2012 (2) TMI 15 - HC - Income Tax

Revenue expenditure vs deferred revenue expenditure - manufacturing and trading in pharmaceuticals products - pharmaceuticals products registered in foreign countries for 5 years - registration amount paid in lumpsum in the first year Revenue contending it to be deferred revenue expenditure Held that - Assessee has been regularly incurring expenditure on registration of pharmaceuticals products in foreign countries. A similar addition made was deleted by CIT(Appeals) in the A.Y. 2003-04 and 2004-05 . Similarily in A.Y. 2005-06, deletion made was appealled by Revenue before Tribunal but was dismissed and no further appeal was preferred before this Court. It therefore, appears that the aforesaid expenditures are being claimed from year to year. Even if the plea of the revenue is accepted, the net effect may be marginal or minimum Decided against the Revenue

Summary

Issues:
1. Delay in filing and re-filing the appeal.
2. Treatment of deferred revenue expenditure in assessment years 2006-07 and 2007-08.

Analysis:

Issue 1: Delay in filing and re-filing the appeal
The judgment addresses a delay of 65 days in filing the appeal and a 100-day delay in re-filing the appeal. The respondent-assessee's counsel expressed no objection to condone the delays, leading to the court's decision to condone the delays in filing and re-filing the appeal. The applications regarding the delays were disposed of accordingly.

Issue 2: Treatment of deferred revenue expenditure
The appeals under Section 260A of the Income Tax Act, 1961, pertain to assessment years 2006-07 and 2007-08 concerning the treatment of deferred revenue expenditure. The assessee, engaged in the pharmaceutical business, incurred registration expenditure for products in foreign countries. The Assessing Officer disallowed 4/5th of the expenditure, considering it should be deferred over 5 years. However, the CIT (Appeals) deleted this addition, a decision affirmed by the tribunal, disagreeing with the Assessing Officer.

The judgment delves into the application of the matching concept and references legal precedents to distinguish between revenue and capital expenditure. It highlights the importance of considering the nature of the advantage in a commercial sense to determine the treatment of expenditure. The court rejected the Revenue's claim for deferring revenue expense in the absence of a statutory provision and emphasized that the concept of deferred revenue expenditure should not be accepted at the Revenue's behest.

Furthermore, the judgment notes the consistent nature of the expenditure by the assessee over the years and the previous instances where similar additions were deleted by the CIT (Appeals). Despite the Revenue's contentions, the court found no merit in the appeals, ultimately dismissing them.

In conclusion, the judgment provides a detailed analysis of the treatment of deferred revenue expenditure, emphasizing commercial sense and legal precedents in determining the nature of expenditure. It also highlights the importance of consistent application of tax laws and past decisions in similar cases for a fair and just outcome.