TaxTMI 
TaxTMI 
2014 (2) TMI 597
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....ible for deduction u/s 10B of the Act. (b) The CIT (A) ought to have seen that the appellant is a 100% EOU and its medicinal chemistry division and clinical pharmacology division are engaged in the production of articles or things or computer software and therefore the profits derived from the said divisions are eligible for deduction u/s 10B of the Act. 3. For all of the above and such other grounds as may beurged at the time of hearing it is most respectfully prayed that this Hon'ble Tribunal may be pleased to allow the appeal and suitable directions be given to the Assessing Officer to allow the claim of the appellant in the interest of justice." Subsequently on 23-5-2013, the assessee moved petition seeking permission to raise the following additional grounds:- "Ol. The learned Commissioner of Income Tax (Appeals) ought to have appreciated that the re-assessment proceedings initiated u/s. 147 of Income Tax Act, 1961 are bad in law, inasmuch as, (a) there was no tangible new material brought on record showing the escapement of income from tax....
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....e assessee was subjected to scrutiny assessment proceedings and assessment order u/s 143 (3) was passed on 31-12-2007 by the Assessing Officer accep ting the income returned after allowing deduction u/s 10A and 10B of the Act. However, subsequently action u/s 147 was initiated by the Assessing Officer by issuing a notice dated 29-5-2007 u/s 148 of the Act. As per the reasons communicated to the assessee, the assessment was reopened for the reason that in the scrutiny assessment for the assessment year 2006-07 deduction claimed u/s 10B for medical chemistry division and clinical pharamacology were denied. Since the same fact has been prevailing for the assessment year 2005-06 the assessee is not eligible for deduction u/s 10B in respect of medicinal chemistry and clinical pharmacology division and consequently the taxable income to the extent of Rs.2,83,95,994/- had escaped assessment. 6. In the course of assessment proceedings, the assessee submitted that the company's medicinal chemistry division is engaged in manufacture of R & D services (Scientific consulting and contract research in the areas of informatics, chemistry and biology) required in the process of drug discovery. ....
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....thods on LCMS machines for arriving at the conclusions. At final phase, all the data will be collected from clinical and bioanalytical departments and a final report on the study will be prepared. It was there fore contended that various processes are conducted in the above two divisions, manufacturing/producing drugs and generating reports in the areas of informatics, chemistry and biology for producing drugs for their clients and exporting the same. Hence the reports generated by them can be classified as an "article" or a "thing". It was further contended that they are exporting the reports in the form of hard copies and the product/drug manufactured is also exported and delivered to their clients abroad. In support of such contention, the assessee relied upon a decision of Income-tax Appellate Tribunal,Hyderabad Bench in the case of MBL Research and Consultancy Group Pvt. Ltd. Vs. JCIT (107 ITD 438). The Assessing Officer after considering the submissions of the assessee however did not acceptit for the reason that deduction u/s 10B of the Act is allowable only to that undertaking which is manufacturing or producing an article or thing or computer software. The Assessing Office....
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.... u/s 10B of the Act merely because in the succeeding assessment year 2006-07 the Addl. CIT, Range-2 had taken a view that the assessee was not entitled for deduction u/s 10B of the Act in respect of medicinal chemistry division and clinical pharmacology division. He therefore submitted that the Assessing Officer had initiated reassessment proceedings only at the behest of a higher authority by borrowing the satisfaction from his higher ups without proper application of mind. Therefore, it can be said that the Assessing Officer had not formed his own opinion that income had escaped assessment. It was therefore submitted that the powers which are conferred upon the Assessing Officer have to be exercised by the Assessing Officer alone and the satisfaction of the Assessing Officer cannot be substituted with that of the higher authority. In support of such contention, the learned authorised representative for the assessee relied upon the following decisions:- (i) ACIT vs. Resham Petrotech Ltgd. (136 ITD 185 (Ahd.Trib) (ii) CIT Vs. SFIL Stock Broking Ltd. (325 ITR 285 (iii) Jay Bharat Maruti Ltd. Vs. CIT ....
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....he fact on record clearly suggests that the Assessing Officer has reopened the assessment by invoking the provisions section 147 of the Act on considering the same set of facts on a mere change of opinion In support of such contention, the learned authorised representative for the assessee has relied upon the following decisions:- "(1) CIT v. Foramer France {2003 1264 ITR 66 (SC) (2) CIT v. Kelvinator of India Ltd. and Eicher Ltd. reported in {20101 320 ITR 561 (SC). (3) Gujarat Power Corporation Ltd. v. Asst. CIT reported in {20131 350 ITR 266 (Guj); {2012 177 DTR (Guj) 89. (4) CIT v. Usha International Ltd. reported in {2012 1348 ITR 485 (Delhi) {FBI 5) Ashwamegh Co-operative Housing Society Ltd. v. Dy. Commissioner of Income-tax & another 353 ITR 413 (Guj. High Court) (6) Asteroids Trading & Investment P. Ltd. vs DCIT(2009)308 ITR 190 (Bom)(193) No new material brought on records - Reassessment on change of opinion of officer not valid. (7) Asian Paints Ltd. v. DCIT (2008) 308 ITR 195 (....
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....formation on the basis of which assessment can be reopened u/s 147 of the Act. In support of such contention, he relied upon the decision of the Hon'ble Supreme Court in the case reported in (236 ITR 34). 15. We have considered rival submissions of the parties and perused the material on record which also includes the documents submitted in the paper book filed by the assessee. We have also carefully applied our mind to the judicial preceden ts placed before us by the parties. There is no dispute to the fact 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. It is also a fact that 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 reasons recorded for reopening of the assessment, a copy of which as communicated to the assessee is at page-16 of the paper book, reads as under:- Office of the Assistant Cormmissioner of Income Tax, Circle-2(2), 8tllFloor, B Block, ITTowers. A.C.Guards, Hyderabad. F.No.ACIT-2(2)/G-144/10-11 ....
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....ther any mention either in the reasons recorded by him or in the assessment orders passed u/s 143(3) read with section 147 of the Act that there is any non disclosure of material facts with regard to the claim of deduction u/s 10B of the Act by the assessee or at the time of original assessment, the issue regarding claim of deduction u/s 10B of the Act was not examined by the Assessing Officer or no opinion was formed by him. Simply because deduction u/s 10 B has been denied in the assessment completed for the assessment year 2006-07 by the Addl. CIT, Range-2 who is a higher Officer in rank, the Assessing Officer has reopened the assessment. The finding of the Assessing Officer in the assessment order passed while rejecting the claim of exemption u/s 10B also makes interesting reading. The assessment order passed is nothing but a replica of the assessment order passed for asst. Year 2006-07 in the case of the assessee by the Addl. CIT, Range-2. The Assessing Officer has reproduced verbation the findings of the Addl. CIT recorded in the assessment order passed u/s 143(3) of the Act for the assessment year 2006-07. Thus, on perusal of the assessment order, it becomes clear that the r....
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....he Act, as quoted herein above. Under Direct Tax Laws (Amendment) Act,1987 ,Parliament not onlv deleted the words "reason to believe" but above inserted the word "opinion" in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said express ion and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hcrcinbclow the relevant portion of Circular No, 549 ,dated 31-1O-198~, which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression'reason to believe' in section 147. A numberof representations were received against the omission of the words 'reason to believe' from section 147 and their substitution by the 'opinion' of the Assessing Offiler.lt was pointed out that the meaning of the expression, reason to believe had been explained in a number of court rulings in the past and 'as well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion, To allav these fears, ....
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....of the Act is that the Assessing Officer must have reason to believe that income has escaped assessment. Such belief must be the belief of juri sdictional Assessing Officer and not any other Assessing Officer or the authority of the department. In the facts of the present case, the materials on record clearly indicate that the Assessing Officer has not independently applied his mind to the materials in his possession for having a reason to believe that income has escaped assessment. The record also does not indicate whether there is any other information or material in the possession of the Assessing Officer which was not considered at the time of original assessment on the basis of which he could have formed a belief that income has escaped assessment. Merely because a different view has been taken in the assessment order passed for the subsequent assessment year cannot be a reason to reopen the assessment unless there is strong reason to believe on the basis of fresh tangible material available before the Assessing Officer that income has escaped assessment. Therefore, considered in the light of the ratio laid down in the various judicial precedents referred to hereinabove, we ar....
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.... in section 80-IB(8A) read with Rule 18DA and therefore not eligible for deduction U/s 80-IB(8A) of the Act. 4. For all of the above and such other grounds as mav be urged at the time of hearing it is most respectfully prayed that this Hon'bIe Tribunal mav be pleased to allow the appeal and suitable directions be qiven to the Assessing Officer to allow the claim of the appellant in the interest of justice." 20. In ground No.2 with its sub-grounds, the assessee has raised the issue of denial of exemption u/s 10B of the Act on the profit derived from Medical Chemistry Division and Clinical Pharmacology Division on the ground that there is no production of article or thing or computer software and therefore not eligible for deduction u/s 10B of the Act. Since the facts relating to the aforesaid issue is identical to the facts narrated in ITA No.215/Hyd/2012 while dealing with similar issue excepting the fact that assessme nt in the present case has been completed u/s 143(3) of the Acct and since the finding of the Assessing Officer on the issue in dispute is verbation the same, we do not feel it necessary to discuss them over again in this appeal. 21.....
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....t. In the circumstances, the contention of the learned authorised representative for the assessee for considering the ground relating to the claim u/s 10B cannot be accepted. The assessee cannot be permitted to change its stand at its own sweet will. The assessee having consciously given up its claim with regard to section 10B of the Act by not pressing the ground before the CIT (A), it cannot be permitted to raise the self same ground again before the Tribunal. In case of NTPC (229 ITR 383), the Hon'ble Supreme Court has held that whether to admit a particular ground as additional ground is within the discretion of the Tribunal. The Hon'ble Supreme Court further held that 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. We also agree to the ratio laid down in CIT vs. Eveline International (243 ITR 493) that there can be no concession on an issue of law. However, the issue raised in the present ground is not purely aquestion of law but involves appreciation of facts and evidences. The jurisdictional High Court in case of A....
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.... promote studies and research both scientific and technical investigation, to carry on scientific and technical researches, experiments and tests of all kinds for and on behalf of Government and Semi Government Bodies and for others and to carry on scientific and research developmental activities leading to discovery of new products, processes, methods and all activities leading to technology development, improvement and transfer including patenting and publishing. It was further submitted that the assessee has a pool of eminent scientists with Global academic and industrial experience in drug discovery and development. It was further submitted that the company has well developed laboratory facilities for conducting research and development. The assessee referring to Rule 18DA(1)(d), submitted that the company has a well formulated research and development programme and a periodic (every week) monitoring systems of projects in hand. Referring to Rule 18DA(1)(e), it was submitted that the company is exclusively engaged in scientific research and development activities in the field of drug discovery, bio-informatics, bio-technology, life sciences, bio- sciences leading to technology ....
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....s entered into service agreement with other company. In this context, the Assessing Officer referred to the agreement with M/s. Pfizer Inc. New York. The Assessing Officer stated that as per the agreement the nature of services to be performed by the assessee, includes custom chemical synthesis and other work as and when requested by Pfizer. 26. He further stated that the services as per the agreement means work performed by GVK towards synthesis and purification of specified amounts of custom chemicals and/or the development and refinement of protocols for such synthesis and purification of custom chemicals. . Further the payment rendered by the assessee are based on number of FTE (full time equivalent employee) assigned to the particular work which includes GVK expenses and reagent expenses. He further stated as per the agreement Pfizer will own all intellectual properties with respect to Pfizer compounds and technology without further compensation to GVK. The Assessing Officer further noted that the payment made to the assessee is for their services rendered only. So far as the clinical pharmacology division is concerned, the Assessing Officer submitted that the nature of wor....
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....essee has undertaken research and development on one or more of the complete discovery stages based on the contract signed with the customers. The assessee referring to the approval granted by the DSIR submitted that such approval was given to the company as a whole and not to any particular unit hence, the assessee is entitled for deduction u/s 80IB(8A) of the Act. 28. The assessee also submitted a note containing the details of processes followed by it in carrying out research project. The CIT (A) again called for comments of the Assessing Officer with regard to the submissions made by the assessee. The Assessing Officer in his report stated that the documents furnished by the assessee would reveal that the assessee has recorded the business in their case is contract research that provided services to Bio-tech companies. The said document further revealed that the company has no right to get any patent which in turn shows that it was not in the business of carrying on scientific research and development. The Assessing Officer further stated that the asses see does not have any own research project and whatever projects are only shown for other companies. The CIT (A) after cons....
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....e LT. Rules, it is not entitled to deduction under said section.Thus, the profits derived by the appellant for this asst. year in respect of the Medicinal Chemistry Division and Clinical Pharmacology Division are not eligible for deduction u/s.8O-IB(SA)of the Act. 8.7. Further, as admitted by the appellant company, in its statement filed before DSIR authorities, it is a contract research organization and provides services to Global Pharmaceutical and Bio-tech comp anies. From this it shows, the company is not independently carrying on scientific research and development activities. From the same also it shows, the appellant has no well formulated research and development programme and was not engaged exclusively in scientific research and development activities leading to technology development, improvement of technology and transfer of' technology by them. Therefore, the appellant is not eligible for deduction u/s, 80-IBe8A). 8.8. Further, as stated by the AO, the appellant also does not fulfill the other condition prescribed under Rule-1SDA(2)(a). Under this clause, it says that the company shall sell any prototype or output....
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....text, the learned authorised representative for the assessee relied upon the decision of Income-tax Appellate Tribunal Delhi Bench in case of DCIT vs. Fortis Clinical Research Ltd. (27 Taxman page 4 (Del). It was contended that even assuming but not admitting there is a breach of provisions of Rule 18DA of Income-tax Rules, it is the duty of the prescribed authority to revoke the approval already granted in terms of sub-rule (3) of Rule 18DA of I T Rules. As the statute has conferred this power only on the prescribed authority, the power which is conferred on a particular authority has to be exercised by that authority alone. In support of such contention, the learned authorized representative for the assessee relied upon the decision of the Hon'ble Delhi High Court in ITA No.836/Hyd/2011 decided on 14^th Sept. 2011. It is submitted that in the case of adoubt or ambiguity in technical matters, the CIT (A) should have directed the Assessing Officer to verify the matter from the prescribed authority instead of denying the benefit to the assessee. In this regard, reliance was placed on the decision of Hon'ble Supreme Court in case of CIT vs. Bharti Cellular Ltd., reported in 330 ITR 2....
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.... cannot take a decision but must seek the opinion of the prescribed authority....... " 31. In this context, the learned authorised representative for the assessee also relied upon the decision of Income-tax Appellate Tribunal in case of M/s Electronics Corporation of India Ltd. Vs. ACIT in ITA No.1106/Hyd/2011 dated 25-9-2012. The learned authorised representative for the assessee further submitted that claim of exemption u/s 10B of the Act will not act as estoppel for claiming deduction u/s 80IB(8A) as both are not mutually exclusive provisions. 32. The learned Departmental Representative, on the other hand, strongly supporting the order of the CIT (A) submitted that since the assessee has failed to furnish evidence in support of its claim, the deduction claimed was rightly disallowed. It was submitted that the approval by the prescribed auth ority would ipso facto not entitled the assessee to avail the b enefit u/s 80IB (8A) of the Act without fulfilling the conditions enumerated therein and rule 18BA of Income-tax Rules. It was submitted that the Assessing Officer in the remand proceedings as well as the CIT (A) having given a categorical finding to the effect that the ass....
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....0IB (8A) of the Act has been fulfilled. In aforesaid view of the matter, 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 CIT (A) has not mentioned what more clinching evidence was required to establish the claim of the assessee. That apart when the prescribed authority has granted approval/renewal to the assessee as a research and development organisation it is eligibl e for deduction u/s 80IB (8A) of the Act. The statutory authority cannot deny such benefit to the assessee during subsistence of such approval granted by the prescribed authority. The co-ordinate Bench of this Tribunal while considering a similar issue in case of ACIT vs. Small is Beautiful (ITA 1004 and 1005/Hyd/2012 dated 4-7-2013 after following the decision of Ahmedabad Bench in case of ITO vs. Gujarat Information Technology Fund in ITA No. 2264/Hyd/07 and others dated 27-5-11 has held that the assessee is entitled to avail exemption u/s 10(23FB) till the certificate granted by the SEBI is not specifically withdrawn. In the appeal before us, admittedly there is ....