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2015 (4) TMI 1064 - HC - Income TaxEligibility of deduction u/s 35(2AB) - validity of Certificate issued by the prescribed authority - Held that - If any question arises as to what extent, any activity constitutes or constituted or an asset is or was being used for scientific research, then the Assessing Officer would 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. As 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 to be examined by the prescribed authority itself and it would not be in the domain of the assessing authority to undertake such an exercise. When Section 35(2AB), Section 35(3) and Section 43(4) of the Act are read harmoniously, the irresistible conclusion that has be drawn would be that assessing officer cannot sit in judgment over the report submitted by the prescribed authority in Form No. 3CL. This view is also supported by the judgment of the High Court of Gujarat in Mastek Ltd. s case (2012 (9) TMI 264 - GUJARAT HIGH COURT ). - Decided in favour of assessee
Issues Involved:
1. Maintainability of the writ petition due to the availability of an alternate remedy. 2. Jurisdiction of the Assessing Officer to disallow deductions certified by the prescribed authority under Section 35(2AB) of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Maintainability of the Writ Petition: The Revenue argued that the writ petition should be dismissed because the petitioner did not exhaust the alternate remedy of appealing to the Income Tax Appellate Tribunal (ITAT). The Court acknowledged that while the availability of an alternate remedy is generally a good ground to refuse relief under Article 226 of the Constitution, it is not an inviolable rule. Exceptions include enforcement of fundamental rights, violation of principles of natural justice, lack of jurisdiction, and challenges to the constitutional validity of a statute. The Court referenced the Supreme Court's decision in Whirlpool Corpn. v. Registrar of Trade Marks, which held that the High Court could entertain a writ petition despite the availability of an alternate remedy if the authority acted without jurisdiction. The Court concluded that since the issue involved the jurisdiction of the Assessing Officer to disallow deductions certified by the prescribed authority, the writ petition was maintainable. 2. Jurisdiction of the Assessing Officer: The petitioner contended that the Assessing Officer had no jurisdiction to disallow deductions certified by the Department of Scientific and Industrial Research (DSIR) under Section 35(2AB) of the Income Tax Act. The Court examined the relevant statutory provisions, including Sections 35(2AB), 35(3), and 43(4) of the Income Tax Act, and Rule 6(1B) of the Income Tax Rules. Section 35(2AB) allows a company engaged in specified businesses to claim a weighted deduction for expenditure on in-house research and development, provided the expenditure is approved by the prescribed authority (DSIR). Section 35(3) stipulates that if any question arises regarding the extent of such expenditure, it should be referred to the Board, which will then refer it to the prescribed authority for a final decision. The Court held that the Assessing Officer could not sit in judgment over the certificate issued by the prescribed authority. If there were any doubts about the certificate, the Assessing Officer should refer the matter to the Central Board of Direct Taxes (CBDT), which would then refer it to the prescribed authority for a final decision. The Court cited the Gujarat High Court's decision in Mastek Ltd., which supported this view. The Court concluded that the Assessing Officer had overstepped his jurisdiction by disallowing the deductions certified by the DSIR. Consequently, the assessment order dated 31.01.2013 and the consequential demand notice dated 31.01.2014 were quashed to the extent of the disallowed deductions under Section 35(2AB). Order: 1. The writ petition was allowed. 2. The assessment order dated 31.01.2013 and the consequential demand notice dated 31.01.2014 were quashed to the extent of the disallowed deductions under Section 35(2AB). 3. The assessment order stands on all other issues, and no opinion was expressed in that regard. 4. The Assessing Officer may seek a reference to the prescribed authority through the CBDT if there are disputes regarding the DSIR's report. 5. No costs were awarded.
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