The Bombay High Court has delivered an important ruling concerning R&D tax deduction under Section 35(2AB) of the Income Tax Act, holding that an application for the Department of Scientific and Industrial Research (DSIR) report cannot be rejected merely on the ground of delay when the assessee had electronically furnished the prescribed audit report, Form 3CLA, within the due date for filing its income tax return.
The judgment provides significant relief to companies claiming deductions for eligible expenditure incurred on approved in-house research and development facilities. The Court clarified that compliance with the statutory requirement under Rule 6(7A)(c) of the Income Tax Rules cannot be defeated by relying on a later date recorded in DSIR’s administrative records when the prescribed audit report was actually uploaded within the statutory deadline.
Background of the Case
The judgment was delivered by a Division Bench comprising Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla in the case of Sedemac Mechatronics Limited v. Department of Scientific & Industrial Research & Ors., Writ Petition No. 2654 of 2025.
Sedemac Mechatronics Limited had approached the Bombay High Court challenging the rejection of its applications seeking the DSIR’s report in Form 3CL for Assessment Years 2018-19, 2019-20 and 2020-21.
Form 3CL is relevant for determining the approval of an eligible in-house research and development facility and the amount of expenditure eligible for deduction under Section 35(2AB) of the Income Tax Act.
The dispute ultimately remained in respect of AY 2018-19 and AY 2020-21, as the company’s claim for AY 2019-20 had already been accepted.
What Does Section 35(2AB) Provide?
Section 35(2AB) of the Income Tax Act provides tax benefits to eligible companies in respect of expenditure incurred on an approved in-house research and development facility, subject to prescribed statutory conditions.
One of the important procedural requirements is contained in Rule 6(7A)(c) of the Income Tax Rules. The company is required to maintain a separate account for each approved R&D facility and have the accounts audited annually.
The prescribed audit report, Form 3CLA, is required to be furnished electronically to the DSIR by the due date for filing the company’s income tax return.
Form 3CLA Was Filed Within the Due Date
Sedemac argued that it had fully complied with the statutory requirement.
For AY 2018-19, the company uploaded Form 3CLA on October 30, 2018, whereas the due date for filing its income tax return was October 31, 2018.
For AY 2020-21, Form 3CLA was submitted on December 24, 2020, while the extended due date for filing the return was February 15, 2021.
Thus, in both assessment years, the prescribed audit report had been furnished before the applicable return-filing deadline.
The company further pointed out that DSIR had registered itself on the Income Tax Department’s e-filing portal as an external agency capable of receiving Form 3CLA electronically.
Importantly, DSIR itself acknowledged before the Court that the Form 3CLA submitted electronically by Sedemac along with its income tax return could be accessed and viewed by the department.
DSIR Relied on Later Application Dates
Despite this, DSIR rejected the applications by treating them as delayed.
The department relied upon its records showing January 28, 2020 as the application date for AY 2018-19 and February 25, 2021 as the application date for AY 2020-21.
The respondents also referred to statements made by Sedemac in its writ petition concerning certain details being furnished later after the company’s approval.
The company disputed the relevance of these dates and maintained that the statutory requirement was satisfied when Form 3CLA was electronically furnished within the prescribed period.
Bombay High Court Rejects the Delay Objection
The Bombay High Court accepted Sedemac’s contention.
The Court examined the language of Rule 6(7A)(c), which specifically requires the assessee to electronically furnish the audit report to DSIR by the due date for filing the income tax return.
The Court observed that the requirement was satisfied when the assessee uploaded Form 3CLA to its e-filing account within the prescribed time.
The Court held, in substance, that uploading Form 3CLA on the Income Tax Department’s e-filing portal on or before the return-filing due date satisfies the requirement of Rule 6(7A)(c).
This conclusion was particularly significant because DSIR itself had registered on the Income Tax e-filing portal to receive such forms and had acknowledged that the form submitted by Sedemac could be accessed and viewed.
Therefore, the subsequent date appearing in DSIR’s records could not be used to disregard the assessee’s timely statutory compliance.
Additional Documents Were Also Furnished
The Court also considered the issue of additional documents and clarifications sought by DSIR.
On May 30, 2024, DSIR granted Sedemac a final opportunity to provide the necessary details, clarifications and documents by June 30, 2024.
Sedemac submitted the required documents through letters dated June 17, 2024, which were emailed to DSIR on June 19, 2024.
The company therefore demonstrated that it had responded within the period granted by the department.
Court Sets Aside DSIR’s Rejection
After considering the statutory provisions and factual circumstances, the Bombay High Court concluded that the DSIR’s rejection of Sedemac’s applications for AY 2018-19 and AY 2020-21 on the ground of delay could not be sustained.
The Court accordingly set aside the October 25, 2024 order to that extent and directed DSIR to consider the two applications on their merits.
The department was further directed to determine the expenditure eligible for deduction under Section 35(2AB) in accordance with law.
No separate direction was necessary for AY 2019-20 because Sedemac’s return for that year had already been accepted.
Key Takeaway for Companies Claiming R&D Deduction
The judgment reinforces an important principle of tax administration: substantive statutory compliance should not be defeated by an administrative interpretation of procedural timelines.
Companies claiming R&D deductions under Section 35(2AB) should ensure that Form 3CLA is properly uploaded electronically within the prescribed return-filing deadline and that documentary evidence of such filing is preserved.
The ruling is particularly relevant where there is a difference between the actual date of electronic submission and the date subsequently reflected in departmental records.
The Bombay High Court’s decision makes it clear that where the prescribed Form 3CLA was furnished electronically within the statutory deadline, the assessee cannot ordinarily be treated as having failed the requirement merely because DSIR’s records show a later application date.
Case Details
Case: Sedemac Mechatronics Limited v. Department of Scientific & Industrial Research & Ors.
Court: Bombay High Court
Case No.: Writ Petition No. 2654 of 2025
Bench: Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla
Key Provisions: Section 35(2AB), Income Tax Act; Rule 6(7A)(c), Income Tax Rules
Issue: Whether an R&D deduction claim can be rejected as delayed when Form 3CLA was electronically furnished within the prescribed return-filing deadline.