By TIOL News Service

KOLKATA, OCT 09, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether mere technical defect in representation of Form 3CM, is sufficient to deny the benefit of weighted deduction on expenses incurred under R&D, once the research facility itself is approved by the prescribed authority. NO is the answer.

Facts of the case:

The Assessee company is engaged in the business of manufacture of wagons for Indian railways and private parties. For A.Y.2012-13, the assessee had filed its revised return after claiming deduction u/s 35(2AB) at a sum of Rs.2,70,07,240/- being expenditure on scientific research and in house research and development facility. The AO noticed that the claim of Assessee for such deduction was supported by a certificate of registration by DSIR i.e., the prescribed authority, and accordingly, he completed the assessment after allowing the same. The CIT was however of the opinion that the aforesaid order of AO allowing deduction to Assessee u/s 35(2AB) was erroneous and prejudicial to the interest of Revenue. He therefore issued a show cause notice u/s 263 to Assessee on the ground that apart from the approval of DSIR, the assessee was also required to file Form 3CM as stipulated under Rule 6(5A) which was absent, and the AO without insisting on Form no.3CM ought not to have allowed such deduction. In reply to the show cause notice, the Assessee filed copies of Certificates of Recognition of In-house R&D facility issued by Prescribed authority of Govt. of India. The CIT however was not convinced with the reply of Assessee and remanded the matter back to the AO for consideration afresh, after declaring the deduction granted by AO as erroneous.

Tribunal held that,

++ it is undisputed that Department of Scientific and Industrial Research has granted recognition to Assessee for the period from April 1st, 2010 to 31st March, 2019. It has been held by various High Courts in the cases of CIT vs. Sadan Vikas (India) Ltd - 2011-TIOL-133-HC-DEL-IT, ACIT vs. Meco Instruments (P) Ltd - 2010-TIOL-563-ITAT-MUM, and CIT vs. Claris Lifesciences Ltd - 2008-TIOL-484-HC-AHM-IT, that deduction u/s 35(2AB) r/w Rule 6 does not prescribe any time limit within which application for approval in form No.3CM has to be made. Once approval is granted by DSIR the same would apply till it is revoked. On a plain and harmonious reading of rule 6(5A) and Form No. 3CM, it would be appropriate to come to a conclusion once a research facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted deduction as provided u/s 35(2AB). In the light of the aforesaid judicial pronouncements, it cannot be said that the order of the AO was erroneous. Once the view taken by the AO is either correct or a possible view, then the CIT in exercise of his powers u/s.263 cannot hold the order of AO to be erroneous just because he does not agree with the view of the AO. Since the primary condition for exercise of jurisdiction u/s 263 viz., the order of the AO should be erroneous is absence in the present case, we are of the view that the order u/s 263 is unsustainable and the same is hereby quashed.

(See 2017-TIOL-1388-ITAT-KOL)