2015 (1) TMI 1486 - AT - Income Tax

Nature of expenditure - sales promotion expenses towards obtaining certificate of suitability - revenue or capital expenditure - AO observed that the assessee incurred expenditure for obtaining certificate of suitability for marketing its products there - HELD THAT - Admittedly the expenditure incurred is not preproduction expenditure. The assessee has been marketing products elsewhere and thus it can be said that the assessee is already in the business of manufacture and sale of drugs. To expand the business in certain countries it has to obtain certificate of suitability as per the FDA Regulations, which is a part of the process of sale of its products. Similar expenditure was considered in Cadila Healthcare Ltd. 2013 (3) TMI 539 - GUJARAT HIGH COURT wherein it was held that such payments should be considered in the revenue field. No decision of any other High Court, wherein contrary view taken, was placed before us by the Revenue. Thus hold that the view taken by Hon'ble Gujarat High Court is in accordance with law. In the result, ground No. 1 of the Revenue is dismissed. MAT credit u/s. 115JA - AO had reduced the MAT credit to Nil due to additions/disallowances made during scrutiny assessment for A.Y. 2006-07 - While computing the tax liability the Assessing Officer set off the amount of MAT credit excluding surcharge and cess from the amount of tax payable after surcharge and cess - HELD THAT - As appellant has requested for grant of relief in respect of MAT credit, in case, relief is granted by the higher authorities, there is no need to adjudicate upon this request of the appellant as such relief would be automatic. AO shall consider the relief granted by the higher appellate authorities and compute the MAT Credit accordingly and as per law. Regarding the amount of MAT credit, the amount of MAT credit excluding surcharge and cess cannot be set off from tax payable after surcharge and cess. Thus, following the principle of consistency and justice, the Assessing Officer is directed to give MAT credit which is inclusive of surcharge and cess from the amount of tax payable inclusive of surcharge and cess. Appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Allowability of expenditure incurred for obtaining Certificate of Suitability (COS) for export of pharma products.
2. MAT credit claim for A.Y. 2006-07 and principle of consistency.

Issue 1: Allowability of Expenditure for COS:
- The assessee debited sales promotion expenses for obtaining COS.
- AO considered it capital expenditure due to enduring benefit.
- Assessee argued it's routine, recurring, and necessary for marketing.
- CIT(A) held expenditure as revenue, crucial for marketing products.
- CIT(A) distinguished case laws and emphasized recurring nature.
- Revenue appealed, claiming basic expenditure for business operation.
- ITAT followed Gujarat High Court decision, treating expenditure as revenue.
- ITAT dismissed Revenue's appeal, upholding expenditure as revenue.

Issue 2: MAT Credit Claim and Principle of Consistency:
- Assessee claimed MAT credit for A.Y. 2006-07.
- AO reduced MAT credit to Nil due to additions/disallowances.
- Assessee sought relief if additions were deleted.
- CIT(A) directed AO to compute MAT credit inclusive of surcharge and cess.
- Revenue did not challenge CIT(A)'s conclusion.
- ITAT upheld CIT(A)'s order, rejecting Revenue's appeal.

In conclusion, the ITAT Mumbai upheld the CIT(A)'s decision regarding the allowability of expenditure for obtaining COS as revenue expenditure, following the principle established by the Gujarat High Court. Additionally, the ITAT affirmed the CIT(A)'s direction to compute MAT credit inclusive of surcharge and cess, emphasizing consistency and fairness in tax assessments. The appeal filed by the Revenue was dismissed, and the orders were pronounced on January 14, 2015.