9911796707
TMI Blog2015 (4) TMI 1064X X X X Extracts X X X X X X X X Extracts X X X X ..... d draft assessment order came to be framed on 27.03.2013 under Section 144C(1) of the Act whereunder income of petitioner was revised after making certain adjustments. On receipt of the draft assessment order, assessee filed its objection before the Dispute Resolution Panel ('DRP' for short) and after affording opportunity of hearing to the assessee, DRP issued a direction to the jurisdictional Assessing Officer on 30.12.2013. The DRP held that where the express provisions of the Act excludes certain expenditure from the purview of Section 35 of the Act, such expenditure cannot be allowed and as such, the report of the prescribed authority cannot be considered as far as such excluded expenditure is concerned. It was also held by DRP that certificate issued by the prescribed authority cannot over rule the express provision of the Act and accordingly directions came to be issued to Assessing Officer after considering the directions issued by the DRP, framed assessment order on 31.01.2013 -Annexure-R framed assessment order whereunder as against the deduction claimed by the assessee under Section 35(2AB) in respect of Research and Development expenditure in a sum of Rs. 89,35, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to claim the deduction permissible under the said Section. He would draw the attention of the Court to the impugned order whereunder at paragraph 4.9 the approval granted by DSIR came to be considered and held that it cannot be considered as the only condition for claiming deduction under Section 35(2AB) on the premise that sub-section (2) Section 43(4) enables the Assessing Officer to exclude the expenditure incurred by an assessee in the acquisition of rights, in or arising out of scientific research and held that expenditure recorded as product development expenditure by the assessee cannot be accepted as research and development expenditure being eligible for deduction under Section 35(2AB) and Section 35(1)(i) r/w Section 43(4)(ii) of the Act and accordingly disallowance of the claim is without jurisdiction and it would amount to sitting in judgment over the certificate issued by the prescribed authority and same is impermissible. 5. He would further elaborate his submission by contending that if an Assessing Officer were to entertain a doubt with regard to certificate issued by prescribed authority, the course left open to such Assessing Officer is to forward the same t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxman 88 (Mag.) (Bom.) (8) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (9) CIT v. Foramer France [2003] 264 ITR 566/129 Taxman 72 (SC) (10) Union of India v. Kunisetty Satyanarayana [2007] 1 CLR 67 (SC) (11) Godrej Sara Lee Ltd. v. Asstt. Commissioner 2009 (236) ELT 425 (SC) (12) Asstt. Commissioner, Commercial Tax Department v. Shukla & Bros. 2010 (254) ELT 6 (SC) CONTENTIONS ON BEHALF OF REVENUE: 7. Per contra, Sri K.V. Aravind, learned Panel counsel appearing for respondents would submit that petitioner without exhausting the alternate remedy of appeal namely, approaching the jurisdictional Income Tax Appellate Tribunal, has invoked the extraordinary jurisdiction of this Court and the same being impermissible, petition is liable to be dismissed on this ground alone. In support of this proposition, he has relied upon the judgment of Hon'ble Apex Court in the case of CIT v. Chhabil Dass Agarwal [2013] 357 ITR 357/217 Taxman 143/36 taxmann.com 36. 8. It is the contention of Sri K.V. Aravind, learned Panel counsel appearing for respondent-Revenue that present writ petition is liable to be dismissed on the ground that petitioner not having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays for rejection of the writ petition. 10. Having heard the learned Advocates appearing for the parties and on perusal of the records and the case laws relied upon by the learned Advocates appearing for the parties, this Court is of the considered view that following points would arise for consideration: "(1) Whether Writ Petition is liable to be dismissed on the ground of petitioner not having availed alternate remedy of filing an appeal before jurisdictional Income Tax Appellate Tribunal as provided under Section 253(4) of the Act? (2) If the answer to the above question is in the negative; Whether impugned order dated 31.01.2014 - Annexure-R passed by first respondent is liable to be interfered for any reason whatsoever? (3) What order?" RE: POINT No. (1) 11. Learned Advocate appearing for respondents has raised a preliminary objection with regard to maintainability of writ petition. 12. Availability of alternate remedy would be a good ground to refuse the relief under Article 226 of the Constitution of India. The power of this Court to issue writs under Article 226 of the Constitution of India being plenary in nature is not limited by any other provisions of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 14. Thus, keeping this salutary principle in mind, when the facts on hand are examined, it would indicate that in the instant case, petitioner at the time of filing its return of income on 29.09.2009 claimed weighted deduction under Section 35(2AB) contending inter alia that it is an allowable deduction. The assessing officer at paragraph 4.9 has held that approval issued by Department of Scientific and Industrial Research (for short 'DSIR') is a pre requisite to claim deduction under Section 35(2AB) but it cannot be held to be the only condition for claiming deduction under Section 35(2AB) of the Act. 15. Section 43 of the Act would indicate that definition of certain terms relevant to "income from profits and gains of business or profession" has been defined. Under sub-section (4) of Section 43, the word "Scientific Research" has been defined. On the one hand, the assessee is contending that once a certificate is issued by the prescribed authority, the jurisdictional assessing officer would be out of bounds to examine the correctness of the said certificate. On the other hand, Revenue is contending that without going into the issue of the correctness of such certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Acts, 1970 (39 of 1970) ] (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1) under any other provision of this Act. (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the [Principal Director General or] Director General in such form and within such time as may be prescribed. (5) No deduction shall be allowed in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, [2017]. (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia) of sub-section (1) in respect of the expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xx case may be; (b) in the case xxx Government of India. (1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research. (2) Omitted w.e.f. 30.10.2006. (3) The application for obtaining approval under sub-section (2AA) of section 35 shall be made by a sponsor in Form No. 3CG. Explanation: For the purposes of this rule "sponsor" means a person who makes an application in Form No. 3CG. (4) The application required to be furnished by a company under sub-section (2AB) of section 35 shall be in Form No. 3CK. (5) The head of the National Laboratory or the University or the Indian Institute of Technology [or the Principal Scientific Adviser to the Government of India] shall, if he is satisfied that it is feasible to carry out the scientific research programme then, subject to other conditions prescribed in this rule and section 35(2AA) of the Act, pass an order in writing in Form No. 3CH: Provided that a reasonable opportunity of being heard shall be granted to the sponsor before rejecting an application: Provided further that an order under this rule shall be passed within two months of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing specified in the list of the Eleventh Schedule incurs any expenditure on "Scientific Research" (not being expenditure in the nature of cost of any land or building) on in-house, research and development facility "as approved by the prescribed authority," such assessee would be entitled to a deduction of a sum equal to one and half times of the expenditure so incurred. The word "Scientific Research" has been defined under subsection (4) of Section 43 of the Act, which is extracted supra and same would indicate expenditure incurred in such scientific research includes all expenditure incurred for the prosecution or the provision of facilities for the prosecution of such scientific research. However, it does not include expenditure incurred in the acquisition of rights in or arising out of scientific research. Such expenditure incurred should be approved by the authority prescribed under Section 35(2AB) of the Act read with Rules framed thereunder. The authority prescribed to grant such approval under Rule 6(1B) of the Income Tax Rules, 1961 is the Secretary, Department of Scientific and Industrial Research. 19. A perusal of the above rule would clearly indicate that the prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would clearly indicate that application had been filed by assessee on 07.01.2009 and after calling for documents/information from assessee and on examination and scrutiny of such documents/information furnished by assessee, Order of approval came to be granted in favour of assessee on 18.11.2009 in Form No. 3CM vide Annexure-G. 20. It would be apt to point at this juncture itself that in the event of any question would arise before the assessing officer under Section 35 as to whether amounts certified by the prescribed authority is eligible for being allowed as expenditure and to what extent and whether such activity constitutes or constituted., or any asset is or was being used for scientific research in that regard, then assessing officer has to request the Board to refer such question to the prescribed authority as provided under clause (b) of Section 35(3). In other words, the correctness or otherwise of the order passed by the prescribed authority is not examined by the assessing officer or by the Income Tax Authority and this exercise is outsourced by the Income Tax Department and same is being done by the prescribed authority namely, Department of Scientific and Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue before the Board who, in terms of section 35(3) of the Act, would refer the question to the prescribed authority. The decision of the prescribed authority would govern the parties. Therefore, if an assessee puts forth a claim of deduction under section 35(1) for expenditure incurred on scientific research and if the Assessing Officer is not inclined to accept such a claim, the question can be stated to have arisen, in such a situation, the Assessing Officer cannot take a decision but must seek the opinion of the prescribed authority. We may hasten to add that only when such a question arises that the reference would be competent. For example, if in a given case, the assessee lodges a claim without any supporting material, it cannot be stated that the question has arisen which would require a reference by the Board. Similarly, if the Assessing Officer accepts the claim of the assessee, no such question can be stated to have arisen. We are, however, unable to accept Shri. Bhatt's contention that such a question would arise only when the assessment is finally framed and that thereafter the onus would be on the assessee to seek a reference. No such intention is emerging from s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was being used for, scientific research. It is further held by the second respondent that allowability or otherwise of the expenditure will be governed by the express provisions of the Act. It has been held by the second respondent in the direction issued to the first respondent on 30.12.2013 under Annexure - Q as under: "11.8 Thus the mandate of the prescribed authority is limited to certifying to what extent, any activity constitutes or constituted, or any asset is or was being used for, scientific research. The allowability or otherwise of the expenditure will be governed by the express provisions of the Act. Where the express provision of the Act exclude certain kind of expenditure from the purview of section 35 of the Act, such expenditure cannot be allowed under section 35 of the Act and when certain expenditure does not fall in the scope of Section 35 of the Act the report of prescribed authority cannot be considered as far as such excluded expenditure is considered. The certificate of the prescribed authority cannot overrule the express provisions of the Act. Thus the stand of the AO that such expenditure gives rise to patents on products/processes which are intellectu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Director General of Income -Tax (Exemptions) under Section 35(2AB) in Form No. 3CL dated 10.04.2013 vide Annexure-M would clearly indicate that as against claim of Rs. 8,935 lakhs made by the assessee for weighted deduction in its return of income, the prescribed authority allowed a sum of Rs. 6,904 lakhs only though the Audit Certificate dated 10.04.2013 - Annexure - E issued by the auditor of the assessee indicated Rs. 7,009 lakhs as weighted deduction. 27. A plain reading of Section 35(2AB) would clearly indicate that where a company is engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) or in-house research and development facility as approved by the prescribed authority, then, they shall be allowed a deduction of a sum equal to one and a half times of the expenditure so incurred. The word used 'shall' in the above said provision would ordinarily mean that it should be understood in the context in which it is u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be required to refer such question to the Board for being referred to the prescribed authority. The decision of the prescribed authority in this regard would be final, inasmuch as, the certification of such expenditure is being examined by an expert body and undisputedly, such exercise has been outsourced by the Revenue under the Act itself, since the prescribed authority being possessed of requisite expertise, it would be in a better position to certify as to whether such expenditure claimed by the assessee under Section 35(2AB) would fall within the said provision or outside. This exercise of examining the correctness of the Certificate issued by the prescribed authority is not available to the Assessing Officer as could be seen from scheme of Section 35 of the Act. 28. It is in this background, sub-section (4) of Section 43 will have to be considered, which defines as to what activities would constitute "scientific research" as indicated under the said Section namely, Section 43(4). As to whether any expenditure incurred in the acquisition of rights in or arising out of scientific research as indicated in clause (ii) of sub-section (4) of Section 43 is an issue which requires t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
