USV LTD, MUMBAI V. DCIT CEN CIR 32, MUMBAI

ITA 6747/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88318 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 05-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISAN VYAS
• Assessee Lawyers: RAJAN VORA SHRI NIMESH VORA
• Keywords: Revenue expenditure
• Section: 80IB

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BE NCH, MUMBAI , !' # # # # $ %% , !' & BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ./I .T.A. NO. 6747/MUM/2012 A.Y. 2009-2010 ./I .T.A. NO. 4248/MUM/2013 A.Y. 2008-2009 M/S. USV LTD., B.S.D. MARG, GOVANDI STATION ROAD, GOVANDI , MUMBAI-400 088 / VS. THE ACIT, CENT CIRCLE 32, AAYAKAR BHAVAN, MUMBAI-400 020 '' ./ $( ./ PAN/GIR NO. : AAACU1366N ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') , / APPELLANT BY: SHRI RAJAN VORA SHRI NIMESH VORA *+') - , / RESPONDENT BY: SHRI KISAN VYAS - ./ / DATE OF HEARING :16.02.2015 012 - ./ / DATE OF PRONOUNCEMENT :20.02.2015 !3 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE PREFERRED AG AINST TWO SEPARATE ORDERS OF THE LD. CIT(A)-41, MUMBAI PERTAI NING TO ASSESSMENT YEARS 2009-10 & 2008-09. BOTH THESE APPEALS HAVE C OMMON ISSUES THEREFORE THEY WERE HEARD TOGETHER AND DISPOSE OF B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 4248/M/13 & 6747/M/12 2 2. WE ARE TAKING UP THE FACTS AND ISSUES INVOLVED IN A.Y. 2009-10 IN ITA NO. 6747/M/2012. 3. THE FIRST GRIEVANCE RELATES TO THE NON ALLOWANCE OF WEIGHTED DEDUCTION @ 150% U/S. 35(2AB) ON EXPENSES OF RS. 10 ,77,95,285/- INCURRED ON CLINICAL TRIAL. 3.1. AN IDENTICAL ISSUE WAS ALSO THERE IN ASSESSME NT YEARS 2006-07 AND 2007-08 WHEREIN SIMILAR ADDITIONS HAVE BEEN MADE. THE MATTER TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL IN ITA NOS. 4517 & 5582 FOR A.Y. 2007-08 AND HAS DECIDED THIS ISSUE AGAINST THE ASSE SSEE AND IN FAVOUR OF THE REVENUE. THE LD. CIT(A) HAS CONFIRMED THE FIND INGS OF THE AO FOLLOWING THE ORDER OF THE TRIBUNAL. 3.2. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE ST ATED THAT NOW THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CI T VS CADILA HEALTHCARE 263 CTR 686. THE DECISION OF THE TRIBUN AL FOR A.Y. 2007-08 IS DT. 4.7.2012 AND THE DECISION OF THE HONBLE GUJ ARAT HIGH COURT IS DT. 20.3.2013. THUS IT IS CLEAR THAT THE DECISION OF T HE HONBLE GUJARAT HIGH COURT WAS NOT BEFORE THE TRIBUNAL WHEN IT WAS DECID ING THIS ISSUE. THE HONBLE HIGH COURT EXPLAINED THE EXPLANATION TO SEC . 35(2AB)(1) AS UNDER: EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, EXP ENDITURE ON SCIENTIFIC RESEARCH IN RELATION TO DRUGS AND PH ARMACEUTICALS, SHALL INCLUDE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CE NTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATE NT UNDER THE PATENTS ACT, 1970 (39 OF 1970). SUCH EXPLANATION T HUS PROVIDES THAT FOR THE PURPOSE OF SAID CLAUSE, I.E. CLAUSE (1 ) OF SECTION 35(2AB), EXPENDITURE ON SCIENTIFIC RESEARCH IN RELA TION TO DRUGS ITA NOS. 4248/M/13 & 6747/M/12 3 AND PHARMACEUTICALS SHALL INCLUDE EXPENDITURE INCUR RED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER THE CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970. THE WHOLE IDEA THUS APPEARS TO BE TO GIVE ENCOURAGEMENT TO SCIENTIFIC RESEARCH. BY THE VERY NATURE OF THINGS, CLINICAL TRIALS MAY NOT ALWAYS BE POSSIB LE TO BE CONDUCTED IN CLOSED LABORATORY OR IN SIMILAR IN-HOU SE FACILITY PROVIDED BY THE ASSESSEE AND APPROVED BY THE PRESCR IBED AUTHORITY. BEFORE A PHARMACEUTICAL DRUG COULD BE PUT IN THE MA RKET, THE REGULATORY AUTHORITIES WOULD INSIST ON STRICT TESTS AND RESEARCH ON ALL POSSIBLE ASPECTS, SUCH AS POSSIBLE REACTIONS, E FFECT OF THE DRUG AND SO ON. EXTENSIVE CLINICAL TRIALS, THEREFORE, WO ULD BE AN INTRINSIC PART OF DEVELOPMENT OF ANY SUCH NEW PHARMACEUTICAL DRUG. IT CANNOT BE IMAGINED THAT SUCH CLINICAL TRIAL CAN BE CARRIED OUT ONLY IN THE LABORATORY OF THE PHARMACEUTICAL COMPANY. IF WE GIVE SUCH RESTRICTED MEANING TO THE TERM EXPENDITURE INCURRED ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY, WE WOULD ON ONE HAND BE COMPLETELY DILUTING THE DEDUCTION ENVISAGED UNDER S UB-SECTION (2AB) OF SECTION 35 AND ON THE OTHER, MAKING THE EX PLANATION NOTED ABOVE QUITE MEANINGLESS. WE HAVE NOTICED THAT FOR T HE PURPOSE OF THE SAID CLAUSE IN RELATION TO DRUG AND PHARMACEUTI CALS, THE EXPENDITURE ON SCIENTIFIC RESEARCH HAS TO INCLUDE T HE EXPENDITURE INCURRED ON CLINICAL TRIALS IN OBTAINING APPROVALS FROM ANY REGULATORY AUTHORITY OR IN FILING AN APPLICATION FO R GRANT OF PATENT. THE ACTIVITIES OF OBTAINING APPROVAL OF THE AUTHORI TY AND FILING OF AN APPLICATION FOR PATENT NECESSARILY SHALL HAVE TO BE OUTSIDE THE IN-HOUSE RESEARCH FACILITY. THUS THE RESTRICTED MEA NING SUGGESTED BY THE REVENUE WOULD COMPLETELY MAKE THE EXPLANATIO N QUITE MEANINGLESS. FOR THE SCIENTIFIC RESEARCH IN RELATIO N TO DRUGS AND PHARMACEUTICALS MADE F R ITS OWN PECULIAR REQUIREME NTS, THE LEGISLATURE APPEARS TO HAVE ADDED SUCH AN EXPLANATI ON. 3.3. NOW WE ARE CONFRONTED WITH A SITUATION WHERE O N THE ONE HAND THERE ARE DECISIONS OF THE TRIBUNAL WHICH ARE IN FA VOUR OF THE REVENUE AND AGAINST THE ASSESSEE AND ON THE OTHER HAND WE HAVE A DECISION OF THE HONBLE HIGH COURT WHICH IS IN FAVOUR OF THE ASSESS EE AND AGAINST THE REVENUE. WHICH DECISION SHOULD GET PRECEDENCE? TH E ANSWER LIES IN THE DECISION OF THE TRIBUNAL AHMEDABAD BENCH IN THE CAS E OF KANEL OIL & ITA NOS. 4248/M/13 & 6747/M/12 4 EXPORT INDS. LTD. VS JCIT 121 ITD 596 WHEREIN THE T RIBUNAL HAS HELD AS UNDER: A SIMPLE ANSWER WOULD BE THAT THE JUDGEMENT OF A HIGH COURT, THOUGH NOT OF THE JURISDICTIONAL HIGH COURT, PREVAILS OVER AN ORDER OF THE SPECIAL BENCH EVEN THOUGH IT IS FRO M THE JURISDICTIONAL BENCH OF THE TRIBUNAL ON THE BASIS O F THE VIEW THAT THE HIGH COURT IS ABOVE THE TRIBUNAL IN THE JUDICIA L HIERARCHY. THE TRIBUNAL FURTHER OBSERVED THAT THIS SIMPLE VIEW IS SUBJECT TO SOME EXCEPTIONS. IT CAN WORK EFFICIENTLY WHEN THERE IS ONLY ONE JUDGEMENT OF A HIGH COURT ON THE ISSUE AND NO CONTR ARY VIEW HAS BEEN EXPRESSED BY ANY OTHER HIGH COURT. 3.4. BEFORE US, THE DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE IS AGAINST THE ASSESSEE BUT AS POINTED OUT ELSEWHERE T HE DECISION OF THE HONBLE GUJARAT HIGH COURT WAS PRONOUNCED LATER ON AND THEREFORE THE TRIBUNAL DID NOT HAVE THE BENEFIT OF THE DECISION O F THE HONBLE GUJARAT HIGH COURT. NOW THAT WE HAVE THE BENEFIT OF THE DE CISION OF THE HONBLE GUJARAT HIGH COURT AS MENTIONED HEREINABOVE, WE ARE FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT AND ACCO RDINGLY WE SET ASIDE THE FINDINGS OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB) IN RESPECT OF CLINI CAL TRIALS AS CLAIMED BY THE ASSESSEE. GROUND NO. 1 IS ACCORDINGLY ALLOW ED. 4. GROUND NO. 2 RELATES TO THE NON ALLOWANCE OF W EIGHTED DEDUCTION IN RESPECT OF (A) CONSULTANCY FEES (B) PATENT FEES AS PER PATENT ACT AND PCT AND (C) PATENT FILING FEES NOT AS PER PATENT A CT. IN SO FAR AS THE CLAIM OF WEIGHTED DEDUCTION IN RESPECT OF CONSULTAN CY FEES AND PATENT FILING FEES AS PER PATENT ACT ARE CONCERNED, THE T RIBUNAL HAS CONSIDERED THIS ISSUE IN A.Y. 2007-08 VIDE ITA NO. 4517 & 5582 /M/2010. THE TRIBUNAL HAS CONSIDERED THIS ISSUE AT PARA 33 OF ITS ORDER AND AT PARA-34 ITA NOS. 4248/M/13 & 6747/M/12 5 ALLOWED THE CLAIM. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD, RESPECTFULLY FOLLOWING THE DECISION OF THE CO ORDINATE BENCH, WEIGHTED DEDUCTION ON CONSULTANCY FEES AND PATENT F ILING FEES AS PER PATENT ACT ARE DIRECTED TO BE ALLOWED. 4.1. IN SO FAR AS PATENT FILING FEES WHICH IS NOT ACCORDING TO THE PATENT ACT AND PCT, WE FIND THAT THE SAME IS ALLOWABLE AS PER THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CADILA H EALTHCARE (SUPRA). RESPECTFULLY FOLLOWING THE FINDINGS OF THE HONBLE GUJARAT HIGH COURT, WE DIRECT THE AO TO ALLOW THE CLAIM OF WEIGHTED DE DUCTION ON PATENT FILING FEES WHICH IS NOT AS PER PATENT ACT AND PCT. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 5. GROUND NO. 3 RELATES TO NON ALLOWANCE OF WEIGHTE D DEDUCTION ON ELIGIBLE EXPENSES OF RS. 21,87,858/- INCURRED BY T HE ASSESSEE BUT NOT CONSIDERED BY DSIR. 5.1. FACTS IN ISSUE SHOW THAT THE QUANTUM OF R&D EX PENSES ELIGIBLE FOR WEIGHTED DEDUCTION U/S. 35(2AB) OF THE ACT AS CLAIM ED IN THE RETURN OF INCOME IS DULY CERTIFIED BY THE AUDITOR IN THE TAX AUDIT REPORT. THE ADDITIONAL CLAIM OF RS. 21,87,858/- IS ATTRIBUTABLE TOWARDS REVENUE EXPENDITURE INCURRED IN CONNECTION WITH THE APPROVE D R&D UNIT PERTAIN TO EXPENSES INCURRED TOWARDS SETTING UP OF AFFLUEN T TREATMENT PLANT AT GOVANDI R&D FACILITY. A DETAILED EXPLANATION WAS FILED BEFORE THE AO EXPLAINING THE REASON FOR DIFFERENCE BETWEEN ANNUAL REPORT AND RETURN OF INCOME AND A DETAILED BREAK-UP OF THE SAID EXPENSES WAS SUBMITTED BEFORE THE LD. CIT(A). IT IS THE CLAIM OF THE ASSESSEE TH AT DURING THE FINALIZATION OF ACCOUNT, THE SAID EXPENSES WERE INADVERTENTLY N OT CAPTURED WHILE REPORTING THE EXPENSES INCURRED ON R&D. THEREFORE , AT THE TIME OF FILING ITA NOS. 4248/M/13 & 6747/M/12 6 THE APPLICATION FOR APPROVAL OF EXPENSES OF THE DIS R, THE SAID EXPENSES WERE NOT REFLECTED. HOWEVER, AT THE TIME OF FINALI ZATION OF TAX AUDIT REPORT, THE MISTAKE WAS RECTIFIED AND CLAIM FOR WEI GHTED DEDUCTION WAS MADE AS PER THE PROVISIONS OF LAW. 6. BEFORE US IT IS CLAIMED THAT THE TRIBUNAL HAD AC CEPTED ASSESSEES CONTENTION FOR A.Y. 2007-08 THAT DISR CERTIFICATE IS ONLY FOR CERTIFYING THE FACILITIES OF RESEARCH AND DEVELOPMENT ACTIVIT Y UNDERTAKEN BY THE ASSESSEE AND NOT A CERTIFICATE FOR EXPENDITURE INC URRED BY THE ASSESSEE. AFTER CAREFULLY PERUSING THE ORDERS OF THE AUTHORIT IES BELOW AND THE FACTUAL MATRIX BROUGHT TO OUR NOTICE, IN OUR CONSID ERED OPINION, THESE EXPENDITURES NEED TO BE ALLOWED AS AND WHEN APPROVE D BY THE DISR. WE, ACCORDINGLY, RESTORE THE MATTER BACK TO THE FIL ES OF THE AO WITH A DIRECTION TO ALLOW THE WEIGHTED DEDUCTION AS AND WH EN DISR APPROVAL IS RECEIVED. GROUND NO. 3 IS TREATED AS ALLOWED FOR S TATISTICAL PURPOSE. 7. GROUND NO. 4 & 5 ARE INTER LINKED AND RELATES TO THE NON ALLOWANCE OF DEDUCTION U/S. 80IB AND 80IC OF THE ACT ON INTER EST FROM CUSTOMERS OF ELIGIBLE UNIT. 7.1. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS VIDYUT CORPORATION 324 ITR 221 W HEREIN THE HONBLE HIGH COURT HAS HELD AS UNDER: IN SUBSTANCE AND IN ESSENCE, WHAT IS RECEIVED BY T HE ASSESSEE FROM THE PURCHASER IS A COMPONENT OF INTER EST TOWARDS DELAYED PAYMENT OF THE PRICE OF THE GOODS S OLD, SUPPLIED AND DELIVERED BY THE ASSESSEE, THERE CAN BE NO DISPUTE ABOUT THE POSITION THAT THE PRICE REALIZED BY THE ITA NOS. 4248/M/13 & 6747/M/12 7 ASSESSEE FROM THE SALE OF GOODS MANUFACTURED BY THE INDUSTRIAL UNDERTAKING CONSTITUTES A COMPONENT OF T HE PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS. THE PURCHASER, ON ACCOUNT OF THE DELAY IN PAYMENT OF THE SALE PRIC E ALSO PAYS TO THE ASSESSEE INTEREST. THIS FORMS A COMPON ENT OF THE SALE PRICE AND IS PAID TOWARDS THE LAG WHICH HAS OC CURRED IN THE PAYMENT OF THE PRICE OF THE GOODS SOLD BY THE A SSESSEE. ON THESE FACTS, THEREFORE, THE PAYMENT OF INTEREST ON ACCOUNT OF THE DELAY IN PAYMENT OF THE SALE PRICE OF THE GO ODS SUPPLIED BY THE UNDERTAKING PARTAKES OF THE SAME NA TURE AND CHARACTER AS THE SALE CONSIDERATION . THE DELAYED PAYMENT CHARGES CONSEQUENTLY SATISFY, TOGETHER WITH THE SAL E PRICE, THE FIRST DEGREE TEST LIBERTY INDIA VS CIT (2009)2 25 CTR (SC)233 (2009) 28 DTR (SC) 73 (2009) 317 ITR 218(SC ) APPLIED. 8. AS FACTS IN ISSUES ARE IDENTICAL TO THE FACTS CO NSIDERED BY THE HONBLE HIGH COURT, RESPECTFULLY FOLLOWING THE DECI SION OF THE HONBLE HIGH COURT, ORDER OF THE LD. CIT(A) IS SET ASIDE. WE, DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION IN RESPECT OF INTEREST FROM CUSTOMERS U/S. 80IB AND 80IC OF THE ACT IN RESPECT OF THE ELIGIBLE UNITS. GROUND NO. 4 & 5 ARE ACCORDINGLY ALLOWED. 9. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUND I N RESPECT OF DEDUCTION U/S. 35(2AB) ON GROSS EXPENDITURE WITHOUT REDUCING (A) INCOME FROM SALE OF PRODUCTS FROM R &D WORK (B) IN COME FROM SALE OF R&D ASSETS. THIS CLAIM IS BEING MADE FOR THE FIRST TIME BEFORE THE TRIBUNAL AND NEVER CLAIMED IN THE RETURN OF INCOME. THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF CIT VS PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. 349 ITR 336 HAS H ELD THAT THE ASSESSEE IS ENTITLED TO RAISE ADDITIONAL GROUNDS NOT MERELY IN TERMS OF LEGAL SUBMISSIONS, BUT ALSO ADDITIONAL CLAIMS TO WHICH C LAIMS NOT MADE IN THE RETURN FILED BY IT WHEREIN THE HONBLE HIGH COURT HAS FOLLOWED THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL ITA NOS. 4248/M/13 & 6747/M/12 8 POWER CO. LTD. 229 ITR 383. DRAWING SUPPORT FROM T HESE DECISIONS, THE ADDITIONAL GROUNDS ARE ADMITTED. THE MATTER IS RES TORED TO THE FILE OF THE AO. THE AO IS DIRECTED TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW THE SAME AFTER VERIFICATION IN THE LIGHT OF THE DECISI ON OF THE TRIBUNAL IN THE CASE OF ACIT VS WOCKHARDT LTD. IN ITA NO. 71/M/07. THE ADDITIONAL GROUNDS ARE TREATED AS ALLOWED FOR STATISTICAL PURP OSE. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 4248/M/2013-A.Y. 2008-09 11. THE APPEAL IS BARRED BY 481 DAYS. THE ASSESSE E HAS FILED LETTER MAKING A REQUEST FOR THE CONDONATION OF DELAY. IN SUPPORT OF THE FACTS MENTIONED IN THE CONDONATION APPLICATION, THE ASSES SEE HAS ALSO FILED AFFIDAVITS OF ALL THE CONCERNED PERSONS. 12. WE HAVE CAREFULLY GONE THROUGH THE CONTENTS OF THE AFFIDAVIT. IN OUR CONSIDERED VIEW, THE REASONS FOR THE DELAY IN F ILING THE APPEAL NEED TO BE PARDONED. THE ASSESSEE WAS PREVENTED BY REASONA BLE AND SUFFICIENT CAUSE FOR NOT FILING THE APPEAL ON TIME. THE APPE AL IS ACCORDINGLY ADMITTED IN THE LIGHT OF THE DECISION OF THE HONBL E SUPREME COURT IN 253 ITR 798.. 13. WE FIND THAT ALL THE GROUNDS TAKEN IN THIS APPE AL INCLUDING ADDITIONAL GROUNDS HAVE ALREADY BEEN CONSIDERED BY US IN ITA NO. 6747/M/2012 FOR A.Y. 2009-10 FOR OUR DETAILED REASO NS GIVEN THEREIN GROUNDS OF APPEAL FOR THIS YEAR ARE ACCORDINGLY DEC IDED. ITA NOS. 4248/M/13 & 6747/M/12 9 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2015 SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) !' /JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI; 4! DATED : 20.2.2015 . . ./ RJ , SR. PS !3 !3 !3 !3 - -- - *. *. *. *. 52. 52. 52. 52. / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 7% *. , , / DR, ITAT, MUMBAI 6. %8 9 / GUARD FILE. !3 !3 !3 !3 / BY ORDER, +. *. //TRUE COPY// : :: : / ; ; ; ; $ $ $ $ (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI