Amount spent on clinical trials outside approved-in-house facility eligible for weighted deduction u/s 35(2AB)

Lupin Limited Vs DCIT (ITAT Mumbai)

ITAT Mumbai held that the amount spent by the assessee on clinical trials outside the approved in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act.

Facts- During the course of search, Shri Mahesh R. Sanur, the cashier of the assessee company admitted in his statement that the company has given cheque payments to a commission agent named M/s Versatile Vintrade P Ltd and received cash back from the above said person, i.e., the assessee has been booking bogus expenses in the form commission expenses. He further admitted that an aggregate amount of Rs.37.43 crores represents total of unaccounted cash receipts for the period from 1.4.2009 to 31.12.2010. The Statement so given by Shri Mahesh R Sanur was confronted with the Managing Director Shri Kamal Kishore Sharma. He confirmed the statement given by Shri Mahesh R Sanur and agreed to surrender a sum of Rs.37.43 crores for the period from 1.4.2009 to 31.12.2010. He also stated that the above said disclosure/surrender has been made after consultation with Shri K R Gupta, Director, Corporate Affairs of the assessee company. The Managing Director also admitted that the company has made transaction by way of mere book entries in other years also. Accordingly, he agreed to offer Rs.60.33 crores in aggregate in various financial years starting from F.Y 2004-05 to 2011-12. He also submitted that the above said sum of Rs.60.33 crores has been expended for various miscellaneous purposes. In this back ground, the AO completed the assessment by making various additions. The Ld CIT(A) granted partial relief and hence both the parties have filed appeals assailing the order passed by Ld CIT(A) on the issues decided against each of them.

Conclusion- We noticed earlier that the total income is computed in accordance with the provision of Income tax Act and “Book profit” is computed on the basis of financial statements prepared in accordance with the accounting principles and accounting standards. Even though the decision in the case of Vijaya Bank (supra) was rendered by Hon’ble Supreme Court in the context of sec. 36(1)(vii) of the Act relating to computation of income, the Hon’ble High Courts have chosen to extend the said principle laid down by Hon’ble Supreme Court to computation of ‘book profit” u/s 115JB of the Act, wherein the accounting principles and accounting standards acquire prime importance. Following the decision rendered by High courts (referred supra), we hold that the amount of “Provision for bad and doubtful debts”, if reduced from the amount of “Sundry debtors balance” in the assets side of Balance Sheet, the same would not be hit by clause (i) of Explanation 1 to sec.115JB of the Act. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO not to add the amount of Provision for bad and doubtful debts to net profit, while computing book profit u/s 115JB of the Act.

Accordingly, following the decision of Hon’ble Gujarat High Court in the case of Cadila Healthcare Ltd., we hold that the amount spent by the assessee on clinical trials outside the approved in-house facility is eligible for weighted deduction u/s 35(2AB) of the Act.

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