J.B.CHEMICALS & PHARMACEUTICALS LTD.,MUMBAI vs. DCIT -CC -2(1), MUMBAI

1 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “F”, MUMBAI

BEFORE SHRI ABY T. VARKEY (JUDICIAL MEMBER) AND MS. PADMAVATHY S. (ACCOUNTANT MEMBER)

I.T.A. No.2008/Mum/2019 - AY 2012-13 I.T.A. No.2009/Mum/2019 - AY 2013-14 I.T.A. No.4656/Mum/2018 - AY 2014-15 I.T.A. No.4657/Mum/2018 - AY 2015-16

J.B. Chemicals & Pharmaceuticals vs Dy.CIT, Circle-2(1), Mumbai 8th Floor, Pratishtha Bhawan Ltd, Neelam Centre, “B”Wing, 4th Old CGO Annexe, M.K. Road Floor, Hind Cycle Road, Worli, Mumbai-400 020 Mumbai-400 030 PAN : AAACJ1482G APPELLANT RESPONDENT

Assessee represented by Shri Nitesh Joshi Department represented by Vrunda U Matkari – Sr DR

Date of hearing 15-06-2023 Date of pronouncement 27-06-2023

O R D E R PER BENCH

These 4 appeals are against the order of the Commissioner of Income-tax (Appeals)-57, Mumbai [hereinafter ‘Ld.CIT(A)'] dated 24/01/2019 for the assessment years 2012-13 to 2015-16.

2 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd 2. The assessee is a public limited company engaged in the manufacturing and selling of bulk drugs and pharmaceutical formulations. The assessee filed its return of income for the years under consideration as per details given below:_ A.Y. Income returned Dt. of filing 2012-13 Rs.744,89,59,910/- 30/11/2012 2013-14 Rs. 55,78,35,460/- 29/11/2013 2014-15 Rs.111,15,84,440/- 29/11/2014 2015-16 Rs.123,31,13,760/- 28/11/2015

3 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd ground) ground) ground) 4 Allowability of education Ground No.3 Ground No.4 Ground No.3 Ground No.3 cess paid on dividend (raised as (raised as (raised as (raised as distribution tax Additional Additional Additional Additional ground) ground) ground) ground) 5 Weighted deduction for Ground No.4 Ground No.5 Ground No.4 Ground No.4 expenditure on Research & (raised as (raised as (raised as (raised as Development u/s.35(2AB) Additional Additional Additional Additional ground) ground) ground) ground) 6 Short Grant of TDS Ground No.6 Ground No.6 (raised as (raised as Additional Additional ground) ground) 7 Weighted deduction Ground No.5 - - - u/s.35(2AB) for clinical (raised as Trial expenditure Additional ground) 8 Allowance of MAT credit to Ground No.6 - Ground No.5 Ground No.5 include surcharge & & 7 (raised as (raised as (raised as Education cess and Carry Additional Additional Additional forward & set off of MAT ground) ground) ground) credit accordingly 9 Incorrect computation of Ground No.6 interest u/s.234A (raised as Additional ground) 10 Refund of DDT Ground No.7 (raised as Additional ground) 11 Incorrect computation of Ground No.8 Ground No.7 Ground No.7 Ground No.8 interest u/s.234C & 9 (raised as & 8 (raised as & 8 (raised as & 9 (raised Additional Additional Additional as Additional ground) ground) ground) ground)

4 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd grounds are taken on record for substantial cause and justice and we proceed to dispose of the same on merits.

Weighted deduction for expenditure towards Scientific Research u/s.35(2AB)

5 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd expenditure incurred towards scientific research as certified by a Chartered Accountant before DSIR and the DSIR issued the certificate in form 3CL. The Ld.AR drew our attention to the amendment to Rule 6(7a) with effect from 01/07/2016 wherein for the purpose of weighted deduction, the amount as certified by the DSIR in Form 3CL should be considered. Therefore, the Ld.AR submitted that prior to the amendment, the weighted deduction under section 35(2AB) cannot be restricted to the amount as mentioned in Form 3CL since there is no sanctity to the certificate issued. The Ld.AR further submitted that before the amendment, the only requirement for claiming the weighted deduction was that the facility where scientific research is carried on by the assessee should have been approved by DSIR for the purpose of weighted deduction and in assessee's case, the same has been obtained and submitted before the lower authorities. The ld AR also relied on the decision of the coordinate bench in the case of M/s Strides Arcolab Limited vs DCIT in I.T.A. No.1903/Mum/2015.

6 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd amount eligible for weighted deduction is only Rs.11,31,42,000 and hence the deduction is to be restricted to Rs.22,62,84,000/-. The Assessing Officer disallowed the balance amount. The contention of the assessee is that prior to 1/07/2016, the requirement for claiming weighted deduction as per section 35(2AB) is that the facility should be approved by the prescribed authorities which is DSIR and the entire expenditure incurred by the assessee towards scientific research is eligible for weighted deduction since prior to 01/07/2016 there is no sanctity to the amount mentioned in Form 3CL certified by the DSIR. We notice in this regard that the coordinate bench in the case of Strides Arcolab Limited (supra) has considered a similar issue and held that -

11.6.5 We heard the parties and perused the materials on record. Before proceeding further, we will look at the relevant provisions of section 35(2AB), Rules and the Guidelines for approval by DSIR of the in-house R&D facility :- Section 35(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. 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). (2) No deduction shall be allowed in respect of the expenditure mentioned in clause (1 ) under any other provision of this Act.

7 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd (3) No company shall be entitled for deduction under clause (1) unless it enters into an agreement with the prescribed authority for co-operation in such research and development facility and for audit of the accounts maintained for that facility. (4) The prescribed authority shall submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. (5) No deduction shall be allowed in respect of the expenditure referred to in clause (1 ) which is incurred after the 31st day of March,2012. (6) No deduction shall be allowed to a company approved under sub-clause (C) of clause (iia ) of sub-section (1) in respect of the expenditure referred to in clause (1) which is incurred after the 31st day of March, 2008. (emphasis supplied) Provisions of Sec.35(2AB) were introduced by the Finance Act, 1997 w.e.f. 1.4.1988. It is worthwhile noticing that while expenditure on scientific research whether done in house or outsourced were eligible to deduction of 100% of the expenditure prior to 1.4.1988 u/s.35(1) of the Act, the legislature thought it fit to give more benefits for in house scientific research and preferred to give a weighted deduction of 150% of the expenditure on scientific research. The statement of objects and reasons for introduction of the aforesaid provisions makes this purpose evident and it reads thus: ―Weighted deduction in respect of expenditure on in-house R&D Under section 35 of the Income-tax Act, certain deductions are allowed in respect of expenditure on scientific research. The Bill proposes to introduce a new sub-section(2AB) to allow a company, a deduction of a sum equal to 1-1/4th times the sum paid on any expenditure incurred by a company on scientific research including an expenditure of capital nature related to the business. This deduction will be available to the companies having in-house Research & Development facility approved for the purpose of this section by the prescribed authority and engaged in the business of manufacture or production of any drugs, pharmaceuticals, electronic equipment, computers, telecommunication equipment, chemicals or any other article or thing notified in this behalf. It is also proposed that no deduction shall be allowed in respect of expenditure on land and building. It is also proposed that the company shall

8 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd enter into an agreement of co-operation and audit with the prescribed authority before approval of the research and development facility. The proposed amendment will take effect from 1st April, 1998 and will, accordingly, apply in relation to assessment year 1998-99 and subsequent years.‖ In terms of Sec.35(2AB)(4), the prescribed authority has to submit its report in relation to the approval of the said facility to the Director General in such form and within such time as may be prescribed. Income Tax Rules, 1962 (Rules) prescribes the procedure for approval of the prescribed authority and the manner in which report has to be prepared by the prescribed authority. The relevant rules in so far as it concerns to deduction u/s.35(2AB) of the Act are provided in Sub-Rule(1B), (4), (5A) and 7A of Rule 6 of the Rules. These rules read as follows: ―(1B) For the purposes of sub-section (2AB) of section 35, the prescribed authority shall be the Secretary, Department of Scientific and Industrial Research.‖; ―(4) The application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK.‖; ―(5A) The prescribed authority shall, if he is satisfied that the conditions provided in this rule and in sub-section (2AB) of section 35 of the Act are fulfilled, pass an order in writing in Form No. 3 CM: Provided that a reasonable opportunity of being heard shall be granted to the company before rejecting an application. ―(7A) Approval of expenditure incurred on in-house research and development facility by a company under sub-section (2AB) of section 35 shall be subject to the following conditions, namely:- (a) The facility should not relate purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature; (b) The prescribed. authority shall submit its report in relation to the approval of inhouse Research and Development facility in Form No. 3CL to the Director General (Income Tax Exemptions) within sixty days of its granting approval;

9 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd (c) The company shall maintain a separate account for each approved facility; which shall be audited annually and a copy thereof shall be furnished to the Secretary, Department of Scientific and Industrial Research by 31st day of October of each succeeding year; Explanation:-For the purposes of this sub-rule the expression "audited" means the audit of accounts by an accountant, as defined in the Explanation below sub-section (2) of section 288 of the Income-tax Act, 1961. (d) Assets acquired in respect of development of scientific research and development facility shall not be disposed off without the approval of the Secretary, Department of Scientific and Industrial Research"

11.6.6 In terms of Sub-Rule (4) of Rule-6, the application required to be furnished by a company under sub-section(2AB) of section 35 shall be in Form No.3CK. The said Application contemplates annexure of Directors declaration and declaration by the Auditor. The form of declaration to be given by the Auditor is important and it reads thus: AUDITOR'S CERTIFICATE

I have audited the accounts of the in-house R&D Centre of M/s _______________________ located at ___________________ which is approved U/S 35(2AB) by the Prescribed Authority (Secretary, DSIR). I certify that: a) The company has maintained separate accounts for the R&D Centre approved by DSIR U/S 35(2AB). b) The accounts have been satisfactorily maintained. The expenditure certified are also in consonance with DSIR guidelines. c) The firm has extended full co-operation to me in carrying out the audit of the accounts of the R&D Centre. The expenditure of Rs. ------------ reported for the financial year ------- ---relevant to the assessment year -------------- as detailed out in Appendix II to Annexure IV of DSIR guideline at para `4’ is correct to the best of my knowledge and belief as per

10 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd the result of the audit of the approved R&D Centre carried out by me. Also R&D capital expenditure is reflected on page ----and revenue expenditure on page ---- in the audited financial statement/annual report It is further certified that the expenditure claims do not include the following: - i. Expenditure on outsourced R&D activities. ii. Expenditure purely related to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. iii. Lease rent paid for research farms or research labs. iv. Capitalized expenditure of intangible nature. v. Expenditure on foundation seeds multiplication, demonstration crops and grow out test etc. beyond breeder seed development. vi. Foreign patent filing expenditure. vii. Consultancy expenditure, retainership, contract manpower / labour. viii. Building maintenance, Municipal taxes and rental charges being paid. ix. Any interest component on loans for R&D. x. Clinical trial activities carried out outside the approved facilities. xi. Contract research expenses duly certified by chartered accountant. xii. Expenditure on any payments made to members of the board of Directors or any other part time employees working for R&D. Signature & Seal of the Statutory Auditor Date : Place: 11.6.7. The auditor is required to specifically certify in terms of clause (i) to (xii) that the expenditure claimed does not include certain specified expenditure. Though a plain reading of the statutory provisions of Sec.35(2AB)(1) shows that the prescribed authority has to approve only the in house research and development facility and not expenditure so

11 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd incurred on scientific research the other surrounding circumstances coupled with the purpose of introduction of Sec.35(2AB) of the Act seems to suggest that expenditure would be allowed only to the extent of what is certified by the DSIR. This becomes clear on a reading of Rule 7A(3) of the Rules, which mandates audited accounts being given to the DSIR. Further Form 3CK prescribes that the expenditure on scientific research has to be certified by chartered accountant and the form of certificate as given in the DSIR guidelines clearly specifies that only those expenditure would be eligible for weighted deduction u/s.35(2AB) of the Act. It may be eligible for deduction u/s.35(1) at normal rate of 100% as normal expenditure on scientific research but not weighted deduction of 150% u/s.35(2AB) of the Act. This distinction between normal deduction and weighted deduction is discernible from a reading of the entire statutory provisions of Sec.35 of the Act. 11.6.8 In assessee’s case, there is no dispute that the assessee has fulfilled all the conditions for the purpose of section 35(2AB). This fact has been accepted by the revenue which is evidenced by the AO’s order of assessment where he has allowed deduction towards the impugned amount @ 100% as against the 150% claimed by the assessee. Therefore the issue for consideration is limited to whether the expenditure claimed by the assessee as incurred towards scientific research is eligible for weighted deduction since the assessee’s facility from where the expenditure is incurred is approved by DSIR. As already seen, once the assessee submits the details of expenditure as certified by the Director and the Auditor, the DSIR is required to certify the same in Form 3CL certifying the amount eligible for weighted deduction. It is very relevant here to note that there was an amendment with effect from 01.07.2016 to Rule 6(7A)(b) of the Income Tax Rules whereby it has been laid down that the prescribed authority, i.e., DSIR shall quantify the quantum of deduction to be allowed to an Assessee u/s.35(2AB) of the Act. Prior to such substitution, the above provisions merely provided that the prescribed authority shall submit its report in relation to the approval of in-house R & D facility in Form No.3CL to the DGIT (Exemption) within 60 days of granting approval. Therefore prior to 1.7.2016 there was no legal sanctity for Form No.3CL in the context of allowing deduction u/s.35(2AB) of the Act. This view has been held by the various judicial pronouncements as relied on by the ld AR including the decision of the Pune Bench of the Tribunal where in the case of Cummins India ltd (supra) it has been held that –

12 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd "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.

11.6.9 We also notice that the coordinate bench of the Tribunal in the case of UltraTech Cement Ltd. vs DCIT [2022] 139 taxmann.com 151 (Mumbai - Trib.) has considered a similar issue and held that

13 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd "(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 two times of the expenditure so incurred." 113. It is clear from the provisions of section 35(2AB) that once R&D facility is approved by the DSIR, the expenses incurred by the assessee have to be allowed. If the law wanted the expenditure to be approved by the prescribed authority, same would have been expressly provided in the section. 114. The Bangalore Tribunal in case of Natural Remedies (P.) Ltd. v. Asstt. CIT [IT Appeal No. 704 (Bang.) of 2020, dated 1-1-2021] has held that for the period prior to the Income-tax (Tenth Amendment) Rules, 2016, with effect from 1-7-2016, which amended rule 6(7A) of the IT Rules, deduction u/s 35(2AB) of the IT Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Relevant finding of the Tribunal is reproduced below: "8.5 In view of the aforesaid reasoning and in the light of judicial pronouncements, cited supra, we hold that in the present case since the deduction is with reference to assessment year 2016-2017 (where the law applicable is the 1st day of April, 2016), which is prior to the Income-tax (Tenth Amendment) Rules, 2016, with effect from 1-7- 2016 of rule 6(7A) of the I.T. Rules, deduction u/s 35(2AB) of the I.T. Act has to be allowed on the basis of the expenditure as recorded by the assessee in the books of account. Admittedly, the Assessing Officer has not disputed the correctness of the claim of expenditure incurred on Scientific Research. The contention of the DR that the amendment to Rule 6(7A) is procedural cannot be accepted, since the amended rule stipulates a condition that apart from approval of in-house R & D facility of assessee, the expenditure also has to be quantified by the prescribed authority for weighted deduction u/s 35(2AB) of the I.T. Act. Therefore, the amended Rule 6(7A) effect the substantive right of the assessee and cannot be termed merely as procedural. Moreover, the coordinate Bench of Bangalore Tribunal in case of M/s. Mahindra Electric Mobility Ltd. v. ACIT (supra) and M/s. Indfrag Limited v. ACIT (supra) have clearly held that prior to 1-7-2016 Form 3CL has no legal sanctity and it is only w.e.f. 1-7-2016 with the amendment to Rule 6(7A) of the I.T. Rules, that the quantification of

14 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd weighted deduction u/s 35(2AB) of the I.T. Act has significance. Therefore, we hold that the deduction u/s 35(2AB) of the I.T. Act be granted as claimed by the assessee instead of restricting it to the quantum of claim as mentioned in .Form No. 3CL by the prescribed authority. It is ordered accordingly." 115. As can be noted above, the Tribunal relied on another decision of the same Bench in the case of Mahindra Electric Mobility Ltd. v. Asstt.CIT [ITA No. 641 (Bang.) of 2017, dated 14-9-2018] wherein it was observed as under: "20. From the above discussion it is clear that prior to 1-7-2016 Form 3CL had no legal sanctity and it is only w.e.f 1-7-2016 with the amendment to Rule 6(7A)(b) of the Rules, that the quantification of the weighted deduction u/s.35(2AB) of the Act has significance. In the present case there is no difficulty about the quantum of deduction u/s.35(2AB) of the Act, because the AO allowed 100% of the expenditure as deduction u/s.35(2AB)(1)(i) of the Act, as expenditure on scientific research. Deduction u/s.35(1)(i) and sec.35(2AB) of the Act are similar except that the deduction u/s.35(2AB) is allowed as weighted deduction at 200% of the expenditure while deduction u/s.35(1)(i) is allowed only at 100%. The conditions for allowing deduction u/s.35(1)(i) of the Act and under sec.35(2AB) of the Act are identical with the only difference being that the Assessee claiming deduction u/s.35(2AB) of the Act should be engaged in manufacture of certain articles or things. It is not in dispute that the Assessee is engaged in business to which sec.35(2AB) of the Act applied. The other condition required to be fulfilled for claiming deduction u/s.35(2AB) of the Act is that the research and development facility should be approved by the prescribed authority. The prescribed authority is the Secretary, Department of Scientific Industrial Research, Govt. of India (DSIR). It is not in dispute that the Assessee in the present case obtained approval in Form No. 3CM as required by Rule 6 (5A) of the Rules. In these facts and circumstances and in the light of the judicial precedents on the issue, we are of the view that the deduction u/s.35(2AB) of the Act ought to have been allowed as weighted deduction at 200% of the expenditure as claimed by the Assessee and ought not to have been restricted to 100% of the expenditure incurred on scientific research. We hold and direct accordingly and allow the appeal of the Assessee." 11.6.10. Similar view has been taken by various other Tribunals in the following cases:

15 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd i. Indfrag Ltd. v. Asstt. CIT [IT Appeal No. 98 (Bang.) of 2018, dated 30-7-2020] ii. Sun Pharmaceutical Industries Ltd. v. Pr. CIT [2017] 77 taxmann.com 202/162 ITD 484 (Ahd. - Trib.) - This has been subsequently confirmed by Hon'ble Gujarat High Court iii. Cummins India Ltd. v. Dy. CIT [2018] 96 taxmann.com 576 (Pune - Trib.) 117. The AO in the present case has not disputed the correctness of the claim made by the assessee. In view of the above discussions and judicial precedents on this issue, we hold that the claim of the assessee must be granted as made in its return of income. It cannot be restricted to the extent of claim as approved in Form No. 3CL by DSIR since there was no such requirement either under the Act or in the Rules for the assessment year 2011-12. We accordingly allow the appeal of the assessee Company on this ground and direct the AO to delete the disallowance in this regard. 11.6.11 A similar view is held by the coordinate bench in assessee’s own case in earlier assessment years. In view of these discussions and respectfully following the above judicial pronouncements we hold that the assessee should be allowed the weighted deduction as has been claimed in the return of income and accordingly direct the assessing officer to delete the disallowance made in this regard.

16 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd 13. Since we have held the ground raised with regard to weighted deduction in favour of the assessee the alternate plea that if weighted deduction under section 35(2AB) is not allowed, then 100% of the expenditure should be allowed under section 37(1) has become academic. Accordingly the grounds raised in this regard do not warrant any adjudication.

Weighted deduction for expenses incurred towards clinical trial expenses

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).

17 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd no sanctity to the form 3CL issued by DSIR and making a plea before the Tribunal that the amount incurred towards clinical trial should be allowed, based on the certificate in form 3CL.

18 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd the additional 100% of the deduction since the assessee in the computation of income has already claimed 100%.

Allowance of MAT credit

19 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd (ii). M/s. Scope International Pvt. Ltd., (TCA No. 588 of 2019) dated 16.08.2019. (iii). Consolidated Securities Ltd., v. ACIT [172 ITD 163] (iv). Virtusa (India) (P.) Ltd., v. DCIT [157 ITD 1160] (v). Bhagwati Oxygen Ltd., v. ACIT [167 ITD 645] (vi). SI Group India Pvt. Ltd., v. DCIT in ITA.No. 2348 & 2350/Mum/2017 dated 11.10.2018. (vii). M/s. Savita Oil Technologies Ltd., v. ACIT in ITA.No. 3066/Mum/2015 dated 07.02.2017. 4. In the case of Srei infrastructure Finance Ltd., v. DCIT (supra) the Hon'ble Calcutta High Court held that MAT credit u/s. 115JAA of the Act brought forward from earlier years is to be set off against tax on total income including surcharge and education cess instead of adjusting the same from tax on total income before charging such surcharge and cess. 5. In the case of M/s. Scope International Pvt. Ltd., (supra) the Hon'ble Madras High Court considering the decision of the Hon'ble Supreme Court in the case of CIT v. K. Srinivasan [83 ITR 346] held that MAT credit has to be given including the amount of surcharge and education cess. 6. The Hyderabad Bench of the Tribunal in the case of Virtusa (India) (P.) Ltd., v. DCIT (supra) taking note of the decision of the Hon'ble Apex Court in the case of CIT v. K. Srinivasan (supra) wherein the Hon'ble Apex Court held that the word "Income-tax" would include surcharge and additional surcharge". The Tribunal held that the eligible MAT credit available to set off for the company during the captioned assessment year needs to be arrived at by comparing difference between the tax liability (inclusive of surcharge and cess) computed under normal provisions of the Act and the tax liability (inclusive of surcharge and cess) computed under the provisions of section 115JB of the Act. 7. In the case of Bhagwati Oxygen Ltd., v. ACIT (supra) the Kolkata bench of the Tribunal held as under: - "8. We have heard the rival submissions. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the issue under dispute has been addressed against the assessee by the decision of Delhi Tribunal in the case of Richa Global Exports Pvt. Ltd. reported in 25 taxmann. com 1 (Del). We find that the issue under dispute is covered in favour of the assessee by the Co-ordinate Bench of Hyderabad Tribunal relied upon by the Ld. AR (supra). We find that Hyderabad Tribunal

20 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd after considering the decision of Delhi Tribunal (supra) and after considering the decision of the Apex Court in the case of CIT vs. K. Srinivasan reported in 83 ITR 346 (SC) had held that tax includes surcharge and cess and accordingly the entire component of taxes including surcharge and cess shall have to be reckoned for calculating the MAT credit u/s 115JAA of the Act. We also find that the Hon'ble Apex Court had in the case referred to supra, had held that meaning of word 'surcharge' is nothing but an 'additional tax'. In our considered opinion, this understanding of surcharge and cess being included as part of the tax gets further sanctified by the amendment which has been brought in Section 234B of the Act in Explanation 1 Clause 5 while defining the expression 'assessed tax'." 8. In the case of M/s. Savita Oil Technologies Ltd., v. ACIT (supra) the Bombay Bench of the Tribunal held as under: "4. We have gone through the facts of this case. We have been called upon to decide in this case the correct manner of computing tax liability and also amount of credit available u/s 115JA keeping in view levy of surcharge and education cess in the process. We have examined the entire scheme of the Act containing provisions with regard to payment of MAT u/s 115JB as well as availability of credit available u/s 115JAA. It is noted that it was held by the Hon'ble Allahabad High Court in the case of CIT vs Vacment India, (supra) that methodology of computation of tax liability and granting credit of MAT should be similar to the methodology provided in the prescribed form of filing of income-tax return i.e. ITR-6. But subsequently, Hon'ble Calcutta High Court in the case of M/s Srei Infrastructure Finance Ltd, supra examined this issue in detail and ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., held that computation of tax liability and setting off of tax credit available should be done in accordance with law and not on the basis of 'inappropriate' form prescribed under the rules inadvertently. It is noted that Hon'ble Calcutta High Court has held that for the purpose of section 115JB, surcharge and cess are part of income-tax payable in accordance with provisions of section 115JB. Therefore, when the tax is paid u/s 115JB along with surcharge and cess, then entire amount would be considered for carry forward of the credit available u/s 115JAA and accordingly the entire amount would be available for the benefit of set off in the subsequent years from the amount of gross tax payable by the

21 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd 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 INCOMETAX 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 raes - c Tax payable on total Rs. 327,839,585 income 3 Surcharge on 2c Rs. 32,783,959 4 Education cess on (2c+3) Rs. 10,818,706 5 Credit under section HSJAA of tax paid in earlier years a Income-tax Rs. 29,976,115 b Surcharge Rs. 2,597,612 c Education Cess on (5a+ Rs. 857,212 Rs. 29,430,939 5b) Tax payable after credit Rs. 342,011,311 under section 115JAA

During the course of hearing, the Ld. DR also fairly submitted that it would be a correct method of computing tax liability and credit available u/s 115JAA. It is noted from the above working that first of ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., all tax amount has been computed on the total income of the assessee. Thereafter surcharge and education cess has been worked out upon the tax liability. Then, from the gross amount so arrived at, the amount of credit available u/s 115JB on account of income-tax, surcharge and education cess (all combined together) have been deducted and accordingly, net tax payable after setting off credit available u/s 115JB has been worked out. In our view, this is the correct method of computing tax liability as well as

22 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd credit available u/s 115JAA. Accordingly, we direct the AO to verify the facts as have been given in the aforesaid working and compute the tax liability accordingly and allow the necessary relief to the assessee." 9. We further observe that the decision of Coordinate Bench of the Tribunal in the case of SI Group India Pvt. Ltd., v. DCIT (supra) is emanating from the order passed by the Assessing Officer u/s. 154/143(1) of the Act. 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 ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., Part B-TTI (i.e. Total taxable income) both under normal provisions and under MAT provisions was computed without surcharge and cess and on the net amount (i.e. after grant of MAT credit) surcharge and cess was levied. We noticed that the Format ITR-6 was amended from A.Y. 2012-13 wherein the tax liability in Part-B -TTI both under normal provisions and under MAT provisions computed including surcharge and cess. MAT credit is computed automatically using the prescribed algorithm which is nothing but the balancing figure i.e. different between tax liability and MAT liability including surcharge and cess. Therefore, post A.Y. 2012-13 as the format of ITR-6 is so designed to compute MAT credit automatically using the prescribed algorithm i.e. difference between tax liability and MAT liability including surcharge and cess is a balancing figure. In our view there cannot be any debate as to the exclusion of surcharge and cess. Therefore, the observation of the Ld.CIT(A) that the issue is debatable one is not sustainable. Further, we observe that majority of the decisions including the decisions of the Hon'ble Calcutta High Court and Hon'ble Madras High Court are in favour of the assessee and therefore it cannot be said that it is a debatable issue. In the circumstances, respectfully following the above said decisions allowing the grounds of appeal of the assessee, we direct the Assessing Officer to allow ITA NO. 2397/MUM/2019 (A.Y: 2014-15) M/s. Tata Motors Ltd., set off of MAT credit inclusive of surcharge and education cess and recompute the tax payable by the assessee for the year under consideration. 11. In the result, appeal of the assessee is allowed as indicated above. Order pronounced on 25.06.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.‖

23 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd 20. In assessee’s case, the facts being identical, respectfully following the above decision of the coordinate bench we direct the Assessing Officer to include surcharge and education cess for the purpose of giving credit under section 115JAA. It is ordered accordingly.

Short Grant of TDS

Incorrect computation of interest u/s.234A

24 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd

Refund of DDT

25 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd 26. We heard the parties and produced the material on record. During the course of hearing the Ld. AR submitted the following details with regard to the dividend distributed for the year relevant to assessment year 2015-16.

Particulars Total for all For amalgamating shareholders (100%) Companies (51.13%) Number of shares fully paid up Rs.8,47,69,750 Rs.4,33,42,270 Dividend paid Rs.25,43,09,250 Rs.13,00,26,810 DDT on the above (@ 16.995%) Rs.4,32,19,857 Rs.2,20,98,056 Appointed date of amalgamation 1 April 2014 Date of declaration of divided (recommended 26 may 2014 in board meeting Date of High Court order approving the 27 February 2015 amalgamation

26 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd filed pointing out that distribution dividend tax was already paid which, by virtue of such merger of companies, was required to be refunded. 14. By now it is well settled that a merger or amalgamation scheme once sanctioned by the competent court would take effect from the date of the order envisaged in the scheme itself unless, of course, the court sanctioning such scheme otherwise provides. In the case of Marshall Sons and Co. (India) Ltd. (supra), the Apex Court observed as under : "Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in this facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanctions the scheme presented to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1) a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take sometime; indeed, they are bound to take some time because several steps provided by Sections 391 to 394-A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences." In the case of Saraswati Industrial Syndicate Ltd. v. CIT AIR 1991 SC 70, the Apex Court on the question of amalgamation of two companies observed as under : "Two companies may join to form a new company, but there may be absorption or blending of one by the other, both amount to amalgamation. When two companies are merged and are so joined as to form a third company or one is absorbed into one or blended with another, the amalgamating company loses its entity." The effect of this legal proposition would be that by virtue of deeming fiction of amalgamation relating back to the date envisaged in the scheme, transaction of payment of dividend by the transferor company to other three companies would not retain the character of dividend. As held and observed by the Bombay High Court in the cases

27 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd of Mafatlal Gagalbhai and Company (P.) Ltd. (supra) and New Shorrock Spg. & Mfg. Co. Ltd., a company cannot pay dividend to its own self. In the case of Mafatlal Gagalbhai & Co. (P.) Ltd. (supra), the facts were that the assessee company had declared dividend and paid to another company which was a major shareholder of the assessee company. Even before declaration of dividend, negotiations were going on for amalgamation of both the companies. Both the companies, therefore, presented a scheme for amalgamation before the High Court. The High Court sanctioned the scheme under an order dated 6th January 1969. Under the order of the Court, amalgamation was to take effect from 1st April 1968. In this context, the High Court considered the question whether the Tribunal erred in holding that a sum of Rs.2,14,000/- declared as dividend on 2nd September 1968 was liable to be taxed as income in the hands of the assessee company. In this context, the High Court observed that the assessee company ceased to be a shareholder of the jute company with effect from 1st April 1968. It is trite law that a company cannot hold shares of its own company. As a natural corollary, it cannot receive dividend out of its own profits. The High Court eventually held as under : "Evidently, dividend is made taxable as the income of the previous year in which it is declared. The dividend income, thus accrues as income of the previous year in which it is declared as distinct from income of the day on which it is declared. If something happens during the previous year due to which the declaration of dividend is cancelled and the amount paid as dividend is directed to be treated as loans or payment of a part of capital, it is possible to conceive that, at the end of the year, there will not be accrual of income by way of dividend despite a factual declaration. Similarly, if, by operation of law, the declaration of dividend becomes illegal, inoperative or invalid during the previous year itself, it is possible to conceive of a situation in which an assessee would be entitled to say that no income by way of dividend accrued to him during the previous year. What is important is that something factual or legal should have happened during the previous year in which the dividend is declared." Likewise, in the case of New Shorrock Spg. & Mfg. Co. Ltd. (supra), facts were that the assessee company had on 25.5.72 declared its dividend for the year 1971. One Mafatlal Gagalbhai and Co. Pvt. Ltd. case (supra) holding shares in the assessee company received dividend in respect of its holdings in the assessee company. On 27th October 1972, a proposal was initiated for amalgamation of Mafatlal Gagalbhai and Co. (P.) Ltd. case (supra) with the assessee company. Petitions for such purpose were filed before the Bombay High Court and the Gujarat High Court. By the orders passed on 24th September 1973 and 26th September 1973, the said High Courts sanctioned the amalgamation scheme. Under both these orders, amalgamation came into effect from 1st April 1972. In the assessment year 1973-74, the assessee company was sought to be taxed in respect of the dividend income received by Mafatlal Gagalbhai and Co. Ltd. The contention of the assessee was that Mafatlal Gagalbhai and Co. Ltd. having ceased to

28 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd exist with effect from 1st April 1972, by virtue of the orders of amalgamation, the assessee company could not be taxed for the dividend distributed in favour of Mafatlal Gagalbhai & Company. The Bombay High Court referring to and relying upon the decision of Mafatlal Gagalbhai and Co. (P.) Ltd. (supra) ruled in favour of the assessee. The decision in the case of Kishinchand Chellaram (supra) of the Apex Court was distinguished. 15. Before us, the situation is very similar. Certain dividend was declared and paid by one of the companies which ultimately merged with the assessee company along with other companies. Before the date of declaration and payment of dividend, scheme for amalgamation was framed. By virtue of the decision of the High Court, such scheme was sanctioned with no variation in the effective date. Thus, the date of amalgamation which actually took effect was prior to the date on which dividend was declared and paid. In that view of the matter, we have no hesitation in holding that by virtue of such subsequent developments, the payment of dividend could no longer retain the character of dividend paid by Torrent Power Ltd since there cannot be payment of dividend by one company to its own self. 16. Our attention was also drawn to a decision of Division Bench of this Court dated 13/16th July 2012 in Special Civil Application No.9980 of 2001 in case of Cadila Healthcare Ltd. In the said case, question of payment of sales tax on the sales made by the transferor company to the transferee company between effective date as envisaged in the amalgamation scheme till the date the High Court sanctioned such scheme. In that context, referring to the decision of the Apex Court in the case of Marshall Sons & Co. (India) Ltd. (supra), Division Bench of this Court held that such transfers would cease to be sales between two independent entities but would be treated as branch transfers. It was observed as under : "20. As already noted, the term 'sale' has been defined under section 2(23) of the Act. Upon the High Court sanctioning the scheme for amalgamation, the effective date of amalgamation would be the date mentioned in the scheme, namely, 1st June 1995. Such legal fall out must be given its full implication for all purposes including for the purposes of the Act. If, therefore, in eye of law from 1st June 1995, the transferor companies did not exist, and by virtue of the order of the High Court sanctioning the scheme relating back to the date envisaged in the scheme, ceased to have any legal existence, any transfer from the transferor to the transferee companies must be treated as branch transfer. This was also the view expressed by the Bombay High Court in the case of National Organic Chemicals Industries Ltd. (supra). In the said case, this precisely was the issue presented before the High Court. A Division Bench of the High Court ruled that the Company loses its corporate personality from the date declared by the competent authority under the Companies Act. In case of amalgamation of a company, the High Court being the competent authority, when the High Court sanctions the scheme for

29 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd amalgamation and declares the effective date from which such amalgamation would operate, from such date, the corporate personality of the company gets destroyed. On such principle, the Bombay High Court ruled that no sales tax was payable on the transfer by the transferor company to the transferee company during the period when the scheme for amalgamation was framed till the same was sanctioned by the High Court. We may notice that the statutory provisions arising for consideration in the Bombay High Court contained in the Maharashtra Sales Tax Act in all material purposes are similar to the provisions arising in the Gujarat Sales Tax Act." 17. In the case of Kishenchand Chellaram (supra), the Apex Court did observe that under the Income Tax Act, liability to pay tax attaches as soon as a dividend is paid, credited or distributed or is so declared and further that once a company declares its dividend, it cannot alter the character of credit by passing subsequent resolutions. Such observations were made in the context of the facts of the assessee having once declared dividend subsequently passed a resolution to treat such amount as credit in the accounts of the shareholders. In the present case, however, situation is substantially different. It was not the Company's own volition by which it desired to change the character of payment of dividend to any other nature. It was because of the subsequent developments, which however, had the effect from the date anterior to the date of payment of dividend and by virtue of which such payment ceased to retain the character of dividend. Any other view would effectively nullify the effective date of amalgamation of companies. 18. Counsel for the Revenue, we may recall, placed reliance on the provisions of section 115-O of the Act. It is undoubtedly true that sub-section (1) of section 115-O starts with a non-obstante clause and provides that notwithstanding anything contained in any other provisions of the Act, in addition to the income chargeable to tax in case of a domestic company, there shall be tax on any amount declared, distributed or paid by such company by way of dividend or interim dividend. Sub-section (3) thereof further provides that the principal officer of the domestic company and the company shall be liable to pay tax on distributed profits to the credit of the Central Government within fourteen days from the date of declaration of any dividend or distribution or payment of any dividend whichever is earliest. Sub-section (1) of section 115-O of the Act thus is a charging section and pertains to collection of tax on declaration, distribution or payment of dividend by a domestic company. Sub-section (3) does nothing beyond prescribing the date within which such tax must be credited to the Central Government. Neither of these two provisions or anything else contained in section 115O of the Act, in our opinion, would change the position. In the present case, we are concerned with a situation under which after certain dividend was declared and tax thereon was actually paid, by virtue of the High Court sanctioning the amalgamation scheme, which took effect from a date anterior to the declaration of the dividend would change the very character of such payment and such payment ceased to enjoy the character of dividend. In that view of the matter, the petitioner was perfectly justified in seeking refund of the tax already paid. We

30 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd may recall that in the return filed, the petitioner had filed a detailed note explaining such position. Claiming refund, a separate application was also filed which unfortunately came to be rejected by the Assessing Officer. The Assessing Officer contended that there was no provision under which such refund can be claimed. Section 237 of the Act, however, provides that if any person satisfies the Assessing Officer that the amount of tax paid by him or on his behalf or treated as paid by him or on his behalf for any assessment year exceeds the amount with which he is properly chargeable under the Act for that year, he shall be entitled to a refund of the excess amount. The case of the petitioner would, thus, be clearly covered under the said statutory provisions. 19. In the result, the petition is allowed. The impugned order dated 26.3.2004 passed by the Commissioner of Income Tax confirming the order of the Assessing Officer is quashed. Resultantly, the respondent shall refund to the petitioner a sum of Rs.5,92,96,881/- with statutory interest as applicable. This shall be done preferably within a period of three months from the date of receipt of a copy of this order. Rule is made absolute accordingly.

Incorrect consideration of interest under section 234C

31 2008 & 2009/Mum/2019 ITA 4656 & 4657/M/2018 J.B. Chemicals & Pharmaceuticals Ltd submitted that the interest under section 234C is charged for the shortfall in the payments of advance-tax on the income returned and not income assessed. Therefore, the Ld.AR prayed for a direction to the Assessing Officer to verify and delete the interest under section 234C erroneously charged. We accordingly direct the Assessing Officer to verify and allow the claim of the assessee in accordance with law after giving reasonable opportunity of being heard to the assessee.

Order pronounced in the open court on 27/06/2023.

sd/- sd/- (ABY T. VARKEY) (PADMAVATHY S) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 27th June, 2023 Pavanan

प्रतितिति अग्रेतििCopy of the Order forwarded to : 1. अिीिार्थी/The Appellant , 2. प्रतिवादी/ The Respondent. आयकर आयुक्त CIT 3. 4. तवभागीय प्रतितिति, आय.अिी.अति., मुबंई/DR, ITAT, Mumbai 6. गार्ड फाइि/Guard file. BY ORDER, //True Copy// Asstt. Registrar / Senior Private Secretary ITAT, Mumbai