2015 (2) TMI 331 - HC - Income Tax

Product Registration expenses - revenue v/s capital expenditure - Held that - Decided in favour of assessee by allowing the expenses as revenue expenditure as relying on CIT Vs. Torrent Power Limited 2013 (4) TMI 570 - GUJARAT HIGH COURT AND CIT vs. Cadila Healthcare Limited 2013 (3) TMI 539 - GUJARAT HIGH COURT Dis-allowance of interest - advances given have been continuing for a long period of time - Held that - Once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Respectfully following the ratio laid in the judgement of the Hon'ble Jurisdictional High Court in the case of CIT vs. Raghuvir Synthetics Ltd. (2013 (7) TMI 806 - GUJARAT HIGH COURT), we cannot uphold the action of the authorities below. - Decided in favour of assessee Disallowance of depreciation - Held that - In the present case, the assessee has produced the evidence of electricity power consumption that goes to show that the Plant was running and this fact is not rebutted by placing any contrary evidence on record by the Revenue that the electricity so consumed for any other purpose. Therefore, respectfully following the ratio laid down by the Hon'ble Jurisdictional High Court in the case of ACIT vs. Ashima Syntex Ltd.(2000 (8) TMI 22 - GUJARAT High Court), we hereby delete the dis-allowance and direct the AO to allow the depreciation amounting to ₹ 28,77,600/- as claimed by the assessee. - Decided in favour of assessee

Summary

Issues Involved:
1. Product Registration Expenses as Revenue Expenditure
2. Disallowance of Interest
3. Disallowance of Scientific Research Expenses
4. Disallowance of Depreciation on Building and Plant & Machinery

Issue-Wise Detailed Analysis:

1. Product Registration Expenses as Revenue Expenditure:
The first issue concerns whether the Appellate Tribunal erred in treating Product Registration expenses of Rs. 1,43,79,597/- as revenue expenditure. The Tribunal's discussion on this issue is detailed in paragraphs 27 to 27.3 of its order. The court noted that this issue has been previously adjudicated in favor of the assessee in the cases of Commissioner of Income Tax Vs. Torrent Power Limited and Cadila Healthcare Limited. Therefore, the court concluded that no substantial question of law arises for consideration in this appeal.

2. Disallowance of Interest:
The second issue pertains to whether the Tribunal erred in deleting the disallowance of interest of Rs. 13,86,585/-. The Tribunal's discussion is found in paragraph 28 of its order. The Tribunal had previously decided this issue in favor of the assessee in ITA No.1146/Ahd/2011. The court referenced its earlier decision in Tax Appeal No.39 of 2015, where it had concluded that the Tribunal correctly relied on the judgment in the case of CIT vs. Raghuvir Synthetics Ltd., which followed the Supreme Court decision in S.A. Builders Ltd. vs. CIT. The court held that the advances were given for business purposes, and thus, no disallowance was warranted. Consequently, the court found no substantial question of law arising from this issue.

3. Disallowance of Scientific Research Expenses:
The third issue involves the disallowance of scientific research expenses amounting to Rs. 3,59,500/-. The Tribunal's discussion is found in paragraphs 10, 11, and 11.1. The Tribunal relied on the Gujarat High Court's decision in CIT vs. Cadila Healthcare Ltd., which held that expenses incurred outside the approved R&D facility could still qualify for weighted deduction under section 35(2AB) of the Income Tax Act, 1961. The court agreed with the Tribunal's reliance on this precedent and found no substantial question of law arising from this issue.

4. Disallowance of Depreciation on Building and Plant & Machinery:
The fourth issue concerns the disallowance of depreciation amounting to Rs. 28,77,600/- on building and Plant & Machinery. The Tribunal's discussion is found in paragraphs 16, 17, and 17.1. The Tribunal referred to the Gujarat High Court's decision in ACIT vs. Ashima Syntex Ltd., which held that the commencement of business by way of production entitles the assessee to depreciation. The Tribunal noted that the assessee had provided evidence of electricity consumption, indicating that the plant was operational. The court found that the Tribunal correctly applied the precedent and concluded that no substantial question of law arises from this issue.

Conclusion:
The court found that the issues concerning Product Registration expenses, disallowance of interest, scientific research expenses, and depreciation on building and Plant & Machinery were all covered by existing precedents. Therefore, no substantial questions of law arose for consideration in this appeal, and the appeal was dismissed.