Deduction u/s 35(2AB) allowed as Form 3CL was issued late by the competent authority

Deduction u/s 35(2AB) allowed as Form 3CL was issued late by the competent authority . Form 3CL issued by competent authority can not be ignored – ITAT 

ABCAUS Case Law Citation:
ABCAUS 3743 (2023) (05) ITAT

In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre (NFAC) in confirming disallowance of deduction under section 35(2AB) of the Income Tax Act, 1961 (the Act).

The appellant assessee was a resident corporate entity engaged in manufacturing. 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 had not submitted Form 3CL.

As a result, the Assessing Officer disallowed deduction claimed under section 35(2AB) of the Act.

In first appeal proceeding the assessee furnished Form 3CL issued by the competent authority. However, it was completely ignored by the first appellate authority while confirming the addition.

The Tribunal observed that as per the Assessing Officer’s own admission, in course of assessment proceeding the assessee did furnish Form 3CLA and Form 3CK for the impugned assessment year. The disallowance was made only because Form 3CL was not furnished.

The Tribunal further observed that there was no doubt regarding the genuineness of the expenditure claimed as the Assessing Officer had allowed 100% deduction of revenue expenditure related to research and development. He only disallowed the excess deduction claimed under section 35(2AB) of the Act.  

The Tribunal also noted that after completion of assessment the assessee did receive Form 3CL issued by the competent authority. However, while deciding the appeal, the first appellate authority completely ignored Form 3CL though, it was placed on the record.

The Tribunal opined that 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 was unsustainable. 

Accordingly, the ITAT deleted the disallowance.

Download Full Judgment Click Here >>

• Discontinuance of business of firm will not vest ownership of firm’s property with partners
• Release of seized jewellery/gold u/s 132B within 120 days is directory not mandatory
• ICAI issues FAQs on key accounting implications arising from New Labour Codes
• Deduction u/s 80-IA(7) not allowed for delayed filing of audit report in Form 10CCB
• Is CSR expenditure is allowable under section 80G of Income Tax Act – ITAT says “Yes”