TaxTMI 
TaxTMI 
2021 (12) TMI 1467
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.... General 2. The learned CIT(A) erred in disallowing Product registration expenses without appreciating that same is in nature of capital in nature. Rs. 31,46,292/- 3. The learned CIT(A) further ought to have appreciated that Appellant following mercantile method of accounting, the product registration expenses have been charged off in the accounts constitutes as an expenditure allowable u/s 37(1) and hence disallowance is ought to be deleted. Rs. 31,46,292/- 4. The learned CIT(A) erred in disallowing expenditure to the tune of Rs. 31,46,292/- without appreciating the submissions of the Appellant Rs. 31,46,292/- 5. The learned CIT(A) erred in upholding the interest u/s 234B and 234C of the Act General 6. Without prejudice the disallowance as confirmed by the learned CIT (Appeals) are arbitrary excessive and ought to be reduced substantially. General 7. For these and such other grounds that may be urged at the time of hearing the Appellant prays that the appeal may be allowed. General TOTAL TAX EFFECT Rs. 9,43,887/- ITA No. 1373/Bang/2019 "1. The order of the Learned CIT (Appeals), in so far as it is prejudicial to the interest of revenue, is opposed ....
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....ring the submissions advanced by assessee held the Product development expenses to be capital expenditure, as assessee did not prove the expenses to be recurring in nature. He relied on the decision of Hon'ble Supreme Court in case of R.B.Seth Moolchand Suganchand Vs.CIT reported in (1972) 86 ITR 647. The Ld.AO however granted depreciation @ 25 %. * The Ld.AO observed that assessee had earned exempt free income from mutual funds of Rs.2,03,59,232/-. It was also noted by the Ld.AO that assessee had voluntarily disallowed Rs.18,52,411/- as expenditure under Rule 8D(2)(iii) under read with section 14 A of the Act. 2.6 After considering the submissions advanced by assessee the Ld.AO computed disallowance under section 14A, read with Rule 8(D)(2)(ii) at Rs. 14,85,109/- , thereby computing the disallowance at Rs.33,37,520/-. Aggrieved by the order of Ld.AO, assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A), following the DRP direction passed for assessment year 2014-15, held License renewal fee-Dolenio, Mutual recognition process variation expenses to be revenue in nature and the remaining expenses to be capital in nature. 3. In respect of disallowance computed under R ....
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....packing material or colours in the final pack or for change in supplier of raw material etc. License renewal fees - Dolenio- This is an expense incurred for renewal of the license in various countries to sell the Drug Dolenio in those countries. Marketing Development expenses - "Dolenio" - These are expenses incurred abroad markets for Developing market for the Product Dolenio.," 5. The Ld.DR on the contrary, argued that these payments have brought in enduring benefit to assessee and therefore cannot be treated to be revenue expenditure. He relied on the order passed by the Ld.AO. We have perused the submissions advanced by both sides in light of records placed before us. 6. We note that the Ld.CIT(A) observed and held as under: "On Examining the taxpayer submission on product registration expenses details & ledger account, the product registration expenses were categorised into mainly 3 heads. They are: 1. Patent / Trademark expense 2. Variation in drug Expenses 3. Annual/Renewal fee Discussed in detail as follows: 1. Patent/Trademark expense :From the list of expenses it is noted that from sl.no 3-6 for A.Y 2012-13 &from sl.no.11-15 for A.Y 2013-14 are ....
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.... from year to year .As observed from evidence submitted before AO, it is confirmed that taxpayer was exploring into new market every year and incurred expense for registration of patent & trade mark. In that scenario, Annual fee cannot be reduced from Rs. 23,41,046 for A.Y 2011-12 to Rs. 4,32,597/- for A.Y 2012-13.When same was questioned representative confirmed that these expense are country specific and few countries it is paid every year and few countries paid for more than one year. In this regard, taxpayer was asked to furnish details on break up of payment of annual fee for country wise by 9.10.2018.But taxpayer has not furnished the details. Hence, it is not clear whether annual fee paid is incurred every year or fee may be for more than one year. If taxpayer furnish country wise details, than it is easy to find out actual amount incurred annually and same may be allowed as revenue expenses and remaining amount as capital expenditure. A. Disallowance u/s 14A r w. Rule 8D: Taxpayer has not furnished any new evidence before AO. Hence, AO comments in the order hold correct and objection may be rejected. As discussed above, taxpayer objection may not be accepted. However,....
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.... and 11 are not incurred year on year. The expenditure at item No. 9 pertain to registration for the license of the Product Dolenio 1500 Mg at China, a new first time registration. Similarly, the expenditure at SI,. No. 10 and 11 are first time registration expenses for grant of license for the products Cynocobalamin and Calcium Carbonate in UK. These are expenses incurred for grant of licenses and are capital in nature. They are not yearly expenses as contended by the assessee. We note that these expenses related to registration of a new product in these countries, leading to creation of fresh source of income for the assessee, and have an enduring benefit to the assessee. Therefore, these expenses aggregating to Rs. 68,35,794 are capital in nature, and therefore, the corresponding disallowance made by the AO is upheld. We note that the expenses incurred at SI. No. 7 and 8 are expenses incurred for obtaining license for products in Philliphines, UAE and the expenses in SI. No. 6, 6 and 12 are towards professional and other expenses incurred towards patents and trademarks registration which are definitely capital in nature. Accordingly, disallowance to the tune of Rs. 1,03,06,348 i....
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....(1) of the Act. Reliance is placed on following decisions: Decision of Hon'ble Supreme Court in case of CIT v. Finlay Mills Ltd.reported in (1951) 20 ITR 475 Decision of Hon'ble Bombay High Court in case of CIT v. Century Spg., Wvg., & Mfg. Co. Ltd. reported in (1947) 15 ITR 105 8. It is stated that a pharmaceutical company can sell its product only after obtaining registration and that the expenditure was incurred for the running of the business therefore revenue in nature and is allowable under section 37(1) of the Act. Reliance is placed on following decisions: * Decision of Hon'ble Ahmedabad Tribunal in case of ACIT vs. CAdilla Healthcare Ltd., reported in (2012) 21 taxmann.com 483, which stands affirmed by Hon'ble Gujrat High Court in Tax appeal No. 752 of 2012 by order dated 20/03/2013. * Decision of Hon'ble Gujrat High Court in case of PCIT vs. Zydus Wellness Ltd reported in (2017) 81 taxmann.com 159. We have noted that for pharmaceutical product the assessee is required to obtain a registration from government drug regulatory authority. We have been informed that the assessee company has obtained its various products registered in other countries. We have also bee....
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....continues to the advantage of the owner of the machinery. The replacement of a dilapidated roof by a more substantial roof stands on the same footing. The result however of the Trade Marks Act is only two-fold. By registration, the owner is absolved from the obligation to prove his ownership of the trade mark. It is treated as prima facie proved on production of the registration certificate. It thus merely saves him the trouble of leading evidence, in the event of a suit, in a court of law, to prove his title to the trade mark. The registration is in the nature of collateral security furnishing the trader with a cheaper and more direct remedy against infringers. This is neither an asset nor an advantage so as to make payment for its registration a capital expenditure. The advantage derived by the owner of the trade mark by registration falls within class of revenue expenditure. The fact that a trade mark after registration could be separately assigned, and not as a part of the goodwill of the business only, does not also make the expenditure for registration a capital expenditure. That is only an additional and incidental facility given to the owner of the trade mark. It adds no....
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....ith a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason for treating such an expenditure as properly attributable not to revenue but to capital". In respect of Patent expenditure, it is submitted that assessee has to get the patent registered in various regions in order to safeguard its product from any infringement. Further nothing has been placed on record to establish that the patent expenditure has been incurred by assessee on a new product. One aspect cannot be ignored that assessee incurs these expenses every year. 11. Coming to the expensed incurred by assessee in respect of the drug called 'Dolenio', we note that it is sold by assessee in many countries. It is submitted that the original drug is of the same chemical composition which when manufactured for the first time was patented has been capitalized. It is submitted that any minute change from the original form of appearance needs to be approved by the Drug authorities of the foreign country where it is sold. The expenses incurred by assessee towards Mutual recognition process variation is necessary based on any change in the packing o....
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....he Annual Balance Sheet. that there are no borrowings. Further, it was suggested that share capital and Reserve,_, and surplus of the company as on 31.03.2012 is Rs. 129.35 crores as against the overall investments of Rs. 34.27 crore in Mutual funds, which sufficiently explain the sources for the investments made by the appellant. In view of the above, I am of the view that considering the sources in the hands of the appellant, no disallowance under Rule 8D(2)(ii, is called for. In the result, the disallowance of Rs.14,85,109 made by the AO is deleted. 6.2 As regards the disallowance under Rule 8D(2)(iii), the appellant has stated that it has already voluntarily disallowed an amount of Rs. 118,52,411 being 0.5% of the investment on its own. However, this disallowance made under Rule 8D(2)(iii), which is a sort of compulsory disallowance, the same is confirmed. The AO is directed to verify the said fact and delete the disallowance additionally made under Rule 8D(2)(ii)." The Ld.DR relied on order passed by Ld.AO. 13. The Ld AR submitted that the nature of dividend, was from investment in Mutual Funds (MFs) and that the investment was made out of surplus funds and funds from ot....