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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: Shri Rama Kanta Panda & Shri Laliet Kumar
Per Shri Rama Kanta Panda, A.M. This appeal filed by the assessee is directed against the consequential order passed by the AO, dated 31.03.2017 for the AY 2007-08.
Grounds raised by the assessee are as under:-
The Order of the Assessing Officer u/s 143(3) r.w.s 144C and 92CA of the Income Tax Act, passed on 31.03.2017 is contrary to facts and law. 2. The Assessing Officer erred in not following the Hon'ble Tribunal's directions and thereby disallowing the weighted deduction at 150% of Rs.2,26,00,589/- u/s 35(2AB) of the Act in respect of clinical drug trials carried out by it on the ground that it is incurred outside the "in-house R&D". 3. The TPO erred in not following the Hon'ble Tribunal's directions and thereby retaining the adjustment of Rs. 16,50,00,000/-- u/ s 92CA of the Act, in respect of sales to Associated Enterprises.
2 ITA 953/Hyd/2017 4. The appellant craves leave to add to, to alter or amend any of the aforesaid grounds.
Facts of the case, in brief, are that Mylan Laboratories Limited (formerly Matrix Laboratories Limited) (hereinafter referred to as Assessee tax-payer) is a public limited company engaged in the business of manufacture of Pharmaceutical Products. For the Assessment Year 2007-08 in relation to the previous year ended 31st March 2007, the Assessee filed its return of income on 30-10- 2007 declaring a total loss of Rs.40,04,39,585/- under normal provisions of the Income tax Act, 1961 (hereinafter referred to as the Act) and Book Profit / (Loss) of Rs. (5,17,28,0981-) u/s 115JB of the Act. The said return was processed u/s 143(1) of the Act vide intimation dated 24.4.2008 accepting the returned income both under normal computation & book profits.
3.1 Since the assessee transacted with Associated Enterprises as defined in Section 92A of the Act, the case was referred to Transfer Pricing Officer (Additional Commissioner of Income Tax), who issued Transfer Pricing Order u/s 92CA of the Act dated 31- 3-2010. The Assessing Officer framed Draft Assessment Order u/s 143(3) dated 31.12.2010 taking into account the above Transfer Pricing Order and determined the total income at Rs. 107,98,53,286/- under normal computation. The Assessing officer did not compute book profits but instead stated that the deduction towards export profits from 100% export oriented units allowed under sec. 115JB should be restricted to that computed under normal computation. The Assessing officer arrived at the Tax including surcharge at Rs. 36,34,78,618/- and after adjusting taxes already paid, amount already refunded and levying interests proposed the balance tax payable at Rs. 51,16,22,279/- and accordingly forwarded the draft order. The Assessee objected to the draft order vide its objections filed before the Dispute Resolution Panel, Hyderabad (DRP) on 03.02.2011.
3 ITA 953/Hyd/2017 The DRP disposed of the objections vide its order dated 26.09.2011 under sec. 144C of the Act. Pursuant to the said directions, the Assessing officer passed the final order u/s 143(3) on 20.10.2011 of the Act. The Assessee aggrieved by the said order, filed appeal before the Tribunal.
We have heard the rival arguments made by both the sides, perused the orders of the authorities below and paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. So far as, the first issue is concerned as per ground of appeal No.2, the same relates to denial of weighted deduction at 150% of Rs.2,26,00,589/- u/s. 35(2AB) of the Act in respect of clinical drug trials carried out by the assessee. During the first round of litigation before the Tribunal, the Tribunal vide paragraph 15 and 15.1 of the order has decided the issue and restored the issue to the file of the AO with the following observations:-
“15. This ground is relating to assessee's claim for weighted deduction U/s. 35(2AB) of 150% of an amount of Rs. 2,26,00,589/-. Ld. Counsel for assessee referred to form 3CL to point out that such expenditure was eligible for weighted deduction. He has contended that assessee is therefore is claiming weighted deduction only to the extent of certification in respect of clinical trials carried out by it. He referred to the order of the co-ordinate Bench in assessee's own case in AY. 2009- 10 in ITA No. 611/Hyd/2014 dt. 10-12-2014 to submit that the matter was referred to the AO for necessary examination. The order of co- ordinate Bench vide para 12 is as under:
"12. When the learned counsel for the assessee was required by the Bench to clarify as to how the claim of the assessee is covered by the above Explanation, he has contended that the expenditure in question is incurred by the assessee for filing application for patent rights under patents Act, 1970. He has also submitted that the assessee is in a position to support and substantiate its claim by filing relevant documentary evidence and has urged that an opportunity may be given to the assessee for this purpose by sending the matter to the Assessing Officer. Since the learned Departmental Representative has not raised any objection in this regard, we restore this issue to the file of the Assessing Officer with
4 ITA 953/Hyd/2017 a direction to examine the assessee's claim for weighted deduction under S.35(2AB) in respect of expenditure incurred for registering patents outside India only to the extent of Rs.73.67 lakhs afresh, after giving assessee proper and sufficient opportunity to establish its case in accordance with Explanation to S.37(2AB). Ground No.3 is accordingly partly allowed for statistical purposes".
15.1 Respectfully following the same, we restore the issue to the file of AO with the same direction to examine assessee's claim in respect of expenditure incurred for clinical trials outside India after giving assessee proper and sufficient opportunity to establish the case in regard to explanation to Section 37(2AB). This ground is accordingly allowed for statistical purposes.
Ground No. 15: The Dispute Resolution Panel erred in not directing the Assessing Officer to delete Rs. 11,17,244/- being expenditure attributed under Rule 8D of Income tax Rules, 1962 for earning exempt dividend of Rs. 24,26,877/- from Mutual funds.”
We find that in the order giving effect proceeding, the AO rejected the claim of deduction u/s. 35(2AB) by observing as under:-
With regard to the relief claimed u/s. 35(2AB) of I.T.Act, assessee’s submissions as per letter dated 25,03,2016 have been carefully considered. However, on careful consideration of the reply filed by the assessee, it is observed that the assessee has not totally complied with the terms of explanation laid down u/s. 35(2AB) of I.T.Act which is as follows: “[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)}
However, for the following reasons, no relief on this issue is possible: (i) The assessee could not produce any application filed for patent under Indian patents Act, 1970, but instead relied on a guideline which is stated to be downloaded from “Intellectual Property India”. No other detail regarding the veracity of expenditure incurred for this purpose is also filed except tabulated presentation of expenditures incurred. (ii) The assessee did not submit any kind of document authenticating the approval received by the assessee from the regulatory authority as stated in the explanation to Section 35(2AB) reproduced above. Therefore, in the absence of required details regarding the examination of claim of assessee on this issue, no relief is given in respect of assessee’s claim u/s. 35(2AB).
5 ITA 953/Hyd/2017
On a pointed query raised by the Bench as to what are the details filed before the AO, the ld. Counsel for the assessee submitted that assessee has downloaded the guidelines for intellectual property in India and has not submitted any other details. However, given an opportunity assessee is in a position to explain the case before the AO. He accordingly, submitted that the matter may be restored to the file of the AO.
The ld. DR on the other hand submitted that assessee was given ample opportunity by the Tribunal as well as by the AO and therefore, no further opportunities should be granted.
We have heard the rival arguments and perused the record. We find the Tribunal in the first round of litigation has restored the issue to the file of the AO with certain directions to examine the assessee’s claim in respect of expenditure incurred for clinical trials outside India for allowing deduction u/s. 35(2AB). We find the AO during the order giving effect proceedings had given enough opportunities to the assessee to substantiate the allowability of claim as per the provisions of section 35(2AB) of the I.T.Act. We find despite given sufficient opportunity, the assessee failed to substantiate before the AO regarding the allowability of weighted deduction at 150% of Rs.2,26,00,589/- u/s. 35(2AB) of the I.T.Act. Even before us also, nothing could be produced so as to take a contrary view than the view taken by the AO. Even the ld. Counsel for the assessee also could not submit as to what has happened in the AY 2009-10, after the Tribunal restored the issue to the file of the AO. In view of the above discussion and in absence of any other material before us to take a contrary view than the view taken by the AO, we uphold the order of the AO on this issue and the grounds raised by the assessee are dismissed. Since, the other ground ie. ground of appeal No.3 was not pressed
6 ITA 953/Hyd/2017 by the ld. Counsel for the assessee for which, the ld. DR has no objection, we dismiss the ground of appeal No.3 and ground of appeal No.1 being general in nature is dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the Open Court on 27th June, 2022.
Sd/- Sd/- (LALIET KUMAR) (RAMA KANTA PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 27th June, 2022. Thirumalesh/sps
Copy to:
S.No Addresses 1 Mylan Laboratories Limited(formerly Matrix Laboratories Limited) Plot No.564/A/22, road No.92, Jubilee Hills Hyderabad-500 033
2 DCIT,Circle-16(2) IT Towers, Masab Tank Hyderabad-500 004
3 Addl.CIT(TP) ,Hyderabad/ DIT(TP& IT), Hyderabad 4 DR, ITAT Hyderabad Benches 5 Guard File
By Order