2020 (11) TMI 708 - HC - Income Tax

Deduction u/s 35(2)(AB) - expenditure outside the in-house R D facility - Whether AO has rightly held that clinical trial expenditure is not eligible for weighted R D deduction u/s 35(2)(AB) and it will be eligible for weighted deduction only if the expenditure is incurred on an in-house R D facility? - HELD THAT - Tribunal has allowed the deduction in respect of expenses incurred by the assessee on scientific research on in-house research and development facility by placing reliance on the decision of the Gujarat High Court. It is pertinent to mention here that against the aforesaid decision, the revenue preferred special leave petition and CADILA HEALTHCARE LTD. 2015 (11) TMI 496 - SUPREME COURT has remitted the matter to the High Court for consideration afresh along with other issues. Since the Tribunal has neither recorded any reasons nor has recorded any findings on the claim of the assessee, we are left with no option but to quash the order of the Tribunal dated 16.02.2016 insofar as it pertains to claim of deduction of assessee u/s 35(2)(AB) of the Act and remit the matter to the Tribunal for decision afresh in accordance with law after affording an opportunity of hearing to the parties. Therefore, it is not necessary for us to answer the substantial question of law.

Summary

Issues:
1. Disallowance of expenditure claimed as deduction under section 35(2)(AB) of the Income Tax Act, 1961 for Assessment Year 2010-11.

Analysis:
The appeal before the Karnataka High Court pertained to the disallowance of expenditure claimed as a deduction under section 35(2)(AB) of the Income Tax Act, 1961 for the Assessment Year 2010-11. The assessee, a pharmaceutical company, had filed its return of income declaring a total income. The Assessing Officer completed the assessment, and the assessee appealed before the Commissioner of Income Tax (Appeals) who partly allowed the appeal. Subsequently, the assessee filed an appeal before the Tribunal, which set aside the disallowance of expenditure claimed as deduction under Section 35(2)(AB) of the Act. The revenue, being aggrieved, filed the current appeal before the High Court.

The revenue contended that the Tribunal had allowed the deduction without providing any independent finding on the issue. The Tribunal had relied on the decision of the Gujarat High Court in a specific case involving scientific research expenses. The High Court noted that the Supreme Court had remitted the matter back to the High Court for fresh consideration along with other issues. Since the Tribunal had not recorded any reasons or findings on the claim of the assessee, the High Court decided to quash the Tribunal's order and remit the matter back to the Tribunal for a fresh decision after affording an opportunity of hearing to the parties. Consequently, the High Court did not find it necessary to answer the substantial question of law raised in the appeal.

In conclusion, the High Court disposed of the appeal by quashing the Tribunal's order and remitting the matter back for fresh consideration. The High Court emphasized the need for the Tribunal to provide a reasoned decision on the claim of deduction under Section 35(2)(AB) of the Act in accordance with the law and after hearing the concerned parties.