9911796707
TMI Blog2021 (8) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to as "the Act") relevant to the Assessment Years 2005-2006 & 2006-07. 2. First we take up ITA No. 2440/Ahd/2018 for A.Y. 2005-06 for the purpose of adjudication. 3. The only issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of Rs. 14,24,354.00 out of the total disallowance of Rs. 28,48,709.00 made by the AO instead of giving 100% relief. 4. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of trading in intermediate drugs, chemicals and pharmaceuticals. It was contended by the assessee during the assessment proceedings that it receives orders from the overseas customers to supply the goods with certain specifications such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Industrial Research (DSIR) after carrying out the audit of the research activities carried out by it (the assessee) in the last 3 previous years. Thus the action of the assessee that it is carrying out the research and development activity cannot be doubted. 4.3 However, the AO being dissatisfied with the contention of the assessee found that the assessee is not carrying out any activity which can be called as research and development activity. It is because there was the spot verification at the premises of the assessee and the report of such verification pertaining to the assessment year 2004-05 suggest that the activities of the assessee are related to testing and sampling of the products to be supplied to the customers. 4.4 The AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l products. Furthermore, there was no evidence available on record suggesting that the assessee has purchased the goods from the sister concern at the lower rate. Accordingly the learned CIT (A) held that the research and development activities have not been carried out exclusively for the purpose of the assessee. Therefore, all the expenditures claimed by the assessee under research and development activities cannot be allowed to it for deduction under section 37 of the Act. Thus the learned CIT (A) restricted the disallowance to the tune of 50% i.e. amounting to Rs. 14,24,354.00 only. Hence the learned CIT (A) allowed the appeal of the assessee in part. 6. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have been incurred by the assessee but its outcome has been used by the group as a whole. Thus, the assessee has not availed the benefit of the impugned expenses in entirety and therefore the entire expenses cannot be allowed as deduction while computing the income of the assessee. Accordingly, the learned CIT (A) has allowed the relief to the assessee to the tune of 50% of the total expenses incurred under the head research and development activities. 9.2 The provisions of section 37(1) of the Act mandates that the assessee can claim the deduction if the expenses have been incurred wholly and exclusively for the purpose of the business. In the event the conditions stipulated under the provisions of section 37(1) of the Act are not compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure on R & D, the appellant has purchased products from the sister concern at lower rate. 9.6 At this juncture, we also find important to refer the finding of the learned CIT (A) for the assessment year 2004-05 in support of the contention of the learned CIT (A) for the year under consideration. The relevant finding of the learned CIT (A) for the assessment year 2004-05 reads as under: The correspondence submitted in the paper book also suggest that the R &D activities are perhaps carried out by the sister concern Snehal Pharma Chem which is also the manufacturing concern and the most logical entity to house R &D Centre. 9.7 The above facts have not been controverted by the learned AR for the assessee at the time of hearing. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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