TMI Blog2015 (11) TMI 748X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeals)'s order granting the assessee impugned section 80-IB(8A) deduction fails accordingly. - Decided in favour of assessee. - I. T. A. Nos. 1915 /Ahd/ 2012(assessment year 2009-10) and 1623 /Ahd/ 2014(assessment year 2008-09). - - - Dated:- 31-7-2015 - ANIL CHATURVEDI (Accountant Member) and S. S. GODARA (Judicial Member) Mrs. Vibha Bhalla for the Appellant Mukesh M. Patel for the Respondent ORDER The order of the Bench was delivered by 1. S. S. Godara (Judicial Member).-This is a set of two appeals. The assessee has filed I. T. A. No. 1623/Ahd/2014 for the assessment year 2008- 09, against order of the Commissioner of Income-tax-I, Ahmedabad dated March 29, 2014, annulling a regular assessment framed on January 31, 2010 with directions to redo it afresh, in proceedings under section 263 of the Income-tax Act, 1961, for short the Act. The Revenue's appeal I. T. A. No. 1915/Ahd/2012 for the assessment year 2009-10 arises from the order of the Commissioner of Income-tax (Appeals)-6 Ahmedabad in case No. CIT(A)-VI/DCIT.Cir.1/266/11-12, allowing the assessee's claim of section 80-IB (8A deduction) of ₹ 22,22,47,186, in proceedings under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated to have issued another notice dated November 8, 2010 reiterating his earlier show cause seeking further information as to how the assessee's research and development activity had led to technology development improvement, transfer thereof along with patent rights acquired. The assessee quoted its further reply dated November 16, 2010 placing on record all necessary documents filed with the Department of Scientific and Industrial Research returns, subsequent deliberations in the course of scrutiny and its patent application filed with reference to the related products and justified the Assessing Officer's action in granting section 80-IB(8A) deduction in question. It raised a legal plea that the Assessing Officer had taken one of the possible views, rather the only possible view which could not be subjected to section 263 proceedings and prayed for dropping the Commissioner of Income-tax's show cause. 4. The case file reveals that the Commissioner of Income-tax was not impressed by the abovestated contentions. He rejected the same in his order dated December 31, 2010 and directed the Assessing Officer to redo the assessment in the assessee's case as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annexure-2 comprising list of the assessee's cliental for the purpose of technology transfer. The co-ordinate Bench accordingly restored the issue back to the Commissioner of Income-tax for decision afresh. The Commissioner of Income-tax took up consequential proceedings and issued a fresh show-cause notice dated January 7, 2014. The assessee filed its response on February 21, 2014, quoted the Tribunal's directions on the limited issue of annexure-2 hereinabove and prayed for dropping section 263 proceedings. It referred to the Department of Scientific and Industrial Research's letter dated March 20, 2013 rejecting the Revenue's request put up by the Additional Commissioner of Income-tax Range-1, Ahmedabad seeking withdrawal of its approval granted under section 80- IB(8A). It also reiterated the submissions made in first round of proceed ings hereinabove. The assessee also raised a legal plea that it had already taken up the issue of impugned deduction before the Commissioner of Income-tax (Appeals) against the Assessing Officer's action excluding its sample storage income from the deduction claimed hereinabove (supra). The Commissioner of Income-tax rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or that year or not. In this case, it was found that the assessee is merely a contract research organisation which provide services of conducting clinical trials of various drugs and formulation of clients which mainly comprises of pharmaceutical companies. As per the Income-tax Act, 1961, in order to claim deduction under section 80-IB(8A), the following conditions are required to be satisfied: (i) The company should be registered in India, (ii) The company's main object should be scientific and industrial research and development, (iii) For the time being, the company should be approved by the prescribed authority, and (iv) The company should fulfil the conditions prescribed under rule 18DA. 9.1 Here it is pertinent to point out that only if all the four conditions are satisfied, then the assessee is eligible for claiming deduction under section 80-IB(8A). In the case of the assessee, only condition Nos. (i) and (iii) are satisfied. The assessee does not satisfy condition No. (ii) since its main object is contract research and conducting clinical trial on behalf of clients and not independent scientific research and development. In other words, the assessee sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed by the assessee. The assessee is thus not eligible for claiming any deduction under section 80-IB(8A) irrespective of the fact that any patent is granted to the assessee or not. 11. From the assessment order, it is evident that the Assessing Officer has not examined the facts of the case with the applicable provisions of law before granting deduction under section 80-IB(8A) read with rule 18DA(1)/(2). The Assessing Officer also did not have the opportunity to examine annexure-II which was not submitted by the assessee during the assessment proceedings. Therefore, the Assessing Officer had not formed any opinion on the basis of the contents of annexure-II which was not presented before him. 12. Considering the above facts and findings, it is amply clear that the assessee is not eligible to claim deduction under section 80-IB(8A) as it does not satisfy all the provisions enlisted under section 80-IB(8A) and rule 18DA. Since the Assessing Officer had allowed deduction under section 80-IB(8A) amounting to ₹ 11.79 crores without thoroughly examining the requisite documents and conducting independent inquiry, there was substantial loss of revenue to the exchequer s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facilities, skilled staff employed, break-up of party- wise receipts with all necessary details. Copy of the Department of Scientific and Industrial Research approval in its ongoing field of research was also placed on record in support. The Assessing Officer did not agree to the same. He passed assessment order on December 30, 2011, inter alia, discussing the necessary conditions of section 80-IB(8A) deduction read with rule 18DA of the Income-tax Rules. He observed that the assessee did not fulfil the said conditions ; more particularly that of 80-IB(8A)(ii) read with rule 18DA(1)(e) being an entity engaged in research and development field as its business activity in the relevant accounting period was that of analysis of biological samples for pharmaceuticals industries which was only an incidental object and not the main one of contract research services to industries. He held that the assessee's entire receipts were from bio- equilance study and not from transfer of any technology. The assessee's payees had deducted TDS under sections 194C and 194J. The Assessing Officer accordingly viewed it as a case of contractual payment wherein its payers were also eligible for se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority which is the Department of Science and Technology, Government of India in this case. In view of this, if the Assessing Officer noticed any violation of the condition mentioned in the Income-tax Act or Rules, he is supposed to bring it to the notice of the prescribed authority and request for withdrawal of approval so granted. Once the approval so granted is withdrawn by the prescribed authority, the appellant will not be entitled to claim deduction under section 80-IB(8A). However without getting the approval withdrawn, the Assessing Officer had disallowed the claim on the ground that the condition mentioned in rule 18DA(1)(e) is not fulfilled. The arguments of the Assessing Officer are that the bio-equivalent study done by the appellant is not development of technology and since the appellant was doing the same for various clients on contract basis, there was no transfer involved. However the research and develop ment activities of the appellant were approved by the Department of Scientific and Industrial Research, the prescribed authority and there fore claiming that the same is not development of technology or transfer of technology is not appropriate till the prescribed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s entire methodol ogy has been before the prescribed authority who in their wisdom considered the same as development of technology and transfer thereof therefore the narrow interpretation proposed by the Assessing Officer do not hold good. The appellant relied upon the decision of the honourable Bombay High Court in the case of Indian Planetary Society v. CBDT reported in [2009] 318 ITR 102 (Bom). In the said decision it is held that rejection of the assessee's application for approval under section 35(1)(ii) cannot be made by the Central Board of Direct Taxes but the same is to be decided by the Ministry of Science and Technology. Since for the purpose of granting approval for being eligible for deduction under section 80-IB(8A) the Depart ment of Science and Technology is made the prescribed authority, any rejection of claim without serious violation of the conditions or withdrawal of approval is not sustainable. Accordingly it is held that the appellant is eligible for deduction under section 80-IA(8) till such time it holds approval from the prescribed authority. Accordingly the disallowance of deduction made by the Assessing Officer is deleted. 11. The Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till 2015-16. The Additional Commissioner of Income-tax Range-1, Ahmedabad applied to the Department of Scientific and Industrial Research for revoking the assessee's approval on January 17, 2013. The said authority declined this relief vide letter dated March 20, 2013. We find this letter to be a part of pages 14 and 15 clearly stating that the assessee's activity to be covered as a company in commercial research and development. This letter further contains the designations of eminent experts in this entire episode. We observing these facts that once the Revenue sought for revoking the assessee's approval under section 80- IB(8A) of the Act to the Department of Scientific and Industrial Research which stands refused, it cannot turn back and question the assessee's status as an entity engaged in research and development ; be it in section 263 proceedings or in a regular assessment framed under section 143(3) of the Act. We find from the case file that an identical question arose before a co-ordinate Bench of the Tribunal reported as Siro Clinpharm P. Ltd. v. Deputy CIT [2014] 49 taxmann.com 62 (Mum-Trib) and the same stands decided in the assessee's favour as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras 3.3 to 3.8 of his impugned order : 3.3. I have considered the facts of the case. Section 80-IB(8A) reads as under : The amount of deduction in the case of any company carrying on scientific research and development shall be hundred per cent. of the profits and gains of such business for a period of ten consecutive assessment years beginning from the initial assessment year, if such company- (i) is registered in India ; (ii) has its main object the scientific and industrial research and development ; (iii) is for the time being approved by the prescribed authority at any time after the 31st day of March, 2000 but before the 1st day of April, 2007 ; (iv) Fulfils such other conditions as may be prescribed. The prescribed authority for the condition (iii) above is Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India and the conditions as per (iv) above are provided in rule 18DA of the Income-tax Rules. 3.4. Rule 18DA(1) provides the following conditions : Any company carrying on scientific research and development shall be eligible for deduction specified in sub-section (8A) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utical industry. (2) It aims to be premier research organization in delivery of superior services in the conduct and management of clinical trials. It strives to produce high quality acceptable to regulatory authority worldwide. It wants to evaluate newer medicines and techniques to strive to uplift the quality of life. (3) Its team carries out 'clinical trials for Phase II to Phase IV' in accordance with the requirements of regulatory authorities and the International Conference on Harmonization of Technical Require ments for Registration of Pharmaceuticals for Human Use (IHICH) Guidelines for good clinical practice. (4) It has set-up central laboratories 'SIRO Prologo' where data collected from various data collection centres are tested for uniformity in clinical trial results. (5) All its activities result in providing 'clinical study report' to the sponsor. There is no activity other than the work given by the sponsor. (6) Before starting any project for clinical study report, a study budget is prepared. There is specific methodology for costing of each project and the cost of each project undertaken is determined by the various facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earn income in this process. It is a case of earning through job work of trial/test outsourced from a pharma company with the final product, in appellant's own words, 'high quality data'. I agree with the Assessing Officer that the conditions provided under section 80-IB(8A)(ii) and (iv) are not fulfilled and therefore the claim of the assessee for deduction under section 80-IB(8A) is not acceptable. The order of the Assessing Officer on this issue is confirmed. 20. Learned counsel for the assessee submitted that the deduction under section 80-IB(8A) of the Act is allowable to the company carrying can scientific research and development if such company is registered in India having its main object the scientific and industrial research and development provided it is for the time being approved by the prescribed authority and fulfils such other conditions as may be prescribed. He submitted that the prescribed authority for this purpose, i.e., Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India and the conditions are prescribed in rule 18DA of the Income-tax Rules, 1962. He submitted that the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the approval of the prescribed authority is one of the conditions to be satisfied for claiming deduction under section 80-IB(8A) of the Act and there are other conditions also which are required to be satisfied cumulatively in order to claim the said deduction. He submitted that the other conditions to be satisfied are prescribed in rule 18DA of the Income- tax Rules, 1962 and there is no reference to the prescribed authority in the said rule so as to say that the conditions stipulated in rule 18DA are to be examined only by the prescribed authority and not by the Assessing Officer. He contended that the Assessing Officer has inher ent power to examine whether these conditions are satisfied by the assessee or not while granting exemption under section 80-IB(8A) of the Act as rightly held by the learned Commissioner of Income-tax (Appeals). He contended that since the conditions stipulated in rule 18DA were not satisfactorily satisfied by the assessee as found by the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals), the claim of the assessee for deduction under section 80- IB(8A) of the Act has rightly been disallowed. As regards the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the approval as required under section 80-IB(8A) of the Act was given by the prescribed authority and extended further twice. 23. In the case of Rubicon Research Ltd. (supra), a similar issue arose for consideration of the co-ordinate Bench of this Tribunal and it was held by the Tribunal that when the approval was initially granted and 'further renewed only when the assessee had satisfied the prescribed authority that it was carrying on the activity of scientific and industrial research and development and was having necessary infrastructure to do so, the Assessing Officer or the learned Commis sioner of Income-tax (Appeals) could not sit on appeal on such approval and re-examine whether the conditions stipulated for claiming deduction under section 80-IB(8A) of the Act were satisfied by the assessee. For this conclusion, reliance was placed by the Tribunal in the case of the hon'ble Bombay High Court in the case of Indian Planetary Society v. CBDT [2009] 318 ITR 102 (Bom) wherein it was held that when the Legislature had thought it fit to entrust the respon sibility with the Government of India who with the help of the body of persons, who would be conversant with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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