TMI Blog2012 (5) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... /Mum/10. ITA No. 2523/Mum/09 is a revenue's appeal for A.Y. 2003-04 and the assessee has filed a cross objection in CO No. 78/Mum/10. All these appeals, for the sake of convenience are heard together and disposed of by way of this common order. 2. At the suggestion of the parties, we first take up departmental appeal for A.Y. 2004-05. ITA No. 2481/Mum/09 is the Departmental appeal. Grounds of appeal read as follows:- 1) Re: Weighted deduction u/s. 35(2AB) In the facts and circumstances of the case and in law, learned CIT(A) erred in upholding disallowance of weighted deduction u/s. 35(2AB) in respect of following expenses incurred on Chikalthana, Aurangabad RandD facility. Pilot Bio-study expenses Rs. 2.64 cr. Analysis charges Rs. 2.13 cr. Consultancy charges Rs. 4.28 cr. Total Rs. 9.05 cr. In this behalf: 1.1) Having accepted the plea of the appellant that the expenditure incurred on clinical drug trials quality for weighted allowance, the learned CIT(A), still erred in rejecting plea for weighted allowance in respect of above expenses on the ground that the expenses did not constitute expenses on clini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific research on in-house research and development facility' is eligible for weighted deduction. The conditions therefore are: a. There must exist a in-house research and development facility' - that such a facility exists in the case of the appellant is not in dispute (reliance is placed on the DSIR certificate - Page 86-89 of the Paper Book); and b. The expenditure must be incurred on scientific research and must be on' the research and development being conducted by the in-house research and development facility' - that the expenditure under consideration is on research and development carried out by the in-house research and development facility is not in dispute; The Legislature in its wisdom has used the term on in-house research and development facility' and not an in-house research and development facility' or on in-house research and development' which implies that entire expenses on scientific research conducted by the in-house facility shall be held as eligible. In order for a weighted deduction to be available under section 35(2AB) what is essential is that an assessee engaged in the business of manufacturing of drugs and pharmaceuticals has set up an in-house res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s redundant. Needless to say that such an interpretation is to be avoided. Reliance is placed on the decision of the jurisdictional High Court in the case of CIT vs. Jayanand Khira and Co. Pvt. Ltd. (170 ITR 31 at 35) wherein the High Court held that the assessee, engaged only in building bus-bodies, was eligible for a deduction for manufacturing motor buses as it took judicial notice of the fact that no manufacturer in India manufactures the bus as such and if the view of the revenue was to be accepted, the provisions of section 80E would become otiose. In the present case as well if the assessee is not allowed a deduction for the expenditure on clinical trials as claimed on the basis that clinical trials are carried on outside the research facility, no pharmaceutical company will be allowed weighted deduction for conducting clinical trials since the Clinical Research Organisations which undertake clinical trials are not engaged in manufacture of drugs and pharmaceuticals and, hence, are not entitled to claim the benefit of section 35(2AB) of the Act. Reliance is placed on the Hyderabad ITAT in the case of ACIT v Bharat Biotech International Ltd (ITA NO. 558/Hyd/2007) wherein th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld the expenditure incurred for availing services to procure data to assist in the research and development activity of the in-house facility not be allowed weighted deduction, particularly when the law requires (Schedule Y of the Drug and Cosmetics Rules, 1945) that such clinical trials be conducted by independent third parties? The assessee submits that expenditure incurred on clinical trials is nothing but expenditure incurred for procuring data which will be used in the on going scientific research activities carried on by the in-house research and development facility and is therefore akin to the expenditure incurred on procuring any other material used as an input in the research and development activity and, accordingly, the claim for weighted deduction is allowable. h. Nature of expenditure incurred on Scientific information and scientific literature: Scientific information: expenditure incurred for purchase of paper, art work charges, etc for preparing visual aids and product literatures on drugs being researched and subscriptions to technical journals and websites. Scientific literature: payments to publishers and websites for subscription to scientific literature, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bench of the Tribunal in the case of Concept Pharmaceuticals Ltd., 43 SOT 423 (Mum). He vehemently contended that, the coordinate Bench has considered each and every argument made by the assessee and also decision of Hyderabad A bench of the Tribunal in the case of ACIT vs. Bharat Biotech International Ltd.(supra). He opposed reference of the Special bench and submitted that coordinate Bench order should be followed as per judicial norms. 6. Rival contentions were heard. On a careful consideration of the arguments of both the sides, we are inclined to follow the Judgement of Coordinate Bench in the case of Concept Pharmaceuticals Ltd. (supra). The Bench has considered all aspects and has come to the conclusion that the assessee is entitled to only 100% deduction of these expenses in accordance with the normal provisions and that 150% deduction cannot be given. The bench from para 2.5 onwards held as follows:- 2.5 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of weighted deduction under section 35(2AB) in respect of expenditure incurred on part of the scientific research out-sourced by the assessee. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Explanation has only clarified the ambiguity whether the clinical trials can be claimed as part of scientific research. Normally, trial is a post research activity which is only for testing of research and one could argue that this is not an integral part of research. However in view of the Explanation, the clinical trial has to be considered as a part of scientific research in relation to drugs and pharmaceuticals. Thus the Explanation has only clarified the position that clinical trial is part of scientific research. But for allowability of weighted deduction under section 35(2AB), the second condition that the expenditure should be incurred on inhouse research and development facility is also required to be fulfilled. In other words, in case the clinical trial is not done in the in-house facility, the expenditure will not be eligible for deduction as the weighted deduction is only in relation to expenditure on inhouse research facility. 2.7 The Learned AR for the assessee has referred to Circular No. 763, dated 18-2-1998 and Circular No. 14, dated 22-11-2002 of the CBDT in support of the argument that expenditure on trial conducted outside the R and D facility can also be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case and therefore the said decision cannot be considered as precedent on the issue of allowability of weighted deduction in respect of expenditure incurred outside the approved research and development facility. 2.9 In view of the foregoing decision, we are of the view that the expenditure on clinical trial though the same is an integral part of scientific research will be eligible for weighted deduction under section 35(2AB) only if the expenditure is incurred on an in-house research and development facility. The expenditure incurred on trial conducted outside the in-house R and D facility will not be eligible for weighted deduction under section 35(2AB). We therefore see no infirmity in the order of CIT(A) confirming the disallowance and the same is therefore upheld.' 7. Mr. Pardiwala argued at length to demonstrate that the view taken in the case of Concept Pharmaceuticals (supra) is a wrong view. We are not persuaded by this argument. The issue is whether the assessee gets 100% deduction of the expenses, or 150% deduction of the expenses incurred in in-house research and development facility. The issue has been discussed at length in the case of Concept Pharmaceuticals (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our finality in para 7 above on this issue, we allow this ground of the revenue. 14. Ground No. 1(iv) is on the issue of quantification of deduction u/s. 80IB, vis- -vis allocation of RandD expenses. 15. This expenditure consists of two parts i.e. R and D expenditure and interest expenditure. As far as interest expenditure is concerned, the assessee has not pressed the issue before learned CIT(A) and hence, ground to that extent is misconceived. The Tribunal on the very same issue of allocation of RandD expenditure for A.Ys. 2001-02, 2003-04 and 2003-04 held as follows:- 7. Next issue relates to deletion of addition made u/s 80IB. 7.1 During the year under consideration, the assessee had claimed deduction u/s 80IB in respect of Daman-Bhimpore and Daman Kadaiya units without allocating RandD expenditure. The A.O. allocated RandD expenditure to the said units by observing that RandD have nexus with Units in respect of which deduction is claimed under sec. 80IB. The ld CIT(A) deleted the addition by relying on decision of the assessee's own case for the AY 2001-02. The operative part of the findings given the ld CIT(A) in Paras 8.2 and 8.3 in his order which are as under: 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that interest cost has reduced from Rs.25.97 crores in AY 2001-02 to Rs. 14.95 crores indicating that there were repayments during the year and there were no fresh borrowings. Therefore, there is no question of allocation of portion of interest to 80IB units on the basis of the reasoning followed by the ITAT in the appellant's own case for AY 2001-02. 8. We have gone through the reasons given by the ld CIT(A). Moreover, identical issue has been examined by the Tribunal for AY 2001-02 in the assessee's own case and the Tribunal has given relief to the assessee company. In our opinion, no interference is called for in the order of the ld CIT(A) as this issue is covered in favour of the assessee's case for AY 2001-02. Accordingly, we confirm the order of the ld CIT(A) on this issue also. 16. Respectfully following the same, we uphold the order of learned CIT(A) and dismiss this ground of the revenue. 17. Ground No. 1(v) is on the issue of computation of deduction u/s. 80HHC vis- -vis, deduction u/s. 80IB. This issue is now covered by the decision of Hon'ble Bombay High Court in the case of Associate Capsules (P) Ltd. vs. DCIT, 237 CTR 408, wherein it is held that the object ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
