TaxTMI 
TaxTMI 
2019 (6) TMI 1252
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....gation that the said expense was not approved by DSIR without appreciating the followings: 1. The provisions of the Income Tax Act, 1961 does not contain any specific provision for the allowance of expenditure u/s 35(2AB) to be restricted to the amount as certified by the prescribed authority i.e. DSIR in Form No.3CL; 2. The role of the DSIR is only to approve the R&D facility of the Assessee and that once the facility is approved the deduction u/s. 35(2AB) of the expenditure incurred towards R&D is to be allowed. 3. The DSIR had in respect of the R&D facilities of the Appellant has already issued Form 3CM in favour of the Appellant recognizing the research and development activity carried on by the Appellant; 4. The judicial precedents holding that once the facility is approved by DSIR in Form 3CM, the Assessee is eligible to claim weighted deduction u/s 35(2AB) irrespective of the amount of expenditure approved by the Authority in Form 3CL. The learned CIT failed in considering the fact that the Assessing Officer was conversant with the facts of the case in course of the assessment proceedings and had consciously after his application of min....
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....n the books of accounts. Moreover, the assessee should have filed the revised return of income for claiming the weighted deduction under section 35(2AB) of the Act, but the assessee has not done so. Thus the AO disallowed the weighted deduction claimed by the assessee. 31. Aggrieved assessee preferred an appeal to the Ld.CIT (A). 31.6 In view of the above the ld. CIT-A rejected the claim of the assessee and confirmed the order of the AO. 32. Being aggrieved by the order of the Ld.CIT (A), both the assessee and Revenue are in appeal before us. The assessee is in appeal before us against the confirmation of the disallowance of weighted deduction whereas the Revenue is in appeal before us on the ground that the DSIR did not certify the impugned expenses. 32.1 The ground of appeal no. 10 raised by the Revenue stands as under: "10. On the facts and in the circumstances of the case, learned CIT(A) erred in law and facts in directing to allow weighted deduction on the R&D expenses which was not certified by DSIR without appreciating that as per provisions of section 35(2AB), the assessee is eligible to for weighted deduction only in respect of ....
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....the aforementioned section clearly establishes that expenditure on scientific research is also eligible for weighted deduction. Considering the facts in totality in the light of the provision, we set aside the findings of the ld. CIT(A) and direct the A.O. to allow weighted deduction. Ground Nos. 9 & 10 are accordingly allowed." 36. As the facts in the case on hand are identical to the facts of the case as discussed above, therefore respectfully following the same we set aside the order of ld. CIT-A. Accordingly, we direct the AO to Allow the weighted deduction u/s 35(2AB) of the Act as claimed by the assessee. Hence the ground of appeal of the assessee is allowed. Now coming to the Revenue ground of appeal as discussed above. 37. The grievance of the Revenue in this ground of appeal is that the Ld.CIT (A) erred in directing the AO to allow the weighted deduction under section 35(2)AB of the Act in respect of the expenses which were not certified by DSIR. 37.1 Regarding this we note that the identical issue was also there in the own case of the assessee in ITA No. 1390/AHD/2016 pertaining to the AY 2009-10 which was decided vide order dated 22-12-2016 as ....
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....expenditure incurred stated in such Form 3CL. We further find that hon'ble jurisdictional high court's decision in CIT vs. CLARIS LIFESCIENCES Ltd. (2010) 326 ITR 251 (Gujarat) upholds this tribunal's decision in the very assessee's case observing that expenses incurred before Form 3CM approval cannot be denied for the purpose of Section 35(2AB) weighted deduction. We follow the very reasoning to opine that facts of the instant case rather go a step further wherein the appellant has only claimed those expenses which relate to the time period as approved in the Form 3CM. We accordingly hold that the assessee is very much entitled for claiming the above capital and revenue expenses incurred on in house research and development amounting to Rs. 237,77,05,310/-. The Assessing Officer had rightly held it entitled for the above weighted deduction after verifying all necessary particulars during the course of scrutiny." 37.2 We further note that the above order of the ITAT was also affirmed by the Hon'ble Gujarat High Court in the assessee's case in tax appeal no. 541 of 2017 dated 14-8-2017 wherein it was held as under: "5. Having heard Ld. Counsel for t....
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....hall be applied in the case on hand with full strength. The ld. DR and the ld. AR has not brought any decisions varying from similar or identical facts or circumstances. Therefore, the ratio decidendi rendered by the earlier order of the Tribunal has necessarily to be followed by us in line and tune with the judicial discipline and decorum. In view of the above and respectfully following the ITAT order as discussed above, we allow the ground of appeal of the assessee and dismiss the ground of appeal of the Revenue." Taking into consideration the order passed by the Co-ordinate Bench in identical issue in assessee's own case as discussed above, we find the disallowance ordered by the Learned PCIT is not sustainable in the eye of law. We, therefore, respectfully relying on the said order passed by the Co-ordinate Bench, delete the addition made by the Learned CIT. Hence, assessee's ground of appeal is allowed. 7. Ground No.4 relates to the addition on account of Capital R&D expense allocated to Sun Pharmaceuticals Industries (Partnership Firm) of Rs. 22,93,81,646/-. 8. At the very outset of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee sub....
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....sallowance was made in A.Y. 2008-09 after reopening the proceedings u/s. 147. The order u/s. 143(3) r.w.s. 147 for A.Y. 2008-09 was passed by the Assessing Officer on 14.02.2014. The above mentioned issue was challenged before the CIT(A)-2, Vadodara. The appeal of the assessee has been decided by my predecessor vide order dated 31.03.2015 contained in Appeal No. CAB/(A)- 2/387/14~15 (A.Y. 2008-09) and his findings recorded in para-7.3 to7.5.2 are reproduced as under:- "7.3 I have considered the appellant's submission and the AO's observations. The appellant's main contention are that that the product technology developed are completely owned by it and no part of ownership of the product technology or processes developed during such R & D work is for any other party. Besides being a working partner, the appellant in pursuance of the obligation undertaken under the partnership deed had provided these services in relations to the manufacturing activities of the firm and that no R & D activity was carried out for SPI. In relation to the these claims, the appellant has also stated that it has received remuneration and share of profit from SPI, credits of which are a....
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....lant is rejected. 7.4 The other contention of the appellant is that as per section 35, R & D expenditure has been incurred by it for its own business and hence same cannot be debited in the books of accounts of SPI. But as already stated, once it is proved that part of such expenditure has been incurred by the appellant for the purpose of earning of share of profit and remuneration from the firm which is not forming part of its own total income, such expenses cannot be allowed as a deduction in computation -of its total income. The AO has disallowed such expenditure only and it is not a case where such expenses have been directed to be debited in the books of accounts of the firm, SPI. Hence, this contention is also rejected. 7.5 The other contentions of the appellant are related to the method adopted by the AO for the purposes of allocation of such R & D expenses to the manufacturing activities undertaken by the appellant and the manufacturing activity undertaken by the firm SPI. In this regard, the appellant has submitted that it had submitted working on unit profitability statement before AO during the course of assessment proceedings vide letter dated 21/11/20....
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....ellant before the AO it is seen that the expenses incurred under different Heads are as follows:- Department Description of department Rs. in Lacs Remarks FDD1 Formulation Development of Oral - Solids/tablets/capsules {for Domestic, US & Rest of the world market) Annexure 1 1651.48 Mainly Domestic market-mfg at Silvassa, Dadra, Jammu, Halol, LL & 3rt Party FDD2 Formulation Development of Injectibles {Syringe/Nasal Spray Cream} Annexure 2 2193.40 Manufactured by SPIL at Halol or at 3rd party/LL but not by SPI Mahakali Formulation & Analytical Development (For Regulated market-US & Europe) Annexure 3 1618.62 Mainly for US, Europe & Rest of the world market. Domestic may be negligible. Orgainic Synthesis Process Organic synthesis (basic) for bulk drugs Organic synthesis (process) for bulk drugs Total R & D Expenditure dept. wise Annexure 4 Annexure 5 873.62 1065.83 7402.95 Only for Bulk Drug/API Only for Bulk Drug/API Regulatory/Overseas Expenses Annexure 6 a) 217.96 Expenses on accounts of Products Registration, Clinical Trails, Subscription etc. for product for overseas mark....
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....et. Domestic may be negligible. Orgainlc Synthesis Process Organic synthesis (basic) for bulk drugs Organic synthesis (process) for bulk drugs Total R & D Expenditure dept. wise Annexure 4 Annexure 5 1142.87 10997.61 Only for Bulk Drug/API Only for Bulk Drug/API Regulatory/Overseas Expenses Annexure 6 a) 812.71 Expenses on acox'rfc of Products Registration, C".rfJc:.'.~.> Trails, Subscription cLc. for | product for overseas market,, , 1 b) 194.80 Expenses on Accounts Clinic:1 Trails for Domestic market R & D Professional Fees Other.- Miscellaneous expenditure a) b) 640.65 130.68 - Expenses for Professional Charges for products for overseas market. Expenses for Professional Charges for products for Domestic market. Grand Total R & D Expenditure 12776.45 Since the facts are identical in this year a/so, I respectful/y following the order of my predecessor in appellant's own case as mentioned above, hold that the R&D expenses in....
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....ted the addition made by the TPO/AO. The relevant extract of the order is reproduced as under: "We have given a thoughtful consideration to the facts in issue before us. There is no dispute that the assessee did incurred expenditure under the head "Research & Development" activity. The only dispute relates to the . A.Y. 2009-10 allegation that part of such expenditure belong to the business activity of the partnership firm SPI. There is also no denying by the lower authorities that the entire Research and Development activities are done by the appellant company only being the flagship company of Sun Pharma Group. In our understanding of the facts, the appellant company had assisted the partnership firm in carrying on its business by using its network for marketing the pharmaceuticals products successively. Since the assessee is holding 97.5% of share in the partnership firm, SPI it becomes the duty of the assessee to promote the business of the partnership firm in the capacity of the majority stake holders. Incidentally, the revenue authorities have not brought anything on record which could suggest that the expenditures have not been incurred for the purposes of business.....
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....nto consideration the order passed by the Co-ordinate Bench in identical issue in assessee's own case as discussed above, we find no reason to disallow the claim of the assessee towards R & D expenditure allocated to Sun Pharma Industries of Rs. 22,93,81,646/-. We, therefore, respectfully relying on the said order passed by the Co-ordinate Bench, delete such addition made by the authorities below. Hence, assessee's ground of appeal is allowed. 10. Ground No.5 relates to the addition on account of re-characterization of remuneration earned from partnership firm (SPI) as royalty income of Rs. 44,09,54,508/-. 11. At the very outset of hearing of the instant appeal, the Learned Sr. Counsel appearing for the assessee submitted that the issue is covered in assessee's own case passed by the Co-ordinate Bench reported in ITA Nos. 3297 & 3420/Ahd/2014 for A.Y. 2008-09 which has been failed to controvert by the Learned DR copy whereof is also on record before us. 12. We have heard the respective parties, perused the relevant materials available on record. We have also carefully considered the order passed by the Co-ordinate Bench deciding the identical issue in favour of the assesse....
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.... earlier years, such remuneration has never been re-characterized and added back. 131. The contentions of the assessee did not find any favour with the First Appellate Authority who stated that the order of the' Tribunal Amritsar Bench has been challenged by the Department before the Hon'ble High Court, therefore, the same has not reached finality. The ld, CIT (A) further opined that the assessee company has arranged the Business affairs with the partnership firm SPI in such a manner that such arrangement is an obvious device of tax evasion. The ld. CIT (A) observed that the payment of remuneration was not allowed in the hands of the partnership firm SPI because the recipient which is the assessee company does not fit into the definition of whole time working partner being a legal person and not a natural person. However, such disallowance of remuneration' did not affect the partnership firm SPI since its income was exempted u/s. 80-IB of the Act. 132. The assessee company also did not offer the remuneration of Rs. 40.12 crores taking shelter behind the provisions of Section 28(v) of the Act. Thus neither the firm nor the appellant company have paid an....