Case Law Details
Indian Tonners and Developers Ltd. Vs ACIT (ITAT Delhi)
Introduction: The Income Tax Appellate Tribunal (ITAT) Delhi recently addressed a case involving Indian Tonners and Developers Ltd. and the Assistant Commissioner of Income Tax (ACIT) for the assessment year 2018-19. The primary point of contention revolved around the eligibility of the company to claim a deduction under section 35(2AB) of the Income Tax Act, 1961. This article provides a detailed analysis of the case and its implications.
Detailed Analysis:
1. Background: Indian Tonners and Developers Ltd. (the assessee) is a resident corporate entity primarily engaged in the manufacturing and sale of inks and toners for photocopiers. For the assessment year in question, the assessee filed its income tax return, seeking a deduction under section 35(2AB) related to research and development expenditure.
2. The Issue: The core issue in this case was the eligibility of the assessee to claim a deduction under section 35(2AB) of the Income Tax Act. To avail this benefit, the assessee had to submit Form 3CL issued by the competent authority as required by the tax law.
3. Assessment and Disallowance: During the assessment process, the Assessing Officer found that the assessee had not furnished Form 3CL issued by the competent authority for the relevant assessment year, 2018-19. As a result, the Assessing Officer disallowed the deduction claimed under section 35(2AB). The deduction was restricted to the extent of the revenue expenditure incurred, which amounted to a disallowance of Rs. 29,05,724.
4. First Appellate Authority’s Decision: The assessee contested the disallowance before the first appellate authority. It was argued that although Form 3CL was not submitted during the assessment process, the assessee had, in fact, furnished the required form, which was issued by the competent authority. This Form 3CL was presented for assessment years 2017-18, 2019-20, and 2020-21.
5. Neglect of Form 3CL: Despite the submission of Form 3CL, the first appellate authority completely disregarded the document and upheld the disallowance. This decision was based on the absence of the form for the assessment year 2018-19, even though the competent authority had issued the form after the assessment was completed but before the first appellate authority’s decision.
6. ITAT’s Ruling: The ITAT Delhi, in its ruling, found that the Assessing Officer had allowed a 100% deduction of revenue expenditure related to research and development, affirming the genuineness of the claimed expenditure. The disallowance was related to the excess deduction claimed under section 35(2AB) of the Act.
7. Form 3CL’s Significance: The crux of the ITAT’s decision lay in the Form 3CL issued by the competent authority on March 31, 2022. This form was submitted by the assessee after the assessment but before the first appellate authority’s order was passed. The ITAT concluded that when the competent authority issued Form 3CL, which validated the assessee’s claim for a deduction that included both capital and revenue expenditure, the departmental authorities could not deny the assessee this deduction.
8. Disallowance Overturned: As a result, the disallowance of Rs. 29,05,724 was deemed unsustainable by the ITAT Delhi. Therefore, the ITAT allowed the assessee’s appeal, thereby reversing the disallowance.
Conclusion: The case of Indian Tonners and Developers Ltd. vs. ACIT underscores the importance of strict compliance with statutory requirements. In this instance, the timely issuance of Form 3CL by the competent authority validated the assessee’s claim for a deduction under section 35(2AB) of the Income Tax Act. Businesses should be diligent in meeting regulatory prerequisites to secure their rightful tax benefits and avoid unwarranted disputes with tax authorities.
FULL TEXT OF THE ORDER OF ITAT DELHI
This is an appeal by the assessee against order dated 28.10.2022 passed by National Faceless Appeal Centre (NFAC), Delhi, pertaining to assessment year 2018-19.
2. The dispute in the present appeal is confined to disallowance of Rs.29,05,724/- claimed as deduction under section 35(2AB) of the Income-tax Act, 1961 (in short ‘the Act’).
3. Briefly the facts are, the assessee is a resident corporate entity engaged in manufacturing and sale of inks and toners for photocopiers. For the assessment year under dispute, the assessee filed its return of income claiming deduction under section 35(2AB) of the Act in respect of research and development expenditure. While examining assessee’s claim of deduction in course of assessment proceeding, the Assessing Officer observed that though the assessee had submitted Form 3CLA and 3CK for the impugned assessment year, however, it has not submitted Form 3CL. Thus, being of the view that in absence of Form 3CL issued by the competent authority, assessee’s claim of deduction under section 35(2AB) is not acceptable, the Assessing Officer disallowed deduction claimed under section 35(2AB) of the Act and restricted the deduction to the extent of revenue expenditure incurred. Though, the assessee contested the disallowance before learned first appellate authority, however, it was unsuccessful.
4. Before us, learned counsel appearing for the assessee submitted that, though, before the Assessing Officer, the assessee could not furnish Form 3CL, as, it was not issued by competent authority, however, in course of proceeding before the first appellate authority, the assessee did furnish Form 3CL issued by the competent authority for assessment years 2018-19, 2019-20 and 2020-21. He submitted, Form 3CL submitted by the assessee was completely ignored by the first appellate authority while confirming the addition.
5. Learned Departmental Representative relied upon the observations of the Assessing Officer and learned Commissioner (Appeals).
6. We have considered rival submissions and perused the materials on record. As per Assessing Officer’s own admission, in course of assessment proceeding the assessee did furnish Form 3CLA and Form 3CK for the impugned assessment year. Even, Form 3CL issued by the competent authority for assessment year 2017-18 was furnished. Only because Form 3CL for assessment year 2018-19 was not furnished, the Assessing Officer disallowed assessee’s claim of weighted deduction under section 35(2AB) of the Act. However, there cannot be any doubt regarding the genuineness of the expenditure claimed as the Assessing Officer has allowed 100% deduction of revenue expenditure related to research and development. He has only disallowed the excess deduction claimed under section 35(2AB) of the Act. Pertinently, after completion of assessment the assessee did receive Form 3CL issued by the competent authority for assessment years 2018-19, 2019-20 and 2020-21, which was furnished before the first appellate authority.
7. As could be seen from the perusal of Form 3CL, it was issued by the competent authority on 31stMarch, 2022, which is post completion of assessment but before order was passed by the first appellate authority. Surprisingly, while deciding the appeal, the first appellate authority has completely ignored Form 3CL issued by the competent authority, though, it was placed on This, in our view, is unacceptable. When the competent authority has issued Form 3CL entitling the assessee to claim deduction in respect of both capital and revenue expenditure, which is a mandate under section 35(2AB) of the Act, the departmental authorities cannot disentitle the assessee from availing the deduction by ignoring Form 3CL. Hence, disallowance of Rs.29,05,724/-, is unsustainable. Accordingly, we delete the disallowance. Grounds raised are allowed.
8. In the result, appeal is allowed.
Order pronounced in the open court on 16th May, 2023
