2018 (5) TMI 1272 - HC - Income Tax

Claim of deduction u/s 35(1) - expenditure of capital nature on scientific research related to the business carried on by the assessee - Tribunal remanded the proceedings for fresh disposal in view of the fact that the opinion of the prescribed authority under the said section was not still available - Held that - It can be seen from the record that over 10 years since the completion of the assessment year and the filing of the return, the report of the prescribed authority is not yet available. As noted, it is not even clear that whether the Revenue has sought such report. In a given case, mere delay and the prescribed authority giving its opinion, may not be fatal to the interest of the Revenue. However, in facts of the case, we have no difficulty in accepting the Tribunal s approach.

Summary

Issues:
Appeal against judgment of Income Tax Appellate Tribunal regarding deduction under section 35(1) of the Income Tax Act, 1961.

Analysis:
1. The issue in this case revolves around the assessee's claim for deduction under section 35(1) of the Income Tax Act related to expenditure of capital nature on scientific research. The Assessing Officer initially objected to the claim, leading to the matter being remanded by the Tribunal for fresh disposal due to the unavailability of the prescribed authority's opinion.

2. In the subsequent proceedings, the opinion of the prescribed authority was not produced by the Revenue, raising doubts about the reference being made to such authority. The Assessing Officer proceeded with the decision without the opinion but stated that the demand would not be enforced until the prescribed authority's opinion was available.

3. Despite the lapse of many years without the prescribed authority's opinion being obtained, the Assessing Officer proceeded with the assessment. The Tribunal eventually deleted the demand, emphasizing that the uncertainty due to the nonavailability of the report could not persist indefinitely, leading to the Revenue filing appeals for two assessment years.

4. The crux of the matter lies in the interpretation of section 35(1) of the Act, which allows deductions for expenditure on scientific research. The Division Bench highlighted the requirement for a reference to the prescribed authority when questions arise regarding the nature of activities or assets used for scientific research. The decision of the prescribed authority is deemed final in such cases.

5. Despite the extended delay in obtaining the prescribed authority's report, the Tribunal's decision to delete the demand was upheld. The Court acknowledged that while delays in obtaining the opinion may not always be detrimental to the Revenue, in this case, the Tribunal's approach was deemed appropriate given the circumstances.

6. Ultimately, the Tax Appeals were dismissed, affirming the Tribunal's decision to delete the demand for the assessment years in question. The judgment underscores the importance of following the procedural requirements and seeking the prescribed authority's opinion in cases concerning deductions for scientific research expenditure under the Income Tax Act.