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2023 (1) TMI 30 - AT - Income TaxDeduction u/s. 80IB - method adopted by the assessee for computing deduction - Argument against order of CIT(A) in not adopting the method of the A.O. and also for not invoking the proviso to section 80IA(8) - HELD THAT - It is observed that this issue has been squarely covered by various decisions of the co-ordinate bench in assessee s own case for the previous years. By respectfully following the above 2014 (9) TMI 1269 - ITAT MUMBAI we find no infirmity in the order of the ld. CIT(A). Hence, this ground of appeal raised by the Revenue is dismissed. Deduction u/s. 80IB on the profits derived from the work/manufacturing done through LLMs - HELD THAT - It is observed that on identical issue raised by the assessee in earlier years, the Tribunal has held that the assessee was eligible for claiming deduction u/s. 80IB of the Act for profits derived from outsourcing the manufacturing activities carried out through LLMs - we find no infirmity in the order of the CIT(A). Accordingly, this ground of appeal raised by the Revenue is dismissed. Miscellaneous sales/processing charge, miscellaneous receipts eligible for computation of profits for claiming deduction u/s. 80IB - HELD THAT - Tribunal has included miscellaneous sales, processing charges, and miscellaneous receipts for claiming deduction u/s. 80IB - A.O. has held that the assessee company has been set up for the purpose of manufacturing drugs and pharmaceuticals, section 80IB states that profits and gains derived by such industrial undertaking and the A.O. has interpreted attributable to and derived from and held that the miscellaneous receipts and processing charges are attributable to the business of the assessee company. This issue has arisen in the earlier years and that the Tribunal has decided the same in favour of the assessee. We are of the considered opinion that the identical issue has been dealt with by the Tribunal in earlier years in assessee s own case and has decided this issue in favour of the assessee. Allowable business expenditure - disallowance by relying on the CBDT Circular No. 5 of 2012 read with Explanation 1 to section 37(1) of the Act, towards expenses incurred by the assessee company for business expenditure on marketing and promotional activity - assessee contends that the assessee has incurred expenditures for the purpose of marketing and promotional activities such as gifts, travel facility, hospitalization, cash or monetary grant, etc. for the marketing and promotional activities - HELD THAT - We are of the considered opinion that the said issue raised by the assessee is covered by the latest decision of M/s. Apex Laboratory Pvt. Ltd. 2022 (2) TMI 1114 - SUPREME COURT the relevant portion of which is reproduced below for ease of ready reference Thus, pharmaceutical companies gifting freebies to doctors, etc. is clearly prohibited by law , and not allowed to be claimed as a deduction under Section 37(1). Doing so would wholly undermine public policy. The well-established principle of interpretation of taxing statutes that they need to be interpreted strictly cannot sustain when it results in an absurdity contrary to the intentions of the Parliament - we are inclined to dismiss this ground of appeal raised by the assessee. Allowability of weighted deduction of clinical trial expenses for Research and Development (R D) expenditure claimed u/s. 35(2B) - A.O. restricted the amount of the weighted deduction to the amount quantified by the DSIR - HELD THAT - We find no infirmity in the order of the ld. CIT(A) in setting aside the issue to the file of the A.O. for examining the expenses claimed by the assessee and to be considered in light of decision is Cadila Health Care Ltd 2013 (3) TMI 539 - GUJARAT HIGH COURT pertaining to the claim of the expenses relating to clinical trials. The assessee has raised the ground that the ld. CIT(A) has failed to give any finding on the eligibility of expenses incurred on foreign consultancy expenses, building repairs, etc. for weighted deduction u/s. 35(2AB) - we direct the ld. CIT(A) to decide these issues raised by the assessee on merit of the case. Therefore, we remand this issue to the file of the ld. CIT(A) for the limited purpose of considering the eligibility of expenses incurred on foreign consultancy expenses, building repairs, etc. claimed by the assessee for weighted deduction u/s. 35(2AB) of the Act. Hence, this ground of appeal raised by the assessee is partly allowed. Disallowance u/s.14A read with Rule 8D - HELD THAT - The assessee submits that the assessee has filed revised Rule 8D computation enclosed in Annexure 5, which may be taken into consideration for computing the disallowance u/s. 14A read with Rule 8D, instead of the computation offered by the assessee filed along with its return of income. We are of the considered opinion that the assessee may be given one more opportunity to furnish the details of revised computation of disallowance u/s. 14A - Therefore, this issue may be remanded back to the file of the A.O. for adjudication based on the details proposed to be filed by the assessee. Hence, this ground of appeal raised by the assessee is allowed for statistical purpose.
Issues Involved:
1. Computation of Section 80IB deduction. 2. Deduction eligibility for profits derived from work/manufacturing through Loan Licensee Manufacturers (LLMs). 3. Eligibility of miscellaneous sales/processing charges and miscellaneous receipts for Section 80IB deduction. 4. Disallowance of business expenditure on marketing and promotional activities under Section 37(1). 5. Allowability of weighted deduction for clinical trial expenses under Section 35(2AB). 6. Disallowance under Section 14A read with Rule 8D. Detailed Analysis: Issue 1: Computation of Section 80IB Deduction The Revenue challenged the CIT(A)'s decision not to adopt the AO's basis for computing Section 80IB deduction of Rs.149,24,40,574/- as against Rs.427,10,08,047/- claimed by the assessee. The AO alleged that the assessee did not adopt the market value for goods transferred between 80IB and non-80IB units. The CIT(A) relied on the Tribunal's decision in the assessee's own case for A.Y. 2010-11, which accepted the assessee's method for computing Section 80IB deduction. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground, citing consistency with previous years' decisions. Issue 2: Deduction Eligibility for Profits Derived from LLMs The Revenue contested the CIT(A)'s decision allowing the assessee's claim for deduction under Section 80IB on profits derived from manufacturing through LLMs. The AO had rejected this claim, arguing it was not entitled to deduction on goods manufactured by LLMs. The CIT(A) relied on the Tribunal's decision for A.Y. 2010-11, which held that the assessee was eligible for such deductions. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground based on consistency with previous rulings. Issue 3: Eligibility of Miscellaneous Sales/Processing Charges for Section 80IB Deduction The Revenue challenged the inclusion of miscellaneous sales, processing charges, and miscellaneous receipts of Rs.41,84,39,824/- in the computation of profits for Section 80IB deduction. The AO argued these were attributable to the business but not derived from it. The CIT(A) and Tribunal both relied on previous decisions favoring the assessee, dismissing the Revenue's ground. Issue 4: Disallowance of Business Expenditure on Marketing and Promotional Activities The assessee challenged the disallowance of Rs.48,13,05,699/- for marketing and promotional activities under Section 37(1), referencing CBDT Circular No. 5 of 2012. The CIT(A) upheld the disallowance, citing that such expenses are against public policy. The Tribunal, following the Supreme Court's decision in M/s. Apex Laboratory Pvt. Ltd. vs. DCIT, upheld the disallowance, dismissing the assessee's ground. Issue 5: Allowability of Weighted Deduction for Clinical Trial Expenses The assessee contested the CIT(A)'s decision to restore the issue of weighted deduction for clinical trial expenses of Rs.15,87,70,988/- under Section 35(2AB). The CIT(A) directed the AO to consider the revised application for rectification of capital expenses and follow the Tribunal's order for A.Y. 2008-09. The Tribunal found no infirmity in the CIT(A)'s order and remanded the issue for reconsideration, partly allowing the assessee's ground. Issue 6: Disallowance under Section 14A read with Rule 8D The assessee challenged the disallowance of Rs.91,81,989/- under Section 14A read with Rule 8D. The CIT(A) followed the decision for A.Y. 2009-10. The Tribunal allowed the assessee to furnish revised computation details and remanded the issue to the AO for adjudication, allowing the ground for statistical purposes. Conclusion: - The Revenue's appeal was dismissed in its entirety. - The assessee's appeal was partly allowed, with specific issues remanded for further consideration.
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