ACIT, Hyderabad v. Bharat Biotech International Ltd.,, Hyderabad

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI G.C. GUPTA VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO.558/HYD/2007 : ASSTT. YEAR 2000-01 ITA NO.559/HYD/2007 2001-02 ITA NO.560/HYD/2007 2002-03 ITA NO.636/HYD/2007 2004-05 ITA NO.1327/HYD/2008 2005-06 ACIT CIRCLE 1(3) HYDERABAD VS BHARAT BIOTECH INTERNATIONAL LTD. HYDERABAD (PAN AABCB 3822 B/B-30) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.S. CHANDRA SEKHARAN DR RESPONDENT BY : P.V.S.S. PRASAD O R D E R PER: CHANDRA POOJARI ACCOUNTANT MEMBER THESE APPEALS PREFERRED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS PASSED BY THE CIT(A)-II HYDERABAD AND PERTAINS TO THE ASSESSMENT YEARS 2000-01 2001-02 2002-03 2003-04 200 4-05 AND 2005-06. SINCE CERTAIN ISSUES INVOLVED IN THESE APPEALS ARE COMMON IN NATURE THEY ARE CLUBBED TOGETHER HEARD TOGETHER AN D DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE WILL TAKE UP THE COMMON ISSUES IN THE RE VENUE APPEALS IN ITA NOS.558/HYD/2007 AND ITA-559/HYD/2007. T HE REVENUE RAISED THE FOLLOWING GROUNDS: THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE OF WEIGHTED DEDUCTION U/S 35(2AB) IN VIEW OF THE FACT THE BUSIN ESS OF BIO TECHNOLOGY HAS BEEN MADE ELIGIBLE FOR CLAIMING DEDUCTION U/S 35(2A B) BY THE FINANCE ACT WITH EFFECT FROM 1.4.2002 I.E. RELEVANT TO ASSESSME NT YEARS 2002-03. 2 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITT ED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF HEPATITIS B VACCINE WHICH CANNOT BE TERMED AS DRUGS OR PHARMACEUTICALS AND THE TERM BIO-TECHNOLOGY IS INSERTED IN THE FINANCE ACT 2001 AND IS EFFECTIVE FROM THE ASSESSMENT YEAR 2002-03 . THE ASSESSEES REGISTERED OFFICE AND PLANT IS LOCATED IN GENOME VALLEY WHERE BIO TECHNOLOGY COMPANIES ARE LOCATED. THE MANUFA CTURE OF HEPATITIS B VACCINE IS MADE OUT OF VIRUS AN ORGANIC/BIO TECHNOLOGICAL ORGANISM WHICH CANNOT BE TERMED AS DRUGS AND PHARMACEUTI CALS AND AS SUCH THE COMPANY IS NOT ENGAGED IN MANUFACTURE AND PRODU CTION OF ANY DRUG OR PHARMACEUTICAL ELECTRONIC EQUIPMENTS COMPUTERS TELEPHONE COMPONENTS OR CHEMICAL OR ANY OTHER ARTICLES OR THING MEN TIONED U/S 35(2AB) OF THE IT ACT. HE RELIED ON THE ORDER OF THE ASSESSING OFFICER. 3.1. THE AR RELIED ON THE ORDER OF THE CIT(A). 4. WE HAVE HEARD FROM BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE COMPANY HAS BEEN APPROVE D BY THE DRUG CONTROL ADMINISTRATION OF ANDHRA PRADESH SINCE THE ASSESSEE HAS TAKEN DRUG LICENSE FROM THE GOVT. AUTHORITIES. FURTHE R THE ASSESSEE HAS BEEN RECOGNIZED BY THE MINISTRY OF SCIENCE & TECHNOLOGY VIDE THEIR LETTER NO.TU/IV/15(64)/35/(2AB)/3CM/35/2001DATED 21.9.2001 AS PER FORM NO.3CM CLAUSE NO.5 READS AS FOLLOW: REF. NO. AND DATE OF THE APPLICATION: REF NO.BBIL/FIN/068/2000-01 DATED 30.10.2000. THE ABOVE RESEARCH & DEVELOPMENT FACILITY IS APPROV ED FOR THE PURPOSE OF SECTION 35(2AB) FROM 1.4.1999 TO 31.3.20 02 SUBJECT TO THE CONDITIONS UNDERLINED THEREIN. 3 4.1. FURTHER IN THE COURSE OF ASSESSMENT THE ASSESSING OFFICER ALSO MADE A REFERENCE TO THE MINISTRY OF SCIENCE & TECHNO LOGY RELATING TO THE ELIGIBILITY OF EXEMPTION U/S 35(2AB) AND THE DSIR NEW DELHI HAVE SENT A COMMUNICATION VIDE THEIR LETTER NO.TV-IV/1 5(64)/2005 DATED 23.11.2006 A COPY OF WHICH WAS SUBMITTED BEFORE THE TRIBUNAL IN PAPER BOOK NO.ITA-558/HYD/2009 AT PAGE NO.30 WHICH RE ADS AS FOLLOWS: THE REFERRED COMPANY M/S BHARAT BIO-TECH INTERNATI ONAL LIMITED HYDERABAD IS ENGAGED IN THE MANUFACTURE OF VACCINE AND BIO PHARMACEUTICALS AND THE RESEARCH PROGRAMME OF THE COMPANY ARE ALSO AIMED AS DEVELOPMENT OF SUCH PRODUCTS. THIS HAS ALSO BEEN STATED IN THE APPROVAL IN DFROM -3CM DATED 25.9.2001 ISSUED BY THE DEPARTMENT. VACCINE S AND BIO PHARMACEUTICAL PRODUCTS ARE COVERED UNDER DRUGS AND PHARMACEUTICAL S AND HENCE M/S BHARAT BIO TECH INTERNATIONAL LIMITED HYDERABAD WAS APPRO VED BY THE PRESCRIBED AUTHORITY U/S 35 (2AB) OF THE INCOME TAX ACT. 6. AS SEEN FROM THE ABOVE ORDER THE PRODUCT OF THE CO MPANY ARE COVERED UNDER THE DRUGS AND PHARMACEUTICS AND HAS B EEN APPROVED FOR DEDUCTION U/S 35(2AB) OF THE ACT AND THUS CIT(A) J USTIFIED IN GRANTING DEDUCTION U/S 35(2 AB)OF THE IT ACT. ACCORDING LY WE CONFIRM THE SAME AND HENCE THE GROUND RAISED BY THE REVENUE STA NDS DISMISSED. 7. THE NEXT COMMON GROUNDS IN ITA NOS.558/HYD/2007 ITA NO.560/HYD/2007 AND ITA NO.636/HYD/2007: THE REVENUE RAISED THE FOLLOWING GROUND : THE CIT(A) ERRED IN DECLINING THE ADDITION OF PRO VISION FOR GRATUITY AND ROYALTY TO TOTAL INCOME. THE CIT(A) OUGHT TO HAVE UPHELD THE DISALLOWANCE O F WEIGHTED DEDUCTION ON CLINICAL TRIALS AS THE SAME WERE CONDUCTED OUTSIDE THE APPROVED FACILITY. 8. AT THE TIME OF HEARING IT IS FAIRLY CONCEDED THA T THE REVENUE RAISED WRONGLY THE GROUND IN ITA NO.558/HYD/2007 WITH REFERENCE TO RE- COMPUTATION OF BOOK PROFIT BY ADDING ROYALTY WHILE COMPUTING DEDUCTION U/S 115JA. HENCE THERE IS NO DISPUTE WITH REFERENCE TO T HE TREATMENT 4 GIVEN TO THE ROYALTY WHILE COMPUTING THE BOOK PROFIT . NOW COMING TO THE COMPUTATION OF BOOK PROFIT BY ADDING BACK THE PROVISI ONS OF GRATUITY WE ARE OF THE OPINION THAT THIS ISSUE HAS BEEN SQUAREL Y COVERED BY THE JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. E CHJAY FORGINGS (P) LTD. (251 ITR 15) (BOM HC) WHEREIN IT WAS HELD TH AT SINCE THE PROVISION FOR GRATUITY WAS MADE ON THE BASIS OF ACTUARI AL CALCULATIONS IT WAS AN ASCERTAINED LIABILITY AND THE SAID AMOUNTS COULD N OT BE ADDED TO THE NET PROFITS. IN VIEW OF THE ABOVE JUDGEMENT OF THE BOMBAY HIGH COURT WE ARE INCLINED TO SET ASIDE THE ISSUE TO THE FIL E OF ASSESSING OFFICER NOT TO ADD BACK THAT PORTION OF PROVISION OF T HE GRATUITY WHICH WAS MADE ON THE BASIS OF ACTUARIAL CALCULATION SINCE IT IS AN ASCERTAINED LIABILITY. THE BALANCE IF ANY OTHER THAN THE ACTUAR IAL VALUATION OF GRATUITY TO BE ADDED BACK. ACCORDINGLY THE GROUNDS TAKEN BY T HE REVENUE IN ITA NOS.558/HYD/2007 ITA NO.560/HYD/2007 AND ITA NO.636/HYD/2007 ARE PARTLY ALLOWED. 9. NOW THE REVENUE APPEALS IN ITA NOS.1327/HYD/2008 ITA NO.560/HYD/2007 AND ITA NO.636/HYD/2007. THE COMMON GROUNDS IN THESE THREE APPEALS ARE THAT THE CIT(A) UPHELD THE DISALLOWANCE OF WEIGHTED DEDUCTION ON CLINICAL TRIA LS AS THE SAME WERE CONDUCTED OUTSIDE THE APPROVED FACILITY. 10. THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THA T THE COMPANY HAS INCURRED EXPENDITURE ON CLINICAL TRIALS OUTS IDE THE APPROVED FACILITY AS SUCH WEIGHTED DEDUCTION ON CLINICAL TRIALS CAN NOT BE ALLOWED. THE DR DREW OUR ATTENTION TO THE LETTER NO.TU/IV/15 (64)/200 DATED 4/2/2007 ISSUED BY THE SCIENTIST G FOR AND ON BEHALF OF SECRETARY DSIR MINISTRY OF SCIENCE & TECHNOLOGY DEPARTMENT OF INDUSTRI AL RESEARCH NEW DELHI PLACED AT PAPER BOOK AT PAGE NO.17 IN ITA NO.560/HYD/2007 WHEREIN OBSERVED THAT THE EXPENSES RELATED TO CLINICAL TRIALS WHICH ARE 5 OUTSIDE THE APPROVED FACILITY AND THEREFORE NOT INCLUD ED IN THE COST OF IN HOUSE RESEARCH FACILITY. 11. THE AR SUBMITTED THAT IDENTICAL ISSUES HAS BEEN D ECIDED BY CIT(A) IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 200 3-04 IN ITA.NO.0559/CIT(A)/II/05-06 WHEREIN AFTER GOING INT O THE DETAILS OF THE ISSUE ALLOWED THE GROUND OF THE ASSESSEE AND THE SAME MA Y BE FOLLOWED. 12. WE HAVE HEARD FROM BOTH THE PARTIES AND PERUSE D THE MATERIAL ON RECORD. IN OUR HUMBLE OPINION FOLLOWIN G THE PRINCIPLES OF CONSISTENCY FOR THE ASSESSMENT YEARS UNDER CONSIDERATION ALSO THE DEPARTMENT CANNOT HAVE ANY GRIEVANCE AGAINST THIS ISSUE. ACCORDINGLY WE DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE GROUNDS TAKEN BY THE REVENUE IN THESE APPEALS ARE DISMISSED. 13. IN THE RESULT THE APPEALS OF THE REVENUE IN ITA NOS.558/560/636/HYD/2007 ARE PARTLY ALLOWED AND ITA NO. 559/HYD/2007 AND ITA NO.1327/HYD/2008 ARE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT : 29 TH JANUARY 2010 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 29 TH JANUARY 2010 COPY FORWARDED TO: 1. M/S BHARATI BIOTECH INTERNATIONAL LTD. 231 232 AN D 235 GENOME VALLEY TURKAPALLY RR DISTRICT HYDERABAD. 2. ACIT CIRCLE 1 (3) HYDERABAD 3. CIT(A)-II HYDERABAD. 4. CIT HYDERABAD 5. THE D.R. ITAT HYDERABAD. NP