M/S STELIS BIOPHARMA PVT LTD ,BANGALORE vs. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-6(1)(2), BANGALORE

2 & 2192/Bang/2018 have common issues, for the sake of convenience, are clubbed and heard and consolidated order is passed. We shall take up the assessee's appeal in and facts narrated therein..

5 & 2192/Bang/2018 of the act was issued. In compliance, the learned Authorized Representative of the assessee appeared from time to time and the case was discussed. The Assessing Officer, on perusal of the profit and loss account found that the assessee has not offered revenue from operations, but has claimed expenditure along with depreciation. The Assessing Officer is of the opinion that the assessee company has not commenced its production activities and the expenditure claimed is in the nature of Pre operative expenses, further there is no matching concept of income offered against expenditure in the said financial year. Whereas, the assessee by letter dt.23.3.2016 explained that the company has commenced its operations in the earlier years and has complied with Accounting Policies and Accounting Standards, and where ever the expenditure incurred on product development activity being capital expenses in nature, is capitalized and only revenue expenditure is claimed in the profit and loss account but the Assessing Officer has overlooked these facts and is of the opinion that since no commercial operations have started, the expenditure has to be considered as preoperative expenditure as the products are in developmental stage, and also no revenue from operations and non compliance of matching concept. The A.O.applied the concept of amortization of expenses and is of the opinion that the expenditure cannot be allowable for the said assessment year and disallowed the claim and Assessed total loss of Rs.11,13,932 and passed the order under Section 143(3) of the Act dt.28.03.2016.

6 & 2192/Bang/2018 Aggrieved by the order, the assessee has filed an appeal with the CIT (Appeals), whereas the CIT (Appeals) considered the grounds of appeal

, written submissions and findings of the Assessing Officer and has concurred with the view of the Assessing Officer that the expenditure claimed is preoperative expenditure and not current year revenue expenditure and sustained the addition and dismissed the appeal. Aggrieved by the order of the CIT (Appeals), the assessee has filed an appeal with the Tribunal.

5. At the time of hearing, the learned Authorized Representative submitted that the assesse company was incorporated on 12.06.2007 and commenced business operations from 2.5.2008. The assessee is continuing the business from the A.Ys 2008-09 to 2012-13 with the main activity of development of biological drugs and R&D. Whereas the income tax Department has accepted the assessee claim of revenue expenditure in the profit and loss account for the asst year 2012-2013 in the assessement. The LdAr supported his arguments with details in Paper Book and prayed for allowing the appeal. Contra, the learned Department Representative supported the order of the CIT (Appeals).

6. We heard the rival submissions and perused the material on record. Prima facie, the sole matrix of the disputed issue is with respect to the allowing of revenue expenditure claimed by the assessee in the profit and loss account.

7 & 2192/Bang/2018 Whereas the Assessing Officer is of the opinion that the expenditure is in the nature of preoperative expenses and also matching concept does not exist as no revenue was offered by the assessee in the assessment year under consideration. The learned Authorized Representative submitted that the assessee is in the development of biological drugs and started commercial production from the F.Y. 2008-09 and referred to page 157 of the Paper Book, where the details of revenue from operations are submitted before the CIT (Appeals) for the A.Ys 2008-09 to 2012-13. The ld. AR demonstrated the profit and loss account placed at Page 125 of Paper Book, where the assessee has claimed expenses at Sl. No. IV aggregating to Rs.1,52,82,533/- Further, where the expenditure is of enduring nature is capitalized under Capital work in process,( product under development) disclosed at page132 of paper book in the Annexure of Fixed Assets as on 31.03.2013. The LdAr referred to the Accounting Policies and notes on the financial statements at Page 150 of the Paper Book where expenditure incurred on intangible assets developed by the company post research stage is recognized as an asset marked as - “Capital Work in Progress Projects under which assets are not ready for its intended use and other Capital Work in Progress are carried at cost, comprising direct cost, related incidental expenses and attributed finance costs.

Expenditure incurred on Intangible Assets developed by the company, post research stage is recognized as an asset, if and only if the future economic benefits attributable are probable to flow to the company and costs can be measured reasonably. The cost of Technical Know how developed is being amortised equally over its estimated life. With effect from 1.1.2011, direct operating expenses incurred on product development have been treated as Capital Work in progress and will be capitalized as Technology Know how, on completion of certain technical milestones. These costs are in the nature of development of products, which have the potential to be exploited commercially and hence can generate future economic benefit.” We find that the assessee has been following the same system of accounting and the Income tax department has accepted in earlier years. Further in the Asst. Year 2012-13, where the facts are similar, the Assessing Officer has considered the assessee's claim and assessment was completed. The learned Authorized Representative’s contentions are that there is no change in the facts and system of accounting in comparison with the earlier assessment years, hence the observations of the Assessing Officer and the appellate authority that the assessee company has not commenced its commercial production cannot be tenable.. We found strength in the submissions of the learned Authorized Representative supported with details. we find that the Assessing officer has passed assessment order under Section 143(3) of the Act for the Asst. Year 2012-13 ,where the assessee line of business is 9 & 2192/Bang/2018 similar to current years. We consider it appropriate to refer to the submissions of the assessee in assessment proceedings for the Asst year 2012-13 at Page174-176 ofpaperbook. .

. Considering the submissions of the assessee and they were accepted by the revenue authorities for the AsstYear 2012-2013, we are of the opinion that there is 12 & 2192/Bang/2018 no change in facts in the present assessment year, and the Assessing Officer cannot consider the expenditure claimed as preoperative expenditure and the basis of matching concept. Accordingly, we set-aside the order of the CIT (Appeals) and restore entire disputed issue to the file of Assessing Officer with the above directions. And the A .O. shall provide adequate opportunity of hearing to the assessee and we allow the appeal of the assessee for statistical purposes.