TaxTMI 
TaxTMI 
2015 (10) TMI 2769
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....r section u/s 14A as per Rule 8D and it has been held by Bombay High Court in the case of Godrej & Boyce that working of disallowance under section u/s 14A read with Rule 8D is mandatory from A.Y. 2008-09 onwards. iii) The Ld.CIT(A)'s order is contrary in law and on facts and deserves to be set-aside." 3. In ITA No.1575/Mum/2013, the Assessee has filed appeal on following grounds: "1. Ground no. 1 : Disallowance u/s 14A (i) The learned Commissioner of Income tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the disallowance of Rs.165,56,576/- u/s 14A of the Income tax Act, 1961. (ii) He failed to appreciate that the disallowance u/s 14A could only be made in respect of expenditure incurred and cannot extend to a notional expenditure which has not been incurred at all. (iii) The appellant prays that the disallowance u/s 14A as confirmed by the CIT(A) is totally unjustified and ought to be deleted. (iv) Without prejudice to the above, the appellant prays that the disallowance u/s 14A be appropriately reduced, considering the facts and circumstances of the case. 2. Ground no. 2 : Dis....
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....e first ground of appeal, the assessee has raised the following grievance: i) The learned CIT(A) erred in confirming the disallowance of Rs.6,81,65,116/- u/s.14A of the Income tax Act, 1961. 4. As far as this issue is concerned, find that the AO has invoked Rule 8D but as held by the Hon'ble Bombay High Court in the case of Godrej & Boyce Limited vs. ACIT, (ITA No.626 of 2010) dated 12.8.2010. Rule 8D does not retrospective effect and, accordingly, it cannot be invoked in the present case. However, the matter needs to be restored back to the file of the Assessing Officer for determining a reasonable disallowance of expenses incurred to earn the tax exempted income. Ground No.1 thus, allowed for statistical purposes." 4.3. We have gone through the order of the Tribunal. We have been informed that the AO has not passed fresh order so far in pursuance to the order of the Tribunal. in AY 2006-07. In our considered opinion, before this issue can be decided in the impugned year i.e. A.Y. 2007-08, it is imperative that it is first decided by Assessing Officer in A.Y. 2006-07. In case, we decide this issue first, it may pre-empt the order o....
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.... and that R & D expenditure includes material costs, manpower cost, administrative cost on R & D personnel, clinical trial expenditure etc., and that clinical trial needed for R & D activity have been carried out through RCRS, since it specializes in clinical trials and such expenditure have been incurred for getting clinical trial for R & D purposes. It was further submitted that adequate disclosure has been made in the Tax Audit Report filed by the assessee, wherein no disqualification or adverse comments were given by the auditors with respect to payment made to subsidiary company or for deduction claimed u/s section 35(2AB). The AO considered assessee's reply, but did not find it acceptable. The AO analysed provisions of the section 35(2AB) and observed that these were applicable only in case of expenses incurred on scientific research on in-house research and development facility. As per AO, the R&D in pharma /bio-Technology companies involves two main activities - development of drugs and its clinical trials/testing, and in this case the work of clinical trial was outsourced and expenditure of Rs.57.66 lakhs was incurred on that, and thus the assessee has not incurred the exp....
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....proving our R & D facilities for the purpose of section 35(2AB) has not considered clinical trial expenditure incurred by us as a part of "in-house R & D expenditure" on the ground that by definition these expenditure were incurred outside of approved R & D facility. This is the stand taken by DSIR for all pharma R & D companies. Accordingly, we withdraw our claim for weighted deduction of the aforesaid expenditure u/s.35(2AB). However, we submit that the aforesaid expenditure should be allowed as an expenditure u/s 37(1) (without weightage of 150%). The appellant submits that clinical trial needed for Research & Development activity have been carried out through RCRS since RCRS specializes in clinical trial and such expenditure has been incurred for getting clinical trial for R & D purposes. The appellant submits that there are many expenditures which the appellant will have to incur outside its premises for carrying out of in-house research and all such expenditure incurred outside the 'in-house facility' cannot be regarded as not having been incurred for 'inhouse research facility'. The appellant therefore submits that though such expenditure ....
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....for time spent on 1st March to 31st March, 2007 for conducting clinical trials, in support of to all 'K projects', for a sum of Rs.57,65,564/-. It is further noted that on the back side of the invoice, complete details have been given with respect to time spent by 22 employees of RCRS, also giving particulars of the studies done by these employees. Names of these employees have been given along with their rates per hour. It is further noted that ld. Assessing Officer has shown no doubts about the genuineness of these expenses. It was held by Ld. CIT(A) that since claim of assessee with respect to deduction u/s.35(2AB) has been denied, therefore, these expenses are capital in nature. It was further observed by ld. CIT(A) that Assessing Officer, as well as assessee, have treated these expenses as capital in nature. In our view, the observations of Ld. CIT(A) are misplaced and without any basis. We have gone through details of these expenses. In our considered view, these expenses are apparently revenue in nature. Ld DR also could not point out as to which expenses are capital in nature. Thus, in our view, these expenses are of revenue nature. 5.6....
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....e assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59." Further reliance is placed by us on another judgment of Hon'ble Gujarat High Court, in the case of, S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: "The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected." In the case of Snehlata 192 CTR 50, Hon'ble J&K High Court held that "when the substantive law confers a benefit on the assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. It is settled proposition of law that no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India and section 114 of the State (J&K) Constitution imposes an embargo on imposition and collection of tax if the same is without authority of law." Lastly, w....