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TMI Blog2022 (7) TMI 155X X X X Extracts X X X X X X X X Extracts X X X X ..... e to Baddi unit as there is no direct nexus between the R D activities carried out and product manufactured by the assessee company at Baddi unit 1. Even the AO in his remand report discussed by the Ld. CIT(A) in para 5.1 of the impugned order categorically mentioned that the assessee s list of products manufactured at Baddi plant during the year under assessment show that the R D expenses incurred at approved R D centers situated at Mahape and Sinnar pertain to different products and not to the ones being manufactured at Baddi unit . This contention of the assessee has not been controverted by bringing on record any fact or evidence by the AO by filing any counter reply. Rather the AO has mentioned in its remand report that he has perused all the documents submitted by the assessee carefully. Also brought on record by the assessee company that there is a gestation period of 10/14 years before any commercialization of product is achieved or even after lapse of such period there can still be no commercial production. But at the same time it is admitted fact that none of the products being manufactured by the assessee company at Baddi units has any nexus with the R D activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken centrally from their two R D units situated independently ? 2. Briefly stated facts necessary for adjudication of the controversy at hand are : the assessee is into the business of manufacturing and marketing pharmaceutical products and the related R D activities. The assessee filed return of income for the year under consideration declaring total income at Rs.3,28,68,36,540/- (after claiming deduction of Rs.97,06,74,306/- under section 80C) and book profit under section 115JB of the Income Tax Act, 1961 (for short the Act ) at Rs.2,38,55,12,770/-. Original assessment was framed under section 143 of the Act at the total income of Rs.35,06,06,77,780/- under normal provisions of the Act and book profit at Rs.2,41,55,12,770/- under section 115JB of the Act. The assessee carried the matter before the Ld. CIT(A) who has decided the issue against the assessee. Feeling aggrieved with the order passed by the Ld. CIT(A), cross appeals have been filed by both the assessee as well as the Revenue on various issues including issue as to whether R D expenses need to be allocated to unit claiming deduction under section 80IC of the Act. 3. This is second round of litigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal. 6. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 7. In the backdrop of the aforesaid facts and circumstances of the case and grounds raised by the Revenue the sole question raises for determination in this case is : As to whether the Ld. CIT(A)has erred in holding that no R D expenses incurred at Mahape and Sinnar units of the assessee, is to be allocated to the profits derived at/from the eligible industrial undertaking/independent unit at Baddi for calculating the deduction under section 80IC of the Act for the Baddi unit? 8. Ld. D.R. for the Revenue challenging the impugned order passed by the Ld. CIT(A) relied upon the order passed by the AO by contending inter alia; that findings returned by the Ld. CIT(A) in para 6.3 of the impugned order are without any evidence; that in the return of income assessee had allocated the R D expenditure to Baddi unit-1 in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that the R D expenses were incurred by the appellant only at Mahape and Sinnar Units. As per appellant's contention, none of these R D expenses had any connection or nexus with any pharmaceutical products manufactured at Baddi unit. In the remand report the AO has also commented on the appellant's contention that there is a gestation period of 10- 14 years before any commercialization of product is achieved or even after lapse of such period there can still be no commercial production. It is not in dispute that there was no R D activity in Baddi unit, since actually there was none. 6.1. The Hon'ble Bombay High Court in case of Zandu Pharmaceuticals Works Limited vs. ClT (2012) 80 DTR 322 has stated that the profits derived from the eligible unit only, exclusively, on stand-alone basis, has to be taken into consideration for computing the deduction u/s 801C. The AO has in the Remand Report not been able to put forward any contra evidence to establish any direct nexus of R D expense of some other units with the manufacturing unit at Baddi, or to rebut the appellant's contentions. 6.2. The table at para 5.3above shows the exhaustive list of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same, and in accordance with the Hon'ble ITAT direction, I hereby direct the AO not to allocate any R D expense of Mahape and Sinnar units to the Baddi unit for computing the deduction u/s 80 1C for Baddi 1 (manufacturing) unit, since no nexus is proved. 11. We have perused the impugned order passed by the Ld. CIT(A) in the light of the decision rendered by Hon ble Bombay High Court in case of Zandu Pharmaceutical Works (supra) and Hon ble Madras High Court in case of Bush Boake Allen (India) Ltd. vs. ACIT (supra) on the identical issue as well as in the light of the decision rendered by co-ordinate Bench of the Tribunal in assessee s own case for A.Y. 2010-11 and 2013-14 qua the identical issue. 12. Hon ble Bombay High Court in case of Zandu Pharmaceutical Works (supra) has decided the identical issue as to how and under what circumstances how the R D expenses are to be apportioned to the assessee having multiple manufacturing units by returning following findings: Held, allowing the appeal, that the assessee had not established any co-relation or connection between the activities of any of the units with the research and development work carried on in the hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... During the remand proceedings the assessee has brought on record list of top products manufactured and sold from Baddi during the year under assessment which are as under: Product Description Sales Amount Product Description Sales Amount GLEVO-500 TABLETS S'S IN 3,31,46,637 CANDIDERMA + CREAM 5 GM IN 1,85,52,477 LIZOLID TABLETS 600MG 4'S (CRITICA) 1,63,55,125 GLIMULIN-MF TABLETS 10'S IN 1,81,89,953 TELMA - H TABLETS 10'S IN 1,60,28,929 ROSICON 2 MG TABLETS 10'S IN 1,80,31,506 CANDIDERMA + CREAM 5 GM 1,29,70,406 RAZEL 10 MG TABLETS 10'S IN 1,73,01,126 ALEX + SYRUP 50ML SALE 1,01,19,842 CANDID V6 MUCOADHESIVE TAB 6'S 1,65,59,326 ASCORIL + EXPECTORANT 100 ML IN 19,86,63,866 BLOCK - TELMA - R 5 MG TABLETS 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,22,12,299 CANDID V6 MUCOADHESIVE TABLETS S'S IN 3,39,04,883 MOMATE OINTMENT 15 GM IN 1,18,10,168 ASCORIL D+ SYRUP 100 ML IN 3,25,29,513 MACLAR 250 TABLETS 4'S IN 1,17,22,912 TELMA - H TABLETS 10'S SALE 2,77,76,968 MOMATE S OINTMENT 10 GM IN 1,16,71,012 ROSICON-MF TABLETS 10'S IN 2,70,00,882 TELMA 80 H TABLETS 10'S IN 1,16,43,270 STILOZ - 100 TABLETS 10'S IN 2,68,34,629 GLUCAR 25 TABLETS 10'S IN 1,14,10,285 CANDIDERMA + CREAM 15 GM IN 2,57,59,315 FLEXILOR 4 TABLETS 10'S IN 1,13,76,836 MIGNAR 50 MG TABLETS 10'S IN 2,49,72,998 GLUCAR 50 TABLET 10'S IN 1,13,42,387 MIGNAR 25 MG TABLETS 10'S IN 2,48,33,869 FLUCORT S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) in para 5.1 of the impugned order categorically mentioned that the assessee s list of products manufactured at Baddi plant during the year under assessment show that the R D expenses incurred at approved R D centers situated at Mahape and Sinnar pertain to different products and not to the ones being manufactured at Baddi unit . This contention of the assessee has not been controverted by bringing on record any fact or evidence by the AO by filing any counter reply. Rather the AO has mentioned in its remand report that he has perused all the documents submitted by the assessee carefully. 18. Even otherwise one more fact has been brought on record by the assessee company that there is a gestation period of 10/14 years before any commercialization of product is achieved or even after lapse of such period there can still be no commercial production. But at the same time it is admitted fact that none of the products being manufactured by the assessee company at Baddi units has any nexus with the R D activities being carried out at Mahape and Sinnar units. So we are of the considered view that when there is no direct nexus between the expenditure incurred on R D activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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