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Sets Aside 's Delay Rejection for Sedemac's R&D Tax Deduction Claim
In a significant ruling for companies claiming research and development deductions, the has held that the () cannot reject an application for solely on the ground of delay when the assessee has filed the mandatory audit report () within the income tax return due date.
A Division Bench of Justice B.P. Colabawalla and Justice Firdosh P. Pooniwalla was hearing a filed by challenging an order dated , by which the rejected its applications for for Assessment Years 2018-19 and 2020-21 as being .
Background: The Dispute Over Timely Filing
Sedemac, a company engaged in manufacturing, had set up an in-house research and development facility to claim deduction under Section 35(2AB) of the . For claiming this , a company must obtain a report from the in , which quantifies the eligible expenditure. One of the conditions under is that the company must furnish an audit report in electronically to the on or before the due date for filing the income tax return.
For A.Y. 2018-19, Sedemac filed its on , a day before the return-filing deadline of . For A.Y. 2020-21, it filed the form on , well before the extended deadline of that was granted due to the COVID-19 pandemic. Nevertheless, the rejected the applications for , contending that the applications themselves were filed late—on and respectively.
Arguments: Compliance vs. Late Application
Petitioner's counsel argued that Sedemac had fully complied with by submitting the audit report within the prescribed timeline. He further pointed out that the had registered itself on the income tax e-filing portal to receive , and the department's own reply admitted that the forms filed by Sedemac could be accessed and viewed. Additionally, after the issued a communication on granting a final opportunity to submit required details by , Sedemac responded on —well within that deadline.
Opposing counsel , representing the , relied on the department's records showing the date of application for as later than the due date. He also cited an admission by Sedemac in its petition that submission of certain details was delayed after receiving approval.
Legal Analysis: What Constitutes Timely Compliance?
The High Court examined the plain language of
, which requires an assessee to "furnish electronically" the audit report in
to the
"on or before the due date specified in Explanation 2 to sub-section (1) of section 139"
. The court found that the
's own Annual Report for 2018-19 confirmed that it had registered as an external agency on the income tax e-filing website to receive
. The department also accepted that the forms filed by Sedemac were accessible on that portal.
The court concluded:
"It must therefore be accepted that uploading of by an Assessee to its e-filing account on the website of the Income Tax Department, on or before the due date of filing of the Return of Income, satisfies the requirement of ."
Since it was undisputed that Sedemac had filed within the due dates for both assessment years, the court held that the rejection based on delay was unsustainable.
Key Observations
The Bench made it clear that the substance of the compliance—submitting the audit report on time—cannot be disregarded merely because the 's internal records showed a later date for a separate application. The court also noted that Sedemac had complied with the 's request for additional information within the specific timeline provided.
Decision and Implications
Setting aside the impugned order to the extent it rejected Sedemac's applications for A.Y. 2018-19 and 2020-21, the court directed the to decide those applications on their merits and compute the expenditure eligible for deduction under Section 35(2AB) in accordance with law. For A.Y. 2019-20, since Sedemac's deduction had already been accepted, no direction was issued.
The ruling clarifies that for companies claiming in-house R&D deductions, the critical date is the filing of , not the filing of the application itself. Taxpayers who have furnished their audit reports by the return due date can now confidently seek without the fear of a delay-based rejection.
The was disposed of with no order as to costs.
