2015 (11) TMI 748 - AT - Income Tax

Eligibility of deduction u/s 80-IB(8A) - revision u/s 263 - Held that - Once the Department of Scientific and Industrial Research which is an expert body exercises power to grant approval for the purpose of the impugned deduction under section 80-IB(8A) read with rules 18D and 18DA of the Income-tax Rules, the Revenue cannot decline the deduction claims arising thereunder on one pretext or the other by simply brushing aside the approvals obtained. More so, when the Revenue s seeking to get the approval cancelled from the Department of Scientific and Industrial Research stands declined. We hold the assessee entitled for section 80- IB(8A) deduction accordingly on merits in both the assessment years. The Commissioner of Income-tax s order dated March 29, 2014 in the assessment year 2008-09 passed under section 263 of the Act stands reversed on merits rendering the assessee s other arguments as to have been rendered infructuous. The Revenue s sole substantive ground in its appeal challenging the Commissioner of Income-tax (Appeals) s order granting the assessee impugned section 80-IB(8A) deduction fails accordingly. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the section 80-IB(8A) deduction claimed by the assessee for AY 2008-09.
2. Validity of the section 80-IB(8A) deduction claimed by the assessee for AY 2009-10.
3. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Validity of the section 80-IB(8A) deduction claimed by the assessee for AY 2008-09

The assessee-company, engaged in clinical testing of drugs, claimed a deduction under section 80-IB(8A) of Rs. 11,79,98,690. The Assessing Officer initially allowed this deduction, excluding only Rs. 22.82 lakhs from sample storage income. However, the Commissioner of Income-tax (CIT) invoked section 263, deeming the assessment erroneous and prejudicial to the interests of the Revenue, as the Assessing Officer had not verified the eligibility conditions for the deduction. The CIT noted that the assessee had only applied for a patent and had not demonstrated technology development or transfer. The CIT directed the Assessing Officer to redo the assessment.

The Tribunal observed that the CIT had not given the assessee an opportunity to submit annexure-2, which listed the clients for technology transfer. The Tribunal restored the matter to the CIT for fresh consideration, emphasizing that section 80-IB(8A) does not require patent acquisition as a precondition for deduction.

Upon reconsideration, the CIT reiterated that the assessee did not satisfy all the conditions under section 80-IB(8A) and rule 18DA, particularly the requirement for exclusive engagement in scientific research and technology transfer. The CIT directed the Assessing Officer to pass a fresh assessment order.

Issue 2: Validity of the section 80-IB(8A) deduction claimed by the assessee for AY 2009-10

For AY 2009-10, the assessee claimed a deduction of Rs. 22,12,47,186 under section 80-IB(8A). The Assessing Officer disallowed this claim, arguing that the assessee's activities were limited to providing professional services and did not constitute scientific research and development. The Commissioner of Income-tax (Appeals) [CIT(A)] reversed this decision, noting that the assessee had obtained the necessary approval from the Department of Scientific and Industrial Research (DSIR), which had not been withdrawn.

The CIT(A) emphasized that the DSIR's approval was granted after examining the assessee's facilities and activities, and any violation of conditions should be referred to the DSIR for withdrawal of approval. The CIT(A) held that the Assessing Officer's disallowance was not justified without such withdrawal.

Issue 3: Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961

The Tribunal examined whether the CIT had rightly assumed jurisdiction under section 263 for AY 2008-09. The Tribunal observed that the DSIR, an expert body, had granted approval to the assessee for the relevant assessment years, and this approval had not been revoked despite the Revenue's request. The Tribunal held that once the DSIR had granted approval, the Revenue could not question the assessee's status as a research and development entity in section 263 proceedings or regular assessments.

The Tribunal referred to similar cases, including Siro Clinpharm P. Ltd. v. Deputy CIT and Deputy CIT v. Fortis Clinical Research Ltd., where it was held that the Assessing Officer or CIT could not override the DSIR's approval. The Tribunal concluded that the assessee was entitled to the section 80-IB(8A) deduction for both assessment years.

Conclusion:
The Tribunal allowed the assessee's appeal for AY 2008-09, reversing the CIT's order under section 263, and dismissed the Revenue's appeal for AY 2009-10, upholding the CIT(A)'s decision to grant the section 80-IB(8A) deduction.