Section 35(2AB) IT Act | Form 3CL Already in AO’s Record Must Be Considered in Rectification Proceedings: ITAT Mumbai

The ITAT Mumbai has clarified that Form 3CL issued by the Department of Scientific and Industrial Research (DSIR) and already in the possession of the Assessing Officer cannot be dismissed as additional evidence during rectification proceedings under Section 154 of the Income Tax Act. This ruling reinforces the principle that statutory compliance through official documentation must be recognized when it exists within the official record, regardless of procedural delays.

Background & Facts

The Dispute

The appellant, Ultramarine & Pigments Ltd., claimed a weighted deduction under Section 35(2AB) of the Income Tax Act, 1961, for in-house scientific research and development expenditure incurred during the assessment year 2018-19. The Assessing Officer (AO) disallowed the entire deduction relating to capital expenditure of Rs. 17,42,218, amounting to a disallowance of Rs. 26,13,327 (150% of the capital cost), on the ground that the assessee had not submitted Form 3CL during the assessment proceedings. The assessee contended that Form 3CL, issued by DSIR on 24.06.2020, was already transmitted to the jurisdictional AO and thus formed part of the record.

Key Facts

• The assessee filed its return of income on 05.10.2018, declaring total income of Rs. 53,78,38,920
• Total expenditure on in-house R&D: Rs. 1,29,80,528 (capital: Rs. 17,42,218; revenue: Rs. 1,12,38,310)
• Claimed deduction under Section 35(2AB): Rs. 1,94,70,792 (150% of total R&D expenditure)
• AO disallowed only the capital component: Rs. 26,13,327 (150% of Rs. 17,42,218)
• Revenue expenditure deduction of Rs. 1,68,57,465 (150% of Rs. 1,12,38,310) was fully allowed
• Notice under Section 142(1) dated 17.04.2021 sought Form 3CL
• Due to COVID-19 restrictions, assessee requested extension on 22.04.2021
• Assessment order passed on 24.04.2021 disallowed capital deduction due to non-submission of Form 3CL
• Form 3CL dated 24.06.2020 was issued by DSIR and copied to the jurisdictional AO
• Rectification application filed on 17.05.2021 seeking reduction of disallowance to Rs. 12,99,000 (150% of Rs. 8,66,000 differential)
• Rectification order dated 02.02.2023 rejected the application, calling Form 3CL "additional evidence"
• CIT(A) order dated 17.07.2025 upheld the rectification order

Procedural History

• 05.10.2018: Return of income filed for A.Y. 2018-19
• 18.12.2020: Notice under Section 142(1) issued seeking details of R&D expenditure
• 17.04.2021: Notice issued specifically seeking Form 3CL
• 22.04.2021: Assessee requested extension due to COVID-19 restrictions
• 24.04.2021: Assessment order passed under Section 143(3) disallowing Rs. 26,13,327
• 24.06.2020: DSIR issued Form 3CL, copied to jurisdictional AO
• 17.05.2021: Rectification application filed under Section 154
• 02.02.2023: Rectification order passed rejecting application
• 17.07.2025: CIT(A) order upholding rectification order
• 12.05.2026: ITAT Mumbai delivers judgment allowing appeal

The Parties' Positions

For the Assessee

• Form 3CL was issued by DSIR on 24.06.2020 and was electronically transmitted to the jurisdictional AO as mandated by Rule 6(7A)
• The form was not "additional evidence" but part of the official record
• The AO’s failure to access the form due to e-assessment system glitches does not invalidate its existence in the record
• The assessee sought only to reduce the disallowance from Rs. 26,13,327 to Rs. 12,99,000, aligning with DSIR’s approved expenditure of Rs. 103.72 lakhs (vs claimed Rs. 112.38 lakhs)
• The disallowance was based on a technical omission, not substantive non-compliance

For the Revenue

• Form 3CL was not filed during assessment proceedings
• Rectification under Section 154 is limited to mistakes apparent from the record
• Form 3CL was submitted for the first time during rectification and thus constitutes additional evidence
• The AO’s disallowance was based on statutory non-compliance
• The issue is debatable and cannot be rectified under Section 154

Relief Sought

The assessee sought:

• Setting aside of the rectification order dated 02.02.2023
• Setting aside of the CIT(A) order dated 17.07.2025
• Reduction of disallowance under Section 35(2AB) from Rs. 26,13,327 to Rs. 12,99,000
• Direction to the AO to compute deduction as per Form 3CL

The Legal Issue

Can a Form 3CL issued by the prescribed authority (DSIR) and already transmitted to the jurisdictional Assessing Officer under Rule 6(7A) be rejected as "additional evidence" during rectification proceedings under Section 154, when the form was not physically filed by the assessee due to pandemic-related constraints?

Arguments Presented

For the Appellant

The assessee relied on Rule 6(7A) of the Income Tax Rules, which mandates that the prescribed authority must electronically furnish Form 3CL to the Principal Chief Commissioner or Chief Commissioner of Income-tax having jurisdiction over the company. The form was issued on 24.06.2020 and copied to the jurisdictional AO. The assessee argued that the form was not "additional evidence" but an official document already part of the record. The failure to upload it on the e-assessment portal was due to systemic issues during the first year of e-assessment, not the assessee’s default. The claim was not for a new deduction but for correction of an erroneous disallowance based on a document already in the AO’s possession.

For the Respondent

The Revenue contended that Section 154 permits rectification only for mistakes apparent on the face of the record. Since Form 3CL was not submitted during the assessment proceedings, it could not be considered part of the record. The assessee had ample opportunity to file the form before the assessment order was passed. The AO’s disallowance was based on statutory compliance, and the subsequent submission of Form 3CL did not alter the fact that the assessee failed to meet the evidentiary burden at the time of assessment.

The Court's Analysis

The ITAT undertook a detailed examination of Rule 6(7A), which came into effect on 01.07.2016 and was applicable for A.Y. 2018-19. The provision mandates that the prescribed authority (DSIR) shall furnish its report in Form 3CL electronically to the Principal Chief Commissioner or Chief Commissioner of Income-tax having jurisdiction over the company. The ITAT noted that the Form 3CL dated 24.06.2020 was not only issued but also copied to the jurisdictional AO, as evidenced by the paper book.

"Therefore, we do not find any merit in the findings in the rectification order, as upheld by the learned Addl./Joint CIT(A), that the said Form 3CL was additional evidence which was produced by the assessee for the first time during the rectification proceedings, since the said Form 3CL was already available in the record of the Jurisdictional Assessing Officer."

The Tribunal emphasized that the statutory obligation to transmit Form 3CL lies with the DSIR, not the assessee. The assessee’s duty was to apply for approval, not to ensure electronic delivery. The AO’s failure to access the form due to e-assessment system limitations cannot be attributed to the assessee. The ITAT further held that once a document is part of the official record, even if not physically filed by the assessee, it qualifies as part of the record for the purposes of Section 154.

The Tribunal distinguished between "additional evidence" and "official documentation already in possession of the authority." The latter cannot be excluded merely because it was not physically submitted by the taxpayer. The ITAT also noted that the AO had allowed the entire revenue expenditure component, indicating no dispute on the eligibility of the R&D facility itself. The only issue was quantification, which Form 3CL precisely addressed.

The Tribunal concluded that the lower authorities erred in treating Form 3CL as additional evidence and in refusing to consider it under Section 154. The disallowance of Rs. 26,13,327 was based on a technical omission, not a substantive legal bar.

The Verdict

The appeal is allowed for statistical purposes. The ITAT set aside the rectification order dated 02.02.2023 and the CIT(A) order dated 17.07.2025. The matter is restored to the file of the jurisdictional Assessing Officer for recomputation of the deduction under Section 35(2AB) strictly in accordance with the expenditure approved by DSIR in Form 3CL dated 24.06.2020. The AO shall reduce the disallowance from Rs. 26,13,327 to Rs. 12,99,000. No order shall be passed without affording the assessee a reasonable opportunity of hearing. The AO is directed to complete the proceedings within 8 weeks from the date of receipt of this order.

What This Means For Similar Cases

Form 3CL Is Not Additional Evidence If Sent by DSIR

• Practitioners must argue that Form 3CL transmitted by DSIR under Rule 6(7A) is part of the official record, regardless of whether the assessee physically filed it
• Failure to upload by the system does not negate the existence of the document in the AO’s possession
• Rectification under Section 154 must consider such official documents if they are part of the record

AO Cannot Ignore Statutorily Mandated Transmissions

• The AO has a statutory duty to access documents transmitted electronically by prescribed authorities
• The burden of non-access cannot be shifted to the assessee
• Disallowances based on non-submission of Form 3CL are invalid if the form was transmitted by DSIR

Rectification Proceedings Are Not Limited to Clerical Errors

• Section 154 permits correction of mistakes apparent from the record, including those arising from non-consideration of statutorily mandated documents
• Where a document is required by law to be in the record, its absence due to administrative failure qualifies as a mistake apparent on the face of the record
• This judgment expands the scope of rectification beyond typographical or arithmetic errors to include statutory compliance failures