EISAI PHARMACEUTICALS INDIA P.LTD, MUMBAI V. JCIT (OSD) RG 8(1), MUMBAI

ITA 6613/MUM/2012

• Counselvise Citation: 661319914 RSA 2012
• Duration Of Justice: 1 year(s) 8 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAKASH L PATHADE
• Keywords: Business income

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE S/SHRI H.L. KARWA, HONBLE PRESIDENT AND P.M . JAGTAP, AM .. , .. , ./ I.T.A. NO.6613 /MUM/2012 ( / ASSESSMENT YEAR : 2009-2010 EISAI PHARMACEUTICALS INDIA PVT. LTD., IST FLOOR, B WING, MARWAH CENTRE, KRISHNALAL MARWAH MARG, ANDHERI (E), MUMBAI 400 072. / VS. THE ASSTT. COMMISSIONER OF INCOME TAX (OSD), RANGE 8(1), MUMBAI. ./ PAN : AABCE3924D ( ! / APPELLANT ) .. ( '#! / RESPONDENT ) A PPELLANT BY SHRI GIRISH DAVE R E SPONDENT BY : SHRI PRAKASH L. PATHADE ' ( / DATE OF HEARING : 17-07-2014 ' ( / DATE OF PRONOUNCEMENT : 30-7-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(A) -16, MUMBAI DATED 26-09-2012 AND THE SOLITA RY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OF RS. 86,09,8 43/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENSES. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF DRUGS. TH E RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29-09-2 009 DECLARING A LOSS OF RS. ITA 6613/M/12 2 1,07,69,628/-. IN THE SAID RETURN, DEDUCTION OF RS . 86,09,843/- WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF RESEARCH AND DEVELOPM ENT EXPENDITURE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE SAID CLAI M OF THE ASSESSEE WAS EXAMINED BY THE A.O. AND ON SUCH EXAMINATION, HE FO UND THAT THE RESEARCH EXPENDITURE WAS MAINLY INCURRED BY THE ASSESSEE ON SURVEY CONDUCTED TO FIND OUT THE NUMBER OF PATIENTS SUFFERING FROM ALZHEIMER S DISEASES IN INDIA. HE ALSO FOUND THAT THE NGOS DEDICATED FOR DEMENTIA ACT IVITY WERE SUPPORTED BY THE ASSESSEE COMPANY AND THE EXPENSES RELATED TO TH IS ACTIVITY WERE ALSO CLAIMED AS RESEARCH EXPENSES. ACCORDING TO THE A.O. , THESE EXPENSES WERE NOT IN THE NATURE OF RESEARCH EXPENSES KEEPING IN VIEW THE NATURE OF THE ASSESSEES BUSINESS OF MANUFACTURING AND SELLING OF DRUGS. HE ALSO HELD THAT THE FORMULATIONS AND CLINICAL INFORMATION WERE BEIN G PROVIDED TO THE ASSESSEE COMPANY BY ITS HOLDING COMPANY EISAI CO. LTD., JAPA N AND THE ASSESSEE THEREFORE WAS NOT REQUIRED TO CARRY OUT ANY SCIENTI FIC RESEARCH. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF RESEARCH AND DEVELOPMENT EXPENDITURE AMOUNTING TO RS. 86,09,843/ -. ON APPEAL, THE LD. CIT(A) CONFIRMED THE SAID DISALLOWANCE MADE BY THE A.O. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, A SIMILAR ISSUE WAS INVOLVED IN ASS ESSEES CASE FOR THE EARLIER YEARS I.E ASSESSMENT YEARS 2006-07, 2007-08 AND 200 8-09 AND VIDE ITS ORDER DATED 30-05-2014, THE MUMBAI BENCH OF THE TRIBUNAL IN ITA NO. 1058, 5665 & 8275/MUM/2011 HAS RESTORED THE SAME TO THE FILE O F THE A.O. WITH THE FOLLOWING OBSERVATION/DIRECTION GIVEN IN PARA 3 OF ITS ORDER:- 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD, INCLUDING THE AGREEMENT DATED 01.01.2005 (SUPRA) (P B PGS.21-29), GIVING OUR CAREFUL CONSIDERATION TO THE MATTER. WE ARE WHOLLY UNABLE TO APPRECIATE THE ITA 6613/M/12 3 REVENUES CASE. TRUE, THE ASSESSEE CANNOT BE CONSID ERED AS ENGAGED IN SCIENTIFIC RESEARCH RELATED TO ITS BUSINESS IN-AS-M UCH AS THE SAME IS BEING UNDERTAKEN IN PURSUANCE TO AN AGREEMENT WITH ANOTHE R, EISAI-JAPAN, WHICH SPONSORS THE SAME, SO THAT THE DISCOVERY, IF ANY, R ESULTING THERE-FROM, WOULD VEST WITH THE LATTER. HOWEVER, WHY IS THE SAME NOT ADMISSIBLE U/S. 37(1), WE FAIL TO FATHOM. RATHER, AS STATED BY THE LD. CIT(A) , THE ASSESSEE CAN ONLY BE CONSIDERED AS ENGAGED IN THE BUSINESS OF CARRYING O N SCIENTIFIC RESEARCH ITSELF (REFER PARA 3.3.3 OF HIS ORDER), MAKING AVAILABLE I TS RESOURCES, EQUIPMENT AND SERVICES TO ANOTHER/S FOR A CONSIDERATION. THE REVE NUE HAS IN FACT ITSELF ASSESSED THE RECEIPT BY WAY OF SERVICE CHARGES, AT RS.64.15 LACS, RS.96.85 LACS AND RS.90.52 LACS RESPECTIVELY FOR THE THREE YEARS UNDER REFERENCE, CLAIMED TO BE FROM EISAI-JAPAN, AS BUSINESS INCOME U/S. 28. HOW COULD THEN THE EXPENDITURE ON A PRINCIPAL ACTIVITY CARRIED OUT BE CONSIDERED, EVEN IN PART (AS IT WOULD ONLY BE FOR THAT INCURRED AND CLAIMED FOR A.Y . 2006-07), AS TOWARD PRE- OPERATIVE EXPENDITURE ? IN-AS-MUCH AS THE EXPENDITURE BY WAY OF SPONSORIN G THE ACTIVITY OF THE NGOS (AS ARDSI) ALSO FORMS PART OF THE AGREEMENT DATED 01.01.2005, THOUGH, AS EXPLAINED BY THE LD. AR, NOT SUBJECT TO A MARK-UP OF 10%, AS IS THE EXPENDITURE INCURRED DIRECTLY BY THE ASSESSEE, THE SAME CANNOT BE CONSIDERED AS DONATION, AS CONSIDERED BY THE REV ENUE. AT BEST, IT IS AN EXPENDITURE ON A RELATED ACTIVITY AND, FURTHER, BEI NG REIMBURSABLE IN FULL UNDER THE AGREEMENT, NO EXPENDITURE IN FACT CAN BE SAID TO HAVE BEEN AT ALL INCURRED OR CLAIMED BY THE ASSESSEE. SO, HOWEVER, EVEN AS OBSERVED DURING THE HEARING, T HERE BEING NO FINDING BY THE AUTHORITIES BELOW WITH REGARD TO A D IRECT NEXUS OF THE IMPUGNED EXPENDITURE WITH THE RECEIPT AFORE-NOTED, WE ONLY C ONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER (A.O.) TO VERIFY THE ASSESSEES CLAIM OF HAVING IN FACT RECEI VED THE AMOUNTS IN THE STATED SUM FROM EISAI-JAPAN IN PURSUANCE TO THE AGREEMENT, IN CONSIDERATION OF OR AGAINST THE IMPUGNED EXPENDITURE, WHETHER INCURRED DIRECTLY OR INDIRECTLY BY THE ASSESSEE. IF SO, WHICH ASPECT THE A.O. SHALL DE CIDE UPON VERIFICATION, IN OUR CLEAR VIEW, NO CASE FOR ANY DISALLOWANCE IS MADE OU T. THE A.O. SHALL DETERMINE THE ISSUE REFERRED BY ISSUING DEFINITE FINDINGS OF FACT AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE A CCORDINGLY. 5. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSES SMENT YEARS 2006-07, 2007- 08 AND 2008-09, WE RESPECTFULLY FOLLOW THE ORDER OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL FOR THE SAID YEARS AND RESTORE THIS I SSUE TO THE FILE OF THE A.O. AS PER THE SAME DIRECTIONS AS GIVEN BY THE TRIBUNAL IN THE SAID ORDER. ITA 6613/M/12 4 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JULY, 2014. ' . / 0 30-7-2014 ' SD/- SD/- (H.L. KARWA) (P.M. JAGTAP ) /PRESIDENT ACCOUNTANT MEMBER MUMBAI ; 0 DATED 30=7=2014 [ .B../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '#! / THE RESPONDENT. 3. C () / THE CIT(A) 16,, MUMBAI 4. C / CIT 8, MUMBAI 5. F 'BBH , ( H , / DR, ITAT, MUMBAI E BENCH 6. / GUARD FILE. / BY ORDER, #F 'B //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI