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TMI Blog2015 (10) TMI 2256X X X X Extracts X X X X X X X X Extracts X X X X ..... he file of Assessing Officer. Disallowance u/s 35(2AB)- expenditure for the 'in-house' research facility - Held that:- Names of the employees have been given along with their rates per hour. It is further noted that ld. Assessing Officer has shown no doubts about the genuineness of these expenses. It was held by Ld. CIT(A) that since claim of assessee with respect to deduction u/s.35(2AB) has been denied, therefore, these expenses are capital in nature. It was further observed by ld. CIT(A) that Assessing Officer, as well as assessee, have treated these expenses as capital in nature. In our view, the observations of Ld. CIT(A) are misplaced and without any basis. We have gone through details of these expenses. These expenses are apparently revenue in nature. Ld DR also could not point out as to which expenses are capital in nature. Thus, in our view, these expenses are of revenue nature. Software expenses u/s 37(1)- Held that:- The mere fact that a deduction was not claimed before the Income-tax Officer, was not of much importance, since if the liability arises then a claim can be made in a bonafide manner at any stage before the higher authority, who is competent to grant re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Rule 8D and it has been held by Bombay High Court in the case of Godrej Boyce that working of disallowance under section u/s 14A read with Rule 8D is mandatory from A.Y. 2008-09 onwards. iii) The Ld.CIT(A)'s order is contrary in law and on facts and deserves to be set-aside. 3. In ITA No.1575/Mum/2013, the Assessee has filed appeal on following grounds: 1. Ground no. 1 : Disallowance u/s 14A (i) The learned Commissioner of Income tax (Appeals) [hereinafter referred to as CIT(A)] erred in confirming the disallowance of ₹ 165,56,576/- u/s 14A of the Income tax Act, 1961. (ii) He failed to appreciate that the disallowance u/s 14A could only be made in respect of expenditure incurred and cannot extend to a notional expenditure which has not been incurred at all. (iii) The appellant prays that the disallowance u/s 14A as confirmed by the CIT(A) is totally unjustified and ought to be deleted. (iv) Without prejudice to the above, the appellant prays that the disallowance u/s 14A be appropriately reduced, considering the facts and circumstances of the case. 2. Ground no. 2 : Disallowance u/s 35(2AB) (i) The learned CIT(A) erred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d CIT(A) erred in confirming the disallowance of ₹ 6,81,65,116/- u/s.14A of the Income tax Act, 1961. 4. As far as this issue is concerned, find that the AO has invoked Rule 8D but as held by the Hon'ble Bombay High Court in the case of Godrej Boyce Limited vs. ACIT, (ITA No.626 of 2010) dated 12.8.2010. Rule 8D does not retrospective effect and, accordingly, it cannot be invoked in the present case. However, the matter needs to be restored back to the file of the Assessing Officer for determining a reasonable disallowance of expenses incurred to earn the tax exempted income. Ground No.1 thus, allowed for statistical purposes. 4.3. We have gone through the order of the Tribunal. We have been informed that the AO has not passed fresh order so far in pursuance to the order of the Tribunal. in AY 2006-07. In our considered opinion, before this issue can be decided in the impugned year i.e. A.Y. 2007-08, it is imperative that it is first decided by Assessing Officer in A.Y. 2006-07. In case, we decide this issue first, it may pre-empt the order of Assessing Officer for A.Y. 2006-07, and it may also close the gates for the Assessing Officer to make proper examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l trial expenditure etc., and that clinical trial needed for R D activity have been carried out through RCRS, since it specializes in clinical trials and such expenditure have been incurred for getting clinical trial for R D purposes. It was further submitted that adequate disclosure has been made in the Tax Audit Report filed by the assessee, wherein no disqualification or adverse comments were given by the auditors with respect to payment made to subsidiary company or for deduction claimed u/s section 35(2AB). The AO considered assessee's reply, but did not find it acceptable. The AO analysed provisions of the section 35(2AB) and observed that these were applicable only in case of expenses incurred on scientific research on in-house research and development facility. As per AO, the R D in pharma /bio-Technology companies involves two main activities - development of drugs and its clinical trials/testing, and in this case the work of clinical trial was outsourced and expenditure of ₹ 57.66 lakhs was incurred on that, and thus the assessee has not incurred the expenses of ₹ 57.66 lacs in the in-house research and development facility, and that same was paid to R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department of Scientific Industrial Research (DSIR) dt. 24.08.2010, in which the DSIR while approving our R D facilities for the purpose of section 35(2AB) has not considered clinical trial expenditure incurred by us as a part of in-house R D expenditure on the ground that by definition these expenditure were incurred outside of approved R D facility. This is the stand taken by DSIR for all pharma R D companies. Accordingly, we withdraw our claim for weighted deduction of the aforesaid expenditure u/s.35(2AB). However, we submit that the aforesaid expenditure should be allowed as an expenditure u/s 37(1) (without weightage of 150%). The appellant submits that clinical trial needed for Research Development activity have been carried out through RCRS since RCRS specializes in clinical trial and such expenditure has been incurred for getting clinical trial for R D purposes. The appellant submits that there are many expenditures which the appellant will have to incur outside its premises for carrying out of in-house research and all such expenditure incurred outside the 'in-house facility' cannot be regarded as not having been incurred for 'inhouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es - for the month of March, 2007 for time spent on 1st March to 31st March, 2007 for conducting clinical trials, in support of to all 'K projects', for a sum of ₹ 57,65,564/-. It is further noted that on the back side of the invoice, complete details have been given with respect to time spent by 22 employees of RCRS, also giving particulars of the studies done by these employees. Names of these employees have been given along with their rates per hour. It is further noted that ld. Assessing Officer has shown no doubts about the genuineness of these expenses. It was held by Ld. CIT(A) that since claim of assessee with respect to deduction u/s.35(2AB) has been denied, therefore, these expenses are capital in nature. It was further observed by ld. CIT(A) that Assessing Officer, as well as assessee, have treated these expenses as capital in nature. In our view, the observations of Ld. CIT(A) are misplaced and without any basis. We have gone through details of these expenses. In our considered view, these expenses are apparently revenue in nature. Ld DR also could not point out as to which expenses are capital in nature. Thus, in our view, these expenses are of revenue n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment year 1953-54. It could not, therefore, be taxed in the assessment year 1958-59. Further reliance is placed by us on another judgment of Hon'ble Gujarat High Court, in the case of, S.R. Koshti 276 ITR 165 (Guj) in which relief was granted to assessee with following observations: The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. In the case of Snehlata 192 CTR 50, Hon'ble J K High Court held that when the substantive law confers a benefit on the assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities. It is settled proposition of law that no tax can be levied or recovered without authority of law. Article 265 of the Constitution of India and section 114 of the State (J K) Constitution imposes an embargo on imposition and collection of tax if the same is without authority of law. Lastly, we find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by assessee. On the other hand, Ld Departmental Representative submitted that this issue can be sent back to file of Assessing Officer. 6.4. We have gone through the submissions made by both the sides. It is noted that full co-operation has been extended by the assessee at all times i.e. during course of assessment proceeding, and also during appellate proceeding before the ld. CIT(A). If the CIT(A) wanted to have one separate petition under Rule 46A, the same could have been very well pointed out to the assessee. Without affording opportunity to the assessee, the valid claim of the assessee should not have been denied to it, merely for some technical reasons. Under these circumstances, we find it appropriate to send this issue back to the file of ld. CIT(A) who shall give opportunity to the assessee to file all the evidences as may be considered appropriate, along with petition under Rule 46A etc. The assessee shall also extend full co-operation to the ld. CIT(A) by providing further details and documentary evidences, as may be required. Accordingly, this ground is allowed for statistical purposes. 7. As a result, ITA No.2061/Mum/2013 being the appeal filed by Revenue is all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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