TaxTMI 
TaxTMI 
2012 (5) TMI 305
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.... in upholding disallowance of weighted deduction u/s. 35(2AB) in respect of following expenses incurred on Chikalthana, Aurangabad RandD facility. Pilot Bio-study expenses Rs. 2.64 cr. Analysis charges Rs. 2.13 cr. Consultancy charges Rs. 4.28 cr. Total Rs. 9.05 cr. In this behalf: 1.1) Having accepted the plea of the appellant that the expenditure incurred on clinical drug trials quality for weighted allowance, the learned CIT(A), still erred in rejecting plea for weighted allowance in respect of above expenses on the ground that the expenses did not constitute expenses on clinical trials. 1.2) In this behalf, the learned CIT(A) also erred in construing the incentive provision strictly instead of purposively and in not accepting that the Explanation to section 35(2AB) was merely clarificatory in nature. 2) Re: Levy of interest u/s. 234B (Rs.5.02 cr.) and u/s. 234C (Rs. 5.02 cr) In the facts and in the circumstances of the case and in law, learned CIT(A) erred in upholding levy of interest under section 234B and 234C, neither of which was leviable "particular, amongst other reasoning, since the assessee had returned income under section 115JB ....
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....pute; The Legislature in its wisdom has used the term on in-house research and development facility' and not an in-house research and development facility' or on in-house research and development' which implies that entire expenses on scientific research conducted by the in-house facility shall be held as eligible. In order for a weighted deduction to be available under section 35(2AB) what is essential is that an assessee engaged in the business of manufacturing of drugs and pharmaceuticals has set up an in-house research facility where scientific research is carried out and expenditure is in nature of carrying out scientific research. c. Clinical trial is one of the various steps involved in scientific research for new drug development (please refer Page No. 73 to 79 of PB where the process involved in drug development is explained). Depending on the information gathered from conducting clinical trials, an assessee may have to do further research to make drugs/formulations effective and again go for clinical trials. d. Schedule Y of Drug and Cosmetics Rules, 1945 (Page No. 118 to 122 of PB) provides that different phases of clinical trials should be conducted on differen....
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....als as claimed on the basis that clinical trials are carried on outside the research facility, no pharmaceutical company will be allowed weighted deduction for conducting clinical trials since the Clinical Research Organisations which undertake clinical trials are not engaged in manufacture of drugs and pharmaceuticals and, hence, are not entitled to claim the benefit of section 35(2AB) of the Act. Reliance is placed on the Hyderabad ITAT in the case of ACIT v Bharat Biotech International Ltd (ITA NO. 558/Hyd/2007) wherein the ITAT has allowed the weighted deduction on the clinical trial expenditure incurred outside the facility relying on the fact that in AY 2003-04, CIT(A) had granted relief on identical issue and same had attained finality. It is submitted that the Department having accepted the decision of the CIT(A) in one case is estopped from taking a contrary stand in the case of another assessee. Reliance is placed on the decision of the Apex Court in the case of Berger Paints Ltd. (266 ITR 99). f. The decision in the case of Concept Pharmaceuticals Ltd. (43 SOT 423)(Mum) relied upon by the Revenue has held that the expenditure on clinical trial though the same is in....
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.... used as an input in the research and development activity and, accordingly, the claim for weighted deduction is allowable. h. Nature of expenditure incurred on Scientific information and scientific literature: Scientific information: expenditure incurred for purchase of paper, art work charges, etc for preparing visual aids and product literatures on drugs being researched and subscriptions to technical journals and websites. Scientific literature: payments to publishers and websites for subscription to scientific literature, journals, CDs, etc to enable the research personnel working in the in-house R and D facility to keep themselves updated about development in the medical field, to access available literature on the reference drug components and proposed drug. The assessee submits that these expenses are incurred within inhouse research and development facility and should be held as eligible for weighted deduction. The same has been also certified by DSIR as incurred within in-house research and development facility in Form 3CL (Page No. 87-89 of PB). Futher the assessee's argument on Asseess's Appeal ITA No. 2481/M/09 are as follows: I. Nature of Analysis ch....
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....pra). The Bench has considered all aspects and has come to the conclusion that the assessee is entitled to only 100% deduction of these expenses in accordance with the normal provisions and that 150% deduction cannot be given. The bench from para 2.5 onwards held as follows:- 2.5 We have perused the records and considered the rival contentions carefully. The dispute is regarding allowability of weighted deduction under section 35(2AB) in respect of expenditure incurred on part of the scientific research out-sourced by the assessee. The assessee was engaged in the business of manufacturing and trading of medicines, pharmaceutical formulations, bulk drug etc. It had set up an in-house research and development facility. The expenditure incurred on scientific research on such in-house research and development facility which is approved by the prescribed authority is allowable as deduction at the rate of 150 per cent of expenditure incurred. The assessee had incurred an expenditure of Rs. 14.89 lakhs on clinical trials which had been got conducted from outside agencies as the assessee did not have the facility for the same in the inhouse R and D centre. The issue is whether such expe....
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....urred on inhouse research and development facility is also required to be fulfilled. In other words, in case the clinical trial is not done in the in-house facility, the expenditure will not be eligible for deduction as the weighted deduction is only in relation to expenditure on inhouse research facility. 2.7 The Learned AR for the assessee has referred to Circular No. 763, dated 18-2-1998 and Circular No. 14, dated 22-11-2002 of the CBDT in support of the argument that expenditure on trial conducted outside the R and D facility can also be allowed. We have carefully perused the said circulars. The CBPJT in the para 18.2 of the said Circular No. 763 has only explained the provisions of section 35(2AB) and has clarified that the deduction will be available to companies having in-house research and development facility approved by the prescribed authority. There is nothing in the circular to show that even the expenditure incurred outside the approved research and development facility will be eligible for weighted deduction. Again the para 32.4 of the Circular No. 14, dated 22-11-2002 of CBDT only states the provision of law that the Explanation has been inserted which provides t....
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.... under section 35(2AB). We therefore see no infirmity in the order of CIT(A) confirming the disallowance and the same is therefore upheld.' 7. Mr. Pardiwala argued at length to demonstrate that the view taken in the case of Concept Pharmaceuticals (supra) is a wrong view. We are not persuaded by this argument. The issue is whether the assessee gets 100% deduction of the expenses, or 150% deduction of the expenses incurred in in-house research and development facility. The issue has been discussed at length in the case of Concept Pharmaceuticals (supra). The ratio of this decision applies to other expenses such as consultancy charges etc. We agree with the view of the coordinate Bench and respectfully follow the same. We do not see sufficient reason to refer this case to a Special Bench. Thus, we dismiss this ground of the assessee for the A.Y. 2004-05. Consistent with this view, we allow this ground of appeal of the revenue for A.Y. 2002-03 and 2003-04. 8. We will now take up the Departmental appeal i.e. ITA No. 2524/Mum/09 for A.Y. 2004-05. 9. Ground No. 1(i) is on the issue of allowability of expenditure on club. Out of Rs. 2.33 lakhs expenses, an amount of Rs. 1.06 lakh....
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....ion made u/s 80IB. 7.1 During the year under consideration, the assessee had claimed deduction u/s 80IB in respect of Daman-Bhimpore and Daman Kadaiya units without allocating RandD expenditure. The A.O. allocated RandD expenditure to the said units by observing that RandD have nexus with Units in respect of which deduction is claimed under sec. 80IB. The ld CIT(A) deleted the addition by relying on decision of the assessee's own case for the AY 2001-02. The operative part of the findings given the ld CIT(A) in Paras 8.2 and 8.3 in his order which are as under: 8.2 I have gone through the facts brought on record by the A.O. and the contentions of the appellant company, as also the order of the ITAT in the case of the appellant for AY 2001-02. The ITAT, referring to decision of the Madras ITAT in the case of Ponds India Ltd (ITA No.2047/Mad/88 dated 28.5.2002 and the decision of Pune Bench in the case of Vanaz Engineers Ltd, held that no allocation of expenditure on account of R and D expenditure was called for. As in respect of AY 2002-03, during the course of present appeal hearings, the appellant company was required to file the details of product formulations at 80IB quali....
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....ue is covered in favour of the assessee's case for AY 2001-02. Accordingly, we confirm the order of the ld CIT(A) on this issue also. 16. Respectfully following the same, we uphold the order of learned CIT(A) and dismiss this ground of the revenue. 17. Ground No. 1(v) is on the issue of computation of deduction u/s. 80HHC vis-à-vis, deduction u/s. 80IB. This issue is now covered by the decision of Hon'ble Bombay High Court in the case of Associate Capsules (P) Ltd. vs. DCIT, 237 CTR 408, wherein it is held that the object of section 80IA(9) was to prevent taxpayer fro claiming repeated deductions in respect of the same amount of eligible income and in excess of the eligible profits, and not to curtail the deductions allowable under various provisions of part C of Chapter VIA. The Bombay High Court therefore held that section 80IA(9) did not affect the computability of deduction under various provisions of part C of Chapter VIA, but affected the allowability of such deduction, so that the aggregate deduction u/s. 80IA and other provisions under part C of Chapter VIA did not exceed 100% of the profits of the business of the assessee. Similar view had been taken by the Ma....