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Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S. JAYARAMAN
आदेश / O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
The Revenue filed this appeal against the Order of the Commissioner of Income Tax (Appeals)-11, Chennai, in dated 25.09.2017 for the AY 2012-13.
M/s.Tagros Chemicals India Ltd., the assessee, is engaged in the business of manufacturing pesticides and chemicals. While making the assessment for the AY 2012-13, the AO, inter alia, noticed that the assessee claimed depreciation of Rs.1,69,98,522/- against the expenditure incurred for registration of products in foreign countries of Rs.7,89,84,947/-. He required the assessee to provide the details towards which the assessee submitted that the amount claimed as deduction being 25% of depreciation on the expenditure incurred of Rs.7,89,84,947/-, is towards registration with various authorities in foreign countries to enable its products to be exported and dealt in such countries, by treating the registration as intangible asset. The AO found that any payment made outside India attracts provisions of Chapter- XVII-B and failure to comply with such provision would attract the disallowance of such deduction. Accordingly, the AO disallowed the depreciation claimed at Rs.1,69,98,522/- u/s.40(a)(i) r.w.s.195. Aggrieved, the assessee filed appeal before the Ld.CIT(A). The Ld.CIT(A) following the decision of the Hon’ble ITAT Chennai Bench, in the assessee’s own case for the AY 2010-11, in dated 06.02.2017, allowed the appeal. Aggrieved, the Revenue filed this appeal with the following grounds:
1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The learned CIT(A) erred in deleting the disallowance of depreciation of Rs.l,69,98,522/- claimed on expenditure incurred for obtaining the Registration of it’s products in European Countries which includes Registration Expenses/validation, Analysis, Efficacy Trials, etc holding the same as “intangible asset” as per section 32(1)(ii) of the Income Tax Act, 1961. 2.2 The learned CIT(A) ought to have seen that the registration of the product of the assessee in foreign countries is an appreciable asset and hence only creation of an asset for which no depreciation can be allowed. 2.3 The learned CIT(A) failed to see that the relied on decision of the Hon’ble Apex Court in the case of Techo Shares and Stocks Limited is only relating to BSE Membership Card and Hon’ble Court itself has observed that it should not be understood to mean that every business or commercial right would constitute a “license” or a “franchise” in terms of section 32(1)(ii) of the IT Act, 1961. 2.4 It is humbly submitted that the decision of the Hon’ble Tribunal in the assessee own case for AY 2010-11 has not been accepted by the Department and appeal filed u/s.260A is pending. Hence, to keep the issue alive, further appeal is suggested for this year also. 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT (A) may be set aside and that of the Assessing Officer restored.
The assessee filed a Cross-Objection supporting the order of the Ld.CIT(A). The Ld.DR presented the case on the lines of the grounds of appeal, supra. The Ld.AR invited our attention to the Hon’ble Jurisdictional High Court decision in its case viz., CIT v. M/s.Tagros Chemicals (India) Ltd., in TCA No.555 of 2017 dated 28.11.2017, pleaded that the issue may be decided accordingly.
We heard the rival submissions and gone through relevant material.
This issue is covered in item (iii) of the question of law raised before the Hon’ble High Court, the relevant portion is extracted as under:
(iii)Whether the Tribunal was right in holding that the Registration Fees and other related payments constitute intangible assets and eligible for depreciation within the meaning of � � business or commercial rights u/s 32(1)(ii) in view of the fact that registration of pesticides
CO No.53/Chny/2018 :- 4 -: in a particular country cannot be termed as any intangible asset listed in section 32(1)(ii) of the Income Tax Act, 1961 ? The relevant portion of the judgment is extracted as under:
7.With regard to the second issue, wherein the assessee claimed that the payment of registration fee to be equitable to an intangible asset, we find that the finding of the Tribunal is not supported by reasons, especially on the factual aspect as to what is the effect of payment of the registration fee for acquiring such a licence. That apart, the assessee's alternate claim that it should be treated as a revenue expenditure has also been negatived by the Assessing Officer. We find that the Assessing Officer, in paragraph 4.2 of the assessment order, has not given independent reason as to why the alternate submission of the assessee is not accepted. Therefore, we find that the finding of the Tribunal in paragraph 13 on the second issue, in our considered opinion, has been rendered without going into the commercial aspect of the effect of the registration fee paid by the assessee, which, even according to the Assessing Officer, is a huge expense. Therefore, we feel that the second issue also should be remanded to the Assessing Officer for fresh consideration giving liberty to the assessee to raise all issues including the alternate plea that it should be treated as a revenue expenditure.
From the above, it is clear that the Hon’ble Jurisdictional High Court has remitted the above matter back to the AO for a fresh consideration, giving liberty to the assessee to raise all issues including the alternate plea that it should be treated as a revenue expenditure and decide the matter. In the facts and circumstances, we deem it fit to remit this issue back to the AO for a fresh consideration in accordance with the decision of the Hon’ble High Court, supra.
In the result, the appeal filed by the Revenue in is treated as partly allowed and the Cross-Objection filed by the assessee in CO No.53/Chny/2018 is dismissed as infructuous.
Order pronounced in the Open Court on June 07, 2018, in Chennai.