GUJARAT METAL CAST INDUSTRIES PRIVATE LIMITED,VADODARA V. THE PR. CIT, VADODARA-1, VADODARA

ITA 551/AHD/2024

AI Insights

The case involves Gujarat Metal Cast Industries Pvt. Ltd., which appealed against the order of the PCIT, Vadodara-1, setting aside their assessment order for the Assessment Year 2018-19. The original assessment allowed a deduction for in-house research and development expenditure under section 35(2AB) at 200%, despite the statutory amendment reducing the rate to 150% from April 1, 2018. The PCIT found that the deduction was allowed without verifying the mandatory Form 3CL from the prescribed authority, leading to the setting aside of the assessment order and directing a de novo assessment. The tribunal upheld the PCIT's decision, emphasizing the non-verification of statutory conditions and the mechanical allowance of the deduction as the grounds for their decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 472289 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2025
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2018-2019
• Other Referred Cases: Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A. P. SINGH; RIGNESH DAS
• Assessee Lawyers: TUSHAR HEMANI; PARIMALSINH B. PARMAR
• Keywords: Set aside; Difference of opinion; Change of opinion
• Section: 143(3); 142(1); 263

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदा बा द \u0012ा यपीठ “सी“, अहमदा बा द । IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD सु\u0017ी सुिच\u0019ा का \u001aले, \u0012ा ियक सद एवं \u0017ी मकरंद वसंत महा देवकर, लेखा सद क े सम\"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.551/Ahd/2024 िनधा \u0010रण वष\u0010 /Assessment Year : 2018-19 Gujarat Metal Cast Industries Private Limited Village : Garadhiya Jarod Samlaya Road Vadodara – 391 520 (Gujarat) बनाम/ v/s. Ther Pr.CIT, Vadodara-1, Vadodara-390 007 \u0014थायी लेखा सं./PAN: AAACG 8433 G अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, AR Revenue by : Shri A.P. Singh, CIT-DR & Shri Rignesh Das, Sr.DR सुनवाई की तारीख/Date of Hearing : 27/03/2025 घोषणा की तारीख /Date of Pronouncement: 01/04/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal is filed by the assessee against the order passed by the Principal Commissioner of Income Tax, Vadodara-1 [hereinafter referred to as “PCIT”], dated 29.02.2024, under section 263 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] for the Assessment Year (AY) 2018–19, setting aside the assessment order dated 12.04.2021 passed by National e-Assessment Centre, Delhi (Assessing Officer) [hereinafter referred to as “AO”] under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act. ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 2 Facts of the Case: 2. The assessee is engaged in the business of manufacturing steel and steel metal casting and forging. The assessee filed its return of income for the A.Y. 2018–19 on 20.09.2018 declaring total income of Rs.3,29,04,740/-. The return was selected for scrutiny under CASS, and assessment was completed under section 143(3) r.w.s. 143(3A) and 143(3B) of the Act on 12.04.2021 by the AO, accepting the returned income without any modification. 3. During the assessment proceedings, the assessee claimed deduction under section 35(2AB) of the Act of Rs.1,03,82,195/- on account of in-house research and development expenditure. The said claim was allowed by the AO after calling for details through notices under section 142(1) of the Act and examining the submissions of the assessee. 3.1. Subsequently, the Ld. PCIT invoked jurisdiction under section 263 of the Act and issued show-cause notice to the assessee stating that the order passed by the AO was erroneous and prejudicial to the interest of the revenue, as the deduction under section 35(2AB) of the Act was allowed without verifying whether the assessee submitted Form 3CL from the prescribed authority and at the rate of 200%, whereas the applicable rate as per the amended provision was 150% from 01.04.2018. 4. After considering the reply of the assessee, the Ld. PCIT held that the AO failed to examine the statutory conditions for allowing deduction under section 35(2AB) of the Act and allowed excess deduction without verifying Form 3CL. The PCIT, accordingly, set aside the assessment order with a direction to the AO to pass a fresh order de novo. ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 3 5. Aggrieved by the order of the PCIT, the assessee is in appeal before us raising following grounds of appeal: 1. The Ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 2. Ld. PCIT has grossly erred in not appreciating that in order to invoke s.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s.263 of the Act. Under the circumstances, the very assumption of power u/s.263 of the Act is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed. 3. The subject order u/s. 263 passed by the Ld. PCIT is illegal and bad in law in absence of any finding of Ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when deduction u/s. 35(2AB) of the Act has rightly been claimed. 4. The Ld. PCIT has further erred in law and on facts in not appreciating that the view taken by the AO is a possible view and hence the proceedings are illegal and bad in law. 5. The ld. PCIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of Id. PCIT is without jurisdiction and illegal and hence deserves to be deleted. 6. Ld. PCIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective. 7. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 6. During the course of hearing before us, the learned Authorized Representative (AR) relied upon the assessment order and reiterated that the AO had issued notices under section 142(1) of the Act, called for details including those relating to deduction under section 35(2AB), and after ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 4 examining the same, accepted the claim of the assessee. It was submitted that all documents including approval in Form 3CM, auditor’s certificate, and computation were submitted, and therefore, the view taken by the AO was a plausible view. The revision proceedings were thus a mere change of opinion and not sustainable under law. 7. The learned Departmental Representative (DR), on the other hand, supported the revisionary order passed by the PCIT and submitted that the AO had allowed weighted deduction under section 35(2AB) of the Act without verifying the mandatory Form 3CL, and had allowed deduction @200% despite the amendment restricting the claim to 150% of expenditure from 01.04.2018. It was submitted that such failure renders the order erroneous and prejudicial to the interest of the revenue. 8. We have carefully considered the rival submissions and perused the assessment order passed under section 143(3) of the Act, the impugned revisionary order passed under section 263 of the Act, and the material placed on record. 8.1. The primary ground on which the PCIT has invoked jurisdiction under section 263 of the Act is that the deduction under section 35(2AB) of the Act, was erroneously allowed by the AO at the rate of 200% without verifying compliance with the amended statutory conditions, particularly the mandatory requirement of furnishing the report in Form 3CL issued by the prescribed authority, i.e., the Department of Scientific and Industrial Research (DSIR). Further, the PCIT observed that the AO had not examined the fact that post amendment by Finance Act, 2016 and Finance Act, 2018, the ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 5 weighted deduction permissible under section 35(2AB) of the Act stood reduced to 150% of the eligible expenditure with effect from 01.04.2018. 8.2. From a perusal of paragraph 6.5 onwards of the revisionary order, it is evident that the PCIT has elaborately dealt with the statutory scheme governing deduction under section 35(2AB) of the Act, including the requirements under Rule 6 and Rule 6(7A) of the Income Tax Rules, 1962. It has been specifically noted that Form 3CL, which is required to be furnished electronically by the DSIR, was not available on record either during the assessment proceedings or even during the revision proceedings. The PCIT has concluded that the AO allowed the deduction mechanically, without verification of eligibility, thus rendering the assessment order unsustainable in law. 8.3. While the learned AR has argued that the AO had called for details and allowed the claim after due consideration, we find merit in the PCIT’s observation that the allowance of deduction was made without satisfying the statutory mandate, particularly when submission of Form 3CL by the DSIR quantifying the eligible expenditure is a condition precedent for allowing deduction under section 35(2AB) of the Act. 8.4. The assessee’s reliance on the judgment of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) is also misplaced. The said decision holds that where two views are possible and the AO adopts one, the order cannot be revised merely because the PCIT holds a different opinion. However, the present case is not one of two possible ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 6 views, but rather a case of non-application of mind by the AO and failure to conduct requisite inquiry before allowing a substantial deduction. 8.5. The PCIT has rightly emphasized that there is no ambiguity in the law post amendment, and the provisions of section 35(2AB) of the Act read with Rule 6 of IT Rules, 1962 clearly mandate the filing of Form 3CL and limit the weighted deduction to 150% of eligible expenditure incurred on in-house research and development from A.Y. 2018–19 onwards. The AO allowed the deduction at 200% in clear contravention of the law, and without verifying whether the basic condition of prescribed authority’s quantification had been fulfilled. 8.6. In these circumstances, we are of the considered opinion that the twin conditions for invoking jurisdiction under section 263 of the Act—namely that the assessment order is erroneous and prejudicial to the interests of the revenue—stand duly satisfied. 8.7. Accordingly, the PCIT was justified in invoking revisionary powers under section 263 of the Act and setting aside the assessment order with a direction to the AO to frame a fresh assessment after conducting proper verification and affording reasonable opportunity to the assessee. 8.8. In view of the above discussion and findings, we hold that the order passed by the Ld. PCIT under section 263 of the Act is valid and sustainable in law. ITA No.551/Ahd/2024 Gujarat Metal Cast Industries Pvt.Ltd. vs. Pr.CIT Asst. Year : 2018-19 7 9. In the result, the appeal filed by the assessee lacks merit and is accordingly dismissed. Order pronounced in the Open Court on 01st April, 2025 at Ahmedabad. Sd/- Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 01/04/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की #ितिलिप अ$ेिषत/Copy of the Order forwarded to : 1. अपीलाथ% / The Appellant 2. #&थ% / The Respondent. 3. संबंिधत आयकर आयु' / Concerned CIT 4. आयकर आयु' ) अपील ( / The CIT(A)/ Pr.CIT, Vadodara-1 5. िवभागीय #ितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u0010 फाईल / Guard file. आदेशानुसार/ BY ORDER, स&ािपत #ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad 1. Date of dictation (word processed by Hon’ble AM in his laptop) : 28.3.2025 2. Date on which the typed draft is placed before the Dictating Member. : 28.3.2025 3. Date on which the approved draft comes to the Sr.P.S./P.S : 4. Date on which the fair order is placed before the Dictating Member for pronouncement. : 5. Date on which fair order placed before Other Member : 6. Date on which the fair order comes back to the Sr.P.S./P.S. : 01/04/25 7. Date on which the file goes to the Bench Clerk. : 01/04/25 8. Date on which the file goes to the Head Clerk. : 9. The date on which the file goes to the Assistant Registrar for signature on the order. : 10. Date of Despatch of the Order : "