9911796707
Advanced Search 
TMI Blog2019 (4) TMI 2051X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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., in several stages, the payments being milestone linked. Kee Pharma Ltd. would do research and development activities on the Design to develop a unique patentable process which would ultimately lead to the production of the drug Atorvastatin. The patent for the process so developed would also be filed by Kee Pharma Ltd. in its own name. Under the schedule of payments; as detailed in the Agreement; vide Clause 4.d.i, an amount of US $ 1,00,000/- was payable to CBZ by Kee Pharma Ltd." 4. From the reply furnished by the assessee, the Assessing Officer inferred that the design for the process to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 outlay of business would be in the nature of capital expenditure, however, if the expenditure is incurred while the business is on going, it would have to be ascertained if the expenditure is made for acquiring or bringing into existence an asset or an advantage of an enduring benefit for the business, if that be so, it will be in the nature of capital expenditure. If the expenditure, on the other hand, is for running the business or working it, with a view to produce profits, it would be in the nature of revenue expenditure." 9. He submitted that the Hon'ble High Court has laid down the test for certain expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of any plant or other similar assets. It is also the argument of the ld. counsel for the assessee that in view of the decision of the Hon'ble Delhi High Court in the case of Priya Village Roadshows Ltd. (supra), the expenditure incurred for preparation of feasibility report of a new project which is in respect of same business already carried on by the assessee, even if it is for expansion of business, namely, to start a new unit which is same as earlier business and there is unity of control and common fund, then, such expenditure has to be treated as a revenue expenditure. 12. We find merit in the above argument of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 expenditure is incurred. If the expenditure is incurred for starting new business which was not carried out by the assessee earlier, then such expenditure is held to be of capital nature. In that event it would be irrelevant as to whether project really materialised or not. However, if the expenditure incurred is in respect of the same business which is already carried on by the assessee, even if it is for the expansion of the business, namely, to start new unit which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure. In such a case whether new b ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
