2005 (8) TMI 60 - HC - Income Tax

Scientific Research Expenditure - 1. Whether Tribunal was right in law in allowing expenditure not incurred in the previous year in view of section 35(2)(ia)? 2. Whether reference was required to be made to the prescribed authority before making the disallowance? - Assessing Officer was duty bound to strictly comply with the statutory provisions as also the direction by the Tribunal. Admittedly no such reference was made by the Assessing Officer and therefore there was no occasion for the Board also to refer the same to the prescribed authority. In view of the said factual scenario no fault can be found with the impugned order. An assessee is not expected to undergo the process of an endless litigation on account of inaction on the part of the Assessing Officer. In our opinion no question of law much less a substantial question of law arises from the impugned order

Summary

Issues:
1. Whether the Income-tax Appellate Tribunal was right in allowing expenditure not incurred in the previous year under section 35(2)(ia) of the Income-tax Act, 1961?
2. Whether a reference to the prescribed authority was required before making the disallowance?

Analysis:
1. The case involved an appeal by the Revenue against an order passed by the Income-tax Appellate Tribunal regarding the deduction claimed by the assessee for expenditure on scientific research for the assessment year 1985-86. The Assessing Officer initially disallowed the expenditure, but the Tribunal, in a previous order, directed that before making any disallowance, the question should be referred to the prescribed authority as per section 35(3) of the Act. The Tribunal set aside the disallowance and sent the matter back to the Assessing Officer for further action.

2. Despite the Tribunal's direction, the Assessing Officer did not seek the opinion of the prescribed authority in the subsequent assessment proceedings and disallowed the claim again. The Commissioner of Income-tax (Appeals) upheld the disallowance, leading the assessee to appeal to the Tribunal, which allowed the appeal. The Revenue contended that the disallowance was subject to the final opinion of the prescribed authority, which was not received, hence the Assessing Officer had to disallow the claim.

3. The High Court disagreed with the Revenue's argument, emphasizing that the Tribunal had correctly concluded that the Assessing Officer was obligated to refer the matter to the prescribed authority for its opinion. The court highlighted the provisions of section 35(3) of the Act, which mandate such a reference in case of any question regarding scientific research expenditure. As the Assessing Officer failed to make the reference, there was no opportunity for the prescribed authority to provide its opinion. The court held that the Assessing Officer's non-compliance with the statutory provisions and the Tribunal's direction justified the Tribunal's decision to allow the appeal.

4. The court emphasized that the assessee should not be subjected to prolonged litigation due to the Assessing Officer's inaction. It concluded that no substantial question of law arose from the impugned order and declined to entertain the appeal, ultimately dismissing it.