Failure to furnish Form 3CL alone does not satisfy Section 263’s twin conditions.

The assessee, a manufacturer and trader, claimed a deduction under Section 35(2AB) of the Income-tax Act, 1961, for scientific research expenditure in AY 2017–18.

In the assessment under Section 143(3), the Assessing Officer examined the claim and allowed it.

The PCIT later invoked Section 263, reasoning that the assessee had not furnished Form 3CL under the amended Rule 6, effective from 1 July 2016, and set aside the assessment for de novo consideration.

The Tribunal allowed the assessee’s appeal, noting the material submitted in support of the claim, the Assessing Officer’s inquiry, and the DSIR’s approval.

The Revenue appealed under Section 260A.

1. Whether the absence of Form 3CL under the amended provisions justified revision under Section 263 of the assessment allowing the Section 35(2AB) deduction

2. Whether, in light of the Assessing Officer’s inquiry and the Tribunal’s finding that the DSIR had approved the expenditure, the assessment was both erroneous and prejudicial to the interests of the Revenue

Section 263 permits revision only where the assessment order is both erroneous and prejudicial to the interests of the Revenue; both conditions must be satisfied, as held in Malabar Industrial Co. Ltd. v. CIT, [2000] 243 ITR 83 (SC).

Section 35(2AB) and Rule 6 of the Income-tax Rules, including the amendments effective from 1 July 2016, governed the claimed research deduction and the relevant DSIR documentation.

The Court also relied on Principal Commissioner of Income Tax v. Schaeffler India Ltd., [2023] 155 taxmann.com 651 (Gujarat), which upheld the view that the failure or delay in furnishing Form 3CL does not, on the facts there considered, by itself justify denying the deduction where the research facility was approved and the assessment involved due inquiry.

The Court accepted that the assessee had not furnished Form 3CL in the form required by the amended provisions.

However, the Tribunal had found that the Assessing Officer made relevant inquiries, that the assessee provided supporting material including Form 3CM, and that the DSIR had approved the expenditure.

In those circumstances, the absence of Form 3CL did not establish that the assessment was prejudicial to the Revenue, even if the assessment could be regarded as erroneous for want of that document.

Since Section 263 requires both conditions to coexist, the PCIT’s revision was not justified.

No substantial question of law arose, and the Revenue’s appeal was dismissed.