RUBICON RESEARCH P. LTD, MUMBAI V. ITO 10(3)(3), MUMBAI

ITA 6122/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7735 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 20-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Competent authority; Set aside
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI A.L.GEHLOT, AM & SMT. P.MADHAVI DEVI, JM I.T.A.NO.6122/MUM/2009 - A.Y 2006-07 M/S RUBICON RESEARCH PVT. LTD., 221, ANNEXE BUILDING, GOREGAON MULUND LINK ROAD, OFF LBS MARG, MUMBAI 400 078 PAN NO.AABCR 1422 M INCOME TAX OFFICER 10(3)(3), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NITESH JOSHI. REVENUE BY : SHRI SANJEEV JAIN. (DR) O R D E R PER P.MADHAVI DEVI, JM: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST CI T(A)S ORDER DATED 29/10/2009. 2. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL- 1. THE LEARNED ASSESSING OFFICER AS WELL AS THE COMMIS SIONER OF INCOME TAX (APPEALS) ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN DISALLOWING/UPHOLDING THE DISALLOWANCE OF THE APPELLANTS CLAIM FOR DEDUCTION UNDER SECTION 80IB AMOUNTING TO RS.16,410,500. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN UPHOLDING THE CONTENTIONS OF THE LEARNED A SSESSING OFFICER THAT THERE WAS A DISTINCTION BETWEEN RESEAR CH AND DEVELOPMENT ACTIVITIES AND ADVISORY SERVICES IN CON NECTION WITH SUCH RESEARCH AND DEVELOPMENT ACTIVITIES. 3. THIS THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO APPRECIATE THE FACT THAT THE APPELLANTS A CTIVITIES BY THE PRESCRIBED AUTHORITY, IT WAS NOT OPEN FOR THE INCOM E TAX DEPARTMENT TO CONTEND OTHERWISE. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN NOT TAKING COGNIZANCE OF THE LETTER DATED 3 RD NOVEMBER 2009 FILED BY THE APPELLANTS AUTHORISED REPRESENTA TIVES, REQUESTING HIM TO CONSIDER THE CLARIFICATION [WHICH HAD BEEN SOUGHT BY THE INCOME TAX DEPARTMENT], ISSUED BY THE PRESCRIBED AUTHORITY REGARDING THE NATURE OF ACTIVI TIES CARRIED ON BY THE APPELLANT. 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT NIL AF TER CLAIMING DEDUCTION U/S.80IB OF THE ACT OF RS.1,64,10,502/-. DURING THE ASSESSMENT PROCEEDINGS U/S.143[3], AO OBSERVED THAT THE ASSESS EE COMPANY IS ENGAGED IN THE BUSINESS OF ADVISORY/SERVICE ACTIVIT IES IN THE FIELD OF PHARMACEUTICAL AND HEALTHCARE PRODUCTS AND HAS CLAI MED DEDUCTION U/S.80IB OF THE ACT. THE ASSESSEE WAS ASKED TO JUST IFY THE CLAIM OF DEDUCTION ALONG WITH THE VERIFIABLE DOCUMENTARY EVI DENCE. ASSESSEE VIDE LETTER DATED 1-12-2008 SUBMITTED THAT IT FULFI LLS THE CONDITIONS SPECIFIED IN SUB-SEC.[8A] OF SEC.80IB AND ALSO RULE 18DA(1)(E) OF I.T.RULES. THE ASSESSEE ALSO FILED THE CERTIFICATE ISSUED BY THE PRESCRIBED AUTHORITY CERTIFYING THAT THE ASSESSEE I S ENGAGED IN THE SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITIES. THE AO HOWEVER WAS NOT CONVINCED WITH THE ASSESSEES SUBMISSION THAT I T WAS CARRYING ON SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITIES AND HELD THAT THE ASSESSEE IS CARRYING ON ONLY SERVICE ORIENTED ACTIV ITY I.E. DEVELOPMENT OF EXTENDED RELEASE OF EXISTING TABLETS. AS REGARDS THE CERTIFICATE OF THE PRESCRIBED AUTHORITY, HE HELD THAT THE SAID AUTHORI TY IS ALSO APPROVING THE PROJECT WITH THE REMARK THE ABOVE APPROVAL IS SUBJECT TO THE PROVISIONS OF SECTION 80IB[8A] READ ALONG WITH GENE RAL PROVISIONS OF SECTION 80IB OF THE I.T.ACT AND THE PROVISIONS OF R ULE 18D & 18DA OF THE I.T.RULES AS AMENDED FROM TIME TO TIME. HE THU S HELD THAT THE ASSESSEE IS NOT ENTITLED FOR DEDUCTION U/S.80IB OF THE ACT AND DISALLOWED THE SAME. 3 4. AGGRIEVED ASSESSEE FILED AN APPEAL BEFORE THE CI T(A) WHO CONFIRMED THE ORDER OF THE AO BY HOLDING THAT THE P RESCRIBED AUTHORITY, I.E. SECRETARY, DEPARTMENT OF SCIENTIFIC AND INDUST RIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF I NDIA HAS GRANTED APPROVAL AFTER DETAILED EXAMINATION. AGGRIEVED, ASS ESSEE IS IN SECOND APPEAL BEFORE US. 5. THE LD.COUNSEL FOR THE ASSESSEE WHILE REITERATIN G THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW, SUBM ITTED THAT THE ASSESSEE IS A SCIENTIFIC RESEARCH AND DEVELOPMENT C OMPANY AS HELD BY THE PRESCRIBED AUTHORITY, I.E. THE GOVERNMENT OF IN DIA. HE DREW OUR ATTENTION TO THE PROVISIONS OF LAW U/S.80IB[8A] AND ALSO RULES 18D & 18DA, TO CONTEND THAT IT IS SUFFICIENT IF THE PRESC RIBED AUTHORITY CERTIFIES THE ASSESSEE TO BE A SCIENTIFIC RESEARCH AND DEVELO PMENT COMPANY. HE HAS PLACED BEFORE US A COPY OF THE LETTER DATED 29- 11-2005 RECEIVED FROM THE SECRETARY, DEPARTMENT OF SCIENTIFIC AND IN DUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNOLOGY, GOVERNMENT OF I NDIA, TO THE EFFECT THAT THE APPROVAL IS GRANTED TO THE COMPANY AS COMM ERCIAL RESEARCH AND DEVELOPMENT COMPANY U/S.80IB BY THE SAID AUTHOR ITY ONLY AFTER ASSESSMENT OF THE RESEARCH WORK AND INFRASTRUCTURE AND THAT THE DEVELOPMENT OF DRUG FORMULATION IS NOT AN ADVISORY ACTIVITY, BUT IT IS A RESEARCH AND IF IT IS DONE UNDER A CONTRACT IS CALL ED CONTRACT RESEARCH WHICH IS AN ACCEPTED FORM OF RESEARCH DEVELOPMENT. HE SUBMITTED THAT THIS LETTER WAS ADDRESSED TO THE INCOME TAX OFFICER SHRI S.GUPTA ON A REFERENCE MADE BY HIM AND THIS IS SUBSEQUENT TO THE COMPLETION OF THE ASSESSMENT PROCEEDINGS. HE ALSO PLACED RELIANCE UPO N THE DECISION OF 4 THE BOMBAY HIGH COURT IN THE CASE OF INDIAN PLANETA RY SOCIETY VS. CBDT AND ORS. [318 ITR 102], WHEREIN IT HAS BEEN HE LD THAT WHILE CONSIDERING THE APPLICATION U/S.35[1][II] OF THE AC T, THE GOVERNMENT IS DUTY BOUND TO MAKE ENQUIRIES OF SCIENTIFIC RESEARCH IN THE FIELD OF MEDICINES ETC., WHO WOULD BE CONVERSANT WITH THE SU BJECT AND THE CBDT WAS NOT THE COMPETENT AUTHORITY TO REJECT SUCH APPROVAL GIVEN BY THE GOVERNMENT OF INDIA. THUS, ACCORDING TO THE ASSESSEE, AO CANNOT SIT IN APPEAL AGAINST THE APPROVAL GIVEN BY THE PRESCRIBED AUTHORITY AND DENY DEDUCTION U/S.80IB[8A] OF THE AC T. HE FURTHER SUBMITTED THAT ASSESSMENT YEAR 2003-04 WAS THE FIRS T YEAR OF THE ACTIVITY OF THE COMPANY AND IN THE EARLIER AS WELL AS SUBSEQUENT ASSESSMENT YEARS THERETO THE AO U/S.143[3] HAS GRAN TED DEDUCTION AND, THEREFORE, THE RULE OF CONSISTENCY AND UNIFORM ITY HAS TO BE APPLIED AND DEDUCTION CANNOT BE DENIED IN THE RELEVANT ASSE SSMENT YEAR. FOR THIS PROPOSITION HE PLACED RELIANCE UPON THE DECISI ON OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF MICRO INSTRUME NT CO. VS. ITO 12 CTR (CHD) 501. 6. THE LD.DR, ON THE OTHER HAND, SUPPORTED THE ORDE R OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CONDITIONS LAID DOWN IN RULE 18D AND 18DA OF I.T.RULES ARE INDEPENDENT OF EACH O THER AND THE ASSESSEE HAS TO SATISFY ALL THE CONDITIONS LAID DOW N THEREIN. ACCORDING TO HIM, EVEN IF THE PRESCRIBED AUTHORITY HAS CERTIF IED THE ASSESSEE TO BE SCIENTIFIC RESEARCH AND DEVELOPMENT COMPANY, ASSESS EE ALSO HAS TO PROVE BEFORE THE AO THAT IT IS CARRYING ON THE RESE ARCH AND DEVELOPMENT ACTIVITY AND AS SEEN FROM THE ACTIVITIE S OF THE ASSESSEE 5 COMPANY IT IS ONLY ENGAGED IN THE FIELD OF PROVIDIN G SERVICES AND NOT CONDUCTING RESEARCH OF ITS OWN. HE SUBMITTED THAT T HE ASSESSEE IS A CONTRACTOR WITH NO PROJECT OF HIS OWN AND NO MECHAN ISM OF ITS OWN TO BE CALLED AS A RESEARCH AND DEVELOPMENT COMPANY. AS REGARDS RULE OF CONSISTENCY AND UNIFORMITY, THE LD.DR SUBMITTED THA T IN THE EARLIER ASSESSMENT YEARS, THE AO HAS NOT EXAMINED AS TO WHE THER THE ASSESSEE FULFILLED THE CONDITIONS LAID DOWN IN RULE 18DA AND, THEREFORE, THOSE ASSESSMENT PROCEEDINGS CANNOT BE SAID TO BE B INDING ON THE AO FOR THE RELEVANT ASSESSMENT YEAR. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT THE BASIC CONDITION FOR T HE ELIGIBILITY TO CLAIM U/S.80IB IS THAT THE ASSESSEE SHOULD BE INVOLVED IN THE SCIENTIFIC RESEARCH AND DEVELOPMENT ACTIVITY. RULES 18D AND 18 DA OF THE I.T.RULES PROVIDE THAT THE PRESCRIBED AUTHORITY SHA LL CERTIFY THE ASSESSEE TO BE INVOLVED IN SUCH ACTIVITY. FOR MAKIN G AN APPLICATION FOR SUCH CERTIFICATE, THE ASSESSEE IS BOUND TO PROVIDE ALL THE RELEVANT DATA AND IT IS ALSO PROVIDED THAT THE CERTIFICATE SHALL BE INITIALLY GRANTED ONLY FOR A PERIOD OF 3 YEARS AND THE RENEWAL OF THE SAME SHALL BE GRANTED ONLY IF THE ASSESSEE SATISFIES THE PRESCRIBED AUTHO RITY THAT IT IS CARRYING ON SUCH ACTIVITY AND HAS GOT THE NECESSARY INFRASTR UCTURE TO DO SO. AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE O F INDIAN PLANETARY SOCIETY [CITED SUPRA], THE LEGISLATURE HAS THOUGHT IT FIT TO ENTRUST THE RESPONSIBILITY WITH THE GOVERNMENT OF INDIA WHO WIT H THE HELP OF THE BODY OF PERSONS WHO WOULD BE CONVERSANT WITH THE SU BJECT, WOULD APPLY ITS MIND BEFORE ISSUING SUCH CERTIFICATE. THE AO OR THE CIT(A) FOR 6 THAT MATTER CANNOT SIT IN APPEAL AGAINST THE ORDER OF SUCH AUTHORITY. FROM THE LETTER DATED 29-11-05 PRODUCED BY THE ASSE SSEE BEFORE US ADDRESSED TO THE ITO, WE FIND THAT THE PRESCRIBED A UTHORITY GRANTS THE APPROVAL ONLY AFTER THE ASSESSMENT OF THEIR RESEARC H WORK AND INFRASTRUCTURE. FURTHER, THE INITIAL APPROVAL HAS B EEN GRANTED FOR ASSESSMENT YEARS 2003-04 TO 2005-06 AND DURING THE RELEVANT ASSESSMENT YEAR IT IS ONLY THE RENEWAL OF THE SAID APPROVAL WHICH IS POSSIBLE ONLY IF THE ASSESSEE CONTINUES TO SATISFY THE CONDITIONS FOR THE GRANT OF SUCH APPROVAL. FURTHER, THE AO IN THE ASSE SSEES OWN CASE FOR THE EARLIER YEAR HAS GRANTED DEDUCTION U/S.80IB AFT ER CONSIDERING THE APPROVAL GRANTED BY THE PRESCRIBED AUTHORITY AND IT CANNOT DEPART FROM ITS EARLIER STAND ON SAME SET OF FACTS WITHOUT THER E BEING SOME COGENT MATERIAL ON RECORD FOR COMING TO A DIFFERENT CONCLU SION. IN VIEW OF THE SAME, WE SET ASIDE THE ORDERS OF THE AO AS WELL AS THE CIT(A) AND ALLOW THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AND DIRECT THE AO TO ALLOW DEDUCTION U/S.80IB OF THE ACT PROVIDED THE ASSESSEE SATISFY THE OTHER CONDITIONS OF SEC.80IB. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED ON THIS 24 TH DAY OF FEBRUARY, 2010. SD/- SD/- (A.L.GEHLOT) (P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 24 TH FEBRUARY, 2010. P/-* 7