TMI Blog2015 (8) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessee’s claim that the impugned sum has not been incurred on clinical research. We reject the Revenue’s corresponding ground accordingly in A.Y. 2007-08. - Decided against revenue. Weighted deduction of ₹ 3,07,245/- disallowed in the course of assessment - Held that:- 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 ACIT vs. Torrent Pharmaceuticals Ltd. [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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of ₹ 22,00,715/-, regarding quantification of another deduction u/s.80JJAA and that of 80G deduction totaling to ₹ 1,65,001/-; respectively. Next assessment year 2003-04 involves assessee s appeal IT(SS)A No. 808/Ahd/2010 comprising of grounds challenging validity of Section 153A 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 Section 153A proceedings and Section 80HHC deduction claim of ₹ 4,92,223/-. The Revenue s cross appeal IT(SS)A No. 820/Ahd/2010 challenges CIT(A) s order deleting disallowance of ₹ 1,15,83,646/- relating to staff welfare expenses, miscellaneous expenses, interest expenditure u/s. 14A and 36 (i)(iii) of the Act; respectively. The next A.Y. 2005-06 involves Revenue s appeal IT(SS)A No. 821/Ahd/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is that the first assessment year involves a summary assessment u/s.143(1) of the Act. Rest all are regular assessments. The latter three assessments were agitated before the CIT(A). And upto the tribunal on various issues on merits. The assessee submits that no incriminating documents, papers, books of accounts or any money or other valuable assets was found in the course of search. Nor is any such material stated in these impugned assessments framed u/s. 153A of the Act. It contends that the Assessing 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 be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years from 2002-03 to 2005-06; respectively. The Assessing Officer processed the first return on 27.12.2002 resulting 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 tribunal. 7. It transpires from the case file that in the mean time, the department conducted the impugned search in case of M/s. INTAS group of companies. This culminated in issuance of Section 153A notices dated 06.05.2008. The assessee filed separate returns on 18.11.2008. The Assessing Officer framed consequential search assessments on 30.12.2009 inter alia making the above stated disallowances/additions. The assessee preferred separate appeal. It would raise a legal plea that once no incriminating material or any undisclosed assets had been discovered during the searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive amendment. 5.2. Further in all the decisions relied upon by the appellant i. E. decision of a) Anil P. Khimani vs. DCIT, 14 (Mum) b) Helios Food Additiva P. Ltd. vs. DCIT CC 40(Mumbai) c)) Meghmani Organics Ltd (Ahd) d) Anilkumar Bhatia vs. ACIT C. C. I7, Delhi. It has been held that the initiation of 153A/153Cproceedings are invalid in respect of those years for which no incriminating documents is found d search. That means 153A proceedings can be initiated only in those yea) which incriminating documents is seized. In other 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 i. E. block assessments u/s. 158BC/158BD based on seized material and regular assessment u/s. 143(3). Section 153A presupposes making of the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 has recomputed deduction u/s. 80HHC and 80IA of the Act by reducing the claim thereof. The Assessing Officer was not competent to do so in assessment u/s. 153A of the Act. We, therefore, cancel the assessment framed u/s. 153A of the Act for all the years, Therefore, the ratio of the decisions of the ITAT will not be applicable in this case. The assessment order passed u/s. 153A is therefore upheld. The first ground of appeal of the appellant is dismissed. 4.1 As the facts of the present 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made.] [(2) If any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 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 provisions of this Act shall apply to the assessment made under this section; (ii) in an assessment or reassessment made in respect of an assessment year under this section, the tax shall be chargeable at the rate or rates as applicable to such assessment year. A perusal of above stated statutory provision reveals th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir lordships discussion about the hon ble Karnataka high court is that the same pertains to an instance of exercise of Section 263 jurisdiction vis- -vis 153A proceedings. We take into account all these circumstances and hold 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 tribunal s decision (supra) and hold that assessments framed u/s.143(1) and 143(3) of the Act have to be treated at par in such cases. This leaves us with the other judgments quoted at the Revenue s behest. The case law of Raj Kumar Arora (supra) deals with scope of a Section 153A assessment and not that of assumption 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst this the appellant has claimed weighted deduction in respect of the revenue expenditure at ₹ 35,26,18,490/- on actual expenditure of ₹ 23,50,8,998/- instead of the amount approved for ₹ 1921.85 Lacs by the Department of Science. The AO therefore, disallowed the balance claim of ₹ 2,14,46,997/- in assessment year 2007-2008 and ₹ 7,50,61,105/- in assessment year 2008-2009. In other words, the AO restricted the claim under section 35(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.3,07,245/- The Assessing Officer has disallowed the weighted deduction u/s 35(2AB) on the aforesaid expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 procedural requirements as laid down u/s 35(2AB) rwr 6 have been complied with by the appellantcompany. 5.4.1 As regards the claim of weighted deduction u/s. 35(2AB), all the conditions specified in the said provisions are satisfied by the company. With reference to the expenditure on Clinical trials, the explanation to section 35(2AB)(1)- should be considered, which reads under : Explanation.-For the purposes of this clause, expenditure on scientific research , in relation to drugs 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 Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Clinical Research Organisation (CRO) for testing Drugs on Human subjects and also take help from Dossier (Pharmaceutical Documentation) making Companies, and to maintain standard laid down by Regulatory Authorities for arriving at the judgment of the effectiveness of the Drugs, and to rule out side-effects, if any. It is natural that the Company has to incur expenditure 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 expenditure on in-house R D only. 6.4 The above requirement of the R D activity has been rightly recognized and therefore, the expenditure 'on clinical trial has been specifically included within the meaning of 'expenditure on scientific research', as explained in para-5.4.1 hereinabove. 7. In view of the above, it is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue expenditure relating to building an another sum of ₹ 133.92 lacs being revenue expenditure other than building, which was considered as revenue by the Assessing Officer himself. These items clearly are within the purview of allowable u/s. 35[2AB] of the Act as weighted deduction. The security expenses are also directly, related to inhouse research as proper security is required to avoid leakage and only inhouse staff will have assssed to building. Accordingly, this expenditure are 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 amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntire expenditure so incurred on development of R D facility has to be allowed for weighted deduction as provided 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 development of facility, if approved, has to be allowed for the purpose of weighted deduction. We are in full agreement with the reasoning given by the Tribunal and we are of the view that there is no scope for any other interpretation and since the approval is granted during the previous year relevant to the assessment year in question, we are of the view that the assessee is entitled to claim weighted deduction in respect of the entire expenditure incurred under section 35(2AB) of the Act by the assessee. On perusal of the above decision , your goodselves shall appreciate that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stationary, Postage Courier 67,44,718.76 9. Regulatory, Testing and Dossier submission expenses 3,12,82,813.10 10. Clinical Charges 4,25,86,793.00 11. Labour Charges 12,02,902.00 12. Staff Training 87,710.00 13. Travelling Expenses 4,92,815.00 14. Conveyance, Petrol, Car Hire Charges 25,714.00 15. Telephone Expenses 1,85,446.00 16. Licence Appl. Fees 50,000.00 17. Legal Expenses 1,40,000.00 18. Insurance Others 2,21,354.00 19. Membership Fees 5,000.00 20. Books Periodi 6,68,860 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses. 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 ₹ 3,07,244/- the action of the AO is upheld. In other word: on this ground addition to the extent of only ₹ 1,53,622/- is confirmed in assessment year 2007 -2008. This leaves both the parties aggrieved. 10. We have heard both the Revenue and assessee. We come to Revenue s grievance first. It is an admitted fact that assessee has incurred the amount in question on specified purposes only. We find that the hon ble jurisdictional high court in case of CIT vs. Cadila Healthcare Ltd. [2013] 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) has followed his reasoning as in assessment year in 2007-08. We have already accepted assessee s C. O. therein by quoting case law of Torrent Pharmaceutical 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 amount of book profit at ₹ 19,28,66,436/- as against ₹ 18,81,50,391/-. Since there was assessed loss of approximately ₹ 6.72 crores under section 143(3) of the Income-tax Act, the total income was computed by the Assessing Officer under section 115JB of the Income-tax Act by taking the book profit at ₹ 19,28,66,436/-. The AR stated before me that the original return of income was electronically filed for assessment year 2008-09 on 29/9/2008. As per this return the total income as per the normal provisions of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... afresh. The said computation on merits is yet to be examined. We quote the case law of Goetze (India) Ltd. Vs. CIT [2006] 284 ITR 323 (SC) 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 authority under the Act is not impinged upon. The Revenue does not point out any case law to the contrary. We observe in these facts that the assessee s revised return seeking to re-compute its book profit deserves to be examined as per law. Its corresponding ground raised in this appeal is set aside to the file of Assessing Officer. The assessee s arguments are accepted for statistical purposes. Assessee s appeal IT(SS)A No. 20/Ahd/2011 is partly allowed. 16. Assessee s appeals IT(SS)A Nos.807 to 809/Ahd/10 and C. O. No. 4/Ahd/11 for A.Y. 2002-03 to 2004-05 are allowed and C. O. No.39/Ahd/11 and appeal ITA No. 20/Ahd/11 for A.Y. 2007-08 2008-09 are partly allowed. The Revenue s appeals IT(SS)A Nos. 819 to 821/Ahd/11 and IT(SS)A Nos. 38 39/ahd/11 for A.Ys. 2003-04 to 2005-06 and 2007-08 to 2008- 09 are dismissed. Pronounced in the open Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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