Appeal allowed, product registration expenses deemed revenue, not creating new assets

The tribunal allowed the appeal filed by the assessee, setting aside the CIT(A)'s findings. It concluded that the product registration expenses were revenue in nature, following precedents that emphasized the essential nature of such expenses for business operations. The tribunal's decision was based on the principle that these expenses did not create new assets but were necessary for the smooth running of the existing business.

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Issues Involved:

1. Legality of the order passed by the National Faceless Appeal Centre (NFAC).
2. Alleged denial of natural justice by not considering the written submissions.
3. Classification of product registration expenses as capital or revenue expenditure.
4. Deductibility of education cess on tax payable.

Issue-wise Detailed Analysis:

1. Legality of the Order Passed by NFAC:

The assessee contended that the order passed by the NFAC was "bad in law and invalid." However, the judgment does not delve into this issue in detail, implying that the primary focus was on the substantive issues related to the expenses and natural justice.

2. Alleged Denial of Natural Justice:

The assessee argued that the CIT(A) confirmed the assessment order without considering the written submissions, thus violating the principles of natural justice. The judgment does not provide a specific resolution to this issue, indicating that the tribunal's focus was primarily on the substantive grounds of the appeal.

3. Classification of Product Registration Expenses:

The core issue was whether the product registration expenses of Rs.47,21,095/- should be treated as capital expenditure or revenue expenditure. The assessee argued that these expenses were revenue in nature and relied on several precedents, including CIT Vs. Cadila Healthcare Ltd., DCIT Vs. M/s. Shreechem Pharmaceuticals Pvt. Ltd., and DCIT Vs. Sharda Corp Chem Pvt. Ltd.

The tribunal observed that the matter had already been adjudicated by higher courts, including the Hon’ble High Court in CIT Vs. Cadila Healthcare Ltd., which held that such expenses were for business purposes and could be claimed as revenue expenditure. The tribunal emphasized that these expenses did not create any new asset but were essential for the smooth running of the existing business.

4. Deductibility of Education Cess:

The assessee contended that education cess on the tax payable should be allowed as a deduction while computing income. However, the judgment does not provide a detailed analysis or resolution for this issue, suggesting that it was not the primary focus of the tribunal's decision.

Conclusion:

The tribunal concluded that the product registration expenses were revenue in nature. It relied on previous judgments, including those from the Hon’ble High Court and ITAT, which consistently held that such expenses did not create new assets and were essential for business operations. Therefore, the tribunal set aside the CIT(A)'s findings and allowed the assessee's claim.

Order:

The appeal filed by the assessee was allowed, and the order was pronounced in the open court on 26/04/2022.

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