Income Tax Act | 35(2ab) Deduction Can't Be Denied For Failure Of Authority To Send Intimation: Gujarat High Court Upholds ITAT Decision In Schaeffler India Ltd's Tax Appeal

The decision came in response to an appeal filed by the Revenue against the order of the Income Tax Appellate Tribunal 'C' Bench, Ahmedabad, pertaining to the assessment year 2016-17.

As per Section 35(2AB) of the Income-tax Act, where a company is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing', incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development (R&D) facility as approved by the Department of Scientific and Industrial Research (DSIR), then, a sum equal to two times of the expenditure so incurred shall be allowed as weighted deduction.

Schaeffler India Ltd initially reported an income of Rs. 35,24,17,390/- for the 2016-17 assessment year. They later submitted a revised return, stating their income as Rs. 37,70,49,380/-. After a detailed review, the tax officer made a decision under sections 143(3) and 144C(3) of the Income Tax Act, setting the total income at Rs. 39,96,46,714/-.

The Principal Commissioner of Income Tax noticed that Schaeffler India Ltd had requested a deduction of Rs. 20,12,21,103 under Section 35(2AB) of the Income Tax Act for their Research and Development (R&D) facility. However, the company didn't provide the necessary proof, in the form of Form 3CL issued by the authorized body (DSIR, New Delhi), by the deadline for filing their income tax return.

The tax department (PCIT) reviewed a tax assessment where someone claimed a deduction under Section 35(2AB). The PCIT thought the deduction was not valid, so they used a legal power (Section 263) to ask for a re-evaluation by the tax officer.

The tax tribunal (ITAT) later looked at the case and disagreed with the tax department. The tribunal canceled the tax department's request, saying the tax officer had already asked the right questions about the deduction during the original assessment.

They mentioned that the Form 3CL, provided by the authorized body, was submitted by the taxpayer during the assessment process, even though it was after the assessment order had already been issued. They argued that the delay in receiving the notification shouldn't be a reason to reject the deduction.

According to the Tribunal's Order, the Court noted that during the original assessment, the assessee submitted a copy of the recognition of its in-house Research and Development (R&D) facility dated 25.08.2014.

The Court observed that, during the assessment proceedings, the assessee submitted the approval of its in-house R&D facility dated 07.10.2015 in Form 3CM for the computation of deduction under section 35(2AB) of the Act. Additionally, the assessee provided the auditor's certificate certifying the expenditure. However, Form 3CL, issued by the prescribed authority on 20.07.2021, was submitted by the assessee after the assessment order under section 143(3) of the Act had been passed, making it unavailable before the assessment order.

The division bench of Justices Biren Vaishnav and Mauna M Bhatt emphasized, “Further, Form 3CL was duly filed by the assessee during the course of assessment vide letter dated 09.10.2019. Therefore, since the assessee has filed Form 3CL certifying his Research and Development (R&D) facility approved by the prescribed authority in proper format, merely because the authority failed to send the intimation during the course of assessment proceedings could not be the reason for denying the claim deduction under section 35(2AB) of the Act. The ITAT in our opinion is correct in holding that the order of the A.O. is not erroneous and prejudicial to the interest of revenue."

In view of the above, the Court did not find any error of fact and law in the order of the Tribunal, and therefore dismissed the Tax Appeal since no substantial question of law was involved.

Appearance: Mr.Varun K.Patel, Senior Standing Counsel With Mr. Dev D. Patel, Advocate For The Appellant(S) No. 1 Mr B S Soparkar(6851) For The Opponent(S) No. 1

LL Citation: 2023 LiveLaw (Guj) 190

Case Title: The Principal Commissioner Of Income Tax 1, Ahmadabad Versus Jigar Jashwantlal Shah)

Case No.: R/Tax Appeal No. 80 Of 2023

Click Here To Read The Order / Judgement