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TMI Blog2022 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... firmity 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 Health ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - ITA No. 2575/MUM/2021 ITA No. 2576/MUM/2021 - - - Dated:- 7-6-2022 - SHRI M. BALAGANESH , ACCOUNTANT MEMBER And SHRI RAHUL CHAUDHARY , JUDICIAL MEMBER For the Appellant/Department : Shri Achal Sharma For the Respondent/Assessee : Shri Paras Savla and Shri Pratik Podar ORDER Per Rahul Chaudhary , Judicial Member : 1. These are two appeals filed by the Revenue arising from the order of the Learned Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as the CIT(A) ], for the Assessment Years 2014-15 and 2015-16. The appeals were heard together as they involved identical issues and are, therefore, being disposed of by way of common order. Though the appeals were filed after the expiry of period of 60 days prescribed in Section 253(3) of the Act, the same are being treated as being filed within limitation as the appeals have been filed within the extended time allowed by the Hon ble Supreme Court vide order, date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t because the issue was restored back to the file of the assessing officer in an earlier year, and no appeal was filed against the same, ignoring the fact that the direction to the assessing officer was for verification of claim and not for allowing of the claim on gross expenditure basis. 7 On the facts and in circumstances of the case, the Ld. CIT (A) erred in facts and law in allowing the claim of netting off income of R D center against the expenses, without considering the fact that, the assessee didn't claim netting off of income of R D center in his return of income and claimed it during the course of assessment proceedings against the expenditure which was not approved by the DSIR and incurred by the assessee on foreign patent filing fees and clinical trials, etc conducted outside the R D facility. 8 On the facts and in circumstances of the case, the Ld CIT(A) is correct in allowing the deduction claimed by the assessee on account of education cess ignoring the fact that education cess is nothing but additional surcharge which falls within section 40(a)(ii) of the Act. 9 The appellant craves to leave, to add, to addend and/or to alter any of the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised by the Assessee and allowed deduction in respect of R D Expenses on gross basis without netting of the income earned from sale of R D products and assets. Further, the CIT(A) also allowed deduction for education cess paid by the Assessee under Section 37(1) of the Act. 7. Being aggrieved, the Revenue is in appeal before us challenging the order passed by the CIT(A) granting the above relief to the Assessee on the grounds specified in paragraph 3 above. 8. The Learned Departmental Representative appearing before us relied upon the order passed by the Assessing Officer whereas the Learned Authorised Representative for Assessee supported the order passed by the CIT(A). We have considered the rival submission and perused the material on record including the judicial pronouncements referred to and relied upon by both the sides during the course of the hearing. Ground No. 1 to 3 9. By way of Ground No. 1 the Revenue has challenged the order of CIT(A) allowing weighted deduction at the rate of 200% under Section 35(2AB) of the Act for Clinical Trial Expenses (INR.16,69,10,209/-) and Quality Control/Testing Expenses (INR.2,54,29,652/-) raising the contention th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... velopment facility in Part A of Room No. 3CL; (ii) quantifying the expenditure incurred on in-house research and development facility by the company during the previous year and eligible for weighted deduction under sub-section (2AB) of section 35 of the Income Tax Act, 1961 in Part B of Form No. 3CL. 13. Hitherto, the provision was as follows: The prescribed authority shall submit its report in relation to the approval of in-house facility and development facility in Form No. 3CL to the Director General (Income-tax Exemptions) within sixty days of its granting approval. The above also makes it amply clear that prior to the amendment, i.e., upto 30.06.2016, it was not required to quantify the expenditure and it was only w.e.f. 01.07.2016 that this mandate has been put in place. 14. The year under consideration is A.Y. 2009-10 and, for this year, the amendment was not applicable. Therefore, the assessee is right in contending that the non approval of the expenditure claimed by CSIR did not entitle the A.O. to make the disallowance and the ld. CIT(A) to confirm the same. (Emphasis Supplied) 11. Following the above decision of the Tribunal, the CIT(A) conclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not find any infirmity in the order passed by the CIT(A) on this count. On the issue of Clinical Trial Expenses having been incurred outside the R D Facilities, the CIT(A) concluded that the weighted deduction for Clinical Trial Expenses is to be allowed under Section 35(2AB) of the Act even if the same have been incurred outside the R D Facility by following the decision of the Tribunal in the case of the Assessee for the Assessment Year 2008-09 (ITA No.4248/Mum/2013) and 2009-10 (ITA No. 6747/Mum/2012) wherein the Tribunal had allowed weighted deduction for Clinical Trial Expenses incurred outside R D Facilities under Section 35(2AB) of the Act by following the judgment of the of Hon ble Gujarat High Court in the case of CIT vs. Cadila Healthcare Ltd.: 263 CTR 686 (Gujarat) (20.03.2013). The relevant extract of the aforesaid decision of the Tribunal reads as under: 3. The first grievance relates to the non allowance of weighted deduction @ 150% u/s. 35(2AB) on expenses of Rs. 10,77,95,285/- incurred on clinical trial. 3.1. An identical issue was also there in assessment years 2006-07 and 2007-08 wherein similar additions have been made. The matter travelled upto th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and development facility, we would on one hand be completely diluting the deduction envisaged under sub-section (2AB) of section 35 and on the other, making the explanation noted above quite meaningless. We have noticed that for the purpose of the said clause in relation to drug and pharmaceuticals, the expenditure on scientific research has to include the expenditure incurred on clinical trials in obtaining approvals from any regulatory authority or in filing an application for grant of patent. The activities of obtaining approval of the authority and filing of an application for patent necessarily shall have to be outside the in-house research facility. Thus the restricted meaning suggested by the Revenue would completely make the explanation quite meaningless. For the scientific research in relation to drugs and pharmaceuticals made for its own peculiar requirements, the Legislature appears to have added such an explanation. 3.3. Now we are confronted with a situation where on the one hand there are decisions of the Tribunal which are in favour of the Revenue and against the assessee and on the other hand we have a decision of the Hon ble High Court which is in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2008-09 and 2009-10 (common order, dated 25.02.2015). The relevant extract of the aforesaid common order, dated 25.02.2015, disposing appeals for the Assessment Year 2008-9 2009-10 reads as under: 4. Ground No. 2 relates to the non allowance of weighted deduction in respect of (a) consultancy fees (b) patent fees as per patent Act and PCT and (c) patent filing fees not as per patent Act. In so far as the claim of weighted deduction in respect of consultancy fees and patent filing fees as per patent Act are concerned, the Tribunal has considered this issue in A.Y. 2007-08 vide ITA No. 4517 5582/M/2010. The Tribunal has considered this issue at para 33 of its order and at para-34 allowed the claim. As no distinguishing facts have been brought on record, respectfully following the decision of the Co-ordinate Bench, weighted deduction on consultancy fees and patent filing fees as per patent Act are directed to be allowed. 4.1. In so far as patent filing fees which is not according to the patent Act and PCT, we find that the same is allowable as per the decision of the Hon ble Gujarat High Court in the case of Cadila Healthcare (supra). Respectfully following the fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the R D unit during the year under consideration amounting to Rs.1,34,227/- which were no longer required by the unit. Further, it had also earned certain income amounting to Rs.33,84,325/- on sale of products from R D unit to assessee s viable customers (business development) for their further analysis testing to make sure if assessee s product emanating from the R D meets their requirement or not. Based on their analysis and testing, customers sometimes choose to enter into contracts with the assessee for further commercial sale of larger batch sizes. Such income is recorded under this head. It is submitted by the Ld. counsel that the same issue was adjudicated upon by the Tribunal in assessee s own case for AY 2008-09 and AY 2009-10. Based upon an assessment of all facts, the Tribunal in Para 9 of the order has restored back the matter to the AO for statistical purposes. The Tribunal held as under : The AO is directed to verify the claim of the assessee and allow the same after verification in the light of the decision of the Tribunal in the case of ACIT v. Wockhardt Ltd. in ITA No. 71/M/07. The additional grounds are treated as allowed for statistical purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 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. (Emphasis Supplied) 19. On perusal of above decision of the Tribunal, it is clear that the Tribunal has decided the issue in favour of the Assessee after taking into consideration the decision of the Tribunal in the case of ACIT Vs. Wockhardt Ltd : ITA No. 71/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are sold, the sales realisation arising therefrom are to be set off against the research and development expenditure of the research and development centre which is claimed as deduction under section 35(2AB). It is evident from the above guideline that it is only sales realisation arising out of the assets sold that should be offset against research and development expenditure. In respect of sale of products acquired emanating out of research and development work done in an approved facility, the sale proceeds need not be reduced from the research and development expenditure. In our view, the reason for not including sales realisation arising out of products emanating out of research and development work done and sold is because such sales would be reflected as receipts by the assessee in its books of account and income from business would be computed treating such sale as part of business receipts. The receipts arising out of sale of products will not go to reduce the expenditure on research and development, whereas the assets acquired in the process of carrying out the research and development if they are sold, such sales realisation would go to reduce the expenditure on scientif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while computing weighted deduction under Section 35(2AB) of the Act. However, in view of the decision of the Tribunal in the case of Microlab (supra) the sale proceeds arising from sale of assets would have to be reduced from research and development expenses while computing weighted deduction under Section 35(2AB) of the Act. The aforesaid view also draws support from the decision of Mumbai Bench of the Tribunal in the case of M/s. Centaur Pharmaceuticals Pvt. Vs. ITO: ITA No. 7401/Mum/2019 (04.08.2022). 22. In view of the above, Ground No. 4 to 7 raised by the Revenue are partly allowed. Ground No. 8 23. Ground No. 8 raised by the Revenue is directed against the order of CIT(A) allowing deduction for Education Cess under Section 37(1) of the Act. We note that by way of Finance Act 2022 Explanation 3 has been inserted in Section 40(a)(ii) of the Act with retrospective effect from 01.04.2005 which clearly provides that the term tax includes and shall be deemed to have always included any surcharge or cess, by whatever name called, on such tax. Therefore, in view of the same no deduction is allowable in respect of Education Cess for the Assessment Year 2014-15 in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi), whereas the Ld. Authorised Representative for the Appellant relied upon the following decision - Consolidated securities Limited vs. ACIT [2018] 96 taxmann.com 418 (Delhi-Trib.), Bhagwati Oxygen Ltd. vs. ACIT [ITA No. 240/Kol/2016], Netmagic IT Services Pvt. Ltd. vs. DCIT [ITA No. 5346/Mum/2017], and Tata Motors Ltd. vs. DCIT [ITA No. 2397/Mum/2019]. 29. Having considered the rival submission and having perused the judicial precedents relied upon by both the sides, we find that Kolkata Bench of the Tribunal has, in the case of Bhagwati Oxygen Ltd. vs. ACIT [ITA No. 240/Kol/2016, dated 15.11.2017], has decided the issue in favour of the Assessee holding as under: 8. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the issue under dispute has been addressed against the assessee by the decision of Delhi Tribunal in the case of Richa Global Exports Pvt. Ltd. reported in 25 taxmann. com 1 (Del). We find that the issue under dispute is covered in favour of the assessee by the Co-ordinate Bench of Hyderabad Tribunal relied upon by the Ld. AR (supra). We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e credit available u/s 115JAA and accordingly the entire amount would be available for the benefit of set off in the subsequent years from the amount of gross tax payable by the assessee. During the course of hearing before us, Ld. Counsel submitted before us three types of work sheets wherein tax payable after setting off amount of credit available u/s 115JAA was worked out in three different methods. We find that the following working shows the appropriate method of computing tax liability and setting off amount of credit available u/s 115JAA:- COMPUTATION OF TAX LIABILITY ON TOTAL INCOME AS PER INCOME TAX ACT, 1961 1 Total Income Rs. 1,093,157,260 2 Tax Payable on total income a Tax at normal rates Rs. 327,839,585 b Tax at special rates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee. (Emphasis Supplied) 31. Further, we note that in the case of Tata Motors Limited (supra) the Mumbai Bench of the Tribunal, after taking into consideration the above decisions of the Tribunal as well as the decision of Delhi Bench of the Tribunal in Richa Global Exports Pvt. Ltd (supra) cited by the Learned Departmental Representative, has held as under: 10. On a perusal of the order of the Ld.CIT(A) we noticed that Ld.CIT(A) denied claim of the assessee for the reason that there is a contrary view taken by the Delhi Tribunal in the case of Richa Global [54 SOT 185] and therefore the issue is debatable. We observed that this decision of the Delhi Bench of the Tribunal was rendered for A.Y. 2010-11. However, in the case on hand the assessment year involved is A.Y. 2014-15 and this decision of the Delhi Bench of the Tribunal is not applicable to the facts of the assessee s case for the reason that the Format of ITR-6 prior to A.Y. 2012-13 was designed in such a manner that the tax liabilities in Part B-TTI (i.e. Total taxable income) both under normal provisions and under MAT provisions was computed without surcharge and cess and on the net amount (i.e. after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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