TMI Blog2015 (10) TMI 2769X X X X Extracts X X X X X X X X Extracts X X X X ..... as capital expenditure - HELD THAT:- Since we have received order of Department of Scientific Industrial Research (DSIR) dt. 24.08.2010, in which the DSIR while approving our R D facilities for the purpose of section 35(2AB) has not considered clinical trial expenditure incurred by us as a part of in-house R D expenditure on the ground that by definition these expenditure were incurred outside of approved R D facility. This is the stand taken by DSIR for all pharma R D companies. Accordingly, we withdraw our claim for weighted deduction of the aforesaid expenditure u/s.35(2AB). However, we submit that the aforesaid expenditure should be allowed as an expenditure u/s 37(1) (without weightage of 150%). With respect to alternate claim made by the assessee u/s 37(1) of the Act, it is noted that the invoice of M/s. Reliance Clinical Research Services Pvt. Ltd. dated 31.03.2007 is enclosed at page no. 3 of the paper book, showing that payment has been made to the said company under the head Clinical Trial Fees for the month of March, 2007 for time spent on 1st March to 31st March, 2007 for conducting clinical trials, in support of to all K projects , for a sum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue against the order of learned Commissioner of Income-Tax (Appeals)- 9 , Mumbai, dated 20.12.2012 for A.Y. 2007-08. 2. In ITA No. 2061/ Mum/ 2013 , the Revenue has filed appeal on following grounds: i) The Learned CIT(A) has erred on facts and in law in restricting the disallowance made under section u/s 14 A of the Income-tax Act to Rs. 1,96,000/- , without properly appreciating the factual and legal matrix as clearly brought out by the Assessing Officer. ii) The Learned CIT(A) has erred on facts and in restricting the disallowance u/s. 14 A to Rs. 1,96,000/- , ignoring the facts that the Assessing Officer is bound to work out the disallowance under section u/s 14 A as per Rule 8 D and it has been held by Bombay High Court in the case of Godrej Boyce that working of disallowance under section u/s 14 A read with Rule 8 D is mandatory from A.Y. 2008-09 onwards. iii) The Ld.CIT(A) s order is contrary in law and on facts and deserves to be set-aside. 3. In ITA No. 1575/ Mum/ 2013 , the Assessee has filed appeal on following grounds: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by Assessing Officer, and partly sustained by Ld CIT(A). 4.1. At the very outset, ld. Counsel for the assessee brought into notice of the Bench, the order of Tribunal in assessee s own case for immediately preceding year i.e. A.Y. 2006-07 , wherein the issue of disallowance made u/s 14 A by the Assessing Officer was sent back by the Tribunal to the file of Assessing Officer for redeciding the same. On the other hand, Learned Departmental Representative has relied upon the order of Assessing Officer, but then submitted that he would have no objection if the issue, in totality, would be sent back to the file of Assessing Officer for readjudication, taking into consideration complete facts and latest position of law. 4.2. We have heard both the sides. It is noted that, in assessee s own case for A.Y. 2006-07 , the Tribunal has dealt with this issue and sent back the matter to the file of Assessing Officer. The relevant para of the order of Tribunal is reproduced as under: 3. In the first ground of appeal, the assessee has raised the following grievance: i) The learned CIT(A) erred in confirming the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology and cell sciences. During the course of the assessment proceedings, it was found by the AO that the assessee has claimed deduction u/s 35(2 AB) of the Act for an amount of Rs. 25,92,36,861/- , and that the assessee claimed to have incurred a sum of Rs. 17,28,24,574/- as expenditure for the in-house research facility. However, on verification of the details of expenses filed by the assessee, it was noted by the AO that the assessee has made a payment of Rs. 57.66 lacs to M/s Reliance Clinical Research Services Pvt. Ltd. (hereinafter called as RCRS) for carrying out clinical trial needed for R D activity, accordingly, vide questionnaire dt. 11.12.09 , a show cause was given to the Assessee to explain as to how the expenses not incurred in the in-house research facility is allowable as deduction u/s 35(2 AB). The assessee, in its reply dt. 15.12.09 , submitted to AO that section 35(2 AB) mentions that in respect of any expenditure incurred on scientific research or in-house research and development facility, as approved by the prescribed authority, there shall be allowed a deduction of a sum equal to one and one-half times of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AB) and had accordingly claimed deduction u/s 35(2 AB) of Rs. 25,92,36,861/- ( being 150% of Rs. 17,28,24,574/-). The details of such expenditure were as follows: Particulars Amt. Research Material consumed 6,41,75,537 Salary 8,88,36,874 Administrative expenses incurred on research Development 1,98,12,162 Total 17,28,24,573 Deduction allowed u/s 35(2 AB) @ 150% 25,92,36,861 However, the A.O. has singled out one particular expenditure for disallowance being payment made to Reliance Clinical Research Services Pvt. Ltd. (RCRS) amounting to Rs. 57.66 lacs for carrying out clinical trial needed for its R D activity. The reason given for such disallowance by the A.O. is that deduction u/ s 35(2 AB) is applicable only in case of expenses incurred on scientific research on in-house research and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.4. Before us, Ld. Counsel has submitted that even if the claim of the assessee is held to be not allowable u/s 35(2 AB), the alternative claim of the assessee u/s 37(1) is very much allowable, as per law and facts. It was submitted that the genuineness of expenditure is not in doubt, the fact that these expenses are revenue in nature is also not in doubt, and therefore, in any case, these expenses are allowable u/s 37(1) of the Income Tax Act. In support of his claim, Ld. Counsel has drawn our attention on the invoice of impugned expenses, showing nature of the expenses incurred. On the other hand, Ld DR has vehemently supported the orders of lower authorities, by submitting that the deduction made by the assessee u/s 35(2 AB) was contrary to law and facts, therefore same has been rightly denied by the lower authorities. With regard to allowability of the expenses u/s 37 , it was submitted by him that proper details are not available and therefore, these expenses cannot be allowed even as revenue expenses. 5.5. We have considered the submissions made by both the sides and gone through the orders passed by the lower ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. In our view, there are no estoppels against law. Even if, assessee agrees or consents for something contrary to law, the A.O. is obliged under the law, to discharge his duty of making fair assessment of income and to compute amount of tax payable as per law. As per Article 265 of the Constitution of India, No tax can be collected except by authority of law . Hon ble Supreme Court in the case of Ramlal vs Rewa Coalfield Ltd (AIR 1962 SC 361) , held that the state authorities should not raise technical pleas if the citizens have a lawful right, which is being denied to them merely on technical grounds. The state authorities cannot adopt the attitude which private litigants might adopt. Further, we place our reliance on the judgment of Hon ble Delhi High Court in the case of CIT vs Bharat General Reinsurance Co Ltd 81 ITR 303 ( Del.) Relevant portion is reproduced below: It was true that the assessee itself had included that dividend income in its return for the year in question, but there was no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case and clear position of law, as discussed above, in our opinion there was no reason to deny the claim assessee u/s 37 of the Act. Therefore, the AO is directed to allow these expenses u/s 37 of the Act. Accordingly, ground no. 2 of the assessee s appeal is partly allowed. 6. Ground no. 3 The assessee has challenged the action of Ld. CIT(A) in confirming the disallowance made by Assessing Officer for a sum of Rs. 776,132/- out of software expenses incurred by treating the same as capital expenditure. 6.1. The brief facts are that assessee purchased software license worth Rs. 7,76,132/- during the year, and claimed this amount as revenue expenditure. The Assessing Officer noted that the software license was a capital asset as it gave enduring benefit to the assessee and was to be capitalized. Thus the claim of the assessee, that it was revenue expenditure, was disallowed. It was further held by the AO that, otherwise also the expenditure on software purchase was not allowable as the assessee did not deduct TDS on the same. As per the AO, purchase of software was essentially purchase of copy right. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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