DCIT, CIRCLE-3(4), MUMBAI, MUMBAI vs. GLENMARK PHARMACEUTICALS LIMITED, MUMBAI
Income Tax Appellate Tribunal, MUMBAI BENCH “G”, MUMBAI
Before: JUSTICE (RETD.) C.V. BHADANG & SHRI VIKRAM SINGH YADAV: A.Y. : 2011-12
PER JUSTICE (RETD.) C.V. BHADANG, PRESIDENT :
By this appeal, Revenue is challenging order dated 18.03.2025 passed by learned
Commissioner of Income Tax (Appeals)-56, Mumbai (‘CIT(A)’ for short), which in turn arises out of an order dated 10.12.2018 passed by the learned Dy. Commissioner of Income Tax (LTU)-2, Mumbai (‘AO’ for short), inter alia, making an addition of Rs.35,06,11,934/- on account of disallowance of excess claim of deduction under Section 35(2AB) of the Income Tax Act, 1961 (‘Act’ for short). The Revenue is principally aggrieved by the deletion of the said addition by learned CIT(A). The appeal pertains to assessment year 2011-12. 2
Glenmark Pharmaceuticals Ltd.
2. The respondent-assessee filed its Return of Income (RoI) for the relevant assessment year declaring a total income of Rs.48,86,18,000/- under the normal provisions and book profit of Rs.252,42,88,247/- under Section 115JB of the Act.
Assessment under Section 143(3) r.w.s. 144C(3) of the Act was completed on 26.03.2015 determining the income at Rs.93,26,76,376/- under the normal provisions and Rs.266,03,37,582/- under Section 115JB of the Act. The case of the assessee was reopened under Section 147 r.w.s. 148 of the Act, inter alia, on the ground that as per the guidelines of Department of Scientific and Industrial Research (DSIR), which is the prescribed authority for the purposes of Section 35(2AB) of the Act, income from contract/sponsored research should be reduced from the gross R&D expenditure for weighted deduction under Section 35(2AB) of the Act. It was found that the assessee had incurred part of the expenditure for providing R&D services to its Associated
Enterprises (AE). It was found that although assessee had deducted the expenditure for such research carried for its AE, the corresponding income from contract research services was not deducted. The AO, by an order dated 10.12.2018, inter alia, made addition of Rs.35,06,11,934/- under Section 35(2AB) of the Act by disallowing the excess claim of deduction, which has been deleted by the impugned order passed by the learned CIT(A).
We have heard parties. Perused record.
It is submitted by the learned DR that a part of the expenditure on R&D was incurred by the assessee for the purposes of R&D activities for its AE. It was pointed out that although the assessee had deducted the expenditure in respect of the research carried for the AE, the corresponding contractual income has not been deducted. It is submitted that the learned CIT(A) was not justified in deleting the addition.
The learned AR has supported the impugned order. It is submitted that a plain reading of Section 35(2AB) of the Act indicates that the section does not contemplate
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deduction of income in respect of R&D facility provided under a contract. It is submitted that no provision has been pointed out by the Revenue for such deduction in the absence of which the learned CIT(A) was justified in deleting the addition.
We have considered the submissions made. The issue may not detain us long as the same is covered by decision of the co-ordinate Bench of this Tribunal in assessee’s own case for assessment year 2012-13 (ITA No. 2944/Mum/2018 decided on 30.09.2019) and assessment year 2014-15 (ITA Nos. 575 & 1455/Mum/2020 and CO No. 31/Mum/2020 decided on 01.02.2024). Notwithstanding the same, we would briefly deal with the circumstances and the submissions made.
Section 35(2AB) of the Act, to the extent relevant, reads thus :-
“35(2AB)(1) Where a company engaged in the business of bio-technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred:
Provided that where such expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility is incurred in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this clause shall be equal to the expenditure so incurred.
Explanation.—For the purposes of this clause, "expenditure on scientific research", in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970).
(2) No deduction shall be allowed in respect of the expenditure mentioned in clause
(1) under any other provision of this Act.
It can clearly be seen that the section speaks of weighted deduction on the ‘expenditure’ incurred on scientific research. In the present case, it is undisputed that 4 Glenmark Pharmaceuticals Ltd. the total expenditure incurred by the assessee on R&D was Rs.65,80,84,451/- out of which Rs.37,02,73,872/- was incurred on AE. The assessee claimed weighted deduction only on the balance, i.e. Rs.28,78,10,579/-. The only issue is whether the contract income/revenue earned from AE has to be reduced from such expenditure in order to claim weighted deduction under Section 35(2AB) of the Act. It is not disputed in this case that the profit element out of the contract services is offered and subjected to tax. A co-ordinate Bench of this Tribunal in ACIT vs Wockhardt Ltd. (ITA No. 71/Mum/2007) placing reliance on the decision of Karnataka High Court in CIT vs Microlabs Ltd. (2016) 383 ITR 490 (Karn) has found that it is only the expenditure which has been incurred which is relevant in computing the weighted deduction and not the net expenditure after reducing any income earned. A co-ordinate Bench of this Tribunal in assessee’s own case for assessment year 2012-13 & 2014-15 as referred above has also taken a similar view. We are bound by the same. The learned CIT(A) has considered this aspect in para 6.2.7 and 6.2.8 and has found, and in our considered opinion rightly so, that the nature of Section 35(2AB) of the Act is clear and unambiguous and it contemplates deduction to be worked out on the basis of expenditure alone without any reference to the contract income.
Thus, no case for interference is made out. The appeal is without any merit and is accordingly dismissed.
Order pronounced in the open court on 12/08/2025. (VIKRAM SINGH YADAV)
(JUSTICE (RETD.) C.V. BHADANG)
ACCOUNTANT MEMBER
PRESIDENT
Mumbai; Dated : 12/08/2025
SSL
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Copy of the Order forwarded to :
The Appellant 2. The Respondent 3. The PCIT/CIT concerned 4. DR, ITAT, Mumbai 5. Guard File.
BY ORDER,
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