2012 (5) TMI 305 - AT - Income Tax

Deduction u/s. 35(2AB) - weighted deduction - in-house research and development facility - held that - expenditure on clinical trial though the same is an integral part of scientific research will be eligible for weighted deduction under section 35(2AB) only if the expenditure is incurred on an in-house research and development facility. The expenditure incurred on trial conducted outside the in-house R and D facility will not be eligible for weighted deduction under section 35(2AB). - Decision in the matter of Concept Pharmaceuticals (2010 (11) TMI 147 (Tri)) followed. - Decided against the assessee.

Issues Involved:
1. Weighted deduction under Section 35(2AB)
2. Levy of interest under Section 234B and 234C
3. Allowability of expenditure on club
4. Addition under Section 41(1)
5. Quantification of deduction under Section 80IB vis-`a-vis allocation of R&D expenses
6. Computation of deduction under Section 80HHC for the purpose of determination of book profit under Section 115JB
7. Validity of reopening of assessment under Section 147

Issue-wise Detailed Analysis:

1. Weighted Deduction under Section 35(2AB):
The primary contention revolves around whether expenses incurred outside the in-house R&D facility, such as clinical trials, analysis charges, pilot bio-study expenses, and consultancy charges, qualify for weighted deduction under Section 35(2AB). The Tribunal followed the precedent set by the Concept Pharmaceuticals Ltd. case, which held that only expenses incurred within the in-house R&D facility are eligible for a 150% deduction. The Tribunal dismissed the assessee's argument for a Special Bench, affirming that the weighted deduction is restricted to in-house R&D expenses.

2. Levy of Interest under Section 234B and 234C:
The assessee argued that interest under Sections 234B and 234C should not be levied as their income was assessed under MAT provisions (Section 115JB). The Tribunal noted the Supreme Court's decision in CIT vs. Kwality Biscuits Ltd. and the Bombay High Court's decision in Snowcem India Ltd. which support the assessee's view. Consequently, the Tribunal upheld the assessee's position, disallowing the levy of interest under these sections.

3. Allowability of Expenditure on Club:
The Tribunal upheld the CIT(A)'s decision allowing the expenditure on club subscriptions and actual expenses. This decision was consistent with the Tribunal's earlier ruling in ITA No. 3556/Mum/07, where a similar claim by the assessee was allowed.

4. Addition under Section 41(1):
The Tribunal dismissed the revenue's ground regarding the addition under Section 41(1), agreeing with the CIT(A) that the mere lapse of the limitation period does not automatically result in the cessation of liability. The Tribunal referenced its decision for A.Y. 2003-04, where it was held that section 41(1) does not require the liability to be written off within the limitation period to be applicable.

5. Quantification of Deduction under Section 80IB vis-`a-vis Allocation of R&D Expenses:
The Tribunal upheld the CIT(A)'s decision that no allocation of R&D expenditure to 80IB qualifying units was required. This was based on the factual examination that no R&D expenditure was related to the qualifying units and the Tribunal's earlier decision for A.Y. 2001-02, which found no nexus between the R&D expenses and the qualifying units.

6. Computation of Deduction under Section 80HHC for the Purpose of Determination of Book Profit under Section 115JB:
The Tribunal dismissed the revenue's grounds related to the computation of deduction under Section 80HHC for determining book profit under Section 115JB. This decision was based on the Supreme Court's ruling in Ajanta Pharma, which clarified that the deduction under Section 80HHC should be computed without considering the sunset provisions.

7. Validity of Reopening of Assessment under Section 147:
The Tribunal noted that the CIT(A) had not dealt with the issue of the validity of reopening the assessment under Section 147. Both parties agreed to remand the issue back to the CIT(A) for fresh adjudication. Consequently, the Tribunal set aside the cross objections to the CIT(A) for a fresh decision.

Conclusion:
The Tribunal allowed the revenue's appeal in part for A.Y. 2004-05, dismissed several grounds of the revenue, and remanded the issue of reopening the assessment to the CIT(A) for fresh adjudication. The order was pronounced on 30.11.2011.

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