USV P. LTD., MUMBAI V. DY CIT-C-5(2), MUMBAI

ITA 891/MUM/2021

AI Insights

The case involves cross appeals by M/s. USV Private Limited and the DCIT, Central Circle-5(2), against the order of the Learned Commissioner of Income Tax (Appeals)-53, Mumbai, which partly sustained the action of the Assessing Officer for the Assessment Year 2018-19. The primary issues revolved around the disallowance of sales and marketing expenses, weighted deductions under section 35(2AB) of the Income Tax Act, and the computation of MAT credit. The Tribunal examined various legal precedents and the specific circumstances of the expenses claimed by the assessee, leading to a decision that favored the assessee on most counts, particularly regarding the nature of the expenses and their relevance to the R&D activities of the company.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123539 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 16-04-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 23-05-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Retrospective amendment; Question of law; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 5(2); 153A; 234B; 37(1); 80IC; 208; 113; 80IC; 43; 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS. KAVITHA RAJAGOPAL, HON’BLE JUDICIAL MEMBER ITA NO. 891/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Arvind Vitthal Gandhi Chowk Govandi (East), Mumbai- 400088 PAN: AAACU1366N v. DCIT, Central Circle- 5(2) 1908, 19 th Floor Air India Building Nariman Point, Mumbai- 400021 (Appellant) (Respondent) ITA NO. 2573/MUM/2021 (A.Y: 2018-19) DCIT, Central Circle- 5(2) 1908, 19 th Floor Air India Building, Nariman Point Mumbai- 400021 v. M/s. USV Private Limited Arvind Vitthal Gandhi Chowk Govandi (East), Mumbai- 400088 PAN: AAACU1366N (Appellant) (Respondent) Assessee Represented by : Shri Rahul Hakani Department Represented by : Shri. Ankush Kapoor Date of conclusion of Hearing : 17.04.2023 Dated of Pronouncement : 20.06.2023 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 2 O R D E R PER S. RIFAUR RAHMAN (AM) 1. These appeals are cross appeals filed by the assessee and revenue against order of Learned Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 31.03.2021 for the A.Y.2018-19 in partly sustaining the action of the Assessing Officer. 2. Brief facts of the case are, Assessee is a leading health care company engaged in the business of research, development, manufacture, marketing and sale of various drugs including branded generics, dosage forms, Active Pharmaceutical Ingredient ('API's), bio-similars and other products. A search and survey action was conducted in the case of the Assessee u/s. 132/133A of the of the Income-tax Act, 1961 (in short “Act”) on 15.11.2017. Pursuant thereto, the Assessee made a declaration of certain amount u/s. 132(4) of the Act. The Assessee, so as to avoid protracted litigation, filed a petition before the Income Tax Settlement Commission (“ITSC”), for AY 2011-12 to 2017-18 u/s. 245C of the Act requesting for settlement of its pending cases which petition has been disposed off. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 3 3. In relation to the impugned A.Y. 2018-2019, the Assessee filed its original Return of Income for AY 2018-19 on 29.11.2018, declaring a total income of ₹.714,42,91,300/- under normal provisions of the Act and tax payable under normal provisions of ₹.2,46,90,82,534/-. The case of the Assessee was selected for scrutiny. Before the Assessing Officer, Assessee had made fresh claim of set-off of brought forward losses arising out of amalgamation, and deduction of expenses of ₹.38,94,47,850/- being payment made to Continuus Pharmaceuticals Inc for scientific research. The Assessing Officer passed an assessment order u/s. 143(3) r.w.s. 153A of the Act dated 12.12.2019. As per the said order, the Assessing Officer made following additions i. Net disallowance of sales and Marketing expenses u/s 37 of the Act ₹.6,68,10,499/- (for the period 1.1.2018 to 31.3.2018) ii. Disallowance of weighted deduction u/s 35(2AB) of the Act ₹.14,06,23,314/- iii. MAT credit claim of ₹. 44,06,59,427/- out of total MAT credit claim of ₹.64,97,64,065/- was disallowed. 4. Being aggrieved, assessee preferred an appeal before Ld.CIT(A) and Ld.CIT(A) after considering the submissions of the assessee granted relief and partly allowed the appeal of the Assessee. The Ld.CIT(A) decided the issues as under: - ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 4 1) Disallowance of Sales and marketing expenses were partly allowed. 2) Disallowance of weighted deduction u/s 35(2AB) on Analysis & Testing charges Rs 3,29,50,220. Balance disallowance made by AO was reversed. 3) MAT credit as claimed by the Assessee was fully allowed. 4) Additional Ground No 1 on allowability of Education Cess was admitted and allowed. 5) Additional Ground No 2 being deduction of expenses of ₹.38,94,47,850/- being payment made to Continuus Pharmaceuticals Inc for scientific research was allowed u/s.37 with the direction that the same was to be allowed in AY 20-21 5. Aggrieved with the above order, both assessee as well as revenue are in appeal before us raising following grounds of appeal in their respective appeals: 6. Assessee has raised following grounds in its appeal: - “General 1. erred in upholding the action of the leaned AO to the extent of additions made of INR 4,30,16,821 to the total income of the Appellant. Disallowance of expenditure under section 37(1) of the Act of INR 1,00,66,601/- 2 Erred in directing to make further ad-hoc disallowance at certain percentage of sales and marketing expenses (pertaining to brand reminders, medical camps, professional fees-Medical Advisory, ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 5 market research survey and travel and accommodation relating to advisors attending conferences), over and above what was offered by the Appellant for the period of 3 months Le. 1 January 2018 to 31 March 2018 amounting to INR 1,00,66,601/- (after deduction under section 80-IC) under section 37(1) of the Act. 3. Erred in disregarding the detailed explanations and written submission of the Appellant during the course of assessment proceedings and CIT(A) proceedings on each of the expense head to justify that the said expenses were incurred wholly and exclusively for business purposes. Weighted deduction under section 35(2AB) of the Act of INR 3,29,50,220/- 4. Erred in upholding the action of the leaned AO in disallowing weighted deduction under section 35(2AB) of the Act (i.e. 150% of actual expenditure) of the analysis and testing charges being Research and Development (R&D) expenditure amounting to INR 3,29,50,220 under section 35(2AB) of the Act, thereby granting only 100% deduction. Claim for deduction of expenses incurred on scientific research 5. Erred in not allowing deduction of INR 38,94,47,850 under section 35(1)(i) of the Act for the year under consideration, in respect of payments made to Continuus Pharmaceuticals Inc. towards R&D for improvement in the existing manufacturing process of the Appellant being in the nature of scientific research. 6. Was not justified in not allowing the claim of expenditure under section 35(1X) of the Act during the year of incurring of expenditure of INR 38,94,47,850/- paid to Continuus Pharmaceuticals Inc. even after accepting that the expenditure was incurred for the purpose of R&D during the year under consideration. Allowability of set off of brought forward business losses and unabsorbed depreciation of Bharavi Laboratories Private Limited ('Bharavi Laboratories') amalgamated with the Appellant 7. The Appellant ought to have been allowed brought forward business losses and unabsorbed depreciation of Bharavi Laboratories Private Limited ('Bharavi Laboratories') which was amalgamated with the Appellant vide order 6 July 2017 of National Company Law Tribunal (NCLT), with effect from appointment date ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 6 being 1 April 2016 for set off against profits earned by the Appellant for the year under consideration. Non-adjudication of ground on interest under section 234B of the Act 8. Erred in not adjudicating grounds in respect of interest under section 234B merely by saying that the same is consequential in nature. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, may thus be granted. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the learned Hon'ble ITAT to decide this appeal according to law.” 7. Revenue has raised following grounds in its appeal: - 1. On the facts and circumstances of the case and in law. whether the Ld.CIT(A) has erred in restricting the disallowance on account of freebies to doctors to Rs. 1,00,66,601/- from Rs.6,68,10,499/- made by the assessing officer, in an adhoc manner without any reasoning and ignoring the fact that the addition was made on the basis of identical rate of disallowance on same set of facts, applied by the assessee suo-moto before the settlement commission and also, adopted by it for the major period of the year. 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. 3. 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 incurred by the assessee on clinical trials, consultancy and Proff. Fees, and Rent & repairs to building, even though the same have not been approved by DSIR 4. 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 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 7 Ltd which has not been accepted by the revenue and SLP already been filed and admitted vide SLP(Civil) 770 of 2015. 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 nature of the income. 6. 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. 7. 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. 8. 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. 9. On the facts and circumstances of the case, whether the Ld.CIT(A) is justified in allowing surcharge and cess for MAT credit computation, ignoring the clear language of the Act in section 115JB which permits only the tax paid for the computation of the MAT credit. 10. 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. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 8 11. 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. 12. On the facts and circumstances of the case and in law, whether the Ld CIT(A) is justified in admitting the additional claim of the assessee even though the same had been deliberately not claimed earlier, and therefore, not in accordance with the principles of Goezte India 157 taxman 1 and Pruthvi Brokers and Shareholders in ITA 3908/2010 (Bom). 13. On the facts and circumstances of the case and in law, whether the Ld. CIT(A) is justified in admitting the additional claim of the assessee without examining the nature or giving the opportunity to verify the same and further giving a decision for a subsequent assessment year which was not in appeal before him. 14. The appellant craves to leave to add, to amend and/ or to alter any of the ground of appeal, if need be. 8. We shall decide the issues/grounds wise of both the appeals filed by revenue as well as assessee. 9. At the outset, Ld. AR of the assessee submitted that Ground No. 2 & 3 of grounds of appeal raised by the assessee and Ground No. 1 of grounds of appeal raised by the revenue are similar which are in respect of disallowance of sales and marketing expenses u/s. 37(1) of the Act. The relevant facts of the above grounds are, the Assessee has incurred sale promotion expenses in relation to brand reminders, Medical Camp expenses, Professional fees-Medical Advisory, Market Research / Survey ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 9 and Travel & Accommodation relating to advisors attending conferences amounting to ₹.1,24,04,19,626. In respect of A.Ys. 2012-13 to 2017-18, the assessee has filed petition before the ITSC, the Assessee had stated that the aforesaid expenses incurred are purely business expenses and ought to be allowed. 10. Without prejudice to this, to avoid protracted litigation and with an intention to arrive around the amount that was offered to tax u/s 132(4) during the course of search action for AY 2012-13 to AY 2017-18, the Assessee offered such expenditure (being sales promotion expenses) for disallowance u/s. 37(1) of the Act based on estimate basis under various heads. Subsequently, the ITSC in its order dated 10.04.2019, accepted the disallowances offered by the Assessee of various expenses (being sales promotion expenses) u/s. 37(1) based on the percentages furnished by the Assessee, for the said Assessment Years (i.e. A.Y.2012-13 to 2017-18). The Assessee, while filing its return of income for A.Y.2018-19 had suo-moto disallowed expenditure u/s. 37(1) of the Act on the following basis:- • For 1 April 2017 to 31 December 2017 - Based on the percentages furnished by the Assessee during settlement proceedings before Hon'ble ITSC for AY 2012-13 to 2017-18; and ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 10 • For 1 January 2018 to 31 March 2018 - Reduced percentages, based on the disallowances under section 37(1) made by the AO and the extent to which such disallowance has been deleted by the appellate authorities in the earlier years. The same is reproduced below in the chart: Sr.N o. Particulars Amount of expenditure Suo moto disallowance made by assessee 1-4-17 to 31-12-17 1-1-18 to 31-3-18 Total Amount % applied for 14- 17 to 31-12- 17 by Assesse as per ITSC Suo-moto Disallowance by Assessee from April 17 to Dec 17 % applied for 1-1-18 to 31-3- 18 by Assessee refer note Suo Moto Disallowance by Assessee for Jan 18 to Mar 18 Total Suo Moto Disallowance by Assessee 1 Brand Reminder - below 1000 12,02,93,039 2,97,98,091 15,24,46564 10% 1,20,29,304 -- -- 1,20,29,304 Brand Reminder - above 1000 23,55,434 10% 10% 2,35,543 2,35,543 2 Medical Cam 15,7073573 109308,623 196 23561036 5% 5465431 290,26467 3 Professional Fees 18,8440187 90850827 279291014 50% 94220094 13627624 10,7847718 4 Market research/ Survey 41,91,68,334 33348981 452517315 50% 209584167 15% 5002347 214586514 5 Travel and Accommodation 56055468 3377069 89782538 60% 33633281 6745414 40378695 Total 94,1030,601 299389025 1240419627 373027881 31076360 40,4104,241 less : Deduction – 80IC Units 5.73% Net Disallowance 38,09,49,068/- 11. During the course of assessment, Assessee submitted details of the expenses along with documentary evidence which are part of the paper book filed before us. The relevant Page Nos of details of expenses and documentary evidences are submitted during the hearing. - Submission before AO dated 22/11/2019 giving details of various expenses. [Pg 78-343] ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 11 - Submission before AO dated 27/11/2019 giving sample documentary evidences. [Pg 344-751] - Submission before AO dated 2/12/2019 [Pg 752 756] and 11/12/2019 [Pg 758- - 763] justifying the suo-moto disallowance from 1/1/2018 to 31/3/2108 at lower rate as compared to 1/4/2017 to 31/12/2017.[Rel Pg 752756]. Ld. AR submitted that The AO did not find the sales and marketing expenses incurred by the Assessee to be violating any guidelines/circulars of the Medical Council of India. The AO did not find any shortcomings in the documentary evidences filed by the Assessee. However, the Assessing Officer without giving any cogent reason made following disallowance of expenses incurred during the period 1 January 2018 to 31 March 2018 to the extent of INR 6,68,10,449/- based on percentages of disallowance offered by the Assessee before the ITSC under section 37(1) of the Act for AY 2012-13 to 2017-18., The said Disallowance is as below:- Sr.No . Particulars Amount of expenditure disallowance made by Assessing Officer (refer AO order pg. 13-15) 01.01.18 to 31.03.18 % applied for 01.01.18 to 31..03.18 by AO disallowance as per AO Additional disallowance by AO 1 Brand Reminder -below 1000 2,97,98,091 10% 29,79,809 29,79,809 Brand Reminder -above 1000 23,55,434 10% 2,35,543 - 2 Medical Camp 10,93,08,623 15% 1,63,96,293 1,09,30,862 3 Professional Fees 9,08,50,827 50% 4,54,25,414 3,17,97,789 4 Market research/ Survey 3,33,48,981 50% 1,66,74,491 1,16,72,143 5 Travel and Accommodation 3,37,27,069 60% 2,02,36,241 1,34,90,828 Total 29,93,89,025 10,19,47,791 7,08,71,432 less : Deduction - 80IC 40,60,933 Net Disallowance 6,68,10,499 12. Aggrieved, assessee preferred an appeal before Ld.CIT(A) and filed Written submission dated 10/8/2020 giving nature of each expense and also explaining why different percentage of suo-moto ad-hoc disallowance was made for periods 1/4/2017 to 31/12/2017 and 1/4/2018 to 31/3/2018. It was submitted that for the period 1/1/2018 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 12 to 31/3/2018, lower percentage of ad-hoc disallowance was made in view of the orders of ITAT and Assessment Orders in Assessee's own case. The Ld. CIT(A) accepted the Assessee's contention that in view of orders passed by ITAT in Assessee's own case for Brand Reminders and there being assessment order for other heads where in the Assessing Officer has himself applied a lower rate the same rate of disallowance could not be applied for the three (3) months. However, the Ld. CIT(A) on an adhoc basis, made additional disallowance in the range of 2-5% for different heads. The summary of disallowance based on the directions of Ld. CIT(A) is as under: Sr.No Particulars Amount of expenditure disallowance as per CIT(A) (Refer CIT(A) order Pg.23-25 01.01.18 to 31.03.18 % applied for 01.01.18 to 31..03.18 by CIT(A) disallowance as per CIT(A) Confirmed by CIT(A) 1 Brand Reminder -below 1000 2,97,98,091 2% 5,95,962 5,95,962 Brand Reminder - above 1000 23,55,434 - 2 Medical Camp 10,93,08,623 7% 76,51,604 21,86,172 3 Professional Fees 9,08,50,827 20% 1,81,70,165 45,42,541 4 Market research/ Survey 3,33,48,981 20% 66,69,796 16,67,449 5 Travel and Accommodation 3,37,27,069 25% 84,31,767 16,86,353 Total 29,93,89,025 4,15,19,294 1,06,78,478 less : Deduction - 80IC Units 6,11,877 Net Disallowance 1,00,66,601 13. Aggrieved, the assessee is in appeal before us and Ld. AR submitted that only dispute is in relation to three (3) months i.e. 01.01.2018 to 31.03.2018 that too on what is the percentage of disallowance to be applied on the expenditure incurred during the said ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 13 three (3) months. It is submitted that the Assessee in its application and all other submissions before the ITSC has mentioned that the percentage of disallowance offered before ITSC was only with an intention to arrive around the amount offered to tax u/s 132(4) of the Act. This fact has also been acknowledged by the ITSC, while considering the PCIT report wherein the ITSC has observed that the PCIT has not substantiated a higher disallowance and the Assessee has offered a higher disallowance compared to what the Assessing Officer has disallowed in other years. The relevant extract is reproduced below: "From the conduct of the applicant we also find sufficient force in its submission that they have offered additional income under this head with an Intention to arrive around the amount offered to tax u/s 132(4) during the course of search act/on for AY 2012-13 to A.Y 2017-18" 14. Ld. AR submitted that the above fact and various observations of ITSC were submitted before the Assessing Officer and Ld.CIT(A) and same have not been disputed. 15. Further, Ld. AR with regard to Brand Reminder submitted that the dispute is only in relation the brand reminders below ₹.1000. It is submitted that no disallowance was offered for this portion considering the department itself has not made any disallowance and accepted the ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 14 expenditure in AY 2015-16 (refer PB Pg. 903). The relevant extract is reproduced below:- "3.1.2 A careful examination of the expenditure incurred under this sub-head was done. On perusal of details furnished by the Assesse in annexure 2a, it is found that the expenses incurred under this sub-head are mainly in the form of pens and stationery items, jute bags, pen drives, paper weights, calendars, table tops etc. distributed to stockiest, chemist, representatives etc are mainly the sales promotion expenses as these are distributed to chemist, stockiest, representatives and distributors. The value of items is less than Rs. 1000/-. Considering the value of items and its nature, the total amount of IRs. 5,88,84,501/- is treated as sales promotion expenses." 16. Further, ITAT in AY 2010-11 has also deleted the disallowance made on low value brand reminder items. The relevant extract is reproduced below: "29. We have heard the rival submissions and perused the relevant materials on record. We find that these expenses incurred comprise largely of low value mementoes like pen, pen drives, towels, eatables, cosmetics etc. with an individual value of Rs.5000/- or less, meant for distribution to stockists / druggists / chemists / paramedical persons for brand recall / target completion / incentive to promote and market assessee's products / as a goodwill gesture during festival/birthdays etc. to maintain/enhance business below Rs. 5000 as the same is sales promotion expenditure incurred for purpose of business and is thus incurred wholly and exclusively for the purpose of business relationships. Thus it is crystal clear that the aforesaid expenditure is sales promotion expenditure incurred for the purpose of enhancing the assessee's business and is thus incurred wholly and exclusively for the purpose of business and therefore allowable as deduction u/s 37(1) of the Act." ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 15 17. Further, Ld. AR of the assessee with regard to Travel and Accommodation submitted that these comprise of expenses incurred for conferences attended by the Advisors of the Assessee who update their knowledge and thereafter share with the research and marketing teams of the Assessee. Disallowance was offered for this portion at the rate of 20% on the basis of assessment order for AY 2015-16. The relevant extract is reproduced below: "3.2.3 A careful examination of the details provided by the assessee shows that the it entered into the agreements with respective advisors wherein the latter is required to provide his services from time to time. As per the terms of the agreement, in the course of assignment as an advisor, he may be required to update his knowledge by attending conferences and provide feedback. The copies of the agreements with the details of the conferences attended and the reported outcome/feedback of the same to the management were produced by the Assessee and kept on record. The expenses of the details of Rs.13,13,55,124/- incurred towards conference travel and accommodation may cannot be construed to have been incurred wholly and exclusively for the purpose of business of the assessee company. The presence of a personal element cannot be ruled out during the conference schedule. Therefore, an estimated amount of 20% of the said expenditure is disallowed u/s 37 of the Act. Hence, the expenses incurred on conference travel and accommodation i.e. (20% of Rs.13, 13,55,124/-) Rs.2,62,71,02/- are disallowed and added back to the total income of the assessee." 18. Ld. AR of the assessee with regard to Medical Camp Expenses / Professional Fees / Market Research & Survey submitted that, Medical Camp expenses are incurred to organize health camps and data collected from such camps is used by Assessee for marketing and ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 16 research purposes. Professional fees are paid to list of Advisors who are clinicians appointed by the Assessee in various parts of the country to advice the Assessee on various aspects of drugs including it's promotion. The Assessing Officer has disallowed Travel & Accommodation expenses @ 20% in assessment for AY 2015-16. Said disallowance works out at 1/3 rd of disallowance offered before ITSC under the same head. Accordingly, for medical camp expenses, professional fees to medical advisors and market research and survey also, approximately 1/3 rd of disallowance offered before ITSC is offered for disallowance. 19. Further, Ld. AR of the assessee submitted that the Ld. CIT(A) has made the disallowance on an adhoc basis ignoring the detailed submission made by the Assessee giving description and also detailed documentary evidence for each head of expense. The relevant pages of the paper book are as below: Sr. no. Particulars Description Details of expense Documentary Evidence 1. Brand reminder PB pg. 44 PB pg. 114-124 PB pg. 359 - 392 2. Medical Camp PB pg. 45 PB pg. 125- 208 PB pg. 425 - 541 3. Professional Fees PB pg. 46 PB pg. 87 - 112 PB pg. 542 - 669 4. Market research/ Survey PB pg. 47 PB pg. 209 343 PB pg. 670 - 751 5. Travel and Accommodation PB pg. 47 PB pg. 113 PB pg. 393 - 424 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 17 20. On the other hand, Ld. DR relied on the order of the Assessing Officer and relying on the decision of Apex Laboratories Pvt. Ltd (2022) 135 taxmann.com 286 (SC) submitted that the expenses are in violation of the Circular issued by Medical Council of India under MCI regulations, 2002 would be prohibited by law and thus would not be allowed as deduction u/s. 37 of the Act. 21. In the rejoinder, Ld. AR of the assessee submitted that, Ld.DR during the course of hearing relied on the decision of the Supreme Court in the case of Apex Laboratories Pvt. Ltd (2022) 135 taxmann.com 286 (SC) which has held that expenses in violation of the Circular issued by Medical Council of India under MCI regulations, 2002 would be prohibited by law and thus would not be allowed as deduction U/s. 37 of the Act. It is submitted that in the impugned case, it is neither the Assessing Officer nor the Ld. CIT(A)'s contention that there has been any violation of the MCI circular. Reliance placed by the Ld.DR on the decision of the Supreme Court is misplaced and distinguishable on facts. The said decision cannot be applied generally to all pharma companies incurring expenditure on payment to doctors who acts as advisor or incidental payments made to third parties (where services of doctors have been availed in the capacity of an advisor). Each case has to be ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 18 evaluated on its merits as to whether there has been any violation of the MCI circular, only then the expenditure can be disallowed. When the payments are made to doctors for services rendered by them in their professional capacity or incidental payments made to third parties (where services of doctors have been availed in the capacity of an advisor and all the relevant guidelines have been followed, then the same being incurred wholly and exclusively for the purpose of business should be allowed u/s. 37 of the Act. Further, distribution of Brand Reminder, being less than ₹.1,000 is below the threshold provided by MCI (for attracting any penal consequences). Accordingly, brand reminder below ₹.1,000 ought to be allowed as a business expenditure u/s. 37 of the Act. Further, Ld. AR of the assessee submitted that, as disallowance made by Assessee is based on ITAT order for earlier year in own case of Assessee and also Assessment Order for earlier Year, no further disallowance should be made than what is offered by the Assessee in the Return of income and prayed that assessee appeal Ground No 2 & 3 may be allowed and revenue appeal Ground No 1 may be dismissed. 22. Considered the rival submissions and material placed on record, we observe that the assessee has declared certain percentage of ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 19 disallowance of respective expenses incurred for marketing expenses before ITSC in order settle the disputes raised during the search proceedings. The ITSC also agreed for the above settlement propositions and it is also fact on record that the percentage of disallowance offered before ITSC is to match the agreed declaration of income during search proceedings. Therefore, we are inclined to accept the submissions of the assessee and Ld CIT(A) that the purpose of declaration before ITSC are completely different and the same cannot be applied for the regular assessment unless and until it is brought on record the relevant material to support the additions proposed in the assessment order. In the given case, the assessee had offered the percentage of disallowance to match the amount agreed to declare during the search proceedings. The same was adopted during the present assessment year, for the period 1.4.2017 to 31.12.2017 and for the period 1.1.2018 to 31.3.2018, it has revised the percentage of disallowance based on the subsequent developments in the appellate proceedings. The assessee also demonstrated the relevance of adopting the relevant percentage of disallowances based on result of appellate proceedings. In our considered view, the offer before ITSC to settle the dispute amicably cannot be the basis of making any regular assessment without their being any proper material on record to substantiate the ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 20 relevant disallowances. In the given case, the assessing officer merely followed the percentage of disallowance adopted by the ITSC without their being any material to support the disallowances for the impugned assessment year. Similarly, the Ld.CIT(A) even though agreed that the percentage declared before ITSC cannot be adopted but proceeded to adopt percentage on adhoc basis. Therefore, in our considered view, the reasons given by the Ld CIT(A) to adopt the respective percentage are mere assumptions and there is no basis. In our view, the assessee adopted the relevant percentage of disallowance based on the findings of appellate authorities particularly the ITAT. Therefore, we are inclined to direct the Assessing Officer to verify the percentage proposed by the assessee and the relevant findings of the coordinate bench in each and every expense. Before we depart, for the distribution of Brand Reminder, being less than ₹.1,000/- (below the threshold provided by MCI), this particular marketing expenses are within the threshold limit prescribed by the MCI and the coordinate benches have allowed this expense and also the revenue allowed the same in the subsequent assessment years. Therefore, in over all the disallowance proposed by the Ld CIT(A) is without basis and mere assumptions. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 21 23. With regard to Ld DR submissions regarding applicability of Hon’ble Supreme Court decision in Apex Laboratories (supra), we observe that this is not case of either AO nor CIT(A). We cannot stretch the issues beyond assessment order. Accordingly, we direct the Assessing Officer to delete the additions sustained by the Ld CIT(A) and verify the percentage offered by the assessee with the subsequent orders of appellate proceedings. Accordingly, the grounds raised by the assessee are allowed and revenue is dismissed. 24. With regard to Ground No. 4 of grounds of appeal raised by the assessee and Ground No. 2 to 8 of grounds of appeal raised by the revenue, Ld. AR submitted that these grounds are similar which are relating to disallowance of weighted deduction u/s. 35(2AB) of the Act. The relevant facts are, the Assessee undertakes Research and Development (R&D) activities from its units situated in Govandi (Mumbai) and Shirvane (Nerul) (Navi Mumbai) which are approved by the Department of Scientific and Industrial Research (DSIR'). The Assessee, in its Return of income claimed weighted deduction @150% u/s. 35(2AB) of the Act for R&D expenses incurred by the said units. Revenue expenditure of ₹.1,19,95,03,530/- along with capital expenditure of ₹.9,87,08,100/- was claimed as deduction u/s. 35(2AB). ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 22 Accordingly, a sum of ₹.194,73,17,445/- (i.e. being 150% of the total R&D expense of ₹.129,82,11,630/-) was claimed by the Assessee in its return of income. The said expenses were claimed by the Assessee based on the DSIR approval obtained for the R&D facility in Form 3CM. 25. During assessment proceedings, assessee filed submission dated 27/11/2019 explaining why certain expenses which were disallowed in earlier years should be allowed. The Assessing Officer rejected the submission made by the Assessee, based on amount quantified by the DSIR in the certificates for previous year made disallowance of weighted deduction claimed for ₹.14,06,23,314/- u/s. 35(2AB) of the Act, thereby granting only 100% deduction and rejected additional 50% of following R&D expenses. Particulars Disallowance in INR Clinical Trials 90043616 Consultancy and Professional fees 11625514 Analysis and Testing charges 32950220 Rent taxes and repairs to building 5978966 Netting off sale proceeds of fixed assets against the expenses 25,000 26. Aggrieved assessee preferred appeal before Ld.CIT(A) and filed written submission dated 10/8/2020. The Ld.CIT(A) accepted the Assessee's contention relying on ITAT orders in Assessee's own case for ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 23 earlier years and other judicial precedents that to be eligible to claim deduction u/s. 35(2AB) only the facility was required to be approved and the expenditure was not required to be quantified. The Ld.CIT(A) held that after amendment in the Rule 6(7A) w.e.f 1-7-2016 the DSIR can also quantify the expenditure. The Ld.CIT(A) observed that for the impugned year i.e. AY 2018-19 quantification of expenditure as per DSIR was required as per Rule 6(7A). However, the Ld.CIT(A) observed that the ITAT had in Assessee's own case independently dealt with the different heads of expenditure and held that they were incurred for in-house research and development and fell within the scope and ambit of Section 35(2AB). Relying on the precedents in Assessee own case for earlier years the Ld.CIT(A) allowed weighted deduction for clinical trials, Consultancy and Professional fees, Rent taxes and repairs and also with respect to netting off of sale proceeds from the expenses. The Ld.CIT(A) however upheld the AO's action to disallow weighted deduction in case of analysis and testing charges considering there was no ITAT order on the said expense till the date of passing the Ld.CIT(A) order. 27. Aggrieved, both assessee and revenue are in appeal before us. The Assessee is in appeal in relation to weighted deduction on analysis ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 24 and testing and the department is in appeal in relation to relief provided by the Ld.CIT(A). 28. At the time of hearing, Ld. AR submitted that the ITAT in Assessee's own case has allowed weighted deduction on the merits of each head of expense and held that the said expenditure was incurred for in-house research and development as required by the provisions of Section 35(2AB). He relied on various decisions in assessee’s own case and placed copies of the orders on record. 29. With regard to Analysis and Testing Charges, Ld. AR of the assessee submitted that Assessee develops various active pharmaceuticals ingredients (API's) which can be categorized into small molecules, peptides and bio-similar during it's R & D activities. These API's are required to be tested for their efficacy. Such testing takes place mostly within the R & D facility. Sometimes based on the requirement such testing is also outsourced. It is this outsourcing which is held against the Assessee by DSIR. It is akin to the view of the DSIR on clinical trials which take place outside the R&D facility. However, this view of DSIR is not found to be legally tenable by the Gujarat High Court in CIT v. Cadila Healthcare 263 CTR 686 wherein it is held that expenses ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 25 incurred on clinical trials outside the R & D facility is also eligible for weighted deduction u/s 35(2AB). Same reasoning also applies to testing charges. Ld. AR of the assessee relied on the decision of the Hon'ble Gujarat High Court in the case of CIT v Cadila Healthcare [263 CTR 686] and Ld. AR of the assessee brought to our notice Page No. 76 of the Paper Book which is the order of the ITAT in assessee’s own case for the A.Y. 2014-15 and 2015-16. 30. With regard to Clinical Trial, Ld. AR of the assessee submitted that, in A.Y. 2007-08, expenses for clinical trial were disallowed based on the views of DSIR. [Case Law paper book Pg 11-12 ITAT order for A.Y.2007-08]. However, the ITAT for AY 2008-2009 & 2009-2010 relied upon Gujarat High Court decision in CIT v. Cadila Healthcare 263 CTR 686 and held that expenses incurred for clinical trials were eligible for deduction u/s.35(2AB) though incurred outside the R & D facility and thus the view of DSIR came to be rejected. 31. With regard to Consultancy and Professional fees, Ld. AR of the assessee submitted that these are fees paid to consultants inside and outside India in connection with patent information of competitors etc to help the Assessee in it's research and development. Further, Ld. AR of ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 26 the assessee relied on the decision of Gujarat High Court in CIT v Cadila Healthcare 263 CTR 686 and submitted that the issue is decided by the Coordinate Bench in assessee’s own case for AY 2008-09 and 2009-10. Copies of the orders are placed on record. 32. With regard to Rent taxes and repairs to building, Ld. AR of the assessee relied on the ITAT order in assessee’s own case for the A.Y.2007-08 in ITA No 4517/Mum/2010 dated 04.07.2012. Copies of the orders is placed on record. 33. With regard to Netting off of sale proceeds of fixed assets against the expenses, Ld. AR of the assessee submitted that in relation to netting off of sale proceeds against the gross expenditure, there are contrary orders of the Tribunal in relation to sale proceeds of fixed asset. 34. Ld. AR of the assessee submitted that without prejudice to the point that the ITAT in assessee's own case has already allowed weighted deduction in respect of the above expenses, on the point of amendment in the Rules the Ld. AR of the assessee brought to our notice the relevant extract of section 35(2AB) of the Act, for the sake of clarity it is reproduced below:- ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 27 • Relevant extract of section 35(2AB) of the Act is as under: "(2AB)(1) Where a company engaged in the business of bio- technology or in any business of manufacture or production of any article or thing, not being an article or thing specified in the list of the Eleventh Schedule incurs any expenditure on scientific research (not being expenditure in the nature of cost of any land or building) on in-house research and development facility as approved by the prescribed authority, then, there shall be allowed a deduction of a sum equal to one and one-half times of the expenditure so incurred: ...... (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General in such form and within such time as may be prescribed." 35. Referring to the above, Ld. AR of the assessee submitted that by Co-joint reading of the above provisions, it is clear that Section 35(2AB) requires the approval of the said facility by DSIR and not the quantum of expenditure for the purposes of claiming weighted deduction of expenditure incurred on in-house research and development. 36. The amendment in sub-rule (7A) of rule 6 of Income Tax Rules, (with effect from 1-7-2016), to provide for quantification of expenditure as well as a condition for allowing weighted deduction goes beyond the provisions of the Act wherein there is no corresponding amendment to the same effect. It is a well-recognized principle of interpretation of statute that conferment of rule-making power by an Act does not enable the rule-making authority to make a rule which travels beyond the scope ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 28 of the enabling Act, or which is inconsistent therewith or repugnant thereto. It is settled law that rules can never have any effect on the interpretation or operation of the parent statute. When the language of the main section is clear, it would be immaterial what the relevant form (i.e. Form 3CL in this case) prescribed under the Rule provide. The Assessee would like to rely on the following case law on the proposition that rules cannot override or travel beyond the Substantive provisions under which the rules are framed. - CIT v. Tulsyan NEC Ltd [2010] 8 taxmann.com 228 (SC) - CIT v. Bombay State Transport Corporation [1979] 118 ITR 399(Bombay) - Kayyar Subbanna Shetty v. ITO [ITA No. 2563/Bang/2018] - CIT v. Taj Mahal Hotel [1971] 821TR44 (SC) 37. Ld. AR of the assessee prayed that the Assessee appeal Ground No 4 may be allowed and department appeal Ground No 2-8 may be dismissed. 38. On the other hand, Ld. DR relied on the order of the Assessing Officer and submitted that the weighted deduction claimed by the assessee is not approved by the DSIR particularly the clinical trials, consultancy fees and rent & repairs. Further he submitted that the ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 29 decision of Cadilla Ltd (supra) has not been accepted by the revenue by filing SLP and the same is being admitted. He also objected to allowing the expenses without netting off of income, which is not from the R&D activities. prayed that the order of the Ld.CIT(A) be set-aside. 39. Considered the rival submissions and material placed on record, with regard to Clinical Trials we observe that in assessee’s own case the Coordinate Bench for AY 2008-2009 & 2009-2010 relying upon Hon'ble Gujarat High Court decision in CIT v. Cadila Healthcare 263 CTR 686 held that expenses incurred for clinical trials were eligible for deduction u/s.35(2AB) though incurred outside the R & D facility and thus the view of DSIR came to be rejected. The relevant portion of ITAT order in assessee’s own case for A.Y.2008-09 & 2009-10 in ITA No 6747/Mum/2012 & ITA No 4248/Mum/2013 dated 20/2/2015 are reproduced below:- "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.” ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 30 40. Further, we observe that the above said order has also been followed by ITAT in its order for A.Y. 2010-11 & 2011-12 [Pg 30-68 (66- 67) and 2014-15 & 2015-16 [Pg 69-94(76-79)]. 41. With regard to consultancy and professional fees, we observe that in assessee’s own case the Coordinate Bench for the A.Y. 2007-08 in ITA.No. 4517/Mum/2010 dated 04.07.2012 observed as under: - "34. We have considered the orders of the authorities below and submissions of the learned Representatives and we have also carefully considered the Commissioner (Appeals)'s order for assessment year 2006-07, a copy of which is placed at Pages-197 to 208 of the paper book (relevant pages 206-208. We observe that the consultancy charges had been paid by the assessee in providing technical services regarding the patents, obtaining patent information from innovator companies and obtaining innovator samples for R&D purposes. The payments have been accepted towards research and not towards registering the patents. Therefore, these expenditures have been incurred towards research expenses and not towards any patent filing. Further, it is also observed that the expenditure incurred in respect of patent application filed under The Patent Act, 1970. Explanation to section 35(2AB), as reproduced herein above, specifically provides that the expenditure on scientific research for the purpose of section 35(2AB) of the Act shall include filing of application for a patent under The Patent Act, 1970, in relation to drugs and pharmaceuticals. Any application for patent foreign country has to be filed in India as per section 7 of The Patent Act, 1970, according to patent cooperation treaty. Therefore, we hold that the Commissioner (Appeals) has rightly held that the said expenditure incurred by the assessee towards patent filing charges is eligible for weighted deduction under section 35(2AB) r/w Explanation thereto. In view of the above, we uphold the order of the Commissioner (Appeals) by rejecting ground no.3 of the appeal taken by the Department." ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 31 42. Further we observe that the above order has also been followed by ITAT in its order for A.Y.2008-09 & 2009-10 [Pg 21-29(24-25)], 2010-11 & 2011-12 [Page Nos.30-68(66-67)] and 2014-15 & 2015-16 [Pg 69-94 (80-81)]. 43. With regard to rent taxes and repairs to building, we observe that in assessee’s own case the Coordinate Bench for the A.Y. 2007-08 in ITA.No. 4517/Mum/2010 dated 04.07.2012 observed as under: - "31. Therefore, it is evident that this section excludes from weighted deduction only cost of land and building and not any charges and expenses related to land or building. The repairs, rent, etc., the expenditure incurred relating to R&D premises cannot form part of cost of land or building. In the absence of any fact that the said claim of the assessee aggregating to 62,00,689, is not the expenditure on rents, rates and taxes relating to R&D premises, we are of the considered view that the said expenditure has to form part of weighted deduction as per section 35(2AB) of the Act. Therefore, we, by reversing the orders of the authorities below, hold that the assessee is entitled to weighted deduction on the said amount @ 150% as per section 35(2AB) of the Act. Hence, ground no.1(b) of the appeal taken by the assessee is allowed." 44. In view of our above observation in respect of each head of expenses i.e., Clinical Trials (Page No. 76/PB Assessee’s own case for A.Y.2014-15), consultancy and professional fees (Assessee’s own case ITA No 4517/MUM/2010 dt 4/7/2012), rent taxes, repairs to building (Assessee’s own case ITA No 4517/Mum/2010 dt 4/7/2012) and netting off of sale proceeds of fixed assets against the expenses are covered in ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 32 the assessee’s own case by the coordinate benches. This decision of coordinate benches are based on the decisions of Cadilla Ltd (supra) and other decisions which are also relied on the decision of Cadilla Ltd (supra), the same was relied by Ld CIT(A) to give relief to the assessee. Since these reliefs are given based on the decisions of coordinate benches and the same are contested by the revenue before higher forum, will not change the status of the present issues under consideration which are decided in favour of the assessee at this stage therefore, respectfully following the decision of the Coordinate Bench, we are inclined to grant relief to the assessee at this stage. 45. With regard to Netting off of sale proceeds of fixed assets against the expenses, we observe that there are contrary orders passed by the Tribunal in assessee’s own case in different Assessment Years in relation to sale proceeds of fixed asset. The relevant portion of the orders are reproduced below:- In Favour of the Assessee - ITAT order for AY 2010-11 & 2011-12 "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 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 33 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 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." Against the Assessee - ITAT order for AY 2014-15 & 2015-16 "On perusal of the above, it is clear that in the case of Mircolabs Ltd. (supra) the Tribunal has concluded that only sales realization 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 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 34 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 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). It is submitted that the recent order of ITAT for AY 2014-15 & 2015-16 has relied on the decision of Bosch and Centaur which do not lay down the correct position of law. Weighted Deduction for 35(2AB) is granted both for Revenue as well as Capital Expenditure. If it is a settled position that sale on revenue account should not be netted off, then a different position cannot be taken in case of sale of fixed asset which is capital in nature. Further, the sale of fixed asset is separately offered to tax. The Provision of the Act are clear and unambiguous to allow deduction of gross expenditure and no netting off is to be done.” 46. With regard to issue of Netting of sales realization, which is having diverse views. We are inclined to remit this issue back to the file of Assessing Officer to follow the decision of Wockhardt Ltd (supra). Accordingly, the grounds raised by the revenue are dismissed except the issue of netting of sales proceeds, which we are inclined to allow for statistical purpose. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 35 47. Coming to the issue of Analysis and testing charges, the Ld CIT(A) has rejected the submissions of the assessee. The issue involved are, the assessee develops various API’s and these requires testing to analyse their efficacy. Mostly, these are carried out in-house and sometimes, these tests are outsourced. It is part of operations and activities which are necessary to carry out the R&D and its efficacies. These trials are integral part of any R&D. These activities are part of R&D but DSIR will permit clinical trials but will not approve where it needs to be done. This aspect of allowability was specifically approved by the Hon’ble Gujarat High Court in Cadilla Healthcare (supra). The Hon'ble Gujarat High Court in the case of CIT v. Cadila Healthcare (supra) observed as under: - “10. More or less, facts are not in dispute. The assessee carried out scientific research in its facility approved by the prescribed authority. It incurred various expenditure including on clinical trials for developing its pharmaceutical products. These clinical trials were conducted outside the approved laboratory facility. The Revenue holds a belief that such expenditure not having been incurred in the approved facility cannot form part of the deduction provided under section 35(2AB) of the Act. The Tribunal observed that the term ‘in-house’ used in section 35(2AB) of the Act must be viewed in the context of which it has been used. If by utilizing the staff or resources of an organization, research is conducted within the organization rather than through utilization of external use of resources or staff, it can be stated to be an in-house research. On such basis, the Tribunal rejected the Revenue’s contention that merely because an expenditure which was not incurred in the in- house facility cannot be discarded for the weighted deduction ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 36 under section 35(2AB) of the Act. Learned counsel for the Revenue, however, strongly relied on the certificate issued by the Prescribed Authority, which segregated the expenditure in two parts, that incurred in in-house facility and that incurred outside. In our opinion, the Tribunal committed no error. Section 35(2AB) of the Act provides for deduction to a company engaged in business of bio-technology or in the business of manufacture or production of any article or thing notified by the Board towards expenditure of scientific research development facility approved by the prescribed authority. Such deduction at the relevant time was one-and-a-half times expenditure which has now been increased to twice the eligible expenditure. We may notice that explanation to section 35(2AB)(1) which was introduced by the Finance Act 2001 with effect from 1.4.2002 reads 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 inhouse 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 ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 37 pharmaceutical company. If we give such restricted meaning to the term expenditure incurred on in-house research and developoment 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. 11. In the case The Deputy CIT v. Mastek Limited, in Tax Appeal No.242 of 2000 and connected matters, a Division Bench of this Court had touched on the aspect of what can be termed as scientific research. In the context, certain observations made by the Bench may be of some relevance. "25. It can thus be seen that the term scientific research in the context of the deduction allowable under section 35(1) of the Act would include wide variety of activities. It can also be appreciated that every scientific research need not necessarily result into the ultimate goal with which it may have been undertaken. Often times in the field of research and invention, the efforts undertaken may or may not yield fruitful results. What is to be ascertained is whether any scientific research was undertaken and not whether such scientific research resulted into the ultimate aim for which such research was undertaken. It can be easily envisaged that the scientific research undertaken often times would completely fail to achieve desired results. That by itself does not mean that no scientific research was ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 38 undertaken. What the Legislature desired to encourage by granting deduction under section 35(1) of the Act was a scientific research and not necessarily only the successful scientific research undertaken by an assessee." 12. We are, therefore, of the opinion that the Tribunal committed no error. Merely because the prescribed authority segregated the expenditure into two parts, namely, those incurred within the inhouse facility and those can were incurred outside, in our opinion, by itself would not be sufficient to deny the benefit to the assessee under section35(2AB) of the Act. It is not as if that the said authority was addressing the issue for deduction under section 35(2AB) of the Act in relation to the question on hand. The certificate issued was only for the purpose of listing the total expenditure under the Rules. Therefore, no question of law arises.” 48. Further, it is brought to our notice that in assessee’s own case, the coordinate bench has analysed the same and allowed the claim of the assessee. The Coordinate Bench in assessee’s own case in ITA.No. 2575 & 2576/Mum/2021 for the A.Y.2014-15 and 2015-16 held as under: - “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, ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 39 the challenge of the Revenue to the order of the CIT(A) on this issue is rejected." 49. Further, as discussed above, the decision of Laxmi Organic Industries Ltd., v. DCIT in ITA.No. 38/Mum/2020 in which this issue is discussed and allowed in favour of the assessee. Relevant portion is reproduced below: - “Quantum of deduction u/s 35(2AB) 6.1 The assessee had recognition for in-house R & D units from Department of Scientific & Industrial Research (DSIR) and accordingly, it claimed deduction u/s 35(2AB) for Rs.150.19 Lacs in the computation of income on account of scientific research & development. The deduction was claimed for revenue expenditure as well as capital expenditure. The expenditure debited to Profit & Loss Account was Rs.92.34 Lacs whereas capital expenditure was Rs.57.85 Lacs (excluding the cost of land & building). The claim was duly certified by the Tax Auditor. However, going by the approval letter dated 08/07/2013 in Form No.3CL, the assessee submitted that enhanced deduction u/s 35(2AB) was to be restricted to the extent of Rs.115.48 Lacs. Accordingly, the differential of Rs.34.70 Lacs was added back to assessee’s income. 6.2 During appellate proceedings, the assessee submitted that as against aggregate expenditure of Rs.150.19 Lacs as claimed by the assessee u/s 35(2AB), the approval in Form 3CL was given for Rs.115.48 Lacs. Thus, the allowable deduction @200% would be Rs.230.96 Lacs. As against the same, the assessee claimed only Rs.242.53 Lacs (Rs.150.19 Lacs in Computation of Income + Rs.92.34 Lacs debited in Profit & Loss Account) and Ld. AO allowed deduction of 207.82 Lacs only since Rs.34.71 Lacs were disallowed. Thus, there was short deduction to the extent of Rs.23.14 Lacs. Concurring with the same, Ld. CIT(A) directed Ld. AO to verify the claim and allow the deduction, if found correct. 6.3 Before us, it is the argument of Ld. AR that the amount mentioned in Form 3CL would have no relevance prior to amendment in the Rule 6(7A)(b) w.e.f. 01/07/2016 and the deduction has to be allowed as claimed by the assessee and certified by the Auditors. For the same, Ld. AR referred to the cited decision of Pune Tribunal. The Ld. DR, on the other hand, ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 40 submitted that deduction would be available only in accordance with Form 3CL issued by the prescribed authority. 6.4 After going through the cited decision of Pune Tribunal, we concur with the submissions of Ld. AR that deduction has to be allowed as claimed by the assessee and certified by the Auditors since the amendment was brought in the Rule 6(7A)(b) w.e.f. 01/07/2016 only. Prior to the amendment, the prescribed authority was to submit its report in relation to the approval of in-house research & development facility in form No.3CL to the DG (IT exemptions) within 60 days of its granting approval. It was only with effect from 01/07/2016, the prescribed authority was required to quantify the expenditure incurred by the assessee on in-house research & development facility. The relevant findings of Pune Tribunal in Cummins India Ltd. V/s DCIT (ITA No.309/Pun/2014 dated 15/05/2018) were as under: - 45. The issue which is raised in the present appeal is that whether where the facility has been recognized and necessary certification is issued by the prescribed authority, the assessee can avail the deduction in respect of expenditure incurred on in-house R&D facility, for which the adjudicating authority is the Assessing Officer and whether the prescribed authority is to approve expenditure in form No.3CL from year to year. Looking into the provisions of rules, it stipulates the filing of audit report before the prescribed authority by the persons availing the deduction under section 35(2AB) of the Act but the provisions of the Act do not prescribe any methodology of approval to be granted by the prescribed authority vis-à-vis expenditure from year to year. The amendment brought in by the IT (Tenth Amendment) Rules w.e.f. 01.07.2016, wherein separate part has been inserted for certifying the amount of expenditure from year to year and the amended form No.3CL thus, lays down the procedure to be followed by the prescribed authority. Prior to the aforesaid amendment in 2016, no such procedure / methodology was prescribed. In the absence of the same, there is no merit in the order of Assessing Officer in curtailing the expenditure and consequent weighted deduction claim under section 35(2AB) of the Act on the surmise that prescribed authority has only approved part of expenditure in form No.3CL. We find no merit in the said order of authorities below. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 41 Similar is the decision of Mumbai Tribunal in ACIT V/s M/s. Crompton Greaves Ltd. (111 Taxmann.com 338; 27/09/2019) and various other decisions as placed on record. We find that fact as well as issue is pari-materia the same. In the absence of any contrary decision on record, respectfully following the above decisions, we would hold that the assessee would be entitled for deduction u/s 35(2AB) on actual expenditure incurred by it. The aggregate amount of expenditure stated be to be incurred by the assessee is Rs.150.19 Lacs and the assessee is eligible to claim deduction @200%. The Ld. AO is directed to quantify the exact claim and allow the deduction of the same. This ground stand allowed. 50. Respectfully, following the above decisions, we are inclined to allow the same in favour of the assessee. 51. With regard to Ground No. 5 and 6 of grounds of appeal raised by the assessee and Ground No. 12 and 13 of grounds of appeal raised by the revenue, Ld. AR submitted that these grounds are similar which are relating to deduction u/s. 35(1)(i) of the Act of amount paid to Continuus Pharma Inc.,. The relevant facts are Assessee had made a claim before the Ld.CIT(A) in respect of payment made to Continuus Pharmaceuticals Inc (Continuus Pharma) towards R&D for improvement in the manufacturing process to be allowed as a deduction U/s.35(1)(1) of the Act. At the end of the study, the Assessee would be in a position to evaluate whether to commercialize the new manufacturing process for the said product. For this, Continuus was required to provide periodical reports of costs undertaken, milestones achieved and further ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 42 research to be undertaken. The study concluded that while the raw material cost, the overall cost of production through new manufacturing process was much higher as compared to the cost of production being achieved for manufacturing product through batch processes, on account of high fixed cost (capital cost) and operating cost. Considering the above circumstances, the developed process was not found to be financially viable. Therefore, the Assessee had dropped the project after development stage. It was an ongoing project in AY 2018-19 and dropped in AY 2020-21. 52. The Ld. CIT(A)observed that the said payments were revenue is nature, however considering the project was abandoned only in A.Y.2020-21, he directed that the same be allowed as revenue expenditure u/s. 37(1) in A.Y.2020-21 and not A.Y.2018-19. The Assessee while filing the Return of income of AY 2020-21 claimed the said amount as deduction u/s 35(1)(i) of the Act. During the scrutiny proceedings the Assessing Officer had specifically raised questions in relation to the said payment and after evaluating the same did not make any addition on this count. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 43 53. On the other hand, Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside. At the same time, filed report from Assessing Officer on this issue. 54. In the rejoinder, Ld. AR submitted that, Ld. DR during the course of the hearing submitted a report from the Assessing Officer, wherein it is accepted that deduction of the said expenses has been allowed in A.Y.2020-21. Hence considering the same, the Assessee's as well as Department's ground have become infructuous. 55. Considered the rival submissions and material placed on record, the issue involved is, the assessee incurred expenses towards R&D in order to achieve improvement in the manufacturing process, after the study, it was observed that the project evaluated with the help of ‘Continuus’ was not viable, hence the assessee decided to discontinue the study. It was discontinued in the AY 2020-21, accordingly, the Ld CIT(A) has directed to claim the same in the AY 2020-21. The assessee also claimed the same and in this AY, the claim of the assessee is infructuous. Therefore, these grounds of appeal raised by both the parties are dismissed as infructuous. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 44 56. With regard to Ground No. 7 of grounds of appeal raised by the assessee which is in respect of set-off of brought forward business loss and unabsorbed depreciation of Bharavi Laboratories. The relevant facts are, during the previous year relevant to AY 2017-18, Bharavi Laboratories has been amalgamated with the USV being appointment from 01.04.2016 vide order 06.07.2017 of National Company Law Tribunal ('NCLT'). Bharavi Laboratories has following brought forward losses from AY 2015-16 and unabsorbed depreciation from AY 1997- 98 onwards which is in compliance with the provisions of section 72A and section 79 of the Act. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 45 57. The Assessee had raised it's claim for set-off before the Assessing Officer vide letter dated 17.12.2018. The Assessee at the time of filing of return of income, did not set off brought forward business losses and unabsorbed depreciation as mentioned above due to pendency of assessment proceedings in case of Bharavi Laboratories for some of the relevant assessment years. The details were also reflected in the Tax Audit Report submitted during the course of Assessment Proceedings. The Assessing Officer however did not allow the set off while passing the Assessment order. It is submitted that the Assessee inadvertently missed taking a ground before the Ld.CIT(A) as the Assessing Officer did not adjudicate this claim. It was submitted that the Scheme was approved by the Hon’ble National Company Law Tribunal vide its order dated 6.07. 2017 and filed with the Ministry of Corporate Affairs on 10.08.2017. This fact was mentioned in the Financial Statements and unabsorbed depreciation/ losses were declared in the Return of income. 58. Before us, assessee raised additional ground and Ld. AR submitted as under: - “The Assessee had raised this point before the Assessing Officer. Though the said ground is not strictly additional ground as it was raised before the Assessing officer, as a matter of abundant caution the Assessee has filed an application for admission of additional ground. The Assessee further submits that the relevant documents ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 46 for adjudication of the grounds on merits are already part of record of the lower authorities and this claim is rather consequential to the outcome of the final assessments in the hands of amalgamating company i.e., Bharavi Laboratories. It is submitted that the additional ground goes to the root of the matter, is purely a legal ground and would not require any investigation into fresh facts. The Income-tax Appellate Tribunal is empowered to entertain additional grounds and adjudicate upon the claim made for the first time before it even if such claim was not made before the Assessing Officer or the first appellate authority. In support of the above proposition, we place reliance upon the following decisions: - Jute Corporation of India Ltd. v. CIT [187 ITR 688 (SC)] - CIT v. S. Nelliappan [66 ITR 722 (SC)] - National Thermal Power Co. Ltd. v. CIT [229 ITR 383 (SC)] Ahmedabad Electricity Co. Ltd. & Ors. v. CIT [199 ITR 351 (Bom)] - Ashok Vardhan Birla v, CWT [208 ITR 958 (Bom)] Inaroo Ltd. v. CIT [204 ITR 312 (Bom)] - CIT v. Govindram Bros. P. Ltd. [141 ITR 626 (Bom)] 59. Ld. DR objected for admission of the additional grounds as they were never raised before appellate proceedings and therefore cannot be admitted. 60. Considered the rival submissions and material placed on record, we observe that as the said additional grounds are legal grounds, wherein, the facts are on record and facts do not require fresh investigation, following the decision of Hon’ble Supreme Court in the case of National Thermal Power Co., Limited v. CIT 229 ITR 383 (SC), we admit the said additional grounds of appeal. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 47 61. Ld. AR submitted that directions may be given to Assessing Officer to allow the set off of losses and unabsorbed depreciation in the impugned year i.e. A.Y. 2018-2019 or in AY 2017-18 i.e. the Year when the Appointed date falls 62. On the other hand, Ld. DR submitted that the set off should have been done in AY 2017-18 and considering the said year was a subject matter before the settlement commission, now the same cannot be claimed. 63. In the rejoinder, Ld. AR of the assessee submitted that the Ld DR during the course of hearing argued that the set off should have been done in AY 2017-18 and considering the said year was a subject matter before the settlement commission the same cannot be claimed. It is humbly submitted that as per section 245-1 of the Act, every order of settlement commission shall be conclusive only with respect to matters stated therein. The claim with respect to Bharavi Laboratories was never a matter before the settlement commission and thus the Tribunal has power to adjudicate on the same. Ld. AR further submitted that the Assessee would also like to place reliance on the decision in case of Perfect Equipments v. DCIT 120031 85 ITD 50 (Ahmedabad - ITAT) ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 48 wherein it is held that the Tribunal by virtue of powers vested upon it under provisions of section 254(1) for disposal of an appeal may pass such orders thereon as it thinks fit and only limitation on powers of Tribunal to give directions or finding in relation to another assessment year would be that these are necessary for disposal of appeal. Therefore, in the facts of the impugned case it is necessary for disposal of appeal that the Tribunal has power to direct the Assessing Officer to allow the set off in either AY 2017-18 or alternatively AY 2018-19. 64. Considered the rival submissions and material placed on record, we observe that the company Bharavi Laboratories was merged with the assessee company and as per the provisions and in line with the NCLT directions, the assessee is eligible to set off the losses carried forward by the Bharavi Laboratories at the appointed date. Therefore, we direct Assessing Officer to verify the claim of the assessee alongwith the order of NCLT dated 06.07.2017. It is directed to allow the claim as per law. Accordingly, the additional ground raised by the assessee is allowed for statistical purpose. 65. With regard to Ground No. 8 of grounds of appeal raised by the assessee which is relating to levy of interest u/s. 234B of the Act, Ld. AR ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 49 of the submitted that this ground is consequential in nature. Accordingly, the above said ground is remitted to the file of Assessing Officer to give effect according to the final taxable income determined for this assessment year. 66. With regard to Ground No. 9 and 10 of grounds of appeal raised by the revenue, which are relating to inclusion of surcharge and cess while computing MAT Credit. In this regard Ld DR submitted that as per the provisions of the sec. 115JB, for the purpose of MAT credit, only the tax paid alone should be adopted for computation. Further he submitted that there are conflicting decisions and Ld CIT(A) should not have adopted contradicting views. 67. On the other hand, Ld. AR of the assessee brought to our notice relevant facts relating to the ground and filed its written submissions. for the sake of clarity, it is reproduced below: - 7.1. Based on the ROI filed by the Assessee in the earlier years, the total MATC available for utilization in AY 2018-19 amounts to INR 64,97,64,065 which includes the MATC generated on account of surcharge and education cess paid. 7.2. While computing the value of MATC to be allowed, the Ld. AO did not include MATC generated on account of surcharge and education cess, nor did he provide any cogent. reasons for the same in its order. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 50 7.3. The said issue is covered in favour of the Assessee, by the order passed by ITAT in Assessee's own case for AY 2015-16 [ITA No 2575/Mum/2021 and 2576/Mum/2021 dtd 7/9/2022] [Pg 69-94 (88-94)]. The relevant extract is reproduced below: "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 1153AA 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." In view of the above submission the Department Ground of Appeal No 9-10 may be dismissed. 68. Considered the rival submissions and material placed on record, we observe that the issue of giving MAT credit in the subsequent assessment years are already well settled that the tax paid as per provisions of sec.115JB always includes surcharge and cess. Similarly, while giving credit in the subsequent year shall include the surcharge and cess. One cannot separate the tax liability differently while calculating tax due and tax credit. Therefore, we are inclined to dismiss the grounds raised by the revenue. 69. With regard to Ground No. 11 of ground raised by the revenue which is relating to education Cess. 70. Ld.DR relied on the order of the Assessing Officer and prayed that the order of the Ld.CIT(A) be set-aside. ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 51 71. On the other hand, Ld. AR of the assessee submitted as under: - “It is fairly submitted that this ground is decided against the Assessee by ITAT order for AY 2014-15 & 2015-16. The relevant extract is reproduced below "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." 72. Considered the rival submissions and material placed on record, we observe that this issue of claim on account of education cess is held to be against the assessee. Accordingly, the ground raised by the revenue is allowed. 73. In the result, appeal filed by the assessee and appeal filed by the revenue are partly allowed. Order pronounced in the open court on 20 th June, 2023 Sd/- Sd/- (KAVITHA RAJAGOPAL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/06/2023 Giridhar, Sr.PS ITA NO. 891 & 2573/MUM/2021 (A.Y: 2018-19) M/s. USV Private Limited Page No. | 52 Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum