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Dy Commissioner of Income Tax v/s Aurobindo Pharma Limited, Hyd

    I.T.A. Nos. 1772 & 1773/HYD of 2017
    Decided On, 14 September 2018
    At, Income Tax Appellate Tribunal Hyderabad
    For the Appellant: Alka Rajvanshi Jain, Advocate. For the Respondent: C.P. Ramaswami, Advocate.

Judgment Text
S. Rifaur Rahman, A.M.:

1. These are Revenue appeals against the common of Ld. CIT(A) -11, Hyderabad, dated 09.08.2017. The only issue in these appeals is with reference to weighted deduction allowed by Ld. CIT(A) on the clinical trials conducted outside the 'in-house R & D facility' which was disallowed by A.O. on the reason that the same was not certified by Prescribed Authority (DSIR) in Form 3CL.

2. Revenue has raised the followed grounds which are common for both the years under consideration:-

"1. The CIT(A) erred in allowing the weighted deduction u/s 35(2AB) of the IT Act, 1961 in respect of the expenditure incurred in connection with the Bio Analytical and Bio Equivalence studies which is an expenditure incurred outside the "in -house" R & D Expenditure relying on the decision of the Hon'ble Gujarat High Court in the case of Cadila Healthcare Ltd.

2. The CIT(A) ought to have observed that the issue has not reached finality by way of Apex court has remitted the issue back to Gujarat High Court for fresh adjudication.

3. Any other ground that may be urged at the time of hearing. "

3. Brief facts are that assessee has claimed weighted deduction u/s 32(2AB) in the computation of income and A.O. on examination of the claims with reference to the Form 3CL, issued by the Competent Authority, while allowing weighted deduction to the extent permitted by competent authority. He disallowed excess weighted deducted for both the years as under:-

In A.Y. 2013-14 Rs. 33,64,29,352/-

In A.Y. 2014-15 Rs. 49,66,95,811/-

4. Before the Ld. CIT(A), it was contended that as per the provisions of Section 35(2AB) it is very clear that the expenditure incurred by the company on its in-house scientific research and development facility duly approved by DSIR, is eligible for weighted deduction. Expenditure on Bio Analytical and Bio Equivalence Studies is part of clinical drug trials and is must for obtaining the product approvals. Further, the company's in -house R&D facilities are duly approved by the prescribed author ity DSIR and Form No. 3CMs were already submitted, during the course of assessment proceedings and the expenditure is wholly and exclusively incurred by the company on its duly approved in-house research facilities. As far as Form NO. 3CL is concerned, it is only a report to be submitted by the prescribed authority to the Director General (Income Tax Exemptions). Simply because DSIR has not reported a particular amount it should not be disallowed when the expenditure incurred by the company is wholly and ex clusively for and on its Approved Facility. It is expressly provided in the Explanation to clause (1) of section 35(2AB) I that the expenditure on clinical drug tails in relation to drugs & pharmaceuticals is part of scientific research expenditure eligibl e for weighted deduction. For conducting Bio Analytical and Bio Equivalence Studies it requires hospital type facility and hence normally these studies will be conducted in outside facility duly approved for this purpose. In view of the above, it was submitted that the expenditure on Bio Analytical and Bio Equivalence Studies which forms part of clinical drug trials and which is must for product / process research and as this expenditure incurred wholly and exclusively incurred for scientific research and d envelopment the said amount is entitled for weighted deduction along with other Research Expenditure. It was further contended that this view is supported by the judicial pronouncement in the case of CIT Vs Cadila Healthcare Ltd by the Gujarat High Court wherein it was held that merely because the prescribed authority segregated the expenditure in two parts, viz; those incurred within the in-house facility and those incurred outside by itself would not be sufficient to deny the benefit to the assessee unde r section 35(2AB) of the Act. Thus, expenses incurred on drug trial outside the approved R&D facility would also be entitled to weighted deduction under section 35(2AB).

4.1. The AR of the assessee also submitted that the issue was settled in favour of the assessee in the earlier AYs 2011-12 and 2012-13 by CIT(A)- 11, Hyderabad vide order dated 24/08/2016.

5. After considering the submissions of the assessee, the CIT(A) following his decision in assessee's own case for earlier years (supra), deleted the disallowance made by the AO.

6. Ld. DR relied on the order of AO, while, ld. AR of the assessee submitted that the issue in dispute is squarely covered by the decision of the coordinate bench of this Tribunal in assessee's own case for AYs 2011- 12 and 2012-13 in ITA Nos. 1604 & 1605/Hyd/2016, vide order dated 20/07/2018, a copy of which is filed on record.

7. Considered the rival submissions and perused the material on record. We find that similar issue came up for consideration before the coordinate bench of this Tribunal in assessee's own case for AYs 2011 -12 and 2012- 13 (supra), wherein the coordinate bench has held as under:

"9. We have considered the rival contentions and perused the ca se law placed on record. In the decision of Concept Pharmaceuticals Ltd (supra) the Coordinate Bench did not allow the expenditure spent outside the R & D unit but the Bench has not considered the explanation introduced with reference to 'Clinical Trials'. By very nature, the Clinical Trials cannot alone be done within research facility as they require cooperation from the Medical Doctors, Hospitals, Volunteers and patients, therefore such expenditure has to be necessarily spent outside the facility, but for the purpose of 'in-house' research. This issue was examined by the Coordinate Bench which was subject matter of appeal before the Gujarat High Court and Gujarat High Court has approved the same. As seen from the order of the Supreme Court in Special Leave to Appeal (C) No. 770/2015, dated 13.10.2015, the grievance of Revenue with reference to non- framing of three questions were considered by the Hon'ble Supreme Court as those three questions are considered to be 'substantial question of law' and referred to the Hon'ble High Court to hear the aforesaid three questions of law. Howe

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ver, the judgment already passed by the Gujarat High Court has not been set -aside. As Ld. CIT(A) has followed the Coordinate Bench decision, which was approved by the Gujarat High Court and as no contrary High Court judgment has been placed on record, we approve the order of the CIT (A) and reject the Revenue contentions." As the issue in both the years under consideration are materially identical to that of AYs 2011-12 and 2012-13, following the decision of the coordinate bench in those years, we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue in both the years under consideration. 8. In the result, both Revenue's appeals are dismissed.