TMI Blog2012 (7) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... Research & Development facility and the said expenses should not be in relation to research result which is not obtained from in-house research and development facility and it is not necessary that the expenditure itself on clinical drug trial should be incurred in-house - the disallowance made by the A.O for allowing weighted deduction in respect of clinical drug trial is unwarranted. Dis allowing weighted deduction u/s. 35(2AB) i.e. for ₹ 68,60,981/- being the payment to various institutions the order of the CIT (A)is set aside and restore back the matter to the file of the A.O. for a fresh decision taking into consideration that if it is found that the same is not in respect of full research but only in respect of procuring of some material or service then the same should also be considered for weighted deduction. Disallowance towards Foreign Exchange Rate fluctuation - Held that:- As decided in CIT Versus WOODWARD GOVERNOR INDIA PVT. LTD [2007 (4) TMI 118 - DELHI HIGH COURT] that it is an admitted fact in the present case that this expenditure was incurred by the assessee in respect of loan from the bank which were used for acquisition of certain plant and machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-2012 - Mukul Kr Shrawat, A K Garodia, JJ. For Appellant: Shri S N Soparkar, Sr. Adv. For Respondent: Shri Samir Tekriwal, Sr. DR ORDER Per: A K Garodia: Both these appeals are assessee s appeals directed against the order of Ld. CIT (A)-VI, Ahmedabad dated 22-3-2006 for Assessment Year 2002-03 and against the order of Ld. CIT (A)-V, Ahmedabad dated 24-4-2007 for Assessment Year 2003-04. Since common issues are involved in these appeals, the same are disposed off by this common order for the sake of convenience. 2. First, we take up the appeal of the assessee for Assessment Year 2002-03 i.e. ITA No.1440/AHD/2006. Ground No.1 and 2 read as under:- Ground No.1. The assessment order passed by Hon ble Commissioner of Income Tax (A) u/s.250 of Income tax Act is bad in law, illegal and deserved to be cancelled. Ground No.2. The Hon ble CIT (A) has erred in law and on the facts of the case in confirming the disallowance made by A.O. towards contribution to P.F. ESIC ₹ 3,95,172/-. 3. It was submitted by Ld. AR of the assessee that this issue is covered in favour of the assessee by the judgment of Hon ble Apex Court rendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in which the above expenses have been excluded for the benefit of Sec. 35(2AB). And since the benefit of this section is subject to the report submitted by the prescribed authority to the Director General (Income Tax exemption) uniform No, 3C1, and since in this report itself the prescribed authority has excluded these expenses from the category of expenses to be given benefit under this section, the same cannot be allowed to the assessee. Therefore, the A.O. disallowed an amount of ₹ 36,80,491/-. 7. Bering aggrieved, the assessee carried the matter in appeal before the Ld. CIT (A) but without success and now the assessee is in further appeal to us. 8. The Ld. AR of the assessee placed reliance on the Tribunal decision rendered in the case of ACIT vs. Torrent Power Ltd., in ITA No.3569/Ahd/2004 C.O. No.18/Ahd/2005 and he submitted the copy of this Tribunal decision. He also placed reliance on another Tribunal decision rendered in the case of Claris Life sciences Ltd. Vs. ACIT as reported in 112 ITD 307 (Ahd) and he also placed reliance on the decision of Hon ble Gujarat High Court rendered in the same case of CIT vs. Claris Life sciences Ltd.,(2010) 326 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 35(2AB) or to any section, it only explains the main provision and does not alter or modify the main provision and since there is condition in the main provision for incurring the expenditure in house, as per explanation also, the expenditure incurred in house only is eligible for weighted deduction. 9. We have considered the rival submissions and perused the material on record and have gone through the orders of the authorities below and judgments cited by the Ld. AR of the assessee. We find that in the case of ACIT vs. Torrent Pharmaceuticals Ltd. (Supra), it is noted by the Tribunal on page-10 of the Tribunal that an amount of ₹ 51.26 lakhs was incurred in respect of the expenses relating to clinical trials outside the approved facility. This issue has been decided by the Tribunal as per Para 10 of its order which is reproduced below:- 10. In view of the above facts and circumstances, we are of the view that it is only the expenditure which will only be allowed, whereas the assessee vide the copy of the letter reproduced hereinabove has very clearly explained as to how the entire expenditure claimed by the assessee is allowable. Thus there was no justifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Year 2002-03, the Tribunal has allowed weighted deduction to the assessee in respect of clinical drug trials also. We also find that the claim of the assessee in that case, also included professional fees of ₹ 48 lakhs. It was held by the Tribunal that the entire expense is allowable for weighted deduction. Hence, this issue is squarely covered in favour of the assessee by this Tribunal decision because it is not the case made out by the authorities below that the amount of ₹ 68,60,981/- paid to various institutions are for carrying out full research and not only a small part of the research work and no evidence is placed on record before us to controvert this assertion of the assessee that these expenditure on account of payment to various institutions is not on account of full research done it is only on account of procuring of some material or service or small portion of the research. But at the same time, no corroborative material is placed by the learned AR of the assessee in support of this claim and assertion. Under these facts, we feel that this issue should go back for fresh decision with regard to allowability of deduction u/s. 35(2AB) in respect of paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clinical drug trial only, then there will be practically no clinical drug trial expenses which would be eligible for weighted deduction and hence, it will render the Explanation inoperative. In our considered opinion, the rational interpretation of the provisions of section 35(2AB) and its explanation should be this that these expenses which are included in explanation being expenditure for clinical drug trial and for approval of regulatory authority etc., should be in relation to scientific research carried out in-house Research Development facility and the said expenses should not be in relation to research result which is not obtained from in-house research and development facility and it is not necessary that the expenditure itself on clinical drug trial should be incurred in-house. For the purpose of ready reference, we reproduce below Section 35 (2AB) and its explanation which are as under:- 35(2AB) Where a company engaged in the business of [biotechnology or in [any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule] ] incurs any expenditure on scientific research (not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of repayment of principal amount and on conversion of IOB FCNRB loan to Union Bank of India Ltd. It was observed by A.O. that it is admitted fact that IOB FCNRB loan was taken for the purpose of certain plant and machinery. Therefore, considering the provisions of section 43A, the A.O. treated it as part of Block of assets and allowed depreciation. It was further observed that the contentions put-forth by the appellant that the amount being revenue expenditure is untenable. 17. Being aggrieved by the order of A.O., assessee carried the matter in appeal before the Ld. CIT (A) but without success and now the assessee is in further appeal before us. 18. It was fairly admitted by the Ld. AR of the assessee that this issue is squarely covered against the assessee by the decision of Hon ble Delhi High Court rendered in the case of CIT vs. Woodward Governor India Pvt. Ltd. (2007) (294 ITR 451)(Delhi) . Respectfully following the said decision, we decline to interfere with the order of the Ld. CIT (A) on this issue because this is an admitted fact in the present case that this expenditure was incurred by the assessee in respect of loan from the bank which were used for acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the business profit as per Explanation (baa) to section 80HHC. He objected to this treatment given by the authorities below to the Misc. income but he could not bring on record any material to show that this misc. income is not covered by clause (baa) of section 80HHC and hence, this aspect is decided against the assessee. He further stated that the third aspect is set off of negative profit against positive profit but this issue is squarely covered against the assessee by the judgment of Hon ble apex court rendered in the case of IPCA laboratory as reported in 266 ITR 521 and hence, this aspect should be accordingly decided. We hold that on this aspect also, no interference is called for in the order of Ld. CIT (A).Accordingly, this ground of the assessee is partly allowed i.e. the issue of inclusion of Excise Duty and sales tax in total turnover is decided in favour of the assessee and the remaining aspects are decided against the assessee. This ground of appeal is partly allowed. 25. Ground No.7 is as under:- 7. The Hon ble CIT (A) has erred in law and on the facts of the case in confirming the action of the A.O. in not allowing MAT Credit before cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present year in respect of opening WDV after the addition made in the last year on account of foreign exchange rate fluctuation and if the same is not allowed, the same should be allowed. We set aside the order of learned CIT (A) on this issue and restore back this matter to the file of A.O. Ground No.2 (a) is rejected and ground 2(b) is allowed for statistical purpose. 35. Ground No.3 is as under:- 3. The Hon ble CIT (A) has erred in law and on the facts in disallowing a sum of ₹ 31,07,000/- in calculating Arms Length Price in respect of International Transaction with Associate Enterprise. The disallowance may be cancelled. 36. For this ground, we find that Ld. CIT (A) has followed the order of his predecessor in Assessment Year 2002-03. In that year, we have restored the issue to the file of CIT(A) for passing speaking and well reasons order and hence, in this year also, we restore this issue back to the file of Ld. CIT(A) for passing a speaking and well reasoned order after providing sufficient and proper opportunity of being heard to both sides. This ground is allowed for statistical purpose. 37. Ground Nio.4 is as under:- 4. The Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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