL, the assessee made following submission vide reply-letter dated 15.03.2021 to AO; the assessee's letter is re-produced by AO in Para 2.5 of assessment-order reading as under: "With reference to the above, as brought to our knowledge vide the response by DSIR to the notice u/s 133(6) of the Income Tax Department, that the assessee company could not submit details/documents as per Section "C" of DSIR guidelines, for A.Y. 2018-19 (F.Y. 2017-18) by 31/10/2018 and therefore file could not be processed for issuing report in Form 3CL by DSIR to the Principal Chief Commissioner of Income tax or Chief Commissioner of Income Tax or Principal Director General of Income Tax or Director General of Income Tax having jurisdiction over the company and hence we seek to withdraw our claim of deduction u/s 35(2AB) of Rs. 78,72,495/- in accordance with the law, which was bo....
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....owledgement is enclosed herewith. And that the company assessee did actually had carried on the activities of Research & Development which is an essential & integral part to run this line of manufacturing business of producing products of chemicals, intermediates & gases etc. in which the company assessee is into. And also importantly the company assessee eventually co-operated with the income Tax department by promptly depositing the due taxes on being acknowledged." 5. Thus, through above letter, the assessee consented before AO to disallow the weighted deduction of Rs. 78,72,495/- claimed u/s 35(2AB) but simultaneously requested the AO to grant alternative claim of 100% deduction of revenue expenditure of Rs. 24,79,955/- and depreciation of Rs. 2,65,234/- on capital expenditure of Rs. 27,68,375/-. The assessee agreed for 'net disallowance' of Rs. 51,27,306/- [Rs. 78,72,495 (-) Rs. 24,79,955 (-) Rs. 2,65,234]; voluntarily paid differential tax and submitted challan to AO. However, the AO disallowed the deduction of Rs. 78,72,495/- in entirety without giving any benefit of alternative claim requested by assessee. The order passed by AO is re-produced below: ....
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....of Rs. 78,72,495/- is not allowable and is hereby disallowed and added to the total income of the assessee for the year under consideration. I am satisfied that the assessee committed a default as per the provision of section 270A(9)(a) of the act for misrepresentation or suppression of facts. Therefore, the penalty provision of section u/s 270A(9)(a) are initiated separately. [Disallowance of Rs. 78,72,495/-]" 6. During first appeal, the CIT(A) upheld AO's action by passing following order: "6.1 From the above discussion, it is clear that the appellant failed to produce supporting evidences for claim of expenditure incurred towards scientific research before the Secretary DSIR, Government of India. As a result, the Secretary DSIR, Government of India did not submit Form 3CL to the Director General (Income tax Exemption) and to the Principal Chief Commissioner of Income Tax. This fact is also admitted by the appellant. Therefore, the essential condition required for allowing deduction u/s 35(2AB) of the Act could not be met by the appellant. Thus, I do not find any reason to differ from the finding of Ld. AO. Ground of the appellant is dismissed. 7.0 Third, ....
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.... as the assessee had already made claim of deduction in the P&L A/c and return of income filed. The only problem was that the assessee claimed deduction u/s 35(2AB) but could not arrange/furnish Report of DSIR in Form No. 3CL as required by section 35(2AB). Consequently, there arose a necessity to deny weighted deduction of 150% u/s 35(2AB) but then the assessee becomes eligible to get 100% deduction u/s 35(1)(i) for revenue expenses and depreciation u/s 32 for capital expenses. Thus, the alternative claim arises due to shifting from section 35(2AB) to sections 35(1)(i)/32 and it is not a case of making a new or fresh claim before AO so that Goetz India will come in the way. Even otherwise, various courts have already analysed Goetze India and held that that Goetz India will apply to AO but not hamper appellate authority's power to accept and allow legal claims of assessee. Therefore, we reject the first reasoning given by AO. 10. The second reason given by AO is such that the expenditure was not incurred for business. To strengthen his observation, the AO has also mentioned ''to do a scientific research is not assessee's business". Therefore, Ld. AR was asked to give a detailed....
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....ejected the twin-reasons assigned by AO for denial of assessee's claim, we now proceed to examine whether or not the assessee's alternative claim of 100% deduction of revenue expenses u/s 35(1)(i) and depreciation u/s 32 is in order? 13. So far as the claim of revenue expenses u/s 35(1)(i) is concerned, we refer the provision of section reading as under: "35. Expenditure on scientific research: (1) In respect of expenditure on scientific research, the following deductions shall be allowed - (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business." We have already accepted in foregoing para that the research undertaken by assessee is related to business. There is no further condition of any report/certification of any authority for admissibility of deduction u/s 35(1)(i). Thus, in principle, we agree that the assessee is entitled to 100% deduction of revenue expenses u/s 35(1)(i). 14. Coming to the claim of depreciation u/s 32(1) for capital expenses, we refer the provision of section reading as under: "32. Depreciation: (1) In respect of depreciatio....