2014 (2) TMI 597 - AT - Income Tax

Tribunal decisions: Deduction allowed under Section 10B and 80IB(8A) for assessment years 2005-06 and 2006-07.

GVK Biosciences Pvt. Ltd., Versus Addl. CIT

The Tribunal allowed the appeal for the assessment year 2005-06, quashing the reassessment proceedings and the denial of deduction under Section 10B. For ... Validity of Reassessment proceedings u/a 147 of the Act - Held that:- The assessee in the return filed has claimed deduction u/s 10B of the Act which is supported by an audit report submitted in Form No.56G of the Act - the Assessing Officer after causing necessary enquiry has completed the assessment u/s 143(3) of the Act accepting the income returned by the assessee - The facts and materials clearly indicate that because of the fact that in the assessment order passed for the assessment year 2006-07 a different view has been taken with regard to the claim of deduction u/s 10B of the Act only on that basis the assessment for the assessment year has been reopened - There is no independent application of mind by the Assessing Officer on the basis of the fats and materials in possession of him that income has escaped assessment – Relying upon CIT vs.SFIL Stock Broking Ltd. [2010 (4) TMI 102 - DELHI HIGH COURT] - while recording reasons for initiating action u/s 147 of the Act, the Assessing Officer has to apply his mind to the information and independently arrive at the belief that on the basis of the material which he had before him income had escaped assessment. The reasons recorded for initiating proceedings u/s 147 of the Act is not a valid reason as there is no tangible material before the Assessing Officer for coming to believe that income has escaped assessment - The Assessing Officer has merely adopted the reason for denial of exemption u/s 10B for the assessment year 2006-07 for initiating action u/s 147 of the assessment year which is not valid – thus, the initiation of proceedings u/s 147 of the Act is without authority of law and consequently the assessment order passed u/s 143(3) read with section 147 of the Act is also invalid in law and quashed – Decided in favour of Assessee. Denial of exemption u/s 10B of the Act – Profits derived from Medicinal Chemistry and Clinical Pharmacology Division – Requirement of production of article or thing or computer software – Held that:- The assessee had given up its claim in respect of the disallowance of exemption u/s 10B of the Act by not pressing the ground before the CIT (A) - Relying upon National Thermal Power Company Limited Versus Commissioner of Income-Tax [1996 (12) TMI 7 - SUPREME Court] - if the additional ground is purely on legal issue and does not require investingation into fresh facts and can be decided on the basis of facts already on record, then such additional ground can be entertained - the facts on record clearly reveal that the assessee has consciously given up its claim u/s 10B of the Act by not pressing the ground before the CIT (A) – there was no merit in the assessee’s contention for entertaining the issue. Rejection of claim of deduction u/s 80IB(8A) of the Act – Held that:- The assessee has obtained approval from the prescribed authority as a research and development company for availing deduction u/s 80IB (8A) of the Act – the claim of deduction is subject to fulfilment of other conditions as prescribed u/s 80IB(8A) and Rule 18BA of I T Rules - the CIT (A) cannot over-ride the approval/renewal granted by the prescribed authority and deny the benefit to the assessee by merely stating that the assessee has not been able to furnish evidence – The statutory authority cannot deny such benefit to the assessee during subsistence of such approval granted by the prescribed authority Relying upon ACIT vs. Small is Beautiful 2013 (8) TMI 809 - ITAT HYDERABAD] - there is no material on record to show that the approval granted by the assessee has been withdrawn by the prescribed authority - the deduction claimed u/s 80IB(8A) cannot be denied to the assessee till such time the assessee is approved as research and development organisation by the prescribed authority – thus, the order of the CIT(A) set aside and the AO is directed to allow the claim of deduction u/s 80IB(8A) of the Act – Decided partly in favour of Assessee. Issues Involved:1. Denial of exemption under Section 10B of the Income Tax Act.2. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.3. Eligibility for deduction under Section 80IB(8A) of the Income Tax Act.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 10B:The assessee, a company engaged in bio-informatics, medicinal chemistry, and clinical pharmacology, claimed deductions under Section 10B for its Medicinal Chemistry Division and Clinical Pharmacology Division. The CIT (A) denied these exemptions, stating that the activities did not involve the production of an article or thing or computer software. The assessee argued that their divisions were engaged in the production of articles or things, such as synthesized compounds and research reports, which should qualify for the deduction. The Assessing Officer (AO) and CIT (A) concluded that the payments received were for services rendered and not for any manufactured article or thing, thus disallowing the deduction under Section 10B.2. Validity of Reassessment Proceedings under Section 147:The reassessment proceedings were initiated based on the findings of the assessment year 2006-07, where the deduction under Section 10B was denied. The assessee contended that the reassessment was based on a mere change of opinion and lacked any new tangible material. The Tribunal noted that the AO had not independently applied his mind and had merely borrowed the satisfaction of a higher authority. The Tribunal held that the reassessment was invalid as it was based on the same set of facts without any fresh tangible material, thus amounting to a change of opinion. The Tribunal quashed the reassessment proceedings and the subsequent order passed under Section 143(3) read with Section 147.3. Eligibility for Deduction under Section 80IB(8A):The assessee claimed deduction under Section 80IB(8A) for its research and development activities, which was initially approved by the prescribed authority. The CIT (A) denied the deduction, stating that the assessee did not fulfill the conditions laid down under Rule 18DA of the Income Tax Rules. The CIT (A) argued that the assessee did not have a well-formulated research program and did not provide sufficient evidence to substantiate its claim. The Tribunal, however, noted that the prescribed authority had granted and renewed the approval, indicating that the assessee met the necessary conditions. The Tribunal held that the CIT (A) could not override the approval of the prescribed authority and directed the AO to allow the deduction under Section 80IB(8A).Conclusion:The Tribunal allowed the appeal for the assessment year 2005-06, quashing the reassessment proceedings and the denial of deduction under Section 10B. For the assessment year 2006-07, the Tribunal dismissed the ground related to Section 10B as it was not pressed before the CIT (A) but allowed the deduction under Section 80IB(8A), directing the AO to grant the deduction based on the approval from the prescribed authority.