TMI Blog2013 (11) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... ent u/s. 143(3). The same thus was based merely on a fresh application of mind by A.O. to the same set of facts and to the same material on record as was available at the time of completion of the assessment originally u/s. 143(3) - Decided in favor of assessee. Classification of Nature of expenses, a revenue expenditure or capital expenditure – Software expenses disallowed on the ground being a capital expenditure – Held that:- Reliance has been placed upon the decision of Special Bench of ITAT in the case of Amway India Enterprises [2008 (2) TMI 454 - ITAT DELHI-C] – Relying upon the above case, restored to the file of AO. - ITA Nos.1506 to 1510/Mum/2011 & ITA No.2831/Mum/2012 - - - Dated:- 27-9-2013 - P M Jagtap And S T M Pavalan, JJ. For the Appellants : Shri V Sridharan, Shri Prakash Shah Shri Jas Sanghavi For the Respondent : Shri Girija Dayal ORDER:- PER : P M Jagtap These six appeals filed by the assessee against six separate orders of ld. CIT(A) -7, Mumbai for assessment years 2003-04 to 2008-09 involve some common issues and the same, therefore, have been heard together and are being disposed of by this single consolidated order for the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply, the following explanation was offered by the assessee :- In this connection, we wish to explain the Research and Development aspects that SIRO Clinpharm is involved with: SIRO is a full service Contract Clinical Research Organization (CCRO), efficient in conducting clinical research in various therapeutic areas like Pharmaceutical, Biotechnology and Medical Devices sector. Its primary objective is to undertake scientific and medical studies on behalf of various companies belonging to the pharmaceutical industry thus facilitating these companies to make clinical development process much faster arid more efficiently. Our Clinical Research team carries out comprehensive, independent management of clinical trials from Phase 1,1 to Phase IV in accordance with the requirements of regulatory authorities and ICH guidelines for Good Clinical Practice (GCP). To further help in carrying out clinical research, the Company also has its own Central laboratory which helps the company in successfully carrying out its role of CCRO. It has set up one-of-its-kind central laboratory, which analyses the samples for clinical testing from various hospitals running clinical trials for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the said activity could not be termed as research and development. He was also of the opinion that the activity of the assessee was not leading to technology development or improvement of technology and the assessee also did not have the adequate infrastructure as envisaged in Rule 18DA(1)(c) (e) of Income Tax Rules, 1962. He also noted that there was no transfer of technology developed in the case of the assessee as envisaged in Rule 18DA(1)(e) of the Income Tax Rules. The A.O., therefore, held that the assessee did not fulfill the eligibility criteria laid down in Rule 18DA(1) for claiming deduction u/s 80IB(8A) of the Act and the deduction so claimed was disallowed by him in the reassessments completed u/s 143(3) r.w.s. 147 of the Act for all the relevant four years i.e. assessment years 2003-04, 2004-05, 2005-06 and 2006-07. 5. The A.O. also completed the regular assessments u/s 143(3) of the Act for assessment years 2007-08 and 2008-09 wherein the deduction claimed by the assessee u/s 80IB(8A) of the Act was disallowed by him for the same reasons as given in the reassessments completed for assessment years 2003-04, 2004-05, 2005-06 and 2006-07. In the assessments comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) of the Act in the assessments originally completed u/s 143(3) of the Act on the basis of the material facts placed on record and there being no new material or facts coming to his possession, the reopening of assessments was based on change of opinion, which is not permissible as held in the various judicial pronouncements. This contention of the assessee was not accepted by the ld. CIT(A) as, according to him, the question of change of opinion would arise when there was any opinion expressed by the A.O. in the original assessments after proper application of mind. He held that there was no application of mind by the A.O. on this issue in the earlier assessments and there was thus no opinion per se expressed by the A.O. on this issue. He held that there was thus no case of change of opinion and the contention of the assessee challenging the validity of reassessment was not acceptable. 9. The ld. Counsel for the assessee, at the outset, invited our attention to the assessments originally completed u/s 143(3) of the for assessment years 2003-04, 2004-05, 2005-06 and 2006-07 and submitted that the deduction claimed by the assessee u/s 80IB(8A) of the Act was allowed by the A.O. a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments, there was no expression of opinion by the A.O. on this issue and the question of change of opinion does not arise. 12. In order to appreciate the stand of both sides on this preliminary issue, it is worthwhile to refer to the reasons recorded by the A.O. which are identical for all the four years under consideration except variation in the corresponding amounts. The same are extracted below:- Return of income disclosing a total income of Rs.6,35,926/- was furnished on 30-10-2004. In the return of income the assessee claimed deduction u/s 80IB amounting to Rs.90,76,103/- from the Gross Total Income of Rs. Rs.47,77,254/-. The assessee paid taxes u/s.115JB of the Income Tax Act, 1961 on Book Profit of Rs.1,03,13,157/-. Along with the return of income, Auditors Report in Form No. 10CCB was also furnished. Scrutiny assessment for A.Y.2005-06 was completed on 16/11/2006 after allowing a deduction u/s. 80IB(8A) of Rs.90,76,103!- from the Gross Total income of Rs.97,12,029/-. On examination, it is found that the assessee had conducted trials of pharmaceutical products manufactured by others and had no facility for laboratory, testing and analysis. Therefore, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court had an occasion to consider a similar issue and it was held in this context that when a regular order of assessment is passed in terms of Section 143(3), a presumption can be raised that such order has been passed on an application of mind. It was also held that if non-application of mind by A.O. in passing an order would itself confer jurisdiction upon the A.O. to re-open the proceedings without anything further, it would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. It was further held that the legislature has not conferred the power on the A.O. to review his own order. The reassessment proceedings initiated in the said case therefore was held to be invalid by the Hon ble jurisdictional High Court on the ground that the same was based on change of opinion of the A.O. as it was mainly on fresh application of mind by the A.O. to the same set of facts. To the similar effect is the decision of the Hon ble Gujarat high Court in the case of Cliantha Research Limited (Formerly known as BA Research) vs. DCIT (supra) cited by the ld. counsel for the assessee wherein the notice issued by the A.O. u/s 148 reopening the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue, however, has been raised in the appeal of the assessee for assessment years 2007-08 and 2008- 09 which is being decided on merit. 17. In ground No. 1 and 2 of its appeal for A.Y. 2007-08, a common issue raised by the assessee relates to the disallowance of its claim for deduction u/s 80IB of the Act amounting to Rs. 6,11,26,795/- made by the A.O. and confirmed by the ld. CIT(A). 18. As already noted, the claim of the assessee for deduction u/s 80IB(8A) of the Act was disallowed by the A.O. as, according to him, the activity of the assessee of clinical trials of the pharmaceuticals could not be termed as research and development. He also held that the activity of the assessee was not leading to technology development or improvement of technology and in the absence of adequate infrastructure as well as transfer of technology, the conditions stipulated in Rule 18DA(1)(e) were not satisfied. Before the ld. CIT(A), it was submitted on behalf of the assessee that while disallowing its claim for deduction u/s 80IB(8A), the A.O. completely overlooked the important fact that the assessee s activity of clinical trials was duly approved by the prescribed authority under Rule 18-D n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esearch and development; (c) has adequate infrastructure such as laboratory facilities, qualified manpower, scale-up facilities and prototype development facilities for undertaking scientific research and development of its own; (d) has a well formulated research end development programme comprising of time bound research and development projects with proper mechanism for selection and review of the projects or programme. (e) is engaged exclusively in scientific research and development activities leading to technology development, improvement of technology and transfer of technology developed by themselves; (f) submits the annual return alongwith statement of accounts and annual report within eight months after the close of each accounting year to the prescribed authority. 3.5. The assessee is required to fulfill all the above-mentioned four conditions of Section 80-IB(8A) and also Rule 18DA to be eligible for deduction. The approval by the prescribed authority i.e. Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India is just one of the conditions. The prescribed authority may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reatment under Protocol and Complexities method and type and cost of Pathological and other investigations required for each patient. 7) The appellant has filed details of projects! programmes completed during last three years, ongoing and planning for the future to give an idea about its activities. It has a column for a brief write up on the project giving objectives, methodology, progress so far, results expected and balance for technology, transfer etc. Some samples of remarks given in this column are - The objective is to provide Quality Assurance for the study, Data has been collected by the sponsor, the objective is to validate data, undertake query management and statistical analysis of the same , The objective is to provide Clinical Trial supplies to the sites where the sponsor is conducting th3e Clinical Trials , The objective is to provide project management for the study , Sponsor is carrying out a study with NPO2 in infants with pre-natal exposure to Hepatitis B surface antigen positive mothers , The objective is to provide Quality Assurance review and report on sponsor s study , Sponsor has collected the data. The objective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aper book filed by him containing details and documents submitted to the prescribed authority while seeking the approval to point out that all the relevant information such as list of scientists and professionals employed by the assessee company, details of infrastructure, information about the laboratory, list of presentations filed, list of clients and research contract etc. were called for and examined by the prescribed authority. He also pointed out from page 250 of the paper book that the representatives of prescribed authority had visited to verify the facility available with the assessee company and further details required after such visit were also furnished by the assessee including the income and expenditure account for the relevant year. He submitted that the approval thus was granted by the proper authority to the assessee company only after having satisfied that all the relevant conditions prescribed in Rule 18DA were duly satisfied and such approval was also further renewed for a period of three more years. He contended that the prescribed authority having given the approval to the assessee company for the purpose of claiming deduction u/s 80IB(8A) of the Act after h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d gains of such business for a period of ten consecutive assessment years beginning from the initial assessment year if such company is registered in India having its main object the scientific and industrial research and development provided it is approved by the prescribed authority and it satisfies such other conditions as may be prescribed. The prescribed authority is Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India and the other conditions to be fulfilled are prescribed in Rule 18DA of the Income Tax Rules, 1962. We have already extracted the said Rule in the foregoing portion of this order while narrating the relevant facts of the case. The main issue that arises for our consideration in the present context is whether the prescribed authority having granted the approval to the assessee company as required for the purpose of section 80IB(8A) of the Act, the A.O. is empowered to sit in appeal on such approval and re-examine whether the conditions stipulated for claiming deduction u/s 80IB(8A) of the Act are satisfied by the assessee or not. It is pertinent to note in this context that the voluminous paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. As regards the issue raised in ground No. 3 of the assessee s appeal for A.Y. 2007-08 relating to the disallowance of software expenses made by the A.O. and confirmed by the ld. CIT(A) treating the same as capital expenditure, the ld. counsel for the assessee has submitted that the said software expenses having been incurred by the assessee on account of annual license fee are allowable as revenue expenditure as held by the Delhi Special Bench of ITAT in the case of CIT vs. Amway India Enterprises which has been upheld by the Hon ble Delhi High Court reported in (2012) 65 DTR (Del) 313. He has submitted that the A.O. may be directed to verify this aspect and allow appropriate relief to the assessee. Since the ld. D.R. has also no objection in this regard, we restore this issue to the file of the A.O. for deciding the same afresh in the light of the decision of Delhi Special Bench of ITAT in the case of Amway India Enterprises (supra) after verifying the stand of the assessee that the expenses incurred on software are towards annual license fees. Ground No. 3 of assessee s appeal for A.Y. 2007-08 is accordingly treated as allowed for statistical purpose. 25. Now, we shall take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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