Case Law Details
Indian Tonners and Developers Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi has ruled in favor of Indian Tonners and Developers Ltd in a dispute regarding the disallowance of a deduction claimed under section 35(2AB) of the Income Tax Act. The Assessing Officer disallowed the deduction due to the absence of Form 3CL. However, the ITAT held that the genuineness of the expenditure was not in doubt, and the first appellate authority erred in ignoring Form 3CL issued by the competent authority. The disallowance of Rs.29,05,724/- was deemed unsustainable and deleted.
The dispute revolves around the disallowance of a deduction claimed under section 35(2AB) of the Income Tax Act. The Assessing Officer disallowed the deduction due to the absence of Form 3CL.
Analysis: The ITAT Delhi notes that the assessee had furnished Form 3CLA and Form 3CK for the impugned assessment year, as well as Form 3CL for the previous assessment year. The only discrepancy was the absence of Form 3CL for the relevant assessment year. However, the ITAT emphasizes that there was no doubt regarding the genuineness of the expenditure claimed, as the Assessing Officer had allowed a 100% deduction of revenue expenditure related to research and development.
The ITAT further highlights that the first appellate authority ignored the Form 3CL issued by the competent authority, which was furnished by the assessee before them. The ITAT deems this disregard as unacceptable, as the Form 3CL entitles the assessee to claim the deduction under section 35(2AB) of the Act. Therefore, the disallowance of Rs.29,05,724/- is deemed unsustainable, and the ITAT deletes the disallowance.
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 31st March, 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 record. 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
