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2021 (12) TMI 1467
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.... in passing the order in the manner which he did. 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....
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.... 29,62,433/- Patent Expenses- R&D 3,26,277/- Trademark Expenses-Mktg 13,555/- Registration Expenses-RA 8,92,790/- Total 1,17,71,503/- 2.5 The Ld.AO after considering 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....
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....o this product are: Annual fee - Dolenio- This is the annual renewal fees payable in various countries to sell the "Dolenio" series products. Mutual Recognition Process Variation / MRV Expenses - This is the fees paid to the Government for any variation from the registered use or process in the use of raw material or 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 ....
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....g regulatory bodies across the globe. These are expenses incurred for the increasing/sustain the value of intangible asset i.e. patent registered. It means,these expenses were linked to the patent registered and having enduring benefit, considered Capital in nature. 3. Annual/Renewal fee: Paid for renewal of licence to market the drug. If it is annual fee than expenses should be same or increasing 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 count....
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....ncurred at SI. No. 1 to 4 i.e., "Annual fee, License Renewal fee, MRP variation, Mutual Recognition, Variation expenses"- pertain to expenses incurred for renewing the existing licences, variation in the already granted licenses and are in nature of revenue expenses allowable under Section 37 of the IT Act. Accordingly, the AO is directed to allow these expenses aggregating to Rs. 58,75,290. We also note that the expenses incurred at SI. No. 9, 10 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....
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....s are duly reflected in the copy of accounts, as above. All that the registration of patents did was to enable the Assessee Company to obtain a speedy and less expensive remedy against the infringement of the patent rights. It gives benefit of exclusive right to use its patents. It is incurred for protection of the business of the company. It is thus, incurred wholly and exclusively for the purposes of the Assessee Company's business allowable u/s 37(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....
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....All these are recurring in nature. We are thus of the opinion that these payments are inextricably linked to the business of the assessee. Hon'ble Supreme Court in the case of Finlay Mills Ltd. (supra) opined as under: The contention of the revenue was fallacious. The machinery which acquires a greater productive capacity by reason of its improvement by inclusion of some new invention naturally becomes a new and altered asset by that process. So long as the machinery lasts, the improvement 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....
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....ved that the question appeared to be a question of fact which was proper to be decided by the Commissioners upon the evidence brought before them in each case. The test that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing that is going to recur every year was considered an useful element in arriving at the decision but was not certainly the decisive fact. The Lord Chancellor observed as follows:-"But when an expenditure is made, not only once and for all, but with 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 ....
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....d. CIT(A), the addition made by the Ld.AO was deleted by observing as under: "6.1 Further, in the context of the disallowance u/s 14A in respect of which the appellant submitted that it had disallowed voluntarily Rs. 118,52,411 under Rule 8D(2)(iii) and in addition the AO has disallowed an amount of Rs. 14,85,109 under Rule 8D(2)(ii) of the Act. In the light of the above submissions, the appellant has stated that only long term loans are vehicle loans and short term loan is working capital loans. Apart from this, it is observed from the 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 tha....