DCIT -CC-5(2) , MUMBAI V. M/S. USV PVT. LTD, MUMBAI

ITA 2575/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9408 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Department
• Order Result: PartlyAllowed
• Bench Allotted: F
• Assessment Year: 2014-2015
• Appeal Filed On: 30-12-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Rectification of order; Retrospective amendment
• Section: 154; 143(3); 115JB; 37(1); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL "F" BENCH, MUMBAI SHRI M. BALAGANESH, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER ITA No. 2575/MUM/2021 (Assessment Year: 2014-15) & ITA No. 2576/MUM/2021 (Assessment Year: 2015-16) DCIT-CC 5(2), Central Range-5, Room No. 1908, Air India Building, Nariman Point, Mumbai - 400021 M/s USV Private Limited, Arvind Vithal Chowk, Govandi, Mumbai - 400088 [PAN: AAACU1366N] ................ Vs ................ Appellant RRespondentt Appearances For the Appellant/Department For the Respondent/Assessee : : Shri Achal Sharma Shri Paras Savla and Shri Pratik Podar Date of conclusion of hearing Date of pronouncement of order : : 09.06.2022 07.09.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. These are two appeals filed by the Revenue arising from the order of the Learned Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as ̳the CIT(A)‘], for the Assessment Years 2014-15 and 2015-16. The appeals were heard together as they involved identical issues and are, therefore, being disposed of by way of common order. Though the appeals were filed after the expiry of period of 60 days prescribed in Section 253(3) of the Act, the same are being treated as being filed within limitation as the appeals have been filed within the extended time allowed by ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 2 the Hon‘ble Supreme Court vide order, dated 23.03.2020 and 27.04.2021 passed in the Suo Motu 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 incurred by the assessee on foreign consultancy obtained from outside the R&D facility. 3 On the facts and in circumstances of the case, the Ld CIT (A) erred in facts and law in allowing the appeal of the assessee after relying on the decision in the case of M/s Cadila Healthcare Ltd which has not been accepted by the revenue and SLP already been filed and admitted vide SLP(Civil) 770 of 2015. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 3 4 On the facts and circumstances of the case and in law, whether the Ld CIT(A) is justified in holding that gross expenditure with no netting off with income should be allowed as deduction under section 35(2AB), ignoring the nature of the income. 5 On the facts and circumstances of the case and in law, whether the Ld CIT(A) is justified in holding that gross expenditure with no netting off with income should be allowed as deduction under section 35(2AB), ignoring the relevant findings of fact establishing that the income was not from the research and development activity. 6 On the facts and circumstances of the case and in law, whether the Ld CIT(A) is justified in holding that the gross expenditure should be allowed u/s 35(2AB) just because the issue was restored back to the file of the assessing officer in an earlier year, and no appeal was filed against the same, ignoring the fact that the direction to the assessing officer was for verification of claim and not for allowing of the claim on gross expenditure basis. 7 On the facts and in circumstances of the case, the Ld. CIT (A) erred in facts and law in allowing the claim of netting off income of R&D center against the expenses, without considering the fact that, the assessee didn't claim netting off of income of R&D center in his return of income and claimed it during the course of assessment proceedings against the expenditure which was not approved by the DSIR and incurred by the assessee on foreign patent filing fees and clinical trials, etc conducted outside the R&D facility. 8 On the facts and in circumstances of the case, the Ld CIT(A) is correct in allowing the deduction claimed by the assessee on account of education cess ignoring the fact that education cess is nothing but additional surcharge which falls within section 40(a)(ii) of the Act. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 4 9 The appellant craves to leave, to add, to addend and/or to alter any of the ground of appeal, if need be.‖ 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. Particulars Amount (INR) 1 Clinical Trials 28,37,55,000 2. Foreign Consultancy 1,07,30,000 3. Difference in research & development expenses not reflected in the annual report 41,05,000/- 4. Security Charges 25,19,000 5. QC/Testing /Entertainment 2,54,58,000 6. Contract Labour Charges 1,40,16,000 Total 34,05,83,000 ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 5 6. Being aggrieved, the Assessee carried the issue in appeal before CIT(A). Vide order, dated 29.01.2021, the CIT(A) allowed weighted deduction at the rate of 200% under Section 35(2AB) of the Act for Clinical Trial Expenses (INR 16,69,10,209/-) , Consultancy Fee (INR 74,19,078/-), and Quality Control/Testing Expenses (INR 2,54,29,652/-). The CIT(A) also allowed the additional ground raised by the Assessee and allowed deduction in respect of R&D Expenses on gross basis without netting of the income earned from sale of R&D products and assets. Further, the CIT(A) also allowed deduction for education cess paid by the Assessee under Section 37(1) of the Act. 7. Being aggrieved, the Revenue is in appeal before us challenging the order passed by the CIT(A) granting the above relief to the Assessee on the grounds specified in paragraph 3 above. 8. The Learned Departmental Representative appearing before us relied upon the order passed by the Assessing Officer whereas the Learned Authorised Representative for Assessee supported the order passed by the CIT(A). We have considered the rival submission and perused the material on record including the judicial pronouncements referred to and relied upon by both the sides during the course of the hearing. Ground No. 1 to 3 9. By way of Ground No. 1 the Revenue has challenged the order of CIT(A) allowing weighted deduction at the rate of 200% under Section 35(2AB) of the Act for Clinical Trial Expenses (INR.16,69,10,209/-) and Quality Control/Testing Expenses (INR.2,54,29,652/-) raising the contention that weighted deduction ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 6 at the rate of 200% should not have been allowed by the CIT(A) in respect of the aforesaid expenses under Section 35(2AB) of the Act as, firstly, the aforesaid expenses were not approved by DSIR and, secondly, the same have been incurred outside the R&D facilities. We note that both the aforesaid contentions raised by the Revenue have been considered and rejected by the Tribunal and/or Hon‘ble High Court 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 memorandum, explaining the provision of section and the notes on the clauses issued at the time of insertion of section 35(2AB) in the Act, copies of both of which have been filed on record before us by the assessee, it has been clearly provided that the deduction would be available to the assessee's having an approved in- ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 7 house R&D facility by the prescribed authority. Undisputedly, there is no mention or approval of the quantum of expenditure. xxx xxx 12. It would also be apt to reproduce here-under the provisions substituted in clause (b) of sub rule (7A) of Rule 6, as brought in by the amendment effective from 01.07.2016 as above: "The prescribed authority shall furnish electronically its report,- (i) in relation to the approval of the in-house research and development facility in Part A of Room No. 3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Income Tax Act, 1961 in Part B of Form No. 3CL." 13. Hitherto, the provision was as follows: "The prescribed authority shall submit its report in relation to the approval of in- house facility and development facility in Form No. 3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval." The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this mandate has been put in place. 14. The year under consideration is A.Y. 2009-10 and, for this year, the amendment was not applicable. Therefore, the assessee is right in contending that the non approval of the expenditure claimed by CSIR did not entitle the A.O. to make the disallowance and the ld. CIT(A) to confirm the same.‖ (Emphasis Supplied) 11. Following the above decision of the Tribunal, the CIT(A) concluded that for the relevant assessment year for allowing weighted deduction under Section 35(2AB) of the Act the requirement was that the in-house R&D facility should be approved by DSIR. As held by the Tribunal, prior to 01.07.2016 there was no requirement that the quantum of expenditure should also be approved by DSIR. We ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 8 note that the decision of CIT(A) is in conformity with the order of the Tribunal in 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 weighted deduction at the rate of 200% in respect of Quality Control/Testing Expenses of INR.2,54,29,652/-. Therefore, the challenge of the Revenue to the order of the CIT(A) on this issue is rejected. 13. As regards Clinical Trial Expenses, we note that the Assessing Officer had denied weighted deduction in respect of the same for the reason that the same were not approved by DSIR and also for the reason that the Clinical Trial Expenses were incurred outside the in-house R&D Facilities. The CIT(A) had allowed the claim of the Assessee holding that since the R&D Facilities were approved there ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 9 was no requirement of expenditure being approved following the decision of the Tribunal in the case of Crompton Greaves Ltd. (supra) and therefore, in view of our findings in paragraph 11 above, we do not find any infirmity in the order passed by the CIT(A) on this count. On the issue of Clinical Trial Expenses having been incurred outside the R&D Facilities, the CIT(A) concluded that the weighted deduction for Clinical Trial Expenses is to be allowed under Section 35(2AB) of the Act even if the same have been incurred outside the R&D Facility by following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2008- 09 (ITA No.4248/Mum/2013) and 2009-10 (ITA No. 6747/Mum/2012) wherein the Tribunal had allowed weighted deduction for Clinical Trial Expenses incurred outside R&D Facilities under Section 35(2AB) of the Act by following the judgment of the of Hon‘ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd.: 263 CTR 686 (Gujarat) (20.03.2013). The relevant extract of the aforesaid decision of the Tribunal reads as under: ―3. The first grievance relates to the non allowance of weighted deduction @ 150% u/s. 35(2AB) on expenses of Rs. 10,77,95,285/- incurred on clinical trial. 3.1. An identical issue was also there in assessment years 2006-07 and 2007-08 wherein similar additions have been made. The matter travelled upto the Tribunal and the Tribunal in ITA Nos. 4517 & 5582 for A.Y. 2007-08 and has decided this issue against the assessee and in favour of the Revenue. The Ld. CIT(A) has confirmed the findings of the AO following the order of the Tribunal. 3.2. Before us, the Ld. Counsel for the assessee stated that now this issue has been decided in favour of the assessee and against the revenue by the Hon‘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 ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 10 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 thus appears to be to give encouragement to scientific research. By the very nature of things, clinical trials may not always be possible to be conducted in closed laboratory or in similar in-house facility provided by the assessee and approved by the prescribed authority. Before a pharmaceutical drug could be put in the market, the regulatory authorities would insist on strict tests and research on all possible aspects, such as possible reactions, effect of the drug and so on. Extensive clinical trials, therefore, would be an intrinsic part of development of any such new pharmaceutical drug. It cannot be imagined that such clinical trial can be carried out only in the laboratory of the pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-house research and development facility, we would on one hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making the explanation noted above quite meaningless. We have noticed that for the purpose of the said clause in relation to drug and pharmaceuticals, the expenditure on scientific research has to include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation.‖ ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 11 3.3. Now we are confronted with a situation where on the one hand there are decisions of the Tribunal which are in favour of the Revenue and against the assessee and on the other hand we have a decision of the Hon‘ble High Court which is in favour of the assessee and against the Revenue. Which decision should get precedence? The answer lies in the decision of the Tribunal Ahmedabad Bench in the case of Kanel Oil & Export Inds. Ltd. Vs JCIT 121 ITD 596 wherein the Tribunal has held as under: ―A simple answer would be that the judgement of a High Court, though not of the Jurisdictional High Court, prevails over an order of the 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 the case of the Assessee for the Assessment Year 2008- 09 and 2009-10, we refrain to interfere with the order passed by CIT(A) allowing weighted deduction at the rate of 200% in respect of Clinical Trial Expenses of INR.16,69,10,209/-. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 12 15. The Assessing Officer had restricted the deduction claimed by the Assessee under Section 35(2AB) of the Act to 100% of expenses in respect of Consultancy Fee Expenses (INR 74,19,078/-) incurred by the Assessee. The CIT(A) allowed the claim of the Assessee for weighted deduction at the rate of 200% under Section 35(2AB) of the Act by following the decision of the Tribunal in the case of the Assessee for the Assessment Years 2007-08 (ITA No. 4517 & 5582/Mum/2010, dated 04.07.2012), and the decision of the Tribunal in appeals in the case of the Assessee for the Assessment Years 2008-09 and 2009-10 (common order, dated 25.02.2015). The relevant extract of the aforesaid common order, dated 25.02.2015, disposing appeals for the Assessment Year 2008-9 & 2009-10 reads as under: ―4. Ground No. 2 relates to the non allowance of weighted deduction in respect of (a) consultancy fees (b) patent fees as per patent Act and PCT and (c) patent filing fees not as per patent Act. In so far as the claim of weighted deduction in respect of consultancy fees and patent filing fees as per patent Act are concerned, the Tribunal has considered this issue in A.Y. 2007-08 vide ITA No. 4517 & 5582/M/2010. The Tribunal has considered this issue at para 33 of its order and at para-34 allowed the claim. As no distinguishing facts have been brought on record, respectfully following the decision of the Co-ordinate Bench, weighted deduction on consultancy fees and patent filing fees as per patent Act are directed to be allowed. 4.1. In so far as patent filing fees which is not according to the patent Act and PCT, we find that the same is allowable as per the decision of the Hon‘ble Gujarat High Court in the case of Cadila Healthcare (supra). Respectfully following the findings of the Hon‘ble Gujarat High Court, we direct the AO to allow the claim of weighted deduction on patent filing fees which is not as per patent Act and PCT. Ground No. 2 is accordingly allowed.‖(Emphasis Supplied) ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 13 16. In view of the above and respectfully following the decision of the Tribunal in the case of the Assessee for the preceding assessment years, we refrain 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 additional ground before the Ld. CIT(A) on weighted deduction u/s 35(2AB) stating that relief be granted for gross expenditure without netting off income from sale of products emanating from R&D work of Rs.33,84,325/- and sale of R&D assets of Rs.1,34,227/-. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 14 The Ld. CIT(A) disallowed the claim of not netting off the receipts of Rs.33,84,325/- on the basis that no evidence was furnished in respect of the nature of income. Placing reliance on the order of the Tribunal in the case of Microlabs Ltd. (2015) 62 taxmann.com 60 (Bang-Trib.), later on approved by the Karnataka High Court, he rejected the claim of not netting off receipts on sale of R&D assets of Rs.1,34,227/-. 11. Before us, the Ld. counsel submits that the assessee had undertaken sale of scrap of certain plant & machinery, office equipment and furniture of the R&D unit during the year under consideration amounting to Rs.1,34,227/- which were no longer required by the unit. Further, it had also earned certain income amounting to Rs.33,84,325/- on sale of products from R&D unit to assessee‘s viable customers (business development) for their further analysis testing to make sure if assessee‘s product emanating from the R&D meets their requirement or not. Based on their analysis and testing, customers sometimes choose to enter into contracts with the assessee for further commercial sale of larger batch sizes. Such income is recorded under this head. It is submitted by the Ld. counsel that the same issue was adjudicated upon by the Tribunal in assessee‘s own case for AY 2008-09 and AY 2009-10. Based upon an assessment of all facts, the Tribunal in Para 9 of the order has restored back the matter to the AO for statistical purposes. The Tribunal held as under : ―The AO is directed to verify the claim of the assessee and allow the same after verification in the light of the decision of the Tribunal in the case of ACIT v. Wockhardt Ltd. in ITA No. 71/M/07. The additional grounds are treated as allowed for statistical purpose.‖ Pursuant to the direction of the Tribunal, the order giving effect for AY 2008-09 and AY 2009-10 was passed. After, the directions provided by the ITAT, the Department has not preferred an appeal before the High Court. Thus it is stated that in view of the finality of the issue, the assessee‘s appeal for allowing expenditure on gross basis may be allowed. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 15 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 authority. 13. We have heard the rival submissions and perused the relevant materials on record. In the case of Microlabs Ltd. (supra), the Tribunal has held that where the assessee-company engaged in the business of pharmaceuticals received ̳product development charges‘ which were credited the profit and loss account as a part of normal sales, same was not to be reduced from expenditure incurred by the assessee on carrying out scientific research on which section 35(2AB) deduction had to be allowed. The Tribunal held as under : ―In respect of sale of products acquired emanating out of research and development work done in an approved facility, the sale proceeds need not be reduced from the research and development expenditure. In our view, the reason for not including sales realization arising out of products emanating out of research and development work done and sold is because such sales would be reflected as receipts by the assessee in its books of accounts and income from business would be computed treating such sale as part of business receipts.‖ As mentioned earlier, the same issue was adjudicated upon by the Tribunal in assessee‘s own case for AY 2008-09 and AY 2009-10. The ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 16 Tribunal in para 9 of the order has restored back the matter to the AO for statistical purposes. Pursuant to the direction of the Tribunal, the AO passed order giving effect for the above assessment years. After the directions provided by the Tribunal, the Department has not preferred an appeal before the High Court. Thus the issue having attained finality in assessee‘s own case, we direct the AO to allow expenditure on gross basis. We make it clear that this finding is specific to the present appeal only. Thus the 4th and 7th grounds of appeal are allowed.‖ (Emphasis Supplied) 19. On perusal of above decision of the Tribunal, it is clear that the Tribunal has decided the issue in favour of the Assessee after taking into consideration the decision of the Tribunal in the case of ACIT Vs. Wockhardt Ltd : ITA No. 71/Mum/2007 and in the case of DCIT, LTU Vs Microlabs Ltd.: [2015] 62 taxmann.com 60 (Bangalore - Trib.). 20. We note that the Tribunal has in the case of DCIT, LTU vs. Mircolabs Ltd. has held as under: ―12. We have heard the submissions of the learned Departmental representative and learned counsel for the assessee and also perused the 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 ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 17 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 arising out of the assets sold shall be offset against the research and development expenditure of the research and development centre claimed under section 35(2AB) for the year in which such sales realisation accrues under section 35(2AB) of the Income-tax Act, 1961. Expenditure claimed for deduction under the sub-section shall be reduced to that extent." 13. The Commissioner of Income-tax (Appeals) in his order passed under section 154 of the Act has not quoted the first sentence of the guideline 5(vii) (given above in bold letters), which in our opinion, is very material. The above guideline only means that in the process of carrying out the research and development work, if the assessee acquires any assets or products that should not be disposed of without the approval of Secretary, Department of Scientific and Industrial Research. If such assets are sold, the sales realisation arising therefrom are to be set off against the research and development expenditure of the research and development centre which is claimed as deduction under section 35(2AB). It is evident from the above guideline that it is only sales realisation arising out of the assets sold that should be offset against research and development expenditure. In respect of sale of products acquired emanating out of research and development work done in an approved facility, the sale proceeds need not be reduced from the research and development expenditure. In our view, the reason for not including sales realisation arising out of products emanating out of research and development work done and sold is because such sales would be reflected as receipts by the assessee in its books of account and income from business would be computed treating such sale as part of business receipts. The receipts arising out of sale of products will not go to reduce the expenditure on research and development, whereas the assets acquired in the process of carrying out the research and development if they are sold, such sales realisation would go to reduce the expenditure on scientific research and that is why sales realisation arising out of assets sold is required to be offset against research and development expenditure. The ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 18 above explanation will be sufficient to hold that the order passed by the Commissioner of Income-tax (Appeals) under section 154 of the Act is unsustainable. Nevertheless, we will 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 hearing the Learned Departmental Representative had contended that the issue be remanded back to the file of the Assessing Officer for verification in view of the decision of the Tribunal in the case of Bosch Ltd. Vs ACIT, LTU, Banglore: (2016) 74 Taxmann.com 161 (Banglore – Trib). We note that in that case the remand to the assessing officer was for determining whether the receipts reduced by the assessee were in the nature of reimbursement of expenses. However, in the present appeal it is admitted position sale proceeds of INR 9,22,898/- arising from sale of R&D products and sale proceeds of ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 19 INR 14,32,019/- arising from sale of R&D assets have been realized during the relevant previous year. Accordingly, we hold that CIT(A) was justified in holding that sale proceeds of INR 9,22,898/- pertaining to sale of R&D products would not be reduced from R&D expenses while computing weighted deduction under Section 35(2AB) of the Act. However, in view of the decision of the Tribunal in the case of Microlab (supra) the sale proceeds arising from sale of assets would have to be reduced from research and development expenses while computing weighted deduction under Section 35(2AB) of the Act. The aforesaid view also draws support from the decision of Mumbai Bench of the Tribunal in the case of M/s. Centaur Pharmaceuticals Pvt. Vs. ITO: ITA No. 7401/Mum/2019 (04.08.2022). 22. In view of the above, Ground No. 4 to 7 raised by the Revenue are partly allowed. Ground No. 8 23. Ground No. 8 raised by the Revenue is directed against the order of CIT(A) allowing deduction for Education Cess under Section 37(1) of the Act. We note that by way of Finance Act 2022 Explanation 3 has been inserted in Section 40(a)(ii) of the Act with retrospective effect from 01.04.2005 which clearly provides that the term ̳tax‘ includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Therefore, in view of the same no deduction is allowable in respect of Education Cess for the Assessment Year 2014-15 in terms of Section 40(a)(ii) of the Act read with Explanation 3 thereto. Accordingly, Ground No. 8 raised by the Revenue is allowed. ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 20 ITA No. 2576/Mum/2021 (Assessment Year 2015-16) 24. Both the sides agreed that except for Ground No. 8 raised by the Revenue in the appeal for the Assessment Year 2015-16 all the other grounds raised 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 123,12,16,158/- under normal provisions and gross tax of INR 1,04,58,19,717/- under Minimum Alternative Tax(MAT) provision contained in Section 115JB of the Act. Assessing Officer restricted the MAT Credit granted to the Assessee under Section 115JAA of the Act to INR 18,53,96,441/- being difference between the gross tax ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 21 under normal provisions (INR 1,23,12,16,158) and gross tax under MAT provision (INR 1,04,58,19,717) by excluding surcharge and education cess. The CIT(A) allowed appeal of the Assessee on this issue and held that for computing MAT Credit in terms of Section 115JAA of the Act surcharge and cess would have to be included. Being aggrieved the Revenue in now in appeal before us. 28. The Learned Departmental Representative appearing before us relied upon the decision in the case of Richa Global Exports Pvt. Ltd. vs ACIT: [2012] 54 SOT 185 (Delhi), whereas the Ld. Authorised Representative for the Appellant relied upon the following decision - Consolidated securities Limited vs. ACIT [2018] 96 taxmann.com 418 (Delhi-Trib.), Bhagwati Oxygen Ltd. vs. ACIT [ITA No. 240/Kol/2016], Netmagic IT Services Pvt. Ltd. vs. DCIT [ITA No. 5346/Mum/2017], and Tata Motors Ltd. vs. DCIT [ITA No. 2397/Mum/2019]. 29. Having considered the rival submission and having perused the judicial precedents relied upon by both the sides, we find that Kolkata Bench of the Tribunal has, in the case of Bhagwati Oxygen Ltd. vs. ACIT [ITA No. 240/Kol/2016, dated 15.11.2017], has decided the issue in favour of the Assessee holding as under: ―8. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the issue under dispute has been addressed against the assessee by the decision of Delhi Tribunal in the case of Richa Global Exports Pvt. Ltd. reported in 25 taxmann. com 1 (Del). We find that the issue under dispute is covered in favour of the assessee by the Co-ordinate Bench of Hyderabad Tribunal relied upon by the Ld. AR (supra). We find that Hyderabad Tribunal after considering the decision of Delhi Tribunal (supra) and after considering the decision of the Apex Court in the case of CIT vs. K. Srinivasan reported in 83 ITR 346 (SC) had held ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 22 that tax includes surcharge and cess and accordingly the entire component of taxes including surcharge and cess shall have to 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 Vacment India, (supra) that methodology of computation of tax liability and granting credit of MAT should be similar to the methodology provided in the prescribed form of filing of income-tax return i.e. ITR-6. But subsequently, Hon‘ble Calcutta High Court in the case of M/s Srei Infrastructure Finance Ltd, supra examined this issue in detail and held that computation of tax liability and setting off of tax credit available should be done in accordance with law and not on the basis of ̳inappropriate‘ form prescribed under the rules inadvertently. It is noted that Hon‘ble Calcutta High Court has held that for the purpose of section 115JB, surcharge and cess are part of income-tax payable in accordance with provisions of section 115JB. Therefore, when the tax is paid u/s 115JB along with surcharge and cess, then entire amount would be considered for carry forward of the credit available u/s 115JAA and accordingly the entire amount would be available for the benefit of set off in the subsequent years from the amount of gross tax payable by the assessee. During the course of hearing ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 23 before us, Ld. Counsel submitted before us three types of work sheets wherein tax payable after setting off amount of credit available u/s 115JAA was worked out in three different methods. We find that the following working shows the appropriate method of computing tax liability and setting off amount of credit available u/s 115JAA:- COMPUTATION OF TAX LIABILITY ON TOTAL INCOME AS PER INCOME TAX ACT, 1961 1 Total Income Rs. 1,093,157,260 2 Tax Payable on total income a Tax at normal rates Rs. 327,839,585 b Tax at special rates - c Tax payable on total income Rs. 327,839,585 3 Surcharge on 2c Rs. 32,783,959 4 Education cess on (2c+3) Rs. 10,818,706 5 Credit under section 115JAA of tax paid in earlier years a Income-tax Rs. 25,976,115 b Surcharge Rs. 2,597,612 c Education Cess on (5a + 5b) Rs. 857,212 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) ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 24 31. Further, we note that in the case of Tata Motors Limited (supra) the Mumbai Bench of the Tribunal, after taking into consideration the above decisions of the Tribunal as well as the decision of Delhi Bench of the Tribunal in Richa Global Exports Pvt. Ltd (supra) cited by the Learned Departmental Representative, has held as under: ―10. On a perusal of the order of the Ld.CIT(A) we noticed that Ld.CIT(A) denied claim of the assessee for the reason that there is a contrary view taken by the Delhi Tribunal in the case of Richa Global [54 SOT 185] and therefore the issue is debatable. We observed that this decision of the Delhi Bench of the Tribunal was rendered for A.Y. 2010-11. However, in the case on hand the assessment year involved is A.Y. 2014-15 and this decision of the Delhi Bench of the Tribunal is not applicable to the facts of the assessee‘s case for the reason that the Format of ITR-6 prior to A.Y. 2012-13 was designed in such a manner that the tax liabilities in Part B-TTI (i.e. Total taxable income) both under normal provisions and under MAT provisions was computed without surcharge and cess and on the net amount (i.e. after grant of MAT credit) surcharge and cess was levied. We noticed that the Format ITR–6 was amended from A.Y. 2012-13 wherein the tax liability in Part-B –TTI both under normal provisions and under MAT provisions computed including surcharge and cess. MAT credit is computed automatically using the prescribed algorithm which is nothing but the balancing figure i.e. different between tax liability and MAT liability including surcharge and cess. Therefore, post A.Y. 2012-13 as the format of ITR-6 is so designed to compute MAT credit automatically using the prescribed algorithm i.e. difference between tax liability and MAT liability including surcharge and cess is a balancing figure. In our view there cannot be any debate as to the exclusion of surcharge and cess. Therefore, the observation of the Ld.CIT(A) that the issue is debatable one is not sustainable. Further, we observe that majority of the decisions including the decisions of the Hon'ble Calcutta High Court and Hon'ble Madras High Court are in favour of the assessee and therefore it cannot be said that it is a debatable issue. In the circumstances, respectfully following the above said decisions allowing the grounds of appeal of the assessee, we direct the ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 25 Assessing Officer to allow set off of MAT credit inclusive of surcharge and education cess and recompute the tax payable by the assessee for the year under consideration.‖ 32. In all the above decisions, the Tribunal has, though for somewhat different reasons, held that surcharge and education cess are to be included for determination of the amount of MAT credit in terms of Section 115JAA of the Act. Accordingly, respectfully following the above decisions of the Tribunal we refrain to interfere with the order passed by the CIT(A) on this issue. Ground No. 8 raised by the Revenue is, therefore, dismissed. 33. In result, both the appeal filed by the Revenue are partly allowed. Order pronounced on 07.09.2022. Sd/- Sd/- (M. Balaganesh) Accountant Member (Rahul Chaudhary) Judicial Member म ुंबई Mumbai; दिन ुंक Dated : 07.09.2022 Alindra, PS ITA No. 2575 & 2576/Mum/2021 Assessment Year: 2014-15 & 2015-16 26 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आिेश न स र/ BY ORDER, सत्य दपि प्रदि //True Copy// उप/सह यक पुंजीक र /(Dy./Asstt. Registrar) आयकर अपीलीय अदिकरण, म ुंबई / ITAT, Mumbai