TaxTMI 
TaxTMI 
2022 (6) TMI 398
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....ng grounds of appeal which is common in appeals filed by the assessee for the Assessment Years under consideration i.e. A.Y. 2012-13, 2013-14, 2014-15 and 2015-16. A.Y. 2012-13 "1. On the facts and in the circumstances of the case and in law Ld. Commissioner of Income Tax(Appeals)-16, Mumbai erred in sustaining addition of sales promotion expenses of Rs. 10,78,000/- being payments made to general practitioners. 2. On the facts and in the circumstances of the case and in law Ld. Commissioner of Income Tax(Appeals)-16, Mumbai erred in sustaining addition of sales promotion expenses of Rs. 80,126/-." 4. Assessee filed modified additional ground only in A.Y. 2012-13 which is reproduced below: - "1. Modified Additional Ground No. 1: 1.1. On the facts and in circumstances of the case and in law, the Appellant prays that the expenditure of Rs. 4,80,00,000/incurred for scientific research be allowed u/s. 35 of the Act." 5. With regard to main grounds of appeal raised by the assessee in grounds of appeal filed for the A.Y. 2012-13 which is common in all the Assessment Years under consideration relating to addition on sales promotion expenses being p....
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....ot be allowed. Accordingly, Assessing Officer proceeded to make the addition as per the above chart and proceeded to make the disallowance Rs..1.61,31,086/-. 9. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and Ld.CIT(A) after considering the submissions of the assessee sustained the addition with regard to payment made to doctors. With regard to the sales promotion expenses Ld.CIT(A) observed that the expenditure relating to sales promotion expenses incurred are less than 1% of the turnover which is well below the industries standards and the above said payments are not in violation of the IMC Regulations and hence disallowance u/s 37(1) is not warranted. However, he disallowed only certain amounts which is not relatable to selling & distribution expenses. For this assessment year Ld.CIT(A) sustained only to the extent of Rs..80,126/-. 10. Aggrieved assessee is in appeal before us raising above said grounds of appeal. 11. At the time of hearing Ld. AR of the assessee submitted that no doubt the issue of payment made to Doctors are against the assessee in view of the Hon'ble Supreme Court decision in the case of Apex Laboratories (P.) Ltd., v. DCIT LTU (2....
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....ts from Assessee. This statement is inaccurate as the GP have been made payments in consideration of GP expertise feedback on products of the Assessee. 'Autonomy' is the capacity of a rational individual to make an informed, un-coerced decision. In moral and political philosophy, autonomy is often used as the basis for determining moral responsibility and accountability for one's actions. Your Honour Autonomy- of GP does not get affected when expenses were incurred upon the professionals without any job carried out by them. Therefore, the professional autonomy of the GPs is not compromised when they are paid fees for their medical knowledge." 12. He submitted that this expenditure does not fall under freebies and the assessee has made the payment for the services rendered by those Doctors. However, at the time of hearing the Bench asked the Ld. AR to submit any documents which gives the details of the above submissions made by the assessee in terms of any agreement with those Doctors or any other relevant papers to support the contention of the assessee. In this regard Ld. AR submitted that no such documents available with the assessee. However, he relied on the subm....
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....s admitted for adjudication. 17. Coming to the relevant facts relating to additional ground are, during the assessment proceedings, Assessing Officer observed that assessee has claimed weighted deduction @ 125% u/s. 35(1)(iia) of the Act amounting to Rs..6,00,00,000/- in respect of the payment for R & D to Calyx Chemicals and Pharmaceuticals (Indian company) engaged in R & D. The assessee was asked to furnish the details / evidences of incurrence of the said expenses. In response assessee filed submissions, for the sake of clarity it is reproduced below: - "M/s. Calyx Chemicals and Pharmaceuticals Ltd is approved Research and development center vide registration No.TU-1V/2496/2010 dated 10.06.2010 having its R & D facilities at its Plant in Dombivali. Company has R & D facilities of over Rs. 100 Crores with use of various modern techniques and technologies. The Company is engaged in research and development activities in pharmaceuticals sectors having its main focus on developing new process, improving process and driving cost efficiencies. The Company has dedicated staff of over 100 people working towards Research and Development. The assessee has ent....
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....s of now it has not yielded any knowhow. Therefore, this expense is treated as work-in-progress. As and when product development happens with the help of which the assessee earns income, the same may be granted depreciation by transferring it from WIP to the 25% block." 19. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and however, before the Ld.CIT(A) assessee has not pressed this ground. Therefore assessee raised this additional ground before us with the prayer that actual expenditure of Rs..4.8 Crores incurred for scientific research maybe allowed u/s. 35 of the Act not u/s. 35(1)(iia) of the Act. 20. At the time of hearing, Ld. AR submitted that assessee has incurred certain expenditure on scientific development by making payment to M/s.Calyx Chemicals and Pharmaceuticals Ltd. He brought to our notice Page No. 130 of the Paper Book as per which assessee has entered into service agreement entered with M/s. Calyx Chemicals and Pharmaceuticals Ltd., for the purpose of conducting chemical process and manufacturing method development services, for this purpose Calyx shall depute two Calyx FTE Groups per year in accordance with the direction from the assessee in o....
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.... of research activities. No doubt it involves various research activities and which are agreed by the assessee to avail the services to develop chemical process and manufacturing of API and intermediates. This will help assessee to improve its process and manufacturing activities and improvement in its intermediates. Since it involves lot of labour activities which assessee has utilized from M/s. Calyx Chemicals and Pharmaceuticals Ltd. Since there is no document or any evidence that assessee has created any capital assets by doing of such research activities, however, these activities are carried out for the purpose of business only. Therefore these expenditures can be considered to incur only for the purpose of business and initially assessee claimed weighted deduction u/s. 35(1)(iia) of the Act and since there is no proper documents submitted by the assessee to claim any benefit u/s.35(1)(iia), the Assessing Officer has rejected the claim of the assessee. However, we find that assessee has incurred these expenditures for the purpose of business and in relation to development activities in order to improve the process and manufacturing activities. There is no evidence of creation....