TMI Blog2019 (4) TMI 2051X X X X Extracts X X X X X X X X Extracts X X X X ..... essee reads as under:- On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the ld. A.O. treating the amount incurred on account of research development expenses of Rs.47,15,000/- as capital expenditure instead of revenue expenditure as claimed by the assessee. 3. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacturing and trading of pharmaceuticals. It filed its return of income on 22nd September, 2011 declaring total income of Rs.1,42,670/-. The Assessing Officer during the course of assessment proceedings observed that the assessee has debited an amount of Rs.46,93,531/- under the head Research development charges. The Assessing Officer asked the assessee to file a note on research development expenses to which the assessee replied as under:- Kee Pharma Ltd. had entered into on an Agreement for Sale of Design for the Process to manufacture the drug Atorvastatin, with CBZ Chemicals Ltd., a UK based company, in May 2009. Under the Agreement, a total consideration of US $ 5,50,000/- would be payable by Kee Pharma Ltd, to CBZ Chemicals Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all technical knowledge to the assessee, the right of the assessee to sell/resell/licence the design or the process to a third party as well as the exclusive right conferred on the assessee by the said agreements the impugned payments are to be held in the nature of capital expenditure. The argument of the assessee that similar expenditure of Rs.20,59,826/- incurred in the F.Y. 2008-09 relevant to assessment year 2009-10 was accepted by the Assessing Officer and no disallowance was made in the order passed u/s 143(3), was rejected by the CIT(A) on the ground that the principle of res judicata does not apply to income-tax proceedings and every year is independent. 7. Aggrieved with the order of the CIT(A), the assessee is in appeal before the Tribunal. 8. The ld. counsel for the assessee strongly opposed the order of the CIT(A). He submitted that the decision relied on by the ld. CIT(A) in the case of J.K. Synthetics Ltd. (supra) in fact supports the case of the assessee. The ld. counsel drew the attention of the Bench to clause (1) para 38 of the order which has been reproduced by the CIT(A) and which reads as under:- (i) the expenditure incurred towards initial out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). She submitted that by incurring huge expenditure on R D, the assessee has created a capital asset of enduring benefit, therefore, the CIT(A) was fully justified in upholding the action of the Assessing Officer in treating the same as capital expenditure and allowing depreciation on the same. 11. We have considered the rival arguments made by both the sides and perused the orders of the authorities below. We find the Assessing Officer treated the expenditure of Rs.46,93,531/- incurred by the assessee as research and development charges as capital in nature as against revenue in nature treated by the assessee on the ground that the design procured by the assessee company will be beneficial to the assessee for more than one year. We find the ld. CIT(A), relying upon the decision of the Hon'ble Delhi High Court in the case of J.K. Synthetics Ltd. (supra) upheld the action for the Assessing Officer. It is the submission of the ld. counsel for the assessee that the assessee is an existing company engaged in the business of manufacturing and trading of pharmaceuticals and it has not made any investment in the initial outlay of business and has not made any payments for purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take over one single screen cinema for the purpose of conversion into a four-screen cinema complex. Detailed technical feasibility was carried out and building plans were prepared with the help of engineers and architects, who were paid remuneration. On subsequent market research, the assessee preferred to retain single-screen cinema and proposal of conversion of the said cinema into a multiplex was shelved. That expenditure was also claimed as revenue expenditure by the assessee. The revenue authorities held such expenditure to be capital expenditure on the ground that expenses were incurred for creating new assets. On appeal, the Tribunal held that the expenses on new project development were allowable as business expenditure under section 37. The Revenue filed appeal before the Hon'ble High Court and the High Court decided the issue in favour of the assessee and against the Revenue by observing as under:- 10. A harmonious reading of the aforesaid two judgments of this Court, namely, Triveni Engg. Works Ltd. (supra) on the one hand and Modi Industries (supra) on the other, would clearly demonstrate that one has to keep in mind the essential purpose for which such an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplating to set up a mini cement plant, which was the same line of business activity of the assessee, a feasibility report was prepared. However, the project could not be undertaken as Government refused to grant required permission. The Court opined that no new capital asset came into existence and the expenses incurred on preparation of the feasibility report, same line of business, were in the nature of revenue expenditure. Rajasthan High Court had also occasion to deal with this issue in the case of Maharaja Shri Umaid Mills Ltd. vs. CIT (1988) 68 CTR (Raj) 187 : (1989) 175 ITR 72 (Raj). There also the expenditure incurred in obtaining survey and feasibility report for setting up polyethylene plant for manufacturing packing material was treated as revenue expenditure as the new venture was interconnected and formed part of existing business. 14. In these circumstances, we answer the question in the affirmative, i.e., against the Revenue. As a consequence, this appeal is dismissed. 13. Since the assessee in the instant case was already in the business of manufacturing and trading of pharmaceuticals and the expenditure was incurred in the regular course of business ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
