The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has held that the deduction should be allowed towards allocation of Research and Development (R & D) expenses for eligible units under Section 80IB and 80IC of the Income Tax Act 1961.
The assessee company, Macelods Pharmaceuticals was engaged in the business of manufacturing of formulation and various pharmaceutical products. In the year under consideration, the assessee filed its return of income. The Assessing Officer made disallowance for promotional items, free gifts given to various doctors and medical practitioners.
A search and seizure action under section 132 of the Act was carried out and consequently assessment under section 153A r.w.s. 143(3) of the income tax Act was completed. In the said assessment, various additions/disallowances including proportionate withdrawal of deduction under section 80IB & 80IC of the Act for apportionment of research and development expenses were made.
Section 80IC of the Act, deals with deduction which is allowed on the profits and gains derived from an industrial undertaking from business referred to Sec. 80IC (2) of the Act, from the manufacture of articles or things other than the article or thing mentioned in Schedule-13 of the Act.
Deduction under section 80C is allowed if an undertaking fulfils any of the conditions that It should be a new undertaking. It should not be formed by transfer of machinery or plant previously used for any purpose. The undertaking should be located anywhere in India.
Ashok Bansal appeared on behalf of the assessee and Riddhi Mishra appeared on behalf of the revenue.
The Division Bench of Om Prakash Kant (Accountant Member) And Sandeep Singh Karhail (Judicial Member) Relying upon the finding of the Hon’ble Bombay High Court in CIT vs. Continental Warehousing Corporation allowed this ground of appeal and deleted the disallowance of deduction consequent to allocation of R & D expenses.
“On perusal of the list of products manufactured in eligible units and drug under development and R & D units, we find that products manufactured under the units eligible for 801B and 80IC units are totally unrelated with the product under development in R&D units.”
” It is verified that at least in the current assessment year, the research and development expenditure incurred is not related to the units eligible for deduction under section 801B and 80IC of the Act. The Ld CIT(A) has made a general comment that drugs manufactured in exempted units and research carried out in R&D units are in respect of the same items. The Ld. CIT(A) has not pointed out as to which drugs or formulations under development in the R & D unit have been manufactured by a particular unit eligible under 80IB or 80IC of the Act.”
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