AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 155
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....t of R&D expenses to Baddi unit is required for computing deduction u/s 80IC of the Income-tax Act, 1961? 3. Whether in the facts & circumstances of the case and in law, the Ld. CIT(A) has erred in relying on the decision of the Hon'ble jurisdictional High Court in the case of Zandu Pharmaceuticals Works Ltd. (350ITR 366) ignoring the fact that in the said case, each unit of the appellant had a separate R&D unit, whereas in the assessee's case the Baddi unit of the assessee company doesn't have its own independent R&D unit and the entire R&D related work is instead undertaken centrally from their two R&D units situated independently ?" 2. Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee is into the business of manufacturing and marketing pharmaceutical products and the related R&D activities. The assessee filed return of income for the year under consideration declaring total income at Rs.3,28,68,36,540/- (after claiming deduction of Rs.97,06,74,306/- under section 80C) and book profit under section 115JB of the Income Tax Act, 1961 (for short 'the Act') at Rs.2,38,55,12,770/-. Original assessment was framed under sectio....
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....of disallowance as directed by the CIT(A) while enhancing the total income, however; since we have already set aside that part of the CIT(A) order withdrawing the weighted deduction u/s 35(2AB), therefore, the issue regarding mistake in the amount becomes infructuous." 5. Then AO passed an order under section 143(3) read with section 254 of the Act by holding that the R&D expenses are allocated to Baddi unit No.1. Then assessee again carried the matter before the Ld. CIT(A) who has decided the issue in favour of the assessee by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal. 6. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 7. In the backdrop of the aforesaid facts and circumstances of the case and grounds raised by the Revenue the sole question raises for determination in this case is : "As to whether the Ld. CIT(A)has erred in holding that no R&D expenses incurred at Mahape and Sinnar units of....
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....ellant's submissions. I find that the AO in his Remand Report between para 5 and 5.5, has stated to have perused through and examined the specific list of the products manufactured in Baddi Unit during the relevant period. In the remand report at para 5.2the AO clearly stated that alt the documents submitted by the appellant were carefully perused by him. It is obvious therefore, that all the additional evidences / documents stand examined by him during the remand proceedings. Further, in the remand report at para 5.3 the AO has further stated that the R&D expenses were incurred by the appellant only at Mahape and Sinnar Units. As per appellant's contention, none of these R&D expenses had any connection or nexus with any pharmaceutical products manufactured at Baddi unit. In the remand report the AO has also commented on the appellant's contention that there is a gestation period of 10- 14 years before any commercialization of product is achieved or even after lapse of such period there can still be no commercial production. It is not in dispute that there was no R & D activity in Baddi unit, since actually there was none. 6.1. The Hon'ble Bombay High Court in ca....
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....nd held that no R & D expenses (incurred at Mahape and Sinnar) is to be allocated to the profits derived at / from the eligible industrial undertaking the independent unit (at Baddi), for calculating the deduction u/s 80IC for Baddi unit, and thus the AO is directed to do the needful accordingly. 6.7. Further, in A.Y 2010-11 & 2013-14, on merits, similar allocation by AO of R & D expenses to Baddi unit, for computing deduction u/s 80 1C. were deleted by the CIT (A) and therefore, respectfully following the same, and in accordance with the Hon'ble ITAT direction, I hereby direct the AO not to allocate any R&D expense of Mahape and Sinnar units to the Baddi unit for computing the deduction u/s 80 1C for Baddi 1 (manufacturing) unit, since no nexus is proved." 11. We have perused the impugned order passed by the Ld. CIT(A) in the light of the decision rendered by Hon'ble Bombay High Court in case of Zandu Pharmaceutical Works (supra) and Hon'ble Madras High Court in case of Bush Boake Allen (India) Ltd. vs. ACIT (supra) on the identical issue as well as in the light of the decision rendered by co-ordinate Bench of the Tribunal in assessee's own case for A.Y. 2010-11 and 2013-....
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....products allocating the expenses to other unit would not be justified. 15. Now in case at hand it is undisputed fact on record that the assessee is having six units and deduction under section 80IC of the Act is being claimed qua one unit only namely Baddi unit No.1 and the assessee company is having two approved R&D facilities one at Mahape and another one at Sinnar. At the same time, it is also undisputed fact on record that the assessee does not have any R&D centers at Baddi. 16. During the remand proceedings the assessee has brought on record list of top products manufactured and sold from Baddi during the year under assessment which are as under: Product Description Sales Amount Product Description Sales Amount GLEVO-500 TABLETS S'S IN 3,31,46,637 CANDIDERMA + CREAM 5 GM IN 1,85,52,477 LIZOLID TABLETS 600MG 4'S (CRITICA) 1,63,55,125 GLIMULIN-MF TABLETS 10'S IN 1,81,89,953 TELMA - H TABLETS 10'S IN 1,60,28,929 ROSICON 2 MG TABLETS 10'S IN 1,80,31,506 CANDIDERMA + CREAM 5 GM 1,29,70,406 RAZEL 10 MG TABLETS 10'S IN 1,73,01,126 ALEX + SYRUP 50ML SALE 1,01,19,842 CANDID V6 MUCOADHESIVE TAB 6'S 1,65,59,326 ASCORIL + EXPECTORANT ....
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....S 10' SIN 1,11,11,333 ASCORIL D+ SYRUP 100 ML 2,12,27,816 \ EBOV 120 TABLETS 10'S IN 1,09.07,672 OFLOMIL 200 MG TABLETS 10'S IN 2,09,68,369 j DUOLAXIN LAXATIVE 200ML IN 1,05,61,558 MOMATE CREAM 5 GM IN 2,00,22,558 FLUCORT C SKIN CREAM 20GM IN 1,05,07,114 GL/MULIN 2MF TABLETS 10'S IN 1,99,66,292 HALOVATE CREAM 30GM IN, 1,04,59,863 CANDID B CREAM 15GM 1,95,84,711 ESOZ 40 TABS IN 15'S - SALE (BLOCK) . 1,01,56,841 MILIVO 500 TABLETS S'S IN 1,93,58,480 MILICAL TABLETS 15'S IN 1,01,11,321 FLUCORTH SKIN CREAM 20GM IN 1,93,22,417 Total 2,19,38,37,748 MUCARYL- AX EXPECTORANT 100ML IN 1,87,35,221 17. The Ld. CIT(A) has returned factual finding that no R&D activities have been carried out by the assessee company in its Mahape and Sinnar R&D facilities qua the products/drugs manufactured by the assessee company on its Baddi units during the year under assessment. 18. Furthermore, in the subsequent assessment years 2010-11 to 2013-14 identical issue has been decided by the Revenue in favour of the assessee by holding that R&D expenses incurred by the assessee company at Mahape and Sinnar units are not allocable to Badd....