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Issues Involved:
1. Deduction under Section 35AB of the Income-tax Act, 1961. 2. Deduction under Section 35A of the Income-tax Act, 1961. 3. Deduction under Section 36(1)(iii) of the Income-tax Act, 1961. 4. Corporate guarantee charges deduction. 5. Depreciation on technical know-how fees. 6. Depreciation on trademark/Registered Users License. 7. Netting of interest payments against interest receipts. Detailed Analysis: Issue 1: Deduction under Section 35AB of the Income-tax Act, 1961 The Revenue challenged the CIT(A)'s decision to allow the assessee a deduction of Rs. 2,83,33,333 under Section 35AB. The Assessing Officer (AO) had disallowed the claim on the grounds that the assessee was not directly involved in manufacturing activities and merely traded pharmaceutical products. However, the CIT(A) ruled that the technical know-how was used for the business purpose, and the manufacturing was under the assessee's direct supervision and control, thereby qualifying for the deduction. The Tribunal upheld the CIT(A)'s decision, emphasizing that Section 35AB does not stipulate that manufacturing must be done by the assessee itself. Issue 2: Deduction under Section 35A of the Income-tax Act, 1961 The Revenue also contested the CIT(A)'s decision to allow a deduction of Rs. 2,42,85,714 under Section 35A for the acquisition of trademarks, arguing that trademarks and patents are not synonymous. The CIT(A) interpreted the term "patent" broadly to include trademarks, based on judicial interpretations and dictionary definitions. The Tribunal agreed with this interpretation, noting that in the pharmaceutical industry, trademarks and patents are closely related and cannot be separated. Thus, the assessee was entitled to the deduction under Section 35A. Issue 3: Deduction under Section 36(1)(iii) of the Income-tax Act, 1961 The AO disallowed the interest deduction of Rs. 1,00,77,387 under Section 36(1)(iii), arguing that the borrowed funds were used for acquiring capital assets. The CIT(A) allowed the deduction, stating that interest on borrowed funds used for business purposes, even for acquiring capital assets, is allowable. The Tribunal upheld the CIT(A)'s decision, citing judicial precedents that support the allowance of such interest as a revenue expenditure. Issue 4: Corporate Guarantee Charges Deduction The assessee claimed a deduction of Rs. 1.5 crores for corporate guarantee charges in one assessment year, which the AO spread over five years, allowing only Rs. 7,50,000 for the year. The CIT(A) upheld the AO's decision. The Tribunal modified the CIT(A)'s order, directing the AO to allow Rs. 30 lakhs (1/5th of Rs. 1.5 crores) for the assessment year. Issue 5: Depreciation on Technical Know-how Fees The assessee raised an additional ground for depreciation on technical know-how fees if the deduction under Section 35AB was disallowed. Since the Tribunal upheld the deduction under Section 35AB, this ground became infructuous. Issue 6: Depreciation on Trademark/Registered Users License Similarly, the assessee sought depreciation on trademarks if the deduction under Section 35A was not allowed. Given that the Tribunal upheld the deduction under Section 35A, this ground also became infructuous. Issue 7: Netting of Interest Payments Against Interest Receipts The assessee requested netting of interest payments against interest receipts if the interest payments were disallowed. Since the Tribunal allowed the interest deduction under Section 36(1)(iii), this ground became moot. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objection, affirming the CIT(A)'s decisions on deductions under Sections 35AB, 35A, and 36(1)(iii), and modifying the treatment of corporate guarantee charges.
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