2018 (12) TMI 813 - AT - Income Tax

Weighted deduction u/s 35(2AB) - clinical trials conducted outside the in-house R & D facility - deduction disallowed by A.O. on the reason that the same was not certified by Prescribed Authority (DSIR) in Form 3CL - Held that - 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 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 - decided against revenue.

Summary

Issues:
Appeal against the weighted deduction allowed by Ld. CIT(A) on clinical trials conducted outside the 'in-house R & D facility' disallowed by A.O. for not being certified by Prescribed Authority (DSIR) in Form 3CL.

Analysis:
1. The Revenue appealed against the Ld. CIT(A)'s decision allowing weighted deduction under section 35(2AB) of the IT Act for expenditure on Bio Analytical and Bio Equivalence studies conducted outside the 'in-house' R & D facility. The Revenue contended that the issue was not final as the Apex court had remitted it back to the Gujarat High Court for fresh adjudication.

2. The assessee claimed weighted deduction under section 35(2AB) for the expenditure incurred on clinical trials. The A.O. disallowed the excess deduction for both years as the Form 3CL, issued by the Competent Authority, did not certify the expenditure. The assessee argued that the expenditure was wholly and exclusively incurred for scientific research and development, supported by the Gujarat High Court's decision in the case of CIT Vs Cadila Healthcare Ltd.

3. The CIT(A) allowed the deduction based on the assessee's submissions, citing previous favorable decisions for the assessee in earlier years. The Revenue disagreed, but the CIT(A) upheld the decision, referring to the coordinate bench's ruling in the assessee's previous cases for AYs 2011-12 and 2012-13, which was approved by the Gujarat High Court. As the issue was materially identical to the previous cases, the CIT(A) decision was upheld, and the Revenue's appeals were dismissed.

4. The Tribunal rejected the Revenue's appeals, upholding the CIT(A)'s decision based on the previous rulings and the absence of contrary High Court judgments. The Tribunal concluded that the expenditure on clinical trials outside the approved R & D facility was entitled to weighted deduction under section 35(2AB), following the Gujarat High Court's approval and the coordinate bench's decision in the assessee's previous cases.

This detailed analysis of the judgment highlights the key arguments, decisions, and legal principles involved in the case regarding the weighted deduction for clinical trials conducted outside the 'in-house R & D facility'.