Tribunal grants deduction for clinical trial expenditure outside approved R&D facility

The Tribunal allowed the appeal by the assessee, directing the AO to grant weighted deduction on the entire disallowed expenditure of Rs. 212.85 lakh under section 35(2AB) of the Income-tax Act. The Tribunal held that expenditure on clinical trials outside the approved in-house R&D facility is eligible for deduction, including bio-equivalence studies and related electricity expenses for the R&D center. The decision overturned the CIT(A)'s order disallowing the deduction based on the absence of Form No. 3CL, citing relevant case law precedents.

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Issues Involved:
1. Disallowance of claim of deduction under section 35(2AB) of the Income-tax Act, 1961.
2. Requirement of Form No. 3CL for claiming weighted deduction.
3. Eligibility of expenditure on clinical trials outside the approved in-house R&D facility for deduction under section 35(2AB).

Summary:

Issue 1: Disallowance of claim of deduction under section 35(2AB) of the Income-tax Act, 1961
The assessee, engaged in manufacturing and trading drugs, claimed a weighted deduction under section 35(2AB) of the Income-tax Act for scientific research expenditures. The AO disallowed Rs. 212.85 lakh of the claimed deduction as the assessee did not furnish Form No. 3CL during the assessment proceedings. The CIT(A) upheld this disallowance, relying on the decision in Tejas Networks Ltd v/s DCIT.

Issue 2: Requirement of Form No. 3CL for claiming weighted deduction
The Tribunal noted that prior to the amendment effective from 01/07/2016, Rule 6(7A)(b) of the Income Tax Rules did not mandate the quantification of expenditure in Form No. 3CL for weighted deduction. The Tribunal referenced the decision in Cummins India Ltd v/s DCIT, which held that prior to the 2016 amendment, there was no legal requirement for Form No. 3CL to quantify eligible expenditure. Thus, the AO erred in restricting the deduction based on Form No. 3CL.

Issue 3: Eligibility of expenditure on clinical trials outside the approved in-house R&D facility
The Tribunal, citing the decision in CIT v/s Cadila Healthcare Ltd, held that expenditure on clinical trials outside the approved in-house R&D facility is eligible for deduction under section 35(2AB). The Tribunal found that Rs. 184.95 lakh of the disallowed expenditure was for bio-equivalence studies, which qualifies for deduction. The remaining Rs. 27.90 lakh, related to electricity expenses for the R&D center, was also deemed eligible for deduction.

Conclusion:
The Tribunal set aside the CIT(A)'s order and directed the AO to grant weighted deduction on the entire disallowed expenditure of Rs. 212.85 lakh under section 35(2AB). The appeal by the assessee was allowed.

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