ACIT, New Delhi V. M/s Panacea Biotech Ltd., New Delhi

ITA 4758/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3770 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 10-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KISHORE
• Keywords: Rule of consistency; Revised return; Revenue expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K.D. RANJAN, ACCOUNTANT MEMBER I.T.A NO. 4758/DEL/10 ASSTT. YEAR 2007-08 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-14(1), ROOM NO. 415, C.R. BUILDING, I.P. ESTATE, NEW DELHI. VS. M/S. PANACEA BIOTECH LTD. G-3/B-1, EXTENSION MOHAN COOPERATIVE INDUSTRIAL ESTATE, MATHURA ROAD, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI B. KISHORE, SR. DR RESPONDENT BY: SHRI SUNIL KAPOOR, ADVOCATE ORDER PER RAJPAL YADAV, JM: THE REVENUE IS IN APPEAL BEFORE US AGAINST THE ORD ER OF LD. CIT(A) DATED 27.9.2010 PASSED FOR ASSTT. YEAR 2007-08. IN THE FIRST GROUND OF APPEAL, GRIEVANCE OF THE REVENUE IS THAT LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF ` 1,17,36,191/-, WHICH WAS MADE BY THE AO BY DISALLOWING THE CLAIM OF ASSESSEE OUT OF PRODUCT RE GISTRATION EXPENSES. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS F ILED ITS RETURN OF INCOME ON 31.10.2007 WHICH WAS REVISED ON 2 ND FEBRUARY, 2009. IN THE ITA NO. 4758/DEL/10 ASSTT. YEAR 2007-08 2 REVISED RETURN, IT HAS DECLARED TOTAL INCOME OF ` 1,48,06,42,922/-. ON SCRUTINY OF THE ACCOUNTS, AO FOUND THAT ASSESSEE HA S DEBITED A SUM OF ` 1,46,70,239/- TOWARDS PRODUCT REGISTRATION EXPENSES . HE DIRECTED THE ASSESSEE TO EXPLAIN THE NATURE OF EXPENSES AND HOW IT IS ALLOWABLE. THE ASSESSEE SUBMITTED THAT THIS AMOUNT WAS PAID IN VAR IOUS COUNTRIES IN GETTING ITS PRODUCT REGISTERED WITH THE MINISTRY OF HEALTH OF THOSE COUNTRIES. THE AO FOUND THAT ONCE PAYMENT IS BEING MADE BY THE ASSESSEE THEN A PERMISSION TO SELL THE PRODUCTS IS BEING GRANTED FOR A PERIOD OF FIVE YEARS. ACCORDING TO HIM, THE BENEFIT OF EXPENDITURE IS AVAILABLE TO THE ASSESSEE OVER A PERIOD OF FIVE YEA RS. HE WAS OF THE OPINION THAT EXPENSES SHOULD ALSO BE CLAIMED IN FIV E YEARS. IN OTHER WORDS, HE TREATED THIS EXPENDITURE AS DEFERRED REVE NUE EXPENDITURE. THE ASSESSEE CONTENDED BEFORE THE AO THAT IN ORDER TO S ELL THE PRODUCT IN OVERSEAS MARKET, IT IS A MANDATORY CONDITION TO GET THE DRUG APPROVED AND REGISTERED THERE. IT IS A REVENUE EXPENDITURE A ND INCOME TAX ACT DOES NOT RECOGNIZE ANY CONCEPT OF DEFERRED REVENUE EXPENDITURE. IT IS JUST A ACCOUNTING CONCEPT DENOTING EXPENDITURE FOR WHICH A PAYMENT HAS TO BE MADE FOR A LIABILITY INCURRED WHICH IS RE VENUE IN NATURE AND ON THE PRESUMPTION THAT THE SAME WILL RESULT A BENEFIT OVER SUBSEQUENT PERIODS. THEN IT SPREAD OUT FOR THAT PERIOD AND WRI TTEN OVER THAT PERIOD. THE ASSESSEE RELIED UPON THE ORDER OF ITAT IN THE C ASE OF AMAR RAJA ITA NO. 4758/DEL/10 ASSTT. YEAR 2007-08 3 BATTERIES LTD. VS. ACIT 91 ITD 280, CHARAK PHARMACE UTICALS VS. JCIT 4 SOT 393. LD. AO HOWEVER, DID NOT ACCEPT THE CONTENT ION OF ASSESSEE. HE TREATED THE EXPENSE AS DEFERRED REVENUE AND MADE THE DISALLOWANCE OF ` 1,17,36,191/-. 2. ON APPEAL, LD. CIT(A) DELETED THE DISALLOWANCE O N THE GROUND THAT SIMILAR DISALLOWANCE WAS MADE IN ASSTT. YEAR 2003-0 4, 2004-05, 2005-06 AND 2006-07. THE DISALLOWANCES HAVE BEEN DELETED AN D THE DISPUTE TRAVELED UP TO THE TRIBUNAL. THE TRIBUNAL HAS ALSO UPHELD THE DELETION OF DISALLOWANCE. LD. FIRST APPELLATE AUTHORITY HAS REP RODUCED THE OBSERVATION OF THE TRIBUNAL MADE IN ASSTT. YEAR 200 5-06. THE OBSERVATION OF THE TRIBUNAL READ AS UNDER:- WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMI SSIONS BEFORE US. WE ARE OF THE VIEW THAT THE RULE OF CONSISTENCY IS NOT OF UNIVERSAL APPLICATION ESPECIALLY IN A CASE WHERE A WRONG DECISION IN THE PAST HAS NOT BEEN EITHER RECTIFIED OR CHALLENGED IN APPELLATE PROCEEDINGS. T HEREFORE, WE WOULD PREFER TO GO BY THE MERITS OF THE CASE. THE AO HAS HIMSELF ST ATED IN THE ASSESSMENT ORDER THAT THE INCOME TAX ACT DOES NOT RECOGNIZE TH E CONCEPT OF DEFERRED REVENUE EXPENDITURE. IN SUCH CIRCUMSTANCES, WHAT HA S TO BE SEEN IS THAT WHETHER ANY BENEFIT HAS ACCRUED TO THE ASSESSEE IN THE CAPITAL FIELD. THE EXPENDITURE HAS BEEN INCURRED ON REGISTRATION OF TH E DRUGS IN THE COUNTRY WHERE THE DRUGS ARE EXPORTS. THE FINDING OF THE LD. CIT(A) IS THAT THE EXPENDITURE IS OF REVENUE NATURE AND FOR THIS PURPO SE RELIANCE HAS BEEN PLACED ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS. FINLAY MILLS LTD. 20 ITR 475. THIS FINDING HAS NOT BEEN CHALLENGED BY TH E LD. DR. THEREFORE, IT IS HELD THAT THE LD. CIT(A) WAS RIGHT IN ALLOWING THE WHOLE OF THE EXPENDITURE. 3. WITH THE ASSISTANCE OF LD. REPRESENTATIVE, WE HA VE GONE THROUGH THE RECORD CONSISTENTLY. THERE IS NO DISPARITY ON F ACTS, CONSISTENTLY. AO ITA NO. 4758/DEL/10 ASSTT. YEAR 2007-08 4 HAS BEEN ALLOWING 1/5 TH OF EXPENSES INCURRED BY THE ASSESSEE TOWARDS PRODUCT REGISTRATION. THE REST OF THE AMOUNT HAS BE EN DISALLOWED. THOSE DISALLOWANCES HAVE BEEN DELETED BY THE LD. CIT(A) A ND THE ORDERS OF THE LD. CIT(A) WERE UPHELD BY THE TRIBUNAL. WE HAVE GO NE THROUGH THE TRIBUNALS ORDER IN ALL THESE ASSTT. YEARS WHICH HA VE BEEN PLACED ON THE PAPER BOOK. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL. IT IS REJE CTED. 4. IN THE NEXT GROUND OF APPEAL, GRIEVANCE OF THE R EVENUE IS LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO RECOMPUTE THE DISALLOWANCE MADE U/S 14A OF THE ACT. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVE, WE HAVE GONE THROUGH THE RECORD CAREFULLY. LD. AO HAS MADE THE DISALLOWANCE U/S 14A ON THE BASIS OF RULE 8D. LD. CIT(A) HAS OBSERVED THAT HONBLE MUMBAI HIGH COURT IN THE CASE OF GODRE J BOYCE LTD. VS. DCIT REPORTED IN 328 ITR 81 HAS HELD THAT RULE 8D I S PROSPECTIVE IN APPLICATION. IT HAS BEEN NOTIFIED W.E.F. 24 TH MARCH, 2008. THE DISALLOWANCE CANNOT BE COMPUTED WITH THE HELP OF TH IS RULE. LD. CIT(A), THEREFORE, DIRECTED TO AO TO RECOMPUTE THE DISALLO WANCE. THE LD. DR POINTED OUT THAT LD. CIT(A) HAS NO JURISDICTION TO SET ASIDE ANY ISSUE BEFORE THE LD. AO. LD. FIRST APPELLATE AUTHORITY IS BOUND TO ADJUDICATE THE ISSUE ON MERIT AFTER CALLING A REMAND REPORT. L D. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND, SUBMITTED THAT IF ORDER OF THE LD. CIT(A) IS ITA NO. 4758/DEL/10 ASSTT. YEAR 2007-08 5 SET ASIDE AND HE IS DIRECTED TO ADJUDICATE THIS IS SUE ON MERIT, THEN PROCEEDING WILL COMMENCE AT TWO DIFFERENT PLACES I. E. ONE BEFORE THE AO WHERE HE WILL EXAMINE THE ACCOUNTS IN THE REMAND P ROCEEDING AND SUBMIT THE REMAND REPORT BEFORE THE LD. CIT(A). IT IS BETTER THAT AO IS DIRECTED TO READJUDICATE THE ISSUE. 5. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES, WE ARE OF THE VIEW THAT LD. CIT(A) HAS NO POWER TO REMAND ANY IS SUE TO THE FILE OF AO. HIS ORDER IS NOT SUSTAINABLE ON THAT PRINCIPLE BUT CONSIDERING THE FACTS AND CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE F ILE OF AO FOR READJUDICATION. THUS, THIS GROUND IS ALLOWED FOR S TATISTICAL PURPOSE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 17.6.2011. SD/- SD/- [K.D. RANJAN] [RAJPAL YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17.6.2011 VEENA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT ITA NO. 4758/DEL/10 ASSTT. YEAR 2007-08 6 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT