The Karnataka High Court held that the violation of conditions of deduction under Rule 18DA (8A) can be looked into only by prescribed authority and not by Assessing Officers.
The assessee, M/s Quintiles Research (India) Private Limited is a company, which is engaged in the pharmaceutical research and development as well as clinical research for pharmacy products.
The assessee filed the return of income for the Assessment Year 2008-09 and claimed deduction of Rs.31,32,49,090 under Section 80-IB(8A) of the Act.
The Assessing Officer vide order dated 15.10.2012, inter alia by taking into account the Work Orders and held that assessee is not undertaking any scientific research and development on its own as specified under Rule 18DA(1)(c) of the Rules.
It was further held that assessee has not been able to sell any output or prototype till date and undertakes the activities as specified in the agreement and transfer the data or information to the customer who in turn may use the same to develop a technology product or patent and the assessee itself is not engaged in Scientific, Research and Development activities leading to development, improvement, transfer of technology.
Thus, the AO that the assessee does not meet the prescribed conditions under Rule 80-IB(8A) of the Act. Accordingly, the claim of the assessee for deduction under the aforesaid provision was disallowed. The assessee approached the Dispute Resolution Panel. The DROP rejected the objections of the assessee.
The assessee approached the Income Tax Appellate Tribunal which set aside the order of the Assessing Officer and remitted the question of determination of the question of Arm’s Length Price (ALP) to the Transfer Pricing Officer (TPO) for fresh consideration. In the result, the appeal was partly allowed.
The issue raised in this case was whether the Tribunal was right in law in holding that the conditions of Rule 18DA(8A) can be looked into only by the prescribed authority and not by the Assessing Officer, whereas the said Rule prescribes the conditions necessary for allowing deduction under Section 80IB-8A of the Income Tax Act and the Assessing Officer is well within his jurisdiction to accept or reject the same based on the conformity adhered to by the assessee.
The division judge bench of Justice Alok Aradhe and Justice H.T. Narendra Parsad noted that the Tribunal has examined the issue on merits and has held that Rules clearly contemplate even sponsored research programs and the entire receipts of the assessee are from contract research and not of own research.
Therefore, the court while upholding the tribunal’s order held that the issue with regard to violation of conditions mentioned in Rule 18DA can be looked into only by the prescribed authority and not by the Assessing Officer. Admittedly, the approval was granted to the assessee, which was renewed from time to time, therefore, the question of remand does not arise in the facts of the case.Subscribe Taxscan AdFree to view the Judgment