2013 (11) TMI 277 - AT - Income Tax

Deduction u/s 80IB - business of clinical research of pharma products whether the activity could not be termed as research and development - eligibility criteria laid down in Rule 18DA(1) for claiming deduction u/s 80IB(8A) - Held that - Reliance has been placed upon the judgment in the case of Indian Planetary Society v. Central Board of Direct Taxes 2009 (7) TMI 14 - BOMBAY HIGH COURT , wherein it has been held that when the Legislature had thought it fit to entrust the responsibility with the Government of India who with the help of the body of persons, who would be conversant with the subject, would apply its mind before issuing such certificate, the A.O. or the CIT(A) for that matter cannot sit in appeal against the order of such authority Keeping in view the above decision, deduction u/s 80IB allowed Decided in favor of Assessee. Reassessment u/s 148 / 148 - Held that - initiation of reassessment proceedings in the present case was not based on any new material or information which had come to the possession of the A.O. after the completion of original assessment u/s. 143(3). The same thus was based merely on a fresh application of mind by A.O. to the same set of facts and to the same material on record as was available at the time of completion of the assessment originally u/s. 143(3) - Decided in favor of assessee. Classification of Nature of expenses, a revenue expenditure or capital expenditure Software expenses disallowed on the ground being a capital expenditure Held that - Reliance has been placed upon the decision of Special Bench of ITAT in the case of Amway India Enterprises 2008 (2) TMI 454 - ITAT DELHI-C Relying upon the above case, restored to the file of AO.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 143(3) read with Section 147 of the Income Tax Act.
2. Disallowance of deduction claimed under Section 80IB(8A) of the Income Tax Act.
3. Disallowance of software expenses treating them as capital expenditure.
4. Disallowance under Section 14A of the Income Tax Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the validity of reassessment proceedings initiated by the Assessing Officer (A.O.) under Section 143(3) read with Section 147 of the Income Tax Act for the assessment years 2003-04 to 2006-07. The A.O. reopened the assessments based on the same material available during the original assessments, claiming the assessee did not fulfill the eligibility criteria for deduction under Section 80IB(8A). The Tribunal held that the reassessment proceedings were based on a mere change of opinion, which is not permissible in law. The initiation of reassessment proceedings was thus declared invalid, and the reassessments were canceled.

2. Disallowance of Deduction under Section 80IB(8A):
The A.O. disallowed the assessee's claim for deduction under Section 80IB(8A) on the grounds that the assessee's activities did not qualify as research and development, and the infrastructure did not meet the requirements under Rule 18DA. The Tribunal noted that the prescribed authority, Secretary, Department of Scientific and Industrial Research, had granted approval to the assessee, confirming the fulfillment of the required conditions. The Tribunal held that the A.O. could not sit in appeal against the approval granted by the prescribed authority. Therefore, the disallowance of the deduction under Section 80IB(8A) was overturned, and the A.O. was directed to allow the deduction for the assessment years 2007-08 and 2008-09.

3. Disallowance of Software Expenses:
For the assessment years 2007-08 and 2008-09, the A.O. treated the software expenses as capital expenditure and disallowed them. The Tribunal directed the A.O. to verify whether the software expenses were incurred as annual license fees and, if so, to allow them as revenue expenditure. This issue was restored to the A.O. for fresh consideration.

4. Disallowance under Section 14A:
For the assessment year 2008-09, the assessee did not press the ground relating to the disallowance under Section 14A due to the smallness of the amount involved. Consequently, this ground was dismissed as not pressed.

Conclusion:
The Tribunal allowed the assessee's appeals for the assessment years 2003-04 to 2006-07 by canceling the reassessments. For the assessment years 2007-08 and 2008-09, the Tribunal directed the A.O. to allow the deduction under Section 80IB(8A) and to reconsider the software expenses as revenue expenditure. The disallowance under Section 14A for the assessment year 2008-09 was dismissed as not pressed.