Tribunal upholds deduction for manufacturing, dismisses R&D claim, approves approval validity & directs claim verification &D

The Tribunal allowed the assessee's claim for deduction under Section 10B for manufacturing activity but dismissed the claim for R&D services. The validity of the approval granted by the Development Commissioner and its ratification by the Board of Approval was upheld, relating back to the original approval date. The Tribunal partially allowed the revenue's appeal, directing the AO to verify the claim's bifurcation for the manufacturing and R&D segments.

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Issues Involved:
1. Deduction under Section 10B for manufacturing activity.
2. Deduction under Section 10B for R&D services.
3. Validity of approval granted by the Development Commissioner (DC) and its ratification by the Board of Approval (BOA).

Issue-wise Detailed Analysis:

1. Deduction under Section 10B for Manufacturing Activity:
The Tribunal had previously discussed the eligibility criteria for the assessee to claim a deduction under Section 10B for manufacturing activity. The Tribunal observed that the ratification by the board, effective from 31/08/04, should not be a point of contention as it is merely a formality and relates back to the date of the actual grant by the DC. The Tribunal concluded that the assessee is eligible for the deduction under Section 10B for the manufacturing activity, as the certificate issued by the DC dated 31/08/04, in continuation to the certificate dated 16/04/04, supports this claim. Therefore, Ground No. 5.4 was allowed in favor of the assessee.

2. Deduction under Section 10B for R&D Services:
The Tribunal had earlier dismissed the assessee's claim for deduction under Section 10B for R&D services. The Tribunal noted that the assessee's activities fell into two distinct segments: manufacturing of APIs and contract R&D services. The R&D services were not considered to be covered under the explanation to Section 10B, which pertains to "computer software." The Tribunal upheld the findings of the AO and DRP that R&D services do not qualify for the deduction under Section 10B, as they are separate from the manufacturing activities. Consequently, the Tribunal dismissed the grounds related to R&D services.

3. Validity of Approval Granted by the Development Commissioner (DC) and Its Ratification by the Board of Approval (BOA):
The Tribunal addressed the issue of the validity of the approval granted by the DC and its ratification by the BOA. The Tribunal referred to the DRP's observation that the certificate obtained from the SEZ, being a 100% EOU, does not equate to a certificate issued by the board constituted under the Industries Development and Regulation Act, 1951 (IDRA). However, the Tribunal noted that the approval granted by the DC, once ratified by the BOA, relates back to the date of the original approval. This view was supported by various judicial precedents, including the Delhi High Court's decision in the case of Enable Exports Private Ltd and the Gujarat High Court's decision in the case of ECI Technologies Private Limited. The Tribunal concluded that the assessee is eligible for the deduction under Section 10B for the manufacturing segment, as the ratification by the BOA relates back to the original date of approval.

Separate Judgments Delivered:
The Tribunal delivered separate judgments for the assessment years 2009-10 and 2011-12. For the assessment year 2009-10, the Tribunal allowed the assessee's ground regarding the deduction under Section 10B for manufacturing activity. For the assessment year 2011-12, the Tribunal upheld the CIT(A)'s view in part, allowing the deduction under Section 10B for the manufacturing segment while reversing the view for the R&D segment. The Tribunal directed the AO to call for necessary details regarding the bifurcation of the total claim attributable to manufacturing and R&D segments.

Conclusion:
The Tribunal allowed the assessee's claim for deduction under Section 10B for manufacturing activity while dismissing the claim for R&D services. The Tribunal also upheld the validity of the approval granted by the DC and its ratification by the BOA, relating back to the original date of approval. The appeal filed by the revenue was allowed partly, with specific directions for the AO to verify the bifurcation of the claim.

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