Iv) Whether The Tribunal Was Right In. Not Following The Principle Laid Down By The Hon’ble Supreme Court In The Case Of Jcit v. Mandideep Engineering & Packaging Industry Pvt. Ltd. Dpi? Ttr. Qt While Quantifying The Deduction Under Section Sohhc Of The Act

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 8 DAY OF JANUARY 2020 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’'BLE MR. JUSTICE RAVI V.HOSMANL LT.A. NO.101 OF 2010 BETWEEN: M/S. MICROLABS LIMITED|No.27, RACE COURSE ROADBANGALORE-560001REP. BY [LTS MANAGING DIRECTORSRI. DILIP SURANAAGED ABOUT 43 YEARS.S/O SRI. GHEWARCHAND SURANA. .., APPELLAN | (By Sri. S. PARTHASARATHI, ADV.)| AND" THE ASST. COMMISSIONER OF INCOME-TA®CIRCLE 12(1), 14/3RASTROTHANA BHAVAN FLOOR, NRUPATHUNGA ROAD.OPP RBI, BANGALORE. ... RESPONDENT (By Sri. K.V. ARAVIND, ADV.) THIS I.7.A. IS FILED UNDER SECTION 260-A OF I.I.ACT, 1961 ARISING OUT OF ORDER DATED 30-10-2009|PASSED IN ITA No.704/BNG/2008, FOR THE ASSESSMENTYEAR 2ZOOL-O2Z2 PRAYING TO FORMULATE THE SUBSTANTI QUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL|AND SET ASIDE THE ORDER PASSED BY THE [TAT|BANGALORE IN ITA No.704/BNG/2008, DATED 30-10-2009,IN THE INTEREST OF JUSTICE AND EQUITY & EITC. THIS I.7T.A. COMING ON FOR HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT Mr.S.Parthasarathi,learned|counsel|for.theappellant.| Mr.K.V.Aravind,learned|counsel|for.therespondent. 2. This appeal under Section 260-A of the Income|Tax Act, 1961 (nereinafter referred to as the Act, forShort) has been filed by the assessee which wasadmitted by a Bench of this Court on the followingsubstantial questions of law: /) Whether in law the tribunal wasjustified in allocating the R & D expenditure|to the Ponay unit wnen no sucn products|were manufactured by the Ponay unit duringthe relevant year for which research was|carried out by R & D unit. ii) Even when the answer to the first.guestion is in the affirmative, whether in|law, the tribunal is Justified in not excluding|the capital expenditure to the tune of Rs.99|lakhs from the total R & D expenditure ofRs.1.99Croreswhileallowing|theexpenditure on R & D between the other|units. fii) Whether the tribunal was right inholding that the computation of deduction|under Section 8Q0HHC has to be done byreducing the deduction under Section 80-IB|for the purpose of ascertaining eligible profit. iv) Whether the tribunal was right in.not following the principle laid down by the|Hon’ble Supreme Court in the case of JCIT|Vs. Mandideep Engineering & Packaging|IndustryPvt. Ltd. DPI?TTR.qTwhilequantifying the deduction under Section|SOHHC of the Act. 3. Facts giving rise to the filing of the appeal|briefly stated are that appellant is a company carryingON|thebusinessofmanufactureand@€Xportof pharmaceuticals. The appellant filed its return ofincome declaring the income of.48,62,/9,4/70/- andclaimed deduction under Section 80-IB and underSection 80HHC of the Act. The Assessing Officer by anorder dated 23.17.7003 allowed the claim of theappellant. Being aggrieved, an appeal was preferred. |The Commissioner of Income Tax (Appeals) by an orderdated 10.03.2006 remitted the matter to the Assessing.Officer with a direction to carry out the assessmentafresh. The Assessing Officer by an order dated11.02.2008 reduced the profit on which the relief under.Section 80-IB was given and only net balance of profitwas considered for allowing the relief under SectionSOHHC. | 4. Being aggrieved by the order of Assessing|Officer, the appellant preferred an appeal before theCommissioner of Income Tax (Appeals), which waspartly allowed by an order dated 11.02.2008. An appealwas preferred before the Income Tax Appellate Tribunal. | The Tribunal by an order dated 30.10.2009 dismissedthe appeal preferred by the appellant. In the aforesaidfactual background, the appellant has preferred thisappeal. 4. Being aggrieved by the order of Assessing|Officer, the appellant preferred an appeal before theCommissioner of Income Tax (Appeals), which waspartly allowed by an order dated 11.02.2008. An appealwas preferred before the Income Tax Appellate Tribunal. | The Tribunal by an order dated 30.10.2009 dismissedthe appeal preferred by the appellant. In the aforesaidfactual background, the appellant has preferred thisappeal. 5. Learned counsel for the appellant, at the outset,submitted that sofar as substantial questions of lawNos.3 and 4 are concerned, the same have already beenanswered in favour of the appellant by an order dated11.07.2011 passed in ITA No.4/1/2008. However, itwas fairly submitted that the issues pertaining toquestion Nos.3 and 4 are pending consideration beforethe Supreme Court. It is further submitted that theTribunal was not justified in allocating research and.development expenditure to the Pondicherry unit of theappellant when no such products were manufactured inthe aforesaid unit in the relevant year. It is also urgedthat even if it is assumed to be so, the Tribunal ought tohave excluded capital expenditure to the tune ofL9 lakhs from the total research and development| expenditureof41.99|Croreswhileallowingtneexpenditure of research and development expenditurepetween otner units. It ts further submitted tnat tnequestion of apportionment of expenses in research anddevelopment unit will arise only to the extent of utility ofresearch and development unit by the other units thatis, Pondicherry unit. 6. On the other nand, learned counsel for the)revenue fairly submitted that the question Nos.3 and 4be answered in favour of assessee subject to theoutcome of the special leave petition pending before theSupreme Court. It was further submitted that it nasbeen conceded by the appellant that in the Pondicherryunit infact two products were produced by researcn anddevelopment unit in the subsequent year, thougn theywere developed in the preceding year. 7. We have considered the submissions made by|tne learned counsel! for the parties and have perused therecord. From the perusal of the record, it is evident that two products namely DIANOUM/RETARD tablets andNOVOLID tablets were manufactured by the Pondicherryunit not in the relevant year, for which research wasdone by research and development unit during therelevant year and expenditure, if any, was incurred inthe preceding year. Therefore, there could not havebeen apportionment of the current year’s expenditure tothe Pondicherry unit. It ought to have been appreciatedthat when research was helpful for other units, thequestion of apportionment of the expenditure to thePondicherry unit would not arise. Tnis fact can also beascertained|fromtneDOOKSofaccountsoftnePondicherry unit. Thus, if the product is manufacturedby other unit of the appellant, then only allocation ofresearch and development expenses to the other unit is"justified. Therefore, the first substantial question of lawframed is answered in favour of tne assessee andagainst the revenue. 8. Section 35(1) of the Act provides that in respect|of expenditure on scientific research, the deductionsmadethereinnamelyexpenditurelaidCOwnOrexpended on the_ scientific research related to thebusiness and an amount equal to one and one and a Naiftimes of any sum paid to a research association whichhas its object, the undertaking of scientific research orto a university, college or other institution to be used forscientific research. Since the amount of.4Q9 lakhs wasexpended towards research and development, therefore,in view of Section 30(1) of the Act, the same ought tohave been excluded from the total capital expenditure of =1.99 crores while allowing the expenditure on Researchand development units. Accordingly, tne second|substantial question of law is answered in favour of the.assessee and against the revenue. 9. Sofar as third and fourth substantial questions|of law are concerned, the same are answered in favour.of the assessee subject to the decision of the issue 9. Sofar as third and fourth substantial questions|of law are concerned, the same are answered in favour.of the assessee subject to the decision of the issue involved in the aforesaid substantial questions of lawwhich is pending adjudication before the Supreme Court. © Needless to state that depending on the view taken bythe Supreme Court, the revenue shall be at liberty totake an action against the appellant, if so advised inaccordance with law. 10. In view of preceding analysis, the impugnedorder dated 30.10.2009 passed by the Income TaxAppellate Tribunal is hereby quashed. Accordingly, the appeal is disposed of. Sd/- JUDGE Sd/-| JUDGE