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2025 (6) TMI 38 - AT - Income TaxRevision u/s 263 - assessee s claim u/s 35 - as per CIT Form 3CL is in old format instead of new format effective from 01.07.2016; and the same should have been furnished electronically and audit report in Form 3CLA was to be furnished electronically before the due date of filing of the return of income which was not furnished to the AO during the course of assessment proceedings - HELD THAT - On perusal of Form 3CL it is found that the same is issued by Secretary Department of Scientific and Industrial Research Government of India. Therefore if the issuing authority has used the old Form 3CL instead of the new Form 3CL the assessee cannot be faulted for this. Similarly if Form 3CL was not filed by the issuing authority in electronic form but in physical form the assessee cannot be faulted for this. These matters were not within the control of the assessee because the Form 3CL is not prepared and issued by the assessee but instead it is prepared and issued by Secretary Department of Scientific and Industrial Research Government of India. Secondly as regards Form 3CLA it is found that this is to be submitted to Secretary Department of Scientific and Industrial Research Government of India and not to the AO or to any Income Tax Authority. Therefore no adverse view can be taken against assessee for non-furnishing of the Form 3CLA to the AO or to the Ld. PCIT. There is no dispute that in-house Research and Development Centre of the assessee is approved by Secretary Department of Scientific and Industrial Research Government of India. There is no dispute that competent authority has already issued Form 3CL and sent to Chief Commissioner of Income Tax (Exemptions) as required u/s 35 of the Act. Thus bases on which PCIT passed the aforesaid impugned order u/s 263 of the Act are unsustainable. Therefore it is held that PCIT erred in revising the assessment order passed by the AO. Accordingly impugned order passed u/s 263 is set aside and assessment order is restored. Appeal of the assessee is partly allowed for statistical purposes.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: (a) Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking the revisional jurisdiction under section 263 of the Income Tax Act, 1961, to set aside the assessment order dated 07.02.2020 passed under section 143(3) read with section 144C(3) for assessment year 2016-17 on the ground that the assessment order was erroneous and prejudicial to the interest of revenue; (b) Whether the Assessing Officer (AO) had conducted proper enquiry and applied mind to the claim of deduction under section 35(2AB) of the Income Tax Act, 1961, read with Rule 6 of the Income Tax Rules, 1962, relating to expenditure on in-house scientific research and development (R&D) facility; (c) Whether the PCIT was correct in holding that the AO committed a clear error in allowing the deduction under section 35(2AB) without ensuring that the prescribed forms (Form 3CL and Form 3CLA) were furnished in the correct format and manner as mandated by the amended Rule 6 effective from 01.07.2016; (d) Whether the failure to furnish Form 3CLA audit report electronically before the due date of filing the return, and the use of an old format of Form 3CL by the prescribed authority, could be attributed to the assessee for disallowance of deduction; (e) Whether the PCIT's order under section 263 satisfied the twin conditions of (i) the assessment order being erroneous and (ii) prejudicial to the interest of revenue, and whether the PCIT's order was within the scope of the notice issued under section 263; (f) The applicability of judicial precedents regarding the scope of revisional powers under section 263, the requirement of approval and procedural compliance for claiming deduction under section 35(2AB), and the principle that mere difference of opinion does not warrant interference under section 263. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) and (b): Validity of invoking section 263 and adequacy of AO's enquiry into deduction under section 35(2AB) The legal framework governing the revisional powers of the Commissioner under section 263 requires satisfaction of two conditions: the assessment order must be erroneous and the order must be prejudicial to the interest of revenue. The Supreme Court in Malabar Industrial Corporation Ltd. v. CIT held that mere loss of revenue or difference of opinion is insufficient to invoke section 263 unless the order is unsustainable in law. The Tribunal also relied on Infosys Technologies Ltd. v. JCIT, which held that if the AO has made necessary enquiry and arrived at satisfaction, even if not mentioned in the assessment order, the order cannot be revised under section 263 merely on the ground that the claim was allowed without provision of law. In the present case, the assessee had responded to detailed queries by the AO during assessment proceedings, furnishing documentary evidence including Form 3CL, Form 3CM, recognition letters from Department of Scientific and Industrial Research (DSIR), audit reports, and details of expenditure incurred on in-house R&D. The AO accepted the claim for deduction under section 35(2AB) after due enquiry. The assessee's submissions and documentary evidence were found on record, indicating that the AO had indeed applied mind and conducted enquiry. The PCIT's contention that the AO did not examine or enquire into the claim was factually incorrect as the AO had issued notices under section 142(1), received replies, and considered the documents submitted. The Tribunal emphasized that absence of discussion in the assessment order does not imply absence of enquiry if the record shows the AO's consideration of the claim. Issue (c) and (d): Compliance with amended Rule 6 requirements and responsibility for forms 3CL and 3CLA Section 35(2AB) read with Rule 6 of Income Tax Rules, 1962, prescribes procedural requirements for claiming weighted deduction for in-house R&D expenditure, including furnishing of prescribed forms (3CL, 3CM, 3CLA) electronically in the specified format. The Rule was amended effective 01.07.2016 to mandate electronic filing and new formats. The PCIT held that the Form 3CL submitted by the assessee was in the old format and not electronically filed as required by the amended Rule 6, and that Form 3CLA audit report was not furnished electronically before the due date of filing the return. Based on these observations, the PCIT concluded that the AO erred in allowing the deduction without verifying compliance with these procedural requirements. The Tribunal noted that Form 3CL and Form 3CM are issued by the Secretary, DSIR, and not prepared or filed by the assessee. The assessee cannot be faulted for the issuing authority's use of old format or non-electronic filing. Similarly, Form 3CLA is to be furnished to the Secretary, DSIR, and not to the AO or Income Tax authorities. Therefore, non-filing of Form 3CLA before the AO cannot be attributed to the assessee or held against it. The Tribunal further observed that the relevant previous year for AY 2016-17 ended on 31.03.2016, prior to the effective date of amended Rule 6 (01.07.2016). The PCIT failed to consider whether the amended Rule 6 would apply retrospectively or have any bearing on the assessment year in question. This omission undermined the basis of the PCIT's order. Issue (e): Whether the PCIT's order satisfied the twin conditions for revision under section 263 and was within the scope of the notice The PCIT's notice under section 263 alleged that the assessment order was erroneous and prejudicial to the interest of revenue because the AO allowed deduction without the prescribed approval in the prescribed proforma. However, the notice did not mention the non-filing of Form 3CLA or the issue of old versus new format of Form 3CL. The PCIT's order, however, relied heavily on these grounds. The Tribunal held that the PCIT's order was beyond the scope of the notice, which is a jurisdictional requirement. The PCIT's order introduced new grounds not communicated in the notice, rendering the order illegal. Furthermore, the PCIT failed to demonstrate how the AO's order was prejudicial to revenue or pointed out any specific error in the AO's assessment. The PCIT's order was thus based on a hypothetical assumption without substantiation. Issue (f): Applicability of judicial precedents on revisional powers and procedural compliance The Tribunal extensively relied on judicial precedents including:
These precedents reinforce that procedural lapses by the prescribed authority or delays in filing forms should not prejudice the assessee's legitimate claim and that revisional powers under section 263 cannot be exercised merely on difference of opinion or hypothetical errors. 3. SIGNIFICANT HOLDINGS The Tribunal held: "The bases on which Ld. PCIT passed the aforesaid impugned order u/s 263 of the Act are unsustainable. Therefore, it is held that the Ld. PCIT erred in revising the assessment order dated 07.02.2020 passed by the Assessing Officer." Core principles established include:
Final determinations on each issue: (a) The PCIT was not justified in invoking section 263 to revise the assessment order as the AO had conducted proper enquiry and applied mind; (b) The AO's acceptance of deduction under section 35(2AB) was valid and not erroneous; (c) The alleged non-compliance with amended Rule 6 procedural requirements was not attributable to the assessee and did not invalidate the deduction; (d) The PCIT's order was beyond the scope of the notice and did not satisfy the twin conditions for revision under section 263; (e) The appeal was allowed partly for statistical purposes by setting aside the PCIT's order and restoring the assessment order dated 07.02.2020.
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