No denial of sec. 35 deduction without seeking opinion of prescribed authority about nature of research activity

Where assessee raised claim for deduction under section 35(1), Assessing Officer could not decide the issue but had to place the issue before the Board who, in terms of section 35(3), would refer the question to the prescribed authority to seek opinion on nature of research activity undertaken by assessee.

The issue that arose before the High Court was as under:

Whether AO could disallow deduction under section 35(1) without placing the matter before the CBDT to make a reference to the prescribed authority if he was not sure about nature of research activity undertaken by assessee?

The High Court held in favour of assesse as under:

1)Section 35(3) 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.

2)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.

3)However, no such reference is required in cases where the assessee lodges a claim without any supporting material or claim of the assesse is accepted by AO. - CIT V. MASTEK LTD.[2015] 53 taxmann.com 388 (Gujarat)