Malwa Oxygen & Industrial Gases Private Limited Vs ITO (ITAT Indore)
Failure to file Form 3CL for claiming weighted deduction u/s 35(2AB) did not preclude for 100% R&D Deduction u/s 35(1)(i)
Conclusion: Denial of weighted deduction u/s 35(2AB) for non-furnishing of Form 3CL did not preclude normal deduction u/s 35(1)(i) and depreciation u/s 32, as the research was related to the assessee’s business. Matter remanded to AO for verification and allowance in accordance with law.
Held: Assessee-company was engaged in manufacturing intermediates and speciality chemicals, claimed weighted deduction of ₹78.72 lakh under section 35(2AB) for in-house R&D expenditure. As Form 3CL from DSIR was not furnished, assessee withdrew its claim during assessment and sought alternative allowance of 100% deduction for revenue expenditure (₹24.79 lakh) under section 35(1)(i) and depreciation (₹2.65 lakh) on capital R&D assets under section 32. AO rejected the alternative claim holding that (i) no revised return was filed, and (ii) R&D was not part of the assessee’s business. The CIT(A) affirmed the disallowance. It was observed that denial of weighted deduction for want of Form 3CL did not automatically disqualify assessee from claiming normal deduction under section 35(1)(i) or depreciation under section 32. Filing a revised return was not necessary since assessee had already claimed the expenditure in its accounts and return—only the section of claim shifted from 35(2AB) to 35(1)(i)/32. Further, research on developing eco-friendly processes and safer chemical products was integrally related to assessee’s manufacturing business and satisfied the definition of “scientific research related to business” under section 43(4)(iii). Accordingly, Tribunal held that assessee was, in principle, eligible for deduction of revenue R&D expenditure u/s 35(1)(i) and depreciation on capital R&D assets u/s 32, but since detailed verification of expenses was pending, the matter was remanded to AO for factual examination and allowance as per law.
