Section 536 of the 2025 Act saves pending TP proceedings; framework preserved.
HISTORICAL CONTEXT
Section 35 is part of Chapter IV-C - PGBP — the profits and gains of business or profession framework of the Income-tax Act, 1961. The provision establishes operative rules within the comprehensive profits and gains of business or profession architecture.
The section operates in coordination with companion provisions in the same chapter and related chapters of the Act. Practitioner-relevant — verbatim text (Block 1) sets out operative language; parallel-provisions table (Block 2) maps to 1961 Act + 2025 Act framework + companion Rules / Forms.
The 2025 Act preserves the framework substantially intact; section 536 of the 2025 Act saves pending proceedings under the 1961 Act framework. Practitioner discipline — comprehensive documentation; Rule-compliance; appropriate appellate / revisional strategy where disputes arise.
The transition to the Income-tax Act, 2025 preserves the TP framework substantively intact; pending TPO / DRP / APA / MAP proceedings continue under section 536 saving.
FINANCE ACT AMENDMENT TIMELINE
■ Income-tax Act 1961 — Original provision framework.
■ Finance Act 1989 — Major restructuring across many chapters.
▸ Commissioner of Income-tax v. Kanpur Coal Syndicate (1964) 53 ITR 225 ; AIR 1965 SC 325 (Supreme Court)
Facts. The assessee in appeal sought to raise new grounds going to the question whether income was assessable in the hands of the firm or in the hands of its members; the AAC had taken a narrow view of his appellate jurisdiction.
Issue. Scope of the first-appellate authority's jurisdiction — is it co-terminus with the AO's, or limited to the grounds raised by the assessee?
HELD. The first-appellate authority (CIT(A) under the present scheme) has plenary powers co-terminus with the AO; he can confirm, reduce, enhance, or annul the assessment, and consider any aspect arising out of the assessment record.
“The Appellate Assistant Commissioner has plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the ITO can do and also direct him to do what he has failed to do.”
Relevance. Foundational on CIT(A)'s jurisdiction — supports raising new legal grounds in first appeal under section 246A / section 251; counter-poised by Rule 46A on additional evidence.
▸ Commissioner of Income-tax v. Excel Industries Ltd. (2013) 358 ITR 295 ; (2014) 2 SCC 1 (Supreme Court)
Facts. The assessee, an export-oriented unit, received DEPB licences and Advance Licences. The Department sought to tax the value of these incentives on accrual at the time of issue; the assessee contended that no income accrued until the licence was actually used or sold.
Issue. When does income accrue under the mercantile system — at the moment a right is created, or at the moment the right becomes enforceable as a debt?
HELD. Income accrues only when there is a corresponding liability of the other party. Mere creation of a contingent or unmatured right does not amount to accrual; the right must crystallise into a debt before tax incidence.
“Income accrues when there arises in favour of the assessee a debt — when there is a corresponding liability of the other party to pay the amount. It is not enough that the right has come into being; the right must ripen into a debt.”
Relevance. Anchor for accrual-vs-receipt timing disputes under section 5 / section 145 — relevant for retention monies, export incentives, contingent claim settlements, milestone-based contracts.
Facts. Section 14A required disallowance of expenditure incurred to earn exempt income. The dispute was whether the disallowance applies to strategic investments (long-term holdings yielding occasional exempt dividends) and whether Rule 8D's formulaic mechanism applies in all cases.
Issue. Scope of section 14A disallowance — does it apply only where the dominant purpose is earning exempt income, or to all expenditure with some nexus to exempt income, however incidental?
HELD. The Court adopted the 'apportionment' approach: expenditure with a proximate nexus to exempt income is disallowable; strategic-investment argument rejected. Rule 8D applies but only after AO records dissatisfaction with the assessee's claim or working under section 14A(2).
“The principal reason for enactment of section 14A is that certain incomes are not includible while computing total income, as no tax is payable… It would be against the principle if expenses are not allocated against such income from which it is incurred.”
Relevance. Operative framework for section 14A and Rule 8D — relevant for all investment-heavy assessees; partially modulated by FA 2022 amendment deeming disallowance to apply even where no exempt income earned (under ongoing challenge).
▸ Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 ; (2000) 1 SCR 1 (Supreme Court)
Facts. A municipal levy was challenged on the ground that the charging provision did not clearly specify the rate, the persons charged, and the measure of tax.
Issue. Whether a tax can be imposed in the absence of a clear, unambiguous charging provision identifying the subject, measure, rate, and incidence.
HELD. Article 265 demands that tax be levied only by clear authority of law. The four components — taxable event, person, rate, and measure — must be clearly discernible from the charging provision; ambiguity is fatal to the levy.
“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions, particularly when the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose other than what is given expression to.”
Relevance. Foundational authority on the rigour required of charging sections — underpins arguments that ambiguous deeming fictions, surcharge formulas, and rate prescriptions must be strictly construed.
Facts. Section 52(2) (since deleted) deemed sale consideration to be FMV where FMV exceeded the declared consideration by 15%. The Department applied it on a literal reading even when the assessee had not in fact received more than the declared price.
Issue. Whether a deeming provision in a charging schema can be construed literally where its plain reading produces a result manifestly contrary to legislative object.
HELD. The Court read down section 52(2) to apply only where the assessee had actually received consideration in excess of the declared sum. A literal construction yielding absurd or unjust results must yield to an object-based interpretation; the CBDT's contemporaneous Circular No. 96 was held binding on the Revenue.
“It is well settled that a literal construction of a statutory provision ought not to be adopted if it produces a manifestly unjust result… Where a literal construction creates an anomaly, the courts will adopt that construction which avoids the anomaly.”
Relevance. Anchor authority for purposive construction of deeming fictions across the 1961 Act — applies wherever a deeming clause (e.g., s. 50C, s. 56(2)(x), s. 2(22)(e)) yields a result contrary to legislative purpose.
CBDT CIRCULARS — ECOSYSTEM
▸ CBDT Circular No. 14(XL-35) of 1955 dated 11 April 1955
Subject. Duty of officers to assist assessees in claiming and securing relief
Substance. Foundational circular directing that the AO should not exploit assessee ignorance to deny legitimate reliefs; officer is required to draw attention to refunds or reliefs to which the assessee is entitled. The circular has been judicially noted in several appellate decisions and remains operative for first-appellate practice.
Substance. Explained the FA 1987 / FA 1989 amendments unifying the previous year with the financial year preceding the AY, including transitional provisions for assessees with different accounting years. Useful in any controversy on the timing of accrual / chargeability for early post-1989 AYs.
▸ CBDT Circular No. 5 of 2014 dated 11 February 2014
Subject. Section 14A — dis-allowance even where no exempt income earned (since modulated)
Substance. Initially directed AOs to apply Rule 8D disallowance under section 14A even where no exempt income was earned in the year; subsequently modulated by Cheminvest (Del HC) and Maxopp (SC). FA 2022 amendment to section 14A re-asserted the position but remains under litigation.
▸ CBDT Circular No. 6 of 2019 dated 20 March 2019
Subject. Withdrawal of low-tax-effect appeals — monetary thresholds
Substance. Revised monetary thresholds for departmental appeals — ITAT (Rs 50L), HC (Rs 1 Cr), SC (Rs 2 Cr); subsequently further revised. Operates as a non-statutory limitation on the Revenue's appellate engagement, binding under section 119.
Substance. Procedural guidance for AOs handling transitional reassessment notices for AYs 2013-14 to 2017-18 affected by Ashish Agarwal and Rajeev Bansal. Sets out the form of section 148A inquiry, time-bar calculation under TOLA, and JAO/FAO jurisdiction in faceless cases.
WORKED EXAMPLES
Illustration — Illustration 1 — Standard 35 application
This revision applies the FA 2026 overlay against the prior v2 (FA 2025) draft. Variant comparison performed: two Cowork files supplied for s. 35 — the un-suffixed original (3,967 words) and the EXPANDED v2 (2026-05-25; 4,420 words). Same pattern: original Block 1 incomplete (missing marginal heading and footnote attributions on the complex sub-section / clause structure); EXPANDED v2 taken as canonical base. Operative-section context: s. 35 (Expenditure on Scientific Research) is one of the most amended sections in the PGBP chapter, with the weighted-deduction regime under sub-section (2AB) (in-house R&D by companies engaged in eligible business) and sub-section (2AA) (contributions to approved national laboratories, IITs, etc.) being the most actively-litigated limbs. The Finance Act, 2020 (w.e.f. AY 2021-22) and Finance Act, 2023 (w.e.f. AY 2024-25) progressively curtailed the weighted-deduction percentages: (a) sub-section (1)(ii) approved scientific research association deduction reduced from 175% to 150% (FA 2017) and then to 100% (FA 2020 w.e.f. AY 2021-22) and remains at 100%; (b) sub-section (1)(iia) approved university/college/IIT contribution at 100% (post-FA-2020); (c) sub-section (2AA) approved national laboratory contribution at 100% (post-FA-2020); (d) sub-section (2AB) in-house R&D weighted deduction reduced from 200% to 150% (FA 2017 w.e.f. AY 2018-19) and then to 100% (FA 2020 w.e.f. AY 2021-22) — the “weighted” element has effectively been eliminated for most s. 35 limbs. Changes recorded: (i) masthead caption updated “as amended by the Finance Act, 2025” → “as amended by the Finance Act, 2026”; (ii) Finance Act Amendment Timeline carries a new closing bullet “Finance Act, 2026 (Act 4 of 2026) — no amendment to s. 35”; (iii) no year-anchor re-anchoring required — the file’s illustrations carry no specific PY anchor. Open audit FLAGs: (a) the v2 base’s Block 1 verbatim text needs careful verification at master pass — s. 35 in the bare Act runs to sub-sections (1), (1A), (2), (2A), (2AA), (2AB), (3), (4), (5) with multiple provisos and Explanations; many of these sub-sections were inserted by distinct Finance Acts (FA 1974, FA 1986, FA 1997, FA 2008, FA 2010, FA 2016, FA 2020) with rate-recalibration amendments through FA 2017, FA 2020 and FA 2023; the footnote chain is one of the most complex in the Act; (b) Block 2 right-hand column cites “Section 35 successor — Preserved” without naming the Act 30 of 2025 successor section number — pending verified successor mapping; (c) the case-law list is the generic Cowork template — the actual s. 35 jurisprudence is exceptionally well-developed (CIT v. Sandoz (India) Ltd (1994) 207 ITR 977 (Bom HC) on what constitutes “scientific research related to the business”; CIT v. Mastek Ltd (2013) 358 ITR 252 (Guj HC) on the in-house R&D weighted deduction; CIT v. Aspentech India Pvt Ltd (2011) 332 ITR 100 (Del HC); Dy CIT v. Mastek Ltd (2013) 145 ITD 233 on capital expenditure on land for R&D; multiple ITAT authorities on DSIR Form 3CL approval requirement and the timing of the deduction vis-à-vis approval) is absent; (d) the FA 2020 / FA 2023 percentage-recalibration history is the most operationally-significant overlay for the section — not adequately captured in the v2 file; (e) cross-reference to Rule 5C, 5D, 5E, 5F of the Income-tax Rules, 1962 and the prescribed DSIR Form 3CK / 3CL / 3CLA framework should be in Block 2 with verification — pending; (f) the Cowork v3 base does not carry a separate Source & verification notes cell (Standard B v2 requirement) — logged for forward-pass. NOTE TO USER: s. 35 will benefit from substantive Block 3 expansion at master pass given the depth of the jurisprudence and the operational complexity of the DSIR-approval / Form 3CL machinery.
Case Laws & Commentary
SECTION 35 — Expenditure on scientific research
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Allows deduction for: (i) revenue expenditure on scientific research related to business; (ii) contribution to approved research association, university, college, IIT, etc. (with weighted deduction historically, now 100% w.e.f. FY 2020-21 onward post FA 2020 sunset of weighted deductions); (iii) capital expenditure on scientific research (other than land) — fully allowable u/s 35(2)(ia); (iv) in-house research (sub-s. (2AB)) — earlier weighted 150%/200% deductions, now 100% w.e.f. FY 2020-21; conditions of DSIR approval and Form 3CL apply. Cl. 35(2AA) — payments to National Laboratory, IIT etc. Sub-s. (3): Board approval mechanism. Sub-s. (5): cessation/sale of asset triggers withdrawal.
Section Commentary
Backbone of R&D incentives
Section 35 is the principal R&D-incentive provision: it allows (i) revenue R&D expenditure on the assessee's own scientific research related to business (sub-s. (1)(i)), (ii) donations to approved external research bodies — universities, IIT, IISc, approved research association etc. (sub-s. (1)(ii) / (iia) / (iii)), (iii) capital R&D expenditure other than on land (sub-s. (1)(iv) read with sub-s. (2)), and (iv) the once-flagship 'weighted' in-house R&D deduction for company assessees under sub-s. (2AB).
Sunset of weighted deductions — FA 2020 watershed
Until FY 2019-20, sub-s. (2AB) gave a 150% / 200% weighted deduction (200% till FY 2016-17, 150% from FY 2017-18) to companies for in-house R&D recognised by DSIR. FA 2016 (sunset trajectory) and FA 2020 (final cap at 100% from AY 2021-22) progressively brought all weighted deductions to 100%. The practitioner servicing pharma / auto / chemical / IT clients must understand the AY-wise rate to compute correctly for ongoing litigation across earlier years.
Scope of 'scientific research'
Defined in s. 43(4) as 'any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries'. Mastek (Ahd ITAT) and a long ITAT line confirm that software / IT R&D, biotech, agri-tech all qualify. The scope is much wider than the lay 'laboratory' image — process improvement, product enhancement, prototype testing, clinical-trial design all qualify if the underlying purpose is extension of knowledge.
DSIR mechanics — Mahindra / Sandan Vikas line
For sub-s. (2AB) the assessee must (i) be a company, (ii) operate a recognised in-house R&D facility (DSIR Form 3CK approval), (iii) get the quantum of expenditure certified annually by DSIR in Form 3CL. Mahindra & Mahindra holds that expenditure incurred outside the facility (vendor-premises testing) on the approved programme qualifies — DSIR approval is purpose-based, not strictly location-based. Sandan Vikas holds that belated Form 3CL cannot defeat substantive entitlement — substantial compliance suffices.
Donations — donor-protection principle
Jindal Steel & Power (P&H) and the Chotatingrai Tea (SC) line establish that retrospective withdrawal of donee's approval cannot defeat donor's claim if the donee held valid approval at the time of donation. The donor's entitlement crystallises on the date of donation. FA 2017 inserted an Explanation tightening this for future periods — the practitioner must verify the donee's status at the time of payment and retain documentary evidence.
Capital expenditure on R&D (other than land) is fully allowable in the year of incurrence under s. 35(1)(iv) read with s. 35(2)(ia) — no five-year amortisation, no depreciation under s. 32. Wheels India (Mad) confirms that even buildings used wholly for R&D qualify for full deduction, displacing s. 32. The Explanation to s. 35(2) bars simultaneous depreciation.
Practical compliance for CA
(i) Maintain DSIR approval letter and renewal trail. (ii) Segregate R&D expenditure books — capital vs revenue, in-house vs sub-contracted. (iii) Form 3CL filing — coordinate with DSIR liaison. (iv) For donations, obtain donee's Form 58/79IF certificate, verify approval status on the IT department portal. (v) Avoid double-claim under s. 37 / s. 32 for amounts claimed under s. 35 — Talisma Corpn. confirms mutual exclusivity. (vi) Form 3CD Cl. 19 captures s. 35 claims.
FA 2026 impact: No fresh FA 2026 amendment. Note: post-FA 2020 sunset, all weighted (150%/175%/200%) deductions have come down to 100%. FA 2025 made no change.
Leading Decisions
1. CIT v. Mahindra & Mahindra Ltd.
Citation: (2009) 313 ITR 263 (Bom)
Forum: Bombay High Court
Facts & Issue: Assessee claimed weighted deduction u/s 35(2AB) for in-house R&D expenditure. Some expenditure was incurred outside the approved R&D facility (at vendors' premises for prototype testing). Revenue restricted weighted deduction to expenditure incurred AT the approved facility.
Held / Ratio: Held that s. 35(2AB) is purpose-based, not facility-based. So long as the expenditure is incurred ON in-house R&D approved by DSIR, the precise physical location is not decisive — vendor-premises testing forming part of the approved programme qualifies. The Court emphasised the policy of incentivising R&D and rejected hyper-technical restriction.
Section relevance: Important authority on scope of s. 35(2AB) — purpose vs location.
2. CIT v. Sandan Vikas (India) Ltd.
Citation: (2011) 335 ITR 117 (Del)
Forum: Delhi High Court
Facts & Issue: Assessee had DSIR approval as a recognized in-house R&D facility, but Form 3CL (quantification certificate from DSIR) was issued belatedly. Revenue denied weighted deduction.
Held / Ratio: Held that Form 3CL is a procedural certificate; substantive entitlement under s. 35(2AB) flows from recognition. Belated issuance of Form 3CL cannot defeat the claim if the expenditure and recognition are otherwise established. Substantial compliance suffices.
Section relevance: Procedural-vs-substantive distinction under s. 35(2AB) — frequently invoked.
3. DCIT v. Mastek Ltd.
Citation: (2012) 25 taxmann.com 133 (Ahd ITAT)
Forum: ITAT Ahmedabad
Facts & Issue: Software-development company claimed weighted deduction u/s 35(2AB). Revenue contended that software development is not 'scientific research'.
Held / Ratio: Held that 'scientific research' u/s 43(4) is broad — includes development of new processes, products and is not confined to laboratory science. Software R&D, when recognised by DSIR, qualifies. The case is regularly cited for IT-sector R&D claims.
Section relevance: Defines 'scientific research' for IT/software industry under s. 43(4) feeding into s. 35.
4. CIT v. Wheels India Ltd.
Citation: (2011) 336 ITR 513 (Mad)
Forum: Madras High Court
Facts & Issue: Capital expenditure on R&D (other than land) — claimed u/s 35(1)(iv) read with s. 35(2). Revenue contended that building used for R&D was eligible only for depreciation u/s 32.
Held / Ratio: Held that capital expenditure on R&D, including buildings used wholly for R&D, qualifies for full deduction u/s 35(1)(iv) / 35(2)(ia) — to the exclusion of s. 32 depreciation. Once allowed u/s 35, depreciation cannot be claimed simultaneously (Expln to s. 35(2)).
Section relevance: Standard authority on capital expenditure under s. 35 vs depreciation under s. 32.
5. CIT v. Talisma Corpn. (P) Ltd.
Citation: (2012) 247 CTR 226 (Kar)
Forum: Karnataka High Court
Facts & Issue: Question of overlap — assessee claimed s. 35(2AB) on expenditure that was also claimed under regular PGBP heads (s. 37). Revenue denied to avoid double benefit.
Held / Ratio: Held that there is no question of double deduction — the assessee is entitled either to claim under s. 35(2AB) (with weighted deduction, then) or under s. 37 (at 100%). Once claimed under s. 35(2AB), the same expenditure cannot also reduce profits under s. 37. The system is mutually exclusive.
Section relevance: Defines mutual exclusivity of s. 35 and s. 37 — avoids double-counting.
6. CIT v. Jindal Steel & Power Ltd.
Citation: (2017) 88 taxmann.com 220 (P&H)
Forum: Punjab & Haryana High Court
Facts & Issue: Donation to an approved research association (s. 35(1)(ii)) — Revenue alleged that the institution's approval was later withdrawn retrospectively, hence weighted deduction should not be allowed.
Held / Ratio: Held that retrospective withdrawal of approval of the donee institution cannot defeat the donor's claim, since at the time of donation the assessee acted in good faith on a valid certificate. The Court relied on the principle that a donor's entitlement crystallises at the time of donation. (FA 2017 introduced Expln to s. 35 prospectively — current position is restrictive.)
Section relevance: Important for handling withdrawn-approval cases under s. 35(1)(ii) / (iia) / (iii). Read with FA 2017 Explanation.
STATUTORY ARCHITECTURE — 18-ROW MAP
01. Section & marginal note
Section 35 — Expenditure on scientific research, including in-house R&D and contributions to approved research institutions.
02. Sub-section structure
Per operative text — see Block 1 verbatim.
03. Operative trigger
International transaction (or SDT) between Associated Enterprises.
04. Persons affected
Resident or NR — wherever ALP / AE / international-transaction nexus exists.
05. Time anchor
Per financial year — TP documentation contemporaneous; Form 3CEB due with assessment.
06. Income anchor
Income from international transaction or SDT — to be computed at ALP.
07. Residential-status nexus
AE definition independent of residence; non-resident AE common.
08. Rate / charge mechanism
Recomputed income at ALP taxed at normal rates; primary + secondary adjustments separately.
09. TDS / TCS interaction
TDS u/s 195 on payments to NR-AE; rate consistent with treaty / domestic source rule.
10. Advance-tax obligation
Recomputed income subject to advance tax; interest u/s 234A/B/C.
11. Presumptive provisions
TP framework applies notwithstanding presumptive regime.
12. Exemption / deduction mechanism
Deductions disallowed if not at ALP; secondary adjustment may be repatriation-deemed.
13. Refund / credit
Net effect post-MAP / APA; foreign tax credit interplay.
14. Return / disclosure reporting
Form 3CEB (TP audit report); Master File (Form 3CEAA); CbCR (Form 3CEAC); Schedule TP in ITR.
15. Penalty exposure
Section 271AA / 271BA / 271G / 270A(9)(f) — TP-specific penalties.
16. Prosecution exposure
Section 276C — wilful evasion; rare in TP — civil-penalty framework dominates.
17. Cross-statute interplay
MLI Article 9 (treaty-level AE); OECD TP Guidelines 2022; BEPS Actions 8-10 / 13; FEMA / RBI.
18. Repeal & saving — 1961 → 2025
Section 536 of the 2025 Act saves pending TP proceedings; framework preserved.
HISTORICAL CONTEXT
Section 35 is part of Chapter IV-C - PGBP — the profits and gains of business or profession framework of the Income-tax Act, 1961. The provision establishes operative rules within the comprehensive profits and gains of business or profession architecture.
The section operates in coordination with companion provisions in the same chapter and related chapters of the Act. Practitioner-relevant — verbatim text (Block 1) sets out operative language; parallel-provisions table (Block 2) maps to 1961 Act + 2025 Act framework + companion Rules / Forms.
The 2025 Act preserves the framework substantially intact; section 536 of the 2025 Act saves pending proceedings under the 1961 Act framework. Practitioner discipline — comprehensive documentation; Rule-compliance; appropriate appellate / revisional strategy where disputes arise.
The transition to the Income-tax Act, 2025 preserves the TP framework substantively intact; pending TPO / DRP / APA / MAP proceedings continue under section 536 saving.
FINANCE ACT AMENDMENT TIMELINE
■ Income-tax Act 1961 — Original provision framework.
■ Finance Act 1989 — Major restructuring across many chapters.
■ Finance Act 2001 — Procedural refinements.
■ Finance Act 2012 — Anti-avoidance + TP refinements.
■ Finance Act 2017 — Faceless framework introduction.
■ Finance Act 2020 — Comprehensive faceless framework.
■ Finance Act 2021 — Reassessment + Settlement Commission restructuring.
■ Finance Act 2024 — Procedural refinements.
■ Finance Act 2025 — Framework preserved; Income-tax Act 2025 s. 536 saving.
■ Finance Act, 2026 (Act 4 of 2026) — no amendment to s. 35.
JUDICIAL EVOLUTION — VERIFIED LANDMARK AUTHORITIES
▸ Commissioner of Income-tax v. Kanpur Coal Syndicate (1964) 53 ITR 225 ; AIR 1965 SC 325 (Supreme Court)
Facts. The assessee in appeal sought to raise new grounds going to the question whether income was assessable in the hands of the firm or in the hands of its members; the AAC had taken a narrow view of his appellate jurisdiction.
Issue. Scope of the first-appellate authority's jurisdiction — is it co-terminus with the AO's, or limited to the grounds raised by the assessee?
HELD. The first-appellate authority (CIT(A) under the present scheme) has plenary powers co-terminus with the AO; he can confirm, reduce, enhance, or annul the assessment, and consider any aspect arising out of the assessment record.
“The Appellate Assistant Commissioner has plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the ITO can do and also direct him to do what he has failed to do.”
Relevance. Foundational on CIT(A)'s jurisdiction — supports raising new legal grounds in first appeal under section 246A / section 251; counter-poised by Rule 46A on additional evidence.
▸ Commissioner of Income-tax v. Excel Industries Ltd. (2013) 358 ITR 295 ; (2014) 2 SCC 1 (Supreme Court)
Facts. The assessee, an export-oriented unit, received DEPB licences and Advance Licences. The Department sought to tax the value of these incentives on accrual at the time of issue; the assessee contended that no income accrued until the licence was actually used or sold.
Issue. When does income accrue under the mercantile system — at the moment a right is created, or at the moment the right becomes enforceable as a debt?
HELD. Income accrues only when there is a corresponding liability of the other party. Mere creation of a contingent or unmatured right does not amount to accrual; the right must crystallise into a debt before tax incidence.
“Income accrues when there arises in favour of the assessee a debt — when there is a corresponding liability of the other party to pay the amount. It is not enough that the right has come into being; the right must ripen into a debt.”
Relevance. Anchor for accrual-vs-receipt timing disputes under section 5 / section 145 — relevant for retention monies, export incentives, contingent claim settlements, milestone-based contracts.
▸ Maxopp Investment Ltd. v. Commissioner of Income-tax (2018) 402 ITR 640 ; (2018) 15 SCC 523 (Supreme Court — 3-Judge Bench)
Facts. Section 14A required disallowance of expenditure incurred to earn exempt income. The dispute was whether the disallowance applies to strategic investments (long-term holdings yielding occasional exempt dividends) and whether Rule 8D's formulaic mechanism applies in all cases.
Issue. Scope of section 14A disallowance — does it apply only where the dominant purpose is earning exempt income, or to all expenditure with some nexus to exempt income, however incidental?
HELD. The Court adopted the 'apportionment' approach: expenditure with a proximate nexus to exempt income is disallowable; strategic-investment argument rejected. Rule 8D applies but only after AO records dissatisfaction with the assessee's claim or working under section 14A(2).
“The principal reason for enactment of section 14A is that certain incomes are not includible while computing total income, as no tax is payable… It would be against the principle if expenses are not allocated against such income from which it is incurred.”
Relevance. Operative framework for section 14A and Rule 8D — relevant for all investment-heavy assessees; partially modulated by FA 2022 amendment deeming disallowance to apply even where no exempt income earned (under ongoing challenge).
▸ Mathuram Agrawal v. State of Madhya Pradesh (1999) 8 SCC 667 ; (2000) 1 SCR 1 (Supreme Court)
Facts. A municipal levy was challenged on the ground that the charging provision did not clearly specify the rate, the persons charged, and the measure of tax.
Issue. Whether a tax can be imposed in the absence of a clear, unambiguous charging provision identifying the subject, measure, rate, and incidence.
HELD. Article 265 demands that tax be levied only by clear authority of law. The four components — taxable event, person, rate, and measure — must be clearly discernible from the charging provision; ambiguity is fatal to the levy.
“The intention of the Legislature in a taxation statute is to be gathered from the language of the provisions, particularly when the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose other than what is given expression to.”
Relevance. Foundational authority on the rigour required of charging sections — underpins arguments that ambiguous deeming fictions, surcharge formulas, and rate prescriptions must be strictly construed.
▸ K.P. Varghese v. Income-tax Officer, Ernakulam (1981) 131 ITR 597 ; (1981) 4 SCC 173 (Supreme Court — 3-Judge Bench)
Facts. Section 52(2) (since deleted) deemed sale consideration to be FMV where FMV exceeded the declared consideration by 15%. The Department applied it on a literal reading even when the assessee had not in fact received more than the declared price.
Issue. Whether a deeming provision in a charging schema can be construed literally where its plain reading produces a result manifestly contrary to legislative object.
HELD. The Court read down section 52(2) to apply only where the assessee had actually received consideration in excess of the declared sum. A literal construction yielding absurd or unjust results must yield to an object-based interpretation; the CBDT's contemporaneous Circular No. 96 was held binding on the Revenue.
“It is well settled that a literal construction of a statutory provision ought not to be adopted if it produces a manifestly unjust result… Where a literal construction creates an anomaly, the courts will adopt that construction which avoids the anomaly.”
Relevance. Anchor authority for purposive construction of deeming fictions across the 1961 Act — applies wherever a deeming clause (e.g., s. 50C, s. 56(2)(x), s. 2(22)(e)) yields a result contrary to legislative purpose.
CBDT CIRCULARS — ECOSYSTEM
▸ CBDT Circular No. 14(XL-35) of 1955 dated 11 April 1955
Subject. Duty of officers to assist assessees in claiming and securing relief
Substance. Foundational circular directing that the AO should not exploit assessee ignorance to deny legitimate reliefs; officer is required to draw attention to refunds or reliefs to which the assessee is entitled. The circular has been judicially noted in several appellate decisions and remains operative for first-appellate practice.
▸ CBDT Circular No. 549 dated 31 October 1989
Subject. Explanatory notes — Finance Act 1989 amendments (incl. PY unification)
Substance. Explained the FA 1987 / FA 1989 amendments unifying the previous year with the financial year preceding the AY, including transitional provisions for assessees with different accounting years. Useful in any controversy on the timing of accrual / chargeability for early post-1989 AYs.
▸ CBDT Circular No. 5 of 2014 dated 11 February 2014
Subject. Section 14A — dis-allowance even where no exempt income earned (since modulated)
Substance. Initially directed AOs to apply Rule 8D disallowance under section 14A even where no exempt income was earned in the year; subsequently modulated by Cheminvest (Del HC) and Maxopp (SC). FA 2022 amendment to section 14A re-asserted the position but remains under litigation.
▸ CBDT Circular No. 6 of 2019 dated 20 March 2019
Subject. Withdrawal of low-tax-effect appeals — monetary thresholds
Substance. Revised monetary thresholds for departmental appeals — ITAT (Rs 50L), HC (Rs 1 Cr), SC (Rs 2 Cr); subsequently further revised. Operates as a non-statutory limitation on the Revenue's appellate engagement, binding under section 119.
▸ CBDT Circular No. 5 of 2024 dated 15 March 2024
Subject. Procedure for transitional reassessment notices post-Ashish Agarwal / Rajeev Bansal
Substance. Procedural guidance for AOs handling transitional reassessment notices for AYs 2013-14 to 2017-18 affected by Ashish Agarwal and Rajeev Bansal. Sets out the form of section 148A inquiry, time-bar calculation under TOLA, and JAO/FAO jurisdiction in faceless cases.
WORKED EXAMPLES
Illustration — Illustration 1 — Standard 35 application
Facts. Standard scenario invoking section 35.
Computation.
Operative provision applied per bare-Act framework.
Section 35 invocation; companion-section coordination per Chapter IV-C - PGBP.
Result. Standard framework operative.
Illustration — Illustration 2 — Bona-fide-difficulty defence
Facts. Assessee establishes bona-fide difficulty in section 35 compliance.
Computation.
Document supporting circumstances; section 119(2)(a) CBDT discretion; bona-fide-difficulty mitigation framework.
Result. Mitigation framework available.
Illustration — Illustration 3 — Appeal pathway
Facts. Disputed assessment under section 35.
Computation.
Section 246A appeal → CIT(A); section 253 ITAT; section 260A HC.
Standard appellate route preserved.
Result. Full appellate framework available.
Illustration — Illustration 4 — Section 264 revision alternative
Facts. Alternative pathway via Commissioner.
Computation.
Section 264 — CIT revisional review; lower-cost alternative to formal appeal.
Result. Revisional alternative available.
Illustration — Illustration 5 — Documentation discipline
Facts. Practitioner discipline for section 35.
Computation.
Comprehensive documentation: relevant deeds, forms, correspondence, computational working papers.
8-year preservation.
Result. Documentation = defence strength.
PRACTITIONER PLANNING NOTES
■ Comprehensive analysis of section 35 operative scope.
■ Documentation discipline — 8-year preservation.
■ Form / Schedule compliance per applicable framework.
■ Section 119(2)(a) CBDT relief — hardship cases.
■ Section 154 rectification — computational errors.
■ Section 246A appeal — substantive disputes.
■ Section 264 revision — alternative pathway.
■ Article 226 writ — jurisdictional defects.
■ Bona-fide-explanation framework throughout.
■ Reliance Petroproducts ratio for genuine claims.
■ Vatika Township prospectivity protection.
■ Mathuram Agrawal strict-construction defence.
■ KP Varghese purposive interpretation.
■ Time-bar / limitation awareness.
■ Cross-section coordination within chapter.
LITIGATION DEFENCE
■ Mathuram Agrawal — strict construction of penal / charging provisions.
■ Vatika Township — prospective amendments; retrospective treatment disfavoured.
■ KP Varghese — purposive construction within statutory text.
■ Reliance Petroproducts — bona-fide claim disclosed in return is not concealment.
■ Dilip N. Shroff — mens rea / discretion in disclosure framework.
■ Section 246A appeal — comprehensive substantive review.
■ Section 264 revision — alternative pathway.
■ Section 154 rectification — computational corrections.
■ Section 482 CrPC / Article 226 writ — jurisdictional defects.
■ Section 119(2)(a) — CBDT relief in genuine hardship.
■ Documentation 8 years — comprehensive defence file.
■ Cross-reference to companion provisions in chapter.
■ Procedural compliance check at every stage.
■ Time-bar / limitation defence where applicable.
■ Coordination with Department — bona-fide engagement.
■ Expert / professional opinion reliance — Reliance Petroproducts extension.
STEP-BY-STEP PROCEDURE — 15 STEPS
Step 1. Identify operative framework
Determine section 35 application; companion-section coordination.
Step 2. Documentation discipline
Comprehensive documentation collection and indexing.
Step 3. Form / Schedule compliance
Identify applicable Forms; timely filing.
Step 4. Computational working
Working papers reconciled with bare-Act + Rules.
Step 5. Return filing
Section 139 — appropriate return type; verification.
Step 6. Schedule TR / TP
Tax-credit and TP schedules where applicable.
Step 7. Section 143(1) processing
Department processes; intimation analysed.
Step 8. Scrutiny under section 143(2) (if selected)
Comprehensive response preparation.
Step 9. Order receipt + analysis
Quantum analysis + appellate-strategy.
Step 10. Section 154 rectification (if applicable)
Computational errors corrected.
Step 11. Section 246A appeal (if disputed)
CIT(A) → ITAT → HC → SC.
Step 12. Section 264 revision (alternative)
CIT revisional review.
Step 13. Article 226 writ (if jurisdictional defect)
HC supervisory framework.
Step 14. Section 119(2)(a) CBDT relief (if hardship)
Discretionary framework.
Step 15. Documentation 8 years preserved
Comprehensive file maintained.
PRACTITIONER CHECKLIST — 19 ITEMS
PRACTITIONER CHECKLIST
☐ Section 35 operative framework identified.
☐ Documentation collected.
☐ Forms / Schedules identified.
☐ Computational working prepared.
☐ Return filed timely.
☐ Schedule TR / TP completed.
☐ Section 143(1) intimation analysed.
☐ Section 143(2) response (if applicable).
☐ Order received + analysed.
☐ Section 154 rectification (if applicable).
☐ Section 246A appeal (if disputed).
☐ Section 264 revision (alternative).
☐ Article 226 writ (if jurisdictional defect).
☐ Section 119(2)(a) CBDT relief (if hardship).
☐ Documentation 8 years preserved.
☐ PAN-Aadhaar linkage.
☐ DSC active for e-filing.
☐ Bank-account validated.
☐ Coordination + Department communication.
CROSS-REFERENCES (28+)
CROSS-REFERENCES
▸ Section 35 — Operative framework.
▸ Chapter IV-C - PGBP companion sections.
▸ Section 246A — Appeal framework.
▸ Section 253 — ITAT framework.
▸ Section 260A — HC framework.
▸ Section 264 — Revision framework.
▸ Section 154 — Rectification framework.
▸ Section 119(2)(a) — CBDT relief.
▸ Section 281 — Void transfers (companion).
▸ Section 222 — Recovery (companion).
▸ Section 244A — Refund interest.
▸ Income-tax Rules 1962.
▸ CrPC 1973 — Procedural (where applicable).
▸ Indian Evidence Act 1872.
▸ Income-tax Act 2025 — s. 536 saving.
▸ BNS 2023 — Successor to IPC.
▸ Companies Act 2013.
▸ FEMA 1999.
▸ PMLA 2002.
▸ MLI Article 25 — MAP framework.
▸ DTAA framework.
▸ DPDP Act 2023.
▸ Aadhaar Act 2016.
▸ PAN framework (s. 139A).
▸ DSC framework.
▸ E-Verification framework.
▸ GST Acts (companion).
▸ RTI Act 2005 — Disclosure framework.
Caution — corrections in this revision
This revision applies the FA 2026 overlay against the prior v2 (FA 2025) draft. Variant comparison performed: two Cowork files supplied for s. 35 — the un-suffixed original (3,967 words) and the EXPANDED v2 (2026-05-25; 4,420 words). Same pattern: original Block 1 incomplete (missing marginal heading and footnote attributions on the complex sub-section / clause structure); EXPANDED v2 taken as canonical base. Operative-section context: s. 35 (Expenditure on Scientific Research) is one of the most amended sections in the PGBP chapter, with the weighted-deduction regime under sub-section (2AB) (in-house R&D by companies engaged in eligible business) and sub-section (2AA) (contributions to approved national laboratories, IITs, etc.) being the most actively-litigated limbs. The Finance Act, 2020 (w.e.f. AY 2021-22) and Finance Act, 2023 (w.e.f. AY 2024-25) progressively curtailed the weighted-deduction percentages: (a) sub-section (1)(ii) approved scientific research association deduction reduced from 175% to 150% (FA 2017) and then to 100% (FA 2020 w.e.f. AY 2021-22) and remains at 100%; (b) sub-section (1)(iia) approved university/college/IIT contribution at 100% (post-FA-2020); (c) sub-section (2AA) approved national laboratory contribution at 100% (post-FA-2020); (d) sub-section (2AB) in-house R&D weighted deduction reduced from 200% to 150% (FA 2017 w.e.f. AY 2018-19) and then to 100% (FA 2020 w.e.f. AY 2021-22) — the “weighted” element has effectively been eliminated for most s. 35 limbs. Changes recorded: (i) masthead caption updated “as amended by the Finance Act, 2025” → “as amended by the Finance Act, 2026”; (ii) Finance Act Amendment Timeline carries a new closing bullet “Finance Act, 2026 (Act 4 of 2026) — no amendment to s. 35”; (iii) no year-anchor re-anchoring required — the file’s illustrations carry no specific PY anchor. Open audit FLAGs: (a) the v2 base’s Block 1 verbatim text needs careful verification at master pass — s. 35 in the bare Act runs to sub-sections (1), (1A), (2), (2A), (2AA), (2AB), (3), (4), (5) with multiple provisos and Explanations; many of these sub-sections were inserted by distinct Finance Acts (FA 1974, FA 1986, FA 1997, FA 2008, FA 2010, FA 2016, FA 2020) with rate-recalibration amendments through FA 2017, FA 2020 and FA 2023; the footnote chain is one of the most complex in the Act; (b) Block 2 right-hand column cites “Section 35 successor — Preserved” without naming the Act 30 of 2025 successor section number — pending verified successor mapping; (c) the case-law list is the generic Cowork template — the actual s. 35 jurisprudence is exceptionally well-developed (CIT v. Sandoz (India) Ltd (1994) 207 ITR 977 (Bom HC) on what constitutes “scientific research related to the business”; CIT v. Mastek Ltd (2013) 358 ITR 252 (Guj HC) on the in-house R&D weighted deduction; CIT v. Aspentech India Pvt Ltd (2011) 332 ITR 100 (Del HC); Dy CIT v. Mastek Ltd (2013) 145 ITD 233 on capital expenditure on land for R&D; multiple ITAT authorities on DSIR Form 3CL approval requirement and the timing of the deduction vis-à-vis approval) is absent; (d) the FA 2020 / FA 2023 percentage-recalibration history is the most operationally-significant overlay for the section — not adequately captured in the v2 file; (e) cross-reference to Rule 5C, 5D, 5E, 5F of the Income-tax Rules, 1962 and the prescribed DSIR Form 3CK / 3CL / 3CLA framework should be in Block 2 with verification — pending; (f) the Cowork v3 base does not carry a separate Source & verification notes cell (Standard B v2 requirement) — logged for forward-pass. NOTE TO USER: s. 35 will benefit from substantive Block 3 expansion at master pass given the depth of the jurisprudence and the operational complexity of the DSIR-approval / Form 3CL machinery.
Case Laws & Commentary
SECTION 35 — Expenditure on scientific research
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Allows deduction for: (i) revenue expenditure on scientific research related to business; (ii) contribution to approved research association, university, college, IIT, etc. (with weighted deduction historically, now 100% w.e.f. FY 2020-21 onward post FA 2020 sunset of weighted deductions); (iii) capital expenditure on scientific research (other than land) — fully allowable u/s 35(2)(ia); (iv) in-house research (sub-s. (2AB)) — earlier weighted 150%/200% deductions, now 100% w.e.f. FY 2020-21; conditions of DSIR approval and Form 3CL apply. Cl. 35(2AA) — payments to National Laboratory, IIT etc. Sub-s. (3): Board approval mechanism. Sub-s. (5): cessation/sale of asset triggers withdrawal.
Section Commentary
Backbone of R&D incentives
Section 35 is the principal R&D-incentive provision: it allows (i) revenue R&D expenditure on the assessee's own scientific research related to business (sub-s. (1)(i)), (ii) donations to approved external research bodies — universities, IIT, IISc, approved research association etc. (sub-s. (1)(ii) / (iia) / (iii)), (iii) capital R&D expenditure other than on land (sub-s. (1)(iv) read with sub-s. (2)), and (iv) the once-flagship 'weighted' in-house R&D deduction for company assessees under sub-s. (2AB).
Sunset of weighted deductions — FA 2020 watershed
Until FY 2019-20, sub-s. (2AB) gave a 150% / 200% weighted deduction (200% till FY 2016-17, 150% from FY 2017-18) to companies for in-house R&D recognised by DSIR. FA 2016 (sunset trajectory) and FA 2020 (final cap at 100% from AY 2021-22) progressively brought all weighted deductions to 100%. The practitioner servicing pharma / auto / chemical / IT clients must understand the AY-wise rate to compute correctly for ongoing litigation across earlier years.
Scope of 'scientific research'
Defined in s. 43(4) as 'any activities for the extension of knowledge in the fields of natural or applied science including agriculture, animal husbandry or fisheries'. Mastek (Ahd ITAT) and a long ITAT line confirm that software / IT R&D, biotech, agri-tech all qualify. The scope is much wider than the lay 'laboratory' image — process improvement, product enhancement, prototype testing, clinical-trial design all qualify if the underlying purpose is extension of knowledge.
DSIR mechanics — Mahindra / Sandan Vikas line
For sub-s. (2AB) the assessee must (i) be a company, (ii) operate a recognised in-house R&D facility (DSIR Form 3CK approval), (iii) get the quantum of expenditure certified annually by DSIR in Form 3CL. Mahindra & Mahindra holds that expenditure incurred outside the facility (vendor-premises testing) on the approved programme qualifies — DSIR approval is purpose-based, not strictly location-based. Sandan Vikas holds that belated Form 3CL cannot defeat substantive entitlement — substantial compliance suffices.
Donations — donor-protection principle
Jindal Steel & Power (P&H) and the Chotatingrai Tea (SC) line establish that retrospective withdrawal of donee's approval cannot defeat donor's claim if the donee held valid approval at the time of donation. The donor's entitlement crystallises on the date of donation. FA 2017 inserted an Explanation tightening this for future periods — the practitioner must verify the donee's status at the time of payment and retain documentary evidence.
Capital R&D — s. 35(2)(ia)
Capital expenditure on R&D (other than land) is fully allowable in the year of incurrence under s. 35(1)(iv) read with s. 35(2)(ia) — no five-year amortisation, no depreciation under s. 32. Wheels India (Mad) confirms that even buildings used wholly for R&D qualify for full deduction, displacing s. 32. The Explanation to s. 35(2) bars simultaneous depreciation.
Practical compliance for CA
(i) Maintain DSIR approval letter and renewal trail. (ii) Segregate R&D expenditure books — capital vs revenue, in-house vs sub-contracted. (iii) Form 3CL filing — coordinate with DSIR liaison. (iv) For donations, obtain donee's Form 58/79IF certificate, verify approval status on the IT department portal. (v) Avoid double-claim under s. 37 / s. 32 for amounts claimed under s. 35 — Talisma Corpn. confirms mutual exclusivity. (vi) Form 3CD Cl. 19 captures s. 35 claims.
FA 2026 impact: No fresh FA 2026 amendment. Note: post-FA 2020 sunset, all weighted (150%/175%/200%) deductions have come down to 100%. FA 2025 made no change.
Leading Decisions
1. CIT v. Mahindra & Mahindra Ltd.
Citation: (2009) 313 ITR 263 (Bom)
Forum: Bombay High Court
Facts & Issue: Assessee claimed weighted deduction u/s 35(2AB) for in-house R&D expenditure. Some expenditure was incurred outside the approved R&D facility (at vendors' premises for prototype testing). Revenue restricted weighted deduction to expenditure incurred AT the approved facility.
Held / Ratio: Held that s. 35(2AB) is purpose-based, not facility-based. So long as the expenditure is incurred ON in-house R&D approved by DSIR, the precise physical location is not decisive — vendor-premises testing forming part of the approved programme qualifies. The Court emphasised the policy of incentivising R&D and rejected hyper-technical restriction.
Section relevance: Important authority on scope of s. 35(2AB) — purpose vs location.
2. CIT v. Sandan Vikas (India) Ltd.
Citation: (2011) 335 ITR 117 (Del)
Forum: Delhi High Court
Facts & Issue: Assessee had DSIR approval as a recognized in-house R&D facility, but Form 3CL (quantification certificate from DSIR) was issued belatedly. Revenue denied weighted deduction.
Held / Ratio: Held that Form 3CL is a procedural certificate; substantive entitlement under s. 35(2AB) flows from recognition. Belated issuance of Form 3CL cannot defeat the claim if the expenditure and recognition are otherwise established. Substantial compliance suffices.
Section relevance: Procedural-vs-substantive distinction under s. 35(2AB) — frequently invoked.
3. DCIT v. Mastek Ltd.
Citation: (2012) 25 taxmann.com 133 (Ahd ITAT)
Forum: ITAT Ahmedabad
Facts & Issue: Software-development company claimed weighted deduction u/s 35(2AB). Revenue contended that software development is not 'scientific research'.
Held / Ratio: Held that 'scientific research' u/s 43(4) is broad — includes development of new processes, products and is not confined to laboratory science. Software R&D, when recognised by DSIR, qualifies. The case is regularly cited for IT-sector R&D claims.
Section relevance: Defines 'scientific research' for IT/software industry under s. 43(4) feeding into s. 35.
4. CIT v. Wheels India Ltd.
Citation: (2011) 336 ITR 513 (Mad)
Forum: Madras High Court
Facts & Issue: Capital expenditure on R&D (other than land) — claimed u/s 35(1)(iv) read with s. 35(2). Revenue contended that building used for R&D was eligible only for depreciation u/s 32.
Held / Ratio: Held that capital expenditure on R&D, including buildings used wholly for R&D, qualifies for full deduction u/s 35(1)(iv) / 35(2)(ia) — to the exclusion of s. 32 depreciation. Once allowed u/s 35, depreciation cannot be claimed simultaneously (Expln to s. 35(2)).
Section relevance: Standard authority on capital expenditure under s. 35 vs depreciation under s. 32.
5. CIT v. Talisma Corpn. (P) Ltd.
Citation: (2012) 247 CTR 226 (Kar)
Forum: Karnataka High Court
Facts & Issue: Question of overlap — assessee claimed s. 35(2AB) on expenditure that was also claimed under regular PGBP heads (s. 37). Revenue denied to avoid double benefit.
Held / Ratio: Held that there is no question of double deduction — the assessee is entitled either to claim under s. 35(2AB) (with weighted deduction, then) or under s. 37 (at 100%). Once claimed under s. 35(2AB), the same expenditure cannot also reduce profits under s. 37. The system is mutually exclusive.
Section relevance: Defines mutual exclusivity of s. 35 and s. 37 — avoids double-counting.
6. CIT v. Jindal Steel & Power Ltd.
Citation: (2017) 88 taxmann.com 220 (P&H)
Forum: Punjab & Haryana High Court
Facts & Issue: Donation to an approved research association (s. 35(1)(ii)) — Revenue alleged that the institution's approval was later withdrawn retrospectively, hence weighted deduction should not be allowed.
Held / Ratio: Held that retrospective withdrawal of approval of the donee institution cannot defeat the donor's claim, since at the time of donation the assessee acted in good faith on a valid certificate. The Court relied on the principle that a donor's entitlement crystallises at the time of donation. (FA 2017 introduced Expln to s. 35 prospectively — current position is restrictive.)
Section relevance: Important for handling withdrawn-approval cases under s. 35(1)(ii) / (iia) / (iii). Read with FA 2017 Explanation.
— End of Section 35 Case-Law Note —