ASST.COMMISSIIONER OF INCOME TAX,CIRCLE-17(1), HYDERABAD vs. DR.REDDY'S LABORATORIES LIMITED, HYDERABAD

The grounds involved in all the appeals being common, the grounds raised in the appeal for the A.Y. 2008-09 are extracted for immediate reference:

Brief facts of the case, giving raise to the issue in dispute, are as under. The assessee-company is a manufacturer in bulk drugs and

In respect of expenditure pertaining to biologics, the assessee contended before the Ld. CIT(A) that a biologic or biotech medicine is defined as a large complex protein molecule derived from living cells and hence the manufacturing process involved is a very long process and time-consuming since it involves steps such as fermentation, clarification, separation and purification. It was also contended that it undertakes broad range of stringent regulations before approval and commercialization. Therefore, it was contended that it is not related to the exempted units and can be excluded for apportionment of expenses.

Before Ld. CIT(A) it was submitted that the assessee-company has set up a separate centre for development and a separate plant for manufacture of biological products. The company launched the biosimilar filgrastim (G-CSF) in India. It was also contended that none of the products manufactured from Baddi, Yanam Unit, BD9-EOU & Generics unit are biological products.

Ld. CIT(A) having noticed the difference between the other research units and the separate unit meant for biological products, he came to the conclusion that the R & D expenses relating to the biologics are unit specific and can be excluded for apportionment of expenses.

Aggrieved by this finding, Revenue preferred appeals before the Tribunal.

Learned Departmental Representative relied upon the orders of the Assessing Officer whereas the Learned Counsel for the Assessee relied upon the common order passed by the Ld. CIT(A).

We have carefully perused the record. Ld. CIT(A) analysed the facts of the case and observed that the assessee is engaged in manufacturing and trading in formulations, Generics, Active Pharmaceuticals Ingredients (APIs), Bio-Technology and Custom Pharmaceutical services in its various units; whereas, R & D work, in so far as biologics are concerned, is conducted at different units since it is a very complex and time-consuming process. Thus, Ld. CIT(A) accepted the contention of the assessee that the R & D expenditure relating to the biologics deserves to be excluded and should not be apportioned against the units which are enjoying the benefit of deduction under various sections such as 10B, 80IB, 80IC etc. In this regard, Ld. CIT(A) briefly observed as under:

No material was placed before us, by the Learned CIT-DR, to contradict the findings of the Ld. CIT(A). Under these circumstances, we do not find any infirmity in the order passed by the Ld. CIT(A) and thus the appeals filed by the Revenue are dismissed. Order pronounced in the open court on 06th June, 2018.