By TIOL News Service

PUNE, APR 19, 2019: THE ISSUE IS - Whether weighted deduction u/s 35(2AB) is to be allowed even in the absence of form No.3CL as it is only a procedural lapse. YES IS THE ANSWER.

Facts of the case

The assessee was engaged in the manufacturing of Auto Electronic Components. The assessee was also carrying on R&D activity and the facility was approved on 20.07.2011. The assessee had entered into an agreement with appropriate authority. During the year under consideration, the assessee had claimed weighted deduction u/s 35(2AB) of the Act at Rs. 6,23,00,820/- @ 200% of expenditure incurred. The AO noted that the Department of Scientific & Industrial Research (DSIR) had only allowed the same to the extent of Rs. 5.78 crores. Therefore, balance of Rs. 44,86,822/- was disallowed under section 35(2AB) of the Act. The CIT(A) took note of calculation of deduction filed by the assessee and restricted the disallowance to Rs. 29,11,882/-. Aggrieved assessee filed appeal before Tribunal.

On appeal, Tribunal held that,

++ Pune Bench of Tribunal in Minilec India Pvt. Ltd. Vs. ACIT on similar issue of claim of weighted deduction in the absence of any form No.3CL received from the DSIR had held as under " .. The issue which arises is whether the assessee can be denied deduction under section 35(2AB) of the Act for non receipt of form No.3CM. The assessee admittedly, had received recognition in the initial period and thereafter, it is case of renewal of recognition of in-house R&D facility, which was also granted by the prescribed authority for the period ending 31.03.2012 and also for the period ending 31.03.2015. The correspondence between the assessee and DSIR for the third phase reflects a reminder being sent by DSIR to renew the recognition of in-house R&D facility beyond 31.03.2012. In other words, DSIR had not de-recognized the facility for the years 2009-12. The recognition to the facility has been granted from start till date and has not been withdrawn. In other words, recognition given by the prescribed authority which is mandate of section 35(2AB) of the Act is maintained and once the recognition is so maintained, the assessee has to be accorded deduction under section 35(2AB) of the Act. The non receipt of form No.3CM for the intervening three years is at best a procedural lapse and is not fatal for denial of claim of deduction under section 35(2AB) of the Act. Accordingly, we hold so. The prescribed authority in any case under the pre-amended provisions had no authority to look into the nature and quantum of expenditure except in the first year to see investment in land and building. After recognition of facility and approval by DSIR, the Assessing Officer is to allow the claim of assessee after verifying the same. Thus, we direct the Assessing Officer to allow deduction claimed under section 35(2AB) of the Act to the facility for the year under appeal.";

++ issue raised in the present appeal is similar to the issue before the Tribunal and following the same parity of reasoning, it was hold that the assessee is entitled to claim the weighted deduction under section 35(2AB) of the Act, after recognition of facility and the Assessing Officer is to allow the same after verification. The Assessing Officer is directed to allow the same. In the result, the appeal of assessee is allowed.

(See 2019-TIOL-802-ITAT-PUNE)