Case Law Details
PCIT Vs Schaeffler India Ltd (Gujarat High Court)
Introduction: The case of “PCIT vs. Schaeffler India Ltd” before the Gujarat High Court highlights the issue of Section 35(2AB) deduction and the significance of timely intimation. In this article, we delve into the details of the case, the arguments presented, and the court’s decision.
Detailed Analysis: The case revolves around Schaeffler India Ltd, which filed its original income tax return for the assessment year 2016-17, declaring a total income of Rs. 35,24,17,390/-. Later, a revised return was submitted, showing a total income of Rs. 37,70,49,380/-. During the scrutiny, the assessing officer passed an order under section 143(3) r/w 144C(3) of the Income Tax Act, determining the total income at Rs. 39,96,46,714/-.
The issue at hand arose when the Principal Commissioner of Income Tax (PCIT) observed that Schaeffler India Ltd had claimed a deduction under Section 35(2AB) of the Act, amounting to Rs. 20,12,21,103/- for Research and Development (R&D) facility. However, the essential documentary evidence in the form of Form 3CL, issued by the prescribed authority (DSIR, New Delhi), had not been submitted by the assessee within the due date for filing the return of income.
Based on this, the PCIT invoked revisionary jurisdiction under Section 263, asserting that the claimed deduction under Section 35(2AB) was not valid. The PCIT set aside the assessment order and directed the Assessing Officer to re-evaluate the claim.
The assessee challenged this decision before the Income Tax Appellate Tribunal (ITAT), which, in its order dated 27.03.2023, quashed the PCIT’s order under Section 263. The ITAT reasoned that the assessing officer had made the necessary inquiries regarding the deduction under Section 35(2AB) during the assessment proceedings. Furthermore, they pointed out that the Form 3CL, which was issued by the prescribed authority, was filed by the assessee during the assessment, albeit after the assessment order had been passed. The delay in receiving the intimation did not justify denying the deduction.
Conclusion: The Gujarat High Court’s decision underscores the importance of a timely intimation in the context of Section 35(2AB) deductions. In this case, Schaeffler India Ltd was able to substantiate its claim by providing the necessary documentation, even though the intimation from the authority was received after the assessment order. The court’s judgment reaffirms that the delayed intimation should not serve as a valid reason for disallowing a legitimate deduction under the law. This case sets a precedent for the consistent application of tax provisions, ensuring that taxpayers are not unfairly penalized for procedural delays.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. This Appeal by the Revenue under section 260A of the Income Tax Act, 1961 (‘the Act’ for short) is directed against the order dated 27.03.2023 passed by the Income Tax Appellate Tribunal ‘C’ Bench, Ahmedabad in ITA No.157/AHD/ 2022 for A. Y. 2016-17.
2. The assessee filed its original return of income for the Y. 2016-17 on 30.11.2016 declaring total income at Rs. 35,24,17,390/-. Subsequently revised return of income was filed, declaring total income at Rs. 37,70,49,380/-. The case was selected for scrutiny and an order under section 143(3) r/w 144C (3) of the Act was passed determining total income at Rs. 39,96,46,714/-. Thereafter, it was noticed by the Pr. Commissioner of Income Tax (PCIT) that the assessee has claimed deduction under section 35(2AB) of the Act of Rs. 20,12,21,103/- for R&D facility. However, the assessee had not submitted necessary documentary evidence i.e. Form 3CL issued by the prescribed authority (DSIR, New Delhi) which is mandatory to be filed on or before the due date of filing of return of income. Therefore, the Pr. CIT invoked his revisionary jurisdiction under section 263 of the Act that the deduction claimed under section 35(2AB) of the Act was not allowable. The Pr. CIT therefore passed an order dated 31.03.2022 under section 263 holding that the assessment order under section 143(3) r/w 144C(3) of the Act passed by the assessing officer for A.Y. 2016-17 dated 17.01.2020 is erroneous in so far as it is prejudicial to the interest of Revenue.
2.1 The Pr.CIT further quashed and set aside the order of assessment under 143(3) r/w 144C(3) of the Act dated 17.01.2020 for A.Y. 2016-17 and directed the Assessing Officer to pass fresh assessment order after taking into consideration the issues as considered in the order passed under section 263. It was also directed that the Assessing Officer shall grant reasonable and sufficient opportunity of being heard to the assessee.
3. Aggrieved by the order under section 263 of the Act, the assessee preferred appeal before the ITAT. The ITAT vide order dated 27.03.2023 quashed the order of PCIT under section 263 holding that the order of the Assessing Officer is not erroneous as also not prejudicial to the interest of Revenue.
4. Against the order of ITAT, present appeal is filed by the Revenue proposing the following question of law:-
“1. Whether the Ld. Tribunal was right in law by setting aside the exercise of jurisdiction u/s 263 of the Income Tax Act, 1961 by Ld. PCIT by applying unamended Rule 35AC of the Income Tax Rules?”
4. Heard learned Senior Standing Counsel Mr. Nikunt Raval for the appellant. Learned Senior Standing Counsel submitted that the PCIT rightly invoked his jurisdiction under section 263 of the Act, since the report in Form 3CLA by the prescribed authority was not submitted on or before the assessment proceedings. The PCIT in his order has observed that the assessee has submitted only a certificate of recognition for in house R&D unit and therefore not entitled for deduction claimed under section 35(2AB) of Rs.20,12,21,103/-. Since, the assessing officer has not made requisite inquiry in relation to the deduction claimed under section 35(2AB) of the Act, the Commissioner passed an order under section 263 of the Act.
5. Having heard Learned Counsel for the appellant and upon perusal of the order, it is noticed that the Tribunal in the order dated 27.03.2023 has observed as under:-
“7.1 In view of the above, we observe that in the instant case, the assessee had filed copy of recognition of the in house R&D facility dated 25-08-2014 during the course of assessment. The assessee had also filed copy of approval of the in house R&D facility dated 07-10-2015 in Form 3CM during the course of assessment, with regard to computation of deduction u/s. 35(2AB) of the Act, the assessee had filed certificate of the auditor certifying the expenditure during the course of assessment. With respect to Form 3CL, we observe that the Form 3CL was issued by prescribed authority on 20-07-2021 after passing of the assessment order u/ s. 143(3) of the Act on 17-01-2020. However, the approval of the R&D facility in Form 3CM was duly filed by the assessee during the course of assessment vide letter dated 09-12-2019. Therefore, looking into the facts of the case and the judicial precedents on the subject, which have held that once the assessee files Form 3CM certifying that the research and development facility has been approved by the prescribed authority in proper Format, merely because the said authority failed to send intimation to the Department in form 3CL, would not be reason enough to deprive assessee’s claim of deduction u/s. 35(2AB) of the Act. Accordingly, in the instant facts, we find that the assessment order was passed by the ld. Assessing Officer after making due inquiry regarding the claim of deduction u/s. 35(2AB) of the Act is, not erroneous and prejudicial to the interest of the Revenue. Accordingly, in the light of the above observations, we are hereby dismissing the order passed by ld. PCIT u/s. 263 of the Act”
6. In view of above it is not in dispute that the assessee at the time of original assessment has filed a copy of recognition of in-house R&D facility dated 25.08.2014. The assessee also filed the approval of in-house R&D facility dated 07.10.2015 in Form 3CM during the course of assessment with regard to the computation of deduction under section 35(2AB) of the Act. The assessee also filed certificate of the auditor certifying the expenditure during the course of assessment proceedings. With regard to Form 3CL, the same was issued by the prescribed authority on 20.07.2021 which was after passing of the assessment order under section 143(3) of the Act, and therefore, the assessee could not produce the same on or before the assessment order. 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.
7. In view of above, we do not find any error of fact and law in the order of Tribunal. The present Tax Appeal is therefore dismissed since no substantial question of law is involved.
