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2015 (8) TMI 763 - ITAT AHMEDABAD

2015 (8) TMI 763 - ITAT AHMEDABAD - TMI - Validity of Section 153A proceedings - Held that:- Initiation of impugned Section 153A proceedings in this set of four assessment years in absence of any incriminating material found in search conducted after finalization of regular assessments is not sustainable. We quote Delhi tribunalís decision ACIT vs. PACL India Ltd.[2013 (10) TMI 520 - ITAT DELHI] and hold that assessments framed u/s.143(1) and 143(3) of the Act have to be treated at par in such c .....

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01 w. E. F. 01.04.2002 and holds that where an assessee company incurs expenses on clinical trials for developing its pharmaceutical products outside a lab facility approved by the prescribed authority (the DSIR), the impugned weighted deduction has to be granted as purpose of this beneficial provision is to encourage scientific research. The Revenue does not point out any distinction on facts and law. Nor does it highlight any factual infirmity in assesseeís claim that the impugned sum has not .....

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d. [2009 (11) TMI 819 - ITAT AHMEDABAD] dealt with an identical issue and held that when an Assessing Officer treats such a building repair and maintenance sum as revenue expenditure, the same is also allowable u/s.35(2AB) of the Act as well. The Revenue fails to quote any case law to the contrary. We accept corresponding ground in its Cross Objection accordingly. Its legal ground challenging initiation of Section 153A proceedings is dismissed as not pressed - Decided partly in favour of assesse .....

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be given to the Assessing Officer on the next date. Be that as it may, the fact remains that the assessee has sought to compute its book profit afresh. The said computation on merits is yet to be examined. We quote the case law of Goetze (India) Ltd. Vs. CIT [2006 (3) TMI 75 - SUPREME Court] and hold that entertaining such a plea in absence of a revised return does not bar any appellate authority from exercising its jurisdiction. This said case law clarifies that jurisdiction of appellate autho .....

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4 & 39/Ahd/2011 - Dated:- 14-8-2015 - SHRI G. D. AGRAWAL AND SHRI S. S. GODARA, JJ. For The Assessee : Assessee : Shri S. N. Soparkar, A. R For The Revenue : Shri R. I. Patel, CIT. D. R. ORDER PER BENCH This batch of eleven cases relates to assessment years 2002-03, 03-04, 04-05, 05-06, 07-08 & 08-09. The lower appellate order passed by the CIT(A)-III, Ahmedabad, dated 29.09.2010 under challenge is common in A.Y. 02-03 to 05-06. All these four assessment years involve proceedings u/s. 153A .....

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53A proceedings, disallowance of deduction u/s.80HHC of ₹ 24,50,509/-, quantification of Section 80JJA deduction and also Section 80G deduction of ₹ 1,30,000/-; respectively. The Revenue s cross appeal No. IT(SS)A No. 819/Ahd/2010 asseeils lower appellate order deleting disallowance of ₹ 1,15,49,116/- relating to staff welfare expenses and deferred revenue expenditure. Next A.Y. 2004-05 comprises of assessee s appeal IT(SS)A No.809/Ahd/2010 raising grounds of validity of Sectio .....

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es, miscellaneous and interest expenses u/s. 14A r. W. S. 36(1)(iii) of the Act. The assessee has filed C. O. NO. 4/Ahd/2011 therein challenging the very assumption of jurisdiction u/s. 153A of the Act. Now we come to assessment years 2007-08 and 08-09. These cases arise from a common order of the CIT(A)-III, Ahmedabad, dated 10.11.2010 in proceedings u/s.153A r. W. S. 143(3) of the Act. The Revenue has filed IT(SS)A No. 38/Ahd/2011 challenging the CIT(A) s order deleting disallowance of ₹ .....

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enal proceeding to be treated as consequential in nature. Next A.Y. 2008-09 comprises of the Revenue s appeal IT(SS)A No. 39/Ahd/2011 challenging the CIT(A) s order deleting disallowance of ₹ 4,67,57,759/- pertaining to weighted deduction in respect of clinical trial expenses of ₹ 9,35,14,755/- u/s.35(2AB) of the Act. The assessee has filed cross appeal IT(SS)A No. 20/Ahd/2011 against the CIT(A) s order partly upholding disallowance of weighted deduction u/s.35(2AB) in respect of exp .....

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fficer and upheld by the CIT(A) in the common order under challenge. This legal plea goes to root of the matter. We proceed to adjudicate the same together in all these cases. 3. The assessee refers to its identical grounds raised in its first three appeals and in C. O. No.4/Ahd/2011. It argues that assessments in all four assessments years stood completed on 27.12.2002, 02.01.2006, 29.12.2006 and 29.03.2006 i. E. much prior to the search in question conducted on 23.10.2007. The only exception i .....

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sessing Officer framed the impugned assessments without highlighting any incriminating material by merely reviewing merits of the disallowances earlier made and the same is not valid as per law. Case law of (2015) 58 taxmann. Com 78 (Bombay) CIT vs. Continental Warehousing Corporation (Nhava Sheva ) Ltd. affirming Special Bench decision of the tribunal in All India Cargo Logistic vs. DCIT 137 ITD 287 is quoted in support. Thereafter, submits is that its assessment had already finalized before se .....

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28th June, 2013 and prays for quashing of all these four assessments. 4. The Revenue strongly opposes the assessee s above stated arguments and submits that an assessing authority can initiate Section 153A proceedings by reopening all assessments pertaining to the preceding six assessment years after search and assess income afresh as per law. It quotes case law of (2014) 49 taxmann. Com 98 (Karnataka) Canara Housing Development Co. vs. DCIT, [2014] 52 taxmann. Com 172 (Allahabad) CIT vs. Raj K .....

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as already distinguished the case laws of Anil Kumar Bhatia and Canara Housing Development Co. (supra) and holds that the same do not deal with the issue in question. Other case laws cited at the Revenue s behest are stated to be in relation to scope of a Section 153A assessment as against that of the very assumption of jurisdiction. The order of Chennai bench of the tribunal is stated to be against the Special bench decision in All India Cargo Logistics (supra) case. We have heard both the part .....

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ing in refund of ₹ 10,43,020/-. He framed regular assessments on 02.01.2006, 29.12.2006 and 29.03.2007 making some additions; most common being those of staff welfare expenses and deductions u/s. 80G/80HHC and interest etc. The assessee filed separate appeals for these three latter assessment years before the CIT(A). The same were partly allowed on 25.01.2007 and 19.10.2007. This latter date relates to the CIT(A) s orders in A.Y. 2004-05 and 05-06. Thereafter, the parties came to the tribu .....

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ng material or any undisclosed assets had been discovered during the search, the impugned Section 153A jurisdiction could not have been assumed. It submitted that the Assessing Officer nowhere mentioned all or any such material in his assessment orders. And also that Section 153A proceedings are not in the nature of a de novo assessment. It pleaded that none of the above stated assessments were pending as on the date of search so as to abate u/s.153A 2nd proviso thereto. The CIT(A) has rejected .....

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s. This issue has been dealt by me in the ease of Rohan Dyes and Intermediates and Intermediates and in the case of Tex excellence Pvt. Ltd. as under: "According to the AR, the AO was not justified in passing order u/s. 153A in view of the decisions of Meghmani Organics Pvt. Ltd. of IT AT 129 TTJ 255 (Ahd); Shri Anil K. Bhatia vs. ACIT C. C.-17, New Delhi and other decisions of ITAT, particularly when no incriminating "documents were found and seized from the premises of the appellant. .....

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d assessment order u/s. 153A. If the law is different at different points of time then the AO is duty bound to apply such law. In this case also the law at the time of passing original assessment was different than the law prevailing at the time of search as the provisions of section 80HHC and section 28(iiia), 28(iiib) etc. were amended with retrospective effect. The ratio of the above mentioned decisions of ITAT would not be applicable in such cases of retrospective amendment. 5.2. Further in .....

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ther words, the assessment u/s. 153A/153C can be made only in respect of seized material. Only in respect of pending assessments other issues can be considered besides the seized documents. In other words, there needs to be two assessments order for completed assessments - one regular and other based on seized documents. With due respect, this interpretation is not correct as the basic scheme of search assessments u/s. 153A/153C was introduced w. E. F. 2003 to overcome the two assessments theory .....

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ase the completed assessment years are 2003-04 and 2004-05 and regular assessment for A.Y. 2005-06 is pending as on the date of search and the assessment for A.Y. 2002-03 was re-opened and pending for assessment as on the date of search, then as per these decisions, the AO can pass order u/s. 153A only in respect of A.Y. 2002-03 and A.Y. 2005-06 whereas in respect of A.Y. 2003-04 and 2005-06 on the same issue he cannot pass the assessment order. This interpretation is definitely not in accordanc .....

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of deduction u/s. 80HHC on DEPB was disallowed by the AO in the original assessment. Further, after the return for A.Y. 2002-03 was accepted u/s. 143(1), there has been an amendment in the year 2005 wherein certain conditions were stipulated in respect of deduction u/s. 80HHC on DEPB. This amendment was made retrospective w. E. F. 1/4/1998. This amendment was not there when the return for A.Y. 2002-03 was accepted u/s.143(1). In A.Y. 2003-04 and 2004-05 the AO has already made a disallowance of .....

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"10. The decisions relied on by the learned DR are distinguishable on facts. In the said cases the Tribunal have given a finding that "it is not the complaint of the assessee that any income, which is already subjected to assessment under s. 143(3) or under s. 148 of the Act completed prior to the search in respect of six assessment years referred to in s. 153A, has also been included in the assessment framed under s. 153A of the Act. However, in the present case the Assessing Officer .....

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sent case are similar to the facts of the case of Rohan Dyes and Intermediates Ltd, that is, in the original assessment order is also the deduction under section 80 HHC has been disallowed along with other expenses as mentioned in the ground number 4 unlike in the case of Meghmani industries Ltd, the AO was fully justified in initiating proceedings under section 153 A of the Income-tax Act. In short, this ground of the appellant is dismissed. This leaves the assessee aggrieved. 8. We have alread .....

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re requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall - (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment yhears referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far a .....

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t, if any, relating to any assessment year falling within the period of six assessment years referred to in this [sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate: [Provided also that the Central Government may by rules made by it and published in the Official Gazette (except in cases where any assessment or reassessment has abated under the second proviso), specify the class or classes of .....

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tion 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to sub-section (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner: Provided that such revival shall cease to have effect, if such order of annulment is set aside.] Explanation.- For the removal of doubts, it is hereby declared that,- (i) save as otherwise provided in this section, section 153B and section 153C, all other .....

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ave already attained finality or wherein , assessment orders have already been passed. We reiterate that assessment orders in all these four assessment years stood passed on 27.12.2002, 02.01.2006, 29.12.2006 and 29.03.2007 i. E. much before the date of search falling on 23.10.2007. The assessee s case has through out been that there is no incriminating material; whatsoever as prescribed u/s.153A so as to give rise to the proceedings in question. In these facts, we notice that the Special bench .....

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e assessment therein u/s.153A will be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search and undisclosed income or property discovered in the course of search. This is not the Revenue s case; or for that no such material is placed on record that the search in question unearthed any such undisclosed material in assessee s case. We are inferring in these facts that there does not exist any such material not p .....

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) and observe that the same do not deal with an issue wherein Section 153A proceedings are initiated without any incriminating material discovered in search of the corresponding regular assessments stood finalized. Their lordships discussion about the hon ble Karnataka high court is that the same pertains to an instance of exercise of Section 263 jurisdiction vis-à-vis 153A proceedings. We take into account all these circumstances and hold that initiation of impugned Section 153A proceedi .....

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tion of jurisdiction which stands on a different footing. The same is the case in other decision of Filatex India Ltd. (supra). The case law of Bangalore and Chennai benches of the Tribunal holding that an Assessing Officer gets jurisdiction for passing orders u/s.153A after search even in absence of any incriminating material in case of assessments already finalized; go against the special bench decision hereinabove. The same are no longer valid precedents. The Revenue s arguments relying on th .....

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th A.Ys. 2007-08 and 08-09. The Revenue s sole identical ground in these two assessment years challenges lower appellate order deleing disallowance of weighted deduction u/s. 35(2AB) in respect of clinical trial expenses of ₹ 2,12,93,375/- and ₹ 4,67,57,759/- respectively. The assessee s cross objection No. 39/Ahd/2011 challenges validity of Section 153A proceedings and disallowance of ₹ 3,07,245/- of building repair and maintenance expenses on the ground of the DSIR s non appr .....

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has observed that the appellant is approved by the Department of Scientific and Industrial Research under section 35 (2AB) in respect of following expenditures vide their approval dated 26/3/2007 for assessment year 2007-2008 and 2008-2009 Assessment year 2007 - 2008 2008 - 2009 Land and building 7.97 Lacs nil Capital equipment excluding land and building 15.26 Lacs nil Revenue expenditure incurred in R & D 1921.85 Lacs 3967.67 total cost of in-house research facilities excluding land and b .....

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2AB) to the extent of the approval granted by Department of Science. Against this action of the AO, the appellant submitted as under: "Ground no. 2 relates to the disallowance of expenditure u/s 35(2AB) amounting to ₹ 2,14,46,997/-. 5.1 The Assessing Officer has made disallowance of expenditure amounting to ₹ 2,14,46,997/-. The break up of the said disallowance is as under :- (a) Expenditure on clinical trials ₹ 4,25,86,793/-. (b) Expenditure on building maintenance Rs.3,0 .....

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ghted deduction u/s 35(2AB) in respect of the difference is added to the total income of the assessee. " In view of the above, it is stated that the Assessing Officer has disallowed the aforesaid expenditure on the ground that the said expenditure is not approved by the prescribed authority (DSIR). The details of the expenditure incurred by the appellant and the amount approved by DSIR are submitted herewith vide Annexure-1. 5.2 As regard to the factual position, it is stated that the appel .....

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spective countries, improvement in analytical research viz. kinetic and mechanisms of degradation of APIs and formulations, structure elucidation and characterization of degradation products by UV, IR chromatography, DSC, elemental analysis, Mass Spectroscopy, Characterization of polymorphs using differential scanning calorimetry. The appellant company is taking assistance of Clinical Research Organisation (CRO) / doctors to confirm quality of drugs and their applicability for desired results. I .....

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brought to your kind attention that for the year under consideration, the appellant company had applied for the approval of Us R&D unit and the same has been granted by DSIR inform no. 3CM and the report in this relation has also been submitted in form no. 3CL. The copies of Form No. 3CM and 3CL are enclosed herewith vide Annexure-2. Apart from this, the appellant company maintains separate accounts for its R&D unit and the same have been audited by a Chartered Accountant. Thus, all the .....

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and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970). In view of the above explanation, it is clear that the expenditure on clinical drug trail is specifically included within the meaning of "expenditure on scientific research" for the purpose of sec. 35(2AB). 5.4.2 As regard the building m .....

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background, it is submitted that the in-house R & D facility of the company is approved by following various world Class Regulatory authorities and is treated as one of the best in Indian Pharmaceutical Industries viz. (1) World 'Health Organisation - GMP certification (India) (2) Medicines Control Council (Republic of South Africa) (MCC) - South Africa (3) Medicines and Healthcare Products Regulatory Agency (MHRA) - UK (4) United States Food and Drug administration (USFDA) - USA (5) ANV .....

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f certain sophisticated critical types of Diseases. 6.2 The appellant company has following in-house R & D facilities: a) Formulation Development Laboratory in Solid Oral Block. b) R&D Laboratory in Q C Block. c) R&D Laboratory in Oncology Block. d) API Pilot Plant. With the help of these facilities, the Company has developed number of good products which have helped considerably in providing "a Cure" to the Critical types of Diseases. 6.3 For all these products developed w .....

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e on these clinical trials tests and experiments which could be carried out only at places having adequate infrastructure like "Mini" Well Equipped Hospitals Specialized laboratories & Services of sophisticated knowledge of specialist Doctors & Scientists on the products under experimentation so also on various agencies as per Regulatory Authorities. These clinical trials are part of the main research being carried on by the company. The payments made for the said purpose is ex .....

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ation as reproduced above, expenditure on clinical trials is specifically included in the term "expenditure for scientific research" and the appellant-company has approved in-house Research & Development facility. Therefore, the expenditure incurred on clinical trails would be eligible for the weighted deduction u/s. 35(2AB). Apart from above, as stated in para 5.4.2, the recurring expenditure on building is also eligible for weighted deduction u/s 35(2AB). Thus, the claim of the a .....

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enditure should be included. If the expenditure is incurred by the assessee on research and development in the in-house research and development facility which is approved by the DSIR, the expenditure qualifies for weighted deduction u/s. 35(2AB). 8.2 In this connection, the decision of Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. for A.Y. 2001-02 may also be considered. The Hon'ble ITAT, in its order in ITA No. 3569 /Ahmedabad/ 2004 and cross-objections No. 18/Ahmedabad/20 .....

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specific conditions for the allowance of expenditure to the effect that it will be restricted to that contained in form No. 3CL. Needless to point out that such allowable expenditure etc is reported by the DSIR [Income Tax exemption], Kolkata without giving an opportunity of being heard to the assessee wherever he quantifies the expenditure which is less than that claimed by the assessee. We further find that the assessee has included a sum of ₹ 51.26'lacs as eligible expenditure being .....

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for preserving the research which is completed and its clinical trial is pending. As regards to the environmental issue, the assessee Company has set up an affluent plant and as is widely accepted, the vegetation i. E. trees have contained the pollution. This expenditure of gardening and plantation have been done for the perseverance of the environment and this is directly related to the R&D facilities. As regards to salary paid to Dr. C Dutt amounting to ₹ 58.54 lacs, he is in charge .....

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ew of the above discussion, we allow the claim of the assessee and this issue of the revenue's appeal is dismissed and that of the assessee' CO is allowed." 8.3 In connection with this disallowance, the appellant would also like to rely upon the decision of the jurisdictional High Court in the case of CIT vs. Claris Life Sciences Ltd. (221-CTR-301). The relevant finding of the High court is reproduced hereunder:- "The Tribunal has considered the submissions made on behalf of th .....

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approval only will be cut-off date for eligibility of weighted deduction on the expenses incurred from that date onwards. A plain reading clearly manifests that the assessee has to develop facility, which presupposes incurring expenditure in this behalf, application to the prescribed authority, who after following proper procedure will approve the facility or otherwise and the assessee will be entitled to weighted deduction of any and all expenditure so incurred. The Tribunal has, therefore, com .....

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ovided by section 35(2AB). The Tribunal has also considered the legislative intention behind above enactment and observed that to boost up R & D facility in India, the Legislature has provided this provision to encourage the development of the facility by providing deduction of weighted expenditure. Since what is stated, to be promoted was development of facility, intention of the Legislature by making above amendment is very clear that the entire expenditure incurred by the assessee on deve .....

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ssessee. " On perusal of the above decision , your goodselves shall appreciate that the requirement of approval from DSIR has been fulfilled in the case of the appellant and therefore, the entire expenditure in respect of such R & D should be allowed. Once the facility is approved by the DSIR, all the expenses, incurred on R & D in the said facility, become eligible u/s 35(2AB) of the Income-tax Act. In view of above, it is submitted that the claim for weighted deduction in respect .....

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The appellant was asked to furnish the break-up of other research expenses which was furnished by the AR as under for assessment year 2007-2008 INTAS PHARMACEUTICALS LTD. R&D FACILITY AT MATODA (AHMEDABAD) Break up of Other Research Expenses ACCOUNTING YEAR - 2006-07 ASSESSMENT YEAR - 2007-08 Sr. No. Description Amount (Rs.) 1. Power Cost 58,17,161.00 2. Steam Cost 19,89,046.00 o Innovator Sample 5,12,42,442,50 4. Reference Standard & Impurities 79,76,045.89 5. Columns 1,15,12,524.61 6. .....

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nses 1,40,000.00 18. Insurance Others 2,21,354.00 19. Membership Fees 5,000.00 20. Books & Periodi 6,68,860.30 21. Staff recruitment 1,83,966.00 22. Xerox Charges 47,233.74 23. Building Repairs & maintenance 3,07,244.50 Total Other Research Expenses 17,95,45,720.47 7.2 From the above, it is seen that the Department of Science has not approved the expenses amounting to ₹ 4,28,94,037/- appearing at serial number 10 and 23 of other research expenses as mentioned above. Serial number 1 .....

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ses of ₹ 4,25,86,793/- incurred on clinical trial in view of the explanation to section 35(2AB) inserted by the Finance Act, 2001 with effect from 1/4/2002. As per this explanation, the expenditure on scientific research in relation to drugs and pharmaceuticals, includes, expenditure incurred on clinical drug trials, obtaining approval from any regulatory authority under any central, state or provincial act and filing an application for a patent under the Patents Act 1970. In view of the e .....

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appellant would not be entitled to weighted deduction on this amount. Because, for the purpose of deduction of clinical drug trials expenses, trials explanation was inserted in the statute with effect from 1/4/2002 to allow weighted deduction in respect of such expenses. In respect of all other expenses, only those expenses would be eligible for weighted deduction which had been approved by the DS IR. In other words, to the extent of denial of weighted deduction in respect of the expenditure of .....

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3] 31 taxmann. Com 300 (Gujarat) takes into account explanation to Section 35(2AB)(1) introduced by the Finance Act, 2001 w. E. F. 01.04.2002 and holds that where an assessee company incurs expenses on clinical trials for developing its pharmaceutical products outside a lab facility approved by the prescribed authority (the DSIR), the impugned weighted deduction has to be granted as purpose of this beneficial provision is to encourage scientific research. The Revenue does not point out any disti .....

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the same being sustained in the CIT(A) s order reproduced hereinabove. There is no dispute has actually incurred the impugned building repair and maintenance sum. The authorities below have invoke the impugned disallowance for want of DSIR approval. It is to be seen that a coordinate bench in the ITA No. 3569/Ahd/2004 ACIT vs. Torrent Pharmaceuticals Ltd. decided on 13.11.2009 dealt with an identical issue and held that when an Assessing Officer treats such a building repair and maintenance sum .....

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disallowance of ₹ 4,67,57,759/- for the purpose of weighted deduction of ₹ 9,35,14,755/- u/s. 35(2AB) of the Act. We find that the CIT(A) has followed his observation in the preceding assessment year extracted hereinabove. No distinction on facts is stated to be involved. We follow our reasoning based on the hon ble jurisdiction high court decision quoted in the preceding paragraph in case of Cadila Healthcare and reject the Revenue s sole substantive ground. Revenue s appeal IT(SS)A .....

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aceutical Ltd. We import the very reasoning herein as well and accept the assessee s ground since no distinction on facts or law is forthcoming. 14. The assessee s second substantive ground challenges lower appellate order upholding assessment of book profit u/s.115JB at ₹ 19,28,66,436/- as per original return instead of the revised one stating it as ₹ 18,81,50,391/-. The CIT(A) s order has rejected assessee s claim as under: 10. The next ground of appeal is regarding considering the .....

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income as per the normal provisions of the Income-tax Act was computed at a loss of ₹ 14,71,11,214/- and the book profit was shown at ₹ 19,28,66,436/-. This return was revised by the appellant on 30th December 2009. A copy of acknowledgement of this revised return was furnished before me. According to the AR, the appellant had to file a revised return for assessment year 2008-09 on 30/12/2009 in view of the amalgamation of Zora Pharma Ltd. with Intas Pharmaceuticals Ltd. with effect .....

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me. I find that in this case the assessment order was passed by the AO on 30/12/2009 whereas the intimation of revised return was given to the AO on 31/12/2009 i. E. after the assessment order was passed in this case. In other words, no cognizance was taken by the AO in respect of this return as the same was filed after the assessment order was passed. A revised return can be filed under section 139(5) of the Income-tax Act within one year from the end of the financial year or before passing ass .....

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