TaxTMI 
TaxTMI 
TaxTMI 
2019 (9) TMI 384
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....nalized u/s.143(3) r.w.s 147 of the Act on 14.02.2014 determining total income at Rs. 5,59,68,08,333/- and u/s.115JB of the Act at Rs. 3,14,81,31,195/- 3. The Ld.ACIT disallowed Rs. 2,50,44,500/- towards R & D expenses. Subsequently Ld. Pr. CIT, u/s.263 of the Act held the assessment order dated 14.02.2014 is erroneous in so far as prejudicial to the interest of Revenue to the extent of non disallowance of R&D expenditure allocated to Sun Pharmaceutical Industries (partnership firm). The said expenditure has been enhanced at Rs. 5,23,16,934/- and added to the total income of the assessee . Hence, the instant appeal before us. 4. At time of hearing of the instant appeal the Ld.Sr.Counsel appearing for the assessee submitted before us that on merit the issue is squarely covered in assessee's own case for Assessment Year 2010-11 by the Co-ordinate Bench in ITA No.1417/Ahd/2016 for A.Y. 2010-11; copy whereof has also been submitted before us. 5. However, the Ld.DR, has also not brought anything on record contrary to the argument advanced by the Ld.Sr.Counsel appearing for the assessee. 6. We have heard the parties, we have perused the relevant material available on record. We f....
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....the view that the research and development expenses incurred by the assessee on the drugs manufactured by the partnership firms should be allocated to these partnership firms. Thus the AO worked out the research and development expenses pertaining to the firms for Rs. 58,07,48,088/- on the basis of the turnover of the formulations and disallowed the same by adding to the total income of the assessee. 42. The aggrieved assessee, preferred an appeal to the Ld. CIT (A) who partly confirmed the order of the AO after having a reliance on the order of his predecessor for the assessment year 2008-09 by observing as under: "12.1. Similar disallowance 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 observa....
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....ion will not form part of total income of the appellant. Thus, both the share of profit and remuneration received by the appellant from the firm will not form part of its total income and accordingly any expenditure incurred by the appellant for earning such share of profit or remuneration cannot be allowed as a deduction in computation of its total income. Hence it is held that the AO has rightly disallowed the R & D expenditure incurred by the appellant, the results of which have been given by the appellant to the firm SPI in the capacity of its partner for manufacturing drugs by this firm. Hence this contention of the appellant 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 ex....
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....f the firm M/s. SPI. The appellant's claim that R & D expenditure Incurred for export formulations should not be allocated to SPI is found to be correct as SPI has not exported any drug during the FY 2007-08. But at the same time if this method is adopted, then the export turnover of the appellant will have to be reduced from its total turnover for the purposes of computing the allocation of expenses on R & D for formulation drugs. Besides, the appellant's claim is that only an amount of 1651.48 lakhs have been incurred pertaining to domestic formulation business. From the details submitted by the appellant 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) Anriexure 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 Formulati....
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....capsules {for Domestic, US & Rest of the world market) Anriexure 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/O verseas Expenses Annexure 6 a) 217.96 Expenses on accounts of Products Registration, Clinical Trails, Subscription etc. for product for overseas market. b) 500.89 Expenses on accounts Clinical Trails for Domestic market. R & D Professional Fees a) 4751.79 Expenses for Professional Charges for products for overseas market. &nbs....
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....leted the addition made by AO. 46. Both the Ld. AR and the DR before us relied on the order of respective authorities below as favorable to them. 47. We have heard the rival contentions and perused the materials available on records. At the outset, we find that in the identical facts and circumstances in the own case of the assessee's (supra), the ITAT deleted 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 asse....