2020 (10) TMI 942 - HC - Income Tax

Deduction u/s 80IB-8A - Whether Tribunal is right in law in holding that the conditions of Rule 18DA(8A) can be looked into only by the prescribed authority and not by the AO as conditions necessary for allowing deduction u/s 80IB-8A - whether the AO is well within his jurisdiction to accept or reject the same based on the conformity adhered to by the assessee? - HELD THAT - Once the approval is granted by prescribed authority and such approval is valid, it would be no longer be open to the Assessing Officer to verify the satisfaction of the conditions prescribed under Rule 18DA in order to refuse deduction under Sub-Section (8A) of Section 80-IB of the Act. Tribunal, in the instant case, has examined the issue on merits and has held that Rules clearly contemplate even sponsored research program and the entire receipts of the assessee are from contract research and not of own research. Any issue with regard to violation of conditions mentioned in Rule 18DA can be looked into only by the prescribed authority and therefore, the Assessing Officer erred in disallowing the deduction. Tribunal has rightly held that issue with regard to violation of conditions mentioned in Rule 18DA can be looked into only by the prescribed authority and not by the AO. Admittedly, the approval was granted to the assessee, which was renewed from time to time, therefore, the question of remand does not arise in the facts of the case. We are in respectful agreement with the view taken in case of B.A.RESEARCH INDIA LTD 2016 (6) TMI 853 - GUJARAT HIGH COURT - Decided against revenue.

Issues Involved:
1. Jurisdiction of the Assessing Officer vs. Prescribed Authority under Rule 18DA(8A) for Section 80IB-8A deductions.
2. Compliance with Rule 18DA(1)(c) conditions for scientific research and development.
3. Role and authority of the Dispute Resolution Panel and Income Tax Appellate Tribunal.
4. Interpretation of Section 80-IB(8A) and related rules.
5. Validity and impact of approvals granted by the prescribed authority.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer vs. Prescribed Authority under Rule 18DA(8A) for Section 80IB-8A deductions:
The core issue was whether the Assessing Officer (AO) has the jurisdiction to evaluate the compliance with Rule 18DA(8A) conditions for deductions under Section 80IB-8A or if this authority lies solely with the prescribed authority. The court concluded that "once the prescribed authority grants approval and such approval holds the field, it would not be open to the Assessing Officer or any other revenue authority to sit in appeal over such approval certificate and re-examine the issue of fulfillment of conditions mentioned in Sub-Rule (1) of Rule 18DA of the Rules." This emphasizes that the specialized body (prescribed authority) is the competent authority to assess the technical and scientific requirements.

2. Compliance with Rule 18DA(1)(c) conditions for scientific research and development:
The revenue argued that the assessee did not meet the conditions under Rule 18DA(1)(c) due to inadequate infrastructure and lack of own scientific research and development activities. However, the Tribunal found that the assessee's activities, including clinical trials and contract research, fell within the scope of "scientific research." The court upheld the Tribunal's finding that "any issue with regard to violation of conditions mentioned in Rule 18DA can be looked into only by the prescribed authority and not by the Assessing Officer."

3. Role and authority of the Dispute Resolution Panel and Income Tax Appellate Tribunal:
The Dispute Resolution Panel rejected the assessee's objections, but the Tribunal allowed the appeal, setting aside the AO's order and remitting the question of Arm's Length Price (ALP) to the Transfer Pricing Officer (TPO). The court supported the Tribunal's decision, emphasizing that the prescribed authority's approval, which had been renewed periodically, was valid and should not be re-evaluated by the AO.

4. Interpretation of Section 80-IB(8A) and related rules:
The court analyzed Section 80-IB(8A), which provides for a 100% deduction of profits and gains for companies engaged in scientific research and development, subject to certain conditions. The court highlighted that the prescribed authority is responsible for granting and renewing approval based on the company's performance. The statutory scheme mandates that the prescribed authority, not the AO, should evaluate compliance with the conditions.

5. Validity and impact of approvals granted by the prescribed authority:
The court noted that the assessee had obtained and renewed approval from the prescribed authority multiple times. The Tribunal's findings, based on a meticulous appreciation of evidence, confirmed that the assessee's activities qualified as scientific research. The court concluded that "once the approval is granted by prescribed authority and such approval is valid, it would be no longer be open to the Assessing Officer to verify the satisfaction of the conditions prescribed under Rule 18DA in order to refuse deduction under Sub-Section (8A) of Section 80-IB of the Act."

Conclusion:
The court answered the substantial question of law against the revenue and in favor of the assessee, dismissing the appeal. The judgment underscores the exclusive jurisdiction of the prescribed authority in evaluating compliance with Rule 18DA conditions for Section 80IB-8A deductions, thereby limiting the AO's role in this context.

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