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2022 (10) TMI 214 - AT - Income TaxWeighted deduction u/s 35(2AB) - deduction at the rate of 200% for Clinical Trial Expenses and Quality Control/Testing Expenses - Disallowance of claim as 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 - CIT-A allowed deduction - HELD THAT - 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 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 2021 (8) TMI 655 - ITAT MUMBAI 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. 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. As regards Clinical Trial Expenses CIT(A) had allowed the claim of the Assessee holding that since the R D Facilities were approved there was no requirement of expenditure being approved following the decision of the Tribunal in the case of Crompton Greaves Ltd. 2019 (10) TMI 134 - ITAT MUMBAI 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 and 2009-10 2015 (2) TMI 1348 - ITAT MUMBAI 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 Cadila Healthcare Ltd. 2013 (3) TMI 539 - GUJARAT HIGH COURT - 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. AO restricted the deduction u/s 35(2AB) to 100% of expenses in respect of Consultancy Fee Expenses - HELD THAT - As 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 Deduction of R D Expenses on gross basis without netting off the income from sale of R D products and assets - HELD THAT - As it is admitted position sale proceeds of INR 9,22,898/- arising from sale of R D products and sale proceeds 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 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 2015 (3) TMI 982 - ITAT BANGALORE 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) - Also see case of M/s. Centaur Pharmaceuticals Pvt. 2022 (8) TMI 1127 - ITAT MUMBAI Deduction for Education Cess under Section 37(1) - HELD THAT - 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. Surcharge and cess for MAT credit computation - 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 Tata Motors Limited 2021 (7) TMI 207 - ITAT MUMBAI AND Richa Global Exports Pvt. Ltd 2012 (9) TMI 99 - ITAT DELHI 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.
Issues Involved:
1. Weighted deduction under Section 35(2AB) of the Income Tax Act for Clinical Trial Expenses, Quality Control/Testing Expenses, and Consultancy Fee Expenses. 2. Deduction of R&D Expenses on a gross basis without netting off income from R&D products and assets. 3. Deduction for Education Cess under Section 37(1) of the Act. 4. MAT credit computation including surcharge and cess. Issue-wise Detailed Analysis: 1. Weighted Deduction under Section 35(2AB): The Revenue challenged the CIT(A)'s decision to allow weighted deductions at 200% for Clinical Trial Expenses, Quality Control/Testing Expenses, and Consultancy Fee Expenses. The Tribunal upheld the CIT(A)'s decision, referencing multiple precedents, including ACIT vs. Crompton Greaves Ltd. and CIT vs. Cadila Healthcare Ltd., which established that prior to 01.07.2016, DSIR approval of the quantum of expenditure was not required, only the R&D facility needed approval. The Tribunal also noted that Clinical Trial Expenses incurred outside the R&D facilities were eligible for deduction, following the Gujarat High Court's interpretation. Consequently, the Tribunal dismissed the Revenue's grounds on this issue. 2. Deduction of R&D Expenses on Gross Basis: The CIT(A) allowed the Assessee's claim for R&D expenses on a gross basis without netting off income from R&D products and assets, relying on the Tribunal's previous decisions in the Assessee's own case and others like Microlabs Ltd. and Wockhardt Ltd. The Tribunal affirmed that only sales realization from R&D assets should offset R&D expenses, not sales from R&D products. Thus, the Tribunal partly allowed the Revenue's grounds, permitting the reduction of sale proceeds from R&D assets but not from R&D products. 3. Deduction for Education Cess: The Tribunal noted the retrospective amendment by the Finance Act 2022, which included surcharge and cess within the definition of 'tax' under Section 40(a)(ii) of the Act. Therefore, it ruled that no deduction for Education Cess was allowable for the Assessment Year 2014-15, allowing the Revenue's ground on this issue. 4. MAT Credit Computation: The Revenue contested the CIT(A)'s decision to include surcharge and cess in MAT credit computation. The Tribunal referred to multiple precedents, including the Kolkata Bench's decision in Bhagwati Oxygen Ltd. and the Mumbai Bench's decision in Tata Motors Ltd., which supported the inclusion of surcharge and cess in MAT credit computation. The Tribunal affirmed that surcharge and education cess should be included for determining MAT credit, dismissing the Revenue's ground on this issue. Conclusion: The Tribunal's decision resulted in a mixed outcome for the Revenue. It upheld the CIT(A)'s decisions on weighted deductions under Section 35(2AB) and MAT credit computation, while allowing the Revenue's ground on the non-deductibility of Education Cess. The Tribunal also partly allowed the Revenue's grounds on the netting off of income from R&D expenses.
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