The Assessing Officer has cut my client's s.35(2AB) claim down to the figure the DSIR put in Form 3CL for years before 2016. Is he entitled to?
No, for those years. The Chennai Tribunal held that s.35(2AB) empowers the DSIR to approve the in-house research and development facility, not the expenditure, and that the power to quantify the eligible expenditure came into existence only when Rule 6(7A) was amended by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016. For assessment years 2011-12 to 2014-15 the deduction had to be allowed on the expenditure as recorded in the assessee's books, the Assessing Officer not having disputed that the expenditure was incurred. The Tribunal expressly rejected the Departmental Representative's argument that the rule amendment was merely procedural, holding that it affects a substantive right.
Decided by the ITAT (Shri George George K, Vice President and Shri S.R. Raghunatha, Accountant Member (ITAT Chennai 'D' Bench)) on 2025-04-21, reported as IT(TP)A Nos. 105, 106 and 107/Chny/2024 and ITA No. 3113/Chny/2024 (assessee) and ITA No. 3251/Chny/2024 (Revenue); heard 20 March 2025, pronounced 21 April 2025. It bears on section 35, section 35(2AB), section 35(1)(i), section 35(1)(iv), section 35(3) of the Income Tax Act 1961, in Deductions & Disallowances and How Tax Law Is Read matters.
This is the case that dates the dispute rather than merely taking a side in it, which is what a practitioner needs. The reasoning is a straight statutory-construction point — s.35(2AB)(1) requires the facility to be approved and says nothing about approval of the expenditure, and if the DSIR had always had the power to quantify there would have been no need to amend Rule 6(7A) — but the Tribunal fixes the argument to years before 1 July 2016 and treats the amendment as substantive. That cuts both ways. For a pre-July-2016 year the taxpayer has a strong, recent and reasoned authority. For a year after that the same reasoning tells against him, because Part B of Form 3CL now carries the DSIR's quantification of the expenditure eligible for weighted deduction. For a post-2016 year the practical route is not to attack the quantification but to claim the excess revenue expenditure at a hundred per cent under s.37(1) or s.35(1)(i), which is what the Delhi Tribunal allowed in Anand NVH Products. Note also that the weighting itself has fallen — two hundred per cent up to AY 2017-18, one hundred and fifty from AY 2018-19, and a hundred from AY 2021-22 — so an authority allowing a two-hundred per cent claim is about the old rate and nothing else.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee had an in-house research and development facility approved by the Department of Scientific and Industrial Research and claimed weighted deduction under s.35(2AB) for assessment years 2011-12 to 2014-15. The DSIR approved only part of the capital and revenue expenditure in Form 3CL — for the year in which the figures are set out in the order, revenue expenditure of Rs 3,67,27,000 and capital expenditure of Rs 17,84,000. The Assessing Officer disallowed Rs 79,81,500 of revenue expenditure on the ground that the DSIR had not approved it in Form 3CL, and the Commissioner (Appeals) confirmed the disallowance. Before the Tribunal the assessee argued that the authorities had also refused to allow the unapproved expenditure under s.35(1)(i) or s.35(1)(iv), and that it was entitled to weighted deduction on the whole of the expenditure incurred in the approved facility notwithstanding the DSIR's partial approval, relying on the Mumbai Tribunal in Crompton Greaves Limited for the proposition that before Rule 6(7A)(b) was amended from 1 July 2016 the DSIR was not required to quantify the expenditure entitled to weighted deduction. The Assessing Officer had not disputed the correctness of the claim that the expenditure on scientific research was in fact incurred.
The Tribunal set aside the order of the Commissioner (Appeals) on this issue and directed the Assessing Officer to allow the deduction as claimed under s.35(2AB) for all the assessment years in question (paragraph 45). For assessment years 2011-12 to 2014-15, which precede the Income Tax (Tenth Amendment) Rules, 2016 amending Rule 6(7A) with effect from 1 July 2016, the deduction under s.35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account, and not restricted to the amount the DSIR quantified (paragraph 43). The Departmental Representative's contention that the amendment to Rule 6(7A) was procedural was rejected, the Tribunal holding that because the amended rule stipulates a condition beyond approval of the facility — that the expenditure also be quantified by the prescribed authority — it affects the substantive right of the assessee and cannot be termed merely procedural (paragraph 43).
The Tribunal read s.35(2AB)(1) as requiring approval of the in-house research and development facility by the prescribed authority, and observed that if the legislature had wanted the expenditure to be approved it would have said so expressly; nowhere does the Act stipulate that the deduction is allowable year after year only after approval by the DSIR in Form 3CL (paragraphs 37 and 38). It then traced the source of the quantification requirement to Rule 6(7A) as amended, under which the prescribed authority furnishes its report electronically in Part A of Form 3CL in relation to approval of the facility and in Part B quantifying the expenditure incurred in the facility and eligible for weighted deduction; that quantification was prescribed only by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016, and prior to that amendment no such power was with the DSIR (paragraph 38). Meeting the Revenue's procedural-amendment argument, the Tribunal reasoned that a rule which adds a substantive condition affects a substantive right (paragraph 43), and added the internal-consistency point that if the power of quantification had already existed there would have been no necessity to make the amendment (paragraphs 43 and 44). It also noted that s.35(2AB)(1) refers to 'any' expenditure and directs the deduction on the expenditure 'so incurred', and that s.35(3) — under which questions whether an activity constitutes scientific research are referred to the prescribed authority — gave no scope, before the rule amendment, for referring the quantum of eligible expenditure to the DSIR (paragraph 44).
As per section 35(2AB) of the Act, the DSIR is empowered to approve only R&D facility and not the expenditure. In other words, once the R & D facility is approved by the prescribed authority, i.e., DSIR by issuing Form No.3CM, the expenses incurred by the assessee have to be allowed under section 35(2AB) of the Act.
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Handle my notice → Ask a CA on WhatsAppNo, for those years. The Chennai Tribunal held that s.35(2AB) empowers the DSIR to approve the in-house research and development facility, not the expenditure, and that the power to quantify the eligible expenditure came into existence only when Rule 6(7A) was amended by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016. For assessment years 2011-12 to 2014-15 the deduction had to be allowed on the expenditure as recorded in the assessee's books, the Assessing Officer not having disputed that the expenditure was incurred. The Tribunal expressly rejected the Departmental Representative's argument that the rule amendment was merely procedural, holding that it affects a substantive right. This was decided by the ITAT (Shri George George K, Vice President and Shri S.R. Raghunatha, Accountant Member (ITAT Chennai 'D' Bench)) and bears on section 35, section 35(2AB), section 35(1)(i), section 35(1)(iv), section 35(3) of the Income Tax Act 1961. It is reported as IT(TP)A Nos. 105, 106 and 107/Chny/2024 and ITA No. 3113/Chny/2024 (assessee) and ITA No. 3251/Chny/2024 (Revenue); heard 20 March 2025, pronounced 21 April 2025. This is the case that dates the dispute rather than merely taking a side in it, which is what a practitioner needs. The reasoning is a straight statutory-construction point — s.35(2AB)(1) requires the facility to be approved and says nothing about approval of the expenditure, and if the DSIR had always had the power to quantify there would have been no need to amend Rule 6(7A) — but the Tribunal fixes the argument to years before 1 July 2016 and treats the amendment as substantive. That cuts both ways. For a pre-July-2016 year the taxpayer has a strong, recent and reasoned authority. For a year after that the same reasoning tells against him, because Part B of Form 3CL now carries the DSIR's quantification of the expenditure eligible for weighted deduction. For a post-2016 year the practical route is not to attack the quantification but to claim the excess revenue expenditure at a hundred per cent under s.37(1) or s.35(1)(i), which is what the Delhi Tribunal allowed in Anand NVH Products. Note also that the weighting itself has fallen — two hundred per cent up to AY 2017-18, one hundred and fifty from AY 2018-19, and a hundred from AY 2021-22 — so an authority allowing a two-hundred per cent claim is about the old rate and nothing else. If it applies to you, the first step is this: Date the year first. If the previous year ended before 1 July 2016, run this argument on the statutory language and the Rule 6(7A) amendment; if it ended after, do not, and pivot to the s.37(1) or s.35(1)(i) fallback.
The assessee had an in-house research and development facility approved by the Department of Scientific and Industrial Research and claimed weighted deduction under s.35(2AB) for assessment years 2011-12 to 2014-15. The DSIR approved only part of the capital and revenue expenditure in Form 3CL — for the year in which the figures are set out in the order, revenue expenditure of Rs 3,67,27,000 and capital expenditure of Rs 17,84,000. The Assessing Officer disallowed Rs 79,81,500 of revenue expenditure on the ground that the DSIR had not approved it in Form 3CL, and the Commissioner (Appeals) confirmed the disallowance. Before the Tribunal the assessee argued that the authorities had also refused to allow the unapproved expenditure under s.35(1)(i) or s.35(1)(iv), and that it was entitled to weighted deduction on the whole of the expenditure incurred in the approved facility notwithstanding the DSIR's partial approval, relying on the Mumbai Tribunal in Crompton Greaves Limited for the proposition that before Rule 6(7A)(b) was amended from 1 July 2016 the DSIR was not required to quantify the expenditure entitled to weighted deduction. The Assessing Officer had not disputed the correctness of the claim that the expenditure on scientific research was in fact incurred. The matter was decided on 2025-04-21 by the ITAT (Shri George George K, Vice President and Shri S.R. Raghunatha, Accountant Member (ITAT Chennai 'D' Bench)). On those facts the ITAT held as follows. The Tribunal set aside the order of the Commissioner (Appeals) on this issue and directed the Assessing Officer to allow the deduction as claimed under s.35(2AB) for all the assessment years in question (paragraph 45). For assessment years 2011-12 to 2014-15, which precede the Income Tax (Tenth Amendment) Rules, 2016 amending Rule 6(7A) with effect from 1 July 2016, the deduction under s.35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account, and not restricted to the amount the DSIR quantified (paragraph 43). The Departmental Representative's contention that the amendment to Rule 6(7A) was procedural was rejected, the Tribunal holding that because the amended rule stipulates a condition beyond approval of the facility — that the expenditure also be quantified by the prescribed authority — it affects the substantive right of the assessee and cannot be termed merely procedural (paragraph 43).
The Tribunal read s.35(2AB)(1) as requiring approval of the in-house research and development facility by the prescribed authority, and observed that if the legislature had wanted the expenditure to be approved it would have said so expressly; nowhere does the Act stipulate that the deduction is allowable year after year only after approval by the DSIR in Form 3CL (paragraphs 37 and 38). It then traced the source of the quantification requirement to Rule 6(7A) as amended, under which the prescribed authority furnishes its report electronically in Part A of Form 3CL in relation to approval of the facility and in Part B quantifying the expenditure incurred in the facility and eligible for weighted deduction; that quantification was prescribed only by the Income Tax (Tenth Amendment) Rules, 2016 with effect from 1 July 2016, and prior to that amendment no such power was with the DSIR (paragraph 38). Meeting the Revenue's procedural-amendment argument, the Tribunal reasoned that a rule which adds a substantive condition affects a substantive right (paragraph 43), and added the internal-consistency point that if the power of quantification had already existed there would have been no necessity to make the amendment (paragraphs 43 and 44). It also noted that s.35(2AB)(1) refers to 'any' expenditure and directs the deduction on the expenditure 'so incurred', and that s.35(3) — under which questions whether an activity constitutes scientific research are referred to the prescribed authority — gave no scope, before the rule amendment, for referring the quantum of eligible expenditure to the DSIR (paragraph 44). In the words reproduced by the source cited on this page: "As per section 35(2AB) of the Act, the DSIR is empowered to approve only R&D facility and not the expenditure. In other words, once the R & D facility is approved by the prescribed authority, i.e., DSIR by issuing Form No.3CM, the expenses incurred by the assessee have to be allowed under section 35(2AB) of the Act." The decision followed or applied Crompton Greaves Limited (111 taxmann.com 338) (Mumbai Tribunal) — relied upon by the assessee and accepted; M/s. Mahindra Electric Mobility Ltd. v. ACIT (Bangalore Tribunal) — relied upon; M/s. Sun Pharmaceutical Industries Ltd. (Ahmedabad Tribunal) — relied upon; Cummins India Limited v. DCIT (Pune Tribunal) — relied upon; Ashok Leyland, ITA No. 362/Chny/2024 dated 25 September 2024 (Chennai Tribunal) — relied upon.
It was decided by the ITAT on 2025-04-21 and is reported as IT(TP)A Nos. 105, 106 and 107/Chny/2024 and ITA No. 3113/Chny/2024 (assessee) and ITA No. 3251/Chny/2024 (Revenue); heard 20 March 2025, pronounced 21 April 2025. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 35, section 35(2AB), section 35(1)(i), section 35(1)(iv), section 35(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Tribunal set aside the order of the Commissioner (Appeals) on this issue and directed the Assessing Officer to allow the deduction as claimed under s.35(2AB) for all the assessment years in question (paragraph 45). For assessment years 2011-12 to 2014-15, which precede the Income Tax (Tenth Amendment) Rules, 2016 amending Rule 6(7A) with effect from 1 July 2016, the deduction under s.35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account, and not restricted to the amount the DSIR quantified (paragraph 43). The Departmental Representative's contention that the amendment to Rule 6(7A) was procedural was rejected, the Tribunal holding that because the amended rule stipulates a condition beyond approval of the facility — that the expenditure also be quantified by the prescribed authority — it affects the substantive right of the assessee and cannot be termed merely procedural (paragraph 43). It arises in Deductions & Disallowances and How Tax Law Is Read matters, on section 35, section 35(2AB), section 35(1)(i), section 35(1)(iv), section 35(3) of the Income Tax Act 1961, and was decided by Shri George George K, Vice President and Shri S.R. Raghunatha, Accountant Member (ITAT Chennai 'D' Bench). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Produce Form 3CM, the approval of the facility, and show the Assessing Officer has not disputed that the expenditure was actually incurred on scientific research — the Tribunal's finding at paragraph 43 rests on that undisputed fact. Meet the 'merely procedural' argument head on: the Tribunal held at paragraph 43 that because the amended rule adds a condition beyond approval of the facility, it affects a substantive right and is not procedural. Use the internal-consistency argument at paragraph 44 — if the DSIR already had the power to decide the eligible expenditure, there would have been no occasion to amend Rule 6 with effect from 1 July 2016. State the applicable weighting for the year in the computation, and do not carry forward a two-hundred per cent figure into AY 2018-19 or later.
Validity check could not be completed. Validity check could not be completed. I read the order's header and the first line of each of its fifty-four numbered paragraphs from the plain document URL, transcribed paragraphs 33, 36, 37, 38, 43, 44 and 45 verbatim, and re-verified the quoted sentence at paragraph 37 through a separate document-fragment fetch, which returned it in identical words. I did NOT check whether the Revenue has appealed to the Madras High Court and did not run any citator check. The holding is expressly confined to previous years ending before 1 July 2016; it is not authority for a later year, and the entry should not be cited as though it were. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraph 37 reproduces s.35(2AB)(1) but the reproduction in the order is garbled — it prints 'a deduction of a sum equal to one and two times of the expenditure so incurred', which is not the statutory language for any year. The words in the Act for the years in issue were 'two times'. Do not quote the order's reproduction of the section. Paragraph 43 also carries a bracket mismatch, opening with a square bracket and closing with a round one. The order names, but I did not read, the decisions it relies on: Crompton Greaves Limited (111 taxmann.com 338) (Mumbai Tribunal), Mahindra Electric Mobility Ltd. v. ACIT (Bangalore Tribunal), Sun Pharmaceutical Industries Ltd. (Ahmedabad Tribunal), Cummins India Limited v. DCIT (Pune Tribunal) and Ashok Leyland in ITA No. 362/Chny/2024 dated 25 September 2024 — the propositions attributed to them here are the Chennai Tribunal's account of them, not mine. The Tribunal's statement at paragraph 43 that the words 'no legal sanctity' come from the Bangalore Bench in Mahindra Electric Mobility is the Chennai Bench reporting that decision; a document-fragment re-fetch of this order did not return that phrase, so it is recorded here as reported speech and is not offered as a quotation. The overall disposal is 'all the appeals filed by the assessee are partly allowed for statistical purposes and the appeal filed by the Revenue is dismissed', even though the s.35(2AB) ground itself was allowed outright with a direction to the Assessing Officer at paragraph 45. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Tribunal set aside the order of the Commissioner (Appeals) on this issue and directed the Assessing Officer to allow the deduction as claimed under s.35(2AB) for all the assessment years in question (paragraph 45). For assessment years 2011-12 to 2014-15, which precede the Income Tax (Tenth Amendment) Rules, 2016 amending Rule 6(7A) with effect from 1 July 2016, the deduction under s.35(2AB) has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account, and not restricted to the amount the DSIR quantified (paragraph 43). The Departmental Representative's contention that the amendment to Rule 6(7A) was procedural was rejected, the Tribunal holding that because the amended rule stipulates a condition beyond approval of the facility — that the expenditure also be quantified by the prescribed authority — it affects the substantive right of the assessee and cannot be termed merely procedural (paragraph 43).
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