2016 (10) TMI 1379 - AT - Income Tax

Product Registration Expenses - Nature of expenses - revenue or capital expenditure - whether CIT(A) erred in not treating product registration charges as capital expenditure? - HELD THAT -Assessee filed the copies of registration certificate issued by the Health and Drug administration of various countries such as Zambia, Ghana, Georgia, Vietnam, Nigeria, Ukrain, etc. with the registration number and the details of products and expiry period of the license. The fees were paid towards vendor registration, quality control checks, testing and verification of such products for human consumption, impact over environment over disposal, etc. After passing the said tests, the concerned Government allows sale of such products in the Country. On the said facts and circumstances the CIT(A) has relied upon the case decided in the case of Panacea Biotech Ltd. 2012 (2) TMI 15 - DELHI HIGH COURT and case of Cadilla Healthcare Ltd. 2013 (3) TMI 539 - GUJARAT HIGH COURT No distinguishable facts and law has been placed on record by the revenue at the time of arguments. Additional evidence which relevant to the facts of the case, can be taken into consideration during appellate proceeding in accidence with law. The CIT(A) has passed the orders judiciously and correctly which does not require to be interfere with at this appellate stage. Decided against revenue.

Summary

Issues:

1. Treatment of product registration charges as capital or revenue expenditure.
2. Admission of additional evidences regarding purchases from a specific entity during assessment proceedings.

Issue 1: Treatment of Product Registration Charges:

The appeal before the ITAT Mumbai concerned the classification of product registration charges as capital or revenue expenditure for the assessment year 2009-10. The revenue contended that the CIT(A) erred in treating these charges as revenue expenditure. The CIT(A) based the decision on the nature of the expenditure and the benefits derived from it. The CIT(A) considered the expenses incurred by the assessee towards vendor registration, quality control checks, testing, and verification of products for human consumption and environmental impact. The CIT(A) referenced the decisions of the Hon’ble High Courts of Delhi and Gujarat in similar cases. The CIT(A) emphasized that the expenditure did not result in the acquisition of any new asset for the assessee. The CIT(A) concluded that the product registration charges did not create any new asset and therefore should be treated as revenue expenditure. The ITAT upheld the CIT(A)’s decision, stating that the expenditure only enabled the assessee to operate the existing business smoothly and did not result in the acquisition of tangible or intangible assets. The ITAT concurred with the view that enduring benefit alone cannot determine the capital nature of expenditure. The ITAT dismissed the revenue’s appeal, affirming the CIT(A)’s decision to treat the product registration charges as revenue expenditure.

Issue 2: Admission of Additional Evidences:

Regarding the admission of additional evidences related to purchases from M/s. Harsh Chemicals during the assessment proceedings, the revenue challenged the CIT(A)’s decision to admit such evidence. The revenue argued that the admission of additional evidence was not in compliance with Rule 46A(3) of the Income Tax Rules. However, the ITAT did not find merit in the revenue’s contention. The ITAT noted that additional evidence relevant to the case could be considered during appellate proceedings. The ITAT found that the CIT(A) had judiciously and correctly passed the orders based on the facts and applicable laws. Consequently, the ITAT dismissed the revenue’s appeal, upholding the CIT(A)’s decision to admit additional evidence and the overall outcome of the case.

In conclusion, the ITAT Mumbai ruled in favor of the assessee, affirming the CIT(A)’s decision to treat product registration charges as revenue expenditure and to admit additional evidences during the appellate proceedings. The judgment highlighted the importance of considering the nature of expenditure and the acquisition of assets in determining the capital or revenue classification of expenses.