ASST CIT 8(3), MUMBAI V. RECKITT PIRAMAL P.LTD, MUMBAI

ITA 7806/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101263 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 27-08-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 31-12-2012
• Court: TRIBUNAL
• Department Lawyers: MRS RUPINDER BRAR
• Assessee Lawyers: SUBAHS S SHETTY
• Keywords: Question of law; Wrong claim; Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D , BENCH MUMBAI BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI LALIT KUMAR, JUDICIAL MEMBER ITA NO. 7806 / MUM/20 1 2 ( ASSESSMENT YEAR : 1998 - 1999 ) ACIT - 8(3), MUMBAI - 20 VS. RECKITT PIRAMAL P. LTD., 8 TH FLOOR, B WING, MARWAH CENTRE, K.M.MARG, SAKI NAKA, ANDHERI 9EAST), MUMBAI - 400093 PAN NO. : A A ACR 5896 G ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : MRS. RUPINDER BRAR ASSESSEE BY : SH . SUBAHS S. SHETTY DATE OF HEARING : 27/08/2015 DATE OF PRONOUNCEMENT 29/09 / 2015 / O R D E R PER LALIT KUMAR , JUDICIAL MEMBER THI S APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER DATED 25 - 10 - 2012, PASSED BY THE CIT(A) - 18, MUMBAI FOR THE ASSESSMENT YEAR 1998 - 99. 2 . THE REVENUE IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN DELETING THE PENALTY SO LEVIED BY THE AO U/S.271 (1)(C) OF THE ACT AMOUNTING TO RS.3,1 1 , 15 ,000/ - VIDE ORDER DATED 28 - 12 - 2011 AS WELL AS DELETING THE INTEREST OF RS.2,48,92,000/ - LEVIED U/S.220(2) OF THE ACT. 3. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF PHARMACEUTICAL PRODUCTS. D URIN G THE RELEVANT PREVIOUS YEAR, THE A SSESSEE ENTERED INTO AN AGREEMENT DATED 05,02.1998 WITH KNOLL AKTIENGESELLSEHAFT, GERMANY ('KNOLL AG'). IN PURSUANCE OF THE SAID AGREEMENT, THE ASSESSEE ACQUIRED 'BU R NOL' BRAND NAME FR O M KNOLL AG FOR A TOTAL CONSIDERATION OF R S .3.20 CRORES, WHICH COMPRISED OF RS,2.20 CR O RES FOR MANUFACTURING KNOW - HOW AND RS.1 CRO R E FOR TRADEMARKS TOGETHER WITH ITA NO.7806/12 2 GOODWILL. WHICH IS CAPITALISED IN BOOKS AS CAPITAL EXPENDITURE, BESIDES THE ABOVE AGREEMENT, THE ASSESSEE ENTERED INTO ANOTHER AGRE EMENT DATED 05 . 02.1998 WITH KNOLL PHARMACEUTICALS LID. ('KPL') FOR OBTAINING MARKETING KNOW - HOW IN RELATION TO 'BUMOL' FOR A SUM OF RS,8,89 C R ORES. THE SAID MARKETING KNOW - HOW COMPRISED MARKETING STRATEGY AND MARKETING DATA RELATING TO THE GOODS COVERED UN DER THE REGISTRATION OF THE TRADE NAME AS WELL AS ALL THE MARKETING KNOW - HOW, INCLUDING MARKETING PLANS, SALES FORECASTS, MARKET RESEARCH DATA, INFORMATION ON COMPETITORS ACTIVITIES/PLANS, INFORMATION REGARDING DISTRIBUTION NETWORK, ETC. RELATING TO THE GO ODS COVERED UNDER REGISTRATION OF THE TRADE MARK, AS REGARDS RS,8.89 CRARES PAID BY THE ASSESSEE FOR MARKETING KNOW - HOW OF 'BU R NOL', THE ASSESSEE TREATED THE SAME AS DEFERRED REVENUE EXPENDITURE IN ITS BOOKS OF ACCOUNTS AND WHILE FILING THE RETURN OF INCO ME FOR THE RELEVANT ASSESSMENT YEAR, CLAIMED THE SAID AMOUNT AS REVENUE EXPENDITURE UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER, HOWEVER, ALLEGED THAT THE ASSESSEE ACQUIRE D 'BURNO L ' BRAND NAME ALONG WITH ITS MANUFACTURING KNOW-HOW AND MARKETING K NOW - HOW IN A COMPOSITE MANNER. THE AO , DISALLOWED THE AFORESAID CLAIM OF THE ASSESSEE HOLDING THAT THE ABOVE CONSIDERATION OF RS.8.89 CRORES PAID TOWARDS MARKETING KNOW - HOW OF 'BURNOL' WAS CAPITAL EXPENDITURE, CONFERRING ENDURING BENEFIT TO THE ASSESSEE AN D WAS THUS, NOT ALLOWABLE REVENUE DEDUCTION UNDER SECTION 37(1) OF THE ACT . BEING AGGRIEVED WITH THE ORDER OF AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ACTION OF THE ITA NO.7806/12 3 AO AND ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE ORDE R OF THE CIT(A) WAS UPHELD. THEREAFTER THE ASSESSEE APPROACHED BEFORE THE HONBLE HIGH COURT, WHEREIN THE QUANTUM APPEAL OF THE ASSESSEE WAS ADMITTED. IN THE MEANTIME, THE AO LEVIED PENALTY OF RS.3,1 1 , 15 ,000/ - ON THE ADDITION OF RS.8.89CR. , AGAINST WHICH T HE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) AND THE CIT(A) DELETED THE PENALTY SO LEVIED BY THE AO U/S.271(1)(C) OF THE ACT. 4. NOW, THE REVENUE IS IN APPEAL BEFORE US. 5. LD. DR BEFORE US CONTENDED THAT THE CIT(A) WHILE DELETING THE PENALTY DID NOT CON SIDER THE FACT THAT THE ASSESSEE HAS FAILED TO SHOW AS TO HOW THE EXPENDITURE INCURRED ON ACQUIRING THE BRAND WAS A REVENUE EXPENDITURE EVEN THOUGH AS PER ITS OWN BOOKS OF ACCOUNTS, THE SAID EXPENDITURE IS TREATED AS LONG TERM AND UNDER NO CIRCUMSTANCES, A CHARGE MERELY ON THE PROFITS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. FURTHER , IN REGARD TO DELETING THE INTEREST LEVIED U/S.220(2), THE L D. DR CONTENDED THAT CIT(A) HAS OVERLOOKED THE FACT THAT ORDER RELATING TO CHARGING INTEREST U/S.220(2) OF T HE ACT IS NOT APPEALABLE U/S.246A OF THE ACT . 6. ON THE OTHER HAND, LD. AR REITERATED THE SUBMISSIONS AS WERE RAISED BEFORE THE CIT(A). 7 . WE HAVE HEARD BOTH THE PARTIES AT LENGTH AND PERUSED THE RECORD CAREFULLY. ON CONSIDERATION OF FACTS, IT IS FOUND TH AT THE QUANTUM APPEAL OF THE ASSESSEE HAS BEEN DISMISSED BY THE TRIBUNAL, AGAINST WHICH THE ITA NO.7806/12 4 APPEAL OF THE ASSESSEE BEFORE THE HONBLE JURISDICTIONAL HIGH COURT HAS BEEN ADMITTED. MEANWHILE, THE AO STARTED PENALTY PROCEEDINGS AGAINST THE ASSESSEE. ON APPEAL , THE CIT(A) DELETED THE PENALTY LEVIED U/S.271(1)(C) HOLDING THAT THE ASSESSEE HAS MADE A BONAFIDE CLAIM AS THE ASSESSEE HAS NOT CONCEALED ANY FACTS NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME AND NO PENALTY AGAINST THE ASSESSEE ARISES. THE OBSERVA TION OF THE CIT(A) IN THIS REGARD IS AS UNDER : - IN VIEW OF ALL THESE FACTS AND CIRCUMSTANCES AND THE DECISIONS OF HON'BLE COURTS, IT IS HELD THAT THE ISSUE INVOLVED IN THIS CASE IS RELATING TO MANUFACTURING AND MARKETING KNOW - HOW EXPENDITURE WHETHER IT I S A REVENUE EXPENDITURE OR A CAPITAL EXPENDITURE IS A HIGHLY DEBATABLE ISSUE AND SUBSTANTIAL QUESTION OF LAW IS INVOLVED BECAUSE THE HON'BLE BOMBAY HIGH COURT HAS ADMITTED THE APPEAL OF THE APPELLANT. THE ASSESSEE HAS GIVEN NOTE IN THE RETURN OF INCOME FIL ED AND TREATED THE KNOW - HOW EXPENDITURE AS REVENUE EXPENDITURE BASED ON THE DECISION OF HON'BLE TRIBUNAL IN THE CASE OF GLENMARK PHARMACEUTICALS LTD AND IN THE CASE OF ADSTEAM AGENCY (INDIA) LTD. VS. DY. CIT (SUPRA). THUS, THE ASSESSEE HAS MADE - A BONAFIDE CLAIM BECAUSE IT WAS CLEAR IN THE RETURN OF INCOME, THEREFORE, IT MAY BE AN INCORRECT CLAIM BUT CANNOT BE HELD AS A FALSE CLAIM BECAUSE THE ASSESSEE HAS NOT CONCEALED ANY FACTS NOR SUBMITTED ANY INACCURATE PARTICULARS OF INCOME. THEREFORE, MERELY THE QUAN TUM APPEAL HAS BEEN CONFIRMED, PENALTY U/S 271(1)(C) CANNOT BE LEVIED AS IT IS HELD THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE TWO DIFFERENT PROCEEDINGS. IN TOTALITY OF THE FACTS AND CIRCUMSTANCES, IT IS HELD THAT THE ASSESSEE HAS MADE A BONAF IDE CLAIM OF EXPENDITURE AS REVENUE EXPENDITURE WHICH WAS TREATED BY THE AO. AS CAPITAL EXPENDITURE, THEREFORE, PENALTY U/S 271(1)(C) IS NOT SUSTAINABLE, HENCE, DELETED. THUS, THE GROUND OF APPEAL IS ALLOWED. FROM THE ABOVE FINDINGS OF THE CIT(A) IT IS CLEAR THAT MERELY BECAUSE THE QUANTUM APPEAL OF THE ASSESSEE HAS BEEN CONFIRMED, PENALTY U/S 271(1)(C) CANNOT BE LEVIED . I T IS HELD THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDENT OF EACH OTHER. NO DOUBT THE FINDINGS IN THE ASSESSMENT PROCEEDINGS WOULD HAVE SIGNIFICANCE IN THE PENALTY PROCEEDINGS ALSO BUT THEY ARE NOT DECISIVE OR DETERMINATIVE. IT IS A SETTLED ISSUE THAT IN CONCEALMENT PENALTY IS SUSTAINABLE WHEN THE ISSUE ITA NO.7806/12 5 INVOLVED IS DEBATABLE IN NATURE. THEREFORE, WE ARE O F THE OPINION THAT THE CIT(A) HAS PASSED A JUST AND WELL REASONED ORDER, WHICH DOES NOT REQUIRE ANY INTERFERENCE BY US AND THE SAME IS HEREBY UPHELD. 8 . SO FAR AS THE INTEREST CHARGED BY THE AO U/S.220(2) OF THE ACT IS CONCERNED, THE CIT(A) HELD THAT SINCE THE PENALTY HAS BEEN DELETED, THEREFORE, THE INTEREST CHARGED U/S.220(2) WILL NOT SURVIVE. THE FINDINGS OF THE CIT(A) IN THIS REGARD ARE AS UNDER : - 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT, ORDER OF THE A.O. AND FACTS OF THE CASE CAREFULL Y, IT IS NOTICED THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE DECISION OF HO N'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CHIKA OVERSEAS PVT. LTD (SUPRA) WHERE IT IS HELD THAT U/S 156 OF THE I.T. ACT SERVICE OF THE DEMAND NOTICE IS MANDA TORY U/S 220(2) OF THE I.T. ACT PROVIDES THAT IF THE AMOUNT SPECIFIED IN ANY NOTICE OF DEMAND U/S 156 IS NOT PAID WITHIN THE PERIOD PRESCRIBED UNDER SUB - SECTION 1 OF SECTION 220(2), THE ASSESSEE SHALL HAVE TO PAY THE INTEREST AT THE RATE PRESCRIBED THEIR E ND. IN THE PRESENT CASE, THE ORIGINAL ASSESSMENT ORDER DATED 28.02.1997 WAS SET ASIDE BY THE TRIBUNAL WITH A DIRECTION TO PASS FRESH ASSESSMENT ORDER. A FRESH ASSESSMENT ORDER WAS PASSED ON 24.12.2006 AND THE DEMAND NOTICE WAS SERVED ON THE SAME DATE. AS P ER THE PROVISIONS OF SECTION 220(2), THE ASSESSEE WAS LIABLE TO PAY THE AMOUNT OF DEMAND WITHIN THIRTY DAYS FROM THE SERVICE OF DEMAND NOTICE I.E. 24.12.2006. THEREFORE, DEMAND NOTICE WAS SERVED ON THE ASSESSEE ON 24.12.2006 AND THE ASSESSEE WAS LIABLE TO PAY THE DEMAND WITHIN THIRTY DAYS FROM THE DATE OF SERVICE OF THIS NOTICE. SINCE THE PENALTY HAS BEEN DELETED, THEREFORE, THE INTEREST CHARGED U/S.220(2) WILL NOT SURVIVE. FROM THE ABOVE FINDINGS OF THE CIT(A), IT IS CLEAR THAT IN THE CASE IN HAND, THE ORIGINAL ASSESSMENT ORDER DATED 28.02.1997 WAS SET ASIDE BY THE TRIBUNAL WITH A DIRECTION TO PASS FRESH ASSESSMENT ORDER. A FRESH ASSESSMENT ORDER WAS PASSED ON 24.12.2006 AND THE DEMAND NOTICE WAS SERVED ON THE SAME DATE. AS PER THE PROVISIONS OF SECTION 220(2), THE ASSESSEE WAS LIABLE TO PAY THE AMOUNT OF DEMAND WITHIN THIRTY DAYS FROM THE SERVICE OF DEMAND NOTICE I.E. 24.12.2006. THEREFORE, DEMAND NOTICE WAS SERVED ON THE ASSESSEE ON 24.12.2006 AND THE ASSESSEE WAS LIABLE ITA NO.7806/12 6 TO PAY THE DEMAND WITHIN THIRTY DAYS FROM THE DATE OF SERVICE OF THIS NOTICE. AS WE HAVE ALREADY UPHELD THE ORDER OF THE CIT(A) IN REGARD TO DELETING THE PENALTY SO LEVIED BY THE AO U/S.271(1)(C) OF THE ACT, THEREFORE, CHARGING INTEREST U/S.220(2) DOES NOT ARISE. ACCORDINGLY, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 9 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29/09/ 201 5 . SD/ - ( D.KARUNAKARA RAO ) SD/ - ( LALIT KUMAR ) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI ; DATED 29/09 /2015 PKM , . / PS COPY OF THE ORDER FORWARDED TO : BY ORDER , (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//