TaxTMI 
TaxTMI 
2022 (8) TMI 1127
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....y also undertakes Contract Research and Bio-Analytical and Bio equivalence studies. During assessment proceedings, Assessing Officer observing that assessee had claimed R&D expenditure u/s. 35(2AB) of the Act to the extent of Rs.5,03,34,595/-, whereas total R & D expenditure u/s. 35(2AB) of the Act approved by DSIR as per Form 3CL submitted by the assessee for Rs.3,41,02,000/- i.e. 200% of Rs.1,70,50,643/- (capital expenditure of Rs.1,09,62,643 and revenue expenditure of Rs.60,88,000) when the assessee was asked to explain the excess claim by the assessee; assessee vide letter dated 19.02.2016 submitted that this amount is net of income received from R&D work. 4. Assessing Officer rejected the submissions and explanation of the assessee and accordingly, disallowed the excess claim made by the assessee to the extent of Rs.1,62,32,595/ (Rs.5,03,34,592 - Rs.3,41,02,000). Further, Assessing Officer observed that assessee had debited to the Profit and Loss Account of Rs.4,21,34,719/- being legal and professional fee paid, when the assessee was asked to give the details of the same, assessee has submitted as under: - S.No. Name of the party Nature Amount In Rs. 1. As....
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....to the facts of our case exactly. The appellant also relies on the decision of the Mumbai bench of the ITAT in the case of ACIT VS Wochardt Ltd the full text of which is enclosed for your reference. In this judgement also it has been held that sales realisation is not to be deducted while calculating the deduction under section 35(2AB) In fact the appellant has made an error in claiming the deduction under section 35(2AB) and has claimed a lesser deduction by mistake while filing the return of income. However at the time of scrutiny assessment the proper claim was made by way of a letter the copy of which is also enclosed. Even the Mumbai Tribunal judgement was also enclosed with the submission. We therefore submit that there should be no disallowance at all but we pray for enhancement of the claim for the deduction as we made at the time of assessment. As per the revised calculations the claim should be Rs. 136467313/- which is the difference between arising out of the exclusion of income from sale of products Rs. 86132717 and this claim should be allowed as per the revised computation given by the appellant and there should not be any disallowance at all." 5.2 A....
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....onferred an enduring benefit on the assessee and hence it was capital in nature and was not allowable as a revenue expenditure under section 28 to 44 of the IT Act, 1961. Hence the action of the AO in this regard is upheld and assessee's appeal in respect of the sub ground relating to this item of expenditure of Rs.3,70,354/- is rejected. Next issue in ground of appeal-3 is the allowance of professional fees paid to JOHN Mccarerrie for liasoning with Govt Health Authority for filing of documents and products. This expenditure is also similar to the expenditure of Rs.3,70,354/- referred to earlier and relates to the registration of the products and hence the same is treated as capital expenditure for the same reasons and the action of the AO is upheld. Next issue in ground of appeal-3 is the allowance of professional fees of Rs.29,37,858/- paid to Dr. DILIP SNAVORDEKAR for technical consultancy services relating to identification, advice and assistance relating to product license registration issues and this expenditure is also similar to the product registration referred to earlier and hence primarily capital in nature and hence action of the AO is upheld and ....
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.... Note #3 (2) 1,145.42 918.63 1,145.42 918.63 918.63 ii Less : Revenue Income from R&D -. Note #4 861.33 857.75 857.75 857.75 - Net Revenue Expenditure -(3) 284.09 60.88 287.67 60.88 918.63 Total Eligible Expenditure (1) + (3) 393.72 170.51 397.30 170.51 1,028.26 C CALCULATION OF DEDUCTION 200% of the Total Eligible Expenditure 341.02 341.02 D Appellants' Calculation - [(A-1) * 2] + (A-2) Note #5 503.35 506.93 1,137.89 Amount Mentioned in CIT-A Order - Page 3 initial Paragraph.- [(A-1) * 2] + (A-2) - Note #6  ....
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..... With regard to other grounds raised by the assessee these issues are covered in favour of the assessee in assessee's own case in earlier Assessment Years from A.Y. 2007-08 to A.Y. 2011-12. The relevant orders are placed on record. 12. On the other hand, Ld.DR relied on the findings of the lower authorities and he brought to our notice Para No. 3.3 and Para No. 5.3 of the Ld.CIT(A) order. 13. Considered the rival submissions and material placed on record, with regard to enhanced claim of the assessee on R & D expenses u/s.35(2AB) of the Act, assessee made the excess claim u/s. 35(2AB) of the Act heavily relying on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Micro Lab Ltd. (supra) and ongoing through the decision of above said case; the Hon'ble Karnataka High Court held as under: - "3. On the first question, the observations made by the Tribunal in the impugned order from paragraph Nos. 12 to 17 are as under: "12. We have heard the submissions of the Id. DR and the Id. counsel for the assessee and also perused the documents filed in paperbook. As we have already seen, the assessee carries on scientific research. It is in th....
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....business receipts. The receipts arising out of sale of products will not go to reduce the expenditure on R&D, whereas the assets acquired in the process of carrying out the R&D if they are sold, such sales realization would go to reduce the expenditure on scientific research and that is why sales realization arising out of assets sold is required to be offset against R&D expenditure. The above explanation will be sufficient to hold that the order passed by the CIT(A) u/s. 154 of the Act is unsustainable. Nevertheless, we will also examine as to what is the exact nature of receipts from sale of products. 14. A copy of license and supply agreement which was filed by the assessee before the AO as well as CIT(A) is at pages 5 to 26 of the assessee's paperbook. The sale of products is nothing but the sale of Dossiers by the assessee to persons not associated with the assessee or its directors. In the course of carrying out the scientific research, the assessee prepares elaborate documents regarding the products that would emanate from carrying out scientific research. This would also include the requirement of health authorities for grant of license to approve the products ....
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....o profit & loss account are part of normal sales. They are, therefore, not to be reduced from the expenditure incurred by the assessee on carrying out scientific research on which deduction u/s. 35(2AB) has to be allowed. We are, therefore, of the view that there is no merit in ground No.2 raised by the revenue and that the order passed by the CIT(A) DATED 9.4.2014 U/S. 154 of the Act cannot be sustained and the same is hereby reversed. Thus, ITA No.764/B/14 by the assessee is allowed, while ground No.2 raised by the revenue is dismissed." The aforesaid paragraphs show that the Tribunal has proceeded on the premise that when the regular work is in the nature of R&D work done and sold, it becomes a business income and chargeable as business income. It is only when the assets acquired in the process of carrying on R&D work, if they are sold, such realization would go to reduce the expenditure of scientific research. 4. In our view, the approach to the issue considered by the Tribunal is appropriate. In any case, no substantial question of law would arise for consideration as canvassed." 14. On a careful reading of the above decision, we observe that Hon'ble K....
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....re emanating out of R & D work similar to the Dossier, process sheet, product development guide etc., which are distinct from the product and assets developed by the R & D centre. 16. Coming to the present case, we observe that Ld. AR brought to our notice that auditor of the assessee company had certified the expenditure incurred by them which include capital as well as revenue expenditure to the extent of Rs.1255.05 lakhs and assessee has credited the R&D services income in its Profit and Loss Account (in Schedule - 22 of the balance sheet notes to financial statements) to the extent of Rs.857.75 lakhs. As observed from the Hon'ble Karnataka High Court decision as per which assessee can exclude the income earned from the product emanating out of R & D work like dossier etc., in the given case assessee has only submitted the R&D services earned by the assessee and they were not submitted any details of the income earned by the assessee. 17. From the records, we observe that assessee is in R&D work for its business purposes as well as undertaking contract research. The income earned by the assessee may include income earned by the assessee for the mere services on contrac....