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TMI Blog2018 (3) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessee : Shri Kunal Beswal/Anuj Kishnadwala Order u/s. 254(1)of the Income- tax Act , 1961(Act ) PER RAJENDRA, AM Challenging the orders dated 07/03/2016, of the CIT (A)-12, Mumbai, the Assessing Officer (AO) has filed appeals for the above-mentioned two assessment years(AY. s). The assessee has filed Cross Objection(CO)for the AY. 2011-12. As the issue involved in both the appeals filed by the AO are identical, so, we are adjudicating them together along with the CO. Assessee-company is engaged in the business of trading/exporting dyes, dyes intermediates, pesticides, agrochemicals etc. The details of dates of filing of returns, returned incomes, dates of assessments, assessed incomes can be summarised as under: A.Y. ROI filed on Returned Income Assessment dt. Assessed Income 2011-12 23/09/2011 Rs. 32. 25 crores 30/03/2014 ₹ 32. 28 crores 2012-13 29/09/2012 ₹ 72. 03 crores 19/06/2014 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -9 years, that the initial product registration was granted to the assessee of long and laborious efforts, that the registrations gave assessee right to sell its products in a particular country, that those products could not be sold without proper registration, that the registration granted to it gave the assessee an advantage of enduring nature by entitling it to sell its products, the form the basis of capital structure of the assessee enabling it to run its business of selling the products on the basis of the registration of the product, that it was a capital expenditure and was not allowable as revenue expenditure, that the major part of the product registration assets pertained to data access rights obtained by it, that the that the price will study or research done by other parties in respect of a particular active substance, including the testing done on the animals, that access to the data was essential for registration of products. He referred an agreement entered into by the assessee by which it purchased data access rights wherein ₹ 1. 26 crores were paid and observed that the data right in respect of a particular substance gave the assessee were right to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that regard and allowed depreciation at the rate of 25%, that thereafter for next five years the assessee claimed depreciation on the expenses, that in the year under consideration it claimed PRE as revenue expenses and withdrew the claim of depreciation, that in the subsequent years it was claiming the expenses as revenue expenditure, that many of the expenses were clearly renewal expenses, that in some cases the registration validity expired in 2013, that while others were expiring in different years up to 2090, that in some cases it was valid for ever, that the assessee would select appropriate generic products and would identify appropriate country in which the product could be exported, that there were barriers to entry in as much as the products had to be registered in the respective country, that the field trials were expensive, that it was convenient to obtain data rights from parties which obviated the need to conduct field trials for the specific chemical molecules. He referred to the case of Panacea Biotech Ltd. (supra), Torrent Pharmaceuticals Ltd (29 taxmann. com 405) USV Ltd (54 SOT615) and Cadila Healthcare Ltd (supra) and held that the assessee was engaged in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of export, that it would make payment to the parties who had made research about generic products, that the entities having data about such products would allow the assessee to use the same for making exports to various countries after charging fees, that for registration it had to undergo a lot of formalities and had to spend huge amounts, that initially the disputed expenditure was claimed as revenue expenditure, that the AO negated the claim and allowed depreciation, that for next five years the assessee was claiming depreciation for PRE, that for the year under consideration in the original assessment, the assessee treated PRE capital expenditure, that during the assessment proceedings, a request was made to the AO to allow the same as revenue expenditure, that later on a revised return was filed which was barred by time-limit of the provisions of section 139 (5), that the AO rejected the claim made by the assessee, that he held that assessee was getting benefit of enduring nature, that considering the quantum of expenditure and efforts and time taken in registration process, that the AO rejected the claim had by the assessee for treating the PRE as revenue expenditure, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties and the prices prevailing in the respective markets. In short, the PRE would not bring any benefit of enduring nature. Besides, the data exercises paid by it were for a right to access the data-it did not give right over the data. It is also found that assessee was incurring such expenditure is year after year. It had incurred PRE of ₹ 17. 46 crores, ₹ 23. 73 crores, ₹ 39. 82 crores and ₹ 28. 05 crores for the AY. s 2011-12 to 2014-15 respectively. So, it can safely be held that the PRE was of recurring nature. As far as quantum of expenditure is concerned we would like to mention that the full bench of Hon ble Apex Court has decided the issue long back in the case of MK Brothers Private Ltd. (supra). The relevant portion of the judgment the as under: The answer to the question as to whether an amount paid is a revenue expenditure or capital expenditure depends not so much upon the fact as to whether the amount paid is large or small or whether it has been paid in lump sum or by instalments, as it does upon the purpose for which the payment has been made and expenditure incurred. It is the real nature and quality of the payment and not the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset. As per the rules and regulations, it was essential that the product, before marketing, would be registered with the regulating authorities. Any expenditure in the process wouldnot be stated to ensure procurement of a new asset to the assessee. We are informed that a Division Bench of this Court in the case of CIT v. Torrent Pharmaceuticals Ltd, (2013) 263 CTR(Guj)683 :[2013]87 DTR (Guj) 54 (2013) 29 taxmann. com 405 (Gujarat) also in somewhat similar facts had upheld the decision of the Tribunal. We would also like to rely upon the following portion of the judgment of the Hon ble Apex Court in the matter of Empire Jute Mills: There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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