Smt. Seema Ajay Ranka, Baroda V. The Addl. CIT., Range-2, Baroda

ITA 3019/AHD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8374 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHR I RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER S MT. SEEMA AJAY RANKA, PROP. ZYD EX INDUSTRIES, A - 25, GANDHI OIL MILL COMPOUND, NEAR BIDC, GORWA, V A DODARA - 390016 PAN: ABLPR6874K (APPELLANT) VS THE ADDL. COMMISSIONER OF INCOME TAX, RANGE - 2, AAYKAR BHAVAN, VADODARA - 390007 (R ESPONDENT) THE ACIT, CIRCLE - 2(2), BARODA (APPELLANT) VS SMT. SEEMA AJAY RANKA, PROP. ZYDEX INDUSTRIES, A - 25, GANDHI OIL MILL COMPOUND, NEAR BIDC, GORWA, VADODARA - 390016 PAN: ABLPR68 74K (RESPONDENT) REVENUE BY : S H RI K. MADHUSUDAN , SR. D . R. ASSESSEE BY: S H RI BHAVIN MARFATIA , A.R. I T A NO . 3019 / A HD/20 13 A S SESSMENT YEAR 200 9 - 10 ITA NO. 3105 /AHD/20 13 ASSESSMENT YEAR 200 9 - 10 I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 2 DATE OF HEARING : 11 - 09 - 2 017 DATE OF PRONOUNCEMENT : 10 - 10 - 2 017 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE TWO APPEALS FILED BY ASSESSEE AND REVENUE FOR A.Y. 2009 - 10 , AR ISES FROM ORDER OF THE CIT(A) - II, BARODA DATED 03 - 10 - 2013 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TA X ACT, 1961; IN SHORT THE ACT . ITA NO. 3105/AHD/2013 2 . THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1. (A) WHETHER THE LD.CIT(A) ERRED IN RELYING ON THE DECISION OF HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. CADILA HEALTHCARE LTD IN TAX APPEAL NO.752 OF 2012 AND WHICH IN TURN RELIED ON THE HON'BLE SUPREME COURT'S DECISION IN THE CASE OF FINLAY MILLS LTD (20 ITR 475 (SC)), WHICH WAS DELIVERED WHEN TRADE MARK WAS NOT AN ASSET UNDER I.T. LAW. (B) THE LD. CIT(A) ERRED IN NOT APPRECIATIN G THAT UNDER I.T. LAW PATENT, WHICH IS AN INTELLECTUAL PROPERTY RIGHT IS RECOGNIZED AS ASSET OF ENDURING NATURE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT (APPEALS) ERRED IN LAW AS WELL AS IN FACTS BY DELETING THE PATENT APPLICATION FEES WITHOUT CONSIDERING THE FACT THAT THE EXPENSES DOES NOT ACCRUE IN THE RELEVANT ASSESSMENT YEAR AS ASSESSEE HAS APPLIED FOR PATENT AND THE SAME WAS NEITHER APPROVED NOR REJECTED DURING THE RELEVANT PREVIOUS YEAR. ', \ 3.. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN LAW IN NOT CONSIDERING THE EXPENSES RELATED TO REGISTRATION OF PATENT TO BE TREATED AS CAPITAL EXPENDITURE IN THE YEAR IN WHICH PATENT IS APPROVED. 3 . THE ASSESSEE HAS RAISED FOLLOWI NG GROUNDS OF APPEAL: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, BARODA ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN MAKING ADDITION OF RS. 5,00,000/ - OUT OF FOREIGN TRAVELLING EXPENSES. I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 3 2. THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) - II, BARODA ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF AO IN MAKING ADDITION OF RS. 3,00,000/ - OUT OF TRAVELLING AND CONVEYANCE EXPENSES. REVENUE S APPEAL 4 . IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 3 , 57 , 98 , 050/ - WAS FILED ON 29 TH SEPTEMBER, 2009. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING OF NOTICE U/S. 143(2) ON 24 TH AUGUST, 2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF VARIOUS EXPENSES, THE ASSESSING OFFICER N OTICED THAT ASSESSEE HAS CLAIMED RS. 50 , 54 , 568/ - ON ACCOUNT OF PATENT APPLICATION FEES AS REVENUE EXPENDITURE. THE ASSESSEE HAS SUBMITTED THAT GENERALLY PATENT IS BEING APPROVED VERY LATE AND SOMETIMES REJECTED ALSO. ASSESSEE FURTHER STATED THAT DURING THE PERIOD NEITHER THE PATENT WAS APPROVED NOR REJECTED , THEREFORE , THE BUSINESS OF THE ASSESSEE HAS NOT GOT ANY GAIN BY SUCH ACTIVITIES. FURTHER , THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DONE ALL THE EXERCISES TO PROTECT HER RIG HTS TO TECHNOLOGY, CREATE BRAND NAME OR TRADE MARK TO PREVENTS COMPETITOR AND SAFEGUARD THE INTEREST OF BUSINESS NOT ONLY F OR ONE YEAR BUT FOR A NUMBER OF YEARS. THE ASSESSING OFFICER HAS STATED THAT IT IS CLEAR THAT THE SAID EXPENSES INCURRED ON ACCOUNT OF PATENT APPLICA TION WAS IN THE NATURE OF CAPITAL EXPENSES, THEREFORE, HE TREATED THE EXPENSES AS CAPITAL EXPENDITURE AFTER ALLOWING DEPRECIATION TO THE ASSESSEE. 5 . AGGRIEVED AGAINST THE DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CI T(A). THE LD. CIT(A) HAS I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 4 ALLOWED THE APPEAL OF THE ASSESSEE AFTER PLACING RELIANCE ON THE DECISION OF THE HON BLE HIGH COURT IN THE CASE OF CIT VS. CADILA H EALTHCARE LTD VIDE TAX APPEAL NO. 752 OF 2012 DATED 20 TH MARCH, 2013. 3.3 DECISION: I HAVE CON SIDERED THE SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. CADILA HEALTHCARE LTD. IN TAX APPEAL NO. 752 OF 2012 DATED 20 - 3 - 2013, THE CLAIM OF THE APPELLANT IS ALLOWED. 6 . DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US , THE LD. DEPARTMENTAL REPRESENTATIVE CONTENDED THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AFTER PLACING RELIANCE ON THE DECISION OF THE HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CADILA HEALTHCARE PVT. LTD. WHICH WAS DELIVERED WHEN TRADE MARK WAS NOT AN ASSET IN IT LAW. ON THE OTHER SIDE, LD. COUNSEL FURNISHED PAPER BOO K CONTAINING ACKNOWLEDGEMENT OF RETURN OF INCOME, TAX AUDIT REPORT, SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND ALSO PLACED RELIANCE ON THE DECISION OF HON BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CADILA HEALTHCARE PVT. LTD . 7 . WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE MA TERIAL ON RECORD CAREFULLY. WE HAVE ALSO PERUSED THE PRONOUNCEMENT OF HON BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. CADILA HEALTHCARE PVT. LTD VIDE TAX APPEAL NO . 752 /2012. RELEVANT PART OF THE JUDICIAL PRONOUNCEMENT IS REPRODUCED AS UNDER: - THESE QUESTIONS PERTAIN TO THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS PRODUCT REGISTRATION BEFORE THE DRUG REGULATORY AUTHORITIES AND I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 5 REGISTRATION OF TRADEMARK AND PATENT FEES. IT IS THE CASE OF THE REVENUE THAT SUCH REGISTRATION GIVES ENDURING BE NEFITS AND THEREFORE SHOULD HAVE BEEN TREATED AS CAPITAL EXPENDITURE AND NOT REVENUE IN NATURE. THE TRIBUNAL CLUBBED THESE EXPENDITURE FOR COMMON CONSIDERATION AND IN THE IMPUGNED JUDGMENT HELD THAT PHARMACEUTICAL PRODUCTS MANUFACTURED BY THE ASSESSEE ARE TO BE REGISTERED WITH THE LOCAL AUTHORITIES AS ALSO MEDICAL ASSOCIATION IN INDIA. SUCH PRODUCTS WERE IN EXISTENCE AND NOTHING NEW WERE ACQUIRED BY THE ASSESSEE IN THE PROCESS. THE TRIBUNAL, THEREFORE, HELD THAT THE EXPENDITURE ONLY ENABLE THE ASSESSEE TO R UN THE EXISTING BUSINESS SMOOTHLY AND THEREFORE, IT CANNOT BE STATED THAT THE ASSESSEE ACQUIRED ANY TANGIBLE OR INTANGIBLE ASSETS. WITH RESPECT TO PATENT AND TRADEMARK REGISTRATION, THE TRIBUNAL HELD THAT FOR PROTECTION OF RESULT OF THE RESEARCH OF THE AS SESSEE, SUCH PATENT HAD TO BE REGISTERED. IT WAS OBSERVED THAT ENDURING BENEFIT IS NOT THE ONLY CRITERIA. THE SAME MUST BE COUPLED WITH ACQUISITION OF ASSET. WITH RESPECT TO THE EXPENDITURE INCURRED FOR PRODUCTION REGISTRATION CHARGES, WE AGREE WITH THE V IEW OF THE TRIBUNAL THAT THE ASSESSEE DID NOT ACQUIRE ANY NEW ASSET. AS PER THE RULES AND REGULATIONS, IT WAS ESSENTIAL THAT THE PRODUCT, BEFORE MARKETING, WOULD BE REGISTERED WITH THE REGULATING AUTHORITIES. ANY EXPENDITURE IN THE PROCESS WOULD NOT BE STA TED TO ENSURE PROCUREMENT OF A NEW ASSET TO THE ASSESSEE. WE ARE INFORMED THAT A DIVISION BENCH OF THIS COURT IN THE CASE OF CIT V. TORRENT PHARMACEUTICALS LTD , (2013) 29 TAXMANN.COM 405 (GUJARAT) ALSO IN SOMEWHAT SIMILAR FACTS HAD UPHELD THE DECISION OF THE TRIBUNAL. WITH RESPECT TO THE EXPENDITURE FOR TRADEMARK AND PATENT, LEARNED COUNSEL FOR THE RESPONDENT - ASSESSEE RIGHTLY POINTED OUT THAT SUCH ISSUE WAS EXAMINED BY THE SUPREME COURT IN THE CASE OF 20 ITR 475, WHEREIN IT WAS HELD AND OBSERVED AS UNDER: IN OUR OPINION, THE CONTENTION URGED ON BEHALF OF THE APPELLANT MUST FAIL. IT IS NOT CONTENDED THAT BY THE TRADE MARKS ACT A NEW ASSET HAS COME IN TO EXISTENCE. IT WAS CONTENDED THAT AN ADVANTAGE OF AN ENDURING NATURE HAD COME INTO EXISTENCE. IT WAS ARGUED THAT JUST AS MACHINERY MAY ATTAIN A HIGHER VALUE BY AN IMPLEMENTATION CAUSING GREATER PRODUCTIVE CAPACITY, IN THE PRESENT CASE THE TRADE MARK WHIC H EXISTED BEFORE THE TRADE MARKS ACT ACQUIRED AN ADVANTAGE OF AN ENDURING NATURE BY REASON OF THE TRADE MARKS ACT AND THE FEES PAID FOR REGISTRATION THEREUNDER WERE IN THE NATURE OF CAPITAL EXPENDITURE. IN OUR OPINION, THIS ANALOGY IS FALLACIOUS. THE MACHINERY WHICH ACQUIRES A GREATER PRODUCTIVE CAPACITY BY REASON OF ITS IMPROVEMENT BY THE INCLUSION OF SOME NEW INVENTION NATURALLY BECOMES A NEW AND AL TERED ASSET BY THAT PROCESS. SO LONG AS THE MACHINERY LASTS, THE IMPROVEMENT CONTINUES TO THE ADVANTAGE OF THE OWNER OF THE MACHINERY. THE REPLACEMENT OF A DILAPIDATED ROOF BY A MORE SUBSTANTIAL ROOF STANDS ON THE SAME FOOTING. THE RESULT HOWEVER OF THE TRADE MARKS ACT IS ONLY TWO - FOLD. BY REGISTRATION, THE OWNER IS ABSOLVED FROM THE OBLIGATION TO PROVE HIS OWNERSHIP OF THE TRADE MARK. IT IS TREATED AS PRIMA FACIE PROVED ON PRODUCTION OF THE REGISTRATION CERTIFICATE. IT THUS MERELY SAVES HIM THE TROUBLE OF LEADING EVIDENCE, IN THE EVENT OF A SUIT, IN A I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 6 COURT OF LAW, TO PROVE HIS TITLE TO THE TRADE MARK. IT HAS BEEN SAID THAT REGISTRATION IS IN THE NATURE OF COLLATERAL SECURITY FURNISHING THE TRADER WITH A CHEAPER AND MORE DIRECT REMEDY AGAINST INFRINGERS. CANCEL THE REGISTRATION AND HE HAS STILL HIS RIGHT ENFORCEABLE AT COMMON LAW TO RESTRAIN THE PIRACY OF HIS TRADE MARK. IN OUR OPINION, THIS IS NEITHER SUCH AN ASSET NOR AN ADVANTAGE SO AS TO MAKE PAYMENT FOR ITS REGISTRATION A CAPITAL EXPENDITURE. IN THIS CONNECTION IT MAY BE USEFUL TO NOTICE THAT EXPENDITURE INCURRED BY A COMPANY IN DEFENDING TITLE TO PROPERTY IS NOT CONSIDERED EXPENSE OF A CAPITAL NATURE. IN SOUTHERN (H M INSPECTOR OF TAXES ) V. BORAX CO NSOLIDATED LTD., 10 I. T R. SUP. 1, IT IS THERE STATED THAT WHERE A SUM OF MONEY IS LAID OUT FOR THE ACQUISITION OR THE IMPROVEMENT OF A FIXED CAPITAL ASSET IT IS ATTRIBUTABLE TO CAPITAL BUT OF NO ALTERATION IS MADE IN THE FIXED CAPITAL ASSET BY THE PAYMEN T, THEN IT IS PROPERLY ATTRIBUTABLE TO REVENUE, BEING IN SUBSTANCE A MATTER OF MAINTENANCE, THE MAINTENANCE OF THE CAPITAL STRUCTURE OR THE CAPITAL ASSET OF THE COMPANY. IN OUR OPINION, THE ADVANTAGE DERIVED BY THE OWNER OF THE TRADE MARK BY REGISTRATION F ALLS WITHIN THIS CLASS OF EXPENDITURE. THE FACT THAT A TRADE MARK AFTER REGISTRATION COULD BE SEPARATELY ASSIGNED, AND NOT AS A PART OF THE GOOD WILL OF THE BUSINESS ONLY, DOES NOT ALSO MAKE THE EXPENDITURE FOR REGISTRATION A CAPITAL EXPENDITURE, THAT IS O NLY AN ADDITIONAL AND INCIDENTAL FACILITY GIVEN TO THE OWNER OF THE TRADE MARK. IT ADDS NOTHING TO THE TRADE MARK ITSELF. NO CONTRARY DECISION IS BROUGHT TO OUR NOTICE. IN OUR OPINION, THEREFORE, BOTH THESE QUESTIONS ARE NOT REQUIRED TO BE CONSIDERED. AF TER TAKING IN TO CONSIDERATION THE JUDICIAL FINDINGS ON THE IDENTICAL ISSUE ADJUDICATED BY THE HONBLE HIGH COURT OF GUJARAT AS SUPRA WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF THE LD. CIT(A). THEREFORE, THE APPEAL OF THE REVENUE IS DISMISSED . ASSESSEE S APPEAL 8 . THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS CLAIMED FOREIGN TRAVEL EXPENSES OF RS. 51 , 58 , 924/ - .THE ASSESSING OFFICER OBSERVED THAT FOREIGN TRAVEL EXPENSES ALSO INCLUDE THE EXPENSES RELATING TO FOREIGN TRAVEL MADE BY THE HUSBAND AND SON OF THE ASSESSEE WHICH ATTRACTED THE PROVISION OF SECTION 40A(2)(B . I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 7 THEREAFTER FOR WANT OF SUPPORTING EVIDENCES AND VERIFICATION, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 5 LACS OUT OF THE FOREIGN TRAVEL EXPENSES . T HE ASSESSIN G OFFICER HAS ALSO NOTICED THAT ASSESSEE CLAIMED RS. 82 , 30 ,736 / - UNDER THE HEAD TRAVELLI NG AND CONVEYANCE EXPENSES , RS . 10 , 03 , 403/ - AS VEHICLE EXPENSES, RS. 3 , 31 ,161 / - OFFICE EXPANSE S , RS. 15 , 39 , 861/ - AS DEPRECIATION O N CAR AND RS. 15 , 15 , 813/ - AS TELEPHO NE EXPENSES. SINCE THE ASSESSEE FAILED TO PRODUCE THE SUPPORTING EVIDENCES LIKE LOG BOOK FOR RUNNING OF VEHICLE, REGISTER/DETAILS FOR USE OF TELEPHONE ETC. THEREFORE , THE ASSESSING OFFICER H AS MADE ADDITION OF RS. 3 LACS IN THE TOTAL INCOME OF THE ASSESSE E. THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE LD. CIT(A) AGAINST SUCH DISALLOWANCE OF EXPENSES. THE LD.CIT(A) HAS CONFIRMED THE DISALLOWANCES BY STATING THAT R EGARD ING FOREIGN TRAVEL EXPENSES ASSESSEE HAS NOT PRODUCED SUPPORTING EVIDENCES AND CLAIM WAS NOT VERIFI ABLE , THEREFORE, HE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. S IMILARLY, IN RESPECT OF TRAVEL AND CONVEYANCE EXPENSES, VEHICLE EXPENSES, OFFICE EXPENSES , DEPRECIATION OF CARS AND TELEPHONE EXPENSES, HE HELD THAT ASSESSEE FAILED TO PR ODUCE ANY LOG BOOK IN RESPECT OF USE OF CAR AND ANY SUPPO RTING EVIDENCES IN RESPECT OF USE OF TELEPHONE ETC., HOLDING THAT THE PERSONAL ELEMENT CANNOT BE RULED OUT HE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 9 . WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE MATERIAL ON RECORD. WE OBSERVED THAT THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS, THE ASSESSEE FAILED TO I.T.A NO S . 3019 & 3105 /AHD/20 13 A.Y. 200 9 - 10 PAGE NO SMT. SEEMA AJAY RANKA VS. ADDL. CIT 8 JUSTIFIED THE EXPENSES INCURRED IN THE CASE OF THE FAMILY MEMBERS UNDER THE HEA D FOREIGN TRAVEL E XPENSES AND ALSO ASSESSEE COULD NOT FURNISH THE RELEVANT SUPPORTING EVIDENCES IN RESPECT OF CONVEYANCE EXPENSES, VEHICLE EXPENSES, OFFICE EXPENSES, IN VIEW OF THESE FACTS WE DO NOT FIND ANY REASON TO INTERFERE IN THE FINDINGS OF T HE LD. CIT(A) . THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 10 . IN THE RESULT, THE APPEAL OF THE REVENUE AND THE APPEAL OF THE ASSESSEE ARE DISMISSED . ORDER PR ONOUNCED IN THE OPEN C OURT ON 10 - 10 - 201 7 SD/ - SD/ - ( RAJPAL YADAV ) ( AMARJIT SI NGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 10 /10 /2017 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,