M/s Stelis Biopharma Pvt Ltd , Bangalore V. The Assistant Commissioner of Income Tax Circle-6(1)(2), Bangalore

ITA 2191/BANG/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0606 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 13-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISRA
• Assessee Lawyers: CHYTHANYA K K
• Keywords: Depreciation; Non compliance; Revenue expenditure; Set aside
• Section: 143(3); 250; 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO S . 2191 & 2192 /BANG/2018 (ASSESSMENT YEAR S : 20 13 - 14 & 2014 - 15 ) M/S. STELIS BIOPHARMA PVT. LTD., NO.293, JIGANI INDL. AREA, JIGANI LINK ROAD, BOMMASANDRA, ANEKAL TALUK, BANGALORE - 560 105 .APPELLANT VS. 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRC LE 6(1)(2), BANGALORE. 2. DY. COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI CHYTHANYA K.K., ADVOCATE. REVENUE BY: SHRI PRIYADARSHI MISRA, JCIT (D.R) DATE OF HEARING : 02.06. 20 20. DATE OF PRONOUNCEMENT : 15 .06. 20 20. O R D E R PER BENCH : THE ASSESSEE HAS FILED THE APPEAL S AGAINST SEPARATE ORDER S OF C OMMISSIONER OF INCOME TAX (APPEALS) , BANGALORE , PASSED U/S . 143(3) AND U/S 250 OF THE INCOME TAX ACT, 1961 FOR THE ASST. YEARS 2013 - 14 AND 2014 - 15. SINCE BOTH THE APPEALS 2 ITA NOS.2192 & 2192/BANG/2018 HAVE COMMON ISSUE S, FOR THE SAKE OF CONVENIENCE , ARE CLUBBED AND HEARD AND CONSOLIDATED ORDER IS PASSED. WE SHALL TAKE UP THE ASSESSEE'S APPEAL IN ITA NO.2191/BANG/2018 AND FA CTS NA RRATED THEREIN. . 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL AS UNDER : 3 ITA NOS.2192 & 2192/BANG/2018 4 ITA NOS.2192 & 2192/BANG/2018 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF BIOLOGICAL DRUGS AND FILED THE RETURN OF INCOME FOR THE ASST. YEAR 2013 - 14 ON 27.09.2013 WITH A TOTAL LOSS OF RS.1 ,64,28,715/ - . SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) 5 ITA NOS.2192 & 2192/BANG/2018 OF THE ACT WAS ISSUED. IN COMPLIANCE, THE LEARNED AUTHO RIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TI ME AND THE CASE WAS DISCUSSED. THE ASSESSING OFFICER , ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOUND THAT THE ASSESSEE HAS NOT OFFERED REVENUE FROM OPERATIONS, BUT HAS CLAIMED EXPENDITURE ALONG WITH DEPRECIATION. THE ASSESSING OFFICER IS OF THE OPINION THAT THE ASSESSEE COMPANY HAS NOT COMMENCED ITS PRODUCTION ACTIVITIES AND THE EXPENDITURE CLAIMED IS IN THE NATURE OF PRE OPERATIVE EXPENSES, FURTHER THERE IS NO MATCHING CONCEPT OF INCOME OFFERED AGAINST EXPENDITURE IN THE SAID FINANCIAL YEAR. WHEREAS, THE ASSESSEE BY LETTER DT.23.3.2016 EXPLAINED THAT THE COMPANY HAS COMMENCED ITS OPERATIONS IN THE EARLIER YEAR S AND HAS COMPLIED WITH ACCOUNTING POLICIES AND ACCOUNTING STANDARDS, AND WHERE EVER THE EXPENDITURE INCURRED ON P RODUCT DEVELOPMENT ACTIV ITY BEING CAPITAL EXPENSES IN NATURE , IS CAPITALIZED AND ONLY REVENUE EXPENDITURE IS CLAIMED IN THE PR OFIT AND LOSS ACCOUNT BUT THE ASSESSING OFFICER HAS OVERLOOKED THESE FACTS AND IS OF THE OPI NION THAT SINCE NO COMMERCIAL OPERATIONS HAVE STARTED, THE EXPENDITURE HAS TO BE CONSIDERED AS PREOPERATIVE EXPENDITURE AS THE PRODUCTS ARE IN DEVELOPMENTAL STAGE, AND ALSO NO REVENUE FROM OPERATIONS AND NON COMPLIANCE OF MATCHING CONCEPT. THE A.O.APPLIED THE CONCEPT OF AMORTIZATION OF EXPENSES AND IS OF THE OPINION THAT THE EXPENDITURE CANNOT BE ALLOWABLE FOR THE SAID ASSESSMENT YEA R AND DISALLOWED THE CLAIM AND A SSESSED TOTAL LOSS OF RS.11,13,932 AND PASSED THE ORDER UNDER SECTION 143(3) OF THE ACT DT.28 .03.2016. 6 ITA NOS.2192 & 2192/BANG/2018 AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT (APPEALS) , WHERE AS THE CIT (APPEALS) CONSIDERED THE GROUNDS OF APPEAL, WRITTEN SUBMISSIONS AND FINDINGS OF THE ASSESSING OFFICER AND HAS CONCURRED WITH THE VIEW OF THE ASSESSI NG OFFICER THAT THE EXPENDITURE CLAIMED IS PREOPERATIVE EXPENDITURE AND NOT CURRENT YEAR REVENUE EXPENDITURE AND SUSTAINED THE A DDITION AND DISMISSED THE APPEAL. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS), THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUN AL. 5. AT THE TIME OF HEARING, THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSE COMPANY WAS INCORPORATED ON 12.06.2007 AND COMMENCED BUSINESS OPERATIONS FROM 2.5.2008. T HE ASS ESSEE IS CONTINUING THE BUSINESS FROM THE A.YS 2008 - 09 TO 201 2 - 13 WITH THE MAIN ACTIVITY OF DEVELOPMENT OF BIOLOGICAL DR UGS AND R&D. WHEREAS THE INCOME TAX DEPARTMENT HAS ACCEPTED THE ASSESSEE CLAIM OF REVENUE EX PENDITURE I N THE PROFIT AND LOSS ACCOUNT FOR THE ASST YEAR 2012 - 2013 IN THE ASSESSEMENT. THE LDAR SU PPORTED HIS ARGUMENTS WITH DETAILS IN PAPER BOOK AND PRAYED FOR ALLOWING THE APPEAL. CONTRA, THE LEARNED DEPARTMENT REPRESENTATIVE SUPPORTED THE ORDER OF THE CIT (APPEALS). 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. P RIMA FACIE, THE SOLE MATRIX OF THE DISPUTED ISSUE IS WITH RESPECT TO THE ALLOWING OF REVENUE EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT . 7 ITA NOS.2192 & 2192/BANG/2018 WHEREAS THE ASSESSING O FFICER IS OF THE OPINION THAT THE EXPENDITURE IS IN THE NATURE OF PREOPE RATIVE EXPENSES AND ALSO MATCHING CONCEPT DOES NOT EXIST AS NO REVENUE WAS OFFERED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS IN THE DEVELOPMENT OF BIOLOGICAL DRUGS AND STARTED COMMERCIAL PRODUCTION FROM THE F.Y. 2008 - 09 AND REFERRED TO PAGE 157 OF THE PAPER BOOK , WHERE THE DETAILS OF REVENUE FROM OPERATIONS ARE SUBMITTED BEFORE THE CIT (APPEALS) FOR THE A.YS 2008 - 09 TO 2012 - 13 . T HE L D. AR DEMONSTRATED THE PROFIT AND LOSS ACCOUNT PLACED AT PAGE 125 OF PAPER BOOK , WHERE THE ASSESSEE HAS CLAIMED EXPENSES AT SL. NO. IV AGGREGATING TO RS.1,52,82,533 / - FURTHER , WHERE THE EXPENDITURE IS OF ENDURING NATURE I S CAPITALIZED UNDER CAPITAL WORK IN PROCESS, ( PRODUCT UN DER DEVELOPMENT ) DISCLOSED AT PAGE132 OF PAPER BOOK IN THE ANNEXURE OF FIXE D ASSETS AS ON 31.03.2013. THE LDAR REFERRED TO THE ACCOUNTING POLICIES AND NOTES ON THE FINANCIAL STATEMENTS AT PAGE 150 OF THE PAPER BOOK WHERE EXPENDITURE INCURRED ON INTANGIBL E ASSETS DEVELOPED BY THE COMPANY POST RESEARCH STAGE IS RECOGNIZED AS AN ASSET MARKED AS - CAPITAL WORK IN PROGRESS PROJECTS UNDER WHICH ASSETS ARE NOT READY FOR ITS INTENDED USE AND OTHER CAPITAL WORK IN PROGRESS ARE CARRIED AT COST, COMPRISING DIRECT COST, RELATED INCIDENTAL EXPENSES AND ATTRIBUTED FINANCE COSTS. 8 ITA NOS.2192 & 2192/BANG/2018 INTANGIBLE ASSETS DEVELOPED BY THE COMPANY EXPENDITURE INCURRED ON INTANGIBLE ASSETS DEVELOPED BY THE COMPANY, POST RESEARCH STAGE IS RECOGNIZED AS AN ASSET, IF AND ONLY IF THE FUTURE ECONO MIC BENEFITS ATTRIBUTABLE ARE PROBABLE TO FLOW TO THE COMPANY AND COSTS CAN BE MEASURED REASONABLY. THE COST OF TECHNICAL KNOW HOW DEVELOPED IS BEING AMORTISED EQUALLY OVER ITS ESTIMATED LIFE. WITH EFFECT FROM 1.1.2011, DIRECT OPERATING EXPENSES INCURRED O N PRODUCT DEVELOPMENT HAVE BEEN TREATED AS CAPITAL WORK IN PROGRESS AND WILL BE CAPITALIZED AS TECHNOLOGY KNOW HOW, ON COMPLETION OF CERTAIN TECHNICAL MILESTONES. THESE COSTS ARE IN THE NATURE OF DEVELOPMENT OF PRODUCTS, WHICH HAVE T HE POTENTIAL TO BE EXP LOITED COMMERCIALLY AND HENCE CAN GENERATE FUTURE ECONOMIC BENEFIT. WE FIND THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAME SYST EM OF ACCOUNTING AND THE INCOME TAX DEPARTMENT HAS ACCEPTED IN EARLIER YEARS. FURTHER IN THE ASST. YEAR 2012 - 13 , WHERE THE FACTS ARE SIMILAR, THE ASSESSING OFFICER HAS CONSIDERED THE ASSESSEE'S CLAIM AND ASS ESSMENT WAS COMPLETED . THE LEARNED AUTHORIZED REPRESENTATIVES CONTENTIONS ARE THAT THERE IS NO CHANGE IN THE FACTS AND SYSTEM OF ACCOUNTING IN COMPARISON WITH THE EARLIER ASSESSMENT YEARS, HENCE THE OBSERVATION S OF THE ASSESSING OFFICER AND THE APPELLATE AUTHORITY THAT THE ASSESSEE COMPANY HAS NOT COMMENCED ITS COMMERCIAL PRODUCTION CANNOT BE TENABLE. . WE FOUND STRENGTH IN THE SUBMISSIONS OF THE LEARNED AUTHORIZ ED REPRESENT ATIVE SUPPORTED WITH DETAILS. WE FIND THAT THE ASSESSING OFFICER HAS PASSED ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT FOR THE ASST. YEAR 2012 - 13 , WHERE THE ASSESSEE LINE OF BUSINESS IS 9 ITA NOS.2192 & 2192/BANG/2018 SIMILAR TO CURRENT YEARS. WE CONSIDER IT APPROPRIAT E TO REFER TO THE SUBMISSIONS OF THE ASSESSEE IN ASSESSMENT PROCEEDINGS FOR THE ASST YEAR 2012 - 13 AT PAGE 174 - 176 OFPAPERBOOK. . 10 ITA NOS.2192 & 2192/BANG/2018 11 ITA NOS.2192 & 2192/BANG/2018 . CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THEY WERE ACCEPTED BY THE REVENUE AUTHORITIES FOR THE ASSTYEAR 2012 - 2013, WE ARE OF THE OPINION THAT THERE IS 12 ITA NOS.2192 & 2192/BANG/2018 NO CHANGE IN FACTS IN THE PRESENT ASSESSMENT YEAR, AND THE ASSESSING OFFICER CANNOT CONSIDER THE EXPENDITURE CLAIMED AS PREOPERATIVE EXPENDITURE AND THE BASIS OF MATCHING CONCEPT. ACCORDINGLY, WE SET - ASIDE TH E ORDER O F THE CIT (APPEALS ) AND RESTORE ENTIRE DISPUTED ISSUE TO THE FILE OF ASSESSING OFFICER WITH THE ABOVE DIRECTION S. AND THE A .O. SHALL PROVIDE ADEQUATE OPPORTUNITY OF HEARING TO THE A SSESSEE AND WE ALLOW THE APPEAL OF THE ASSESSEE FOR STATISTICAL P URPOSES. 7. SIMILARLY, FOR THE ASST. YEAR 2014 - 15 WHER E THE FACTS ARE IDENTICAL, THE DECISION OF THE APPEAL FOR ASST. YEAR 2013 - 14 SHALL EQUALLY APPLY TO ASST. YEAR 2014 - 15. ACCORDINGLY, WE SET ASIDE THE ORDER OF CIT (APPEALS ) AND RESTORE THE DIS PUTED ISSUES TO THE FILE OF ASSESSING OFFICER AND ALLOW THE APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE ASSESSEE'S APPEALS FOR ASST. YEARS 2013.14 & 2014 - 15 ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. S D / - S D / - ( B.R. B ASKARAN ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 5 .06. 20 20 . *REDDY GP 13 ITA NOS.2192 & 2192/BANG/2018 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE