AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 214
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....otu Writ Petition (Civil) No. 3 of 2020 read with order, dated 23.09.2021, passed in M.A. No. 665 of 2021 in Suo Motu Writ Petition (Civil) No. 3 of 2020. ITA No. 2575/Mum/2021 (Assessment Year 2014-15) 2. We would first take appeal preferred by the Revenue for the Assessment Year 2014-15 which is directed against the order of the CIT(A) passed on 29.01.2021 passed in appeal against the Assessment Order, dated 25.11.2016, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as 'the Act']. 3. The Revenue has raised following grounds of appeal: " 1. On the facts and in circumstances of the case, the Ld CIT (A) erred in facts and law in allowing the claim of weighted deduction u/s 35(2AB) of the Act made by the assessee company in respect of expenditure not approved by the DSIR and incurred by the assessee on clinical trials and on quality control/testing conducted outside the R&D facility. 2 On the facts and in circumstances of the case, the Ld CIT (A) erred in facts and law in allowing the claim of weighted deduction u/s 35(2AB) of the Act made by the assessee company in respect of expenditure not approved by the DSIR and incurr....
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....." 4. The Assessee is a private limited company engaged in the business of manufacturing and marketing of pharmaceuticals products and bulk product. For the relevant assessment year, the Assessee had in-house Research & Development units at Govandi, Mumbai and Shirvane, Navi Mumbai (hereinafter referred to as 'R&D Facilities') which were approved by Department of Scientific & Industrial Research (DSIR). During the relevant previous year the Assessee incurred Research & Development Expenses ('R&D Expenses' for short). 5. The Assessee filed return of income for Assessment Year 2014-15 on 24.11.2014 declaring total income of INR 181,23,43,120/- under the normal provisions of Act and book profits of INR 544,78,26,802/- under Section 115JB of the Act. The case of the Assessee was selected for scrutiny. Assessment was framed on the Assessee under Section 143(3) of the Act was framed on the Assessee vide order dated 25.11.2016 at income of INR 219,79,35,930/- under the normal provisions of the Act after making, inter alia, disallowance INR 34,05,83,000/- in respect of weighted deduction for the following expenses claimed by the Assessee under Section 35(2AB) of the Act: S. No. ....
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....in various decisions and following the same the CIT(A) has granted relief to the Assessee. 10. In the case of ACIT vs. Crompton Greaves Ltd.:[2019] 111 Taxmann.com 338 (Mumbai-Trib.), the Tribunal has held: "8. It is seen that as rightly contended on behalf of the assessee, section 35 of the Act grants deduction for Scientific Research expenditure, under the circumstances prescribed there-under, on compliance of the conditions laid down in various provisions of section 35. Now, whereas in some cases, like those coming under the provisions of sections 35(1)(i) and 35(2AB), a specific approval of quantum of expenditure, by the prescribed authority, is the pre-requisite for deduction, the provisions of section 35(2AB) requires approval for Units and not approval for the quantum of expenditure. For ready reference, section 35(2)(AB) reads as under: xx xx 9. The operative phrase here is "on in-house research and development facility as approved by the prescribed authority..", the word "facility" has been hereby show us to emphasis the point that it is the unit which requires approval of the prescribed authority under this provision. Further, in the memorand....
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....n the case of Nirmal Industries Control Private Limited vs ACIT: ITA No. 4488/Mum/2019 cited by the Learned Authorised Representative for Assessee. Therefore, the contention raised by the Revenue that weighted deduction for R&D Expenses should not be allowed under Section 35(2AB) of the Act since the expenses are not approved by DSIR is rejected. 12. We note that the deduction for Quality Control/Testing Expenses under Section 35(2AB) of the Act was restricted to 100% by the Assessing Officer solely on the ground that the aforesaid expenses were not approved by DSIR. The CIT(A) overturned the decision of the Assessing Officer on this issue and allowed the claim of the Assessee for weighted deduction at the rate of 200% under Section 35(2AB) of the Act. We note that the above decision of the Tribunal in the case of Crompton Greaves Ltd. (supra) has also been followed by the Mumbai Bench of the Tribunal in the case of Laxmi Organic Industries Ltd. v. DCIT [ITA No. 38/Mum/2020] cited by the Learned Authorised Representative for Assessee. In view of the aforesaid and our findings in paragraph 11 above , we do not find any infirmity in the order passed by the CIT(A) in allowing weigh....
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....n'ble Gujarat High Court in the case of CIT Vs Cadila Healthcare 263 CTR 686. The decision of the Tribunal for A.Y. 2007-08 is dt. 4.7.2012 and the decision of the Hon'ble Gujarat High Court is dt. 20.3.2013. Thus it is clear that the decision of the Hon'ble Gujarat High Court was not before the Tribunal when it was deciding this issue. The Hon'ble High Court explained the explanation to Sec. 35(2AB)(1) as under: "Explanation - For the purposes of this clause, "expenditure on scientific research" in relation to drugs and pharmaceuticals, shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under any Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970 (39 of 1970)." Such explanation thus provides that for the purpose of said clause, i.e. clause (1) of section 35(2AB), expenditure on scientific research in relation to drugs and pharmaceuticals shall include expenditure incurred on clinical drug trial, obtaining approval from any regulatory authority under the Central, State or Provincial Act and filing an application for a patent under the Patents Act, 1970. The whole idea ....
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....he Special Bench even though it is from the Jurisdictional Bench of the Tribunal on the basis of the view that the High Court is above the Tribunal in the judicial hierarchy. The Tribunal further observed that this simple view is subject to some exceptions. It can work efficiently when there is only one judgement of a High Court on the issue and no contrary view has been expressed by any other High Court." 3.4. Before us, the decision of the Tribunal in assessee's own case is against the assessee but as pointed out elsewhere the decision of the Hon'ble Gujarat High Court was pronounced later on and therefore the Tribunal did not have the benefit of the decision of the Hon'ble Gujarat High Court. Now that we have the benefit of the decision of the Hon'ble Gujarat High Court as mentioned hereinabove, we are following the decision of the Hon'ble Gujarat High Court and accordingly we set aside the findings of the Ld. CIT(A) and direct the AO to allow the claim of weighted deduction u/s. 35(2AB) in respect of clinical trials as claimed by the assessee. Ground No. 1 is accordingly allowed." 14. Respectfully following the decision of the co-ordinate Bench of the Tribunal in th....
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....n to interfere with the order passed by the CIT(A) allowing weighted deduction at the rate of 200% in respect of Consultancy Fee Expenses of INR.74,19,078/-. 17. In view of the above Ground No.1, 2 and 3 raised by the Revenue are dismissed. Ground No. 4 to 7 18. Ground No. 4 to 7 raised by the Revenue are directed against the order of CIT(A) allowing the claim of the Assessee, raised by way of additional ground in appeal before CIT(A), for deduction of R&D Expenses on 'gross basis' without netting off the income from sale of R&D products and assets. We note that the CIT(A) accepted the aforesaid claim of the Assessee by relying upon the common order, dated 05.03.2021, passed by the Tribunal in the case of the Assessee for the Assessment Years 2010-11 and 2011-12 (ITA No. 4845, 4914, 4816 & 4915/Mum/2017) wherein allowing the additional ground raised by the Assessee, as is the case in the present appeal, it was held by the Tribunal as under: "10. In view of the rectification order ..... The assessee has earned income from sale of products emanating from R & D work amounting to Rs.33,84,325/- and sale of R&D assets amounting to Rs.1,34,227/-. It had filed a....
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....y be allowed. 12. On the other hand, the Ld. DR relies on the order of the AO and submits that in its claim statement with DSIR, the assessee has claimed similar amount as reflected in Tax Audit Report and as claimed in the return of income. Despite these facts, DSIR has restricted the claim to the extent of amount certified and reported in the annual report. It is stated that in absence of any details/clarification on the DSIR certificate, it needs to be considered that DSIR has intentionally not allowed such expenses and assessee would need to refer the matter back to DSIR for the purpose of certifying the claim of the said difference amount as claimed by the assessee. Thus it is stated that the AO has rightly not allowed the claim of the assessee for weighted deduction u/s 35(2AB) in respect of Rs.1.41 lacs towards market research related activities and interest and Rs.2,52,85,664/- on foreign consultancy charges and correctly restricted to 100% only u/s 35(1)(i) and 35(1)(iv) as against 150% claimed by the assessee. Thus it is stated that the AO has correctly disallowed the excess claim of deduction of Rs.1,27,13,332/- for which there is no approval of the specified au....
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....he documents filed in the paper book. As we have already seen, the assessee carries on scientific research. It is in the business of manufacture of drugs and pharmaceuticals. It incurred expenditure on scientific research and the quantum of such expenditure on scientific research, which is a sum of Rs. 7,80,52,805, is not in dispute. The weighted deduction under section 35(2AB) at 150 per cent. was claimed by the assessee at a sum of Rs. 12,57,00,920. What is now to be examined is the guidelines of the Department of Scientific and Industries Research, which the prescribed authority under section 35(2AB)(3) and (4) of the Act, has to follow before granting approval of the scientific research carried out by the assessee as eligible for deduction under section 35(2AB). A copy of the guidelines of the Department of Scientific and Industries Research is at pages 27 to 33 of the assessee's paper book. Guideline 5(vii) is relevant for the present case and it reads as follows : "(vii) Assets acquired and products, if any emanating out of research and development work done in approved facility, shall not be disposed off without approval of the Secretary, DSIR. Sales realisation....
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.... also examine as to what is the exact nature of receipts from sale of products."(Emphasis Supplied) 21. On perusal of the above, it is clear that in the case of Mircolabs Ltd.(supra) the Tribunal has concluded that only sales realisation arising out of the assets sold that should be offset against research and development expenditure, whereas sale realization arising out of the research and development products sold need not be reduced from the research and development expenditure. Similarly, we note that in the case of Wockhardt Ltd. (supra) also the Tribunal has held that income of INR 6.45 Crores earned by the Assessee in that case in respect of clinical research project should not be reduced from the research and development expenditure while computing weighted deduction under Section 35(2AB) of the Act. In the appeal pertaining to the Assessee for the Assessment Year 2008-09 and 2009-10 disposed of by way of common order dated 20.02.2015, the Tribunal had remanded matter back to the file of Assessing Officer with the direction to verify and allowed the claim of the Assessee in light of the decision of the Tribunal in the case of Wockhardt Ltd. (supra). During the course of ....
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.... by the Revenue in the present appeal were identical to the grounds raised in appeal for the Assessment Year 2014-15. Given the identical factual matrix, our findings on grounds raised in appeal for Assessment Year 2014-15 shall apply mutatis mutandis to the corresponding grounds raised in appeal for the Assessment Year 2015-16. 25. Accordingly, Ground No. 1 to 3 raised by the Revenue are dismissed in view of our findings in paragraph 11,12,14,16 and 17 above. Ground No. 4 to 7 raised by the Revenue are partly allowed in view of our findings in paragraph 21 and 22 above. Ground No. 9 raised by the Revenue is allowed in view of our findings in paragraph 23 above. 26. Now we would take up Ground No. 8 raised by the Revenue which read as under: "8. On the facts and circumstances of the case, whether the Ld. CIT(A) is justified in allowing surcharge and cess for MAT credit computation, relying on an ITAT order passed in violation of judicial discipline by ignoring an earlier decision of a coordinate bench rendered in the case of Richa Global Exports Private Limited vs ACIT (CPC) in ITA No. 2303/Del/2012". 27. The Assessing Officer determined gross tax liability of INR....
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....o be reckoned for calculating the MAT credit u/s 115JAA of the Act. We also find that the Hon'ble Apex Court had in the case referred to supra, had held that meaning of word 'surcharge' is nothing but an 'additional tax'. In our considered opinion, this understanding of surcharge and cess being included as part of the tax gets further sanctified by the amendment which has been brought in Section 234B of the Act in Explanation 1 Clause 5 while defining the expression 'assessed tax'." (Emphasis Supplied) 30. Similarly, the Mumbai Bench of the Tribunal has, in the case of M/s. Savita Oil Technologies Ltd., v. ACIT (ITA No. 3066/Mum/2015, dated 07.02.2017) held as under: "4. We have gone through the facts of this case. We have been called upon to decide in this case the correct manner of computing tax liability and also amount of credit available u/s 115JA keeping in view levy of surcharge and education cess in the process. We have examined the entire scheme of the Act containing provisions with regard to payment of MAT u/s 115JB as well as availability of credit available u/s 115JAA. It is noted that it was held by the Hon'ble Allahabad High Court in the case of CIT vs Vac....
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.... Rs. 29,430,939 Tax payable after credit under section 115JAA Rs. 342,011,311 During the course of hearing, the Ld. DR also fairly submitted that it would be a correct method of computing tax liability and credit available u/s 115JAA. It is noted from the above working that first of all tax amount has been computed on the total income of the assessee. Thereafter surcharge and education cess has been worked out upon the tax liability. Then, from the gross amount so arrived at, the amount of credit available u/s 115JB on account of income-tax, surcharge and education cess (all combined together) have been deducted and accordingly, net tax payable after setting off credit available u/s 115JB has been worked out. In our view, this is the correct method of computing tax liability as well as credit available u/s 115JAA. Accordingly, we direct the AO to verify the facts as have been given in the aforesaid working and compute the tax liability accordingly and allow the necessary relief to the assessee." (Emphasis Supplied) 31. Further, we note that in the case of Tata Motors Limited (supra) the Mumbai Bench of the Tribunal....