ACIT CC-32, MUMBAI V. USV LTD, MUMBAI

ITA 5582/MUM/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62596 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 04-06-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 09-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KIRTI SHETH
• Assessee Lawyers: SASMITA MISRA AW MR AJAY
• Keywords: Depreciation; Transfer pricing; Business expenditure; International transaction; Right to appeal; Revenue expenditure; Capital expenditure
• Section: 143(3); 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER, AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 4517/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) USV LIMITED BSD MARG, GOVANDI MUMBAI 400 088 PAN AAACU1366N .. APPELLANT V/S DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE32, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 5582/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE32, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S USV LIMITED BSD MARG, GOVANDI MUMBAI 400 088 PAN AAACU1366N .... RESPONDENT REVENUE BY : MR. KIRTI SHETH ASSESSEE BY : MR. SASMITA MISRA A/W MR. AJAY DATE OF HEARING 04.06.2012 DATE OF ORDER 04.07.2012 M/S. USV LIMITED 2 O R D E R PER B.R. MITTAL, J.M. THESE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGN ED ORDER DATED 19 TH APRIL 2010, PASSED BY THE COMMISSIONER (APPEALS)X XXXI, MUMBAI, FOR ASSESSMENT YEAR 200708. GROUNDS RAISED BY THE ASSE SSEE, READ AS FOLLOWS: THE HONBLE COMMISSIONER OF INCOME TAX HAS ERRED IN CONFIRMING THE ASSESSING OFFICER ACTION ON DISALLOWING THE WEIGHTE D DEDUCTION UNDER SECTION 35(2AB)(1) IN RESPECT OF FOLLOWING EXPENSES INCURRED IN CONNECTION WITH THE INHOUSE RESEARCH & DEVELOPMENT LABS. A) EXPENSES INCURRED ON CLINICAL TRIALS ` 4,00,32,682 B) EXPENSES INCURRED ON RENT, RATES AND TAXES ` 62,00,689 C) CLAIMS NOT REPORTED IN DSIR CERTIFICATE ` 1,25,17,261 2. IN THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASS ESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF P HARMACEUTICALS PRODUCTS AND BULK DRUGS. DURING THE PREVIOUS YEAR RELEVANT T O ASSESSMENT YEAR 2007 08, THE ASSESSEE COMPANY HAD THE FOLLOWING UNITS: UNIT AT MIDC LOTE PARSHURAM, TALUKA KHED, RATNAGIRI DISTRICT, FOR MANUFACTURE OF FORMULATION UNIT AT MIDC LOTE PARSHURAM, TALUKA KHED, RATNAGIRI DISTRICT, FOR MANUFACTURE OF BULK DRUGS TREATED AS DTA; UNIT AT MIDC LOTE PARSHURAM, TALUKA KHED, RATNAGIRI DISTRICT, FOR MANUFACTURE OF BULK DRUGS TREATED AS CONVERTED EOUI, UNDER PROVISION OF SECTION 10B OF THE INCOME TAX AC T, 1961. THE ALLOWABILITY OF DEDUCTION UNDER THIS SECTION IS DIS CUSSED LATER IN MY ORDER; UNIT AT OIDC DAMAN FOR MANUFACTURE OF FORMULATIONS. THIS UNIT WAS SET UP IN DECEMBER 2001, AND IS ELIGIBLE TOWARD S DEDUCTION UNDER SECTION 80IB CLAIMED. THE ALLOWABILITY OF DED UCTION UNDER THIS SECTION IS DISCUSSED LATER IN MY ORDER; UNIT AT PLOT NO.6, HPSIDC INDUSTRIAL AREA, SOLAN, B ADDI, HP, FOR MANUFACTURE OF FORMULATIONS AND IS ELIGIBLE TOWARDS DEDUCTION M/S. USV LIMITED 3 UNDER SECTION 80IC. THIS IS THE FIRST YEAR OF ASSES SEE CLAIM UNDER SECTION 80IC. 3. THE ASSESSEE COMPANY ALSO MARKETS FORMULATIONS MANU FACTURED USING THE MANUFACTURING FACILITIES OF THIRD PARTIES, EITH ER ON JOB WORK BASIS UNDER LOAN LICENSE ARRANGEMENT, OR BY PURCHASING THE SAME FROM SUCH PARTIES ON PRINCIPALTOPRINCIPAL BASIS. SALES ARE AFFECTED TH ROUGH DEALER / STOCKIEST WHO ARE APPOINTED ALL OVER INDIA. THE ASSESSEE COMP ANY ALSO EXPORTS BOTH BULK DRUGS AND FORMULATIONS TO VARIOUS COUNTRIES. I N THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF I NCOME DECLARING TOTAL INCOME OF ` 46,10,49,381. THE ASSESSING OFFICER MADE ASSESSMEN T UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHO RT THE ACT ) VIDE ORDER DATED 30 TH NOVEMBER 2009, ASSESSING THE TOTAL INCOME AT ` 50,88,19,386. 4. WE FIRST TAKE UP THE GROUND TAKEN BY THE ASSESSEE. FURTHER, GROUND NO.3, IN REVENUES APPEAL IS ALSO INTERCONNECTED A ND, ACCORDINGLY, THE SAME IS ALSO CONSIDERED ALONG WITH THE GROUND TAKEN BY T HE ASSESSEE. 5. BRIEF FACTS: THE ASSESSEE COMPANY IS ENGAGED IN TH E MANUFACTURING OF DRUGS AND PHARMACEUTICALS. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THAT IT HAD THREE R&D FACILI TIES AT (I) BSD MARG, GOVANDI STATION ROAD, GOVANDI, MUMBAI 400 088; (I I) D115, SHIRVANE, TTC INDUSTRIAL AREA, THANE BELAPUR ROAD, NAVI MUMBA I 400 706; AND (III) OIDC, DEBHEL, DAMAN. ALL THESE R&D FACILITIES ARE B EING APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH ( FOR SHORT DSIR ) FOR WEIGHTED DEDUCTION @ 150% UNDER SECTION 35(2AB) OF THE ACT, VIDE APPROVAL (RENEWAL) ORDER IN FORM NO.3CM NO.TU/IV15(119)/35( 2AB), ORDER DATED 1 ST JULY 2007. THE ASSESSEE HAS ALSO FILED THE NECESSAR Y COPY OF ORDER OF APPROVAL FORM 3CM, ON RECORD. THE ASSESSEE COMPANY SATISFIES THE CONDITIONS LAID DOWN FOR AVAILMENT OF WEIGHTED DEDU CTION OF 150% UNDER SECTION 35(2AB) FOR THE ABOVE R&D UNITS. THE ASSESS ING OFFICER STATED THAT THE ASSESSEE HAS, VIDE ITS LETTER DATED 25 TH NOVEMBER 2009, FILED THE COPY OF ORDER IN FORM 3CL RECEIVED FROM THE DSIR. HE STATED THAT ON PERUSAL OF THE M/S. USV LIMITED 4 SAID ORDER, IT WAS FOUND THAT DSIR HAS APPROVED FOL LOWING AMOUNTS AS AGAINST THE AMOUNT CLAIMED BY THE ASSESSEE IN THE R ETURN OF INCOME. DETAILS CLAIMED IN ROI APPROVAL BY DSIR DIFFERENCE REMARKS CAPITAL EXPENDITURE ON R&D ON LAND AND BUILDING ` 2,77,84,710 ` 2,77,84,710 NIL CAPITAL EXPENDITURE ON D&D ON OTHERS ` 18,24,03,276 ` 18,24,03,276 NIL REVENUE EXPENDITURE ON R&D ` 36,78,50,177 ` 28,96,54,205 ` 7,81,95,972 NOTE1 NOTE: 1 AS EXPLAINED BY ASSESSEE AND AS EVIDENT FROM THE DS IR CERTIFICATE, THE DIFFERENCE IN THE DSIR CLAIMS PERTAINS TO CLINICAL TRIALS BEING INCURRED ON OUTSIDE LABORATORY ` 4,00,32,682 PATENT FILING IN VARIOUS FOREIGN COUNTRIES & FOREIGN CONSULTANCY ` 1,84,87,038 EXPENSES ON REPAIRS, RENT, RATES AND TAXES PERTAINING TO BUILDING ` 71,58,991 DIFFERENCE BETWEEN THE AMOUNT REPORTED IN ANNUAL REPORT AND CLAIMED IN ROI ` 1,25,17,261 ` 7,81,95,972 THE ASSESSEE HAS VIDE ITS ABOVE SUBMISSIONS HAVE AL SO SUBMITTED ITS EXPLANATION OVER THE DETAILS OF THE EXPENSES WHICH HAS BEEN SHOWN SEPARATELY IN THE DSIR REPORT. 6. IN RESPECT OF CLINICAL TRIALS, THE ASSESSEE SUBMITT ED THAT THE SAME IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2A B) AS THE EXPENDITURE WAS, IN FACT, RELATED TO AND EMANATING OUT OF THE A CTIVITIES CARRIED OUT IN THE APPROVED INHOUSE R&D FACILITIES. IN THIS REGARD, T HE ASSESSEE FILED THE M/S. USV LIMITED 5 FOLLOWING REPLY BEFORE THE ASSESSING OFFICER WHICH HAS BEEN STATED BY HIM AT PAGE6 OF THE ASSESSMENT ORDER, WHICH READS AS FOLL OWS: ` 4,00,32,682 TOWARDS EXPENSES RELATED TO CLINICAL T RIALS OUTSIDE THE APPROVED FACILITIES. THE COMPANY CARRIES OUT RESEARCH AT ITS R&D FACILIT IES, WHICH ARE APPROVED BY DSIR. THE RESEARCH IS CONDUCTED BASICAL LY ON PHARMACEUTICAL PRODUCTS FOR WHICH CLINICAL TRIALS A RE MANDATORY. TRIALS ON HUMANS FOR BIOEQUIVALENCE ETC., ARE DONE ON VOL UNTEERS WHO ARE PATIENTS OF THE DISEASE FOR WHICH THE MEDICINE UNDE R RESEARCH APPLIES. FOR SUCH CLINICAL TRIALS, THE COMPANY HAS TO TIE UP WITH VARIOUS HOSPITALS, DOCTORS AND INSTITUTIONS FOR SUSTAINED S TUDY ON PATIENTS OVER THE TREATMENT PERIOD. IT IS VERY OBVIOUS THAT SUCH CLINICAL STUDIES CANNOT BE DONE AT THE PREMISES OF THE COMPANY. BUT NEVERTHELESS, THE PRODUCT BEING TRIED IS DEVELOPED IN THE INHOUSE R& D FACILITY OF THE COMPANY. SECTION 35, SPECIFICALLY PROVIDES FOR DEDU CTION OF EXPENDITURE INCURRED ON CLINICAL TRIALS AT 150% IN THE CASE OF APPROVED LABORATORIES. IT IS VERY OBVIOUS THAT SUCH EXPENDITURE PERTAINS T O INHOUSE RESEARCH FACILITY AS IT DEALS WITH THE PRODUCT DEVELOPED IN THE FACILITY, EVEN THOUGH THE TRIAL IS CONDUCTED ON PATIENTS OUTSIDE T HE LABORATORY, WHICH IN ANY CASE IS INEVITABLE GIVEN THE VERY NATURE OF THE ACTIVITY. HENCE, WE SUBMIT THAT EXPENDITURE ON CLINICAL TRIALS QUALI FY FOR DEDUCTION UNDER SECTION 35(2AB) NOTWITHSTANDING THE FACT THAT THESE ARE PHYSICALLY CONDUCTED ON PATIENTS OUTSIDE THE APPROV ED LABORATORY. SECTION 35, SPECIFICALLY PROVIDES FOR DEDUCTION OF EXPENDITURE INCURRED ON CLINICAL TRIALS AT 150%. IT IS VERY OBVIOUS THAT SUCH EXPENDITURE PERTAIN TO INHOUSE RESEARCH FACILITY AS IT DEALS W ITH THE PRODUCT DEVELOPED IN THE FACILITY, EVEN THOUGH THE TRIAL IS CONDUCTED ON PATIENTS OUTSIDE THE LABORATORY, WHICH IN ANY CASE IS INEVIT ABLE GIVEN THE VERY NATURE OF THE ACTIVITY. HENCE, EXPENDITURE ON CLINI CAL TRIALS QUALIFY FOR DEDUCTION UNDER SECTION 35(2AB) NOTWITHSTANDING THE FACT THAT THESE ARE PHYSICALLY CONDUCTED ON PATIENTS OUTSIDE THE AP PROVED LABORATORY . 7. THE ASSESSING OFFICER, HOWEVER, DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND STATED THAT IF THE SAID EXPENDITUR E ON CLINICAL TRIAL, THOUGH CONDUCTED OUTSIDE THE LABORATORY, ARE INDEED FOR TH E PURPOSE OF RESEARCH ACTIVITY CARRIED OUT IN THE RECOGNISED R&D UNIT PRO JECTS AND IF SO, THE DSIR, WHICH IS THE RECKONED BODY WOULD HAVE ALSO CONSIDER ED ALL THE FACTS WHILE CERTIFYING THE EXPENDITURE IN FORM 3CL. THE ASSESSI NG OFFICER HAS STATED THAT CONSIDERING THE DSIR REPORT, IT IS SEEN THAT THE AS SESSEE IS NOT ENTITLED TO WEIGHTED DEDUCTION IN RESPECT OF CLINICAL TRIALS AM OUNTING TO ` 4,00,32,682. M/S. USV LIMITED 6 8. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY AND SUBMITTED THAT THE SAID EXPENDITURE O F ` 4,00,32,682, WAS INCURRED ON R&D LABORATORY OF CLINICAL TRIAL OUTSID E ITS OWN RECOGNISED R&D LABORATORY. THE CLINICAL TRIALS ARE CONDUCTED ON TH E PROJECTS UNDERTAKEN BY ITSELF APPROVED INHOUSE R&D FACILITIES. IT WAS CON TENDED THAT THE CLINICAL TRIALS HAVE TO BE CONDUCTED ON VARIOUS SUBJECTS LIK E HUMAN PATENTS, VOLUNTEERS AND ANIMALS FOR STUDIES LIKE BIOEQUIVAL ENCE, ETC. THEREFORE, BY ITS VERY NATURE, THIS ACTIVITY IS LARGELY DEPENDENT ON AND IS TO BE CARRIED OUT THROUGH VARIOUS ETERNAL ACTIVITY IS LARGELY DEPENDE NT ON AND IS TO BE CARRIED OUT THROUGH VARIOUS EXTERNAL AGENCIES, HOSPITALS, D OCTORS, INSTITUTIONS, ETC. HOWEVER, THE COMMISSIONER (APPEALS) DID NOT AGREE W ITH THE ABOVE CONTENTION OF THE ASSESSEE AND STATED THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMEN T YEAR 200506, AND IT WAS HELD THAT THE EXPENDITURE HAS NOT BEEN INCURRED INHOUSE IN RESPECT OF CLINICAL TRIALS AND ACCORDINGLY, THE WEIGHTED DEDUC TION OF 150% IS NOT ALLOWABLE UNDER SECTION 35(2AB) TO THE ASSESSEE. TH EREFORE, THE COMMISSIONER (APPEALS) HAS CONFIRMED ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO ` 4,00,32,682. HENCE, THE ASSESSEE IS IN APPEAL RAIS ING GROUND NO.1(A). 9. IN RESPECT OF THE EXPENDITURE OF ` 1,84,87,038, UNDER THE HEAD PATIENT FILING IN VARIOUS FOREIGN COUNTRIES AND FOREIGN CONSULTAN CY, THE DETAILS OF THE AMOUNT SPENT AND ACCOUNTED UNDER THE ABOVE HEAD HAVE BEEN STATED BY THE COMMISSIONER (APPEALS), VIDE PARA3.9 /PAGE8 OF HIS ORDER, WHICH READS AS FOLLOWS: CONSULTANCY CHARGES ` 8,65,131 COMPETITOR PATENT STUDY AND SEARCH, BRAND ORDERS FOR R&D DECISION, PROCESS STUDY OF EXISTING PATENT, ETC. PATIENT FILING CHARGES ` 74,38,119 PATENT FILING FEES, OUT OF POCKET EXPENSES, ETC., (PCT & NATIONAL PHASE M/S. USV LIMITED 7 ENTRIES) ALL THE ABOVE CHARGES IN CONNECTION WITH THE PATIENT APPLICATION FILED UNDER PATENT ACT, 1970 & PCT. PATENT FILING CHARGES ` 1,01,83,788 PATENT FILING FEES, OUT OF POCKET EXPENSES, PATENT RENEWAL FEES, ETC. ALL THE ABOVE CHARGES OTHER THAN 2 ABOVE. ` 1,84,87,038 10. IN RESPECT OF THE AMOUNT DISPUTED BEFORE US IS ` 8,65,131, TOWARDS CONSULTANCY CHARGES, ` 74,38,119, TOWARDS PATENT FILING CHARGES AS GROUND NO.3, IN THE APPEAL FILED BY THE REVENUE. 11. THE ASSESSING OFFICER, WHILE DEALING WITH THE ABOVE CLAIM OF THE ASSESSEE STATED THAT THE PATENT COOPERATION TREATY LAYS DOWN THE GUIDELINES FOR A PATENT REGISTRATION IN CASES WHERE THE SAME P ATENT WAS REGISTERED IN VARIOUS COUNTRIES. THE ASSESSING OFFICER DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE THAT THE CONSULTANCY EXPENDITURE INCURRED BY THE ASSESSEE REGARDING TECHNICAL SERVICES OF THE COMPETITOR PATE NTS OBTAINED PATENT INFORMATION FROM INNOVATOR COMPANY AN OBTAINING INN OVATOR SAMPLES FOR R&D PURPOSE ARE THE PAYMENTS TOWARDS RESEARCH EXPENDITU RE WHICH ARE TO BE INCURRED AT THE BEGINNING OF THE R&D PROJECT. THE A SSESSING OFFICER HAS STATED THAT WITHOUT ANY DETAILS ON RECORD, HE IS UN ABLE TO ACCEPT THE FACTS OF THE ASSESSEE AND THE FACT THAT THE DSIR HAS MADE DI SALLOWANCE TO THE SAID AMOUNT IN ITS CERTIFICATE, THE ASSESSING OFFICER DI SALLOWED THE WEIGHTED DEDUCTION OF 150% CLAIMED BY THE ASSESSEE ON THE CO NSULTANCY CHARGES AND PATENT FILING CHARGES. 12. THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLAT E AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS), VIDE PARA3.10, HAS HEL D THAT THE CONSULTANCY CHARGES OF ` 8,65,131, ARE PURELY TOWARDS RESEARCH EXPENDITURE AND NOT M/S. USV LIMITED 8 TOWARDS REGISTERING THE PATENTS. HE HAS STATED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE ACTIVITIES OF RESEARCH ACTIVITY OF N EW MOLECULES AND DRUGS AS WELL AS IMPROVISATION OF THE EXISTING DRUGS AND MED ICINES. FOR CARRYING OUT THE RESEARCH OF ANY EXISTING PROJECT, THE DATA / IN FORMATION ON THE EXISTING DRUGS / MEDICINE IN THE MARKET IS FIRST REQUIRED TO BE GATHERED. THEREFORE, THESE EXPENDITURES HAVE BEEN INCURRED FOR CONSULTAN CY ARE PURELY TOWARDS RESEARCH EXPENDITURE AND, HENCE, WEIGHTED DEDUCTION IS TO BE ALLOWED. 13. THE COMMISSIONER (APPEALS) HAS STATED THAT THE ABOV E ISSUE HAS BEEN DISCUSSED IN ASSESSMENT YEAR 200607 AND ALLOWED WE IGHTED DEDUCTION OF THE ASSESSEE. ACCORDINGLY, HE HAS DIRECTED THE ASSE SSING OFFICER TO ALLOW WEIGHTED DEDUCTION OF ` 8,65,131, AFTER VERIFICATION. 14. IN RESPECT OF THE EXPENDITURE PERTAINING TO PATENT FILING OF ` 74,38,119, IT WAS STATED THAT THE PAYMENT IS COVERED UNDER THE PATENT ACT, 1970, AS PER THE EXPLANATION OF SECTION 35(2AB). IT WAS CONTENDE D THAT THE SAID CLAUSE PROVIDES THAT THE EXPENDITURE ON SCIENTIFIC RESEARC H IN RELATION TO DRUGS AND PHARMACEUTICAL SHALL INCLUDE EXPENDITURE INCURRED O N CLINICAL DRUG TRIAL OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UN DER ANY CENTRAL OR STATE PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATE NT UNDER THE PATENTS ACT, 1970. THEREFORE, THE ELIGIBILITY FOR CLAIMING 150% UNDER SECTION 35(2AB), THE CRITERIA LAID DOWN UNDER THE ACT ARE OBTAINING APPR OVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL OR STATE PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970. HENCE, TH E AMOUNT OF EXPENDITURE IS COVERED ON ACCOUNT OF PATENT COOPERATION TREATY DONE AT WASHINGTON ON 19 TH JUNE 1970, AND THE SAME IS ELIGIBLE FOR WEIGHTED D EDUCTION. HOWEVER, THE ASSESSING OFFICER DID NOT AGREE WITH THE ASSESS EE AND ALLOWED THE SAID EXPENDITURE AS 100% REVENUE EXPENDITURE INCURRED FO R R&D PURPOSE UNDER SECTION 35 OF THE ACT. 15. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIR ST APPELLATE AUTHORITY AND CONTENDED THAT THE DSIR HAS, AS PART OF CERTIFI CATION REQUIREMENTS, M/S. USV LIMITED 9 CLASSIFIED THE EXPENDITURE PUT UP FOR CERTIFICATION AS BETWEEN THOSE INCURRED IN THE APPROVED INHOUSE AND R&D FACILITY AND THUS INCURRED OUTSIDE THE SAME, EVEN THOUGH THE SAME MAY HAVE ACTUALLY BEEN I NCURRED IN RELATION TO THE ACTIVITIES CARRIED OUT BY SUCH R&D FACILITIES. HENCE, THE INFORMATION PROVIDED BY THE DSIR IN FORM 3CL IS, TO THAT EXTENT , CLARIFICATORY IN NATURE. THE ALLOWABILITY OR OTHERWISE OF SUCH EXPENDITURE I S DEALT WITH UNDER SECTION 35(2AB) R/W EXPLANATION THERETO. IT WAS CONTENDED T HAT THE ASSESSEE COMPANY HAS CLAIMED EXPENDITURE OF PATENT FILING FE E OF ONLY SUCH ITEMS WHICH ARE DEVELOPED FROM THE APPROVED RESEARCH UNIT S. THEREFORE, THE PATENT FILING CHARGES AMOUNTING TO ` 74,38,119, IN RESPECT OF PATENT INTERNATIONAL APPLICATION AS PER SECTION 7(1A) OF THE PATENTS ACT , 1970, AND THE WEIGHTED DEDUCTION IS ALLOWABLE ON THE REGISTRATION OF PATEN T FEE. 16. THE COMMISSIONER (APPEALS) CONSIDERED THE ABOVE CON TENTIONS OF THE ASSESSEE AND FOLLOWING HIS ORDER FOR THE ASSESSMENT YEAR 200607, ALLOWED WEIGHTED DEDUCTION ON PATENT FILING CHARGES FILED U NDER THE PATENT ACT, 1970, SUBJECT TO THE DIRECTION TO THE ASSESSING OFF ICER OF TAX VERIFICATION VIDE PARA3.14 OF THE IMPUGNED ORDER. 17. IN VIEW OF THE ABOVE, THE REVENUE HAS FILED APPEAL BEFORE THE TRIBUNAL AGAINST THE IMPUGNED ORDER PASSED BY THE COMMISSION ER (APPEALS), VIDE GROUND NO.3, DISPUTING THE ALLOWANCE OF WEIGHTED DE DUCTION, CONSULTANCY CHARGES AND PATENT FILING CHARGES. 18. THE ASSESSING OFFICER, IN RESPECT OF THE CLAIM OF T HE ASSESSEE ON EXPENDITURE ON RENT, RATES AND TAXES PERTAINING TO BUILDING, HAS NOT ACCEPTED THE CLAIM OF THE ASSESSEE OF WEIGHTED DEDUCTION UND ER SECTION 35(2AB) ON THE GROUND THAT DSIR HAS NOT ALLOWED THE SAME. BEIN G AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE FIRST APPELLATE AU THORITY. 19. ON BEHALF OF THE ASSESSEE, IT WAS CONTENDED THAT TH E ASSESSING OFFICER HAS NOT ALLOWED THIS DEDUCTION IN RESPECT OF BUILDI NG USED FOR RESEARCH R&D UNITS MERELY BECAUSE DSIR HAS NOT APPROVED THE EXPE NDITURE FOR THE M/S. USV LIMITED 10 PURPOSE OF DEDUCTION. IT WAS CONTENDED THAT THE LEG ISLATURE AS PER SECTION 35(2AB), ONLY EXCLUDED FROM WEIGHTED DEDUCTION, COS T OF LAND OR BUILDING AND NOT ANY CHARGES AND EXPENSES RELATED TO LAND OR BUILDING. HOWEVER, THE COMMISSIONER (APPEALS) DID NOT ACCEPT THE CONTENTIO N OF THE ASSESSEE AND STATED THAT SINCE DSIR HAS NOT ALLOWED WEIGHTED DED UCTION, RENT, RATES AND TAXES ON REPAIRS ON THE R&D UNIT, THE ASSESSING OFF ICER IS JUSTIFIED IN NOT ALLOWING DEDUCTION ON THESE EXPENSES. HENCE, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING GROUND NO.1(B). 20. IN RESPECT OF DIFFERENCE BETWEEN THE AMOUNT REPORTE D IN THE ANNUAL REPORT AND CLAIMED IN THE RETURN OF INCOME OF ` 1,25,17,261, WHICH IS THE SUBJECT MATTER OF THE APPEAL AS GROUND NO.1(C) OF T HE ASSESSEE, THE ASSESSING OFFICER HAS GIVEN A BREAK UP AT PAGE10, AS FOLLOWS: EXPENDITURE HEAD AMOUNT ( ` ) EMPLOYMENT COST 78,36,366 SERVICE TAX ON R&D EXPENSES 16,45,503 VEHICLE INSURANCE 5,34,026 HOUSEKEEPING CONSUMABLES 20,96,224 OTHER SMALL VARIANCES 4,13,599 SALE OF R&D ASSET 7,458 1,25,17,261 21. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE STATED THAT THE DSIR HAS RESTRICTED THE CLAIM OF R&D EXPENDITUR E TO THE AMOUNT DISCLOSED UNDER ANNUAL REPORT, HOWEVER, THE TOTAL R &D EXPENDITURE AS CLAIMED AND CERTIFIED BY THE TAX AUDITOR NEED TO BE CONSIDERED FOR THE SAME. IT WAS ALSO CONTENDED THAT ALL THE REQUISITE DOCUME NTS VIZ. COPY OF APPENDIX SUBMITTED TO DSIR DULY AUTHORISED BY THE MANAGING D IRECTOR OF THE COMPANY BEING A REPORT SUBMITTED TO DSIR FOR THE PURPOSE OF CERTIFICATION OF CLAIM UNDER SECTION 35(2AB), COPY OF CERTIFICATE GIVEN BY THE STATUTORY AUDITOR TO THE DSIR GIVING DETAILED RECONCILIATION OF AMOUNT DISCLOSED IN THE ANNUAL M/S. USV LIMITED 11 REPORT AND AS CLAIMED IN THE RETURN OF INCOME, MENT IONED THAT THE AMOUNT DISCLOSED AT ANNUAL REPORT DOES NOT INCLUDE CERTAIN EXPENSES WHICH PERTAINED TO R&D. HOWEVER, THE ASSESSING OFFICER DID NOT ACCE PT THE CONTENTIONS OF THE ASSESSEE THAT THE ASSESSEE IS ELIGIBLE FOR WEIGHTED DEDUCTION OF ` 1,25,17,261, ON THE GROUND THAT THE DSIR HAS RESTRI CTED THE CLAIM TO THE EXTENT OF AMOUNT CERTIFIED AND REPORTED IN THE ANNU AL REPORT. THE ASSESSING OFFICER HAS STATED THAT IN THE ABSENCE OF ANY DETAI LS / CLARIFICATION ON THE DSIR CERTIFICATE UNDER FORM 3CL, IT NEED TO BE CONS IDERED THAT THE DSIR HAS INTENTIONALLY NOT ALLOWED SUCH EXPENSES. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE WEIGHTED DEDUCTION @ 50% OF SUCH DIF FERENCE AMOUNT OF ` 1,25,17,261 AND ADDED THE SAME TO BE TOTAL INCOME. HOWEVER, THE ASSESSING OFFICER RESTRICTED THE DEDUCTION TO 100% ONLY AS PE R SECTION 35(1)(I) AND SECTION 35(1)(IV) AS AGAINST 150% CLAIMED BY THE AS SESSEE. 22. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS), VIDE PARA3.17 OF HIS ORDER, HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER O N THE GROUND THAT DSIR HAS NOT CERTIFIED THAT THE SAID AMOUNT OF ` 1,25,17,261, IS ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT . THEREFORE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL A S GROUND NO.1(C). 23. BEFORE US, DURING THE COURSE OF HEARING, THE LEARNE D COUNSEL FOR THE ASSESSEE, IN RESPECT OF THE ADDITION OF ` 4,00,32,682, RELATING TO THE EXPENDITURE INCURRED ON CLINICAL TRIALS ADMITTED TH AT SAME VERY ISSUE WHICH WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CA SE FOR ASSESSMENT YEAR 200607, IN ITA NO.453/MUM./2009, ORDER DATED 18 TH MARCH 2010, A COPY OF WHICH IS PLACED AT PAGES209 TO 213 OF THE PAPER BO OK AND THE TRIBUNAL, BY FOLLOWING ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2 00506 IN ITA NO.2179/ MUM./2009, HELD THAT THE EXPENDITURE ON SCIENTIFIC RESEARCH ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SECTION 35(2AB), SHOULD BE THE EXPENDITURE ON SCIENTIFIC RESEARCH ON INHOUSE RESEARCH AND DEVELO PMENT FACILITIES AND, THEREFORE, THE ACTION OF THE ASSESSING OFFICER TO D ISALLOW WEIGHTED DEDUCTION M/S. USV LIMITED 12 OF 50% WAS CONFIRMED. THE LEARNED COUNSEL FOR THE A SSESSEE, AT THE TIME OF HEARING, ADMITTED THAT THE FACTS IN THE ASSESSMENT YEAR UNDER CONSIDERATION ARE IDENTICAL TO THE FACTS OF THE ASSESSMENT YEAR 2 00607 AND THE TRIBUNAL HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE. HOWEVE R, HE SUBMITTED THAT THE ASSESSEE HAS FILED AN APPEAL BEFORE THE HONBLE HIG H COURT AND THE SAID APPEAL IS PENDING. 24. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN VIEW OF THE ABOVE FACTS, THE ISSUE IS COVERED AGAINST THE ASSES SEE BY ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING ASSES SMENT YEAR AND, THEREFORE, THE ORDER OF THE COMMISSIONER (APPEALS) BE UPHELD. 25. IN VIEW OF THE ABOVE SUBMISSIONS OF THE LEARNED REP RESENTATIVES OF THE PARTIES AND AFTER CONSIDERING THE ORDER OF THE TRIB UNAL DATED 18 TH MARCH 2010 (SUPRA), WE RESPECTFULLY FOLLOWING THE SAID ORDER, UPHOLD THE ACTION OF THE ASSESSING OFFICER BY REJECTING THE GROUND NO.1(A) O F THE APPEAL TAKEN BY THE ASSESSEE HOLDING THAT THE ASSESSEE IS NOT ENTITLED FOR WEIGHTED DEDUCTION ON THE EXPENDITURE OF ` 4,00,33,682, INCURRED ON CLINICAL TRIALS AS PER SE CTION 35(2AB) OF THE ACT. 26. IN RESPECT OF GROUND NO.1(B) OF THE ASSESSEES APPE AL TO DISALLOW WEIGHTED DEDUCTION OF ` 66,00,682, RELATING TO EXPENDITURE INCURRED ON REN T, RATE AND TAXES. 27. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE U S THAT SECTION 35(2AB) ONLY EXCLUDES COST OF LAND OR BUILDING FROM WEIGHTED DEDUCTION AND NOT ANY CHARGES AND EXPENSES RELATING TO LAND OR BU ILDING. HE SUBMITTED THAT THE EXPENDITURE SUCH AS REPAIRS, RENT AND RATES CAN NOT BE TREATED AS COST OF LAND AND BUILDING. HE SUBMITTED THAT SUCH EXPENSES ARE REVENUE IN NATURE. HE SUBMITTED THAT WHEN THE EXPENDITURE ARE INCURRED FOR RENTING THE R&D PREMISES AND FOR INCURRING EXPENDITURE ON NORMAL RE PAIRS ON R&D FACILITIES HAVE TO BE ALLOWED IN FULL WEIGHTED DEDUCTION. TO S UBSTANTIATE HIS SUBMISSIONS THE LEARNED COUNSEL FOR THE ASSESSEE RE FERRED THE DECISION OF THE M/S. USV LIMITED 13 HON'BLE DELHI HIGH COURT IN ITA NO.348 OF 2011, IN THE CASE OF CIT V/S SANDAM VIKAS (I) LTD., JUDGMENT DATED 24 TH FEBRUARY 2011, A COPY OF WHICH IS PLACED AT PAGE167 OF THE PAPER BOOK. HE ALSO RE FERRED TO THE DECISION OF THE HONBLE MADRAS HIGH COURT DATED 23 RD NOVEMBER 2000, IN TAX CASE APPEAL NO.978 OF 2010, IN THE CASE OF CIT V/S M/S. WHEEL INDIA LTD., AND SUBMITTED THAT DSIR CERTIFICATE IS ONLY TO CERTIFY THE FACILITIES OF RESEARCH AND DEVELOPMENT ACTIVITY UNDERTAKEN BY THE ASSESSEE AND NOT A CERTIFICATE FOR EXPENDITURE INCURRED BY THE ASSESSEE. HE FURTHER SU BMITTED THAT THE DETAILS MENTIONED IN DSIR CERTIFICATE SHOULD BE TREATED AS A MERE CLARIFICATION AND NOT AN INDICATION FOR DISALLOWANCE OF THE EXPENDITU RE INCURRED BY THE ASSESSEE. THE LEARNED COUNSEL SUBMITTED THAT MERELY BECAUSE IN THE CERTIFICATE ISSUED BY THE DSIR CERTAIN AMOUNTS WERE NOT APPROVED, IT DOES NOT MEAN THAT THE ASSESSEE HAS NOT INCURRED EXPENDI TURE ON RESEARCH AND DEVELOPMENT ACTIVITY AND, THEREFORE, THE DISALLOWAN CE OF WEIGHTED DEDUCTION @ 150% AS PER SECTION 35(2AB) OF THE ACT IS NOT JUS TIFIED. 28. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE JUSTIFIED THE ORDER OF THE COMMISSIONER (APPEALS) AND SUBMITT ED THAT THE DSIR CERTIFICATE IS PREREQUISITE FOR ANY EXPENDITURE TO BE ALLOWED UNDER SECTION 35(2AB) OF THE ACT HAS WEIGHTED DEDUCTION @ 150%. H E SUBMITTED THAT SINCE DSIR DID NOT APPROVE THE SAID EXPENDITURE IN CERTIF ICATE ISSUED BY IT, THE ASSESSING OFFICER RIGHTLY DISALLOWED THE SAME ON TH E BASIS OF CERTIFICATE OF DSIR AS HE IS TO FOLLOW THE SAID CERTIFICATE OF DSI R FOR CONSIDERING AS TO WHETHER THE ASSESSEE IS ENTITLED FOR WEIGHTED DEDUC TION UNDER SECTION 34(2AB) OR NOT AND HE IS NOT TO APPLY HIS MIND FOR THAT PURPOSE. HE SUBMITTED THAT THE ORDER OF THE COMMISSIONER (APPEA LS) SHOULD BE CONFIRMED. 29. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSES SEE TO HIS SUBMISSIONS REFERRED TO RULE6(7A) OF THE I.T. RULE S, 1962, AND SUBMITTED THAT THIS RULE LAYS DOWN THE CONDITION SUBJECT TO W HICH THE EXPENDITURE INCURRED ON INHOUSE RESEARCH AND DEVELOPMENT FACIL ITIES IS TO BE ALLOWED M/S. USV LIMITED 14 UNDER SECTION 35(2AB) OF THE ACT AND THE SAID RULE DOES NOT PROVIDE THAT THE EXPENDITURE INCURRED IN CONNECTION WITH BUILDING OF R&D FACILITIES SHOULD NOT BE ALLOWED. HE SUBMITTED THAT THERE IS NO AUTHORITY GIVEN UNDER SECTION 35(2AB) TO MAKE ANY RULE LAYING DOWN ADDITIONAL CON DITION(S) FOR GRANT OF WEIGHTED DEDUCTION UNDER SECTION 35(2AB). HE SUBMIT TED THAT IF THE QUANTIFICATION OF ELIGIBLE EXPENDITURE, AS DETERMIN ED BY THE PRESCRIBED AUTHORITY I.E., DSIR IS CONSIDERED AS FINAL, THEN A N IMPORTANT RIGHT OF APPEAL TO THE ASSESSEE AGAINST SUCH QUANTIFICATION WILL BE LOST AS THE QUANTIFICATION SO LAID DOWN AND TREATED BY THE PRESCRIBED AUTHORIT Y WILL BE TREATED AS BINDING ON THE APPELLATE AUTHORITY AS WELL. THE LEA RNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED FO R WEIGHTED DEDUCTION OF THE EXPENDITURE INCURRED ON RENT, RATE AND TAXES. 30. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF TH E AUTHORITIES BELOW AS ALSO THE PROVISIONS OF SECTION 35(2AB) R/W RULE6(7A) OF THE RULES. ON PERUSAL OF THE PROVISIONS OF SECTION 35(2AB) OF THE ACT, WE DO AGREE WITH THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAID SECTION EXCL UDES THE EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING FROM WEI GHTED DEDUCTION TO BE ALLOWED UNDER SECTION 35(2AB). THE SAID SECTION 35( 2AB) AS APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION ALONG WITH THE EXPLANATION READS AS UNDER: SECTION 35(2AB) PROVIDES THAT (2AB)(1) WHERE A COMPANY ENGAGED IN THE BUSINESS OF [BIO TECHNOLOGY OR IN THE BUSINESS OF] MANUFACTURE OR PR ODUCTION OF ANY DRUGS, PHARMACEUTICALS, ELECTRONIC EQUIPMENTS, COMP UTERS, TELECOMMUNICATION EQUIPMENTS, CHEMICALS OR ANY OTHE R ARTICLE OR THING NOTIFIED BY THE BOARD INCURS ANY EXPENDITURE ON SCI ENTIFIC RESEARCH (NOT BEING EXPENDITURE IN THE NATURE OF COST OF ANY LAND OR BUILDING) ON IN HOUSE RESEARCH AND DEVELOPMENT FACILITY AS APPROVED BY THE PRESCRIBED AUTHORITY, THEN, THERE SHALL BE ALLOWED A DEDUCTION OF [A SUM EQUAL TO ONE AND ONEHALF TIMES OF THE EXPENDITURE] SO INCUR RED. EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, 'EXP ENDITURE ON SCIENTIFIC RESEARCH', IN RELATION TO DRUGS AND PHAR MACEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL , OBTAINING APPROVAL M/S. USV LIMITED 15 FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, ST ATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER TH E PATENTS ACT, 1970 (39 OF 1970).] 31. THEREFORE, IT IS EVIDENT THAT THIS SECTION EXCLUDES FROM WEIGHTED DEDUCTION ONLY COST OF LAND AND BUILDING AND NOT AN Y CHARGES AND EXPENSES RELATED TO LAND OR BUILDING. THE REPAIRS, RENT, ETC ., THE EXPENDITURE INCURRED RELATING TO R&D PREMISES CANNOT FORM PART OF COST O F LAND OR BUILDING. IN THE ABSENCE OF ANY FACT THAT THE SAID CLAIM OF THE ASSE SSEE AGGREGATING TO ` 62,00,689, IS NOT THE EXPENDITURE ON RENTS, RATES A ND TAXES RELATING TO R&D PREMISES, WE ARE OF THE CONSIDERED VIEW THAT THE SA ID EXPENDITURE HAS TO FORM PART OF WEIGHTED DEDUCTION AS PER SECTION 35(2 AB) OF THE ACT. THEREFORE, WE, BY REVERSING THE ORDERS OF THE AUTHO RITIES BELOW, HOLD THAT THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION ON THE S AID AMOUNT @ 150% AS PER SECTION 35(2AB) OF THE ACT. HENCE, GROUND NO.1( B) OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLOWED. 32. IN RESPECT OF GROUND NO.1(C) OF THE APPEAL TAKEN BY THE ASSESSEE RELATING TO DENIAL OF WEIGHTED DEDUCTION ON THE CLA IM OF ` 1,25,17,261, NOT REPORTED IN DSIR CERTIFICATE, WE, IN THE ABSENCE OF ANY DETAILS BEFORE US, DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE COMMISSIONER (APPEALS). HENCE, WE UPHOLD THE ORDER OF THE COMMIS SIONER (APPEALS) TO DENY WEIGHTED DEDUCTION ON THE ABOVE CLAIM OF THE A SSESSEE UNDER SECTION 35(2AB) OF THE ACT. THEREFORE, GROUND NO.1(C), TAKE N BY THE ASSESSEE IS REJECTED. 33. IN RESPECT OF GROUND NO.3, OF THE APPEAL OF THE DEP ARTMENT TO ALLOW WEIGHTED DEDUCTION IN RESPECT OF CONSULTING CHARGES OF ` 8,65,131, AND PATENT FILING CHARGES OF ` 74,38,119, THE LEARNED DEPARTMENTAL REPRESENTATIVE, DURING THE COURSE OF HEARING, RELIE D ON THE ORDER OF THE ASSESSING OFFICER AND WHEREAS THE LEARNED COUNSEL F OR THE ASSESSEE SUBMITTED THAT THE SAME VERY ISSUE WAS CONSIDERED B Y THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 200607 AND HE HAS M/S. USV LIMITED 16 FOLLOWED THE SAME FOR THE ASSESSMENT YEAR UNDER CON SIDERATION. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHEN THE DE PARTMENT FILED APPEAL FOR ASSESSMENT YEAR 200607 BEFORE THE TRIBUNAL, TH E DEPARTMENT ACCEPTED THE SAID ORDER OF THE COMMISSIONER (APPEALS) TO ALL OW CONSULTING CHARGES AND PATENT FILING CHARGES FOR WEIGHTED DEDUCTION UN DER SECTION 35(2AB) OF THE ACT AND DID NOT DISPUTE THE SAME BEFORE THE TRI BUNAL. 34. WE HAVE CONSIDERED THE ORDERS OF THE AUTHORITIES BE LOW AND SUBMISSIONS OF THE LEARNED REPRESENTATIVES AND WE H AVE ALSO CAREFULLY CONSIDERED THE COMMISSIONER (APPEALS)S ORDER FOR A SSESSMENT YEAR 2006 07, A COPY OF WHICH IS PLACED AT PAGES197 TO 208 O F THE PAPER BOOK (RELEVANT PAGES 206208. WE OBSERVE THAT THE CONSUL TANCY CHARGES HAD BEEN PAID BY THE ASSESSEE IN PROVIDING TECHNICAL SE RVICES REGARDING THE PATENTS, OBTAINING PATENT INFORMATION FROM INNOVATO R COMPANIES AND OBTAINING INNOVATOR SAMPLES FOR R&D PURPOSES. THE P AYMENTS HAVE BEEN ACCEPTED TOWARDS RESEARCH AND NOT TOWARDS REGISTERI NG THE PATENTS. THEREFORE, THESE EXPENDITURES HAVE BEEN INCURRED TO WARDS RESEARCH EXPENSES AND NOT TOWARDS ANY PATENT FILING. FURTHER , IT IS ALSO OBSERVED THAT THE EXPENDITURE INCURRED IN RESPECT OF PATENT APPLI CATION FILED UNDER THE PATENT ACT, 1970. EXPLANATION TO SECTION 35(2AB), A S REPRODUCED HEREIN ABOVE, SPECIFICALLY PROVIDES THAT THE EXPENDITURE O N SCIENTIFIC RESEARCH FOR THE PURPOSE OF SECTION 35(2AB) OF THE ACT SHALL INC LUDE FILING OF APPLICATION FOR A PATENT UNDER THE PATENT ACT, 1970, IN RELATIO N TO DRUGS AND PHARMACEUTICALS. ANY APPLICATION FOR PATENT FOREIGN COUNTRY HAS TO BE FILED IN INDIA AS PER SECTION 7 OF THE PATENT ACT, 1970, ACC ORDING TO PATENT COOPERATION TREATY. THEREFORE, WE HOLD THAT THE COM MISSIONER (APPEALS) HAS RIGHTLY HELD THAT THE SAID EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PATENT FILING CHARGES IS ELIGIBLE FOR WEIGHTED DEDU CTION UNDER SECTION 35(2AB) R/W EXPLANATION THERETO. IN VIEW OF THE ABOVE, WE U PHOLD THE ORDER OF THE COMMISSIONER (APPEALS) BY REJECTING GROUND NO.3 OF THE APPEAL TAKEN BY THE DEPARTMENT. M/S. USV LIMITED 17 35. NOW WE TAKE UP GROUND NO.1 OF THE APPEAL TAKEN BY T HE DEPARTMENT WHICH READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING TO TREAT THE EXPE NSES OF ` 3,97,373, PAID TO TRADE MARK ATTORNEYS BY TREATING AS REVENUE EXPENDITURE . 36. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SAME VERY ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200607 IN THE APPEAL FILED BY THE DEPARTMENT BEING ITA NO.453/MUM./2009, ORDER DATED 18 TH MARCH 2010, AND THE TRIBUNAL, BY FOLLOWING ITS EARLIER ORDER FOR AS SESSMENT YEAR 200506 IN ASSESSEES OWN CASE, HELD THAT THE EXPENDITURE FOR REGISTERING TRADE MARK IN INDIA IS A REVENUE EXPENDITURE AND NOT CAPITAL EXPE NDITURE. 37. LEARNED DEPARTMENTAL REPRESENTATIVE HAS NOT DISPUTE D THE ABOVE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE . 38. WE ALSO OBSERVE THAT THE COMMISSIONER (APPEALS), WH ILE DECIDING THE ISSUE ALSO FOLLOWED EARLIER ORDER OF THE TRIBUNAL. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE COMMI SSIONER (APPEALS) AS HE HAS DECIDED THE ISSUE BY FOLLOWING THE TRIBUNAL ORD ER FOR ASSESSMENT YEAR 200607 IN ASSESSEES OWN CASE. ACCORDINGLY, GROUND NO.1, OF THE APPEAL TAKEN BY THE DEPARTMENT IS REJECTED. 39. GROUND NO.2, OF THE APPEAL, IS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING TO TREAT THE EXPE NSES OF ` 14,66,514 PAID TO THE ASSOCIATED ENTERPRISES OF THE ASSESSEE V/S INDICAS PHARMA LLC INTO INTERNATIONAL TRANSACTION FOR REGISTRATION OF ANDA IN USA BY TREATING AS REVENUE EXPENDITURE. 40. THE AMOUNT OF ` 14,66,514, IS WRONGLY MENTIONED IN THE ABOVE GROUN D AND THE CORRECT AMOUNT IS ` 7,03,927. M/S. USV LIMITED 18 41. THE RELEVANT FACTS ARE THAT THE ASSESSEE HAD SHOWN AN EXPENDITURE OF ` 14,66,514, PAID TO ITS ASSOCIATED ENTERPRISES M/S. INDICUS PHARMA LLC. THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACTION FOR REGISTRATION OF ANTI NATIONAL DRUG APPLICATION (ANDA) IN USA FOR ARRANGI NG PRODUCT REGISTRATION. 42. THE ASSESSING OFFICER STATED THAT THE NATURE OF EXP ENDITURE INCURRED IN USA FOR FILING OF ANDA ARE NOT LIMITED TO JUST ONE YEAR, THEY ARE TRANSCENDENTAL IN NATURE. ACCORDINGLY, THE ASSESSIN G OFFICER CONSIDERED THE SAID EXPENDITURE AS CAPITAL IN NATURE. SINCE THE SA ID EXPENDITURE HAS BEEN INCURRED IN RELATION TO TAXABLE UNITS AND ALSO FOR UNITS WHICH ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80IC, 80IB AND 10B OF THE A CT, THE ASSESSING OFFICER CONSIDERED THE SUM OF ` 7,03,927, BEING THE AMOUNT PERTAINING TO TAXABLE UNITS AND TREATED IT AS CAPITAL EXPENDITURE IN NATU RE AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. IT IS RELEVANT TO STA TE THAT THE ASSESSING OFFICER HAS ALLOWED DEPRECATION THEREON OF ` 87,991. 43. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE T HE FIRST APPELLATE AUTHORITY. ON BEHALF OF THE ASSESSEE, IT WAS CONTEN DED THAT THE SAID EXPENDITURE HAS BEEN INCURRED AS STATUTORY OBLIGATI ON AND NO BENEFIT OF ENDURING NATURE HAS BEEN OBTAINED. IT WAS STATED TH AT ANDA REGISTRATION AUTHORISATION TO THE PRODUCT OF THE COMPANY TO SELL IN THE SPECIFIED COUNTRY. ANDA AUTHORISATION IS A FORMALITY TO TRACK THE PROD UCT AND MANUFACTURER FROM THE QUALITY POINT OF VIEW. IT WAS STATED THAT THESE EXPENDITURES ARE TO TAKE ANDA AUTHORISATION OF GENERIC PRODUCTS WHICH M EANS THERE WOULD BE MANY SUCH AUTHORISATION OF SIMILAR PRODUCTS BEING T AKEN. THEREFORE, THE EXPENDITURES INCURRED IS ALLOWABLE AS REVENUE EXPEN DITURE. THE COMMISSIONER (APPEALS) CONSIDERED THE ABOVE SUBMISS IONS OF THE ASSESSEE VIDE PARA2.3 OF THE IMPUGNED ORDER AND HELD THAT I T IS A BUSINESS EXPENSES. THE SAID PARA READS AS FOLLOWS: 2.3 I HAVE CONSIDERED THE REPLY OF THE APPELLANT AN D PERUSED THE ASSESSMENT ORDER. ANTI NATIONAL DRUG APPLICATION RE GISTRATION IS REQUIRED FOR MARKETING OF THE PRODUCT OF THE APPELL ANT COMPANY IN M/S. USV LIMITED 19 USA. THUS, THE REGULATORY REQUIREMENT TO SELL THE P RODUCT IN THE MARKET. IN THE ABSENCE OF REGISTRATION OF ANDA, THE APPELLANT MAY NOT BE ABLE TO SELL HIS PRODUCT WITHOUT HINDRANCE. THE APPELLANT HAS NOT ACQUIRED ANY BENEFIT OF ENDURING NATURE, THEREFORE, THE EXPENDITURE OF PROFESSIONAL FEES FOR REGISTRATION OF ANDA IS ALLOW ABLE AS REVENUE EXPENDITURE. HONBLE CALCUTTA HIGH COURT IN THE CAS E OF CIT V/S VARAS INTERNATIONAL, 225 ITR 831, HAS HELD THAT THE PAYME NT MADE TO EXCISE DEPARTMENT FOR OBTAINING LICENSE IS ALLOWABLE AS BU SINESS EXPENDITURE. IN VIEW OF THIS FACT, THE ASSESSING OFFICER IS DIRE CTED TO DELETE THE ADDITION OF ` 7,03,927, AND ALSO WITHDRAW THE DEPRECIATION ALLOW ED TO THE APPELLANT AMOUNTING TO ` 87,991. GROUND OF APPEAL NO.2, IS ALLOWED. HENCE, THE DEPARTMENT IS IN APPEAL BEFORE THE TRIBU NAL. 44. DURING THE COURSE OF HEARING, THE LEARNED DEPARTMEN TAL REPRESENTATIVE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND WH EREAS THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW. HE SUBMITTED THAT THE ASSESSEE HAS INCURRED THE EXPENDITURE TO MEET REGULATORY REQUIREMENTS OF THE FOREIGN GOVERNMENT ( USA). HE SUBMITTED THAT BY INCURRING THE SAID EXPENDITURE, THE ASSESSEE HAS NOT ACQUIRED ANY IPR NAMELY TRADE MARK / PATENT OR A WARDOFF ANY COMPET ITION. THE SAID EXPENDITURE IS ALSO NOT INCURRED FOR COMPLETING THE OWNERSHIP PROCESS. THE EXPENDITURE HAS BEEN INCURRED FOR ANDA REGISTRATION WHICH GIVES AUTHORISATION FOR THE HOLDER TO MARKET AND SELL THE REGISTERED ANDA IN THE USA MARKET. HE SUBMITTED THAT SUCH REGISTRATION IS COMPULSORY AND STATUTORY OBLIGATION REQUIRED IN ORDER TO INCREASE EXPORT BUS INESS IN USA. THEREFORE, THE SAID EXPENDITURE IS A REVENUE EXPENDITURE INCUR RED FOR THE PURPOSE OF BUSINESS. 45. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED R EPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITY BELOW. THE DEPARTMENT HAS NOT DISPUTED THE FACT THAT BY ANDA REGISTRATION, THE AS SESSEE HAS COMPLETED THE STATUTORY REQUIREMENT TO SELL THE PRODUCT IN USA MA RKET AND IN THE ABSENCE OF SUCH REGISTRATION, THE ASSESSEE MAY NOT BE ABLE TO SELL ITS PRODUCT WITHOUT HINDRANCE. CONSIDERING THE ABOVE FACTS, WE AGREE WI TH THE COMMISSIONER (APPEALS) THAT SUCH EXPENDITURE HAS BEEN INCURRED B Y THE ASSESSEE FOR THE M/S. USV LIMITED 20 PURPOSE OF ITS BUSINESS WHICH IS TO BE ALLOWED AS R EVENUE EXPENDITURE. HENCE, THE COMMISSIONER (APPEALS) HAS CORRECTLY HEL D THAT THE EXPENDITURE OF ` 7,03,927, BE ALLOWED AS REVENUE EXPENDITURE. THE C OMMISSIONER (APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICE R TO WITHDRAW THE DEPRECIATION ALLOWED OF ` 87,991. THEREFORE, GROUND NO.2, OF THE APPEAL TAKEN BY THE REVENUE IS DISMISSED. 46. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JULY 2012 SD/- N.K. BILLAIYA ACCOUNTANT MEMBER SD/- B.R. MITTAL JUDICIAL MEMBER MUMBAI, DATED: 4 TH JULY 2012 COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, I BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI