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2020 (1) TMI 1038 - HC - Income TaxAllocation of the R & D expenditure to the Pondy unit - whether no such products were manufactured by the Pondy unit during the relevant year for which research was carried out by R & D unit? - HELD THAT:- Two products namely DIANOUM/RETARD tablets and NOVOLID tablets were manufactured by the Pondicherry unit not in the relevant year, for which research was done by research and development unit during the relevant year and expenditure, if any, was incurred in the preceding year. Therefore, there could not have been apportionment of the current year’s expenditure to the Pondicherry unit. It ought to have been appreciated that when research was helpful for other units, the question of apportionment of the expenditure to the Pondicherry unit would not arise. This fact can also be ascertained from the books of accounts of the Pondicherry unit. Thus, if the product is manufactured by other unit of the appellant, then only allocation of research and development expenses to the other unit is justified. Therefore, the first substantial question of law framed is answered in favour of the assessee and against the revenue. Deduction u/s 35(1) - tribunal justification in not excluding the capital expenditure from the total R & D expenditure of ₹ 1.99 crores while allowing the expenditure on R & D between the other units - HELD THAT:- Section 35(1) of the Act provides that in respect of expenditure on scientific research, the deductions made therein namely expenditure laid down or expended on the scientific research related to the business and an amount equal to one and one and a half times of any sum paid to a research association which has its object, the undertaking of scientific research or to a university, college or other institution to be used for scientific research. Since the amount of ₹ 99 lakhs was expended towards research and development, therefore, in view of Section 30(1) of the Act, the same ought to have been excluded from the total capital expenditure of ₹ 1.99 crores while allowing the expenditure on Research and development units. Accordingly, the second substantial question of law is answered in favour of the assessee Computation of deduction u/s 80HHC has to be done by reducing the deduction under Section 80-IB for the purpose of ascertaining eligible profit - tribunal was right in not following the principle laid down by the Hon’ble Supreme Court in the case of JCIT Vs. Mandideep Engineering & Packaging Industry Pvt. Ltd. 2006 (4) TMI 75 - SUPREME COURT while quantifying the deduction under Section 80HHC - HELD THAT:- Issue to be answered in favour of the assessee subject to the decision of the issue involved in the aforesaid substantial questions of law which is pending adjudication before the Supreme Court. Needless to state that depending on the view taken by the Supreme Court, the revenue shall be at liberty to take an action against the appellant, if so advised in accordance with law.
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