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2018 (3) TMI 790 - AT - Income TaxReopening of assessment - addition of expenses with deferred revenue expenses - Held that - We agree with the submissions advanced by DR that under Income Tax Act there is no concept of deferred revenue expenditure and the nature of deferred revenue expenditure in the present case could have been otherwise shown as revenue or capital expenditure by assessee as the case may be. Thus it is difficult to accept the contentions of Ld.Counsel on this issue regarding change of opinion by assessing officer while initiating the reassessment proceedings. Argument of Ld.DR regarding application of sub clause (c) to Explanation 2 to section 147. Thus to reasons recorded to form basis for initiating reassessment proceedings as it falls under (i ), (iii) and (iv) of sub clause (c) to Explanation 2 to section 147. Thus respectfully following the decision of Hon ble Supreme Court in the case of Calcutta Discount Company Ltd versus ITO (1960 (11) TMI 8 - SUPREME Court), we hold reopening of the assessment to be valid. Disallowance of expenses made by assessee under Legal and Professional head treating the same as capital in nature - Held that - It is very much relevant for assessee in its type of business to register its brand with the Trademark Registry as there would be many other pharmaceutical companies coming out with a similar type of products which could infringe the rights of assessee in case the same is not properly registered with the appropriate authority. No reason to confirm this addition, as these are genuine expenditure incurred by assessee for the purposes of business. Further section 32 (1) (ii) now categorically considers trademark to be an eligible expenditure in the category of intangible assets. Thus in our considered opinion the addition made by AO deserves to be deleted. Disallowance of towards the expenditure incurred under the head Fees and Subscription - Held that - As assessee is into manufacturing and marketing of pharma products, it has to have a license to trade in the products which is to be obtained from appropriate authority in the state. We do not find any contrary observation made by authorities below in respect of the nature of payment which assessee has to incur time and again for the purposes of carrying on its business. These expenses do not categorise to be in the nature of enduring benefit arising to assessee as the licenses issued by the State Government are for a fixed period of time which are revoke a will upon violation of the conditions stipulated there. Thus in our considered opinion these expenses incurred by assessee would be eligible for deduction under section 37 (1). Advertisement Expenses disallowance - Held that - CIT(A) deleted the addition as it is incurred wholly and exclusively for the purposes of business. It is observed that assessee has already claimed advertisement expenses under the head selling and distribution expenses being schedule 19 to the statement of accounts amounting to ₹ 21,95,824/-. Thus we do not find the reason as to why assessee considered advertisement expenses amounting to ₹ 19,94,690/-under the head deferred revenue expenses . This amounts to double deduction as claimed by assessee. Therefore the disallowance of advertisement expenses stands upheld. Depreciation claimed on computer peripherals such as UPS, battery etc. - Held that - In our considered opinion this issue now squarely stands covered in favour of assessee by order of jurisdictional High Court in the case of CIT vs. BSES Yamuna Powers Ltd 2010 (8) TMI 58 - DELHI HIGH COURT wherein it has been held that computer accessories and peripherals such as printers, scanners and servers etc. form an integral part of computer system and cannot be used without the computer, thus these are part of the computer system and eligible for depreciation at the rate of 60%. Addition on excess provision made under the head Fringe Benefit Tax (FBT) - Held that - CIT(A) there is a categorical observation that from the computation of income and profit and loss accounts submitted by assessee it has been observed that no such provision for excess FBT has been claimed as deduction by assessee. In view of the above observation Ld. CIT (A) correctly deleted the addition made by Ld. AO.
Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in reopening the assessment under Section 147 of the Income Tax Act, 1961. 2. Disallowance of expenses under the heads "Legal & Professional Expenses" and "Fees & Subscription." 3. Classification of deferred revenue expenditure as revenue or capital in nature. 4. Disallowance of sales promotion expenses and depreciation on UPS and battery. 5. Deletion of additions made under Section 2(24)(x) of the Income Tax Act and excess provision for Fringe Benefit Tax (FBT). Detailed Analysis: 1. Jurisdiction of the AO in Reopening the Assessment: The assessee challenged the AO's jurisdiction to reopen the assessment under Section 147, arguing that the reassessment was based on a mere change of opinion, which is prohibited by law. The AO had issued a notice under Section 148, citing that the assessee had claimed deferred revenue expenditure incorrectly, resulting in an under-assessment of income. The Tribunal upheld the AO's jurisdiction, noting that the original assessment did not address the issue of deferred revenue expenditure, and the reopening was justified under Explanation 2 to Section 147 of the Act. The Tribunal relied on the Supreme Court's decision in Calcutta Discount Company Ltd. vs. ITO, which allows reopening if there are reasonable grounds to believe income has escaped assessment due to non-disclosure of material facts. 2. Disallowance of Expenses: - Legal & Professional Expenses: The assessee incurred expenses for registering trademarks, which were treated as capital in nature by the AO. The Tribunal allowed the deduction, stating that such expenses are necessary for the business and fall under Section 32(1)(ii) of the Act as intangible assets. - Fees & Subscription: The expenses were incurred for statutory payments to register drugs and obtain permits. The Tribunal allowed these expenses as revenue in nature under Section 37(1) of the Act, as they are necessary for carrying on the business and do not provide enduring benefits. 3. Classification of Deferred Revenue Expenditure: The AO had disallowed certain expenses classified as deferred revenue expenditure, considering them as capital in nature. The Tribunal upheld the AO's disallowance, noting that the expenses were already claimed under different heads in the financial statements, leading to double deductions. The Tribunal emphasized that under the Income Tax Act, there is no concept of deferred revenue expenditure, and such expenses should be classified as either revenue or capital based on their nature. 4. Disallowance of Sales Promotion Expenses and Depreciation: - Sales Promotion Expenses: The Tribunal dismissed the assessee's claim, following its earlier order for previous assessment years, which had extensively dealt with and disallowed similar claims. - Depreciation on UPS and Battery: The Tribunal allowed the assessee's claim for higher depreciation (60%) on UPS and battery, following the jurisdictional High Court's decision in CIT vs. BSES Yamuna Powers Ltd., which held that computer peripherals form an integral part of the computer system and are eligible for higher depreciation. 5. Deletion of Additions under Section 2(24)(x) and FBT: - Employer’s Contribution to PF and ESI: The AO had disallowed contributions paid after the due date under the relevant act. The Tribunal upheld the CIT(A)'s direction for verification, noting that the contributions paid before the due date of return are allowable under Section 43(B)(b) of the Act. - Excess Provision for FBT: The AO disallowed an excess provision for FBT, which the assessee claimed was not deducted in the computation of income. The Tribunal upheld the CIT(A)'s deletion of the addition, as the assessee had not claimed the excess provision as a deduction. Conclusion: The Tribunal delivered a mixed judgment, allowing some claims of the assessee while upholding the AO's disallowances in other instances. The key takeaways include the validation of the AO's jurisdiction to reopen assessments under Section 147, the allowance of necessary business expenses under Sections 32(1)(ii) and 37(1), and the importance of accurate classification of expenses to avoid double deductions. The Tribunal's decisions were guided by established legal precedents and the specific facts of the case.
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