SIRO CLINPHAR P. LTD, MUMBAI V. DCIT CIR 3(3), MUMBAI

ITA 1506/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71269 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 19-08-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 21-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: V SRIDHARAN SHRI PRAKASH SHAH; JAS SANGHAVI
• Keywords: Earning of tax free income; Difference of opinion; Validity of assessment; Assessment record; Change of opinion; Revenue expenditure; Reassessment proceedings; Capital expenditure
• Section: 143(3); 14A; 80IB; 148

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NOS. 1506 TO 1510/MUM/ /2011 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEARS 2003-04, 2004-05, 2005-06, 2006-07 & 2007-08) !./ I.T.A. NO. 2831/MUM/ /2012 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR 2008-09) SIRO CLINPHARM PVT. LTD., 63, 6 TH FLOOR, LADY RATAN TATA MEMORIAL HOSPITAL AND RESEARCH CENTRE, M.K. MARG, MUMBAI 400 021. ( ( ( ( / VS. DY. COMMISSIONER OF INCOME TAX- CIRCLE 3(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 20. #. !./ PAN : AAECS8588A ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) ./ 2 3 ! / APPELLANT BY : SHRI V. SRIDHARAN, SHRI PRAKASH SHAH & SHRI JAS SANGHAVI 01./ 2 3 ! / RESPONDENT BY : SHRI GIRIJA DAYAL !($ 2 / // / DATE OF HEARING : 19-8-2013 45- 2 / DATE OF PRONOUNCEMENT : 27-09-2013 '6 / O R D E R PER P.M. JAGTAP, A.M. : .. , !'# THESE SIX APPEALS FILED BY THE ASSESSEE AGAINST SIX SEPARATE ORDERS OF LD. CIT(A) 7, MUMBAI FOR ASSESSMENT YEARS 2003-04 TO 2 008-09 INVOLVE SOME ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 2 COMMON ISSUES AND THE SAME, THEREFORE, HAVE BEEN HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE IN THE PRESENCE CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF CLINICAL RESEARCH OF PHARMA PRODUCTS. I N THE RETURNS OF INCOME FILED FOR THE YEARS UNDER CONSIDERATION, DEDUCTION U/S 80IB(8A) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS CLAIMED BY THE ASSESSEE . IN THE ASSESSMENTS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT, THE CLA IM OF THE ASSESSEE U/S 80IB(8A) OF THE ACT WAS ALLOWED BY THE A.O. FOR ASS ESSMENT YEARS, 2003-04, 2004-05 AND 2006-07. THE ASSESSMENTS FOR THE SAID YEARS, HOWEVER, WERE SUBSEQUENTLY RE-OPENED BY THE A.O. IN MARCH, 2009 A FTER RECORDING THE FOLLOWING REASONS, WHICH ARE IDENTICAL FOR ALL THE RELEVANT YEARS EXCEPT THE VARIATION IN THE CORRESPONDING AMOUNTS. RETURN OF INCOME DISCLOSING A TOTAL INCOME OF RS. 6 ,35,926/- WAS FURNISHED ON 30-10-2004. IN THE RETURN OF INCOME T HE ASSESSEE CLAIMED DEDUCTION U/S 80IB AMOUNTING TO RS. 90,76,103/- FRO M THE GROSS TOTAL INCOME OF RS. RS.47,77,254/-. THE ASSESSEE PAID TAX ES U/S.115JB OF THE INCOME TAX ACT, 1961 ON BOOK PROFIT OF RS.1,03, 13,157/-. ALONG WITH THE RETURN OF INCOME, AUDITORS REPORT IN FORM NO. 1OCCB WAS ALSO FURNISHED. SCRUTINY ASSESSMENT FOR A.Y.200-06 WAS COMPLETED ON 16/11/2006 AFTER ALLOWING A DEDUCTION U/S. 80IB(8A) OF RS.90,7 6,103!- FROM THE GROSS TOTAL INCOME OF RS.97,1 2,029/-. ON EXAMINATI ON, IT IS FOUND THAT THE ASSESSEE HAD CONDUCTED TRIALS OF PHARMACEUTICAL PRODUCTS MANUFACTURED BY OTHERS AND HAD NO FACILITY FOR LABO RATORY, TESTING AND ANALYSIS. THEREFORE, THE ASSESSEE IS NOT INVOLVED I N ANY RESEARCH AND DEVELOPMENT ACTIVITIES LEADING TO TECHNOLOGY DEVELO PMENT, IMPROVEMENT OF TECHNOLOGY AND TRANSFER OF TECHNOLOGY DEVELOPED BY THEMSELVES. FURTHER, THE ASSESSEE DOES NOT HAVE THE INFRASTRUCT URE, AS ENVISAGED IN INCOME TAX RULE 18DA(1)(C) & (E). THEREFORE, THE AS SESSEE DOES NOT FULFILL THE ELIGIBILITY CRITERION LAID DOWN IN RULE 18DA(1) FOR CLAIMING DEDUCTION U/S.80IB(8A). 3. IN RESPONSE TO THE NOTICES ISSUED U/S 148 OF THE ACT DURING THE COURSE OF REASSESSMENT PROCEEDINGS, IT WAS STATED BY THE A SSESSEE THAT THE RETURNS ORIGINALLY FILED FOR THE RELEVANT FOUR YEARS MAY BE TREATED AS THE RETURNS FILED ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 3 IN RESPONSE TO THE NOTICES ISSUED U/S 148 OF THE AC T. ON THE BASIS GIVEN IN THE REASONS RECORDED, THE ASSESSEE WAS CALLED UPON BY THE A.O. TO EXPLAIN AS TO WHY ITS CLAIM FOR DEDUCTION U/S 80IB(8A) OF THE ACT SHOULD NOT BE DISALLOWED. IN REPLY, THE FOLLOWING EXPLANATION WA S OFFERED BY THE ASSESSEE :- IN THIS CONNECTION, WE WISH TO EXPLAIN THE RESEARC H AND DEVELOPMENT ASPECTS THAT SIRO CLINPHARM IS INVOLVED WITH: SIRO IS A FULL SERVICE CONTRACT CLINICAL RESEARCH O RGANIZATION (CCRO), EFFICIENT IN CONDUCTING CLINICAL RESEARCH IN VARIOU S THERAPEUTIC AREAS LIKE PHARMACEUTICAL, BIOTECHNOLOGY AND MEDICAL DEVI CES SECTOR. ITS PRIMARY OBJECTIVE IS TO UNDERTAKE SCIENTIFIC AND ME DICAL STUDIES ON BEHALF OF VARIOUS COMPANIES BELONGING TO THE PHARMA CEUTICAL INDUSTRY THUS FACILITATING THESE COMPANIES TO MAKE CLINICAL DEVELOPMENT PROCESS MUCH FASTER ARID MORE EFFICIENTLY. OUR CLINICAL RESEARCH TEAM CARRIES OUT COMPREHENSIV E, INDEPENDENT MANAGEMENT OF CLINICAL TRIALS FROM PHASE 1,1 TO PHA SE IV IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATORY AUTHORITIES AND ICH GUIDELINES FOR GOOD CLINICAL PRACTICE (GCP). TO FURTHER HELP IN CA RRYING OUT CLINICAL RESEARCH, THE COMPANY ALSO HAS ITS OWN CENTRAL LABO RATORY WHICH HELPS THE COMPANY IN SUCCESSFULLY CARRYING OUT ITS ROLE O F CCRO. IT HAS SET UP ONE-OF-ITS-KIND CENTRAL LABORATORY, WHICH ANALYSES THE SAMPLES FOR CLINICAL TESTING FROM VARIOUS HOSPITALS RUNNING CLI NICAL TRIALS FOR SIRO. THE LABORATORY HOUSES STATE-OF-THE-ART EQUIPMENT FO R SPECIALIZED ESOTERIC TESTING OF BIOMARKERS WHICH ARE EMERGING A S KEY LABORATORY TESTS IN CLINICAL TRIALS. TO SUMMARIZE, SIRO CLINPHARM IS AN ORGANIZATION WHI CH IS INVOLVED IN CLINICAL R&D AND SUPPORTS A LOT OF PHARMACEUTICAL A ND BIOTECH COMPANIES IN DRUG DEVELOPMENT. EXPERTS AT SIRO PLAN , DESIGN, COLLECT, ANALYZE AND INTERPRET THE DATA COMING FROM CLINICAL TRIALS USING IN HOUSE PROFESSIONALS FROM DIVERSE BACKGROUNDS LIKE M EDICINE, PHARMACY, AND BIOSTATISTICS. SIROS HUGE CLINICAL N ETWORKS OF WORKING WITH LARGE GOVERNMENT HOSPITALS AND PRIVATE CLINICA L INSTITUTES IN THE COUNTRY GIVE IT THE REACH AND BREADTH TO WORK WITH THE BEST MEDICAL PROFESSIONALS IN THE COUNTRY WHO CONDUCT CLINICAL R ESEARCH FOR SIRO. BASED ON THE ABOVE EXPLANATION OF OUR RESEARCH AND DEVELOPMENT ACTIVITIES CARRIED OUT BY SIRO CLINPHARM, WE WOULD LIKE TO PRESENT OUR POSITION WITH REGARDS TO YOUR NOTICE OF 26.03.2009, FOR YOUR KIND CONSIDERATION AS FOLLOWS: 1. IN SPECIFIC REFERENCE TO THE NOTICE RECEIVED BY SIRO WE WOULD LIKE TO INFORM THAT THE PRESCRIBED AUTHORITY, I.E., THE SEC RETARY, DEPTT. OF ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 4 SCIENTIFIC & INDUSTRIAL RESEARCH, MINISTRY OF SCIEN CE & TECHNOLOGY, GOVERNMENT OF INDIA APPROVE COMPANIES WHO ARE EXCLU SIVELY ENGAGED IN SCIENTIFIC RESEARCH AND DEVELOPMENT UNDER SECTION 8 01B(8A) OF THE INCOME TAX ACT, 1961. SIRO CLINPHAMN PVT LIMITED IS ONE SUCH COMPANY. 2. BEFORE ALLOWING US THE ABOVE EXEMPTION, DEPTT. O F SCIENTIFIC & INDUSTRIAL RESEARCH (DSIR) HAD ASSESSED AND INSPECT ED OUR PREMISES AND ONLY AFTER SATISFYING THEIR CRITERIA SUCH AS FA CILITY FOR LABORATORY, TESTING AND ANALYSIS, THEY HAD GRANTED US THEIR APP ROVAL UNDER SECTION 8OIB(8A) OF ITA, 1961 READ ALONG WITH RULES I 8DA A ND I SD OF THE RULES OF INCOME TAX RULES 1962. 3. IT IS ALSO CLARIFIED THAT WE CONTINUE TO MAINTAI N SUCH FACILITIES AND CONSIDERING THIS FACT ONLY, THE PRESCRIBED AUTHORIT Y, I.E., SECRETARY, DS1R, MINISTRY OF SCIENCE 6 TECHNOLOGY HAS ALSO EXT ENDED APPROVALS AS PER REQUIREMENTS OF INCOME TAX ACT UNDER SECTION 80 IB(8A) READ WITH RULES 18DA AND 18D FOR AVAILING EXEMPTION UNDER SEC TION 80I8(8A) OF INCOME TAX ACT FROM TIME TO TIME, AS PER COPIES OF APPROVALS ENCLOSED. 4. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT FO UND ACCEPTABLE BY THE A.O. ACCORDING TO HIM, THE ASSESSEE WAS INVOLVED I N CLINICAL TRIAL OF THE PHARMACEUTICALS AND THE SAID ACTIVITY COULD NOT BE TERMED AS RESEARCH AND DEVELOPMENT. HE WAS ALSO OF THE OPINION THAT THE A CTIVITY OF THE ASSESSEE WAS NOT LEADING TO TECHNOLOGY DEVELOPMENT OR IMPROVEMEN T OF TECHNOLOGY AND THE ASSESSEE ALSO DID NOT HAVE THE ADEQUATE INFRASTRUCT URE AS ENVISAGED IN RULE 18DA(1)(C) & (E) OF INCOME TAX RULES, 1962. HE ALSO NOTED THAT THERE WAS NO TRANSFER OF TECHNOLOGY DEVELOPED IN THE CASE OF THE ASSESSEE AS ENVISAGED IN RULE 18DA(1)(E) OF THE INCOME TAX RULES. THE A.O., THEREFORE, HELD THAT THE ASSESSEE DID NOT FULFILL THE ELIGIBILITY CRITERIA L AID DOWN IN RULE 18DA(1) FOR CLAIMING DEDUCTION U/S 80IB(8A) OF THE ACT AND THE DEDUCTION SO CLAIMED WAS DISALLOWED BY HIM IN THE REASSESSMENTS COMPLETED U/ S 143(3) R.W.S. 147 OF THE ACT FOR ALL THE RELEVANT FOUR YEARS I.E. ASSESS MENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07. 5. THE A.O. ALSO COMPLETED THE REGULAR ASSESSMENTS U/S 143(3) OF THE ACT FOR ASSESSMENT YEARS 2007-08 AND 2008-09 WHEREIN TH E DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IB(8A) OF THE ACT WAS DISALLOWED BY HIM FOR THE SAME ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 5 REASONS AS GIVEN IN THE REASSESSMENTS COMPLETED FOR ASSESSMENT YEARS 2003- 04, 2004-05, 2005-06 AND 2006-07. IN THE ASSESSMENT S COMPLETED FOR ASSESSMENT YEARS 2007-08 AND 2008-09, THE A.O. ALSO MADE A DISALLOWANCE ON ACCOUNT OF SOFTWARE EXPENSES TREATING THE SAME A S OF CAPITAL IN NATURE. SIMILARLY, IN ASSESSMENT YEAR 2008-09, A FURTHER DI SALLOWANCE WAS MADE BY HIM U/S 14A OF THE ACT ON ACCOUNT OF EXPENSES ATTRI BUTABLE TO EARNING OF EXEMPT INCOME. 6. AGAINST THE RE-ASSESSMENTS COMPLETED BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT FOR ASSESSMENT YEARS 2003-04 TO 2006-07, THE ASSESSEE PREFERRED APPEALS BEFORE THE LD. CIT(A) CHALLENGING THE VALID ITY OF THE SAID ASSESSMENT AS WELL AS DISPUTING THE ADDITION MADE THEREIN BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDUCTION CLAIMED U/S 80IB(8A) OF T HE ACT. SIMILARLY, APPEALS WERE ALSO FILED BY THE ASSESSEE BEFORE THE LD. CIT( A) AGAINST THE ORDERS PASSED BY THE A.O. U/S 143(3) OF THE ACT FOR ASSESSMENT YE ARS 2007-08 AND 2008-09 DISPUTING THE DISALLOWANCE MADE U/S 80IB(8A) OF THE ACT AS WELL AS THE DISALLOWANCE ON ACCOUNT OF SOFTWARE EXPENSES AND DI SALLOWANCE MADE U/S 14A OF THE ACT. THE LD. CIT(A) DID NOT FIND MERIT I N THE PRELIMINARY ISSUE RAISED BY THE ASSESSEE CHALLENGING THE VALIDITY OF ASSESSMENTS MADE BY THE A.O. U/S 143(3) READ WITH SECTION 147 OF THE ACT FO R ASSESSMENT YEARS 2003- 04, 2004-05 AND 2006-07 AND UPHOLDING THE VALIDITY OF THE SAID ASSESSMENTS, HE DECIDED THIS ISSUE AGAINST THE ASSESSEE. HE ALS O CONFIRMED THE DISALLOWANCE MADE BY THE A.O. U/S 80IB(8A) OF THE A CT IN ALL THE SIX YEARS UNDER CONSIDERATION AND FURTHER CONFIRMED THE DISAL LOWANCE MADE BY THE A.O. ON ACCOUNT OF SOFTWARE EXPENSES IN ASSESSMENT YEARS 2007-08 AND 2008-09. THE DISALLOWANCE MADE BY THE A.O. U/S 14A OF THE AC T FOR A.Y. 2008-09 WAS ALSO CONFIRMED BY THE LD. CIT(A). AGGRIEVED BY THE ORDERS OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THESE APPEALS BEFORE THE TRI BUNAL. ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 6 7. IN GROUND NO. 1OF ITS APPEAL FOR ASSESSMENT YEAR S 2003-04, 2004-05, 2005-06 AND 2006-07, THE ASSESSEE HAS RAISED A COMM ON PRELIMINARY ISSUE CHALLENGING THE VALIDITY OF ASSESSMENTS MADE BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT. 8. DURING THE COURSE OF APPEAL PROCEEDINGS BEFORE T HE LD. CIT(A), THE VALIDITY OF THE ASSESSMENTS MADE BY THE A.O. U/S 14 3(3) R.W.S. 147 OF THE ACT WAS CHALLENGED BY THE ASSESSEE, INTER ALIA, ON THE GROUND THAT THE REOPENING WAS BASED MERELY ON THE CHANGE OF OPINION. IT WAS CONTENDED THAT THE A.O. HAVING ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSE E U/S 80IB(8A) OF THE ACT IN THE ASSESSMENTS ORIGINALLY COMPLETED U/S 143(3) OF THE ACT ON THE BASIS OF THE MATERIAL FACTS PLACED ON RECORD AND THERE BEING NO NEW MATERIAL OR FACTS COMING TO HIS POSSESSION, THE REOPENING OF ASSESSME NTS WAS BASED ON CHANGE OF OPINION, WHICH IS NOT PERMISSIBLE AS HELD IN THE VARIOUS JUDICIAL PRONOUNCEMENTS. THIS CONTENTION OF THE ASSESSEE WA S NOT ACCEPTED BY THE LD. CIT(A) AS, ACCORDING TO HIM, THE QUESTION OF CHANGE OF OPINION WOULD ARISE WHEN THERE WAS ANY OPINION EXPRESSED BY THE A.O. IN THE ORIGINAL ASSESSMENTS AFTER PROPER APPLICATION OF MIND. HE H ELD THAT THERE WAS NO APPLICATION OF MIND BY THE A.O. ON THIS ISSUE IN TH E EARLIER ASSESSMENTS AND THERE WAS THUS NO OPINION PER SE EXPRESSED BY THE A .O. ON THIS ISSUE. HE HELD THAT THERE WAS THUS NO CASE OF CHANGE OF OPINION AN D THE CONTENTION OF THE ASSESSEE CHALLENGING THE VALIDITY OF REASSESSMENT W AS NOT ACCEPTABLE. 9. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, INVITED OUR ATTENTION TO THE ASSESSMENTS ORIGINALLY COMPLETED U/S 143(3) OF THE FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07 AND SUBMITTED THAT THE DEDUCTION CLAIMED BY THE ASSESSEE U/S 80IB(8A) OF THE ACT WAS ALLOWED BY THE A.O. AFTER NECESSARY VERIFICATION/EXAMINATION. HE THEN INVITED OUR ATTENTION TO THE REASONS RECORDED BY THE A.O. FOR ALL THE FOUR YEARS UNDER CONSIDERATION AND SUBMITTED THAT THE SAME WERE NOT BASED ON ANY NEW M ATERIAL WHICH HAD COME TO THE POSSESSION OF THE A.O. AFTER THE COMPLETION OF ORIGINAL ASSESSMENTS U/S ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 7 143(3) OF THE ACT. HE CONTENDED THAT THE ASSESSMEN TS FOR ALL THE RELEVANT FOUR YEARS THUS WERE REOPENED BY THE A.O. CLEARLY ON THE BASIS OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW. IN SUPPORT OF THIS CONTENTION, HE INTER ALIA RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COUR T IN THE CASE OF CLIANTHA RESEARCH LIMITED (FORMERLY KNOWN AS BA RESEARCH) VS . DCIT (SPECIAL CIVIL APPEAL NO. 1547 OF 2013 DATED 30-4-2013) WHEREIN AS SESSMENT REOPENED BY THE A.O. ON SIMILAR REASONS TO WITHDRAW THE DEDUCTI ON CLAIMED AND ALLOWED DEDUCTION U/S 80IB(8A) IN THE ORIGINAL ASSESSMENT W AS HELD TO BE NOT IN ACCORDANCE WITH LAW AS THE SAME WAS BASED MERELY ON CHANGE OF OPINION AND THE NOTICE U/S 148 OF THE ACT WAS QUASHED BY THE HO NBLE GUJARAT HIGH COURT. 10. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE LD. CIT(A) IN SUPPORT OF REVENUES CASE ON THIS ISSUE. HE ALSO CO NTENDED THAT THE ASSESSMENTS FOR ALL THE RELEVANT FOUR YEARS WERE RE OPENED BY THE A.O. ON THE BASIS OF REASONS RECORDED BY HIM IN ACCORDANCE WITH LAW AND THE VALIDITY OF REASSESSMENTS MADE BY THE A.O. ON THE BASIS OF THE SAID REASONS WAS RIGHTLY UPHELD BY THE LD. CIT(A). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE VALIDITY OF THE REASSESSMENTS MADE BY THE A.O. IN THE PRESENT CASE U/S 143(3) R.W.S. 147 OF T HE ACT FOR THE ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 & 2006-07 HAS BEEN CHALLENGED BY THE LD. COUNSEL FOR THE ASSESSEE MAINLY ON THE GROUND THAT THE INITIATION OF REASSESSMENT PROCEEDING ITSELF WAS BAD IN LAW BEING BASED ON A MERE CHANGE OF OPINION AS THERE WAS NO NEW MATERIAL OR INFORMAT ION WHICH HAD COME TO THE POSSESSION OF THE A.O. AFTER COMPLETION OF THE ORIG INAL ASSESSMENTS U/S 143(3) OF THE ACT. THE LD. D.R. HAS RELIED ON THE IMPUGNE D ORDER OF THE LD. CIT(A) WHEREIN HE UPHELD THE VALIDITY OF ASSESSMENTS MADE BY THE A.O. U/S 143(3) R.W.S. 147 OF THE ACT MAINLY ON THE GROUND THAT THE RE BEING NO APPLICATION OF MIND BY THE A.O. ON THE ISSUE OF ASSESSEES CLAIM F OR DEDUCTION U/S 80IB(8A) ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 8 OF THE ACT IN THE ORIGINAL ASSESSMENTS, THERE WAS N O EXPRESSION OF OPINION BY THE A.O. ON THIS ISSUE AND THE QUESTION OF CHANGE O F OPINION DOES NOT ARISE. 12. IN ORDER TO APPRECIATE THE STAND OF BOTH SIDES ON THIS PRELIMINARY ISSUE, IT IS WORTHWHILE TO REFER TO THE REASONS RECORDED B Y THE A.O. WHICH ARE IDENTICAL FOR ALL THE FOUR YEARS UNDER CONSIDERATIO N EXCEPT VARIATION IN THE CORRESPONDING AMOUNTS. THE SAME ARE EXTRACTED BELOW :- RETURN OF INCOME DISCLOSING A TOTAL INCOME OF RS. 6 ,35,926/- WAS FURNISHED ON 30-10-2004. IN THE RETURN OF INCOME T HE ASSESSEE CLAIMED DEDUCTION U/S 80IB AMOUNTING TO RS. 90,76,103/- FRO M THE GROSS TOTAL INCOME OF RS. RS.47,77,254/-. THE ASSESSEE PAID TAX ES U/S.115JB OF THE INCOME TAX ACT, 1961 ON BOOK PROFIT OF RS.1,03, 13,157/-. ALONG WITH THE RETURN OF INCOME, AUDITORS REPORT IN FORM NO. 1OCCB WAS ALSO FURNISHED. SCRUTINY ASSESSMENT FOR A.Y.200-06 WAS COMPLETED ON 16/11/2006 AFTER ALLOWING A DEDUCTION U/S. 80IB(8A) OF RS.90,7 6,103!- FROM THE GROSS TOTAL INCOME OF RS.97,1 2,029/-. ON EXAMINATI ON, IT IS FOUND THAT THE ASSESSEE HAD CONDUCTED TRIALS OF PHARMACEUTICAL PRODUCTS MANUFACTURED BY OTHERS AND HAD NO FACILITY FOR LABO RATORY, TESTING AND ANALYSIS. THEREFORE, THE ASSESSEE IS NOT INVOLVED I N ANY RESEARCH AND DEVELOPMENT ACTIVITIES LEADING TO TECHNOLOGY DEVELO PMENT, IMPROVEMENT OF TECHNOLOGY AND TRANSFER OF TECHNOLOGY DEVELOPED BY THEMSELVES. FURTHER, THE ASSESSEE DOES NOT HAVE THE INFRASTRUCT URE, AS ENVISAGED IN INCOME TAX RULE 18DA(1)(C) & (E). THEREFORE, THE AS SESSEE DOES NOT FULFILL THE ELIGIBILITY CRITERION LAID DOWN IN RULE 18DA(1) FOR CLAIMING DEDUCTION U/S.80IB(8A). 13. A PERUSAL OF THE ABOVE REASONS RECORDED BY THE A.O. CLEARLY SHOWS THAT THE ASSESSMENTS ORIGINALLY COMPLETED BY THE A.O. U/ S 143(3) OF THE ACT FOR ALL THE RELEVANT YEARS WERE REOPENED BY HIM NOT ON THE BASIS OF ANY NEW MATERIAL OR INFORMATION WHICH HAD COME TO HIS POSSESSION AFT ER THE COMPLETION OF THE ORIGINAL ASSESSMENTS. THE ASSESSMENTS ORIGINALLY CO MPLETED U/S 143(3) OF THE ACT THUS WERE REOPENED BY HIM ON THE BASIS OF SAME MATERIAL WHICH WAS AVAILABLE EVEN AT THE TIME OF COMPLETION OF ORIGINA L ASSESSMENTS AS WELL AS ON THE BASIS OF SAME SET OF FACTS AND THIS POSITION HA S NOT BEEN DISPUTED EITHER BY THE LD. CIT(A) IN HIS IMPUGNED ORDER OR EVEN BY THE LD. D.R. AT THE TIME HEARING BEFORE US. THE LD. CIT(A), HOWEVER, STILL U PHELD THE VALIDITY OF INITIATION ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 9 OF REASSESSMENT PROCEEDINGS REJECTING THE CONTENTIO N RAISED ON BEHALF OF THE ASSESSEE ABOUT THE SAME BEING BASED ON CHANGE OF OP INION ON THE GROUND THAT THERE WAS NO APPLICATION OF MIND BY THE A.O. O N THE ISSUE OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB(8A) OF THE ACT IN THE ASSESSMENT COMPLETED ORIGINALLY U/S 143(3) OF THE ACT. HE HELD THAT THE CONCEPT OF CHANGE OF OPINION WOULD ARISES ONLY WHEN SOME OPINION WAS FORMED WITH REFERENCE TO THE MATERIAL ON RECORD AND APPLICATION OF MIND WHICH WA S MISSING IN THE PRESENT CASE. WE FIND IT DIFFICULT TO SUBSCRIBE TO THIS VI EW TAKEN BY THE LD. CIT(A) KEEPING IN VIEW THE LEGAL POSITION PROPOUNDED ON TH IS POINT IN THE VARIOUS JUDICIAL PRONOUNCEMENTS. 14. IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA), T HE FULL BENCH OF HONBLE DELHI HIGH COURT HAS HELD THAT SECTION 147 OF THE A CT DOES NOT POSTULATE CONFERMENT OF POWER UPON THE A.O. TO INITIATE REASS ESSMENT PROCEEDINGS UPON A MERE CHANGE OF OPINION. IT HAS ALSO BEEN HELD THA T WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED U/S 143(3), A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED ON APPLICATION OF MIND. IN TH E CASE OF ASIAN PAINTS LTD. VS. DCIT 308 ITR 195, THE HONBLE JURISDICTIONAL HI GH COURT HAD AN OCCASION TO CONSIDER A SIMILAR ISSUE AND IT WAS HELD IN THIS CONTEXT THAT WHEN A REGULAR ORDER OF ASSESSMENT IS PASSED IN TERMS OF SECTION 1 43(3), A PRESUMPTION CAN BE RAISED THAT SUCH ORDER HAS BEEN PASSED ON AN APP LICATION OF MIND. IT WAS ALSO HELD THAT IF NON-APPLICATION OF MIND BY A.O. I N PASSING AN ORDER WOULD ITSELF CONFER JURISDICTION UPON THE A.O. TO RE-OPEN THE PROCEEDINGS WITHOUT ANYTHING FURTHER, IT WOULD AMOUNT TO GIVING A PREMI UM TO AN AUTHORITY EXERCISING QUASI-JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG. IT WAS FURTHER HELD THAT THE LEGISLATURE HAS NOT CONFERRED THE POWER ON THE A.O. TO REVIEW HIS OWN ORDER. THE REASSESSMENT PROCEEDINGS INITIATED IN THE SAID CASE THEREFORE WAS HELD TO BE INVALID BY THE HONBLE JUR ISDICTIONAL HIGH COURT ON THE GROUND THAT THE SAME WAS BASED ON CHANGE OF OPI NION OF THE A.O. AS IT WAS MAINLY ON FRESH APPLICATION OF MIND BY THE A.O. TO THE SAME SET OF FACTS. ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 10 TO THE SIMILAR EFFECT IS THE DECISION OF THE HONBL E GUJARAT HIGH COURT IN THE CASE OF CLIANTHA RESEARCH LIMITED (FORMERLY KNOWN A S BA RESEARCH) VS. DCIT (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE W HEREIN THE NOTICE ISSUED BY THE A.O. U/S 148 REOPENING THE ASSESSMENT ORIGINALL Y COMPLETED U/S 143(3) TO WITHDRAW THE DEDUCTION ALLOWED U/S 80IB(8A) OF THE ACT ON EXAMINATION OF THE SAME ASSESSMENT RECORD WITHOUT THERE BEING ANY NEW MATERIAL OR INFORMATION COMING TO HIS POSSESSION WAS QUASHED BY THE HONBLE GUJARAT HIGH COURT HOLDING THAT THE REOPENING WAS BASED MERELY ON CHAN GE OF OPINION WHICH IS NOT PERMISSIBLE IN LAW. 15. AS ALREADY NOTED, THE INITIATION OF REASSESSMEN T PROCEEDINGS IN THE PRESENT CASE WAS NOT BASED ON ANY NEW MATERIAL OR I NFORMATION WHICH HAD COME TO THE POSSESSION OF THE A.O. AFTER THE COMPLE TION OF ORIGINAL ASSESSMENT U/S. 143(3). THE SAME THUS WAS BASED MERELY ON A FR ESH APPLICATION OF MIND BY A.O. TO THE SAME SET OF FACTS AND TO THE SAME MA TERIAL ON RECORD AS WAS AVAILABLE AT THE TIME OF COMPLETION OF THE ASSESSME NT ORIGINALLY U/S. 143(3). THIS BEING THE UNDISPUTED POSITION, WE ARE OF THE V IEW THAT THE INITIATION OF REASSESSMENT PROCEEDINGS WAS BASED ON A MERE CHANGE OF OPINION OF THE A.O. WHICH IS NOT PERMISSIBLE IN LAW AS HELD BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASIAN PAINTS LTD.(SUPRA), HON BLE GUJARAT HIGH COURT IN THE CASE OF CLIANTHA RESEARCH LIMITED (FORMERLY KN OWN AS BA RESEARCH) VS. DCIT (SUPRA) AND THE FULL BENCH OF HONBLE DELHI H IGH COURT IN THE CASE OF KELVINATOR INDIA LTD. (SUPRA). RESPECTFULLY FOLLOWI NG THE SAID DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT, HONBLE GUJARAT HIGH COURT AND HONBLE DELHI HIGH COURT, WE HOLD THAT THE INITIATION OF RE ASSESSMENT PROCEEDINGS FOR THE RELEVANT FOUR YEARS I.E ASSESSMENT YEARS 2003-0 4, 2004-05, 2005-06 AND 2006-07 ITSELF IN THE PRESENT CASE WAS BAD IN LAW A ND THE REASSESSMENTS COMPLETED BY THE A.O. U/S. 143(3)/147 IN PURSUANCE OF SUCH INITIATION ARE LIABLE TO BE CANCELLED BEING INVALID. WE ORDER ACCO RDINGLY AND ALLOW GROUND ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 11 NO. 1 OF ASSESSEES APPEAL FOR ASSESSMENT YEARS 200 3-04, 2004-05, 2005-06 AND 2006-07. 16. KEEPING IN VIEW OF OUR DECISION RENDERED ABOVE ON THE PRELIMINARY ISSUE CANCELING THE REASSESSMENTS MADE BY THE A.O. U/S 14 3(3) R.W.S. 147 OF THE ACT FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07, THE OTHER GROUNDS RAISED BY THE ASSESSEE IN ITS APPEALS FOR T HE SAID YEARS CHALLENGING THE ADDITION MADE TO ITS TOTAL INCOME BY WAY OF DIS ALLOWANCE OF DEDUCTION U/S 80IB(8A) OF THE ACT HAVE BECOME INFRUCTUOUS. WE DO NOT CONSIDER IT NECESSARY OR EXPEDIENT TO ADJUDICATE UPON THE SAME. A SIMILAR ISSUE, HOWEVER, HAS BEEN RAISED IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEARS 2007-08 AND 2008- 09 WHICH IS BEING DECIDED ON MERIT. 17. IN GROUND NO. 1 AND 2 OF ITS APPEAL FOR A.Y. 20 07-08, A COMMON ISSUE RAISED BY THE ASSESSEE RELATES TO THE DISALLOWANCE OF ITS CLAIM FOR DEDUCTION U/S 80IB OF THE ACT AMOUNTING TO RS. 6,11,26,795/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A). 18. AS ALREADY NOTED, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB(8A) OF THE ACT WAS DISALLOWED BY THE A.O. AS, ACCORDING TO HIM, THE ACTIVITY OF THE ASSESSEE OF CLINICAL TRIALS OF THE PHARMACEUTICALS COULD NOT BE TERMED AS RESEARCH AND DEVELOPMENT. HE ALSO HELD THAT THE AC TIVITY OF THE ASSESSEE WAS NOT LEADING TO TECHNOLOGY DEVELOPMENT OR IMPROVEMEN T OF TECHNOLOGY AND IN THE ABSENCE OF ADEQUATE INFRASTRUCTURE AS WELL AS T RANSFER OF TECHNOLOGY, THE CONDITIONS STIPULATED IN RULE 18DA(1)(E) WERE NOT SATISFIED. BEFORE THE LD. CIT(A), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT WHILE DISALLOWING ITS CLAIM FOR DEDUCTION U/S 80IB(8A), THE A.O. COMPLETE LY OVERLOOKED THE IMPORTANT FACT THAT THE ASSESSEES ACTIVITY OF CLIN ICAL TRIALS WAS DULY APPROVED BY THE PRESCRIBED AUTHORITY UNDER RULE 18-D NAMELY THE SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, M INISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA. IT WAS CONTENDED THAT THE SAID APPROVAL ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 12 WAS GRANTED ONLY AFTER THE COMPLETE SATISFACTION AS TO THE NATURE OF ACTIVITY, INFRASTRUCTURE OF THE COMPANY AND ITS PAST RECORD. IT WAS CONTENDED THAT WHEN SUCH APPROVAL UNDER RULE 18-DA WAS ALREADY GRA NTED TO THE ASSESSEE, THE A.O. HAD NO RIGHT TO JUDGE AFRESH WHETHER THE A CTIVITY OF THE ASSESSEE COMPANY WAS IN THE NATURE OF RESEARCH AND DEVELOPME NT. IT WAS ALSO CONTENDED THAT THE ACTION OF THE A.O. IN DENYING TH E CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IA(8A) OF THE ACT DISREGARDING THE APPROVAL GIVEN BY THE PRESCRIBED AUTHORITY WAS NOT GOOD IN LAW ESPECIALLY WHEN THE SAID APPROVAL WAS GRANTED AFTER EXAMINING ALL THE RELEVANT ASPECT S. 19. THE LD. CIT(A) DID NOT FIND MERIT IN THE SUBMIS SIONS MADE ON BEHALF OF THE ASSESSEE ON THIS ISSUE AND UPHELD THE ACTION OF THE A.O. IN DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION 80IB(8A) OF THE ACT FOR THE FOLLOWING REASONS GIVEN IN PARA NO. 3.3 TO 3.8 OF HIS IMPUGNED ORDER: - 3.3. I HAVE CONSIDERED THE FACTS OF THE CASE. SECT ION 80-IB(8A) READS AS UNDER:- THE AMOUNT OF DEDUCTION IN THE CASE OF ANY COMPANY CARRYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT SHALL BE 100 % OF THE PROFITS AND GAINS OF SUCH BUSINESS FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNING FROM THE INITIAL ASSESSM ENT YEAR, IF SUCH COMPANY - I) IS REGISTERED IN INDIA, II) HAS ITS MAIN OBJECTS THE SCIENTIFIC AND INDUSTR IAL RESEARCH AND DEVELOPMENT. III) IS FOR THE TIME BEING APPROVED BY THE PRESCRIB ED AUTHORITY AT ANY TIME AFTER THE 31 DAY OF MARCH, 2000 BUT BEFORE THE IST DAY OF APRIL, 2007. IV) FULFILLS SUCH OTHER CONDITION AS MAY BE PRESCRI BED. THE PRESCRIBED AUTHORITY FOR THE CONDITION, (III) A BOVE IS SECRETARY, DEPARTMENT OF AND INDUSTRIAL RESEARCH, M INISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA AND THE CONDITIONS AS PER (IV) ABOVE ARE PROVIDED IN RULE 18DA OF THE INCOME-TAX RULES. ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 13 3.4. RULE I8DA(1) PROVIDES THE FOLLOWING CONDITIONS : ANY COMPANY CARRYING ON SCIENTIFIC RESEARCH AND DEV ELOPMENT SHALL BE ELIGIBLE FOR DEDUCTION SPECIFIED IN SUB-SE CTION (8A) OF SECTION 80-IB, IF SUCH COMPANY (A) IS REGISTERED IN INDIA; (B) HAS ITS MAIN OBJECT THE SCIENTIFIC AND INDUSTRI AL RESEARCH AND DEVELOPMENT; (C) HAS ADEQUATE INFRASTRUCTURE SUCH AS LABORATORY FACILITIES, QUALIFIED MANPOWER, SCALE-UP FACILITIES AND PROTOTY PE DEVELOPMENT FACILITIES FOR UNDERTAKING SCIENTIFIC R ESEARCH AND DEVELOPMENT OF ITS OWN; (D) HAS A WELL FORMULATED RESEARCH END DEVELOPMENT PROGRAMME COMPRISING OF TIME BOUND RESEARCH AND DEVELOPMENT P ROJECTS WITH PROPER MECHANISM FOR SELECTION AND REVIEW OF T HE PROJECTS OR PROGRAMME. (E) IS ENGAGED EXCLUSIVELY IN SCIENTIFIC RESEARCH A ND DEVELOPMENT ACTIVITIES LEADING TO TECHNOLOGY DEVELOPMENT, IMPRO VEMENT OF TECHNOLOGY AND TRANSFER OF TECHNOLOGY DEVELOPED BY THEMSELVES; (F) SUBMITS THE ANNUAL RETURN ALONGWITH STATEMENT O F ACCOUNTS AND ANNUAL REPORT WITHIN EIGHT MONTHS AFTER THE CLO SE OF EACH ACCOUNTING YEAR TO THE PRESCRIBED AUTHORITY. 3.5. THE ASSESSEE IS REQUIRED TO FULFILL ALL THE AB OVE-MENTIONED FOUR CONDITIONS OF SECTION 8O-IB(8A) AND ALSO RULE 18DA TO BE ELIGIBLE FOR DEDUCTION. THE APPROVAL BY THE PRESCRIBED AUTHORITY I.E. SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, M INISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA IS JUST ONE OF THE CONDITIONS. THE PRESCRIBED AUTHORITY MAY HAVE ITS OWN RULES, CRITER IAS AND CONDITIONS FOR APPROVAL. IT IS FOR THE ASSESSING OFFICER TO EX AMINE THE FULFILLMENT OF ALL THESE CONDITIONS. THEREFORE, I DO NOT ACCEPT TH E APPELLANTS ARGUMENT THAT SINCE THE COMPANY IS APPROVED BY PRESCRIBED AU THORITY I.E., SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF INDIA, THERE WAS NO REASON OR BASIS FOR THE A.O. TO EXAMINE THE ISSUE. 3.6 NOW THE QUESTION IS WHETHER THE ASSESSES FULFIL LS ALL THE CONDITIONS. FROM THE FACTS, THERE IS NO DOUBT THAT THE ASSESSEE FULFILLS CONDITION (I) AND (III). THE A.O. HAS ALSO NOT DENI ED IT. THE ISSUE IS WHETHER THE OBSERVATION OF THE A.O. THAT THE ASSESS EE COMPANY DOES NOT FULFILL CONDITION (II) AND (IV) IS CORRECT OR N OT. ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 14 3.7. FOLLOWING IMPORTANT RELEVANT ASPECTS, IN APPEL LANTS OWN WORDS, EMERGES FROM THE PAPER BOOK SUBMITTED DURING THE AP PELLATE PROCEEDINGS: 1) THE PRIMARY OBJECTIVE OF THE COMPANY IS TO UNDER TAKE SCIENTIFIC AND MEDICAL STUDIES ON BEHALF OF VARIOUS COMPANIES BELONGING TO PHARMACEUTICAL INDUSTRY. 2) IT AIMS TO BE PREMIER RESEARCH ORGANIZATION IN D ELIVERY OF SUPERIOR SERVICES IN THE CONDUCT AND MANAGEMENT OF CLINICAL TRIALS. IT STRIVES TO PRODUCE HIGH QUALITY ACCEPTABLE TO REGULATORY AUTHO RITY WORLD-WIDE. IT WANTS TO EVALUATE NEWER MEDICINES AND TECHNIQUES TO STRIVE TO UPLIFT THE QUALITY OF LIFE. 3) ITS TEAM CARRIES OUT CLINICAL TRIALS FOR PHASE II TO PHASE IV IN ACCORDANCE WITH THE REQUIREMENTS OF REGULATORY AUTH ORITIES AND THE INTERNATIONAL CONFERENCE ON HARMONIZATION OF TECHNI CAL REQUIREMENTS FOR REGISTRATION OF PHARMACEUTICALS FOR HUMAN USE ( IHICH) GUIDELINES FOR GOOD CLINICAL PRACTICE. 4) IT HAS SET UP CENTRAL LABORATORIES SIRO PROLOGO WHERE DATA COLLECTED FROM VARIOUS DATA COLLECTION CENTRES ARE TESTED FOR UNIFORMITY IN CLINICAL TRIAL RESULTS. 5) ALL ITS ACTIVITIES RESULTS IN PROVIDING CLINICA L STUDY REPORT TO THE SPONSOR. THERE IS NO ACTIVITY OTHER THAN THE WORK G IVEN BY THE SPONSOR. 6) BEFORE STARTING ANY PROJECT FOR CLINICAL STUDY R EPORT, A STUDY BUDGET IS PREPARED. THERE IS SPECIFIC METHODOLOGY FOR COST ING OF EACH PROJECT AND THE COST OF EACH PROJECT UNDERTAKEN IS DETERMIN ED BY THE VARIOUS FACTORS SUCH AS NUMBER OF PATIENTS, TIME FRAME FOR RECRUITMENT OF PATIENTS, NUMBER OF INVESTIGATION SITES AND COST OF INVESTIGATORS! INSTITUTIONS, TIME FRAME OF TREATMENT UNDER PROTOCO L AND COMPLEXITIES METHOD AND TYPE AND COST OF PATHOLOGICAL AND OTHER INVESTIGATIONS REQUIRED FOR EACH PATIENT. 7) THE APPELLANT HAS FILED DETAILS OF PROJECTS! PR OGRAMMES COMPLETED DURING LAST THREE YEARS, ONGOING AND PLANNING FOR T HE FUTURE TO GIVE AN IDEA ABOUT ITS ACTIVITIES. IT HAS A COLUMN FOR A B RIEF WRITE UP ON THE PROJECT GIVING OBJECTIVES, METHODOLOGY, PROGRESS SO FAR, RESULTS EXPECTED AND BALANCE FOR TECHNOLOGY, TRANSFER ETC. SOME SAMP LES OF REMARKS GIVEN IN THIS COLUMN ARE THE OBJECTIVE IS TO PROVIDE QUALITY ASSURANCE FOR THE STUDY, DATA HAS BEEN COLLECTED BY THE SPONSOR, THE OBJECT IVE IS TO VALIDATE DATA, UNDERTAKE QUERY MANAGEMENT AND STATISTICAL AN ALYSIS OF THE SAME, ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 15 THE OBJECTIVE IS TO PROVIDE CLINICAL TRIAL SUPPLIE S TO THE SITES WHERE THE SPONSOR IS CONDUCTING TH3E CLINICAL TRIALS, THE OBJECTIVE IS TO PROVIDE PROJECT MANAGEMENT FOR THE STUDY, SPONSOR IS CARRYING OUT A STUDY WITH NPO2 IN INFAN TS WITH PRE-NATAL EXPOSURE TO HEPATITIS B SURFACE ANTIGEN POSITIVE MO THERS, THE OBJECTIVE IS TO PROVIDE QUALITY ASSURANCE REVI EW AND REPORT ON SPONSORS STUDY, SPONSOR HAS COLLECTED THE DATA. THE OBJECTIVE IS T O MANAGE THE DATA, STATISTICAL ANALYSIS OF THE DATA AND WRITING A REPO RT USING RESULT OF THE ANALYSIS, THE OBJECTIVE IS TO PROVIDE AUDIT SUPPORT FOR THE STUDY ETC. 3.8. FROM THE ABOVE, IT IS EVIDENT THAT OBJECTIVE O F THE COMPANY IS TO UNDERTAKE, IN APPELLANTS OWN WORDS SCIENTIFIC & M EDICAL STUDIES ON BEHALF OF PHARMACEUTICAL COMPANIES. THERE IS NOTHIN G LIKE SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPMENT. THE ACTIVI TY OF SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPMENT INVOLVES VARIOU S STAGES SUCH AS IDEA CONCEPT, ARRANGEMENT OF MANPOWER AND INFRASTRU CTURE, RESEARCH RESULTANT PRODUCT, TESTING OF THE PRODUCT, APPROVAL OF SUCH PRODUCT BY REGULATORY AUTHORITY AND THEN TRANSFER OF THE PRODU CT TO EARN INCOME. OUT OF THESE, THE APPELLANT IS INVOLVED ONLY IN THE STAGE OF TESTING OF THE PRODUCT AND THAT TOO ON BEHALF OF OTHERS. ITS ONLY JOB IS TO CONDUCT CLINICAL TRIALS ON BEHALF OF VARIOUS PHARMACEUTICAL COMPANIES, COLLECT DATAS AS PER THEIR INSTRUCTIONS/ REQUIREMENTS AND E ARN INCOME IN THIS PROCESS. IT IS A CASE OF EARNING THROUGH JOB WORK O F TRIAL/TEST OUTSOURCED FROM A PHARMA COMPANY WITH THE FINAL PRO DUCT, IN APPELLANTS OWN WORDS, HIGH QUALITY DATA. I AGREE WITH THE A.O. THAT THE CONDITIONS PROVIDED U/S.80-IB(8A)-II AND IV ARE NOT FULFILLED AND THEREFORE THE CLAIM OF THE ASSESSEE FOR DEDUCTION U LS.80-IB(8A) IS NOT ACCEPTABLE. THE ORDER OF THE A.O. ON THIS ISSUE IS CONFIRMED. 20. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEDUCTION U/S 80IB(8A) OF THE ACT IS ALLOWABLE TO THE COMPANY CAR RYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT IF SUCH COMPANY IS REGISTERED IN IN DIA HAVING ITS MAIN OBJECT THE SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPM ENT PROVIDED IT IS FOR THE TIME BEING APPROVED BY THE PRESCRIBED AUTHORITY AND FULFILLS SUCH OTHER CONDITIONS AS MAY BE PRESCRIBED. HE SUBMITTED THAT THE PRESCRIBED AUTHORITY FOR THIS PURPOSE IS SECRETARY, DEPARTMENT OF SCIENT IFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY, GOVER NMENT OF INDIA AND THE CONDITIONS ARE PRESCRIBED IN RULE 18DA OF THE INCOM E TAX RULES, 1962. HE ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 16 SUBMITTED THAT THE PRESCRIBED AUTHORITY GIVES ITS A PPROVAL ONLY AFTER HAVING SATISFIED THAT THE COMPANY IS HAVING THE SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPMENT AS ITS MAIN OBJECTIVE AND FULFILL THE O THER CONDITIONS AS PRESCRIBED IN RULE 18DA. HE THEN INVITED OUR ATTEN TION TO THE VOLUMINOUS PAPER BOOK FILED BY HIM CONTAINING DETAILS AND DOCU MENTS SUBMITTED TO THE PRESCRIBED AUTHORITY WHILE SEEKING THE APPROVAL TO POINT OUT THAT ALL THE RELEVANT INFORMATION SUCH AS LIST OF SCIENTISTS AND PROFESSIONALS EMPLOYED BY THE ASSESSEE COMPANY, DETAILS OF INFRASTRUCTURE, IN FORMATION ABOUT THE LABORATORY, LIST OF PRESENTATIONS FILED, LIST OF CL IENTS AND RESEARCH CONTRACT ETC. WERE CALLED FOR AND EXAMINED BY THE PRESCRIBED AUTH ORITY. HE ALSO POINTED OUT FROM PAGE 250 OF THE PAPER BOOK THAT THE REPRES ENTATIVES OF PRESCRIBED AUTHORITY HAD VISITED TO VERIFY THE FACILITY AVAILA BLE WITH THE ASSESSEE COMPANY AND FURTHER DETAILS REQUIRED AFTER SUCH VISIT WERE ALSO FURNISHED BY THE ASSESSEE INCLUDING THE INCOME AND EXPENDITURE ACCOU NT FOR THE RELEVANT YEAR. HE SUBMITTED THAT THE APPROVAL THUS WAS GRANTED BY THE PROPER AUTHORITY TO THE ASSESSEE COMPANY ONLY AFTER HAVING SATISFIED TH AT ALL THE RELEVANT CONDITIONS PRESCRIBED IN RULE 18DA WERE DULY SATISF IED AND SUCH APPROVAL WAS ALSO FURTHER RENEWED FOR A PERIOD OF THREE MORE YEARS. HE CONTENDED THAT THE PRESCRIBED AUTHORITY HAVING GIVEN THE APPROVAL TO THE ASSESSEE COMPANY FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB(8A) OF THE ACT AFTER HAVING EXAMINED AND SATISFIED THAT THE CONDITIONS PRESCRIB ED IN RULE 18DA WERE FULFILLED, THE A.O. WAS NOT EMPOWERED TO SIT IN APP EAL AGAINST SUCH APPROVAL AND DISALLOW THE ASSESSEES CLAIM FOR DEDUCTION U/S 18IB(8A) OF THE ACT DISREGARDING SUCH APPROVAL. IN SUPPORT OF THIS CONT ENTION, HE RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S RUBICON RESEARCH PVT. LTD. VS. ITO (ITA NO. 6122/MUM/2009 ORDER DATED 24-2-2010) AS WE LL AS THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIAN PLA NETARY SOCIETY V. CENTRAL BOARD OF DIRECT TAXES (2009) 318 ITR 102 (BOM.). ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 17 21. THE LD. D.R., ON THE OTHER HAND, STRONGLY SUPPO RTED THE IMPUGNED ORDER OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB(8A) OF THE ACT. HE CONTENDED THAT THE APPROVAL OF THE PRESCRIBED AUTHORITY IS ONE OF THE CONDITIONS TO BE SATISFIED FOR CLAIMING DEDUCTION U/S 80IB(8A) OF THE ACT AND THER E ARE OTHER CONDITIONS ALSO WHICH ARE REQUIRED TO BE SATISFIED COMMUTATIVE LY IN ORDER TO CLAIM THE SAID DEDUCTION. HE SUBMITTED THAT THE OTHER CONDITI ONS TO BE SATISFIED ARE PRESCRIBED IN RULE 18DA OF THE INCOME TAX RULES, 19 62 AND THERE IS NO REFERENCE TO THE PRESCRIBED AUTHORITY IN THE SAID R ULE SO AS TO SAY THAT THE CONDITIONS STIPULATED IN RULE 18DA ARE TO BE EXAMIN ED ONLY BY THE PRESCRIBED AUTHORITY AND NOT BY THE A.O. HE CONTENDED THAT TH E A.O. HAS INHERENT POWER TO EXAMINE WHETHER THESE CONDITIONS ARE SATISFIED B Y THE ASSESSEE OR NOT WHILE GRANTING EXEMPTION U/S 80IB(8A) OF THE ACT AS RIGHT LY HELD BY THE LD. CIT(A). HE CONTENDED THAT SINCE THE CONDITIONS STIPULATED I N RULE 18DA WERE NOT SATISFACTORILY SATISFIED BY THE ASSESSEE AS FOUND B Y THE A.O. AS WELL AS LD. CIT(A), THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80IB(8A) OF THE ACT HAS RIGHTLY BEEN DISALLOWED. AS REGARDS THE DECISION O F THE TRIBUNAL IN THE CASE OF RUBICON RESEARCH PVT. LTD. (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, THE LD. D.R. CONTENDED THAT INTERPRETATION GIVEN BY THE TRIBUNAL THEREIN IS NOT IN CONSONANCE WITH THE RELEVANT PROVISIONS OF SECTI ON 80IB(8A) R.W. RULE 18DA. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS PER SUB SECTION ( 8A) OF SECTION 80IB OF THE ACT, ANY COMPANY CARRYING ON SCIENTIFIC RESEARCH AN D DEVELOPMENT IS ENTITLED FOR DEDUCTION IN RESPECT OF 100% OF THE PROFITS AND GAINS OF SUCH BUSINESS FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINN ING FROM THE INITIAL ASSESSMENT YEAR IF SUCH COMPANY IS REGISTERED IN IN DIA HAVING ITS MAIN OBJECT THE SCIENTIFIC AND INDUSTRIAL RESEARCH AND DEVELOPM ENT PROVIDED IT IS APPROVED BY THE PRESCRIBED AUTHORITY AND IT SATISFI ES SUCH OTHER CONDITIONS AS ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 18 MAY BE PRESCRIBED. THE PRESCRIBED AUTHORITY IS SEC RETARY, DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH, MINISTRY OF SCI ENCE AND TECHNOLOGY, GOVERNMENT OF INDIA AND THE OTHER CONDITIONS TO BE FULFILLED ARE PRESCRIBED IN RULE 18DA OF THE INCOME TAX RULES, 1962. WE HAVE AL READY EXTRACTED THE SAID RULE IN THE FOREGOING PORTION OF THIS ORDER WHILE N ARRATING THE RELEVANT FACTS OF THE CASE. THE MAIN ISSUE THAT ARISES FOR OUR CONSID ERATION IN THE PRESENT CONTEXT IS WHETHER THE PRESCRIBED AUTHORITY HAVING GRANTED THE APPROVAL TO THE ASSESSEE COMPANY AS REQUIRED FOR THE PURPOSE OF SECTION 80IB(8A) OF THE ACT, THE A.O. IS EMPOWERED TO SIT IN APPEAL ON SUCH APPROVAL AND RE-EXAMINE WHETHER THE CONDITIONS STIPULATED FOR CLAIMING DEDU CTION U/S 80IB(8A) OF THE ACT ARE SATISFIED BY THE ASSESSEE OR NOT. IT IS PE RTINENT TO NOTE IN THIS CONTEXT THAT THE VOLUMINOUS PAPER BOOK FILED BY THE ASSESSE E GIVING DETAILS AND DOCUMENTS FURNISHED BEFORE THE PRESCRIBED AUTHORITY IS SUFFICIENT TO SHOW THAT THE APPROVAL WAS NOT ONLY GRANTED BY THE PRESCRIBED AUTHORITY BUT WAS ALSO RENEWED/EXTENDED TWICE AFTER HAVING SATISFIED ABOUT THE MAIN OBJECTIVE OF THE ASSESSEE COMPANY, THE RESEARCH AND DEVELOPMENT ACTI VITIES CARRIED ON BY IT AND INFRASTRUCTURE FACILITIES AVAILABLE WITH IT SUC H AS LABORATORY, QUALIFIED MANPOWER ETC. WHICH CLEARLY SHOWS THAT THE CONDITIO NS STIPULATED IN RULE 18DA WERE FOUND TO BE SATISFACTORILY FULFILLED BY T HE ASSESSEE AND ON SUCH SATISFACTION, THE APPROVAL AS REQUIRED U/S 80IB(8A) OF THE ACT WAS GIVEN BY THE PRESCRIBED AUTHORITY AND EXTENDED FURTHER TWICE. 23. IN THE CASE OF RUBICON RESEARCH LIMITED (SUPRA) , A SIMILAR ISSUE AROSE FOR CONSIDERATION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL AND IT WAS HELD BY THE TRIBUNAL THAT WHEN THE APPROVAL WAS INITIALLY G RANTED AND FURTHER RENEWED ONLY WHEN THE ASSESSEE HAD SATISFIED THE PR ESCRIBED AUTHORITY THAT IT WAS CARRYING ON THE ACTIVITY OF SCIENTIFIC AND INDU STRIAL RESEARCH AND DEVELOPMENT AND WAS HAVING NECESSARY INFRASTRUCTURE TO DO SO, THE A.O. OR THE LD. CIT(A) COULD NOT SIT ON APPEAL ON SUCH APPR OVAL AND RE-EXAMINE WHETHER THE CONDITIONS STIPULATED FOR CLAIMING DEDU CTION U/S 80IB(8A) OF THE ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 19 ACT WERE SATISFIED BY THE ASSESSEE. FOR THIS CONCL USION, RELIANCE WAS PLACED BY THE TRIBUNAL IN THE CASE OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIAN PLANETARY SOCIETY (SUPRA) WHEREIN IT WAS HEL D THAT WHEN THE LEGISLATURE HAD THOUGHT IT FIT TO ENTRUST THE RESPO NSIBILITY WITH THE GOVERNMENT OF INDIA WHO WITH THE HELP OF THE BODY O F PERSONS, WHO WOULD BE CONVERSANT WITH THE SUBJECT, WOULD APPLY ITS MIND B EFORE ISSUING SUCH CERTIFICATE, THE A.O. OR THE CIT(A) FOR THAT MATTER CANNOT SIT IN APPEAL AGAINST THE ORDER OF SUCH AUTHORITY. KEEPING IN VIEW OF TH E DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RUBICON RESEA RCH LIMITED (SUPRA) AND THAT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE O F INDIAN PLANETARY SOCIETY (SUPRA) AND HAVING REGARD TO THE FACTS OF T HE CASE, WE SET ASIDE THE ORDERS OF THE LD. CIT(A) CONFIRMING THE DISALLOWANC E MADE BY THE A.O. ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB( 8A) AND DIRECT THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE FOR SUCH DEDUCTION. GROUND NO. 1 & 2 OF ASSESSEES APPEAL FOR A.Y. 2007-08 ARE ACCORDINGLY ALLOWED. 24. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 OF THE ASSESSEES APPEAL FOR A.Y. 2007-08 RELATING TO THE DISALLOWANCE OF SOFTWA RE EXPENSES MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TREATING THE S AME AS CAPITAL EXPENDITURE, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE SAID SOFTWARE EXPENSES HAVING BEEN INCURRED BY THE ASSESSEE ON AC COUNT OF ANNUAL LICENSE FEE ARE ALLOWABLE AS REVENUE EXPENDITURE AS HELD BY THE DELHI SPECIAL BENCH OF ITAT IN THE CASE OF CIT VS. AMWAY INDIA ENTERPRI SES WHICH HAS BEEN UPHELD BY THE HONBLE DELHI HIGH COURT REPORTED IN (2012) 65 DTR (DEL) 313. HE HAS SUBMITTED THAT THE A.O. MAY BE DIRECTED TO VERIFY T HIS ASPECT AND ALLOW APPROPRIATE RELIEF TO THE ASSESSEE. SINCE THE LD. D.R. HAS ALSO NO OBJECTION IN THIS REGARD, WE RESTORE THIS ISSUE TO THE FILE OF T HE A.O. FOR DECIDING THE SAME AFRESH IN THE LIGHT OF THE DECISION OF DELHI SPECIA L BENCH OF ITAT IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) AFTER VERIFYING THE STAND OF THE ASSESSEE THAT THE EXPENSES INCURRED ON SOFTWARE ARE TOWARDS ANNUA L LICENSE FEES. GROUND ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 20 NO. 3 OF ASSESSEES APPEAL FOR A.Y. 2007-08 IS ACCO RDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 25. NOW, WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR A.Y. 2008-09. GROUND NO. 1 & 2 OF WHICH RELATING TO DISALLOWANCE MADE BY THE A.O. U/S 14- A OF THE ACT AND CONFIRMED BY THE LD. CIT(A) HAVE N OT BEEN PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEF ORE US IN VIEW OF THE SMALLNESS OF THE AMOUNT INVOLVED. THE SAME ARE ACCO RDINGLY DISMISSED AS NOT PRESSED. 26. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 3 & 4 OF ASSESSEES APPEAL FOR A.Y. 2008-09, IT IS OBSERVED THAT THE ISSUE INV OLVED THEREIN RELATING TO THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 80IB(8A) OF THE ACT IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 1 & 2 OF ASSESSEES APPEAL F OR A.Y. 2007-08 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2007-08, WE DIRECT THE A.O . TO ALLOW THE CLAIM OF THE ASSESSEE U/S 80IB(8A) OF THE ACT. 27. AS REGARDS GROUND NO. 5, IT IS OBSERVED THAT TH E ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE OF SOFTWARE EXPENSES MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) TREATING THE SAME AS CAPITAL EXPE NDITURE IS SIMILAR TO THE ONE INVOLVED IN GROUND NO. 3 OF ASSESSEES APPEAL FOR A .Y. 2007-08 WHICH HAS BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR CONCLUSION DRAWN IN A.Y. 2007-08, WE RESTORE THIS I SSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECT ION AS GIVEN IN A.Y. 2007- 08. GROUND NO. 5 OF ASSESSEES APPEAL IS ACCORDINGL Y TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 28. IN THE RESULT, ASSESSEES APPEAL FOR ASSESSMENT YEARS 2003-04, 2004-05, 2005-06 AND 2006-07 ARE ALLOWED, APPEAL OF THE ASSE SSEE FOR ASSESSMENT YEAR ITA 1506 TO 1510 /M/11 & ITA 2831/M/11 21 2007-08 IS TREATED AS ALLOWED AND APPEAL OF THE ASS ESSEE FOR A.Y. 2008-09 IS PARTLY ALLOWED AS INDICATED THEREIN. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH SEPTEMBER, 2013. . '6 2 45- 7'(8 27-09-2013 5 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 7'( DATED 27-09-2013 $.)(.!./ RK , SR. PS '6 2 0)9: ;:- '6 2 0)9: ;:- '6 2 0)9: ;:- '6 2 0)9: ;:-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. < () / THE CIT(A)- 1, MUMBAI 4. < / CIT 1, MUMBAI 5. :$? 0))( , , / DR, ITAT, MUMBAI E BENCH 6. %, @ / GUARD FILE. '6(! '6(! '6(! '6(! / BY ORDER, !1: 0) //TRUE COPY// A A A A/ // /!B !B !B !B ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI