PRL.COMMISSIONER OF INCOME TAX(CENTRAL) vs. M/S MICRO LABS LTD.,

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.104 OF 2017 BETWEEN: 1. PRL. COMMISSIONER OF INCOME TAX

(CENTRAL), C.R. BUILDINGS

QUEENS ROAD, BANGALORE-560001. 2. ASSISTANT COMMISSIONER OF INCOME-TAX

LTU, BANGALORE.

... APPELLANTS (BY SRI. E.I. SANMATHI, ADV.) AND: M/S. MICRO LABS LTD., 27, KCN TOWERS RACE COURSE ROAD BANGALORE PAN AABCM 2131N. ... RESPONDENT (BY SRI. S. PARTHASARATHI, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 16-09-2016 PASSED IN ITA NO.4/BANG/2014, FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO DECIDE THE FOREGOING

2 QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 16-09-2016 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS IN ITA NO.4/BANG/2014 FOR ASSESSMENT YEAR 2010-11, AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment Year 2010-11. The appeal was admitted by a Bench of this Court vide order dated 28.11.2017 to consider the following substantial question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the disallowance of expenditure of Rs.8,91,76,870/- claimed as deduction under section 35(2)(AB) of the Act which were conducted outside the in-house R & D facility even when the AO has rightly held that clinical

3 trial expenditure is not eligible for weighted R & D deduction under section 35(2)(AB) and it will be eligible for weighted deduction only if the expenditure is incurred on an in-house R & D facility, further the decision relied upon by the Tribunal in the case of Cadila Healthcare Limited has not reached finality." 3. Facts giving rise to the filing of this appeal briefly stated are that the assessee is a company engaged in the business of manufacture of pharmaceuticals. The assessee filed return of income for the Assessment Year 2010-11 on 18.09.2010 declaring the total income of Rs.66,76,95,460/-. The Assessing Officer, vide order dated 18.05.2012 completed the assessment on book profits chargeable under Section 115-JB of the Act at Rs.2,55,75,40,181/- while income under normal provision was assessed at Rs.65,56,91,920/-. Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 18.09.2013, partly

4 allowed the appeal. The assessee thereupon filed an appeal before the Tribunal. The Tribunal, vide order dated 16.09.2016, set aside the disallowance of expenditure of Rs.8,91,76,870/- claimed as deduction under Section 35(2)(AB) of the Act which was conducted outside the inhouse research and development facility. In the aforesaid factual background, the revenue has filed this appeal. 4. Learned counsel for the revenue, while inviting the attention of this Court to the order passed by the Tribunal, submitted that the Tribunal, while allowing the deduction in respect of expenses incurred on scientific research, has placed reliance on the decision of Gujarat High Court in 'CIT Vs. CADILA HEALTHCARE LTD.' 2014 TAXMANN 672 and has answered the issue in favour of the assessee. It is further submitted that no independent finding has been recorded by the Tribunal

5 on the aforesaid issue. The aforesaid fact could not be disputed by the learned counsel for the assessee. 5. We have considered the submissions made on both sides and have perused the record. From perusal of paragraph 9 of the order passed by the Tribunal, it is evident that the Tribunal has allowed the deduction in respect of expenses incurred by the assessee on scientific research on inhouse research and development facility by placing reliance on the decision of the Gujarat High Court. It is pertinent to mention here that against the aforesaid decision, the revenue preferred special leave petition and the Supreme Court, by order dated 13.10.2015 in SLP No.770/2015 has remitted the matter to the High Court for consideration afresh along with other issues. Since the Tribunal has neither recorded any reasons nor has recorded any findings on the claim of the assessee, we are left with no option but to quash the order of the Tribunal dated 16.02.2016 insofar as it

6 pertains to claim of deduction of assessee under Section 35(2)(AB) of the Act and remit the matter to the Tribunal for decision afresh in accordance with law after affording an opportunity of hearing to the parties. Therefore, it is not necessary for us to answer the substantial question of law. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE RV