Intas Pharmaceuticals Ltd., Ahmedabad V. The Dy.CIT.,Cent.Circle-2(1), Ahmedabad

ITSSA 807/AHD/2010

• Counselvise Citation: [2015] 122 COUNSELVISE.COM (IT) 0956 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-08-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 30-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Document seized; Retrospective amendment; Block assessment; Revised return; Documents seized; Revenue expenditure
• Section: 143(3); 80HHC; 153A; 14A; 115JB; 80G; 139(5); 147; 148; 263; 63; 132; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH AHMEDABAD , BEFORE SHRI G. D. AG RAWAL, VICE PRESIDEN T, AND SHRI S. S. GODAR A, JUDICIAL MEMBER . IT (SS) A NO S . 807 TO 809 /AHD/201 0 & 20/AHD /2011 (ASSESSMENT YEAR S :200 2 - 0 3 TO 2004 - 05 & 2008 - 09 ) INTAS PHARMACEUTICALS LTD., 203, CHINUBHAI CENTRE, ASHRAM ROAD, AHMEDABAD APPELLANT VS. DCIT, CENTRAL CIRCLE - 2(1), AHMEDABAD RESPONDENT & IT (SS) A NO S . 819 TO 82 1 /AHD/201 0, 38 & 39/AHD/2011 (ASSESSMENT YEAR S :200 3 - 0 4 TO 2005 - 06, 2007 - 08 & 2008 - 09 ) ACIT, CENTRAL CIRCLE - 2(1), AHMEDABAD A PPELLANT VS. INTAS PHARMACEUTICALS LTD., 203, CHINUBHAI CENTRE, ASHRAM ROAD, AHMEDABAD RE SPONDENT INTAS PHARMACEUTICALS LTD. VS. DCIT 2 & C.O. NOS. 4 & 39/AHD/2011 (ASSESSMENT YEARS: 2005 - 06 & 2007 - 08) INTAS PHARMACEUTICALS LTD., 203, CHINUBHAI CENTR E , ASHRAM ROAD, AHMEDABAD APPELLANT VS. ACIT, CENTRAL CIRCLE - 2(1), AHMEDABAD RESPONDENT PAN: AA ACI5120L / BY ASSESSEE : SHRI S. N. SOPARKAR , A.R / BY REVENUE : SHRI R. I. PATEL , CIT . D.R. / DATE OF HEARING : 04 .0 8 .2015 / DATE OF PRONOUNCEMENT : 14 . 0 8 .2015 ORDER PER BENCH T HIS BATCH OF ELEVEN CASES RELATES TO ASSESSMENT YEARS 2002 - 03, 03 - 04, 04 - 05, 05 - 06, 07 - 08 & 08 - 09. THE LOWER APPELLATE ORDER PASSED BY T HE CIT(A) - III, AHMEDABAD, DATED 29.09.2010 UNDER CHALLENGE IS COMMON IN A.Y. 02 - 03 TO 05 - 06. ALL THESE FOUR ASSESSMENT YEARS INVOLVE PROCEEDINGS U/S. 153A R.W.S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE HAS FILED IT(SS)A NO. 807/AHD/2010 IN A.Y. 2002 - 03 RAISING GROUNDS OF VALID ITY OF SECTION 153A PROCEEDINGS, INTAS PHARMACEUTICALS LTD. VS. DCIT 3 SECTION 80HHC DEDUCTION OF RS.22, 00,715/ - , REGARDING QUANTIFICATION OF ANOTHER DEDUCTION U/S.80JJAA AND THAT OF 80G DEDUCTION TOTALING TO RS.1,65,001/ - ; RESPECTIVELY. NEXT ASSESSMENT YEAR 2003 - 04 INVOLVES ASSESSEES APPEAL IT(SS)A NO. 808/AHD/ 2010 COMPRIS ING OF GROUNDS CHALLENGING VALID I TY OF SECTION 153A PROCEEDINGS, DISALLOWANCE OF DEDUCTION U/S.80HHC OF RS.24,50,509/ - , QUANTIFICATION OF SECTION 80JJA DEDUCTION AND ALSO SECTION 80G DEDUCTION OF RS.1,30,000/ - ; RESPECTIVELY. THE REVENUES C ROSS A PPEAL NO. IT(SS)A NO. 819/AHD/2010 ASSEEIL S LOWER APPELLATE ORDER DELETING DISALLOWANCE OF RS.1,15,49,116/ - RELATING TO S TAFF W ELFARE EXPENSES AND DEFERRED R EVENUE EXPENDITURE. N EXT A.Y. 2004 - 05 COMPRISES OF ASSESSEES APPEAL IT(SS)A NO.809/AHD/2010 RAISING GROUNDS OF VALIDITY OF SECTION 153A PRO CEEDINGS AND SECTION 80HHC DED UCTION CLAIM OF RS.4,92,223/ - . THE REVENUES C ROSS A PPEAL IT(SS)A NO. 820/AHD/2010 CHALLENGES CIT(A)S ORDER DELETING DISALLOWANCE O F RS.1,15,83,646/ - RELATING TO S TAFF W ELFARE E XPENSES, M ISCELLANEOUS E XPENSES, I NTEREST E XPEND ITURE U/S. 14A AND 36 (I)(III) OF THE ACT ; RESPECTIVELY. THE NEXT A.Y. 2005 - 06 INVOLVES REVENUES APPEAL IT(SS)A NO. 821/AHD/2010 SEEKING RESTORATION OF DISALLOWANCE AMOUNTING TO RS.1,13,48,242/ - OF S TAFF W ELFARE E XPENSES, M ISCELLANEOUS AND I NTEREST E XPEN SES U/S. 14A R.W.S. 36(1)(III) OF THE ACT. THE ASSESSEE HAS FILED C.O. NO. 4/AHD/2011 THEREIN CHALLENGING THE VERY ASSUMPTION OF JURISDICTION U/S. 153A OF THE ACT. NOW WE COME TO ASSESSMENT YEARS 2007 - 08 AND 08 - 09. THESE CASES ARISE FROM A COMMON ORDER OF THE CIT(A) - III, AHMEDABAD, DATED 10.11.2010 IN PROCEEDINGS U/S.153A R.W.S. INTAS PHARMACEUTICALS LTD. VS. DCIT 4 143(3) OF THE ACT. THE REVENUE HAS FILED IT (SS) A NO. 38/AHD/2011 CHALLENGING THE CIT(A)S ORDER DELETING DISALLOWANCE OF RS.2,12,93,375/ - RELATING TO WEIGHTED DEDUCTION IN RESPE CT OF CLINICAL TRIAL EXPENSES O F RS.4,25,86,793/ - U/S. 35(2AB) OF THE ACT. THE ASSESSEE HAS PREFERRED C.O. NO. 39/AHD/2011 CHALLENGING VALIDITY OF SECTION 153A PROCEEDINGS AND THAT IS PARTLY UPHOLDING DISALLOWANCE OF WEIGHTED DEDUCTION @ 150% OF THE EXPEN DITURE U/S. 35(2AB) IN RESPECT OF EXPENDITURE OF RS.3,07,245/ - ON THE GROUND THAT THE SAME WAS NOT APPROVED FROM THE DSIR. OTHER GROUNDS RELATE TO INTEREST LEVY AND INITIATION OF PENAL PROCEEDING TO BE TREATED AS CONSEQUENTIAL IN NATURE. N EXT A.Y. 2008 - 0 9 COMPRISES OF THE REVENUES APPEAL IT(SS)A N O. 39/AHD/2011 CHALLENGING THE CIT(A)S ORDER DELETING DISALLOWANCE OF RS.4,67,57,759/ - PERTAINING TO WEIGHTED DEDUCTION IN RESPECT OF CLINICAL TRIAL EXPENSES OF RS. 9,35,14,755/ - U/S.35(2AB) OF THE ACT. THE AS SESSEE HAS FILED C ROSS A PPEAL IT(SS)A NO. 20/AHD/2011 AGAINST THE CIT(A)S ORDER PARTLY UPHOLDING DISALLOWANCE OF WEIGHTED DEDUCTION U/S.35(2AB) IN RESPECT OF EXPENDITURE OF RS.5,66,06,691/ - FOR APPROVAL FROM DSIR NOT BEING OBTAINED AND ALSO IN UPHOLDING A SSESSMENT OF BOOK PROFIT U/S.115JB OF THE ACT AT RS.19,28,66,436/ - AS PER ORIGINAL RETURN OF INCOME AS AGAINST RS.18,81,50,391/ - STATED AS PER ITS REVISED RETURN; RESPECTIVELY. 2. A PERUSAL OF THE ABOVE STATED PLEADINGS REVEALS THAT THE FIRST FOUR ASSES SMENT YEARS FROM 2002 - 03 TO 2005 - 06 RAISE A VERY FUNDAMENTAL QUESTION OF VALIDITY OF SECTION 153A PROCEEDINGS INITIATED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) IN THE COMMON ORDER UNDER CHALLENGE. T HIS LEGAL INTAS PHARMACEUTICALS LTD. VS. DCIT 5 PLEA GOES TO ROOT OF THE MATTER . W E PROCEED TO ADJUDICATE THE SAME TOGETHER IN ALL THESE CASES. 3. THE ASSESSEE REFERS TO ITS IDENTICAL GROUNDS RAISED IN ITS FIRST THREE APPEALS AND IN C.O. NO. 4/AHD/2011. IT ARGUES THAT ASSESSMENTS IN ALL FOUR ASSESSMENTS YEARS STOOD COMPLETE D ON 27.12.2 002, 02.01.2006, 29.12.2006 AND 29.03.2006 I.E. MUCH PRIOR TO THE SEARCH IN QUESTION CONDUCTED ON 23.10.2007. THE ONLY EXCEPTION IS THAT THE FIRST ASSESSMENT YEAR INVOLVE S A SUMMARY ASSESSMENT U/S.143(1) OF THE ACT. REST ALL ARE REGULAR ASSESSMENTS. T HE LATTER THREE ASSESSMENTS WERE AGITATED BEFORE THE CIT(A) . A ND UPTO THE T RIBUNAL ON VARIOUS ISSUES ON MERITS. THE ASSESSEE SUBMITS THAT NO INCRIMINATING DOCUMENTS, PAPERS, BOOKS OF ACCOUNTS OR ANY MONEY OR OTHER VALUABLE ASSETS W AS FOUND IN THE COURSE OF SEARCH. NOR IS ANY SUCH MATERIAL STATED IN THE SE IMPUGNED ASSESSMENTS FRAMED U/S. 153A OF THE ACT. IT CONTENDS THAT THE ASSESSING OFFICER FRAMED THE IMPUGNED ASSESSMENTS WITHOUT HIGHLIGHTING ANY INCRIMINATING MATERIAL BY MERELY REVIEWING MERITS OF THE DISALLOWANCES EARLIER MADE AND THE SAME IS NOT VALID AS PER LAW. CASE LAW OF (2015) 58 TAXMANN.COM 78 (BOMBAY) CIT VS. CONTINENTAL WAREHOUSING CORPORATION (NHAVA SHEVA ) LTD. AFFIRMING SPECIAL BENCH DECISION OF THE TRIBUNAL IN ALL INDIA CARGO LOGISTIC VS . DCIT 137 ITD 287 IS QUOTED IN SUPPORT. THEREAFTER , SUBMI T S IS THAT ITS ASSESSMENT HAD ALREADY FINALIZED BEFORE SEARCH WHICH COULD NOT HAVE BEEN TREATED AS ABATED ALIKE PENDING ASSESSMENTS FOR INITIATING SECTION 153A PROCEEDING IN QUESTION. THE ASSESSEE S LAST PLEA IS THAT FOR THE PURPOSE OF ADJUDICATING VALIDITY OF PROCEEDINGS U/S. 153A OF THE ACT, ASSESSMENTS FRAMED U/S. 143(1) AND 143(3) ARE TO BE INTAS PHARMACEUTICALS LTD. VS. DCIT 6 TREATED AT PAR IN CASE TIME LIMIT OF ISSUING SCRUTINY NOTICES U/S.143(2) LAPSES IN THE FORMER CASE. IT Q UOTES CASE LAW OF DELHI BENCH OF THE TRIBUNAL IN ITA NO. 2637/DEL/2010 ACIT VS. PACL INDIA LTD. DECIDED ON 28 TH JUNE, 2013 AND PRAYS FOR QUASHING OF ALL THESE FOUR ASSESSMENTS. 4 . THE REVENUE STRONGLY OPPOSES THE ASSESSEES ABOVE STATED ARGUMENTS AND SUBM ITS THAT AN ASSESSING AUTHORITY CAN INITIATE SECTION 153A PROCEEDINGS BY REOPENING ALL ASSESSMENTS PERTAINING TO THE PRECEDING SIX ASSESSMENT YEARS AFTER SEARCH AND ASSESS INCOME AFRESH AS PER LAW. IT QUOTES CASE LAW OF (2014) 49 TAXMANN.COM 98 (KARNATAKA ) CANARA HOUSING DEVELOPMENT CO. VS. DCIT, [2014] 52 TAXMANN.COM 172 (ALLAHABAD) CIT VS. RAJ KUMAR ARORA, [2014] 49 TAXMANN.COM 465 (DELHI) FILATEX INDIA LTD. VS. CIT, [2014] 24 TAXMANN.COM 98 (DELHI) CIT VS. ANIL KUMAR BHATIA, [2015] 53 TAXMANN.COM 391(BA NGALORE TRIB.) RUPESH ANAND VS. ACIT, [2010] 130 TTJ 700 (CHENNAI) HARVEY HEART HOSPITALS LTD. VS . ACIT AND PRAYS FOR UPHOLDING THE CIT(A)S COMMON ORDER UNDER CHALLENGE ON THIS LEGAL PLEA IN QUESTION. 5 . WE GRANTED THE ASSESSEE AN OPPORTUNITY TO REBU T THE REVENUES ARGUMENTS. IT SUBMITS THAT THE HONBLE BOMBAY HIGH COURT (SUPRA) HAS ALREADY DISTINGUISHED THE CASE LAWS OF ANIL KUMAR BHATIA AND CANARA HOUSING DEVELOPMENT CO. (SUPRA) AND HOLDS THAT THE SAME DO NOT DEAL WITH THE ISSUE IN QUESTION. OTHER CASE LAWS CITED AT THE REVENUES BEHEST ARE STATED TO BE IN RELATION TO SCOPE OF A SECTION 153A ASSESSMENT AS AGAINST THAT OF THE VERY ASSUMPTION OF JURISDICTION. THE ORDER OF INTAS PHARMACEUTICALS LTD. VS. DCIT 7 CHENNAI BENCH OF THE TRIBUNAL IS STATED TO BE AGAINST THE SPECIAL BENCH DECISI ON IN ALL INDIA CARGO LOGISTICS (SUPRA) CASE. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE CASE FILE AS WELL AS JUDICIAL PRECEDENTS QUOTED HEREINABOVE. 6 . THE ASSESSEE COMPANY MANUFACTURES AND TRADES IN PHARMACEUTICAL PRODUCTS. IT FILED ITS R ETURN S ON 31.10.2002, 29.11.2003, 30.10.2004 AND 30.10.2005 ADMITTING INCOMES OF RS.5,05,14,253/ - , RS.6,52,14,632/ - , RS.13,00,77,099/ - AND 8,62,02,182/ - RELATING TO THE IMPUGNED FOUR ASSESSMENT YEARS FROM 2002 - 03 TO 2005 - 06; RESPECTIVELY. THE ASSESSING O FFICER PROCESSED THE FIRST RETURN ON 27.12.2002 RESULTING IN REFUND O F RS.10,43,020/ - . HE FRAMED REGULAR ASSESSMENT S ON 02.01.2006, 29.12.2006 AND 29.03.2007 MAKING SOME ADDITIONS; MOST COMMON BEING THOSE OF S TAFF W ELFARE E XPENSES AND DEDUCTIONS U/S. 80G /80HHC AND INTEREST ETC. THE ASSESSEE FILED SEPARATE APPEALS FOR THESE THREE LATTER ASSESSMENT YEARS BEFORE THE CIT(A). THE SAME WERE PARTLY ALLOWED ON 25.01.2007 AND 19.10.2007. THIS LATTER DATE RELATES TO THE CIT(A)S ORDERS IN A.Y. 2004 - 05 AND 05 - 06. THEREAFTER, THE PARTIES CAME TO THE TRIBUNAL. 7 . IT TRANSPIRES FROM THE CASE FILE THAT IN THE MEAN TIME, THE DEPARTMENT CONDUCTED THE IMPUGNED SEARCH IN CASE OF M/S. INTAS GROUP OF COMPANIES. THIS CULMINATED IN ISSUANCE OF SECTION 153A NOTICES DATED 06.05.2008. THE ASSESSEE FILED S EPARATE RETURNS ON 18.11.2008. THE ASSESSING OFFICER FRAMED CONSEQUENTIAL SEARCH ASSESSMENTS ON 30.12.2009 INTER ALIA MAKING THE ABOVE STATED DISALLOWANCES /ADDITIONS . THE INTAS PHARMACEUTICALS LTD. VS. DCIT 8 ASSESSEE PREFERRED SEPARATE APPEAL. IT WOULD RAISE A LEGAL PLEA THAT ONCE NO INCRIMINATING MATERIAL OR ANY UNDISCLOSED ASSETS HAD BEEN DISCOVERED DURING THE SEARCH, THE IMPUGNED SECTION 153A JURISDICTION COULD NOT HAVE BEEN ASSUMED. IT SUBMITTED THAT THE ASSESSING OFFICER NOWHERE MENTIONED ALL OR ANY SUC H MATERIAL IN HIS ASSESSMENT ORDERS . AN D ALSO THAT SECTION 153A PROCEEDINGS A RE NOT IN THE NATURE OF A DE NOVO ASSESSMENT. IT PLEADED THAT NONE OF THE ABOVE STATED ASSESSMENTS WERE PENDING AS ON THE DATE OF SEARCH SO AS TO ABATE U/S.153A 2 ND PROVISO THER ETO. THE CIT(A) HAS REJECTED TH IS SAID LEGAL P LEA AS UNDER: 4. THE FIRST GROUND IS REGARDING VALIDITY OF THE ASSESSMENT ORDER PASSED UNDER SECTION 153A OF THE INCOME - TAX ACT. IT WAS ARGUED THAT NO INCRIMINATING DOCUMENTS, BOOKS OF ACCOUNTS, MONEY OR OT HER VALUABLES RELATING TO UNACCOUNTED TRANSACTIONS IS FOUND IN THE COURSE OF SEARCH. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN INITIATING PROCEEDINGS UNDER SECTION 153 A OF THE INCOME - TAX ACT. FOR THIS PROPOSITION, THE APPELLANT HAS RELIED UPO N THE VARIOUS DECISIONS. THIS ISSUE HAS BEEN DEALT BY ME IN THE EASE OF ROHAN DYES AND INTERMEDIATES AND INTERMEDIATES AND IN THE CASE OF TEX EXCELLENCE PVT. LTD. AS UNDER: 'ACCORDING TO THE AR, THE AO WAS NOT JUSTIFIED IN PASSING ORDER U/S. 153A IN VIEW OF THE DECISIONS OF MEGHMANI O RGANICS PVT. LTD. OF IT AT 129 TTJ 255 (AHD); SHRI ANIL K. BHATIA VS. ACIT C.C. - 17, NEW DELHI AND OTHER DECISIONS OF ITAT, PARTICULARLY WHEN NO INCRIMINATING 'DOCUMENTS WERE FOUND AND SEIZED FROM THE PREMISES OF THE APPELLANT. IN OTHER WORDS, THE CONTENTION OF THE AR IS THAT THE VARIOUS TRIBUNALS HAVE HELD THAT (I) IF NO INCRIMINATING DOCUMENTS/ASSETS ARE FOUND DURING THE COURSE OF SEARCH THEN THE EARLIER ORDERS PASSED U/S. 143(1) OR 143(3) BECOME FINAL AND CANNOT BE REA GITAT ED IN THE 15 3A PROCEEDINGS (II) ONLY THOSE ASSESSMENTS OR RE - ASSESSMENTS WILL ABATE WHICH WERE PENDING AS ON THE DATE OF SEARCH. 5.1 NONE OF THESE DECISIONS HAVE CONSIDERED THE APPLICABILITY OF DIFFERENT LAWS AT THE TIME OF ORIGINAL ASSESSMENT AND ASSESS MENT ORDER U/S. 153A. IF THE LAW IS DIFFERENT AT DIFFERENT POINTS OF TIME THEN THE AO IS DUTY BOUND TO APPLY SUCH LAW. IN INTAS PHARMACEUTICALS LTD. VS. DCIT 9 THIS CASE ALSO THE LAW AT THE TIME OF PASSING ORIGINAL ASSESSMENT WAS DIFFERENT THAN THE LAW PREVAILING AT THE TIME OF SEARCH AS THE P ROVISIONS OF SECTION 80HHC AND SECTION 28(IIIA), 28(IIIB) ETC. WERE AMENDED WITH RETROSPECTIVE EFFECT. THE RATIO OF THE ABOVE MENTIONED DECISIONS OF ITAT WOULD NOT BE APPLICABLE IN SUCH CASES OF RETROSPECTIVE AMENDMENT. 5.2. FURTHER IN ALL THE DECISIONS R ELIED UPON BY THE APPELLANT I.E. DECISION OF A) ANIL P. KHIMANI VS. DCIT, 14 (MUM) B) HELIOS FO OD ADDITIVA P. LTD. VS. DCIT CC 4 0(MUMBAI) C) ) MEGHMANI ORGANICS LTD (AHD) D) ANILKUMAR BHATIA VS. ACIT C.C.I7, DELHI. IT HAS BEEN HELD THAT THE INITIATION OF 1 53A/153CPROCEEDINGS ARE INVALID IN RESPECT OF THOSE YEARS FOR WHICH NO INCRIMINATING DOCUMENTS IS FOUND D SEARCH. THAT MEANS 153A PROCEEDINGS CAN BE INITIATED ONLY IN THOSE YEA) WHICH INCRIMINATING DOCUMENTS IS SEIZED. IN OTHER WORDS, THE ASSESSMENT U/ S. 153A/153C CAN BE MADE ONLY IN RESPECT OF SEIZED MATERIAL. ONLY IN RESPECT OF PENDING ASSESSMENTS OTHER ISSUES CAN BE CONSIDERED BESIDES THE SEIZED DOCUMENTS. IN OTHER WORDS, THERE NEEDS TO BE TWO ASSESSMENTS ORDER FOR COMPLETED ASSESSMENTS - ONE RE GULAR AND OTHER BASED ON SEIZED DOCUMENTS. WITH DUE RESPECT, THIS INTERPRETATION IS NOT CORRECT AS THE BASIC SCHEME OF SEARCH ASSESSMENTS U/S. 153A/153C WAS INTRODUCED W.E.F. 2003 TO OVERCOME THE TWO ASSESSMENTS THEORY I.E. BLOCK ASSESSMENTS U/S. 158BC/158 BD BASED ON SEIZED MATERIAL AND REGULAR ASSESSMENT U/S. 143(3). SECTION 153A PRESUPPOSES MAKING OF THE ASSESSMENT OF 6YEARS IRRESPECTIVE OF WHETHER ANY INCRIMINATING DOCUMENT IS SEIZED OR NOT. 5.3 FURTHER, IF THE DECISIONS ARE CONSIDERED AS GOOD LAW THEN NO REMEDIAL ACTION IS POSSIBLE IN RESPECT OF COMPLETED ASSESSMENTS U/S. 143(3) OR RETURNS ACCEPTED U/S, 143(1) BY RESORTING TO THE PROVISIONS OF SECTION 154 OR 147 OR L53A OF THE ACT. FOR EXAMPLE, IF IN A CASE THE COMPLETED ASSESSMENT YEARS ARE 2003 - 04 AND 2004 - 05 AND REGULAR ASSESSMENT FOR A.Y. 2005 - 06 IS PENDING AS ON THE DATE OF SEARCH AND THE ASSESSMENT FOR A.Y. 2002 - 03 WAS RE - OPENED AND PENDING FOR ASSESSMENT AS ON THE DATE OF SEARCH, THEN AS PER THESE DECISIONS, THE AO CAN PASS ORDER U/S. 153A ONLY IN RESPECT OF A.Y. 2002 - 03 AND A.Y. 2005 - 06 WHEREAS IN RESPECT OF A.Y. 2003 - 04 AND 2005 - 06 ON THE SAME ISSUE HE CANNOT PASS THE ASSESSMENT ORDER. THIS INTERPRETATION IS DEFINITELY NOT IN ACCORDANCE WITH LAW. THIS ISSUE HAS BEEN DECIDED BY ME IN THE CASE OF T EXCELLENCE OVERSEAS BY HOLDING AS UNDER : '6. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. IT WAS ADMITTED BY THE AR OF THE APPELLANT THAT IN ORIGINAL INTAS PHARMACEUTICALS LTD. VS. DCIT 10 RETURN OF INCOME FOR A. Y. 2002 - 03 TO A. Y. 2004 - 05 THE APPELLANT HAS MADE CLAIM OF DEDUCTION U/S . 80HHC AND U/S. 80IA. THE RETURN FOR A.Y. 2002 - 03 WAS ACCEPTED U/S. 143(1). IN A.Y. 2003 - 04 AND 2004 - 05 THE ASSESSMENT ORDER WAS PASSED U/S. 143(3). IN THESE TWO YEARS, THE CLAIM OF DEDUCTION U/S. 80HHC ON DEPB WAS DISALLOWED BY THE AO IN THE ORIGINAL ASS ESSMENT. FURTHER, AFTER THE RETURN FOR A.Y. 2002 - 03 WAS ACCEPTED U/S. 143(1), THERE HAS BEEN AN AMENDMENT IN THE YEAR 2005 WHEREIN CERTAIN CONDITIONS WERE STIPULATED IN RESPECT OF DEDUCTION U/S. 80HHC ON DEPB. THIS AMENDMENT WAS MADE RETROSPECTIVE W.E.F. 1 /4/1998. THIS AMENDMENT WAS NOT THERE WHEN THE RETURN FOR A.Y. 2002 - 03 WAS ACCEPTED U/S.143(1). IN A.Y. 2003 - 04 AND 2004 - 05 THE AO HAS ALREADY MADE A DISALLOWANCE OF DEDUCTION U/S.80HHC ON DEPB LICENCE IN 143(3) ORDER. THE CASES RELIED UPON BY THE APPEL LANT OF DIFFERENT ITATS ARE DISTINGUISHABLE ON THE FACTS THAT IN NEITHER OF SUCH CASES THE AO HAS MADE THE ADDITION OF THE SAME AMOUNT IN ORIGINAL ASSESSMENT NOR THERE WAS ANY RETROSPECTIVE AMENDMENT. IN FACT, IN THE CASE OF SHRI ANIL K. BHATIA & OTHERS, THE ITAT DELHI AT PARA 9.2 OF THE ORDER WHILE REFERRING TO THE DECISION OF ITAT, AHMEDABAD IN THE CASE OF MEGHMANI ORGANICS LTD. HAS MENTIONED AS UNDER: '10. THE DECISIONS RELIED ON BY THE LEARNED DR ARE DISTINGUISHABLE ON FACTS. IN THE SAID CAS ES THE TRIBUNAL HAVE GIVEN A FINDING THAT 'IT IS NOT THE COMPLAINT OF THE ASSESSEE THAT ANY INCOME, WHICH IS ALREADY SUBJECTED TO ASSESSMENT UNDER S. 143(3) OR UNDER S. 148 OF THE ACT COMPLETED PRIOR TO THE SEARCH IN RESPECT OF SIX ASSESSMENT YEARS REFERRE D TO IN S. 153A, HAS ALSO BEEN INCLUDED IN THE ASSESSMENT FRAMED UNDER S. 153A OF THE ACT. HOWEVER, IN THE PRESENT CASE THE ASSESSING OFFICER HAS RECOMPUTED DEDUCTION U/S. 80HHC AND 80IA OF THE ACT BY REDUCING THE CLAIM THEREOF. THE ASSESSING OFFICER WAS NOT COMPETENT TO DO SO IN ASSESSMENT U/S. 153A OF THE ACT. WE, THEREFORE, CANCEL THE ASSESSMENT FRAMED U/S. 153A OF THE ACT FOR ALL THE YEARS,' THEREFORE, THE RATIO OF THE DECISIONS OF THE ITAT WILL NOT BE APPLICABLE IN THIS CASE. THE ASSESSMENT ORDER PA SSED U/S. 153A IS THEREFORE UPHELD. THE FIRST GROUND OF APPEAL OF THE APPELLANT IS DISMISSED. ' 4.1 AS THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE CA SE OF ROHAN DYES AND INTERMEDIATES LTD, THAT IS, IN THE ORIGINAL ASSESSMENT ORDER IS ALS O THE DEDUCTION UNDER SECTION 80 HHC HAS BEEN DISALLOWED ALONG WITH OTHER EXPENSES AS MENTIONED IN THE GROUND NUMBER 4 UNLIKE IN THE CASE OF MEGH MANI INDUSTRIES LTD, THE INTAS PHARMACEUTICALS LTD. VS. DCIT 11 AO WAS FULLY JUSTIFIED IN INITIATING PROCEEDINGS UNDER SEC TION 153 A OF THE INCOME - TAX ACT. IN SHORT, THIS GROUND OF THE APPELLANT IS DISMISSED. THIS LEAVES THE ASSESSEE AGGRIEVED. 8 . WE HAVE ALREADY NARRATED ARGUMENTS ADVANCED OF BOTH THE PARTIES HEREINABOVE. THE QUESTION THAT ARISES FOR OUR CONSIDERATION IS AS TO WHETHER THE ASSESS ING OFFICER HAS RIGHTLY ASSUMED SECTION 153A JURISDICTION OR NOT IN THESE FOUR ASSESSMENT YEARS. WE DEEM IT APPROPRIATE TO REPRODUCE THE STATUTORY PROVISION ITSELF READING AS UNDER: 153A. [(1)] NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 139, SECTION 147, PERSON WHERE A SEARCH IS INITIATED UNDER SECTION 132 OR BOOKS OF ACCOUNT, OTHER DOCUMENTS OR ANY ASSETS ARE REQUISITIONED UNDER SECTION 132A AFTER THE 31 ST DAY OF MAY, 2003, THE ASSESSING OFFICER SHALL (A) ISSUE NOTICE TO SUCH PERSON REQUIRING HIM TO FURNISH WITHIN SUCH PERIOD, AS MAY BE SPECIFIED IN THE NOTICE, THE RETURN OF INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SIX ASSESSMENT YHEARS REFERRED TO IN CLAUSE (B), IN THE PRESCRIBED FORM AND VERIFIED IN THE PRESCRIBED MANNER AND SETT ING FORTH SUCH OTHER PARTICULARS AS MAY BE PRESCRIBED AND THE PROVISIONS OF THIS ACT SHALL, SO FAR AS MAY BE, APPLY ACCORDINGLY AS IF SUCH RETURN WERE A RETURN REQUIRED TO BE FURNISHED UNDER SECTION 139; (B) ASSESS OR REASSESS THE TOTAL INCOME OF SIX ASSE SSMENT YEARS IMMEDIATELY PRECEDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH SEARCH IN CONDUCTED OR REQUISITION IS MADE: PROVIDED THAT THE ASSESSING OFFICER SHALL ASSESS OR REASSESS THE TOTAL INCOME IN RESPECT OF EACH ASSESSMENT YEAR FALLING WITHIN SUCH SIX ASSESSMENT YEARS: PROVIDED FURTHER THAT ASSESSMENT OR REASSESSMENT, IF ANY, RELATING TO ANY ASSESSMENT YEAR FALLING WITHIN THE PERIOD OF SIX ASSESSMENT YEARS REFERRED TO IN THIS [SUB - SECTION] PENDING ON THE DATE OF INITIATION OF T HE SEARCH UNDER SECTION 132 OR MAKING OF REQUISITION UNDER SECTION 132A, AS THE CASE MAY BE, SHALL ABATE: [PROVIDED ALSO THAT THE CENTRAL GOVERNMENT MAY BY RULES MADE BY IT AND PUBLISHED IN THE OFFICIAL GAZETTE (EXCEPT IN CASES WHERE ANY INTAS PHARMACEUTICALS LTD. VS. DCIT 12 ASSESSMENT OR REA SSESSMENT HAS ABATED UNDER THE SECOND PROVISO), SPECIFY THE CLASS OR CLASSES OF CASES IN WHICH THE ASSESSING OFFICER SHALL NOT BE REQUIRED TO ISSUE NOTICE FOR ASSESSING OR REASSESSING THE TOTAL INCOME FOR SIX ASSESSMENT YEARS IMMEDIATELY PRECEDING THE ASSE SSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SEARCH IS CONDUCTED OR REQUISITION IS MADE. ] [(2) IF ANY PROCEEDING INITIATED OR ANY ORDER OF ASSESSMENT OR REASSESSMENT MADE UNDER SUB - SECTION (1) HAS BEEN ANNULLED IN APPEAL OR ANY OTHER LEGAL PROCEEDIN G, THEN, NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1) OR SECTION 153, THE ASSESSMENT OR REASSESSMENT RELATING TO ANY ASSESSMENT YEAR WHICH HAS ABATED UNDER THE SECOND PROVISO TO SUB - SECTION (1), SHALL STAND REVIVED WITH EFFECT FROM THE DATE OF REC EIPT OF THE ORDER OF SUCH ANNULMENT BY THE COMMISSIONER: PROVIDED THAT SUCH REVIVAL SHALL CEASE TO HAVE EFFECT, IF SUCH ORDER OF ANNULMENT IS SET ASIDE.] EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT, (I) SAVE AS OTHERWISE PROVIDE D IN THIS SECTION, SECTION 153B AND SECTION 153C, ALL OTHER PROVISIONS OF THIS ACT SHALL APPLY TO THE ASSESSMENT MADE UNDER THIS SECTION; (II) IN AN ASSESSMENT OR REASSESSMENT MADE IN RESPECT OF AN ASSESSMENT YEAR UNDER THIS SECTION, THE TAX SHALL BE CHAR GEABLE AT THE RATE OR RATES AS APPLICABLE TO SUCH ASSESSMENT YEAR. A PERUSAL OF ABOVE STATED STATUTORY PROVISION REVEALS THAT PENDING ASSESSMENTS ON THE DATE OF SEARCH IN RESPECT OF PRECEDING SIX ASSESSMENT YEARS ABATE AS PER THE 2 ND PROVISION . HOWEVER, THE SAME DOES NOT INCLUDE THOSE ASSESSMENTS WHICH HAVE ALREADY ATT AINED FINALITY OR WHEREIN , ASSESSMENT ORDERS HAVE ALREADY BEEN PASSED. WE REITERATE THAT ASSESSMENT ORDERS IN ALL THESE FOUR ASSESSMENT YEARS STOOD PASSED ON 27.12.2002, 02.01.2006, 29.12 .2006 AND 29.03.2007 I.E. MUCH BEFORE THE DATE OF SEARCH FALLING ON 2 3.10.2007. THE ASSESSEES CASE HAS THROUGH OUT BEEN THAT THERE IS NO INCRIMINATING MATERIAL; WHATSOEVER AS PRESCRIBED U/S.153A SO AS TO GIVE RISE TO THE PROCEEDINGS IN QUESTION. IN THES E FACTS, WE NOTICE THAT THE INTAS PHARMACEUTICALS LTD. VS. DCIT 13 SPECIAL BENCH OF THE TRIBUNAL IN ALL INDIA CARGO LOGISTICS (SUPRA) ANSWERED THE VERY REFERENCE AND HELD IN PARA 58 THAT ONLY PENDING ASSESSMENT S ABATE IN CASE OF A SEARCH BE ING CONDUCTED AND AN ASSESSING OFFICER RETAINS THE ORIG INAL JURISDICTION AS WELL AS THE ONE CONFERRED ON HIM U/S.153A FOR WHICH ASSESSMENTS SHALL BE MADE FOR EACH OF THE SIX ASS ESSMENT YEARS SEPARATELY. THE S PECIAL B ENCH THEREAFTER COMES TO NON ABATED I.E. ASSESSMENTS WHICH ARE NOT PENDING AS PER ABOVE SAID 2 ND PROVISION AND HOLDS THAT THE ASSESSMENT THEREIN U/S.153A WILL BE MADE ON THE BASIS OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS NOT PRODUCED IN THE COURSE OF ORIGINAL ASSESSMENT BUT FOUND IN THE COURSE OF SEARCH AND UNDISCLOSED INCOME OR PROPERTY DISCOVERED I N THE COURSE OF SEARCH. THIS IS NOT THE REVENUES CASE ; OR FOR THAT NO SUCH MATERIAL IS PLACED ON RECORD THAT THE SEARCH IN QUESTION UNEARTHED ANY SUCH UNDISCLOSED MATERIAL IN ASSESSEES CASE. WE ARE INFERRING I N THESE FACTS THAT THERE DOES NOT EXIST AN Y SUCH MATERIAL NOT PRODUCED IN THE COURSE OF REGULAR ASSESSMENT BUT FOUND IN SEARCH . PARTIES INFORM US VERY FAIRLY THAT HON BLE JURISDICTIONAL HIGH COURT HAS NOT A DJUDICATED THIS QUESTION. IN THESE FACTS, WE OBSERVE THAT THE SPECIAL BENCH S DECISION SQUARELY COVERS THE ASSESSEES CASE. THE HONBL E BOMBAY HIGH COURT (SUPRA) AFFIRMS THE SAID DECISION BY HOL DING THAT THE SAME DOES NOT SUFFER FROM ANY INFIRMITY. T HEIR LORDSHIPS ALSO SPECIFICALLY ADVERT WITH THE DECISIONS OF HONBLE DELHI AND KARNATAKA HIGH COURT (SUPRA) AND OBSERVE THAT THE SAME DO NOT DEAL WITH AN ISSUE WHEREIN SECTION 153A PROCEEDINGS ARE I N IT I ATED WITHOUT ANY INCRIMINATING MATERIAL DISCOVERED IN SEARCH OF THE CORRESPONDING REGULAR ASSESSMENTS STOOD FINALIZED. THEIR INTAS PHARMACEUTICALS LTD. VS. DCIT 14 LORDSHIPS DISCUSSION ABOUT THE HONBLE KARNATAKA HIGH COURT IS THAT THE SAME PERTAINS TO AN INSTANCE OF EXERCISE OF SECTION 2 63 JURISDICTION VIS - - VIS 153A PROCEEDINGS. WE TAKE INTO ACCOUNT ALL THESE CIRCUMSTANCES AND HOLD THAT INITIATION OF IMPUGNED SECTION 153A PROCEEDINGS IN THIS SET OF FOUR ASSESSMENT YEARS IN ABSENCE OF ANY INCRIMINATING MATERIAL FOUND IN SEARCH CONDUCTED AFTER FINALIZATION OF REGULAR ASSESSMENT S IS NOT SUSTAINABLE. WE QUOTE DELHI TRIBUNALS DECISION (SUPRA) AND HOLD THAT ASSESSMENTS FRAMED U/S.143(1) AND 143(3) OF THE ACT HAVE TO BE TREATED AT PAR IN SUCH CASES. THIS LEAVES US WITH THE OTHER JUDGMENTS Q UOTED AT THE REVENUES BEHEST. THE CASE LAW OF RAJ KUMAR ARORA (SUPRA) DEALS WITH SCOPE OF A SECTION 153A ASSESSMENT AND NOT THAT OF ASSUMPTION OF JURISDICTION WHICH STANDS ON A DIFFERENT FOOTING. THE SAME IS THE CASE IN OTHER DECISION OF FILATEX INDIA L TD. (SUPRA). THE CASE LAW OF BANGALORE AND CHENNAI BENCH ES OF THE TRIBUNAL HOLDING THAT AN ASSESSING OFFICER GETS JURISDICTION FOR PASSING ORDERS U/S.153A AFTER SEARCH EVEN IN ABSENCE OF ANY INCRIMINATING MATERIAL IN CASE OF ASSESSMENTS ALREADY FINALIZED ; GO AGAINST THE SPECIAL BENCH DECISION HEREINABOVE . THE SAME ARE NO LONGER VALID PRECEDENTS. THE REVENUES ARGUMENTS RELYING ON THE ABOVE STATED DECISION ARE ACCORDINGLY REJECTED. WE ACCEPT THE ASSESSEES ARGUMENTS CHALLENGING VALID ITY OF INITIATION OF SECTION 153A PROCEEDINGS IN ALL THESE FOUR ASSESSMENT YEARS. THE IMPUGNED ASSESSMENTS ARE ACCORDINGLY QUASHED. THE ASSESSEES APPEALS IT(SS)A NOS. 807 - 809/A HD/2010 AND C.O. NO. 4/AHD/2011 FOR A.YS. 2002 - 03 TO 05 - 06 ARE INTAS PHARMACEUTICALS LTD. VS. DCIT 15 ALLOWED. THE REVEN UES CORRES PONDING APPEALS IT(SS )A NOS. 819 - 821/AHD/2010 ON MERITS ARE DISMISSED AS HAVING BEEN RENDERED INFRUCTUOUS. 9 . THIS LEAVES US WITH A.YS. 2007 - 08 AND 08 - 09. THE REVENUES SOLE IDENTICAL GROUND IN THESE TWO ASSESSMENT YEARS CHALLENGES LOWER APPELLATE ORDER DELEING DISALLOWANCE OF WEIGHTED DEDUCTION U/S. 35(2AB) IN RESPECT OF CLINICAL TRIAL EXPENSES OF RS.2,12,93,375/ - AND RS.4,67,57,759/ - RESPECTIVELY. THE ASSESSEES C ROSS O BJECTION NO. 39/AHD/2011 CHALLENGE S VALIDITY OF SECTION 153A PROCEEDINGS AND DISALLOW ANCE OF RS. 3,07,245/ - OF BUILDING REPAIR AND MAINTENANCE EXPENSES ON THE GROUND OF THE DSIRS NON APPROVAL . ITS IDENTICAL GROUND IN ITS C ROSS A PPEAL IT (SS) A NO.20/AHD/2011 FOR A.Y. 2008 - 09 RAISES A SIMILAR GROUND ON MERIT . WE TAKE UP REVENUE S APPEAL IT (SS) A NO. 38/AHD/2011 AS THE LEAD CASE ACCORDINGLY. THE CASE FILE COMPRISING OF CIT(A)S COMMON ORDER DISCUSSES ASSESSEES CLAIM, ASSESSING OFFICERS OBSERVATION S , ASSESSEES SUBMISSION IN THE LOWER APPELLATE PROCEEDINGS AS UNDER: 6. THE SECOND GROUND I S REGARDING THE DISALLOWANCE OF EXPENDITURE UNDER SECTION 35 (2AB) OF THE INCOME - TAX ACT. THE AO HAS OBSERVED THAT THE APPELLANT IS APPROVED BY THE DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH UNDER SECTION 35 (2AB) IN RESPECT OF FOLLOWING EXPENDITURES VIDE THEIR APPROVAL DATED 26/3/2007 FOR ASSESSMENT YEAR 2007 - 2008 AND 2008 - 2009 ASSESSMENT YEAR 2007 - 2008 2008 -- 2009 ----------------------------------------------------------------- ------------------ -------------------- LAND AND BUILD ING 7.97 LACS NIL CAPITAL EQUIPMENT EXCLUDING LAND AND BUILDING 15.26 L ACS NIL REVENUE EXPENDITURE INCURRED IN R & D 1921.85 LACS 3967.67 INTAS PHARMACEUTICALS LTD. VS. DCIT 16 --------------------- -------------------------- TOTAL COST OF IN - HOUSE RESEARCH FACILITIES EXCLUDING LAND AND BUILDING 1937.11 3967.67 AS AGAINST THIS THE APPELLANT HAS CLAIMED WEIGHTED DEDUCTIO N IN RESPECT OF THE REVENUE EXPENDITURE AT RS .35,26,18,490/ - O N ACTUAL EXPENDITURE OF RS.23,50,8,998/ - INSTEAD OF THE AMOUNT APPROVED FOR RS.1921.85 LACS BY THE DEPARTMENT OF SCIENCE. THE AO THEREFORE, DISALLOWED THE BALANCE CLAIM OF RS.2,14,46,997/ - IN ASSESSMENT YEAR 2007 - 2008 AND RS.7,5 0,61,105/ - IN ASSESSMENT YEAR 2008 - 2009. IN OTHER WORDS, THE AO RESTRICTED THE CLAIM UNDER SECTION 35(2AB) TO THE EXTENT OF THE APPROVAL GRANTED BY DEPARTMENT OF SCIENCE. AGAINST THIS ACTION OF THE AO, THE APPELLANT SUBMITTED AS UNDER: 'GROUND NO. 2 RELA TES TO THE DISALLOWANCE OF EXPENDITURE U/S 35(2AB) AMOUNTING TO RS.2,14,46,997/ - . 5.1 THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF EXPENDITURE AMOUNTING TO RS.2,14,46,997/ - . THE BREAK UP OF THE SAID DISALLOWANCE IS AS UNDER : - (A) EXP ENDITURE ON CLINICAL TRIALS RS. 4,25,86,793/ - . (B) EXPENDITURE ON BUILDING MAINTENANCE RS.3,07,245/ - . THE ASSESSING OFFICER HAS DISALLOWED THE WEIGHTED DEDUCTION U/S 35(2AB) ON THE AFORESAID EXPENDITURE. WHILE DISALLOWING THE AFORESAID EXPENDITURE, AT P AGE NO. 2 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS STATED THE FOLLOWING: 'ASSESSEE HAS CLAIMED WEIGHTED DEDUCTION IN RESPECT OF REVENUE EXPENDITURE AT RS.35,26,18,490/ - ON ACTUAL EXPENDITURE OF RS.23,50,78,998/ - INSTEAD OF THE AMOUNT APPROVED FO R RS.1921.85 LACS BY DEPARTMENT OF SCIENCE. THEREFORE, BALANCE WEIGHTED DEDUCTION U/S 35(2AB) IN RESPECT OF THE DIFFERENCE IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ' IN VIEW OF THE ABOVE, IT IS STATED THAT THE ASSESSING OFFICER HAS DISALLOWED THE AFO RESAID EXPENDITURE ON THE GROUND THAT THE SAID EXPENDITURE IS NOT APPROVED BY THE PRESCRIBED AUTHORITY (DSIR). THE DETAILS OF THE EXPENDITURE INCURRED BY THE APPELLANT AND THE AMOUNT APPROVED BY DSIR ARE SUBMITTED HEREWITH VIDE ANNEXURE - 1. 5.2 AS REGARD T O THE FACTUAL POSITION, IT IS STATED THAT THE APPELLANT COMPANY HAS AN APPROVED IN - HOUSE RESEARCH AND DEVELOPMENT CENTER. THE APPELLANT COMPANY HAS BEEN CARRYING ON R & D PROGRAMS COVERING ASPECTS LIKE PROTOTYPE FORMULATION DEVELOPMENT, IMPURITY PROFILING, ANALYTICAL METHODS VALIDATION, INTAS PHARMACEUTICALS LTD. VS. DCIT 17 PROCESS VALIDATION, STABILITY STUDIES, REGULATORY DOCUMENTATION, API CHARACTERIZATION, IMPROVEMENT IN EXISTING DOSAGE FROM VIZ. IMMEDIATE RELEASE (IR) MODIFIED RELEASE (MR), SUSTAINED RELEASE (SR) TABLETS AND CAPSULES, ACHIE VING THE MARKET AUTHORIZATION IN RESPECTIVE COUNTRIES, IMPROVEMENT IN ANALYTICAL RESEARCH VIZ. KINETIC AND MECHANISMS OF DEGRADATION OF APIS AND FORMULATIONS, STRUCTURE ELUCIDATION AND CHARACTERIZATION OF DEGRADATION PRODUCTS BY UV, IR CHROMATOGRAPHY, DSC, ELEMENTAL ANALYSIS, MASS SPECTROSCOPY, CHARACTERIZATION OF POLYMORPHS USING DIFFERENTIAL SCANNING CALORIMETRY. THE APPELLANT COMPANY IS TAKING ASSISTANCE OF CLINICAL RESEARCH ORGANISATION (CRO) / DOCTORS TO CONFIRM QUALITY OF DRUGS AND THEIR APPLICABILIT Y FOR DESIRED RESULTS. IT IS SUBMITTED THAT THE CRO CARRIED OUT THE ACTIVITIES ON HUMAN SUBJECTS, FOR THREE TO FIVE DAYS AT A STRETCH IN HEALTHY ATMOSPHERE. SEPARATE BEDS AND COMPOSITE PATHOLOGY LABORATORY FOR CHECKING OF BLOOD, URINE ETC. IS REQUIRED. THE APPELLANT COMPANY IS HAVING FACILITIES WHERE ALL THE DRUGS ARE MANUFACTURED & R&D ACTIVITIES ARE CARRIED OUT. HOWEVER, IN THE SAME CAMPUS, IT IS NOT POSSIBLE TO CREATE A CRO FACILITY. THEREFORE, THE SAME IS BEING DONE THROUGH OUTSIDE CROS. 5.3 FURTHER, I T IS BROUGHT TO YOUR KIND ATTENTION THAT FOR THE YEAR UNDER CONSIDERATION, THE APPELLANT COMPANY HAD APPLIED FOR THE APPROVAL OF US R&D UNIT AND THE SAME HAS BEEN GRANTED BY DSIR INFORM NO. 3CM AND THE REPORT IN THIS RELATION HAS ALSO BEEN SUBMITTED IN FOR M NO. 3CL. THE COPIES OF FORM NO. 3CM AND 3CL ARE ENCLOSED HEREWITH VIDE ANNEXURE - 2. APART FROM THIS, THE APPELLANT COMPANY MAINTAINS SEPARATE ACCOUNTS FOR ITS R&D UNIT AND THE SAME HAVE BEEN AUDITED BY A CHARTERED ACCOUNTANT. THUS, ALL THE PROCEDURAL REQU IREMENTS AS LAID DOWN U/S 35(2AB) RWR 6 HAVE BEEN COMPLIED WITH BY THE APPELLANT - COMPANY. 5.4.1 AS REGARDS THE CLAIM OF WEIGHTED DEDUCTION U/S. 35(2AB), ALL THE CONDITIONS SPECIFIED IN THE SAID PROVISIONS ARE SATISFIED BY THE COMPANY. WITH REFERENCE TO T HE EXPENDITURE ON CLINICAL TRIALS, THE EXPLANATION TO SECTION 35(2AB)(1) - SHOULD BE CONSIDERED, WHICH READS UNDER : EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 'EXPENDITURE ON SCIENTIFIC RESEARCH ', IN RELATION TO DRUGS AND PHARMACEUTICALS, SHALL I NCLU DE EXPENDITURE INCURRED ON CLINICAL DRUG TRIAL, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT, 1970 (39 OF 1970). IN VIEW OF THE ABOVE EXPLANATION, IT IS CLEAR THAT THE EXPENDITURE ON CLINICAL DRUG TRAIL IS SPECIFICALLY INCLUDED WITHIN THE MEANING OF 'EXPENDITURE ON SCIENTIFIC R ESEARCH ' FOR THE PURPOSE OF SEC. 35(2AB). INTAS PHARMACEUTICALS LTD. VS. DCIT 18 5.4.2 AS REGARD THE BUILDING MAINTENANCE EXPENDITURE, IT IS SUBMITTED THAT THIS EX PENDITURE IS INCURRED ON THE BUILDING ON WHICH IN - HOUSE RESEARCH AND DEVELOPMENT ACTIVITY IS CARRIED OUT. MOREOVER, IT IS STATED THAT WHAT IS EXCLUDED UNDER THE PROVISION OF SEC 35(2AB) OF THE IT ACT IS THE COST OF LAND & BUILDING AND NOT THE RECURRING EXP ENDITURE RELATED TO BUILDING THAT IS REPAIRS AND RENOVATION OF BUILDING, AND THEREFORE THE COMPANY IS ENTITLED TO WEIGHTED DEDUCTION FOR RECURRING EXPENDITURE ON REPAIRS. 6.1 IN THE ABOVE BACKGROUND, IT IS SUBMITTED THAT THE IN - HOUSE R & D FACILITY OF THE COMPANY IS APPROVED BY FOLLOWING VARIOUS WORLD CLASS REGULATORY AUTHORITIES AND IS TREATED AS ONE OF THE BEST IN INDIAN PHARMACEUTICAL INDUSTRIES VIZ. (1) WORLD 'HEALTH ORGANISATION GMP CERTIFICATION (INDIA) (2) MEDICINES CONTROL COUNCIL (REPUBLIC OF S OUTH AFRICA) (MCC) - SOUTH AFRICA (3) MEDICINES AND HEALTHCARE PRODUCTS REGULATORY AGENCY (MHRA) - UK (4) UNITED STATES FOOD AND DRUG ADMINISTRATION (USFDA) USA (5) ANVISA - BRAZIL (6) GULF CENTRAL COMMITTEE (GCC) GULF IT ALSO REQUIRES ADHERING STRICT LY AND COMPLYING WITH VARIOUS SPECIFICATIONS AND SEVERAL CONDITIONS AS IMPOSED BY THE STATE AND CENTRAL DRUG CONTROL REGULATORY AUTHORITIES STATED HEREINABOVE, SO THAT THE END PRODUCT MANUFACTURED BY THE COMPANY IS COMPETENT AND FIT FOR HUMAN TREATMENT. TH E PRODUCT HAS TO MATCH AND COMPARE FAVORABLY WITH THE 'NORMS AND STANDARD' LAID DOWN BY VARIOUS AUTHORITIES FOR THE PERMISSION TO USE FOR TREATMENT OF CERTAIN SOPHISTICATED CRITICAL TYPES OF DISEASES. 6.2 THE APPELLANT COMPANY HAS FOLLOWING IN - HOUSE R & D FACILITIES: A) FORMULATION DEVELOPMENT LABORATORY IN SOLID ORAL BLOCK. B) R&D LABORATORY IN Q C BLOCK. C) R&D LABORATORY IN ONCOLOGY BLOCK. D) API PILOT PLANT. WITH THE HELP OF THESE FACILITIES, THE COMPANY HAS DEVELOPED NUMBER OF GOOD PRODUCTS WHI CH HAVE HELPED CONSIDERABLY IN PROVIDING 'A CURE' TO THE CRITICAL TYPES OF DISEASES. 6.3 FOR ALL THESE PRODUCTS DEVELOPED WITH THE HELP OF ONGOING RESEARCH CARRIED OUT AT ITS IN HOUSE R & D FACILITY, IT IS ESSENTIAL FOR THE COMPANY TO TAKE HELP OF CLINIC AL RESEARCH ORGANISATION (CRO) FOR TESTING DRUGS ON HUMAN SUBJECTS AND INTAS PHARMACEUTICALS LTD. VS. DCIT 19 ALSO TAKE HELP FROM DOSSIER (PHARMACEUTICAL DOCUMENTATION) MAKING COMPANIES, AND TO MAINTAIN STANDARD LAID DOWN BY REGULATORY AUTHORITIES FOR ARRIVING AT THE JUDGMENT OF THE EFFECTIVEN ESS OF THE DRUGS, AND TO RULE OUT SIDE - EFFECTS, IF ANY. IT IS NATURAL THAT THE COMPANY HAS TO INCUR EXPENDITURE ON THESE CLINICAL TRIALS TESTS AND EXPERIMENTS WHICH COULD BE CARRIED OUT ONLY AT PLACES HAVING ADEQUATE INFRASTRUCTURE LIKE 'MINI' WELL EQUIPP ED HOSPITALS SPECIALIZED LABORATORIES & SERVICES OF SOPHISTICATED KNOWLEDGE OF SPECIALIST DOCTORS & SCIENTISTS ON THE PRODUCTS UNDER EXPERIMENTATION SO ALSO ON VARIOUS AGENCIES AS PER REGULATORY AUTHORITIES. THESE CLINICAL TRIALS ARE PART OF THE MAIN RESEA RCH BEING CARRIED ON BY THE COMPANY. THE PAYMENTS MADE FOR THE SAID PURPOSE IS EXPENDITURE ON IN - HOUSE R&D ONLY. 6.4 THE ABOVE REQUIREMENT OF THE R & D ACTIVITY HAS BEEN RIGHTLY RECOGNIZED AND THEREFORE, THE EXPENDITURE 'ON CLINICAL TRIAL HAS BEEN SPECIF ICALLY INCLUDED WITHIN THE MEANING OF 'EXPENDITURE ON SCIENTIFIC RESEARCH', AS EXPLAINED IN PARA - 5.4.1 HEREINABOVE. 7. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT ALL THE CONDITIONS SPECIFIED U/S. 35(2AB) FOR CLAIMING WEIGHTED DEDUCTION ARE FULFIL LED BY THE APPELLANT - COMPANY. MOREOVER, IN VIEW OF THE EXPLANATION AS REPRODUCED ABOVE, EXPENDITURE ON CLINICAL TRIALS IS SPECIFICALLY INCLUDED IN THE TERM 'EXPENDITURE FOR SCIENTIFIC RESEARCH' AND THE APPELLANT - COMPANY HAS APPROVED IN - HOUSE RESEARCH & DEVELOPMENT FACILITY. THEREFORE, THE EXPENDITURE INCURRED ON CLINICAL TRAILS WOULD BE ELIGIBLE FOR THE WEIGHTED DEDUCTION U/S. 35(2AB). APART FROM ABOVE, AS STATED IN PARA 5.4.2, THE RECURRING EXPENDITURE ON BUILDING IS ALSO ELIGIBLE FOR WEIGHTED DEDUC TION U/S 35(2AB). THUS, THE CLAIM OF THE APPELLANT - COMPANY IS FULLY LEGITIMATE. 8.1 FOR DISALLOWING THE ASSESSEE'S CLAIM U/S. 35(2AB), THE ASSESSING OFFICER HAS STATED THAT THE EXPENDITURE ON CLINICAL TRAILS ARE NOT APPROVED BY THE PRESCRIBED AUTHORITY VI Z. DSIR. IN THIS REGARD, IT IS SUBMITTED THAT THE EXPLANATION TO SECTION 35'(2AB) SPECIFICALLY INCLUDES EXPENSES ON CLINICAL TRIAL WITHIN THE MEANING OF 'EXPENDITURE ON R & D' AND THEREFORE, FOR THE PURPOSE OF WEIGHTED DEDUCTION UNDER THE INCOME - TAX ACT, T HE SAID EXPENDITURE SHOULD BE INCLUDED. IF THE EXPENDITURE IS INCURRED BY THE ASSESSEE ON RESEARCH AND DEVELOPMENT IN THE IN - HOUSE RESEARCH AND DEVELOPMENT FACILITY WHICH IS APPROVED BY THE DSIR, THE EXPENDITURE QUALIFIES FOR WEIGHTED DEDUCTION U/S. 35(2A B). INTAS PHARMACEUTICALS LTD. VS. DCIT 20 8.2 IN THIS CONNECTION, THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF TORRENT PHARMACEUTICALS LTD. FOR A.Y. 2001 - 02 MAY ALSO BE CONSIDERED. THE HON'BLE ITAT, IN ITS ORDER IN ITA NO. 3569 /AHMEDABAD/ 2004 AND CROSS - OBJECTIONS NO. 18/AHMEDABAD/2 005, HAS HELD AS UNDER : - '10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT IT IS ONLY THE EXPENDITURE WHICH WILL ONLY BE ALLOWED, WHEREAS THE ASSESSEE VIDE THE COPY OF THE LETTER REPRODUCED HEREIN BELOW HAS VERY CLEARLY EXPLAINED AS TO HOW THE ENTIRE EXPENDITURE CLAIMED BY THE ASSESSEE IS ALLOWABLE. THUS, THERE WAS NO JUSTIFICATION IN HARPING UPON THE FIGURE CONTAINED INFORM NO. 3CL AS IS DOWN BY THE ASSESSING OFFICER. THE PROVISIONS OF THE ACT DOES NOT CONTAIN ANY SPECIFIC CONDIT IONS FOR THE ALLOWANCE OF EXPENDITURE TO THE EFFECT THAT IT WILL BE RESTRICTED TO THAT CONTAINED IN FORM NO. 3CL. NEEDLESS TO POINT OUT THAT SUCH ALLOWABLE EXPENDITURE ETC IS REPORTED BY THE DSIR [INCOME TAX EXEMPTION], KOLKATA WITHOUT GIVING AN OPPORTUNIT Y OF BEING HEARD TO THE ASSESSEE WHEREVER HE QUANTIFIES THE EXPENDITURE WHICH IS LESS THAN THAT CLAIMED BY THE ASSESSEE. WE FURTHER FIND THAT THE ASSESSEE HAS INCLUDED A SUM OF RS. 51.26'LACS AS ELIGIBLE EXPENDITURE BEING REVENUE EXPENDITURE RELATING TO BU ILDING AN ANOTHER SUM OF RS.133.92 LACS BEING REVENUE EXPENDITURE OTHER THAN BUILDING, WHICH WAS CONSIDERED AS REVENUE BY THE ASSESSING OFFICER HIMSELF. THESE ITEMS CLEARLY ARE WITHIN THE PURVIEW OF ALLOWABLE U/S. 35[2AB] OF THE ACT AS WEIGHTED DEDUCTION. THE SECURITY EXPENSES ARE ALSO DIRECTLY, RELATED TO INHOUSE RESEARCH AS PROPER SECURITY IS REQUIRED TO AVOID LEAKAGE AND ONLY INHOUSE STAFF WILL HAVE ASSSSED TO BUILDING. ACCORDINGLY, THIS EXPENDITURE ARE FOR PRESERVING THE RESEARCH WHICH IS COMPLETED AND ITS CLINICAL TRIAL IS PENDING. AS REGARDS TO THE ENVIRONMENTAL ISSUE, THE ASSESSEE COMPANY HAS SET UP AN AFFLUENT PLANT AND AS IS WIDELY ACCEPTED, THE VEGETATION I.E. TREES HAVE CONTAINED THE POLLUTION. THIS EXPENDITURE OF GARDENING AND PLANTATION HAVE BEE N DONE FOR THE PERSEVERANCE OF THE ENVIRONMENT AND THIS IS DIRECTLY RELATED TO THE R&D FACILITIES. AS REGARDS TO SALARY PAID TO DR. C DUTT AMOUNTING TO RS. 58.54 LACS, HE IS IN CHARGE OF R&D CENTRE AT BHATT. HE IS THE PERSON THROUGH WHOM ALL COORDINATION O F TECHNICAL SCIENTISTS AND OTHER TECHNICAL PERSONS ARE CARRIED OUT. THE ENTIRE REPORTING OF THE RESEARCH ACTIVITY TO THE MANAGEMENT HAS BEEN TAKEN TO THE BOARD OF DIRECTORS THROUGH HIM ONLY AND FOR THIS THE SALARY IS PAID. ACCORDINGLY, THE ASSESSEE HAS RIG HTLY PAID THE ENTIRE EXPENDITURE OF RS. 133.92 LACS AND BUILDING REPAIRS RS. 37.55 LACS ON WHICH WEIGHTED INTAS PHARMACEUTICALS LTD. VS. DCIT 21 DEDUCTION U/S. 35[2AB] OF THE ACT IS ALLOWABLE. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF THE REVENUE'S AP PEAL IS DISMISSED AND THAT OF THE ASSESSEE' CO IS ALLOWED.' 8.3 IN CONNECTION WITH THIS DISALLOWANCE, THE APPELLANT WOULD ALSO LIKE TO RELY UPON THE DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CLARIS LIFE SCIENCES LTD. (221 - CTR - 3 01). THE RELEVANT FINDING OF TH E HIGH COURT IS REPRODUCED HEREUN DER: -- 'THE TRIBUNAL HAS CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE AND TOOK THE VIEW THAT SECTION SPEAKS OF (I) DEVELOPMENT OF FACILITY; (II) INCURRING OF EXPENDITURE BY THE ASSESS EE FOR DEVELOPMENT OF SUCH FACILITY; (II I) APPROVAL OF THE FACILITY BY THE PRESCRIBED AUTHORITY, WHICH IS DSIR ; AND (IV) ALLOWANCE OF WEIGHTED DEDUCTION ON THE EXPENDITURE SO INCURRED BY THE ASSESSEE. THE PROVISIONS NOWHERE SUGGEST OR IMPLY THAT 'R & D' FACILITY IS TO BE APPROVED FROM A PARTICULAR DATE AND IN OTHER WORDS, IT IS NOWHERE SUGGESTED THAT DATE OF APPROVAL ONLY WILL BE CUT - OFF DATE FOR ELIGIBILITY OF WEIGHTED DEDUCTION ON THE EXPENSES INCURRED FROM THAT DATE ONWARDS. A PLAIN READING CL EARLY MANIFESTS THAT THE ASSESSEE HAS TO DEVELOP FACILITY, WHICH PRESUPPOSES INCURRING EXPENDITURE IN THIS BEHALF, APPLICATION TO THE PRESCRIBED AUTHORITY, WHO AFTER FOLLOWING PROPER PROCEDURE WILL APPROVE THE FACILITY OR OTHERWISE AND THE ASSESSEE WILL BE ENTITLED TO WEIGHTED DEDUCTION OF ANY AND ALL EXPENDITURE SO INCURRED. THE TRIBUNAL HAS, THEREFORE, COME TO THE CONCLUSION THAT ON PLAIN READING OF SECTION ITSELF, THE ASSESSEE IS ENTITLED TO WEIGHTED DEDUCTION ON EXPENDITURE SO INCURRED BY THE ASSESSEE F OR DEVELOPMENT OF FACILITY. THE TRIBUNAL HAS ALSO CONSIDERED RULE 6(5A) AND FORM NO. 3CM AND COME TO THE CONCLUSION THAT A PLAIN AND HARMONIOUS READING OF RULE AND FORM CLEARLY SUGGESTS THAT ONCE FACILITY IS APPROVED, THE ENTIRE EXPENDITURE SO INCURRED ON DEVELOPMENT OF 'R & D' FACILITY HAS TO BE ALLOWED FOR WEIGHTED DEDUCTION AS PROVIDED BY SECTION 35(2AB). THE TRIBUNAL HAS ALSO CONSIDERED THE LEGISLATIVE INTENTION BEHIND ABOVE ENACTMENT AND OBSERVED THAT TO BOOST UP R & D FACILITY IN INDIA, THE LEGISLATU RE HAS PROVIDED THIS PROVISION TO ENCOURAGE THE DEVELOPMENT OF THE FACILITY BY PROVIDING DEDUCTION OF WEIGHTED EXPENDITURE. SINCE WHAT IS STATED, TO BE PROMOTED WAS DEVELOPMENT OF FACILITY, INTENTION OF THE LEGISLATURE BY MAKING ABOVE AMENDMENT IS VERY CLE AR THAT THE ENTIRE EXPENDITURE INCURRED BY THE ASSESSEE ON DEVELOPMENT OF FACILITY, IF APPROVED, HAS TO BE ALLOWED FOR THE PURPOSE OF WEIGHTED DEDUCTION. INTAS PHARMACEUTICALS LTD. VS. DCIT 22 WE ARE IN FULL AGREEMENT WITH THE REASONING GIVEN BY THE TRIBUNAL AND WE ARE OF THE VIEW THAT THERE I S NO SCOPE FOR ANY OTHER INTERPRETATION AND SINCE THE APPROVAL IS GRANTED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR IN QUESTION, WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM WEIGHTED DEDUCTION IN RESPECT OF THE ENTIRE EXPENDITUR E INCURRED UNDER SECTION 35(2AB) OF THE ACT BY THE ASSESSEE. ' ON PERUSAL OF THE ABOVE DECISION , YOUR GOODSELVES SHALL APPRECIATE THAT THE REQUIREMENT OF APPROVAL FROM DSIR HAS BEEN FULFILLED IN THE CASE OF THE APPELLANT AND THEREFORE, THE ENTIRE EXPENDI TURE IN RESPECT OF SUCH R & D SHOULD BE ALLOWED. ONCE THE FACILITY IS APPROVED BY THE DSIR, ALL THE EXPENSES, INCURRED ON R & D IN THE SAID FACILITY, BECOME ELIGIBLE U/S 35(2AB) OF THE INCOME - TAX ACT. IN VIEW OF ABOVE, IT IS SUBMITTED THAT THE CLAIM FOR W EIGHTED DEDUCTION IN RESPECT OF EXPENDITURE ON CLINICAL TRIALS AND BUILDING MAINTENANCE ARE BONAFIDE CLAIMS AND THE SAME SHOULD BE HELD AS ELIGIBLE FOR WEIGHTED DEDUCTION. ' 7. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. IN THE PROFIT AND LOSS ACCO UNT, R AND D DIVISION, THE APPELLANT HAS CLAIMED THE FOLLOWING EXPENDITURES: RS. MATERIAL CONSUMPTION 3,98,04,952 SALARY AND WAGES 157,28,321 OTHER RESEARCH EXPENSES 17,95,45,720 INTEREST AND FINANCIAL COST 0 ----------------- 23,50,78,993 ----------------- DEPRECIATION 42,34,985/ - ----------------- RS.23,93,13,978/ - 7.1 THE APPELLANT WAS ASKED TO FURNISH THE BREAK - UP OF OTHER RESEARCH EXPENSES WHICH WAS FURNISHED BY THE AR AS UNDER FOR ASSESSME NT YEAR 2007 - 2008 INTAS PHARMACEUTICALS LTD. R&D FACILITY AT MATODA (AHMEDABAD) BREAK UP OF OTHER RESEARCH EXPENSES ACCOUNTING YEAR - 2006 - 07 ASSESSMENT YEAR - 2007 - 08 SR.NO. DESCRIPTION AMOUNT (RS.) 1. POWER COST 58,17,161.00 2. STEAM C OST 19,89,046.00 INTAS PHARMACEUTICALS LTD. VS. DCIT 23 O INNOVATOR SAMPLE 5,12,42,442,50 4. REFERENCE STANDARD & IMPURITIES 79,76,045.89 5. COLUMNS 1,15,12,524.61 6. LAB CHEMICALS, GLASSWARE, STORES & CONSUMABLES 1,39,19,201.87 7. REPAIRS & MAINTENANCE 28,56,728.20 8. STATIONARY, POSTAGE & COURIER 67,44,718.76 9. REGULATORY, TESTING AND DOSSIER SUBMISSION EXPENSES 3,12,82,813.10 10. CLINICAL CHARGES 4,25,86,793.00 11. LABOUR CHARGES 12,02,902.00 12. STAFF TRAINING 87,710.00 13. TRAVELLING EXPENSES 4,92,815.00 14. CONVEYANCE, PETROL, & CAR HIRE CHARGES 25,714.00 15. TELEPHONE EXPENSES 1,85,446.00 16. LICENCE APPL. FEES 50,000.00 17. LEGAL EXPENSES 1,40,000.00 18. INSURANCE OTHERS 2,21,354.00 19. MEMBERSHIP FEES 5,000.00 20. BOOKS & PERIODI 6,68,860.30 21. STAFF RECRUITMENT 1,83 ,966.00 22. XEROX CHARGES 47,233.74 23. BUILDING REPAIRS & MAINTENANCE 3,07,244.50 TOTAL OTHER RESEARCH EXPENSES 17,95,45,720.47 7.2 FROM THE ABOVE, IT IS SEEN THAT THE DEPARTMENT OF SCIENCE HAS NOT APPROVED THE EXPENSES AMOUNTING TO RS.4,28,94,037/ - APPEARING AT SERIAL NUMBER 10 AND 23 OF OTHER RESEARCH EXPENSES AS MENTIONED ABOVE. SERIAL NUMBER 10 IS CLINICAL CHARGES OF RS.4,25,86,793/ - AND SERIAL NUMBER 23 IS BUILDING REPAIRS AND MAINTENANCE OF RS.3,07,244/ - . THE AO, THEREFORE, ALLOWED ONLY L00% DEDUCTION IN RESPECT OF THE ABOVE TWO EXPENSES AMOUNTING TO RS.4,28,94,0377 - INSTEAD OF 150% CLAIMED BY THE APPELLANT. IN OTHER WORDS, HE DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 35(2AB) OF RS.2,14,46,997/ - ON THIS GROUND. THE CONTENTION OF TH E APPELLANT IS THAT HE IS ENTITLED TO 150% DEDUCTION IN RESPECT OF THE EXPENSES OF RS. 4,25,86,793/ - INCURRED ON CLINICAL TRIAL IN VIEW OF THE EXPLANATION TO SECTION 35(2AB) INSERTED BY THE FINANCE ACT, 2001 WITH EFFECT FROM 1/4/2002. AS PER THIS EXPLANATI ON, THE EXPENDITURE ON SCIENTIFIC RESEARCH IN RELATION TO DRUGS AND PHARMACEUTICALS, INCLUDES, EXPENDITURE INCURRED ON CLINICAL DRUG TRIALS, OBTAINING APPROVAL FROM ANY REGULATORY AUTHORITY UNDER ANY CENTRAL, STATE OR PROVINCIAL ACT AND FILING AN APPLICATION FOR A PATENT UNDER THE PATENTS ACT 1970. IN VIEW OF THE EXPLANATION, IN MY OPINION, THE APPELLANT WOULD BE ENTITLED TO THE WEIGHTED DEDUCTION IN RESPECT OF THE EXPENDITURE INCURRED ON CLINICAL DRUG TRIALS OF RS.4,25,86,793/ - EVEN THOUGH THE SAME WAS NOT APPROVED BY THE DSIR. THE AO IS THEREFORE DIRECTED TO ALLOW 150% DEDUCTION IN RESPECT OF THE EXPENDITURE OF INTAS PHARMACEUTICALS LTD. VS. DCIT 24 RS.425,86,793/ - INCURRED ON CLINICAL DRUG TRIALS. HOWEVER, SINCE THE EXPENDITURE OF RS.3,07,244/ - INCURRED ON BUILDING REPAIR AND MAI NTENANCE HAS NOT BEEN APPROVE BY THE DSIR, THE APPELLANT WOULD NOT BE ENTITLED TO WEIGHTED DEDUCTION ON THIS AMOUNT. BECAUSE, FOR THE PURPOSE OF DEDUCTION OF CLINICAL DRUG TRIALS EXPENSES, TRIALS EXPLANATION WAS INSERTED IN THE STATUTE WITH EFFECT FROM 1/ 4/2002 TO ALLOW WEIGHTED DEDUCTION IN RESPECT OF SUCH EXPENSES. IN RESPECT OF ALL OTHER EXPENSES, ONLY THOSE EXPENSES WOULD BE ELIGIBLE FOR WEIGHTED DEDUCTION WHICH HAD BEEN APPROVED BY THE DS IR. IN OTHER WORDS, TO THE EXTENT OF DENIAL OF WEIGHTED DEDUCTI ON IN RESPEC T OF THE EXPENDITURE OF RS.3,07,244/ - THE ACTION OF THE AO IS UPHELD. IN OTHER WORD: ON THIS GROUND ADDITION TO THE EXTENT OF ONLY RS. 1,53,622/ - IS CONFIRMED IN ASSESSMENT YEAR 2007 - 2008. THIS LEAVES BOTH THE PARTIES AGGRIEVED. 10 . WE HA VE HEARD BOTH THE REVENUE AND ASSESSEE. WE COME TO REVENUES GRIEVANCE FIRST. IT IS AN ADMITTED FACT THAT ASSESSEE HAS INCURRED THE AMOUNT IN QUESTION ON SPECIFIED PURPOSES ONLY. WE FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF CIT VS. CADI LA HEALTHCARE LTD. [2013] 31 TAXMANN.COM 300 (GUJARAT) TAKES INTO ACCOUNT EXPLANATION TO SECTION 35(2AB)(1) INTRODUCED BY THE FINANCE ACT, 2001 W.E.F. 01.04.2002 AND HOLDS THAT WHERE AN ASSESSEE COMPANY INCURS EXPENSES ON CLINICAL TRIALS FOR DEVELOPING ITS PHARMACEUTICAL PRODUCTS OUTSIDE A LAB FACILITY APPROVED BY THE PRESCRIBED AUTHORITY (THE DSIR) , THE IMPUGNED WEIGHTED DEDUCTION HAS TO BE GRANTED AS PURPOSE OF THIS BENEFICIAL PROVISION IS TO ENCOURAGE SCIENTIFIC RESEARCH. THE REVENUE DOES NOT POINT OUT ANY DISTINCTION ON FACTS AND LAW. NOR DOES IT HIGHLIGHT ANY FACTUAL INFIRMITY IN ASSESSEES CLAIM THAT THE IMPUGNED SUM HAS NOT BEEN INCURRED ON CLINICAL RESEARCH. WE REJECT THE REVENUES CORRE SPONDING GROUND ACCORDINGLY IN A.Y. 2007 - 08. REVENUES APPEA L IT (SS) A NO. 38/AHD/2011 IS ACCORDINGLY DISMISSED. INTAS PHARMACEUTICALS LTD. VS. DCIT 25 T HE ASSESSEE HA S ALSO RAISED A CORRESPONDING GROUND IN ITS CROSS OBJECTION NO. 39/AHD/2011 RELATING TO THE VERY ISSUE OF WEIGHTED DEDUCTION OF RS.3,07,245/ - DISALLOWED IN THE COURSE OF ASSESSMENT AND THE SAME BEING SUSTAINED IN THE CIT(A)S ORDER REPRODUCED HEREINABOVE. THERE IS NO DISPUTE HAS ACTUALLY INCURRED THE IMPUGNED BUILDING REPAIR AND MAINTENANCE SUM. THE AUTHORITIES BELOW HAVE INVOKE THE IMPUGNED DISALLOWANCE FOR WANT OF DSIR APPROVAL. IT IS TO BE SEEN THAT A COORDINATE BENCH IN THE ITA NO. 3569/AHD/2004 ACIT VS. TORRENT PHARMACEUTICALS LTD. DECIDED ON 13.11.2009 DEALT WITH AN IDENTICAL ISSUE AND HELD THAT WHEN AN ASSESSING OFFICER TREATS SUCH A BUILDING REPAIR AND MAINTENANCE SUM AS R EVENUE E XPENDITURE , THE SAME IS ALSO ALLOWABLE U/S.35(2AB) OF THE ACT AS WELL. THE REVENUE FAILS TO QUOTE ANY CASE LAW TO THE CONTRARY. WE ACCEPT CORRESPONDING GROUND IN ITS CROSS OBJECTION ACCORDINGLY. ITS LEGAL GROUND CHALLENGING INITIATION OF SECTION 153A PR OCEEDINGS IS DISMISSED AS NOT PRESSED. ASSESSEES C.O. NO. 39/AHD/2011 STANDS PARTLY ALLOWED. 12 . NOW WE COME TO THE LAST A.Y. 2008 - 09. THE REVENUES SOLE SUBSTANTIVE GROUND IN ITS APPEAL IT (SS) A NO. 39/AHD/2011 SEEKS TO RESTORE THE DISALLOWANCE OF RS .4,67,57,759/ - FOR THE PU RPOSE OF WEIGHTED DEDUCTION OF R S.9,35,14,755/ - U/S. 35(2AB) OF THE ACT. WE FIND THAT THE CIT(A) HAS FOLLOWED HIS OBSERVATION IN THE PRECEDING ASSESSMENT YEAR EXTRACTED HEREINABOVE. NO DISTINCTION ON FACTS IS STATED TO BE INVOLVE D . WE FOLLOW OUR REASONING BASED ON THE HONBLE JURISDICTION HIGH COURT DECISION QUOTED IN THE PRECEDING PARAGRAPH IN CASE OF CADILA HEALTHCARE AND REJECT THE REVENUES SOLE SUBSTANTIVE INTAS PHARMACEUTICALS LTD. VS. DCIT 26 GROUND. REVENUES APPEAL IT (SS) A NO.39/AHD/2011 FOR A.Y. 2008 - 09 IS DISMISSED. 1 3 . THE ASSESSEES CROSS APPEAL IT (SS) A NO. 20/AHD/2011 RAISES FIRST SUBSTANTIVE GROUND OF DISALLOWANCE OF WEIGHTED DEDUCTION IN RESPECT OF EXPENDITURE OF RS.5,66, 06,691/ - U/S.35(2AB) OF THE ACT ON THE GROUND THAT THE S AID ITEM IS NOT COVERED I N FORM - 3CL I.E. FOR WANT OF DSIRS APPROVAL. THE CIT(A) HAS FOLLOWED HIS REASONING AS IN ASSESSMENT YEAR IN 2007 - 08. WE HAVE ALREADY ACCEPTED ASSESSEES C.O. THEREIN BY QUOTING CASE LAW OF TORRENT PHARMACEUTICAL LTD. WE IMPORT THE VERY REASONING HEREIN AS WELL AND ACCEPT THE ASSESSEES GROUND SINCE NO DISTINCTION ON FACTS OR LAW IS FORTHCOMING. 1 4 . THE ASSESSEES SECOND SUBSTANTIVE GROUND CHALLENGES LOWER APPELLATE ORDER UPHOLDING ASSESSMENT OF BOOK PROFIT U/S.115JB AT RS.19,28,66,436/ - AS PER ORIGINA L RETURN INSTEAD OF THE REVISED ONE STATING IT AS RS.18,81,50,391/ - . THE CIT(A)S ORDER HAS REJECTED ASSESSEES CLAIM AS UNDER: 10. THE NEXT GROUND OF APPEAL IS REGARDING CONSIDERING THE AMOUNT OF BOOK PROFIT AT RS.19,28,66,436/ - AS AGAINST RS.18,81,50, 391/ - . SINCE THERE WAS ASSESSED LOSS OF APPROXIMATELY RS.6.72 CRORES UNDER SECTION 143(3) OF THE INCOME - TAX ACT, THE TOTAL INCOME WAS COMPUTED BY THE ASSESSING OFFICER UNDER SECTION 115JB OF THE INCOME - TAX ACT BY TAKING THE BOOK PROFIT AT RS.19,28,66,436/ - . THE AR STATED BEFORE ME THAT THE ORIGINAL RETURN OF INCOME WAS ELECTRONICALLY FILED FOR ASSESSMENT YEAR 2008 - 09 ON 29/9/2008. AS PER THIS RETURN THE TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE INCOME - TAX ACT WAS COMPUTED AT A LOSS OF RS.14,71,11, 214/ - AND THE BOOK PROFIT WAS SHOWN AT RS.19,28,66,436/ - . THIS RETURN WAS REVISED BY THE APPELLANT ON 30 TH DECEMBER 2009. A COPY OF ACKNOWLEDGEMENT OF THIS REVISED RETURN WAS FURNISHED BEFORE ME. ACCORDING TO THE AR, THE APPELLANT HAD TO FILE A REVISED RETURN FOR ASSESSMENT YEAR 2008 - 09 ON 30/12/2009 IN VIEW OF THE AMALGAMATION OF ZORA PHARMA LTD. WITH INTAS PHARMACEUTICALS LTD. WITH EFFECT FROM 1/10/2007 AS PER SANCTION SCHEME OF REHABILITATION OF ZORA PHARMA LTD. ISSUED BY THE BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION VIDE ITS ORDER DATED INTAS PHARMACEUTICALS LTD. VS. DCIT 27 18/8/2009. AS A RESULT OF THE LOSSES IN ZORA PHARMA LTD., THE BOOK PROFIT OF THE APPELLANT WAS REDUCED. THE INTIMATION OF FILING THE REVISED RETURN WAS GIVEN TO THE AO ON 31/12/2009. THEREFORE, THE AO SHOULD HAVE TAKEN THE FIGURE OF BOOK PROFIT AS SHOWN IN THE REVISED RETURN AS AGAINST THE BOOK PROFIT SHOWN IN THE ORIGINAL RETURN OF INCOME. I FIND THAT IN THIS CASE THE ASSESSMENT ORDER WAS PASSED BY THE AO ON 30/12/2009 WHEREAS THE INTIMATION OF REVISED RETU RN WAS GIVEN TO THE AO ON 31/12/2009 I.E. AFTER THE ASSESSMENT ORDER WAS PASSED IN THIS CASE. IN OTHER WORDS, NO COGNIZANCE WAS TAKEN BY THE AO IN RESPECT OF THIS RETURN AS THE SAME WAS FILED AFTER THE ASSESSMENT ORDER WAS PASSED. A REVISED RETURN CAN BE FILED UNDER SECTION 139(5) OF THE INCOME - TAX ACT WITHIN ONE YEAR FROM THE END OF THE FINANCIAL YEAR OR BEFORE PASSING ASSESSMENT ORDER, WHICHEVER IS EARLIER. SINCE IN THIS CASE, THE ASSESSMENT ORDER HAS BEEN PASSED BEFORE FILING THE REVISED RETURN OF INC OME, THE REVISED RETURN IS NOT A VALID RETURN. IN FACT, THIS IS A NON EST RETURN. THAT IS WHY, THERE IS NO DISCUSSION IN THE ASSESSMENT ORDER REGARDING THE REVISED RETURN. THIS GROUND IS THEREFORE, DISMISSED. 1 5 . WE HAVE HEARD BOTH THE PARTIES AND PER USED THE CASE FILE. THE CIT(A) AT THE FIRST INSTANCE HOLDS THAT THE ASSESSEES REVISED RETURN WAS FILED ON 30.12.2009 I.E. ON THE DATE OF FRAMING OF ASSESSMENT ITSELF. THEREAFTER, HE OBSERVES THAT THIS REVISED RETURN WAS GIVEN TO THE ASSESSING OFFICER ON 31.12.2009 I.E. AFTER FRAMING OF THE ASSESSMENT. THERE IS NO JUSTIFICATION FORTHCOMING THAT WHEN REVISED RETURN WAS FILED ON THE FORMER DATE, HOW IT COULD BE GIVEN TO THE ASSESSING OFFICER ON THE NEXT DATE. BE THAT AS IT MAY, THE FACT REMAINS THAT THE A SSESSEE HAS SOUGHT TO COMPUTE ITS BOOK PROFIT AFRESH. THE SAID COMPUTATION ON MERITS IS YET TO BE EXAMINED. WE QUOTE THE CASE LAW OF GOETZE (INDIA) LTD. VS. CIT [2006] 284 ITR 323 (SC) AND HOLD THAT ENTERTAINING SUCH A PLEA IN ABSENCE OF A REVISED RETURN DOES NOT BAR ANY APPELLATE AUTHORITY FROM EXERCISING ITS JURISDICTION. T H IS SAID CASE LAW CLARIFIES THAT JURISDICTION OF APPELLATE AUTHORITY UNDER THE ACT IS NOT IMPINGED UPON. THE REVENUE DOES NOT POINT OUT ANY CASE LAW TO THE CONTRARY. WE OBSERVE IN THESE FACTS THAT THE ASSESSEES REVISED RETURN SEEKING TO RE - COMPUTE ITS BOOK PROFIT DESERVES TO BE EXAMINED AS PER INTAS PHARMACEUTICALS LTD. VS. DCIT 28 LAW. ITS CORRESPONDING GROUND RAISED IN THIS APPEAL IS SET ASIDE TO THE FILE OF ASSESSING OFFICER. THE ASSESSEES ARGUMENT S ARE ACCEPTED FOR STATISTICAL PURPOSES. ASSESSEES APPEAL IT (SS) A NO. 20/AHD/2011 IS PARTLY ALLOWED. 16. ASSESSEES APPEALS IT(SS )A NOS.807 TO 809/AHD/10 AND C.O. NO. 4/AHD/11 FOR A.Y. 2002 - 03 TO 2004 - 05 ARE ALLOWED AND C.O. NO.39/AH D/11 AND APPEAL ITA NO. 20/AHD/11 FOR A.Y. 2007 - 08 & 2008 - 09 ARE PARTLY ALLOWED . THE REVENUES APPEALS IT(SS)A NOS. 819 TO 821/AHD/11 AND IT(SS)A NOS. 38 & 39/AHD/11 FOR A.YS. 2003 - 04 TO 2005 - 06 AND 2007 - 08 TO 2008 - 09 ARE DISMISSED. PRONOUNCED IN THE OPE N COURT ON THIS THE 14 TH DAY OF AUGUST , 201 5 . SD/ - SD/ - ( G. D. AGRAWAL ) ( S. S. GODARA ) VICE PRESIDENT JUDICIAL MEMBER AHMEDABAD: DATED 14 /0 8 /2015 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO: - 1. / REVENUE 2. / ASSESSEE 3. / CONCERNED CIT 4. - / CIT (A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE. BY ORDER / , / ,