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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 ..... Assessed Income 2011-12 23/09/2011 Rs. 32. 25 crores 30/03/2014 Rs. 32. 28 crores 2012-13 29/09/2012 Rs. 72. 03 crores 19/06/2014 Rs. 72. 25 crores ITA/3804/Mumbai/2016-AY. 2011-12: 2. Effective ground of appeal is about Production Registration Expenses (PRE). During the assessment proceedings, the AO found that the assessee, in the original return of income, had capitalised the PRE, that it had claimed depreciation at the rate of 25% for such expenses, that in the revised return it claimed the PRE (Rs. 17. 45 crores) as revenue expenditure. It was claimed that the deduction was made on the basis of judgments of Penacea Biotech Ltd (324 ITR 311) and Cadila Healthcare (56 SOT 89). He called for an explanation of the assessee in that regard. After considering the same, the AO held that the assessee had made the nuclear after filing its return of income, that claim was not made by filing a valid revised return, that such a claim could not be considered in light of the judgment of the Hon'ble Supreme Court, delivered in the case of Goetze India Ltd. (284 ITR 323), that the registration of products was a long-term process which took 1-4 years, that there were various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erved that the data right in respect of a particular substance gave the assessee were right to use the study for registration of its products, which contained that particular substance, that the data rights were either for use forever or was a very long period, that the rights would be used to register multiple products enabling it to sell these products, that the rights clearly provided benefits of enduring nature to the assessee and would add the capital structure, that the expenses incurred for obtaining the same were to be capitalised. Finally, he held that PRE were capital nature, that the same were correctly capitalised as fixed assets by the assessee. He further held that decisions relied upon by it were factually distinguishable. Finally, he rejected claim made by the assessee with regard to PRE and held that same was capital in nature. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions. It also relied upon certain case laws. After considering the available material, he held that claim about PRE was not made in the original letter, that same was made before the AO in the assessment p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V Ltd (54 SOT615) and Cadila Healthcare Ltd (supra) and held that the assessee was engaged in export of petrochemicals and pesticides at generic products, that such products had to meet the regulatory approval of the countries in which it was proposed to be sold, that without such approvals the products could not be sold, that the expenditure incurred was not in the nature of research and development/patents which were then licensed, that the expenses were akin to regulatory expenses and fell under marketing expenses, that the expendi -ture was large and often spread over several years, that it would not alter the essential nature of the expenses, that the expenses were of recurring nature incurred from year to year for new chemicals entering new markets and even in many cases is annual fees for same chemicals in the same market, that in the context of the business of the assessee the claim made by it about PRE had to be allowed as revenue expenditure. 4. During the course of hearing before us, the Departmental Representative (DR) contended that in the earlier years PRE was claimed as capital expenditure, that without filing a revised return it claimed that same was of revenue nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O rejected the claim had by the assessee for treating the PRE as revenue expenditure, that the FAA allowed the appeal of the assessee. 5.1. We find that the first objection of the AO was about not making the claim in the revised return. In our opinion, the stand taken by the AO in light of judgment of the Hon'ble apex court in the case of Goetze India Ltd. (supra)was as per prevailing law. It is also true that the appellate authorities, including the FAA, can admit new claim, even if same was not made the original return of income. In that regard we would like to refer to judgment of the Hon'ble tradition High Court in the case of Prithvi Brokers and Shareholders (supra) where in the Hon'ble court has held as under: "An assessee is entitled to raise not merely additional legal submissions before the appellate authorities but is also entitled to raise additional claims before them. The appellate authorities have the discretion to permit such additional claims to be raised. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e real nature and quality of the payment and not the question or the manner of the payment which would prove decisive. If the subject of making the payment is to acquire a capital asset, the payment would partake of the character of a capital payment even though it is made not in lump sum but by instalments over a period of time. On the contrary, payment made in the course of and for the purpose of carrying on business or trading activity would be revenue expenditure even though the payment is of a large amount and has not to be made periodically. " Respectfully following the above, we hold that to solve the knotty issue of capital/revenue expenditure the aim and object of the expenditure is to be considered not the quantum. As far as entries in the books of accounts and claiming depreciation in the earlier years is concerned, it is suffice to say that entries made in the books of accounts do not decide the true nature of expenditure. We would like to rely upon the case of Bhor Industries of the Hon'ble Bombay High Court (264 ITR 180). 5.2. The Hon'ble Courts are of the view that the issue of capital versus revenue expenditure has to be seen from the angle of an assessee rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitability while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. " Considering the above, we are of the opinion that the order of the FAA does not suffer from any legal or factual infirmity. So, we are not inclined interfere with it. Effective ground of appeal is decided against the AO. 6. ITA/3805/Mum/2016, AY. 2012-13: 6. 1. Facts and circumstances for the year under consideration are identical to the facts of earlier years-except the amount involved. Therefore, following the orders for the AY. 2011- 12, we decide the effective ground of appeal against the AO. 7. CO/115/Mum/2016, AY. 2011-12: 7. Solitary ground of the CO is about grant of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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