IN THE ITAT MUMBAI BENCH ‘I’
USV Ltd.
v/s.
Deputy Commissioner of Income-tax
IT Appeal Nos. 4517 & 5582 (Mum.) of 2010
[Assessment year 2007-08]
Date of pronouncement – July 4, 2012
ORDER
B.R. Mittal, Judicial Member
These cross appeals are directed against the impugned order dated 19th April 2010, passed by the Commissioner (Appeals)-XXXXI, Mumbai, for assessment year 2007-08. Grounds raised by the assessee, read as follows:-
“The Hon’ble Commissioner of Income Tax has erred in confirming the Assessing Officer action on disallowing the weighted deduction under section 35(2AB)(1) in respect of following expenses incurred in connection with the in-house Research & Development labs.
| (a) Expenses incurred on Clinical Trials | Rs. 4,00,32,682 | |
| (b) Expenses incurred on Rent, Rates and Taxes | Rs. 62,00,689 | |
| (c) Claims not reported in DSIR certificate | Rs. 1,25,17,261″ |
2. In the assessment year under consideration, the assessee is engaged in the business of manufacturing and marketing of pharmaceuticals products and bulk drugs. During the previous year relevant to assessment year 2007- 08, the assessee company had the following units:-
• Unit at MIDC Lote Parshuram, Taluka Khed, Ratnagiri District, for manufacture of Formulation;
• Unit at MIDC Lote Parshuram, Taluka Khed, Ratnagiri District, for manufacture of Bulk Drugs treated as DTA;
• Unit at MIDC Lote Parshuram, Taluka Khed, Ratnagiri District, for manufacture of bulk drugs treated as converted EOU-I, under provision of section 10B of the Income Tax Act, 1961. The allowability of deduction under this section is discussed later in my order;
• Unit at OIDC Daman for manufacture of formulations. This unit was set up in December 2001, and is eligible towards deduction under section 80IB claimed. The allowability of deduction under this section is discussed later in my order;
• Unit at Plot no.6, HPSIDC Industrial Area, Solan, Baddi, HP, for manufacture of formulations and is eligible towards deduction under section 80IC. This is the first year of assessee claim under section 80IC.
3. The assessee company also markets formulations manufactured using the manufacturing facilities of third parties, either on job work basis under loan license arrangement, or by purchasing the same from such parties on principal-to-principal basis. Sales are affected through dealer/stockiest who are appointed all over India. The assessee company also exports both bulk drugs and formulations to various countries. In the assessment year under consideration, the assessee filed return of income declaring total income of Rs. 46,10,49,381. The Assessing Officer made assessment under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) vide order dated 30th November 2009, assessing the total income at Rs. 50,88,19,386.
4. We first take up the ground taken by the assessee. Further, ground no.3, in Revenue’s appeal is also inter-connected and, accordingly, the same is also considered along with the ground taken by the assessee.
5. Brief facts:- The assessee company is engaged in the manufacturing of drugs and pharmaceuticals. During the course of assessment proceedings, the assessee submitted that it had three R&D facilities at – (i) BSD Marg, Govandi Station Road, Govandi, Mumbai – 400 088; (ii) D-115, Shirvane, TTC Industrial Area, Thane Belapur Road, Navi Mumbai 400 706; and (iii) OIDC, Debhel, Daman. All these R&D facilities are being approved by the Department of Scientific and Industrial Research (for short “DSIR”) for weighted deduction @ 150% under section 35(2AB) of the Act, vide approval (renewal) order in Form no.3CM no.TU/IV-15(119)/35(2AB), order dated 1st July 2007. The assessee has also filed the necessary copy of order of approval Form 3CM, on record. The assessee company satisfies the conditions laid down for availment of weighted deduction of 150% under section 35(2AB) for the above R&D units. The Assessing Officer stated that the assessee has, vide its letter dated 25th November 2009, filed the copy of order in Form 3CL received from the DSIR. He stated that on perusal of the said order, it was found that DSIR has approved following amounts as against the amount claimed by the assessee in the return of income.
