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TMI Blog2024 (10) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... units. Hence, the R D expenditure has no relevance to the working of the qualifying undertakings during the year under consideration. As is evident from the record, the Revenue did not agree with the submissions of the assessee and treated the R D expenditure to be inextricably linked with the business of the assessee including the business relating to the products that are manufactured in the unit for which deductions were claimed under section 80-IE of the Act. In order to substantiate its claim that the products developed in its R D units are different from the products manufactured in the eligible units during the year under consideration, the assessee has placed on record the list of products. From the perusal of the lists placed on record by the assessee in respect of the products developed in the R D centre during the year under consideration, we find that the same is completely unrelated to the list of products manufactured and sold by the Sikkim unit of the assessee (eligible unit under section 80-IE). Moreover, it is pertinent to note that products in the R D undergo a process of 6 to 10 years before these formulations or drugs undergo manufacturing at the eligible unit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in ITA no.1271/Mum./2024 is reproduced as follows: Whether on the basis of facts and circumstances of the case and in law, the Ld.CIT(A) has erred in holding that allocation of R D expenditure by the Assessing Officer among 80IE units and non 80IE units on the basis of percentage of sales of respective units to the total sales is baseless and totally unwarranted, considering that no evidence was produced by the assessee company to justify that expenditure incurred on R D had no nexus with the products manufactured in the 80IE units. 3. The sole grievance raised by the Revenue is against the deletion of the allocation of Research and Development (R D) expenditure to the units eligible for deduction under section 80-IE of the Act. 4. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of manufacturing and dealing in pharmaceutical products, namely tablets, capsules, liquids, injectables, etc. For the assessment year 2018-19, the assessee filed its return of income on 29/11/2018 declaring a total income of Rs. 274,07,25,380. The return filed by the assessee was selected for scrutiny and statutory noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actured in the units entitled to deductions under Chapter VIA of the Act. Accordingly, the AO concluded that it would be logical to allocate an appropriate part of the expenditure to various units for computing the profits derived from an eligible unit for the purpose of deduction under section 80- IE of the Act. As a result, the allowable deduction under section 80-IE of the Act was reduced by Rs. 80,46,24,067. 5. The learned CIT(A), vide impugned order, following the judicial precedents in the case of the assessee for the assessment years 2009-10 and 2010-11 allowed the ground raised by the assessee on this issue. The relevant findings of the learned CIT(A) are reproduced as follows: 7. In Ground No. (2), the appellant has contested the action of the AO in Making addition of Rs. 80,46,24,067/- on account of disallowance of deduction claimed u/s. 80IE of the Act. 7.1 I have carefully considered the relevant and material facts on record, in respect of the issue raised in these Grounds of appeal, as brought out in the assessment order and submissions made during appeal proceedings. During the appellant proceedings, the appellate has submitted that on the same issue of apportionment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish that the products developed in the R D unit will not be manufactured in the exempted units during the year under consideration. 8. We have considered the submissions of both sides and perused the material available on record. The assessee is a pharmaceutical manufacturer and has a total of 8 manufacturing facilities, namely 5 in Daman, one each in Palghar, Sarigam and Baddi. The assessee s Baddi unit is eligible for deduction under section 80-IC and the Sikkim unit is eligible to claim deduction under section 80-IE of the Act. Further, the assessee also has two R D centres at Andheri East, Mumbai which are both approved by the Department of Scientific and Industrial Research. As per the assessee, its corporate policy requires it to spend about 5% of its gross revenue on R D for the purpose of development of new ideas and drugs. Further, its R D units are housed in separate buildings and are standalone, independent units having separate financial statements. As per the assessee, its R D activities are not directly related to its manufacturing units as the R D division is working on future products and future innovations and launches, not present products manufactured by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. 10. We find that a similar issue has been coming up for consideration before the coordinate bench of the Tribunal in the assessee s own case for the preceding years, wherein a similar allocation of R D expenses was made by the Revenue while computing the deduction under Chapter-VIA of the Act. In the latest order in the assessee s own case for the assessment years 2011-12 and 2012-13, in Macleods Pharmaceuticals Ltd v/s DCIT, in ITA No. 5092 and 5093/Mum./2018, the coordinate bench of the Tribunal while deciding the issue in favour of the assessee observed as follows: 17. We have heard rival submission of the parties on the issue indispute and perused the relevant material on record. The Ld. CIT(A) has held that research and development carried out with assessee has been applied for manufacturing in units eligible for deduction under section 80IB and 80IC of Act. Before us the Ld. Counsel of the assessee has filed a detailed list of items manufactured by the units eligible under section 80IB and 80IC of the Act and also the formulations/items underdevelopment in research and development units. Both these lists are placed on record. Further, the rebuttal of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no activity related to any similar tablet containing Rifampicin as API at its R D unit. f) Isoniazid: The appellant did not manufacture any formulation containing this API at its eligible unit. There was no activity related to any formulation containing Isoniazid as API at its R D unit. g) Ethambutol: The appellant did not manufacture any formulation containing this API at its eligible unit. There was development effort for a combination drug containing Ethambutol as one of the API at its R D unit. h) Paracetamol: The appellant manufactured a tablet having combination of Nimesulide and Paracetamol at its eligible unit. However in R D we tried to develop a new tablet having Sustained Release (SR) of Paracetamol having 665mg of Paracetamol which was designed to completely different from combination. However, the LAO has failed to appreciate that the new tablet being developed at R D was not approved by regular and hence was never manufactured till date. 18. On perusal of list of products manufactured in eligible units and drug under development and R D units, we find that products manufactured under the units eligible for 80IB and 80IC unit are totally unrelated with the product unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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