PRINCIPAL COMMISSIONER OF INCOME TAX - 6 vs. INVESTMENT AND PRECISION CASTING LTD.

C/TAXAP/168/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 168 of 2018 With R/TAX APPEAL NO. 169 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX - 6 Versus INVESTMENT AND PRECISION CASTING LTD. ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 DARSHAN R PATEL(8486) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA

Date : 23/04/2018

COMMON ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal dated 19.01.2017.  The issue pertains to the assessee's claim of deduction under section 35(1) of the Income Tax Act, 1961 ('the Act'   for   short).     Assessee's   claim   relates   to expenditure of capital nature on scientific research related to the business carried on by the assessee. In   the   first   round   of   litigation,   the   Assessing Officer objected the said claim.  The matter reached the Tribunal which remanded the proceedings for fresh disposal in view of the fact that the opinion of the Page 1 of 5

C/TAXAP/168/2018 ORDER prescribed authority under the said section was not still available. 2. In   the   second   round,   such   opinion   was   not brought   on   record   by   the   Revenue.     In   fact,   the assessee doubted the very reference having been made to   such   authority   and   called   upon   the   Revenue   to produce any such reference on record. 3. The Assessing Officer was handicapped since many years   after   the   return   was   filed   and   assessment undertaken, the opinion of the prescribed authority was not available.   He therefore decided the issue without   the   aid   of   such   opinion   but   provided   that till the prescribed authority's opinion is available, the actual demand will not be enforced. 4. In   such   background,   the   issue   eventually   once again   reached   the   Tribunal.     The   Tribunal   by   the impugned judgment, deleted the demand mainly on the ground

that

uncertainty

arising

out

of nonavailability   of   the   report   cannot   be   continue forever.     Upon   which,   the   Revenue   has   filed   these appeals for two assessment years. Page 2 of 5

C/TAXAP/168/2018 ORDER 5. Undisputed facts are that the assessee's claim for   deduction   under   section   35(1)(iv)   of   the   Act pertaining   to   the   assessment   years   2004­05   and 2005­06   would   remain   under   suspension   if   the Assessing   Officer's   orders   were   to   prevail. Admittedly till date, no such report is brought on record.   In fact, it is not even clear whether any such reference was ever made. 6. Sub­section (1) of section 35 of the Act grants certain   deductions   in   respect   to   expenditure   to scientific   research.     Clause   (iv)   thereof   provides for   such   deduction   in   respect   of   expenditure   of   a capital nature on scientific research related to the business of the assessee.  Sub­section (B) of section 35 provides that if any question arises under said section as to whether and if so, to what extent any activity   constitutes   or   any   asset   is   used   for scientific   research,   the   Board   shall   refer   the question, depending on the question of nature to the Central Government or to the prescribed authority. 7. In   this  context,   Division   Bench   of  this   Court had observed as under: Page 3 of 5

C/TAXAP/168/2018 ORDER “28.   We   are,   however,   of   the   opinion   that insofar as the second aspect of the matter is concerned,   the   Tribunal   was   perfectly justified   in   holding   in   favour   of   the assessee. Section 35(3) of the Act as noticed requires a reference to be made by the Board to the prescribed authority when a question arises   as   to   whether   and   if   so   to   what extent,   any   activity   constitutes   or constituted or any asset is or was being used for scientific research. The decision of the prescribed authority on such a question would be final. In our opinion, therefore, whenever any   such   question   arises,   the   Assessing Officer   cannot   decide   the   issue   but   must place   the   issue   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 section 35(3) of the Act. Whenever an Assessing Officer is not inclined   to   accept   the   assessee's   case   for Page 4 of 5

C/TAXAP/168/2018 ORDER deduction, we fail to see how at that very stage, the question cannot be stated to have arisen.” 8. 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. 9. Tax Appeals are dismissed. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH Page 5 of 5