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2008 (8) TMI 384 - AT - Income TaxDenial of exemption u/s 10B - Export Oriented Undertaking - Denial of deduction u/s 35(1)(iv) - - R&D work for its parent company in USA - business of contract research and providing of laboratory facility - Denial of deduction u/s 80-IB(8A). Denial of exemption u/s 10B - Export Oriented Undertaking - R&D work for its parent company in USA - business of contract research and providing of laboratory facility - HELD THAT:- We observe that the benefit of exemption u/s 10B was denied to the assessee on the basis of letter of the Department of Information and Technology which clearly stated that the activities of the assessee were not covered under the IT/ITES (Information Technology Enabled Services). The ld. AR has not made any submission as to how the finding of the ld. CIT(A) in rejecting the benefit of exemption u/s 10B, is incorrect. We, therefore, uphold the impugned order on this issue. This ground is not allowed. Denial of deduction u/s 35(1)(iv) - R&D work for its parent company in USA - HELD THAT:- We have perused the copy of profit and loss account of the assessee and noted that the major chunk of its income is the Product development charges at Rs. 4.50 crores from the parent company and the only other income is that of Rs. 24,000 and odd. As against this income, the assessee has claimed deduction for expenditure towards raw material consumption, research and development expenses of revenue nature and administrative expenses - the ld. Counsel for the assessee has argued that it is covered u/s 35(1)(iv), r/w section 43(4)(iii)(a) - The harmonious construction of 35(1)(iv) and section 43(4)(iii)(a), provisions clearly indicates that there should be a 'business carried on by the assessee' and the scientific research should relate to that business which is carried on by the assessee. It nowhere suggests that the 'business of carrying on scientific research' is covered within the ambit of this provision - The contribution of the assessee's activity is facilitating the extension of business of Nostrum, USA and not that of its own. The situation would have been otherwise if the assessee had been engaged in the pharmaceutical business and had utilized the scientific research carried out by it in its business of producing tablets, etc., in which case it would have been qualified for deduction within four corners of this clause. In our considered opinion the ld. CIT(A) correctly proceeded in holding that the assessee is not eligible for deduction u/s 35(1)(iv). We, therefore, approve the view taken by him on this issue. This ground is not allowed - In the result, the appeal is dismissed. Denial of deduction u/s 80-IB(8A) - In view of the denial of exemption u/s 10B, the assessee requested the AO for the alternative claim of deduction u/s 80-IB(8A) during the course of assessment proceedings - HELD THAT:- On going through the scheme of section 80-IB in totality, we observe that the four conditions stipulated under sub-section (2) are to be fulfilled only if the eligible assessee is an industrial undertaking within the meaning of sub-sections (3) to (5), as the case may be. Since the instant assessee is engaged in the business of carrying out scientific research and development and has been approved by the Government of India for the benefit of deduction u/s 80-IB(8A), in our considered opinion the conditions of sub-section (2) are not required to be fulfilled by it. The ld. CIT(A) has interpreted section 80-IB in an inconsistent manner so as to cast such obligations on the assessee which have not been imposed by the statute. We, therefore, overturn the impugned order on this issue and direct the AO to allow deduction. In the result, this appeal is partly allowed.
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