ACIT, CHENNAI V. M/s. Shripet Industries Ltd., CHENNAI

ITA 1014/CHNY/2011

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6978 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 06-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR I V IJAYAKUMAR IRS
• Assessee Lawyers: R SIVARAMAN
• Keywords: Revenue expenditure
• Section: 54

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ITA NO.1014(MDS)/2011 ASSESSMENT YEAR: 2003-04 THE ASSISTANT COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE VI(2), CHENNAI. VS. M/S.SHRIPET INDUSTRIES LTD., I FLOOR, 30/61, CHIDAMBARA- SAMY 2 ND ST., MYLAPORE, CHENNAI-600 004. PAN AAACS7697C. (APPELLANT) (RESPONDENT) APPELLANT BY : DR. I.V IJAYAKUMAR, IRS, CIT-DR. RESPONDENT BY : SHRI R.SIVA RAMAN, ADVOCATE. DATE OF HEARING : 19 TH SEPTEMBER, 2011 DATE OF PRONOUNCEMENT : 21 ST SEPTEMBER, 2011 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2003-04. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V AT CHENNAI DATED 17-2-2011. THE APPEAL ARISES OUT OF THE ASSE SSMENT - - ITA NO.1014 OF 2011 2 COMPLETED UNDER SECTION 143(3), READ WITH SECTION 2 54 OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE HAD CLAIMED A SUM OF ` 20,32,048/- BEING PRODUCT DEVELOPMENT EXPENDITURE AS A DEDUCTIO N IN THE NATURE OF REVENUE EXPENDITURE IN COMPUTING ITS INCO ME FOR THE IMPUGNED ASSESSMENT YEAR 2003-04. THE ASSESSING AU THORITY TREATED THE EXPENDITURE AS CAPITAL IN NATURE AND DI SALLOWED THE CLAIM OF DEDUCTION MADE BY THE ASSESSEE. ANYHOW, D EPRECIATION ALLOWANCE WAS GRANTED ON THE CAPITALISED AMOUNT. T HIS DISALLOWANCE WAS TAKEN IN APPEALS AND IN THE FIRST ROUND OF PROCEEDINGS, THE TRIBUNAL REMANDED THE MATTER BACK TO THE ASSESSING OFFICER. IN THE SECOND ROUND ALSO, THE A SSESSING AUTHORITY HAS TREATED THE EXPENDITURE AS CAPITAL IN NATURE. IN FIRST APPEAL, THE CLAIM OF THE ASSESSEE WAS ALLOWED. THE REVENUE IS AGGRIEVED AND THEREFORE THIS APPEAL BEFORE THE TRIB UNAL IN THE SECOND ROUND. 3. THE ASSESSEE IS MANUFACTURING PET BOTTLES. THE DISPUTED EXPENDITURE WAS INCURRED BY THE ASSESSEE F OR DEVELOPING NEW BUSINESS. IN THE BOOKS OF ACCOUNT, THE ASSESSEE TREATED THE EXPENDITURE AS DEFERRED IN NATURE FOR A PERIOD OF TEN - - ITA NO.1014 OF 2011 3 YEARS. IN COMPUTING THE TAXABLE INCOME, THE ENTIRE EXPENDITURE WAS CLAIMED AS REVENUE DEDUCTION. 4. WE HEARD DR. I.VIJAYAKUMAR, THE LEARNED COMMISSIONER OF INCOME-TAX, APPEARING FOR THE REVEN UE AND SHRI R.SIVARAMAN, THE LEARNED COUNSEL APPEARING FOR THE RESPONDENT-ASSESSEE. THE EXPENDITURE OF ` 20,32,048/- WAS INCURRED BY THE ASSESSEE FOR PRODUCT DEVELOPMENT. THE ASSESSEE IS MANUFACTURING PET BOTTLES. THE ASSESSE E DESIGNED NEW MOULDS AND DYES TO MANUFACTURE THE PET BOTTLES IN A NEW PATTERN AND STYLE. THE CASE OF THE ASSESSEE IS THA T THE ULTIMATE PRODUCT MANUFACTURED BY THE ASSESSEE ALWAYS REMAINE D PET BOTTLES AND THE CHANGE IN STYLE CANNOT BE CONSIDERE D AS A BENEFIT OF ENDURING NATURE AND THEREFORE THE EXPENDITURE CA NNOT BE CONSIDERED AS CAPITAL IN NATURE. 5. WE CONSIDERED THE ISSUE IN DETAIL. IT IS TRUE THAT EVEN AFTER INCURRING THE ABOVE EXPENDITURE ON REMOD ELING THE STYLE OF THE PET BOTTLE, THE ASSESSEE IS CONTINUING TO PRODUCE THE SAME PRODUCT PET BOTTLE. THE EXPENDITURE INCURRE D BY THE ASSESSEE CANNOT BE HELD TO BE REVENUE IN NATURE ONL Y FOR THE REASON THAT AFTER INCURRING THE EXPENDITURE, THE AS SESSEE IS STILL - - ITA NO.1014 OF 2011 4 MANUFACTURING PET BOTTLE. THE QUESTION TO BE EXAMI NED IS WHETHER THE ASSESSEE HAS OBTAINED AN ENDURING BENEF IT IN CARRYING ON ITS BUSINESS IN A MORE EFFICIENT WAY AN D OR IT WAS TO EXPLORE NEW MARKET AND OR TO INCREASE THE VOLUME OF SALES. IN A NUTSHELL, IT IS POSSIBLE TO SAY THAT ANY EXPENDITUR E, WHICH BROUGHT FUNDAMENTAL CHANGE IN THE CHARACTER AND STYLE OF A PRODUCT CAPABLE OF ENHANCING THE QUALITY/QUANTITY, IS TO BE TREATED AS AN EXPENDITURE INCURRED IN THE CAPITAL ACCOUNT. IN TH E PRESENT CASE, THE AMOUNT INCURRED BY THE ASSESSEE IS SUBSTANTIAL. THE STYLE AND PATTERN OF THE PET BOTTLE ERSTWHILE PRODUCED BY THE ASSESSEE COMPANY CHANGED TO NEW STYLE. IN ORDER TO INTRODUC E THE NEW CHANGE, THE ASSESSEE HAS INCURRED THIS MUCH EXPENDI TURE IN BRINGING OUT A NEW PATTERN OF MOULDS AND DYES. THE MOST IMPORTANT ASPECT TO BE BORNE IN MIND AT THIS JUNCTU RE IS THAT EVEN AFTER EFFECTING THE NEW MODEL, THE ASSESSEE HAS BEE N MANUFACTURING PET BOTTLES IN THE OLD STYLE ALSO. T HEREFORE, EVEN IF THE NEW STYLED PET BOTTLE CANNOT BE CONSIDERED AS A NEW PRODUCT , IT MUST BE CONSIDERED AS A DIFFERENT PRODUCT, BUT OF THE SAME CLASS. THE EXPENDITURE INCURRED BY THE ASSESSEE TO BRING IN A DIFFERENCE IN THE IDENTITY OF THE PRODUCT, DEFINITE LY GRANTS AN - - ITA NO.1014 OF 2011 5 ENDURING BENEFIT TO THE ASSESSEE IN CARRYING ON ITS BUSINESS. THEREFORE THIS EXPENDITURE IS NECESSARILY CAPITAL I N NATURE. 6. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE REVERSE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) ON THIS POINT AND RESTORE THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY. 7. IN RESULT THIS APPEAL FILED BY THE REVENUE IS A LLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 21 ST OF SEPTEMBER, 2011 AT CHENNAI. SD/- SD/- (GEORGE MATHAN) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 21 ST SEPTEMBER, 2011. V.A.P. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.