Expenses incurred for conducting clinical trials of Pharmaceuticals Companies outside organization allowable as deduction u/s 35 (2AB) of Income Tax Act: ITAT [Read Order]

The Ahmedabad bench Income Tax Appellate Tribunal ( ITAT ) held that expenses incurred for conducting clinical trials of pharmaceuticals companies outside organization allowable as deduction under Section 35(2AB) of the Income Tax Act, 1961

The Assessee Intas Pharmaceuticals Ltd.is having international transactions with its Associated Enterprises. The assessee advanced certain payment to its AE's for selling its products in the respective local overseas territories and thereby increasing sales, the aforesaid advances were of a commercial nature and for the benefit of the assessee.

During the assessment proceedings the Assessing Officer made disallowance of expenditure on non-clinical trials amounting to Rs. 1492.86 lakhs on the ground that the DSIR ( Department of Scientific and Industrial Research ) in the report in Form 3CL has granted approval for a lesser amount as against the claim made by the assessee.

Aggrieved by the order assesee filed an appeal before the CIT( Appeal ). The CIT(A) allowed the appeal. Therefore  the revenue  filed an appeal before the tribunal.

During the adjudication S. N. Soparkar, the counsel for assessee argued that clinical trials are an essential activity for a pharmaceuticals company to market its products and these trials are conducted by Clinical Research Organization. Hence, a pharma company has to do clinical trials outside the organization. Although this issue is squarely covered in favor of the assessee by the observations made by ITAT in assessee’s own case for the assessment year 2002-03 to 2004-05 and 2008-09.

Dr. Darsi Suman Ratnam, Department representatives supported the order of lower authorities.

The tribunal observed that  assessee company incurs expenses on clinical trials for developing its  pharmaceutical products outside a lab facility approved by the prescribed authority ( the DS1R )

After analyzing the submission of both parties, the bench comprising Annapurna Gupta ( Accountant Member ) & Siddhartha Nautiyal, ( Judicial Member ) held that expenses incurred for conducting clinical trials of pharmaceuticals companies outside organization allowable as  deduction under Section 35(2AB) of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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