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2021 (12) TMI 1467 - ITAT BANGALORENature of expenses - Product Registration Charges - Revenue or capital expenditure - mercantile method of accounting followed as in the business of manufacturing of pharmaceutical products - whether product registration expenses have been charged off in the accounts constitutes as an expenditure allowable u/s 37(1) and hence disallowance is ought to be deleted? - HELD THAT:- On perusal of ledger accounts revels that payments have been made to statutory bodies either for approval or as statutory maintenance in foreign nations. Assessee has also made payments being annual fees to the Medical agencies in foreign nations. All these are recurring in nature. These payments are inextricably linked to the business of the assessee. In respect of Patent expenditure, it is submitted that assessee has to get the patent registered in various regions in order to safeguard its product from any infringement. Further nothing has been placed on record to establish that the patent expenditure has been incurred by assessee on a new product. One aspect cannot be ignored that assessee incurs these expenses every year. Coming to the expensed incurred by assessee in respect of the drug called ‘Dolenio’, we note that it is sold by assessee in many countries. The expenses incurred by assessee towards Mutual recognition process variation is necessary based on any change in the packing of the drug like change in color etc., or shape of the drug, or even the change of supplier. The expenses incurred by assessee in respect of Dolenio during the years under consideration towards Mutual recognition process variation, Patent and Trade mark and other registration expenses, are be considered as revenue expenditure, allowable under section 37(1) of the Act. Annual fee/license fees paid the ledger account revels that these are recurring in nature, and hence cannot be treated to be one time payment. These are in respect of renewal of licence with the drug authorities in respective countries to continue to hold the licence to export and sell the products developed by assessee. Accordingly we do not find any infirmity in the observation of CIT(A) to treat the payments to be revenue expenditure allowable u/s 37(1) Disallowance u/s 14A r.w.s. D(2) (ii) - Assessee suo moto disallowed u/r 8 D(2)(iii) - AR submitted that the nature of dividend, was from investment in Mutual Funds (MFs) and that the investment was made out of surplus funds and funds from other sources and that no part of the borrowed funds was utilised for making the investment in MFs - HELD HAT:- If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest-free funds available. However this needs verification as on the date of investment. The cash flow statement would disclose as on the date of making investments, which had given rise to the exempted income, that the assessee had interest free funds available with it. In the interest of justice and equity, we deed it fit to remand the case to the Assessing Officer for fresh consideration. AO shall afford reasonable opportunity of being heard to the assessee. The assessee shall prove its case that it is having interest free funds for making investments, by furnishing cash flow state for the respective assessment years.
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