TaxTMI 
TaxTMI 
2013 (7) TMI 452
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.... of the Act for having carried out scientific research. Such claim was substantially allowed after scrutiny. To the limited extent the Assessing Officer was not convinced, the claim was disallowed. 4. It is this scrutiny assessment, which respondent No.1 desires to reopen for which the impugned notice has been issued. 5. At the request of the petitioner the Assessing Officer supplied reasons recorded by him for issuing the impugned notice. Such reasons read as under:- "The income of the assessee for A.Y. 2007-08 was assessed at Rs.38,89,053/- vide assessment order dated 23.12.2009 u/s 143(3) of the IT Act 1961. Initial assessment year from when deduction claimed under Section 80-IB(8A) of the Act is A.Y.2007-08. On examination of the assessment record, it has been found that the assessee is engaged in providing services in the field of analysis of clinical samples for bioequivalence, bioavailability and clinical trial studies for the pharmaceutical industry. The company carried out research work on behalf of its clients which were pharmaceuticals formulation manufactures, on the formulations provi....
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....the field of analysis of clinical samples for bioequivalence, bioavailability and clinical trial studies for the pharmaceutical industry. You are carried out research work on behalf of its clients which were pharmaceuticals formulation manufactures, on the formulations provided by them. Date of commencement of operation/activity is 4.12.2004 at Ahmedabad and 14.3.2007 at Baroda. You are carried out the aforesaid studies mainly for the following clients (sponsors):- 1. M/s Cadila Healthcare Ltd., 2. M/s Lupin Ltd., 3. M/s Apotex Research Pvt. Ltd., 4. M/s IPCA Laboratories Ltd. And 5. M/s Dr. Reddy's Laboratories Ltd. It is seen that they are doing research work on behalf of their clients who were pharmaceuticals formulation manufacturers and the research work is carried out on the formulations provided by them. During the P.Y. relevant to A.Y. 2007-08, the total turnover is Rs.27,48,54,000/- out of which Rs.2734.15 lakh is from Bio Equivalence Study and the balance Rs.14.39 lakh is from 'Other Income'.  ....
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....07 Tax,am 140(Gujarat). 7. Such objections were, however, dismissed by an order dated 5.2.2013. Hence, the petition. 8. Taking us through the documents on record, counsel for the petitioner vehemently contended that the entire claim of deduction under Section 80-IB(8A) was examined by the Assessing Officer during the original assessment. Detailed queries were raised. Replies were given by the petitioner. After considering such reply, the claim was accepted barring a small portion where the Assessing Officer was not convinced. He, therefore, submitted that any attempt on the part of the Assessing Officer to reopen such assessment would be based merely on change of opinion. 9. On the other hand, learned counsel Ms. Bhatt appearing for the Department opposed the petition contending that in the original assessment, the question whether the petitioner's claim for deduction under Section 80-IB(8A) of the Act was valid, in view of the fact that the petitioner was carrying on research for and on behalf of other companies, was never gone into. She submitted that if such scientific research is carried out by the petitioner without its own involvement and investment only for and on b....
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....ioner filed several replies on 2.11.2009. The petitioner conveyed to the Assessing Officer as under:- "1. The details of transactions with the following parties are furnished herewith for your perusal: a. Cadila Healthcare Ltd-Annexure-1A. b. Lupin Ltd.- Annexure-1B. c. Apotex Research Pvt. Ltd.-Annexure-1C. d. Ipca Laboratories Ltd.-Annexure-1D. e. Dr. Reddy's Laboratories Ltd.-Annexure-1E. ** ** ** 4. The assessee company is engaged in the business of carrying out of scientific research and is approved by Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India vide its letter of approval No. TU/IV-R&D.Com/BAR/98/06 ....
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.... and Pharmaceuticals, Bio-availability studies, Clinical research leading to Scientific and Industrial research, Technology development and transfer of technology developed. To develop adequate infrastructure such as laboratory facilities, for carrying out diagnostic test, scale-up/ expansion of facilities for undertaking scientific and collaborative research." The in-patient clinical operations are performed in its first clinical facility that accommodates up to 120 volunteers with state-of-the-art techniques provide methods, which allow for processing of large number of samples utilizing LC/MS/MS, HPLC and other analytical techniques. Analytical method development for the quantitation of drugs and metabolities in biological fluids is the backbone of BA Research India. The research chemists develop and validate analytical methods for pharmaceutical compounds and their metabolities using LC/MS/MS and HPLC with an emphasis on quality, accuracy and speed. BA Research India also develops and validates methods in various biological matrices. It has started its second Centre at Baroda in March, 2007 in r....
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....d analytical studies for them on the formulations provided by them. Such studies are governed by "Guidelines for Bioavailability and Bioequivalence Studies" issued by the Central Drug Standard Control Organisation, Ditectorate General of Health Services under Ministry of Health and Family Welfare. Moreover, the manufacturer of a new drug is required to get approval from the licensing authority under provisions of The Drugs and Cosmetics Act, 1945. Sec. 122A(2) of The Drugs and Cosmetics Act,1945 provides as hereunder: "S. 122-B. Application for approval of manufacture new drug other than the drugs classifiable under Schedules C and C(1).- (1) ......................., (2) The manufacturer of a new drug under sub-rule (1) when applying for approval to the Licensing Authority mentioned in the same sub-rule, shall submit data as given in Appendix 1 to Schedule Y including the results of clinical trials carried out in the country in accordance with the guidelines specified in Schedule Y and submit the report of such clinical trials in the same format given in Appendix II to the said Schedule. ....
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....espective drug is granted by the regulatory authority. For the same, customers given "sample storage notification form" authorizing the assessee company to retain the samples. Illustrative copy of the same is attached herewith as Annexure 38. In such cases, the assessee charges the respective customers for holding and storage of such clinical samples which is nothing but income from the business of research and development activities. As per sub-section 8A of Section 80-IB of the Income Tax Act, 1961, deduction is hundred per cent of the profits and gains of business of the company carrying on scientific research and development. Section 80IB(8A) of the Income Tax Act, 1961 is reproduced below for your honour's ready reference: "(8A) The amount of deduction in the case of any company carrying on scientific research and development shall be hundred per cent of the profits and gains of such business for a period of ten consecutive assessment years, beginning from the initial assessment year, if such company- (i) is registered in India; &nb....
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.... as may be prescribed." On the basis of application dated 23rd February, 2007 by the assessee company, prescribed authority has given approval vide letter dated TU/IV-R&D.Com/BAR/98/06 dated 13th March, 2007 as extension of Ahmedabad unit. Copy of such letter of approval already submitted to your honour vide Annexure 3 of letter dated 2nd November, 2009." 15. Under yet another communication dated 22.12.2009 the petitioner wrote to the Assessing Officer and conveyed as under:- "1.6 Considering the facts in each of the cases observed and found by your goodself to invoke the provisions of sec. 80IB(13) r.w.s.80IA(10) of the Income Tax Act, 1961, we humbly represent that such disallowance is not warranted in the case of the assessee as the above facts make it amply clear that the course of business between Assessee Company and Cadila Healthcare Ltd. Is at market rate and is not so arranged that the business transacted between them produced the Assessee Company more than the ordinary profit which might be expected to arise for the purposes of claiming deduction under Section 80-IB(8A)." 16. It was afte....
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....0IB(8A) of the I.T. Act." 17. From the above it can be seen that the petitioner's claim for deduction under Section 80IB(8A) of the Act came for detailed scrutiny by the Assessing Officer in the original scrutiny assessment. Series of queries were raised by the Assessing Officer. All such questions were answered at length by the assessee. He filed several replies before the Assessing Officer. Only after considering such replies and documents accompanying such replies, Assessing Officer framed the assessment in such assessment order. He disallowed only a small portion of the petitioner's claim for deduction. To the extent the petitioner had claimed deduction for sample storage income, the same was disallowed, rest of the claim was accepted. By no stretch of imagination, can it be stated that the claim under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. Entire claim was thoroughly and painstakingly scrutinized. His queries were not restricted to sample storage income alone. For example, in his communication dated 21.10.2009 he called upon the petitioner to furnish details of transactions with various companies, such as M/s Cadila....
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....Legislature presumably in view of the highly complex nature of assessment proceedings involving large number of assessees concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review.  ....
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....ses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer. 43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition. 21. In case of Gujarat Tea Processors & Packers Ltd. (supra), it was observed as under:- "18. We are conscious of the fact that this is not a case of reopening beyond four years where the only requirement would be that either the return of income is not filed, or that there is no true and full disclosure by the assessee in the original assessment, resulting into escapement of the income ....