Asst.Commissiioner of Income Tax ,Circle-17(1), Hyderabad V. Dr.Reddy's Laboratories Limited, Hyderabad

ITA 1771/Hyd/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6060 (ITAT-HYDERABAD)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 23-05-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 27-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J SIRI KUMAR
• Assessee Lawyers: SP CHIDAMBARAM
• Section: 143(3); 80IB; 80IC; 80IC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A BENCH: HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA. NOS.1769, 1770 AND 1771/HYD/2017 ASSESSMENT YEARS:2008 - 09, 2009 - 2010 & 2010 - 11 ACIT, CIRCLE - 7(1), HYDERABAD. VS. DR. REDDYS LABORATORIES LIMITED, HYDERABAD. PAN: AAACD7999Q (APPELLANT) (RESPONDENT) FOR ASSESSEE: SHRI S.P. CHIDAMBARAM FOR REVENUE : SHRI J. SIRI KUMAR, CIT - DR DATE OF HEARING : 23.05.2018 DATE OF PRONOUNCEMENT : 06 .0 6 .2018 ORDER PER BENCH : THESE APPEALS BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER PASSED BY CIT (A) - 5, HYDERABAD AND THEY PERTAIN TO ASSESSMENT YEARS 2008 - 09 TO 2010 - 11. 2. THE GROUNDS INVOLVED IN ALL THE APPEALS BEING COMMON, THE GROUNDS RAISED IN THE APPEAL FOR THE A.Y. 2008 - 09 ARE EXTRACTED FOR IMMEDIATE REFERENCE: 1. LD. CIT(A) HAS ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. LD. CIT(A) ERRED IN HOLDING THAT THE R & D EXPENDITURE RELATING TO BIOLOGICS IS UNIT SPECIFIC AND IS NOT RELATED TO THE EXEMPTED UNITS AND CAN BE EXCLUDED FOR APPORTIONMENT OF EXPENSES. 3. LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE R & D EXPENSES ATTRIBUTABLE TO BIOLOGICS FR OM APPORTIONMENT TO EXEMPTED UNITS. 3. BRIEF FACTS OF THE CASE , GIVING RAISE TO THE ISSUE IN DISPUTE , ARE AS UNDER. THE ASSESSEE - COMPANY IS A MANUFACTURER IN BULK DRUGS AND 2 PHARMACEUTICAL PRODUCTS. DURING THE COURSE OF PROCEEDINGS U/S 143(3) R.W.S 147 OF THE ACT, THE A.O. WAS OF THE VIEW THAT THE R & D EXPENDITURE INCURRED BY THE ASSESSEE SHOULD BE ALLOCATED, ON A PRO - RATA BASIS, TO ALL THE UNITS INCLUDING THE SPECIAL UNIT WHEREIN THE ASSESSEE CLAIMED DEDUCTION U/S 80IB AND 80IC OF THE ACT SINCE THE BEN EFITS OF R & D ENDURE TO THE BUSINESS AS A WHOLE, EITHER IN THE PRESENT OR AT A LATER DATE AND HENCE ATTRIBUTABLE TO ALL THE UNITS. 4. IN RESPECT OF EXPENDITURE PERTAINING TO BIOLOGICS, THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT A BIOLOGIC OR BIOTE CH MEDICINE IS DEFINED AS A LARGE COMPLEX PROTEIN MOLECULE DERIVED FROM LIVING CELLS AND HENCE THE MANUFACTURING PROCESS INVOLVED IS A VERY LONG PROCESS AND TIME - CONSUMING SINCE IT INVOLVES STEPS SUCH AS FERMENTATION, CLARIFICATION, SEPARATION AND PURIFICA TION. IT WAS ALSO CONTENDED THAT IT UNDERTAKES BROAD RANGE OF STRINGENT REGULATIONS BEFORE APPROVAL AND COMMERCIALIZATION. THEREFORE, IT WAS CONTENDED THAT IT IS NOT RELATED TO THE EXEMPTED UNITS AND CAN BE EXCLUDED FOR APPORTIONMENT OF EXPENSES. 5. BEF ORE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE - COMPANY HAS SET UP A SEPARATE CENTRE FOR DEVELOPMENT AND A SEPARATE PLANT FOR MANUFACTURE OF BIOLOGICAL PRODUCTS. THE COMPANY LAUNCHED THE BIOSIMILAR FILGRASTIM (G - CSF) IN INDIA. IT WAS ALSO CONTENDED THA T NONE OF THE PRODUCTS MANUFACTURED FROM BADDI, YANAM UNIT, BD9 - EOU & GENERICS UNIT ARE BIOLOGICAL PRODUCTS. 6. LD. CIT(A) HAVING NOTICED THE DIFFERENCE BETWEEN THE OTHER RESEARCH UNITS AND THE SEPARATE UNIT MEANT FOR BIOLOGICAL PRODUCTS, HE CAME TO THE C ONCLUSION THAT THE R & D EXPENSES RELATING TO THE BIOLOGICS ARE UNIT SPECIFIC AND CAN BE EXCLUDED FOR APPORTIONMENT OF EXPENSES. 7. AGGRIEVED BY THIS FINDING, REVENUE PREFERRED APPEALS BEFORE THE TRIBUNAL. 3 8. LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDERS OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE COMMON ORDER PASSED BY THE LD. CIT(A). 9. WE HAVE CAREFULLY PERUSED THE RECORD. LD. CIT(A) ANALYSED THE FACTS OF THE CASE AND OBSERVED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING AND TRADING IN FORMULATIONS, GENERICS, ACTIVE PHARMACEUTICALS INGREDIENTS (APIS), BIO - TECHNOLOGY AND CUSTOM PHARMACE UTICAL SERVICES IN ITS VARIOUS UNITS; WHEREAS, R & D WORK, IN SO FAR AS BIOLOGICS ARE CONCERNED, IS CONDUCTED AT DIFFERENT UNITS SINCE IT IS A VERY COMPLEX AND TIME - CONSUMING PROCESS. THUS, LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE R & D EXPENDITURE RELATING TO THE BIOLOGICS DESERVES TO BE EXCLUDED AND SHOULD NOT BE APPORTIONED AGAINST THE UNITS WHICH ARE ENJOYING THE BENEFIT OF DEDUCTION UNDER VARIOUS SECTIONS SUCH AS 10B, 80IB, 80IC ETC. IN THIS REGARD, LD. CIT(A) BRIEFLY OBSERVED AS U NDER: IT WAS STATED THAT NONE OF PRODUCTS MANUFACTURED FROM BADDI, YANAM UNIT, BD9 - EOU & GENERICS UNIT ARE BIOLOGICAL PRODUCTS. AS EXPLAINED ABOVE, MANUFACTURE OF BIOLOGICAL PRODUCTS REQUIRES SEPARATE TECHNOLOGY. BIOLOGI CAL PRODUCTS CANNOT BE MANUFACTU RED FROM TRADITIONAL FORMULATION PLANTS. THUS, I HOLD THAT THE R & D EXPENDITURE RELATING TO BIOLOGICS ARE UNIT SPECIFIC AND IS NOT RELATED TO THE SPECIAL UNITS AND CAN BE EXCLUDED FOR APPORTIONMENT OF EXPENSES. 10. NO MATERIAL WAS PLACED BEFORE US, BY THE LEARNED CIT - DR, TO CONTRADICT THE FINDINGS OF THE LD. CIT(A). UNDER THESE CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) AND THUS THE APPEAL S FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN C OURT ON 06 TH JUNE , 2018. SD/ - SD/ - (S. RIFAUR RAHMAN) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED: 06TH JUNE , 2018. 4 OKK, SR.PS COPY TO 1. DR. REDDYS LABORATORIES LIMITED, 8 - 2 - 337, ROAD NO.3, BANJARA HILLS, HYDERABAD - 500034. 2. ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 17(1), 9 TH FLOOR, SIGNATURE TOWERS, OPP. BOTANICAL GARDEN, KOTHAGUDA, KONDAPUR, HYDERABAD - 500084. 3. CIT (A) - 5, HYDERABAD. 4. PR. CIT - 5, HYDEABAD. 5. DR, ITAT, HYDERABAD. 6. GUARD FILE