DCIT 10(3), MUMBAI V. SHREECHEM PHARMACEUTICALS P.LTD, MUMBAI

ITA 7080/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2342 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Additional evidence; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI . . , , !' #$, % , & BEFORE SHRI R.C.SHARMA, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.7080/MUM/2013 ( %' ( / ASSESSMENT YEAR: 2009-10) THE DY. COMMISSIONER OF INCOME TAX 10(3) ROOM NO.451, 4 TH FLOOR, AAYKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 ' / VS. M/S. SHREECHEM PHARMACEUTICALS PVT. LTD. 16/17, SHIVKRUPA INDUSTRIAL ESTATE LBS ROAD, VIKHROLI, MUMBAI - 400083 ./ ./ PAN/GIR NO. : AABCS6260L ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 07.09.2016 !' /DATE OF PRONOUNCEMENT:26.10.2016 #$ / O R D E R PER AMARJIT SINGH, JM: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST TH E ORDER DATED 16.09.2013 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) 22, MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE A.Y.2009-10. ASSESSEE BY: SHRI MEHUL SHAH DEPARTMENT BY: SHRI G. NANTHA KUMAR ITA NO.7080/M/2013 A.Y. 2009-10 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT TREATING PRODUCT REGISTRATION CHARGES AS CAPITAL EXPENDITURE. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT PRODUCT REGISTRATION CHARGES ARE NOT CREATING ANY NEW ASSET S, WHEREAS IT IS NOTHING BUT LICENSE / BUSINESS OR COM MERCIAL RIGHT WHICH COMES UNDER DEFINITION OF INTANGIBLE AS SETS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN ADMITTING ADDITIONAL E VIDENCES IN RESPECT OF PURCHASES MADE FROM M/S. HARSH CHEMIC ALS WHICH WAS NOT SUBMITTED BEFORE AO DURING COURSE OF ASSESSMENT PROCEEDINGS, AND THUS NOT OBSERVING / FO LLOWING PROVISIONS OF RULE 46A(3) OF THE I.T.RULES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED HIS RETURN OF INCOME ON 29.09.2009 BY DECLARING TOTAL INCOME TO THE TUNE OF RS.81,11,518/-. THE RETURN WAS PROCESSED U/S.143(1 ) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT). THEREAFTER, T HE CASE WAS SELECTED FOR SCRUTINY. NOTICE U/S.143(2) OF THE ACT WAS ISS UED ON 20.08.2010 AND DULY SERVED UPON THE ASSESSEE ON 06.09.2010. F URTHER NOTICES U/S.142(1) OF THE ACT ALONGWITH QUESTIONNAIRES CALL ING FOR VARIOUS DETAILS WERE ISSUED ON 23.08.2010, 16.08.2011, 20.1 0.2011 AND 25.11.2011 AND DULY SERVED UPON THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DRUGS A ND PHARMACEUTICALS. DURING THE YEAR UNDER CONSIDERATI ON, SALES AND SERVICES HAVE BEEN SHOWN AT RS.33,45,24,535/- AND N ET PROFIT HAS BEEN ITA NO.7080/M/2013 A.Y. 2009-10 3 COMPUTED AT RS.37,58,554/-. THE ASSESSEE HAS SHOWN THE OFFICE ADMINISTRATIVE EXPENSES IN HIS PROFIT & LOSS ACCOUN T AND DEBITED AN AMOUNT OF RS.43,06,904/- UNDER THE HEAD PRODUCT RE GISTRATION EXPENSES AS COMPARED TO EXPENSES DEBITED UNDER THE ABOVE HEAD OF RS.1,12,595/- IN THE EARLIER YEAR. THEREAFTER, THE NOTICE WAS ISSUED TO THE ASSESSEE AND AFTER CONSIDERING THE REPLY THE SA ID EXPENDITURE WAS TREATED AS CAPITAL EXPENDITURE AND ADDED TO THE INC OME OF THE ASSESSEE. FEELING AGGRIEVED, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE CIT(A) IN WHICH THE SAID EXPENDITURE WAS TREATED AS REVENU E EXPENDITURE AND DELETED THE SAID ADDITION, THEREFORE, THE REVENUE H AS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO.1&2:- 4. ALL THE ISSUES ARE INTERCONNECTED, THEREFORE ARE BEING TAKEN UP FOR ADJUDICATION. UNDER THIS ISSUES THE REVENUE HA S CHALLENGED THE SOLE POINT THAT THE CIT(A) HAS WRONGLY ALLOWED AN A MOUNT OF RS.43,06,904/- AS REVENUE EXPENDITURE WHEREAS THE S AME SHOULD BE CONSIDERED AS CAPITAL IN NATURE. BEFORE GOING FURT HER IT IS NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD:- 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE IMPUGNED ASSESSMENT ORDER. THE A R OF THE APPELLANT HAD FILED COPIES OF REGISTRATION CERTIFICATE ISSUED BY HEALTH AND DRUG ADMINISTRATIO N OF ITA NO.7080/M/2013 A.Y. 2009-10 4 VARIOUS COUNTRIES SUCH AS ZAMBIA, GHANA, GEORGIA, VIETNAM, NIGERIA, UKRAIN, ETC. WITH THE REGISTRATIO N NUMBER AND THE DETAILS OF PRODUCT AND EXPIRY PERIOD OF THE LICENSE. THE FEES IS PAID TOWARDS VENDOR REGIS TRATION, QUALITY CONTROL CHECKS, TESTING AND VERIFICATION OF SUCH PRODUCTS FOR HUMAN CONSUMPTION IMPACT OVER ENVIRONMENT OVER DISPOSAL, ETC. ONCE THE PRODUCT P ASSES THROUGH ABOVE TESTS, THE CONCERNED GOVERNMENT ALLOW S SALE OF SUCH PRODUCTS IN THE COUNTY. IN SUPPORT OF THE CONTENTION THAT SUCH PRODUCT REGISTRATION EXPENDITU RE IS OF REVNUE IN NATURE, THE AR HAS RELIED ON THE DECISION OF HONBLE HIGH COURT OF DELHI IN THE CASE OF PANACEA BIOTECH LTD. THE HONBLE HIGH COURT WAS OF THE VIEW THAT TEST OF ENDURING BENEFIT CANNOT BE THE SOLE CR ITERION AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMST ANCES OF A GIVEN CASE. IN THIS CASE, SUCH EXPENDITURE WA S ALLOWED BY THE AO IN A.Y.2003-04 AND 2004-05. THE ADDITION WERE DELETED BY THE CIT(A) AND REVENUE DID NOT PREFER ANY APPEAL BEFORE THE HONBLE ITAT. FOR A.Y.2005-06, AGAINST THE ORDER OF THE CIT(A), THE DEPARTMENT HAD FILED AN APPEAL BEFORE THE TRIBUNAL WHICH WAS DISMISSED AND THE DEPARTMENT DID NOT PREFER ANY APPEAL BEFORE THE HIGH COURT. HENCE, IN THIS ITA NO.7080/M/2013 A.Y. 2009-10 5 BACKGROUND, THE HONBLE HIGH COURT HAS GIVEN RELIEF TO THE APPELLANT. 2.4 HOWEVER, I WOULD LIKE TO REPLY ON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CADILLA HEALTHCARE LTD. I N TAX APPEAL NO.752 OF 2012 DT. 20.03.2013. THE QUESTION REFERRED TO THE HONBLE COURT WAS WHE THER THE APPELLATE TRIBUNAL HAS SUBSTANTIALLY ERRED IN H OLDING THE TRADEMARK REGISTRATION FEE AND PATENT FEE (RS.37,92,606/0 AND RS.1,15,49,880/-) ARE REVENUE EXPENSES, WHEN THE EXPENSE WERE INCURRED FOR REGISTRATION OF TRADEMARK IN THAT COUNTRY AND ALSO FOR REGISTRATION OF PATENT, WHICH ARE INTANGIBLE ASSETS UNDER SECTION 32(1)(II) OF THE ACT? THESE QUESTIONS PERTAIN TO THE EXPENDITURE INCURRE D BY THE ASSESSEE TOWARDS PRODUCT REGISTRATION BEFORE TH E DRUG REGULATORY AUTHORITIES AND REGISTRATION OF TRADEMAR K AND PATENT FEES. IT IS THE CASE OF THE REVENUE THAT SU CH REGISTRATION GIVES ENDURING BENEFITS AND THEREFORE SHOULD HAVE BEEN TREATED AS CAPITAL EXPENDITURE AND NOT RE VENUE IN NATURE. THE TRIBUNAL CLUBBED THESE EXPENDITURE FOR COMMON CONSIDERATION AND IN THE IMPUGNED JUDGMENT HELD THAT PHARMACEUTICAL PRODUCTS MANUFACTURED BY T HE ITA NO.7080/M/2013 A.Y. 2009-10 6 ASSESSEE ARE TO BE REGISTERED WITH THE LOCAL AUTHOR ITIES AS ALSO MEDICAL ASSOCIATION IN INDIA. SUCH PRODUCTS W ERE IN EXISTENCE AND NOTHING NEW WERE ACQUIRED BY THE ASSE SSEE IN THE PROCESS. THE TRIBUNAL, THEREFORE, HELD THAT THE EXPENDITURE ONLY ENABLE THE ASSESSEE TO RUN THE EXI STING BUSINESS SMOOTHLY AND THEREFORE, IT CANNOT BE STATE D THAT THE ASSESSEE ACQUIRED ANY TANGIBLE OR INTANGIBLE AS SETS. WITH RESPECT TO PATENT AND TRADEMARK REGISTRATION, THE TRIBUNAL HELD THAT FOR PROTECTION OF RESULT OF THE RESEARCH OF THE ASSESSEE, SUCH PATENT HAD TO BE REGISTERED. IT WAS OBSERVED THAT ENDURING BENEFIT IS NOT THE ONLY CRIT ERIA. THE SAME MUST BE COUPLED WITH ACQUISITION OF ASSET. THE FINDING OF THE HONBLE COURT IS AS UNDER: WITH RESPECT TO THE EXPENDITURE INCURRED FOR PRODUCTION REGISTRATION CHARGES, WE AGREE WITH TH E VIEW OF THE TRIBUNAL THAT THE ASSESSEE DID NOT ACQUIRE MY 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 STATED TO ENSURE PROCUREMENT OF A NEW ASSET TO THE ASSESSEE. WE ARE INFORMED ITA NO.7080/M/2013 A.Y. 2009-10 7 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. THE FACTS ARE IDENTICAL IN APPELLANTS CASE. GOING BY THE RATIO LAID DOWN BY THE HONBLE COURT THE PRODUCT REGISTRATION WOULD NOT CREATE ANY NEW ASSET TO THE APPELLANT AS THE PRODUCTS ARE THE EXISTING ONE. FU RTHER IN MY OPINION TEST OF ENDURING BENEFIT ALONE CANNOT BE A DECIDING FACTOR THAT THE EXPENDITURE INCURRED IN CA PITAL IN NATURE. HENCE, I DO NOT ACCEPT THE FINDING OF THE AO. I DIRECT THE AO TO TREAT THE EXPENDITURE INCURRED TOW ARDS REGISTRATION CHARGES AS REVENUE AND IN VIEW OF THIS , THE ADDITION MADE BY THE AO IS HEREBY DELETED. THIS GR OUND OF APPEAL IS ALLOWED. 5. ON APPRAISAL OF THE ABOVE SAID ORDER IT CAME INT O THE NOTICE THAT THE ASSESSEE FILED THE COPIES OF REGISTRATION CERTI FICATE ISSUED BY THE HEALTH AND DRUG ADMINISTRATION OF VARIOUS COUNTRIES SUCH AS ZAMBIA, GHANA, GEORGIA, VIETNAM, NIGERIA, UKRAIN, ETC. WITH THE REGISTRATION NUMBER AND THE DETAILS OF PRODUCTS AND EXPIRY PERIO D OF THE LICENSE. THE FEES WERE PAID TOWARDS VENDOR REGISTRATION, QUA LITY CONTROL CHECKS, TESTING AND VERIFICATION OF SUCH PRODUCTS F OR HUMAN ITA NO.7080/M/2013 A.Y. 2009-10 8 CONSUMPTION, IMPACT OVER ENVIRONMENT OVER DISPOSAL, ETC. AFTER PASSING THE SAID TESTS, THE CONCERNED GOVERNMENT AL LOWS SALE OF SUCH PRODUCTS IN THE COUNTRY. ON THE SAID FACTS AND CIRC UMSTANCES THE CIT(A) HAS RELIED UPON THE CASE DECIDED BY THE HON BLE HIGH COURT OF DELHI IN THE CASE OF PANACEA BIOTECH LTD. AND HONB LE HIGH COURT OF GUJARAT IN THE CASE OF CADILLA HEALTHCARE LTD. IN T AX APPEAL NO.752 OF 2012 DATED 20.03.2013. NO DISTINGUISHABLE FACTS AN D LAW HAS BEEN PLACED ON RECORD BY THE REVENUE AT THE TIME OF ARGU MENTS. ADDITIONAL EVIDENCE WHICH RELEVANT TO THE FACTS OF THE CASE, C AN BE TAKEN INTO CONSIDERATION DURING APPELLATE PROCEEDING IN ACCIDE NCE WITH LAW. THE CIT(A) HAS PASSED THE ORDERS JUDICIOUSLY AND CORREC TLY WHICH DOES NOT REQUIRE TO BE INTERFERE WITH AT THIS APPELLATE STAG E. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH OCTOBER , 2016. SD/- SD/- (R.C.SHARMA) (AMARJIT SINGH) # / ACCOUNTANT MEMBER %& # /JUDICIAL MEMBER ' ( MUMBAI; )# DATED : 26 TH OCTOBER, 2016 MP MP MP MP ITA NO.7080/M/2013 A.Y. 2009-10 9 * +%'#, -,(' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A)- 4. * / CIT 5. -./ &&01 , 01' , ' ( / DR, ITAT, MUMBAI 6. /34 5 / GUARD FILE. ' / BY ORDER, - & //TRUE COPY// ./$ ! /(DY./ASSTT. REGISTRAR) , ' ( / ITAT, MUMBAI