Case Law Details
Sri Rama Agri Genetics (India) Pvt. Ltd. Vs DCIT (ITAT Hyderabad)
Conclusion: A belated filing of Form 3CLA was a curable procedural defect and could not deprive an assessee of weighted deduction under section 35(2AB) where the substantive conditions for allowance of the deduction stand fulfilled. Technical lapses could not eclipse statutory benefits.
Held: Assessee-company engaged in production and marketing of genetically improved seeds claimed weighted deduction under section 35(2AB) amounting to ₹2.07 crore towards expenditure incurred on in-house scientific research and development. During scrutiny, AO noticed that though assessee possessed the requisite DSIR approvals and had furnished Forms 3CM and 3CL, the audit report in Form 3CLA had been uploaded on 11.07.2019, i.e., after the due date prescribed under section 139(1). Holding timely filing of Form 3CLA to be a mandatory precondition, AO disallowed the entire deduction. Assessee contended that the delay was inadvertent and arose due to the procedural change introduced by the Income-tax (Tenth Amendment) Rules, 2016, which required electronic filing of Form 3CLA with DSIR. Assessee argued that all substantive conditions prescribed under section 35(2AB) stood satisfied and the delayed filing of Form 3CLA constituted only a procedural lapse which could not defeat a substantive statutory benefit. It was submitted that the amended filing requirement had been introduced only recently and the delay was unintentional. Reliance was placed on the decisions in ACIT v. Raj Petro Specialties Pvt. Ltd. and Edgeverve Systems Ltd. v. ACIT. Revenue contended that furnishing Form 3CLA within the prescribed due date was a statutory condition under Rule 6 and non-compliance disentitled the assessee from claiming weighted deduction under section 35(2AB). It was held that where assessee had obtained approval of its in-house R&D facility and had otherwise complied with the substantive requirements of section 35(2AB), mere delay in furnishing Form 3CLA could not operate to deny the deduction. The requirement regarding timely filing of the audit report was procedural in nature and could not override the substantive entitlement granted by the statute. Hyper-technical interpretation leading to forfeiture of a legitimate deduction was impermissible, particularly when the delay arose in the immediate aftermath of a newly introduced electronic filing requirement.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee company is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 18/07/2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 143(3) r.w.s 143(3A) & 143(3B) of the Income Tax Act, 1961 (for short, “the Act”), dated 16/03/2021 for the Assessment Year (AY) 2017-18. The assessee company has assailed the impugned order of the CIT(A) on the following grounds of appeal:
“1. On the facts and in the circumstances of the case, the Id. NFAC erred in allowing the appeal only in part. The Id. NFAC ought to have allowed the appeal in entirety.
2. The Id. NFAC erred in not granting weighted deduction of 150% of the expenditure relating to inhouse scientific research and development facility of Rs.2,07,15,034 though the alternate prayer to allow 100% of such expenditure was acceded to subject to verification by the Id. AO.
3. The Id. NFAC failed to appreciate that delay in filing audit report is not the requirement of law and is introduced only by way Rule, and therefore is only directory. At any rate, the Id. NFAC and so also the Id. AO failed to appreciate that when once the appropriate authority in Department of Scientific Research quantifies the eligible deduction in FORM 3CL then, and the Revenue has no authority to go deny the same.
4. The Id. NFAC erred in sustaining the addition of Rs.3,33,200 in respect of cash deposits in the bank account, on the alleged of not furnishing relevant details.
5. The Id. NFAC erred in sustaining the addition of Rs.3,81,54,765 being the advance given to suppliers. The authorities below failed to appreciate that the said advances after supplies are made to the Appellant were later offered as purchases in the subsequent year. Without prejudice to the above, the authorities below failed to appreciate that the purchases were accepted in the next year, and therefore the advances to suppliers in the current previous year could not have been treated as unexplained and added to the income.
(Tax Effect: Rs. 5,92,02,999/-)
For these and other grounds that may be urged at the time of hearing, it is prayed that the appeal may be allowed.”
2. Succinctly stated, the assessee company, which is engaged in the business of production and marketing of genetically improved seeds throughout India, filed its return of income for the AY 2017-18 on 26/10/2018, declaring an income of Rs. 32,35,150/-. Subsequently, the case of the assessee company was selected for scrutiny assessment under CASS to verify the “deduction on account of donation for scientific research”, and a notice under section 143(2) of the Act, dated 29/09/2019, was issued and served upon the assessee company.
3. During the course of the assessment proceedings, the AO observed that the assessee company had claimed a deduction under section 35(2AB) of the Act of Rs. 2,07,15,034/-. On being queried, the assessee company submitted certain details, viz., a copy of Form-3CL issued by DSIR, New Delhi, in the course of the proceedings before them.
4. The AO after deliberating upon the provisions of section 35(2AB) of the Act r.w Rule 6 of the Income Tax Rules, 1962, which contemplates allowing of weighted deduction in respect of revenue and capital expenditure made by the assessee company towards scientific research & development subject to satisfaction of stipulated conditions, observed that the same therein provided, viz., (A) the assessee company was required to file an application for approval of its In-house research and development facility with the prescribed authority i.e., the Department of Scientific and Industrial Research (DSIR) in Form No.3CK; and that the prescribed authority shall, if it is satisfied that the conditions provided in sub-section (2AB) of section 35 of the Act r.w Rule 6 of the Income Tax Rules, 1962 are fulfilled, pass an order in writing in Form No.3CM; (B) that the assessee company shall maintain a separate account for each approval facility, which shall be audited annually and a report of audit in Form No.3CLA shall be furnished electronically to the Secretary, Department of Scientific and Industrial Research on or before the “due date” specified in “Explantion-2” to sub-section (1) of section 139 of the Act for furnishing the return of income, for each succeeding year; (C). that the prescribed authority shall electronically furnish its report, viz., (i) in relation to the approval of In-house and development facility in Part A of Form No.3CL; and (ii) quantify the expenditure incurred on In-house research and development facility by the assessee company during the previous year eligible for weighted deduction under sub-section (2AB) of section 35 of the Act in Part B of Form No.3CL, and shall electronically furnish the report in Form No.3CL 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 assessee company within 120 days of the grant of the approval, in a case referred to in sub-clause (i) of clause (b); or submission of the audit report, in a case referred to in sub-clause (ii) of clause (b);
5. The AO observed that a perusal of the record revealed that the assessee company had uploaded the audit report required to be furnished under section 35(2AB) of the Act, relating to its in-house scientific research and development facility in Form No.3CLA, on 11/07/2019, i.e., after the “due date” of filing of its return of income under Section 139(1) of the Act.
6. The AO based on the aforesaid facts issued notice under section 142(1) of the Act, dated 09/02/2021, wherein the assessee company was called upon to explain, viz., that as per section 35(2AB) of the Act r.w Rule 6 of the Income Tax Rules, 1962 it remained under a statutory obligation to electronically furnish the audit report in Form No.3CLA on or before the “due date” specified in “Explantion-2” to section 139(1) of the Act for furnishing the return of income, but the same was uploaded in its case on 11/07/2019, i.e., beyond the prescribed period. In reply, the assessee company, vide its letter dated 09/03/2021, submitted that, as it had filed Form No. 3CL, Form No. 3CM, and an annually audited report in Form No. 3CLA, which inadvertently involved some delay, the deduction under section 35(2AB) may not be disallowed.
7. The AO considered the reply of the assessee company in the backdrop of the facts, and did not find favor with the same. It was observed that as the assessee company had failed to comply with the statutory obligation of filing the audit report in Form No.3CLA within the “due date” of filing of its return of income under section 139(1) of the Act, a pre-condition to claim weighted deduction under section 35(2AB) of the Act r.w Rule 6 of the Income Tax Rules, 1962, therefore, the said claim for weighted deduction of Rs.2,07,15,034/- could not be accepted.
8. As is discernible from the assessment order, the AO further observed that the assessee company during the subject year had made cash deposits of Rs. 3,33,200/- totaling Rs. 6,66,400/- in its two bank accounts, viz., HDFC Bank account No.07422790000108 and 07422320000206 with Kurnool Branch. The assessee company submitted before the AO that the subject cash deposit of Rs. 3,33,200/-was made only in the bank account No. 07422790000108 with HDFC Bank. As regards the source of the cash deposits, the assessee company claimed that they were sourced from its sale proceeds.
9. Although the AO accepted the claim of the assessee company that the subject cash deposit of Rs. 3.33 lakhs (approx.) was made during the subject year only in the HDFC Bank account No. 07422790000108 (supra), but in the absence of any material available on record to substantiate its claim that the said cash deposit was sourced from the sale proceeds, he rejected the same. Accordingly, the AO, based on his aforesaid observations, held that the cash deposits of Rs. 3.33 lakhs (supra) made in the above-mentioned bank account of the assessee company were sourced from its unexplained money under section 69A of the Act.
10. Also, the AO, while framing the assessment, observed that the assessee company during the subject year was in receipt of advances of Rs. 10,61,31,002/-. On being queried, the assessee company claimed that the amounts were booking advances received from its dealers and distributors, which were, in turn, adjusted against the sales made to the said parties in subsequent years. Also, the assessee company, to substantiate its claim, had filed with the AO the PANs, addresses, amounts, and nature of the contracts with the parties, etc. However, the AO observing that the assessee company failed to place on record the PANs and addresses of the majority of the parties, thus, held the entire amount of Rs. 10.61 crores (approx.) as unexplained cash deposits under section 68 of the Act.
11. As is discernible from the assessment order, we find that the AO observed that the assessee company had, during the year under consideration, given advances/loans aggregating to Rs. 4,97,63,167/-, viz., (i). loans to related parties: Rs.1,16,08,402/-; and (ii) advances to suppliers: Rs. 3,81,54,765/-. The AO called upon the assessee company to prove the identity, creditworthiness, and genuineness of all loans and advances made during the year under consideration, and also to place on record the confirmation letters and income tax returns of all the said parties. In response, the assessee company uploaded a sheet containing only names and amounts of loans and advances of Rs. 1,21,72,162/-. The AO observed that as the assessee company had failed to place on record the requisite details, i.e., PANs, addresses, assessment year in which such advances had been offered to tax, and details of the contract/sale against which revenue was received; the genuineness of the advances could not be proved. Thereafter, the AO vide his “Show Cause Notice” (SCN), duly incorporated the draft assessment order, dated 08/03/2021, and called upon the assessee company to furnish its reply as to why the aforementioned amounts may not be added under section 69B of the Act. In response, the assessee company filed its reply, dated 09/03/2021. However, the AO did not find merit in the explanation of the assessee company and holding a conviction that it had failed to place on record the requisite details, i.e., PAN of the parties, addresses, details of interest rate, interest amount, mode of payments, purpose of advance and the details about the relationship with the parties, held the entire amount of the loans and advances of Rs. 4,97,63,167/- as its unexplained investment under section 69B of the Act.
12. Thereafter, the AO vide his order passed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act, dated 16/03/2021, determined the income of the assessee company at Rs. 18,01,77,553/-.
13. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). Although the CIT(A) vacated certain additions made by the AO, viz., (i) addition under section 68 of the Act: Rs.10,61,31,002/-; and (ii) addition made under section 69B in respect of loans given to related parties: Rs.1,16,08,402/-, but upheld the remaining additions/disallowances made by the AO.
14. The assessee company, aggrieved with the order of the CIT(A) to the extent he has sustained the additions/disallowances made by the AO, has carried the matter in appeal before us.
15. We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
16. Shri AV Raghuram, Advocate, Learned Authorized Representative (for short, “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal submitted that both the authorities below had grossly erred in law and facts of the case in declining the assessee’s claim for weighted deduction under section 35(2AB) of the Act.
17. Elaborating on his contention, the Ld. AR submitted that as the assessee company which had incurred the subject expenditure towards scientific research, and in substance satisfied the conditions stipulated in section 35(2AB) of the Act, had been declined the claim for deduction only for the reason that it had not furnished the audit report in Form No.3CLA by the “due date” of filing of its return of income for the subject year. The Ld.AR submitted that the requirement of electronically filing of audit report in Form No.3CLA with the Secretary, Department of Scientific and Industrial Research (DSIR) on or before the “due date” specified in “Explanation-2” of sub-section (1) of section 139 of the Act for furnishing the return of income, for each succeeding year, has recently been made available in the statute under Rule 6 of the Income Tax Rules, 1962 vide the Income Tax (Tenth amendment) Rules, 2016, w.e.f. 01/07/2016. Elaborating further on his contention, the Ld. AR submitted that prior to the aforesaid amendment, i.e, earlier to 01/07/2016, the assessee company was required to maintain a separate account for each approved facility, which was required to be audited annually and a copy thereof furnished with the Secretary, DSIR by the 31st day of October of each succeeding year. The Ld. AR submitted that as the aforesaid amendment, wherein an obligation has been cast upon the assessee company to electronically furnish a report of audit in Form-3CLA with the Secretary, DSIR on or before the “due date” specified in “Explanation-2” to sub-section (1) to section 139 of the Act for furnishing the return of income, has been made available on the statute only in the recent past w.e.f 01/07/2016, ie., in the year immediately preceding the year under consideration, the assessee company not being fully conversant and abreast of the changed procedural requirement had inadvertently delayed the furnishing of the report in Form No.3CLA within the prescribed time frame. The Ld. AR submitted that, now that the substantive provisions for claiming a deduction under section 35(2AB) have been satisfied by the assessee company, the claim for deduction under the said statutory provision could not have been declined on hyper-technical grounds. It was submitted that as the delay in filing of the Form No.3CLA was a procedural lapse and not a non-application of statutory obligation, therefore, the assessee company could not be divested of its statutory right for deduction under section 35(2AB) of the Act. The Ld. AR to buttress his contention had relied upon the order of the ITAT, Mumbai in Assistant Commissioner of Income Tax vs. Raj Petro Specialties Pvt. Ltd., in ITA No.5328/Mum/2024, dated 28/02/2025, and the order of the ITAT, Bangalore in Edgeverve Systems Ltd. vs. Assistant Commissioner of Income Tax (2026) 240 TTJ (Bang) 490.
18. Apropos the addition made by the AO under section 69A of the Act towards unexplained cash deposits of Rs.3,33,200/-, the Ld. AR failed to provide any explanation, let alone documentary evidence, to substantiate the nature and source of the subject cash deposits.
19. Coming to the addition of the amounts advanced by the assessee company to suppliers aggregating to Rs.3,81,54,765/-, which the AO had added under section 69B of the Act, and the said addition was thereafter sustained by the CIT(A), the Ld. AR submitted that both the authorities below had grossly erred in law and the facts of the case in making/sustaining the impugned addition. Elaborating on his contention, the Ld. AR submitted that, as it was the case where the assessee company had given advances to its suppliers from its regular books of accounts, there was no justification for the AO to have treated the same as a suppressed investment under section 69B of the Act.
20. Coming to the merits of the addition made by the AO under section 69B of the Act, the Ld. AR submitted that the assessee company had advanced the amounts to its suppliers for the purchase of seeds made in the immediately succeeding year; therefore, by no means any adverse inference regarding the nature of the transactions, much less any addition was liable to be drawn in its case.The Ld. AR had drawn our attention to the ledger extracts of advances paid to the suppliers during the subject year, which thereafter were stated to have been adjusted against the purchases made from the said respective parties in the immediately succeeding year. The Ld. AR had specifically drawn our attention to the group summary of the advances to suppliers for the year under consideration, i.e., Financial Year (FY) 2017-18 and the immediately succeeding year, Pages 1143 to 1145 of APB. The Ld. AR based on a conjoint reading of the ledger accounts of the suppliers a/w the group summary of advances to the suppliers for FY 2017-18 and FY 2018-19 submitted that the same revealed beyond doubt that the advances aggregating to Rs. 3,81,54,765/-, Pages 1143 to 1145/Column-5/6 were adjusted against the purchases made by the assessee company from the respective suppliers during the immediately succeeding year, i.e., in the period relevant to AY 2019-20. The Ld. AR submitted that as the amounts advanced to the suppliers of the assessee company during the subject year aggregating to Rs.3.81 crores (approx.) were duly accounted for in its books of account for the year under consideration, which thereafter had been adjusted against the purchases made from the respective parties in the succeeding year, the AO could not have drawn any adverse inferences qua the said trade advances given by the assessee company, much the less added the same as suppressed investments in the hands of the assessee company under section 69B of the Act.
22. Per contra, Dr. Sachin Kumar, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”), relied upon the orders of the authorities below. The Ld. Sr-DR at the threshold of hearing of the appeal submitted that as the assessee company had failed to comply with the statutory requirement of electronically filing the audit report in Form No.3CLA within the “due date” of filing of its return of income for the year under consideration, a pre-condition for claim of deduction under section 35(2AB) of the Act, the AO had rightly declined to allow the said claim for deduction. The Ld. Sr-DR to support his contention had drawn our attention to section 35(2AB) of the Act. Also, the Ld. Sr-DR had pressed into service the order of the ITAT, Mumbai in the case of PCP Chemicals Private Limited vs. ITO, 8(2)(4), Mumbai (2017) 88 taxmann.com 5 (Mumbai), wherein it is held that for claiming weighted deduction under section 35(2AB) of the Act, approval of R&D facility by the competent authority in prescribed form is mandatory. Also, the Ld. DR had relied upon the judgment of the Hon’ble Supreme Court in the case of Apollo Tyres Ltd. vs. ACIT, [2025] 178 taxmann.com 659 (SC), wherein approving the order of the Hon’ble High Court of Kerala, it was observed that as the assessee company before them had entered into an agreement with DSIR as per the provisions of section 35(2AB) of the Act, on 20/08/2008, it was not entitled for claiming weighted deduction for AY 2006-07 and AY 2007-08, i.e., the preceding years. Further, reliance was placed upon the order of the ITAT, Mumbai in FDC Ltd. Vs. Principal Commissioner of Income-tax (2023) 157 taxmann. corn 387 (Mumbai – Trib.), wherein it is, inter alia, observed that allowing deduction under section 35(2AB) of the Act without obtaining Form No.3CL was erroneous and prejudicial to the interest of revenue under section 263 of the Act.
23. Coming to the addition of unexplained cash deposits made under section 69A of the Act of Rs.3,33,200/-, the Ld. Sr-DR submitted that as the assessee company till date had failed to substantiate its explanation that the subject cash deposits were sourced from the sale proceeds of its business, the authorities below had rightly made/sustained the impugned addition.
24. Apropos the advances given by the assessee company to its suppliers aggregating to Rs.3.81 crores (supra), which the AO had added under section 69B of the Act, the Ld. Sr-DR relied upon the orders of the authorities below.
25. We have heard the Learned Authorized Representatives of both parties, and perused the orders of the authorities below.
26. We shall first deal with the core issue involved in the present appeal, i.e., as to whether the assessee company, despite delayed furnishing of audit report in Form No.3CLA, i.e., beyond the timeline prescribed under Rule 6(7A)(c) of the Income Tax Rules, 1962 r.w “Explanation 2” to section 139(1) of the Act, would still be entitled for weighted deduction under section 35(2AB) of the Act, where such report had admittedly been furnished before the prescribed authority during the course of assessment proceedings and had thereafter culminated into issuance of Form No.3CL by the Department of Scientific and Industrial Research (DSIR) quantifying the eligible expenditure.
27. As is discernible from the record, the assessee company had claimed a weighted deduction under section 35(2AB) of the Act of Rs.2,07,15,034/- in respect of the expenditure it had incurred towards its approved in-house scientific research and development facility.
28. As observed hereinabove, the AO had declined the aforesaid claim for weighted deduction for the reason that though the assessee company had ultimately furnished the audit report in Form No.3CLA before DSIR, but the same was electronically uploaded on 11/07/2019, i.e., beyond the “due date” prescribed under Rule 6(7A)(c) r.w “Explanation 2” to Section 139(1) of the Act.
29. We find on a perusal of the assessment record that the AO was of the view that as Sub-section (3) of Section 35(2AB) of the Act specifically contemplated that no company shall be entitled for deduction unless it fulfils the prescribed conditions regarding maintenance of accounts, audit thereof and furnishing of reports in the prescribed manner; therefore, the delayed furnishing of Form No.3CLA constituted failure of a mandatory statutory condition disentitling the assessee company from claiming the weighted deduction.
30. We find that the CIT(A) concurred with the aforesaid view of the AO, and upheld the disallowance of the weighted deduction claimed by the assessee company under Section 35(2AB) of the Act.
31. Before us, the Ld. AR has vehemently assailed the aforesaid view of the lower authorities on the ground that the assessee company had duly complied with all substantive conditions contemplated under section 35(2AB) of the Act, viz. (i). the assessee company had entered into the requisite agreement with DSIR;(ii) the in-house R&D facility stood duly approved in Form No.3CM;(iii) separate books of account had been maintained; (iv) the accounts had been duly audited; (v) audit report in Form No.3CLA had ultimately been furnished before DSIR; and (vi) DSIR thereafter issued Form No.3CL quantifying the eligible expenditure. It was submitted by the Ld. AR that the only lapse attributable to the assessee company was that it had delayed furnishing of Form No.3CLA within the prescribed timeline, and not the complete absence of compliance. It was further submitted that once the prescribed authority itself had accepted the audit report and issued Form No. 3CL quantifying the eligible expenditure, the AO could not independently hold that the assessee company was disentitled to claim a weighted deduction under section 35(2AB) of the Act.
32. On the other hand, the Ld. Sr. DR had strongly relied upon Sub-section (3) of Section 35(2AB) of the Act and submitted that the language employed therein is mandatory and prohibitive in nature. It was submitted that once the statute itself provides that “no company shall be entitled for deduction….” unless the prescribed conditions regarding audit and furnishing of reports are fulfilled, then delayed furnishing of Form No.3CLA, i.e., beyond the “due date” prescribed under Rule 6(7A)(b), would amount to non-fulfilment of mandatory statutory conditions disentitling the assessee company from claiming weighted deduction.
33. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both parties perused the record in the backdrop of the statutory provisions, as well as considered the judicial pronouncements pressed into service by them to drive home their respective contentions.
34. Before proceeding further, we deem it apposite to cull out section 35(2AB)(3) of the Act, which reads as under:
[(2AB) (1) Where a company engaged in the business of 80[bio-technology or in [any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule]] 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 facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to $5 [one and one-half] times of the expenditure so incurred: 30 [Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assess-ment year beginning on or after the 1st day of April, 2021. the deduction under this clause shall be equal to the expenditure so incurred.] 87[Explanation. For the purposes of this clause, “expenditure on scientific research”, in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).]
(2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act.
(3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for cooperation in such research and development facility and [fulfils such conditions with regard to maintenance of accounts and audit thereof and furnishing of reports in such manner as may be prescribed].
(4) The prescribed authority shall submit its report in relation to the approval of the said facility to the [Principal Chief Commissioner or Chief Commissioner or] [Principal Director General or] Director General in such form and time as may be prescribed.]
(5)
[(6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008.]
35. A plain reading of the aforesaid provision reveals that entitlement to weighted deduction under section 35(2AB) is conditional upon fulfillment of the prescribed conditions, viz., (i) maintenance of accounts;(ii) audit thereof; and (iii) furnishing of reports. Rule 6(7A) of the Income Tax Rules, 1962 operationalizes the aforesaid statutory prescription and, inter alia, provides that the assessee company shall electronically furnish the audit report in Form No.3CLA before DSIR on or before the “due date” specified under “Explanation 2” to section 139(1) of the Act. Thus, there can be no dispute with the proposition canvassed by the Revenue that furnishing of “Form No.3CLA” within the prescribed time frame forms part of the statutory scheme and is a precondition contemplated under section 35(2AB)(3) read with Rule 6(7A) of the Income-tax Rules, 1962.
36. However, the short controversy involved in the present appeal before us lies in a narrow compass, i.e., as to whether delayed furnishing of Form No.3CLA before the prescribed authority, which thereafter stood accepted by DSIR culminating in issuance of Form No.3CL quantifying the eligible expenditure, would still amount to non-fulfilment of the statutory conditions contemplated under section 35(2AB)(3) of the Act?
37. In our considered view, the aforesaid question is liable to be answered in the negative. We say so for the reason that the present case is not one involving a complete absence of compliance with the statutory requirements contemplated under section 35(2AB)(3). It is not the Revenue’s case before us viz., (i) the assessee company had not entered into an agreement with DSIR; or (ii). the in-house R&D facility lacked approval in Form No.3CM; or (iii) separate books of account were not maintained; or(iv) accounts were not audited; or (v) Form No.3CLA was never furnished before the prescribed authority. Rather, the admitted factual position borne out from the record is that the assessee company ultimately furnished Form No. 3CLA before the DSIR during the course of proceedings, and the prescribed authority, after considering the same, issued Form No. 3CL quantifying the eligible expenditure. Thus, the controversy before us is not one of noncompliance, but of delayed compliance.
38. We are not oblivious of the fact that section 35(2AB)(3) employs mandatory phraseology by providing that “no company shall be entitled for deduction……. ” unless the prescribed conditions are fulfilled. We are further conscious of the fact that Rule 6(7A)(c) specifically prescribes furnishing of Form No.3CLA before the “due date” contemplated under “Explanation 2” to section 139(1) of the Act. However, in our considered view, once the prescribed authority itself had accepted the audit report furnished by the assessee company and thereafter acted upon the same by issuing Form No.3CL quantifying the eligible expenditure, then it cannot be held that the statutory conditions contemplated under section 35(2AB)(3) remained unfulfilled. We say so because the prescribed authority itself, despite the delayed furnishing of Form No. 3CLA, did not reject it as invalid or non est in law. Rather, DSIR accepted the report, processed it, and quantified the eligible expenditure in Form No. 3CL. Thus, the prescribed authority, i.e., DSIR, had itself acted upon and treated the audit report furnished by the assessee company in Form 3CLA, though delayed, as sufficient for the purposes of Section 35(2AB) of the Act.
39. In our considered view, once the authority statutorily entrusted with examining fulfillment of the prescribed conditions had itself acted upon the audit report filed by the assessee company in Form 3CLA and quantified the eligible expenditure, then the AO could not independently hold that the assessee company remained disentitled from claiming weighted deduction merely because the audit report was not furnished within the prescribed timeline with the prescribed authority.
40. At this juncture, we may now advert to the judicial pronouncements relied upon by the Ld. Authorized Representatives of both parties to drive home their respective contentions. The Hon’ble Supreme Court in CIT, Maharashtra vs. G.M. Knitting Industries (P) Ltd. & Ors. (2016) 71 taxmann.com 35 (SC), has held that where the audit report, though not furnished along with the return of income, was filed during the course of assessment proceedings, the assessee company could not be denied the deduction merely on account of the delayed furnishing of the report. In the said case, the assessee company which for claiming deduction under Section 80IB of the Act was as per Section 80IB(13) r.w Section 80IA(7) mandatorily required to get the accounts of the eligible undertaking audited by an accountant, as defined in the “Explanation” below sub-section (2) of Section 288 of the Act, and furnish, alongwith its return of income the report of such audit in the prescribed form, i.e., Form No. 1 OCCB, duly signed and verified by such accountant, had not filed the said report/certificate in Form 10CCB alongwith its return of income, but had filed the same before the final assessment order made. On appeal, before the Hon’ble High Court of Madras in CIT Vs. In AKS Alloys (P) Ltd. (2012) 18 taxmann.com 25 (Mad), it was observed that for claiming a deduction under Section 80IB of the Act, an audit report in Form 10CCB can be filed before the assessment is completed, if it has not been filed along with the return of income. On further appeal, the Hon’ble Supreme Court affirmed the order of the High Court. The Hon’ble Apex Court therein recognized the doctrine of substantial compliance insofar as procedural prescriptions relating to the filing of reports are concerned. A similar view has been taken by the Hon’ble High Court of Bombay in CIT vs. Shivanand Electronics (1994) 75 taxmann.com 93 (Bom), wherein it was observed that filing of an audit report before completion of assessment proceedings would constitute sufficient compliance, and deduction cannot be denied merely because the report was not furnished within the prescribed timeline. Likewise, the Hon’ble High Court of Madras in CIT vs. AKS Alloys (P) Ltd. (2012) 18 taxmann.com 25 (Madaras) [which thereafter has been approved by the Hon’ble Supreme Court CIT, Maharashtra vs. G.M. Knitting Industries (P) Ltd. (2016) 71 taxmann.com 35 (SC)], has held that procedural delay in furnishing an audit report cannot defeat substantive deduction where the report had been furnished before completion of assessment proceedings. We find that the principle emerging from the aforesaid judicial pronouncements is that where substantive eligibility conditions stand fulfilled and prescribed audit reports are ultimately furnished during the course of assessment proceedings, procedural delay by itself would not defeat the claim for deduction.
41. We may herein observe that the aforesaid principle assumes greater significance in the present case because the prescribed authority itself had accepted the delayed audit report filed by the assessee company in Form No.3CLA, and thereafter issued Form No.3CL quantifying the eligible expenditure.
42. We further find support from the judgment of the Hon’ble High Court of Gujarat in Commissioner of Income Tax vs. Claris Lifesciences Ltd. (2008) 174 Taxman 113 (Gujarat), wherein it is observed that once the DSIR approves the facility, the Revenue authorities cannot curtail the benefit otherwise available under section 35(2AB). Also, a similar view has been taken by the Hon’ble High Court of Delhi in Commissioner of Income Tax vs. Sandan Vikas (India) Ltd. (2012) 22 com 19 (Delhi) and by the Hon’ble High Court of Karnataka in Tejas Networks Ltd. vs. Deputy Commissioner of Income Tax (2015) 60 taxmann.com 309 (Kar), wherein it was observed that once the prescribed authority grants approval and certifies the expenditure, the role of the AO becomes confined and the Revenue authorities cannot sit in judgment over the satisfaction arrived at by DSIR. Also, we find that the Coordinate Bench of the Tribunal in Asst. Commissioner of Income Tax vs. Raj Petro Specialties Pvt. Ltd., ITA No. 5328/Mum/2024, dated 28/02/2025. after analyzing section 35(2AB) read with Rule 6, had held that the delayed furnishing of Form No.3CLA, which was ultimately accepted by DSIR, culminating in the issuance of Form No.3CL, would not disentitle the assessee from claiming weighted deduction under section 35(2AB). A similar view has also been taken by the ITAT, Bangalore, in Edgeverve Systems Ltd. vs. Assistant Commissioner of Income Tax, (2026) 240 TTJ (Bang) 490.
43. Coming to the judicial pronouncements relied upon by the Ld. Sr. DR, we find that the same being distinguishable on facts will not advance the case of the revenue before us. We may herein observe that reliance placed by the Revenue on the judgment of the Hon’ble Supreme Court in Apollo Tyres Ltd. vs. ACIT (2025) 178 taxman.com 659 (SC) is distinguishable on facts. In the said case, the assessee company lacked the foundational substantive eligibility, inasmuch as approval/agreement with the DSIR was absent during the relevant assessment years. Thus, the issue involved the absence of substantive statutory eligibility, not delayed procedural compliance. Likewise, reliance placed on the orders of the ITAT, Mumbai in PCP Chemicals Private Limited vs. ITO (2017) 88 taxmann.com 5 (Mumbai) and FDC Ltd. vs. Principal Commissioner of Income-tax (2023) 157 taxmann.com 387 (Mumbai) are also distinguishable on the facts, as the controversy therein pertained to the absence of the requisite approval/certification itself.
44. We thus, in the backdrop of our aforesaid deliberations, are of the considered view that though section 35(2AB)(3) r.w Rule 6(7A) mandates furnishing of Form No.3CLA within the prescribed timeline, however, where the assessee company had admittedly furnished the said report before the prescribed authority during the course of assessment proceedings and the DSIR, after considering the same, had issued Form No.3CL quantifying eligible expenditure during the pendency of the assessment proceedings, then the statutory conditions contemplated under Sub-section (3) of Section 35(2AB) r.w. Rule 6 is to be held to have been substantially fulfilled.
45. In our considered view, once the prescribed authority itself had accepted the audit report filed by the assessee company in Form 3CLA and acted upon the same, the AO could not independently treat the assessee company as disentitled from claiming weighted deduction merely because the report was furnished belatedly.
46. We thus, respectfully following the judicial pronouncements discussed hereinabove and applying the doctrine of substantial compliance to the peculiar facts involved in the present case, vacate the order of the CIT(A) to the aforesaid extent and direct the AO to allow weighted deduction under section 35(2AB) of the Act amounting to Rs.2,07,15,034/-, as claimed by the assessee company.
47. Ground Nos. 1 to 3 are allowed in terms of our aforesaid observations.
48. Apropos the addition of the cash deposits of Rs.3,33,200/- made by the assessee company during the subject year in its HDFC Bank account No. 07422790000108, we find that it is a matter of fact borne from the record that the assessee company, on being queried about the source of the said amount, had submitted that the same was made out of the sale proceeds of its business. However, we find that the assessee company failed to substantiate its aforesaid explanation despite being directed by the AO. In our view, as the assessee company had failed to place on record any material which would irrefutably substantiate its explanation regarding the source of the cash deposits made in its bank account during the year under consideration, the AO has rightly held the same as having been sourced out of its unexplained money under section 69A of the Act. We thus find no infirmity in the view taken by the CIT(A), who had rightly sustained the said addition, and uphold the same. The Ground of appeal No.4 is dismissed.
49. We shall now take up the grievance of the assessee company that the CIT(A) had grossly erred in law and facts of the case in sustaining the addition of Rs. 3,81,54,765/- under section 69B of the Act. As observed by us above, the AO, while framing the assessment, observed that the assessee company during the subject year had disclosed “advances to suppliers” of Rs. 3,81,54,765/-. On being queried, the assessee company claimed that the subject amounts were advances given to the suppliers, which were adjusted in their running accounts against the purchases made from them in the succeeding year. Ostensibly, the AO had rejected the claim of the assessee company for the reason that it had failed to furnish the details of PANs, addresses, and the assessment year in which such advances had been offered for taxation, as well as the details of the contract/sale against which revenue was received, which, thus, revealed that the genuineness of the advances made by the assessee could not be proved. Accordingly, the AO, based on his aforesaid observations, had made the addition of Rs. 3,81,54,765/- under section 69B of the Act.
50. On appeal, we find that though it was the claim of the assessee company that the subject amounts were the advances given to the suppliers in their running accounts in the course of its business and the same were adjusted against the purchase of seeds made from them in the immediately succeeding year, but the same did not find favor with him. Ostensibly, the assessee company had also submitted copies of the ledger accounts of advances to suppliers and, to support the veracity of the transactions, had stated that the respective transactions were carried out through the banking channel; however, the CIT (A) did not find this satisfactory. Accordingly, the CIT(A) finding no infirmity in the view taken by the AO had upheld the addition of Rs. 3,81,54,765/- made by him under section 69B of the Act.
51. We have given thoughtful consideration to the subject issue before us, i.e., the advances given by the assessee company to its suppliers, which had been added by the AO as an investment, not fully disclosed in the books of account under section 69B of the Act. We are unable to comprehend on what basis the AO has brought the amounts advanced by the assessee company through the banking channel from its regular books of accounts to the suppliers within the meaning of section 69B of the Act.
52. Before proceeding further, we deem it apposite to cull out section 69B of the Act, as under:
“69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the [Assessing] Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.]”
53. Ostensibly, section 69B of the Act contemplates that where an assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the AO finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the AO, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year. Undeniably, section 69B of the Act would, inter alia, get triggered where the investment made by the assessee exceeds the amount recorded in the books of account maintained by him for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the AO, satisfactory, that the said excess amount may be deemed to be the income of the assessee for such financial year.
54. We are unable to fathom how this can be so, when the assessee had advanced amounts aggregating to Rs. 3,81,54,765/- through the banking channel from its books of account to the suppliers; by what means, then, has the AO brought this amount within the meaning of section 69B of the Act? Apart from that, we find that the CIT(A) had, in a stereotypical manner, merely endorsed the view taken by the AO. In our view, as it is not a case that the assessee had suppressed any investment or is found to be the owner of any bullion, jewellery or other valuable article, and such investments or amount expended in acquiring such bullion, jewellery or other article exceeds the amount recorded in its books of accounts, there could have been no justification for the authorities below to have made/sustained the impugned addition under section 69B of the Act.
55. Be that as it may, we are even otherwise on merits unable to subscribe to the impugned addition made by the AO. We say so, for the reason that as the assessee company had advanced the amounts to its suppliers, i.e., as trade advances; therefore, it is incomprehensible that on what basis the AO could have drawn adverse inferences by observing that the assessee company had failed to prove the identity, creditworthiness, and genuineness of the advances given during the subject year. In our view, as it is not a case of cash credit in the books of account of the assessee company which would call for looking into the identity and creditworthiness of the creditor, and the genuineness of the transaction, but rather a case of outflow of funds from the regular books of account of the assessee company, we find it incomprehensible as to on what basis the impugned addition has been made in the hands of the assessee company. We find that it is a case where the assessee company had transferred the amounts to certain parties, i.e., suppliers of goods from whom it had made purchases in the succeeding year. We will mince no words, observing that it is beyond our understanding how the amounts advanced by the assessee company to the suppliers were added by the AO as a suppressed investment under section 69B of the Act.
56. At this juncture, we may further observe that the Ld. AR to buttress his claim that the subject amounts aggregating to Rs.3.81 crores (supra) advanced by the assessee company to its suppliers were thereafter adjusted against the purchases of seeds from the respective parties in the succeeding year, had placed on record a “summary of advances to the suppliers for the period relevant to the AY 2018-19 and AY 2019-20”, which reveals that the amounts so advanced during the subject year were adjusted against the purchases made in the running accounts of the said suppliers in the immediately succeeding year, i.e., the period relevant to AY 2019-20, Pages 1143 to 1145 of APB. In fact, the Ld. AR to dispel all doubts regarding the veracity of his claim, emerging from the aforesaid “summary of advances” has taken us through the ledger accounts of some of the parties to whom advances were given during the year under consideration, viz., (i) M/s. Lorven Flex & Sack (India) Pvt Ltd; (ii) M/s. Sri Rama Seeds; (iii) Shri Prasad K; (iv) Shri Narasimhulu K; and (v) M/s. Essar Seeds, which, on a conjoint reading with the summary of the advances to the suppliers, reveals that the amounts advanced to the said parties were adjusted against the purchases made from them in the immediately succeeding year, i.e., period relevant to the AY 2019-20.
57. We thus, in the backdrop of the aforesaid facts are not only unable to comprehend as to on what basis the AO had made the addition of the payments made by the assessee company to the aforesaid parties, i.e., suppliers from its regular books of accounts as suppressed investments under section 69B of the Act, but are also unable to come to terms with his observation that the duly accounted advances given by the assessee company to the aforesaid suppliers which thereafter have been adjusted against the purchases made from them in the immediately succeeding year could have been added to the income of the assessee company.
58. We thus, in terms of our aforesaid deliberations, are unable to concur with the view taken by the CIT(A), who has upheld the impugned addition of Rs.3,81,54,765/- made by the AO under section 69B of the Act, and vacate the same. The Ground of appeal No.5 is allowed in terms of our aforesaid observations.
59. In the result, the appeal filed by the assessee company is partly allowed in terms of our aforesaid observations.
Order pronounced in the open court on 03/06/2026.
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