TMI Blog2016 (6) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... y without verifying the claim. For example, in this very case, the Assessing Officer had doubt about the sample storage income being part of the income from eligible business. After hearing the assessee, he disallowed the deduction holding that the same does not form part of the income of the assessee's business of scientific research and development. In the result, while answering the question in favour of the assessee, we clarify that the power of the Assessing Officer to verify the claim of deduction is not taken away. He can certainly verify the accounts and refuse deduction which does not form part of section 80IB( 8A) and the income which does not arise out of the eligible business. He however, cannot ignore the approval granted by the prescribed authority and hold that the prescribed conditions are not fulfilled by the assessee. - Decided against revenue - TAX APPEAL NO. 233 of 2016 With TAX APPEAL NO. 234 of 2016 - - - Dated:- 16-6-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE APPELLANT : MR MANISH BHATT, SR COUNSEL WITH MS MAUNA M BHATT, ADVOCATE FOR THE OPPONENT : MR MUKESH M PATEL WITH MR RK PATEL WITH MR BD KARIA WITH MR JIGAR M PATEL WITH MR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s claim of deduction under section 80IB( 8A) of the Act was left undisturbed. 4. The order of the Assessing Officer was taken in revision by the Commissioner prima facie, believing that the assessment was erroneous and prejudicial to the interest of the Revenue since in the opinion of the Commissioner, such deduction was allowed by the Assessing Officer without verification of the eligibility of the assessee to claim the same. The Commissioner after hearing the assessee passed order dated 26.3.2013 under section 263 of the Act and asked the Assessing Officer to make a fresh assessment. 5. The assessee carried the matter in appeal before the Tribunal. The Tribunal by an order dated 19.7.2013 set aside the revisional order of the Commissioner and remanded the proceedings before the Commissioner for fresh consideration and disposal. The Commissioner thereupon passed fresh order dated 29.3.2014 and held that the assessee was not eligible to claim deduction under section 80IB( 8A) of the Act as it did not satisfy all the provisions listed in the said subsection and rule 18DA of Income Tax Rules, 1962 ( the Rules for short). He passed the following order : 12. Considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lfilled before the assessee can claim deduction under section 80IB( 8A) of the Act. In the present case, the Assessing Officer without verifying satisfaction of such conditions, granted deduction. The Commissioner therefore, rightly exercised revisional poweRs. The Commissioner prima facie, found that no research and development activities had been undertaken by the assessee. He therefore, required the Assessing Officer to examine such issues. Counsel took us through the provisions of section 80IB( 8A) of the Act and rules 18D and 18DA of the Rules to contend that the approval by the prescribed authority would not shut out the inquiry by the revenue authorities regarding the fulfillment of other conditions of deduction. In this context, counsel relied on the decision of the Supreme Court in case of Southern Technologies Ltd. v. Joint Commissioner of Incometax reported in (2010) 320 ITR 577(SC), in which the Supreme Court held that the provisions made in the Companies Act allowing non banking financial companies to adjust a provision for possible diminution of value of the asset or for doubtful debt would not govern the manner in which the income should be taxed as per the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the relevant rules under 1922 Act, that such recognition had been granted after the true nature of the commission payable by the 804 assessee to its salesmen under their contracts of employment had been brought to the notice of the Commissioner and that said recognition had continued to remain in operation during the relevant assessment years in question; the last fact in particular clearly implied that the Provident Fund of the assessee did satisfy all the conditions laid down in Rule 4 of Part A of the Fourth Schedule to the Act even during the relevant assessment yeaRs. In that situation we do not think that it was open to the taxing authorities to question the recognition in any of the relevant years on the ground that the assessee's Provident Fund did not satisfy any particular condition mentioned in Rule 4. It would be conducive to judicial discipline and the maintaining of certainty and uniformity in administering the law that the taxing authorities should proceed on the basis that the recognition granted and available for any particular assessment year implies that the Provident Fund satisfies all the conditions under Rule 4 of Part A of the Fourth Schedule to the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on has the advise of persons in the field conversant with the field of science and research. In a case where the appellant is a person like the Petitioner herein who claim to be doing research in the field of Astro Physics etc, the Government is duty bound to make inquiries with bodies like Council of Scientific Research. In the field of medicines may be by the Council of Medical Research, in Agricultural by Indian Agricultural Research and so on. These are the aspects which mus t be borne in mind while considering the application. 9. From the above materials on record, the question that arises for our consideration is, whether once the prescribed authority grants approval in terms of subrule( 2) of rule 18D of the Rules, can the Revenue authorities examine fulfillment of conditions of deduction and deny the same? 10. In this context, we may notice the statutory provisions. Section 80IB of the Act pertains to deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings. Subsection (8A) pertains to deduction in cases of company carrying on scientific research and development and reads as under : (8A) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 12. Rule 18DA pertains to prescribed conditions for deduction under subsection (8A) of section 80IB and reads as under: 18DA. (1) Any company carrying on scientific research and development shall be eligible for deduction specified in subsection (8A) of section 80IB, if such company- (a) is registered in India; (b) has its main object the scientific and industrial research and development; (c) has adequate infrastructure such as laboratory facilities, qualified manpower, scaleup facilities and prototype development facilities for undertaking scientific research and development of its own; (d) has a well formulated research and development programme comprising of time bound research and development projects with proper mechanism for selection and review of the projects or programme; (e) is engaged exclusively in scientific research and development activities leading to technology development, improvement of technology and transfer of technology developed by themselves; (f) submits the annual return alongwith statement of accounts and annual report within eight months after the close of each accounting year to the prescribed authority. (2) Every compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. Subsection (8A) of section 80IB provides for deduction and also prescribes four conditions upon fulfillment of which such deduction shall be granted. These conditions are that the company must be registered in India, that it has its main object of scientific and industrial research and development, is approved by the prescribed authority and fulfills such other conditions as may be prescribed. 14. The Commissioner in his revisional order agreed that in respect of the assessee company, first and third conditions were duly satisfied, but he referred to second and fourth conditions, which according to him, were not fulfilled. In this context, we may refer to rule 18D. This rule in addition to prescribing DSIR as the prescribed authority; under subrule( 2) authorises such prescribed authority to grant approval initially for a period of three yeaRs. The renewal is subject to satisfactory performance to be judged on periodic review. The maximum extension would be for a period of 10 years from the initial assessment year. Rule 18DA carries the title Prescribed conditions for deduction under subsection( 8A) of section 80IB and thus has correlation to the fourth condition contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A provides for documents and details required to be filed along with such application for approval. Under Subrule( 6) of Rule 18DA, the prescribed authority may call for any further information and documents which will be necessary for consideration of application for grant of approval. Subrule( 7) of Rule 18DA lays down the time limit within which such approval will be granted. Further proviso to subrule( 7) provides that the applicant would be heard before rejecting the application for approval. 15. It can thus be seen that detailed provisions have been made under rule 18D and Rule 18DA of the Rules for the prescribed authority to examine the nature of research and scientific development, proposed to be or being carried out by the company who seeks approval or extension of approval. For example, under subrule( 2), approval once granted has validity for a period of three years and no more. It could be extended only upon satisfactory performance of the company which would be judged on periodic review by the prescribed authority. While granting approval in addition to information prescribed under subrule( 5) of Rule 18DA, the prescribed authority is empowered to call for such oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hind such approval certificate and reexamine for himself, the fulfillment of the conditions contained in subrule( 1) of rule 18DA. These conditions are prescribed in terms of clause no.(iv) of subsection( 8A) of section 80IB of the Act. The Commissioner was therefore, completely in error in observing that even though the assessee company had valid approval issued by the prescribed authority, the Assessing Officer still had to examine whether such company had fulfilled the conditions referred to in clause(iv), as such other conditions as may be prescribed, reference to which we find in rule 18DA. Any other view would create conflict of decision making process. Even counsel for the Revenue could not dispute that many of these requirements prescribed under rule 18DA are to be examined by the prescribed authority. If once the prescribed authority examines such conditions and upon being satisfied that the conditions are fulfilled, grants approval, can the Assessing Officer take a different view? The answer obviously has to be in the negative. First and foremost, the prescribed authority is a specialised body having expertise in the field of scientific research and development. The requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the legislature has while clothing the prescribed authority with sufficient powers to withdraw the approval, used the word 'may' rather than 'shall' giving discretion in appropriate cases to the authority not to withdraw the approval. This however, would not mean that the Assessing Officer would have any role in the context of verifying requirements relatable to grant, extend or withdraw the approval. These issues solely rest within the jurisdiction of the prescribed authority. 20. Judged from such angle, in our opinion, once the approval is granted by the prescribed authority and such approval is valid, it would no longer be open for the Assessing Officer to verify the satisfaction of the conditions prescribed under rule 18DA in order to refuse deduction under subsection( 8A) of section 80IB of the Act. This however, does not mean that other issues relevant to the claim of deduction by the assessee would be taken away from the jurisdiction of the Assessing Officer. We do not share the anxiety of the counsel for the Revenue that interpretation that we have adopted would divest the Assessing Officer from examining any claim of deduction under the said provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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