TaxTMI 
TaxTMI 
2015 (11) TMI 748
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....g the assessee's claim of section 80-IB (8A deduction) of Rs. 22,22,47,186, in proceedings under section 143(3) of the Act. 2. We come to the former assessment year first. The assessee- company is engaged in the business of clinical testing of drugs and formulations on human beings. It filed its return on September 15, 2008 admitting income of Rs. 3,32,270. It had claimed section 80-IB(8A) deduction of Rs. 11,79,98,690 by projecting itself to be an entity engaged in research and development. The Assessing Officer completed a regular assessment on October 31, 2012 accepting the abovestated deduction thereby excluding only a sum of Rs. 22.82 lakhs from sample storage income as not to have been derived from research and development under section 80-IB(8A) of the Act. Thereafter, the Commissioner of Income-tax formed an opinion that the abovestated assessment was erroneous and caused prejudice to the interests of the Revenue since the Assessing Officer had accepted the abovestated deduction claim without verifying its eligibility conditions stipulated therein. And also that the assessee was only a contract research organisation without any transfer of the technology developed. H....
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....nd directed the Assessing Officer to redo the assessment in the assessee's case as under : "5. I have considered the submissions of the learned authorised representatives and the facts of the case. It is seen that one of the conditions is that the assessee should, be 'engaged exclusively in sci entific research and development activities leading to technology development, improvement of technology and transfer of technology developed by themselves' (rule 18DA(1)(e)). However, it is seen that the assessee has only applied, for patent and no patent was granted, to it. Thus, the fact whether any new technology was developed or not was far from established. The patent application may ultimately be rejected and it could not be said that any new technology was actually developed by the assessee. Further, it has been stated that the list of parties to whom such technology was transferred is as per annexure 2 to the letter dated November 26, 2010. However, having called for assessment records for the assessment year 2008-09, it is found that although annexure 1 has indeed been annexed to the said letter, there is no annexure 2 containing the list of parties on the record. It....
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....e income from the deduction claimed hereinabove (supra). The Commissioner of Income-tax rejected all these pleas. He, inter alia, observed on the legality aspect that the Commissioner of Income-tax (Appeals) was only dealing with the issue as to whether the sample storage income was eligible for section 80-IB(8A) deduction and not on the ques tion of eligibility as a whole, the present was not a case of two possible views formed by the assessing authority but that of deciding fulfilment of conditions enumerated for the purpose of granting deduction which had nowhere been examined in the course of assessment to be revised with section 263 jurisdiction of very wide amplitude and the abovestated assess ment framed was without a proper inquiry and investigation which was revisable under section 263 being erroneous and prejudicial to the interests of the Revenue. Thereafter, he considered the Department of Scientific and Industrial Research's letter hereinabove rejecting the Revenue's case for withdrawing section 80-IB(8A) approval and directing the Assessing Officer to redo the assessment as under : "9. Proposal for withdrawal of approval under section 80-IB(8A), it is evide....
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....ients and not independent scientific research and development. In other words, the assessee simply provides the infrastructure required for conducting research to outside agencies. On the same lines, the assessee also does not satisfy condition No. (iv) as the various clauses of rule 18DA are not fulfilled in the case of the assessee. As per the provisions of rule 18DA (1)/(2), the company is expected to be exclusively engaged in scientific research and development leading to development/improvement of new technology and transfer of such technology developed by them selves to customers. As per rule 18DA(2), the company shall develop and sell prototype from its laboratory after taking prior permission of the prescribed authority. Here no prototype is developed by the assessee. It is therefore clear that the assessee cannot claim deduction under section 80-IB(8A) merely on the basis of approval given by the Department of Scientific and Industrial Research since it is only one of the condition for claiming deduction. If this was the only condition then the remaining conditions prescribed in rule 80-IB(8A) and rule 18DA would be rendered redundant. The contention of the assessee that s....
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....nd conducting independent inquiry, there was substantial loss of revenue to the exchequer since the income of the assessee was assessed at a lower figure due to granting of excessive deduction. In the light of these facts, it is held that the assessment order passed under section 143(3) dated December 31, 2010 for the assessment year 2008-09 was erroneous and prejudicial to the interests of the Revenue. Accord ingly, the Assessing Officer is directed to pass a fresh assessment order after considering the issue involved and after allowing opportu nity to the assessee as per law." 7. This leaves the assessee aggrieved. It has filed I. T. A. No. 1623/Ahd/ 2014 against this Commissioner of Income-tax's order dated March 29, 2014 in proceedings under section 263 of the Act. 8. Now we come to the later assessment year 2009-10 involving the Revenue's appeal I. T. A. No. 1915/Ahd/2012. The assessee filed its return this time on March 23, 2009 admitting income of Rs. 25,97,840 followed a revised one stating the same amount. The Assessing Officer took up scrutiny. He noticed the assessee's claim of section 80-IB(8A) deduction of Rs. 22,12,47,186. It had placed on record its....
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....ed it as a case of contractual payment wherein its payers were also eligible for section 35 deduction relating to the research development expenses which could not be the legislative intention. He referred to the assessee's accounting policy on record not showing transfer of any technology. The Assessing Officer accordingly disallowed the assessee's claim of section 80-IB(8A) deduction amounting to Rs. 2,12,47,186. 10. The assessee preferred an appeal. The Commissioner of Income-tax (Appeals) has accepted its contentions as under : "2.3 I have considered the facts of the case ; assessment order, the appellant's written submission and arguments made by the authorised representative as well as the Additional Commissioner of Income-tax. It is not in dispute that the appellant was granted approval under rule 18D for carrying on of scientific research and development by the prescribed authority, i.e., the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. The approval was initially granted for a period of three assessment years which was further extended. As per rule 18D, prescribed authority grants approval for f....
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....f technology or transfer of technology is not appropriate till the prescribed authority considers the same as violation of the condition. Various arguments taken by the Assessing Officer while rejecting the claim of the appellant were addressed by the appellant in its submission. It is also mentioned as to how the conditions prescribed by the Income-tax Act/Rules are fulfilled. If the Assessing Officer finds that the appellant is not eligible for deduction under section 80- IB(8A) then the best course is to get the approval from the prescribed authority cancelled on the ground of violation of such conditions. There is no doubt that the Department of Scientific and Industrial Research has the technical competence to judge the eligibility of any company therefore the Assessing Officer should have made out the case of withdrawal of approval before the prescribed authority. Without doing so, the Assessing Officer's view on the issue whether bio equivalent study is a development of technology or not or in the scheme of the appellant's things, is there any transfer involved or not, cannot be upheld against the approval of eligibility granted by the prescribed authority. I a....
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.... of deduction made by the Assessing Officer is deleted." 11. The Revenue has filed its appeal in I. T. A. 1915/Ahd/2012 against this order. 12. We have heard both parties and gone through the case files. The assessee's arguments in its Appeal No. 1623/Ahd/2014, inter alia, are that the Commissioner of Income-tax has wrongly assumed jurisdiction under section 263 of the Act without being erroneous causing prejudice to interests of the Revenue, the Tribunal's directions (supra) have not been complied with in letter and spirit limited to the issue of annexure-2, the Assessing Officer had taken one of the possible view not revisable as per law, the Commissioner of Income-tax's jurisdiction exercised is against the express provision under section 263 Explanation (c) in the Act since the matter was in appeal before the Commissioner of Income-tax (Appeals) (supra) and the last one being that it fulfils all conditions for availing of deduction under section 80-IB(8A) read with rule 18DA(1)/(2) of the Income-tax Rules. The Revenue strongly supports the Commissioner of Income-tax's order under challenge and prays for affirming the same. 13. The Revenue in its appeal ....
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.....com 62 (Mum-Trib) and the same stands decided in the assessee's favour as under : "17. In ground Nos. 1 and 2 of its appeal for the assessment year 2007-08, a common issue raised by the assessee relates to the disallowance of its claim for deduction under section 80-IB of the Act amounting to Rs. 6,11,26,795 made by the Assessing Officer and confirmed by the learned Commissioner of Income-tax (Appeals). 18. As already noted, the claim of the assessee for deduction under section 80-IB(8A) of the Act was disallowed by the Assessing Officer as, according to him, the activity of the assessee of clinical trials of the pharmaceuticals could not be termed as research and development. He also held that the activity of the assessee was not leading to tech nology development or improvement of technology and in the absence of adequate infrastructure as well as transfer of technology, the conditions stipulated in rule 18DA(1)(e) were not satisfied. Before the learned Commissioner of Income-tax (Appeals), it was submitted on behalf of the assessee that while disallowing its claim for deduc tion under section 80-IB(8A), the Assessing Officer completely overlooked the important fact th....
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....tions : Any company carrying on scientific research and development shall be eligible for deduction specified in sub-section (8A) of section 80-IB, if such company- (a) is registered in India ; (b) has its main object the scientific and industrial research and development ; (c) has adequate infrastructure such as laboratory facilities, qualified manpower, scale-up facilities and prototype development- facilities for undertaking scientific research and development of its own ; (d) has a well formulated research and development programme comprising of time bound research and development projects with proper mechanism for selection and review of the projects or programme ; (e) is engaged exclusively in scientific research and development leading to technology development, improvement of technology and transfer of technology developed by themselves ; (f) submits the annual return along with statement of accounts and annual report within eight months after the close of each accounting year to the prescribed authority. 3.5 The assessee is required to fulfil all the abovementioned f....
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..... There is no activity other than the work given by the sponsor. (6) Before starting any project for clinical study report, a study budget is prepared. There is specific methodology for costing of each project and the cost of each project undertaken is determined by the various factors such as number of patients, time frame for recruitment of patients, number of investigation sites and cost of investigators institutions, time frame of treatment under protocol and complexities, method and type and cost of pathological and other investigations required for each patient. (7) The appellant has filed details of projects programmes completed during last three years, ongoing and planning for the future to give an idea about its activities. It has a column for a brief write up on the project giving objectives, methodology, progress so far, results expected and balance for technology, transfer, etc. Some samples of remarks given in this column are- 'The objective is to provide quality assurance for the study', 'Data has been collected by the sponsor, the objective is to validate data, undertake query management and statistical anal....
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....thority and fulfils such other conditions as may be prescribed. He submitted that the prescribed authority for this purpose, i.e., Secretary, Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India and the conditions are prescribed in rule 18DA of the Income-tax Rules, 1962. He submitted that the prescribed authority gives its approval only after having satisfied that the company is having the scientific and industrial research and development as its main objec tive and fulfil the other conditions as prescribed in rule 18DA. He then invited our attention to the voluminous paper book filed by him containing details and, documents submitted to the prescribed authority while seeking the approval to point out that all the relevant information such as list of scientists and professionals employed by the assessee-company, details of infrastructure, information about the laboratory, list of presentations filed, list of clients and research contract, etc., were called for and examined by the prescribed author ity. He also pointed out from page 250 of the paper book that the representatives of prescribed authority had visited to verify the f....
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....ome-tax (Appeals). He contended that since the conditions stipulated in rule 18DA were not satisfactorily satisfied by the assessee as found by the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals), the claim of the assessee for deduction under section 80- IB(8A) of the Act has rightly been disallowed. As regards the decision of the Tribunal in the case of Rubicon Research P. Ltd. (supra) cited by learned counsel for the assessee, the learned Departmental representative contended that interpretation given by the Tribunal therein is not in consonance with the relevant provisions of section 80-IB(8A) read with rule 18DA. 22. We have considered the rival submissions and also perused the relevant material available on record. As per sub-section (8A) of section 80-IB of the Act, any company carrying on scientific research and development is entitled for deduction in respect of 100 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 is registered in India having its main object the scientific and industrial research and development provided it is appr....
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....ion, reliance was placed by the Tribunal in the case of the hon'ble Bombay High Court in the case of Indian Planetary Society v. CBDT [2009] 318 ITR 102 (Bom) wherein it was held that when the Legislature had thought it fit to entrust the respon sibility with the Government of India who with the help of the body of persons, who would be conversant with the subject, would apply its mind before issuing such certificate, the Assessing Officer or the Commissioner of Income-tax (Appeals) for that matter cannot sit in appeal against the order of such authority. Keeping in view of the decision of the co-ordinate Bench of this Tribunal in the case of Rubicon Research Ltd. (supra) and that of the hon'ble Bombay High Court in the case of Indian Planetary Society (supra) and having regard to the facts of the case, we set aside the order of the learned Commissioner of Income-tax (Appeals) confirming the disallowance made by the Assessing Officer on account of the assessee's claim for deduction under section 80-IB(8A) and direct the Assessing Officer to allow the claim of the assessee for such deduction. Grounds Nos. 1 and 2 of the assessee's appeal for the assessment year 2007-....