MEGA FINE PHARMA P.LTD, MUMBAI V. ACIT 4(2), MUMBAI

ITA 690/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0590 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 02-02-2015
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Depreciation; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE S/ SHRI B.R. BASKARAN (AM) & SANDEEP GOSAIN (JM) I.T.A. NO. 690 /MUM/20 15 (ASSESSMENT YEAR 20 10 - 11 ) M/S. MEGA FINE PHARMA PVT. LTD. SETHNA BUILDING, 4 TH FLOOR 55, MAHARSHI KARVE ROAD MARINE L INES MUMBAI - 400 002. VS. ACIT CIRCLE 4(2) AAYAKAR BHAVAN M.K. ROAD NEW MARINE LINES MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) PAN NO . AAACM7472M ASSESSEE BY SHRI C.V. JAIN DEPARTMENT BY SHRI SUMAN KUMAR DATE OF HEARING 6 . 6 . 201 7 DATE OF PRONOUNCEMENT 6 . 6 . 201 7 O R D E R PER B.R. BASKARAN (AM) : - THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 3.12.2014 PASSED BY THE LEARNED CIT(A) - 9, MUMBAI AND IT RELATES TO A.Y. 2010 - 11. THE ASSESSEE IS AGGRIEVED BY THE DECISION RENDERED BY THE LEARNED CIT(A) ON FOLLOWING TWO ISSUES : - (A) ADDITION TO CLOSING STOCK : ` 7,72,246/ - (B) DISALLOWANCE OF PATENT EXPENSES : ` 4,24,100/ - 2. WE HEARD THE PARTIES AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANU FACTURE AND SALE OF BULK DRUGS AND CHEMICALS. THE FIRST ISSUE RELATES TO ADDITION MADE TO THE VALUE OF CLOSING STOCK. BEFORE THE ASSESSING OFFICER THE ASSESSEE FURNISHED DETAILS OF VALUATION OF FINISHED STOCK, WHICH WAS VALUED AT LOWER OF COST OF MARKET VA LUE. FOR THE PURPOSE OF ARRIVI NG AT THE COST OF FINISHED GOODS, THE ASSESSEE HAS TAKEN INTO ACCOUNT COST OF RAW MATERIAL, COST OF CONVERSION AND DIRECT OVERHEADS. THE ASSESSING OFFICER M/S. MEGA FINE PHARMA PVT. LTD. 2 EXAMINED THE PROFIT AND LOSS ACCOUNT AND ARRIVED AT THE AVERAGE VALUE O F FINISHED GOODS AS PER FIGURES AVAILABLE IN THE PROFIT AND LOSS ACCOUNT. AS PER THE VALUATION SO MADE BY THE ASSESSING OFFICER, AGGREGATE VALUE OF CLOSING STOCK OF FINISHED GOODS WAS MORE BY ` 7,72,246/ - AND HENCE, THE ASSESSING OFFICER ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. T HE LEARNED CIT(A) ALSO CONFIRMED THE SAME AND HENCE THE ASSESSEE IS CONTESTING THE DECISION OF THE TAX AUTHORITIES. 3. MAIN CONTENTION OF LEARNED AR IS THAT THE ASSESSING O FFICER HAS ERRED IN LAW IN ADOPT ING THE AVERAGE VALUE F ROM THE FIGURES AVAILABLE IN PROFIT AND LOSS ACCOUNT IN ORDER TO ARRIVE AT THE VALUE OF FINISHED GOODS , WHEN THE RE ARE DIFFERENT TYPES OF FINISHED GOODS, I.E., THE ASSESSEE IS MANUFACTURI NG VARIOUS TYPES OF FINISHED GOODS RANGING FROM ` 1000/ - TO ` 15000/ - . HE SUBMITTED THAT THE ASSESSEE HAS BEEN SCIENTIFICALLY VALUING THE FINISHED GOODS AND THE SAME SYSTEM IS FOLLOWED OVER THE PAST SEVERAL YEARS. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS ALSO FURNISHED A CERTIFICATE OBTAINED FROM CHARTERED ENGIN EER TO PROVE THAT THE STOCK HAS BEEN VALUED IN SCIENTIFIC MANNER. HE FURTHER SUBMITTED THAT THE ASSESSING OFFICER DID NOT FIND FAULT WITH THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR VALUING CLOSING STOCK. HENCE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN D ISTURBING THE METHOD ADOPTED BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE LD CIT(A) CONFIRMED THE ADDITION WITHOUT GIVING ANY REASON. 4. ON THE CONTRARY, LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE LEARNED CIT(A). 5. HAVING HEARD THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE CONTENTION OF LEARNED AR. FROM THE ORDERS PASSED BY THE TAX AUTHORITIES, WE NOTICED THAT THE ASSESSING OFFICER HAS NOT FOU ND FAULT WITH THE METHOD FOLLOWED BY THE ASSESSEE F OR VALUING FINISHED GOODS. SECONDLY, THE ASSESSEE HAS BEEN FOLLOWING THE SAME METHOD OF VALUATION FOR THE PAST SEVEN YEARS AND HENCE, UNDER THE PRINCIPLES OF CONSISTENCY, THE ASSESSING OFFICER SHOULD NOT HAVE DISTURBED THE SAME WITHOUT FINDING FAULT WITH T HE SA ID METHODOLOGY. WE M/S. MEGA FINE PHARMA PVT. LTD. 3 ALSO NOTICED THAT THE LEARNED CIT(A) HAS NOT GIVEN ANY REASONING FOR UPHOLDING ADJUSTMENT MADE BY THE ASSESSING OFFICER. UNDER THESE SET OF FACTS, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY THE LEARNED CIT(A) ON THIS ISSUE. ACCOR DINGLY, WE SET ASIDE THE ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION OF ` 7,72,246/ - 6. NEXT ISSUE RELATES TO THE DISALLOWANCE OF EXPENSES INCURRED TOWARDS PATENT APPLICATION. THE ASSESSEE HAD I NCURRED A SUM OF ` 4,24,100/ - TOWAR D S APPLICATION FOR OBTAINING PATENT. THE ASSESSING OFFICER TREATED THE SAME AS AN INTANGIBLE ASSET AND ACCORDINGLY DISALLOWED THE ABOVE SAID EXPENDITURE AND ALLOWED DEPRECIATION OF 25% THEREON. THE LEARNED CIT(A) ALSO CO NFIRMED THE SAME. 7. LEARNED AR SUBMITTED THAT THE ASSESSEE HAS NOT OBTAINED ANY PATENT DURING THIS YEAR SO AS TO GET QUALIFIED TO BE CALLED AS AN INTANGIBLE ASSET . THE ASSESSEE HAS INCURRE D THIS EXPENDITURE FOR PROCESSING THE APPLICATION FOR PATENT RIGH TS, THE OUTCOME OF WHICH IS UNCERTAIN. HE SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY PATENT RIGHT DURING THIS YEAR. ACCORDINGLY, HE SUBMITTED THAT THE IMPUGNED EXPENDITURE SHOULD BE ALLO WED AS REVENUE EXPENDITURE. 8. ON THE CONTRARY, LEARNED DEPARTM ENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDER PASSED BY THE LEARNED CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. THE ASSESSEE HAS INCURRED THE IMPUGNED EXPENDITURE FOR THE PURPOSE OF APPLYING PATENT AND DURING THE YEAR UNDER CONSIDER ATION THE ASSESSEE DID NOT RECEIVE ANY PATENT RIGHTS AND HENCE IT CANNOT BE SAID THAT THE ASSESSEE HAS ACQUIRED ANY INTANGIBLE ASSET . IN THE ABSENCE OF PATENT RIGHTS, QUESTION OF ALLOWING DEPRECIATION ON NON - EXISTING ASSET DOES NOT ARISE. ACCORDINGLY, WE A RE OF THE VIEW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE ON PROCESSING OF APPLICA TION CANNOT BE TREATED AS INTANGIBLE ASSET. ACCORDINGLY, WE SET ASIDE THE M/S. MEGA FINE PHARMA PVT. LTD. 4 ORDER PASSED BY THE LEARNED CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO ALLOW THE IM PUGNED EXPENDITURE . 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER HAS BE E N PRONOUNCED IN THE COURT ON 6 .6 .201 7. SD/ - SD/ - (SANDEEP GOSAIN ) (B.R.BASKARAN) JUDICIAL MEMBER AC COUNTANT MEMBER MUMBAI ; DATED : 6 / 6 / 20 1 7 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY/ / ( DY./ASSTT. REGISTRAR) PS ITAT, MUMBAI