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TMI Blog2022 (7) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,62,74,26 of the case and in law, the Ld. CIT(A) was right in deleting the disallowance of weighted deduction claimed u/s. 35(2AB) of the Act even though para 4(xii) of DSIR Guidelines on deduction u/s. 35(2AB) clearly state that total revenue expenditure on R&D should be reduced from payment obtained by the company for sponsored research in the approved in-house R&D centre?" 04. Assessee has raised cross objection stating that reopening of the assessee upheld by the learned CIT (A) is not in accordance with law raising following solitary ground as under :- "The Honourable Commissioner of income tax (Appeal) - 3 has erred in confirming the action of the learned assessing officer in reopening the assessment u/s 147 of The Income Tax Act 1961 after a period of 4 years from the end of the relevant assessment year without bringing any fresh and tangible material on record. Further, the appellant has disclosed all material facts fully and truly during the assessment proceedings u/s 143 (3) of the act. " 05. Brief fact of the case shows that the assessee is a company engaged in the business of manufacturing of pharmaceuticals products and related research and development activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d claimed expenses of Rs. 3600.28 lakhs for rendering the services. The assessee has, however, reduced expenses incurred towards contract research of amount Rs. 3600.28 lakhs from gross research and development expenses and claimed weighted deduction (at the rate of 150%) on such amount, i.e. Rs. 2318.31 lakhs. 3.2 As per the provisions of Section 35 (2AB) of IT act, prescribed authority, being approval authority, is Secretary, Department of science and industrial research (DSIR), government of India. As per DSIR guidelines, income from contract/sponsored, research should be reduced from gross R & D expenditure and weighted deduction u/s 35 (2AB) of the IT act is eligible to the assessee on such net R & D Expenses. 3.3 Thus, from the perusal of records, it is seen that the assessee has claimed excess weighted deduction of Rs. 2447.41 lakhs (150% of Rs. 1631.61 lakhs) u/s 35 (2AB) by not following the prescribed mandatory DSIR guidelines. 4. As there is a failure on part of the assessee to disclose fully and truly all material facts necessary for its assessment during the year Under consideration and considering the new credible information on record, I have reasons to believe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the learned Assessing Officer should not have reduced the receipt from contract research activities from R & D which are eligible for deduction under Section 35(2AB) of the Act and further, the R & D expenditure on which weighted deduction is claimed is at Sinnar unit whereas the contract research activities is carried out at Mahapae and there is no relation between these two units so far as R & D activities are concerned. The assessee further contended that income from contract research has already been offered for taxation and therefore, reducing it from contract R & D expenditure amounts to double addition. 014. The learned CIT (A) a. Upheld action of learned Assessing Officer of reopening of the assessment holding that the learned Assessing Officer can go through the reasons from the very same record and there is no change of opinion. With respect to the full and true disclosure also, he held that not every disclosure to be treated as true and full. He further held that there is a prima facie material available for reopening of the assessment. However, sufficiency or correctness of the same cannot be decided. b. With respect to the deduction of research and developmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been reduced from the gross contract research expenditure where as the assessee has reduced only contract research expenditure, therefore, there is failure on part of the assessee. Hence reopening is valid. 020. We have carefully considered the rival contentions and the orders of the lower authorities. The fact shows that the assessee filed originally its return of income on 25 September 2009, which was assessed under Section 143(3) of the Act on 30 November 2011. In paragraph no. 6 of Assessment Order it is noted that deduction under Section 35(2AB) of the Act has been claimed amounting to Rs. 10,04,36,556/-. In computation of income assessee has claimed the capital expenditure on R&D as well as Revenue expenditure on R&D both allowable as deduction under Section 35(2AB) of the Act. Report under Section 35(2AB) of the Act was also available before the learned Assessing Officer along with details of expenditure incurred on R & D centre as per Appendix-1 to Appendix-4 of auditor certification dated 20 September 2010. Thereafter reopening has been made. 021. on the basis of above reasons recorded, on the first issue refer to in paragraph no. 2 above no addition was made and l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h expenditure with respect to which the income has been earned by the assessee has already been reduced in the original claim. Assessee also disclosed in the computation of business income the amount of deduction is claimed. The tax audit report in Annexure-6 with respect to the clause 15, the disclosure with respect to the amount of claim made by the assessee was also shown. A note thereon also stated cost incurred by the assessee for providing contract research services is not part of the R & D expenditure incurred by the assessee and therefore, those are reduced from the same. Therefore, amount of contract research income, the expenses incurred on rendering of contract research services and the net claim of the assessee u/s 35 (2AB) of the act was already on the record before the learned Assessing Officer during the course of original assessment proceedings. 024. Further, in assessment year 2012 - 13, on identical issue action u/s 263 of the act was initiated by the CIT (LTU) Mumbai stating that the deduction claimed by the assessee should have been reduced by the contract research income and not by the contract research expenditure. The matter was challenged before the coordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of failure on part of the assessee to disclose fully and truly all material facts. 027. Further, the learned Assessing Officer has stated that based on this 'new credible information' on record, he has a reason to believe about escapement of income. The learned Assessing Officer has not referred to any new tangible material, which is mandatory condition for reopening of the assessment. We find that there is no new tangible material available with the learned Assessing Officer for reopening of the assessment. The learned Assessing Officer has merely perused the existing material available on record and has reopened the assessment. Therefore, on careful perusal of the reasons recorded it clearly shows that now the learned Assessing Officer would like to change his opinion that for granting of weighted deduction under Section 35(2AB) of the Act whether the expenditure incurred by the assessee on contract research services should have been reduced or the remuneration generated by incurring those expenditure should be reduced. Thus, now the learned Assessing Officer want to reduce the R & D expenditure by the cost incurred as well as the profit margin earned on this expenditure. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een offered for taxation, the cost of contract research has not been claimed by the assessee for weighted deduction. The expenditure incurred by the assessee for mahapae unit were properly used by the above expenditure on contract research work, the Sinnar unit has nothing to do with the same. The learned Assessing Officer is incorrect in reducing the income of contract research activity from the eligible claim. Certain judicial precedent including the decision of Hon'ble Karnataka High Court was followed. He has also dealt with the issue that after the income and expenditure are adjusted it would amount to double taxation of income. In the result, we do not find any infirmity in the order of the learned CIT(A) in deleting the disallowance of deduction under Section 35(2AB) of the Act. Accordingly, the solitary ground of appeal raised by the learned Assessing Officer is dismissed. 032. For assessment year 2009 - 10, accordingly, the appeal of the learned Assessing Officer is dismissed and the CO of the assessee for A.Y. 2009-10 is allowed. 033. Now coming to the appeals of assessment year 2010 - 11, the learned assessing officer has filed ITA number 7582/M/2019 against the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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