Tagros Chemicals India Limited, CHENNAI V. ACIT Corporate Circle 3(1), CHENNAI

CO 110/CHNY/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0412 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 23-08-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G BASKAR
• Assessee Lawyers: PAVUNA SUNDARI
• Keywords: Depreciation; Question of law; Revenue expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER I.T.A. NOS. 1903 AND 1904/CHNY/2018 ASSESSMENT YEARS:2013-14 & 2014-15 & C.O. NOS. 109 & 110/CHNY/2018 [IN I.T.A. NOS.1903 & 1904/CHNY/2018] THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S. TAGROS CHEMICALS INDIA LIMITED, NO. 72, RAJA ANNAMALAI BUILDING , JHAVER PLAZA (NOW KNOWN AS JHAVER CENTER), IV FLOOR, MARSHALLS ROAD, EGMORE, CHENNAI 600 008. [PAN:AAACT2959K] (APPELLANT) (RESPONDENT/CROSS OBJECTOR) / APPELLANT BY : SMT. PAVUNA SUNDARI, JCIT /RESPONDENT BY : SHRI G. BASKAR, ADVOCATE / DATE OF HEARING : 20 . 11 .201 8 /DATE OF PRONOUNCEMENT : 27.11.2018 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BOTH THE APPEALS PREFERRED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 11, CHENNAI DATED 13.03.2018 RELEVANT TO THE ASSESSMENT YEARS 2013-14 AND 2014-15. THE ONLY EFFECTIVE GROUND RAISED IN BOTH THE APPEALS OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF DEPRECIATION CLAIMED ON THE EXPENDITURE INCURRED FOR OBTAINING THE I.T.A. NOS. 1903 & 1904/CHNY/18 & C.O. NOS.109 & 110/CHNY/18 2 REGISTRATION OF ITS PRODUCTS IN EUROPEAN COUNTRIES WHICH INCLUDES REGISTRATION EXPENSES/VALIDATION, ANALYSIS, EFFICACY TRIALS, ETC. HOLDING THAT THE SAME AS INTANGIBLE ASSET AS PER SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961 [ACT IN SHORT]. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING PESTICIDES AND CHEMICALS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATION OF .1,91,17,420/- AGAINST THE EXPENDITURE INCURRED FOR REGISTRATION OF PRODUCTS IN FOREIGN COUNTRIES OF .8,95,54,216/- IN THE ASSESSMENT YEAR 2013-14. HE REQUIRED THE ASSESSEE TO PROVIDE THE DETAILS TOWARDS WHICH THE ASSESSEE SUBMITTED THAT THE AMOUNT CLAIMED AS DEDUCTION BEING 25% OF DEPRECIATION ON THE EXPENDITURE INCURRED OF .8,95,54,216/-, IS TOWARDS REGISTRATION WITH VARIOUS AUTHORITIES IN FOREIGN COUNTRIES TO ENABLE ITS PRODUCTS TO BE EXPORTED AND DEALT IN SUCH COUNTRIES, BY TREATING THE REGISTRATION AS INTANGIBLE ASSET. THE ASSESSING OFFICER FOUND THAT ANY PAYMENT MADE OUTSIDE INDIA ATTRACTS PROVISIONS OF CHAPTER-XVII-B AND FAILURE TO COMPLY WITH SUCH PROVISION WOULD ATTRACT THE DISALLOWANCE OF SUCH DEDUCTION. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED AT .1,91,17,420/- UNDER SECTION 40(A)(I) R.W. SECTION 195 OF THE ACT. I.T.A. NOS. 1903 & 1904/CHNY/18 & C.O. NOS.109 & 110/CHNY/18 3 SIMILARLY, FOR THE ASSESSMENT YEAR 2014-15, THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION CLAIMED AT .3,11,71,961/-. 3. THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) DELETED THE DISALLOWANCE OF DEPRECIATION FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL. 4. AGAINST THE APPELLATE ORDER, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL FOR BOTH THE ASSESSMENT YEARS. THE ASSESSEE FILED CROSS- OBJECTIONS SUPPORTING THE ORDER OF THE LD. CIT(A). THE LD. DR PRESENTED THE CASE ON THE LINES OF THE GROUNDS OF APPEAL, SUPRA. THE LD.AR INVITED OUR ATTENTION TO THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN ITS CASE VIZ., CIT V. M/S. TAGROS CHEMICALS (INDIA) LTD., IN TCA NO.555 OF 2017 DATED 28.11.2017, PLEADED THAT THE ISSUE MAY BE DECIDED ACCORDINGLY. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH RELEVANT MATERIAL. THIS ISSUE IS COVERED IN ITEM (III) OF THE QUESTION OF LAW RAISED BEFORE THE HONBLE HIGH COURT, THE RELEVANT PORTION IS EXTRACTED AS UNDER: (III)WHETHER THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE REGISTRATION FEES AND OTHER RELATED PAYMENTS CONSTITUTE INTANGIBLE ASSETS AND ELIG IBLE FOR DEPRECIATION WITHIN THE MEANING OF BUSINESS OR COMMERCIAL RIGHTS U/S 32(1)(II) IN VIEW OF THE FACT THAT REGISTRATION OF I.T.A. NOS. 1903 & 1904/CHNY/18 & C.O. NOS.109 & 110/CHNY/18 4 PESTICIDES IN A PARTICULAR COUNTRY CANNOT BE TERMED AS ANY INTANGIBLE ASSET LISTED IN SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961? THE RELEVANT PORTION OF THE JUDGMENT IS EXTRACTED AS UNDER: 7. WITH REGARD TO THE SECOND ISSUE, WHEREIN THE ASSESSEE CLAIMED THAT THE PAYMENT OF REGISTRATION FEE TO BE EQUITABLE TO AN INTANGIBLE ASSET, WE FIND THAT THE FINDING OF THE TRIBUNAL IS NOT SUPPORTED BY REASONS, ESPECIALLY ON THE FACTUAL ASPECT AS TO WHAT IS THE EFFECT OF PAYMENT OF THE REGISTRATION FEE FOR ACQUIRING SUCH A LICENCE. THAT APART, THE ASSESSEE'S ALTERNATE CLAIM THAT IT SHOULD BE TREATED AS A REVENUE EXPENDITURE HAS ALSO BEEN NEGATIVED BY THE ASSESSING OFFICER. WE FIND THAT THE ASSESSING OFFICER, IN PARAGRAPH 4.2 OF THE ASSESSMENT ORDER, HAS NOT GIVEN INDEPENDENT REASON AS TO WHY THE ALTERNATE SUBMISSION OF THE ASSESSEE IS NOT ACCEPTED. THEREFORE, WE FIND THAT THE FINDING OF THE TRIBUNAL IN PARAGRAPH 13 ON THE SECOND ISSUE, IN OUR CONSIDERED OPINION, HAS BEEN RENDERED WITHOUT GOING INTO THE COMMERCIAL ASPECT OF THE EFFECT OF THE REGISTRATION FEE PAID BY THE ASSESSEE, WHICH, EVEN ACCORDING TO THE ASSESSING OFFICER, IS A HUGE EXPENSE. THEREFORE, WE FEEL THAT THE SECOND ISSUE ALSO SHOULD BE REMANDED TO THE ASSESSING OFFICER FOR FRESH CONSIDERATION GIVING LIBERTY TO THE ASSESSEE TO RAISE ALL ISSUES INCLUDING THE ALTERNATE PLEA THAT IT SHOULD BE TREATED AS A REVENUE EXPENDITURE. 6. FROM THE ABOVE, IT IS CLEAR THAT THE HONBLE JURISDICTIONAL HIGH COURT HAS REMITTED THE ABOVE MATTER BACK TO THE ASSESSING OFFICER FOR A FRESH CONSIDERATION, GIVING LIBERTY TO THE ASSESSEE TO RAISE ALL ISSUES INCLUDING THE ALTERNATE PLEA THAT IT SHOULD BE TREATED AS REVENUE EXPENDITURE AND DECIDE THE MATTER. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE ASSESSING OFFICER FOR A FRESH CONSIDERATION IN ACCORDANCE WITH THE DECISION OF THE HONBLE HIGH COURT, SUPRA. I.T.A. NOS. 1903 & 1904/CHNY/18 & C.O. NOS.109 & 110/CHNY/18 5 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON THE 27 TH NOVEMBER, 2018 AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 27.11.2018 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.