R&D Deduction Cannot Be Denied for Non-Filing of Form 3CL When Already Available With AO: ITAT Mumbai

Today, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) held that a taxpayer cannot be denied deduction for research and development (R&D) expenditure under Section 35(2AB) of the Income Tax Act merely for not separately filing Form 3CL during assessment proceedings, where the approval had already been transmitted to and was available with the Assessing Officer.

Judicial Member Justice Sandeep Singh Karhai and Accountant Member Bijayananda Pruseth allowed the appeal filed by Ultramarine & Pigments Ltd. and set aside the earlier orders, remanding the matter to the Assessing Officer for recomputation of the deduction in accordance with the DSIR-approved figures. The Tribunal observed:

“Once the assessee filed the rectification application for quantifying the deduction under section 35(2AB) of the Act as per Form 3CL, the AO was mandated by the statute to take cognizance of the said report.”

The dispute arose from Ultramarine & Pigments Ltd.'s claim of weighted deduction for expenditure incurred on its in-house scientific research and development facility under Section 35(2AB). During assessment proceedings, the Assessing Officer called upon the company to furnish Form 3CL issued by the Department of Scientific and Industrial Research (DSIR), which certifies eligible R&D expenditure.

The company was unable to produce the form at that stage due to COVID-related constraints, leading the Assessing Officer to disallow part of the claimed deduction. Subsequently, the company filed a rectification application contending that DSIR had already issued Form 3CL and also forwarded it directly to the jurisdictional Assessing Officer, and therefore the deduction ought to be recomputed based on the approved figures.

The Department rejected the rectification request on the ground that Form 3CL constituted “additional evidence” and could not be entertained at that stage. The appellate authority upheld this view.

The Tribunal, however, rejected this approach. It held that Form 3CL could not be treated as additional evidence since it had already been transmitted by DSIR to the Assessing Officer. It further observed that once the statutory approval was available on record, the Assessing Officer was bound to consider it while determining the eligible deduction under Section 35(2AB).

The Bench set aside the impugned orders and remitted the matter to the Assessing Officer for fresh adjudication and recomputation of the deduction after granting the taxpayer an opportunity of hearing.

Accordingly, the ITAT allowed the appeal for statistical purposes.

Appearance for the Assessee: Shri Dharan Gandhi

Appearance for the Revenue: Shri Vikas Chandra, Sr.DR