M/s. Gujarat Setco Cluch Ltd., V. The CIT-III, Baroda

ITA 1075/AHD/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0062 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 11-11-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 08-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure
• Section: 143(3); 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ./ ITA NOS. 1075 & 1076/AHD/2009 / ASSESSMENT YEAR : 2003-04 & 2004-05 M/S. GUJARAT SETCO CLUTCH LTD. (NOW KNOWN AS SETCO AUTOMOTIVE LTD.), BARODA GODHRA HIGHWAY, KALOL, DIST. PANCHMAHAL PAN : AAACG 7777 K VS COMMISSIONER OF INCOME-TAX-III, BARODA ./ ITA NOS. 484 & 485/AHD/2015 / ASSESSMENT YEAR : 2003-04 & 2004-05 ACIT, GODHRA VS M/S. SETCO AUTOMOTIVE LTD, BARODA GODHRA HIGHWAY, KALOL, DIST. PANCHMAHAL PAN : AAACG 7777 K / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI BHAVIN MARFATIA, AR REVENUE BY : SHRI R.I. PATEL, CIT-DR, WITH SHRI K. MADHUSUDAN, SR DR / DATE OF HEARING : 11/11/2016 / DATE OF PRONOUNCEMENT: 16/11/2016 / O R D E R PER R.P. TOLANI, JUDICIAL MEMBER:- \ ITA NOS. 1075 & 1076/AHD/2009 ARE THE APPEALS BY TH E ASSESSEE DIRECTED AGAINST THE RESPECTIVE ORDERS OF THE CIT-I II, BARODA OF EVEN DATED 26.03.2009 FOR AYS 2003-04 AND 2004-05 RESPECTIVELY . ITA NOS. 484 & 485/AHD/2015 ARE THE APPEALS BY THE REVENUE DIRECTE D AGAINST THE RESPECTIVE ORDERS OF THE CIT(A)-VI, BARODA OF EVEN DATED 01.11.2014 FOR AYS 2003-04 AND 2004-05 RESPECTIVELY. THE ISSUE BEING C ONNECTED AND ASSESSEE BEING SAME, THESE APPEALS WERE HEARD TOGETHER AND A RE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS. 1075 & 1076/AHD/2009 AND 484 & 485/AHD/201 5 ASSESSEE - SETCO AUTOMOTIVE LTD AY : 2003-04 & 2004-05 2 ITA NOS. 1075 & 1076/AHD/2009 : ASSESSEES APPEALS 2. THESE ASSESSEES APPEALS ARE AGAINST THE ORDER P ASSED BY THE LD. CIT, BARODA U/S 263(1) OF THE ACT, REVISING THE ORDER OF LD. AO. IN AY 2003-04, THERE ARE TWO GROUNDS RAISED BY THE ASSESSEE CHALLE NGING 263 ACTION. THE SECOND GROUND REGARDING THE EXPORT DEVELOPMENT EXPE NSES, HAVING BEEN ALLOWED IN SUBSEQUENT PROCEEDINGS BY LD. AO, IS NOT PRESSED BY THE ASSESSEE. THIS LEAVES US TO DECIDE THE COMMON GROU ND RAISED IN THESE APPEAL, WHICH READS AS UNDER:- THE LD. CIT ERRED IN DIRECTING THE AO TO WITHDRAW THE DEPRECIATION OF RS.13,84,455 (AY 2003-04) AND RS.12,51,088/- (AY 20 04-05) ALLOWED @ 25% ON THE PRODUCT DEVELOPMENT EXPENSES AND NOT ENT ERTAINING YOUR APPELLANTS CLAIM FOR ALLOWING THE SAID EXPENDITURE IN FULL. 3. THE OTHER TWO APPEALS ARE IN RESPECT OF CONSEQUE NTIAL ORDERS PASSED U/S 143(3) R.W.S. 263 OF THE ACT. IN BOTH THESE YE ARS, THE IMPUGNED PRODUCT DEVELOPMENT EXPENSES WAS HELD TO BE CAPITAL IN NATU RE NOT ELIGIBLE FOR DEPRECIATION ALSO. 3.1 AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE T HE LD. CIT(A) IN BOTH THESE YEARS AND CLAIMED THAT THE PRODUCT DEVELOPMEN T EXPENSES, THOUGH CLAIMED IN BOOKS AS DIFFERED REVENUE EXPENDITURE, W AS IN FACT ALLOWABLE REVENUE EXPENDITURE IN THE IMPUGNED YEARS AND WAS A CCORDINGLY CLAIMED IN THE COMPUTATION OF INCOME. IN THE FIRST ROUND, THE LD. AO HELD IT TO BE CAPITAL EXPENDITURE AND ALTERNATIVELY ALLOWED 25% D EPRECIATION. THE LD. CIT(A) IN 263 PROCEEDINGS WRONGLY HELD THAT THE REV ENUE EXPENDITURE TO BE CAPITAL EXPENDITURE NOT ELIGIBLE FOR DEPRECIATION. THE ASSESSEE CITED VARIOUS JUDGMENTS; AND LD. CIT(A) FOLLOWING HIS PREDECESSOR S ORDERS IN ASSESSEES OWN CASE FOR AYS 2002-03, 2005-06 TO 2007-08 HELD T HE ENTIRE EXPENDITURE TO BE REVENUE EXPENDITURE BY FOLLOWING OBSERVATION:- ITA NOS. 1075 & 1076/AHD/2009 AND 484 & 485/AHD/201 5 ASSESSEE - SETCO AUTOMOTIVE LTD AY : 2003-04 & 2004-05 3 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRC UMSTANCES OF THE CASE, THE OBSERVATIONS OF THE ASSESSING OFFICER, SUBMISSIONS OF THE ASSESSEE, MATERIAL AVAILABLE ON THE RECORD AND THE JUDICIAL PRONOUNCEME NTS ON THE SUBJECT. THE ISSUE IS COVERED BY THE DECISIONS OF MY PREDECESSOR IN APPELLANTS OWN CASE IN AY 02-03, 05-06, 06-07 AND 07-08 IN APPEAL NO(S) CA B/VI-456/07-08, CAB/VI-466/07-08, CAB/VI-441/08-09 AND CAB/VI-327/0 9-10. FOLLOWING THE SAME, PRODUCT DEVELOPMENT EXPENSES OF RS.55,37, 820/- ARE DIRECTED TO BE ALLOWED AS REVENUE EXPENSE. THE DEPRECIATION ALLOW ED BY THE ASSESSING OFFICER IS DIRECTED TO BE WITHDRAWN. THE APPELLANT SUCCEEDS ON THIS GROUND OF APPEAL. ITA NOS. 484 & 485/AHD/2015 : REVENUES APPEALS 4. FOLLOWING GROUNDS ARE RAISED IN REVENUES APPEAL S:- AY 2003-04 & 2004-05. (I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FOLLOWING THE DECISION IN ASSESSEES CASE FOR AYS 2003-04 & 2004-05, WHEREIN THE LD. CIT(A) HAD FAILED TO APPRE CIATE THAT THE COST INCURRED ON PRODUCT DEVELOPMENT AND TECHNICAL KNOW- HOW IS ACCUMULATED AND TREATED AS DEFERRED REVENUE EXPENDI TURE AND WHEN THE COST IS ACCUMULATED AS TECHNICAL KNOW-HOW IT IS INT ANGIBLE AND CAPITAL IN NATURE. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN FOLLOWING THE ITAT, AHMEDABAD, SPECIAL BEN CH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD (2009) 117 ITD 001, WHER EIN IT WAS HELD THAT WHEN THE EXPENDITURE IS TREATED AS DEFERRED RE VENUE EXPENDITURE, IT RESULTS IN CREATING OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE IN NATURE. 4.1 THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET , CONTENDS THAT THE AO, AFTER DETAILED DISCUSSION, HELD THE REVENUE EXPENDI TURE CLAIMED BY THE ASSESSEE TO BE CAPITAL IN NATURE AND ALLOWED THE AL TERNATIVE CLAIM. THE ENTIRE CORRESPONDENCE AND PERTINENT FINDINGS OF THE LD. AO ARE ON THE RECORD. THUS, THE VIEW ADOPTED BY THE LD. AO CANNOT BE CALL ED UNREASONABLE OR ILLOGICAL. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD VS. CIT (SC), REPORTED IN 243 ITR 83 (SC), HAS HELD THAT WHEN THE AO HAS ADOPTED ONE OF THE PLAUSIBLE VIEWS, THE SAME CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE MERE LY BECAUSE THE CIT(A) ITA NOS. 1075 & 1076/AHD/2009 AND 484 & 485/AHD/201 5 ASSESSEE - SETCO AUTOMOTIVE LTD AY : 2003-04 & 2004-05 4 HOLDS A DIFFERENT OPINION. BESIDES, WHEN THE LD. A O HAS UNDERTAKEN A COMPLETE EXERCISE OF EXAMINING THE ISSUE AND GIVEN A FINDING BASED ON THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(A)S VIEW BECOMES CHANGE OF OPINION WHICH ALSO IS NOT PERMISSIBLE FOR EXERCISIN G THE REVISIONAL POWERS U/S 263 OF THE ACT. 4.2 IT IS FURTHER CONTENDED THAT THE ISSUE IN QUEST ION IS NO MORE RES INTEGRA INASMUCH AS THE ITAT, AHMEDABAD BENCH IN ITA NO. 13 37 & 1339/AHD/2011 FOR AY 2002-03 AND 2007-08 IN ASSESSE ES OWN CASE CONSIDERED THE SIMILAR REVENUE GROUND WHICH READS A S UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING ADDITION OF RS.35,08,241/- OF PRODUCT DEVELOPMENT E XPENSE RELYING IN THE CASE OF HONDA SEIL CARS INDIA LTD (2007) 111 TTJ (D EL) 630 WHEN THE FACTS OF THE CASE ARE DIFFERENT. AND, THE TRIBUNAL HAS HELD THAT THE PRODUCT DEVELO PMENT EXPENDITURE IS ALLOWABLE AS REVENUE EXPENDITURE. T HE ITAT CONSIDERED THE SPECIAL BENCH DECISION IN THE CASE OF ACIT VS. ASH IMA SYNTEX LTD (2009) 117 ITD 001, WHICH IS AGITATED BY THE REVENUE, AND THE TRIBUNAL HAS HELD AS UNDER:- 8. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. AND FURTHER RELIED ON THE SPECIAL BENCH DECISION IN CASE OF ACIT VS. ASHIMA S YNTEX LTD. (2009) 117 ITD 001. SHE, THUS, SUPPORTED THE ORDER OF A.O. LD. A.R., ON THE OTHER HAND, REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. AND LD. CIT(A) AND FURTHER SUBMITTED THAT WHILE DECIDING THE ISSUE IN ASSESSEE 'S OWN CASE FOR A.Y. 2002- 03. LD. CIT(A) AFTER CONSIDERING THE VARIOUS DECISI ONS CITED IN HIS ORDER AND AFTER ALSO CONSIDERING THE DECISION OF SPECIAL BENC H IN CASE OF ACIT VS. ASHIMA SYNTEX LTD.(SUPRA) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE POINTED OUT TO THE RELEVANT FINDING OF LD. CIT(A ) IN A.Y. 2002-03. HE, THEREFORE, SUBMITTED THAT SINCE THERE ARE NO CHANGE IN FACTS IN THE YEAR UNDER CONSIDERATION AND SINCE, LD. CIT(A) AFTER CONSIDERI NG THE DECISIONS CITED THEREIN HAS ALLOWED THE APPEAL OF THE ASSESSEE, NO INTERFERENCE TO THE ORDER OF LD. CIT(A) IS CALLED FOR. HE, THUS, SUPPORTED THE O RDER OF LD. CIT(A). ITA NOS. 1075 & 1076/AHD/2009 AND 484 & 485/AHD/201 5 ASSESSEE - SETCO AUTOMOTIVE LTD AY : 2003-04 & 2004-05 5 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ISSUE IS ABOUT ALLOWABILIT Y OF PRODUCT DEVELOPMENT EXPENSES WHICH WERE HELD BY A.O. BE A CAPITAL IN NA TURE. WE FIND THAT LD. CIT(A) WHILE DECIDING THE APPEAL FOR A.Y. 2002-03 A ND FOLLOWING IT HAS GIVEN A FINDING THAT DUE TO INCURRING OF PRODUCT DE VELOPMENT EXPENSES, THE INSTALLATION CAPACITY DID NOT INCREASE AND ASSESSEE DID NOT SET UP A SEPARATE AND INDEPENDENT UNIT FROM MANUFACTURING AND NO CAPI TAL ASSET WAS BROUGHT INTO EXISTENCE. HE HAS FURTHER HELD THAT ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDING OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE F IND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A). 4.3 LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT SINC E THE ISSUE ON MERIT ALSO STANDS COVERED IN FAVOUR OF THE ASSESSEE, THE ASSESSEES APPEAL AGAINST 263 ORDER DESERVES TO BE ALLOWED AND THE REVENUES APPEAL AGAINST THE CIT(A)S ORDER HOLDING THE EXPENDITURE TO BE REVENU E DESERVES TO BE DISMISSED. 4.4 LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE LD. AO IN ALL THE CASES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN OUR CONSIDERED OPINION, THE ASSESSEE DESERVES TO BE SUC CEEDED IN BOTH THE POINTS, I.E., THE VIEW TAKEN BY THE AO IN AY 2003-0 4 AND 2004-05 WAS ONE OF THE PLAUSIBLE VIEWS AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD (SUPRA). CONSEQUENTLY, THE ORDER OF LD. AO CANNOT BE CALLED ERRONEOUS OR PREJUDICIAL TO THE IN TEREST OF THE REVENUE. BESIDES, THE ITAT IN ASSESSEES OWN CASE ON MERIT F OR AY 2002-03 AND 2007- 08 HAS SQUARELY HELD THAT THE PRODUCT DEVELOPMENT E XPENDITURE IN QUESTION IS REVENUE IN NATURE AND IS ALLOWABLE TO ASSESSEE. IN VIEW THEREOF, WE HOLD THAT THE RESPECTIVE EXPENDITURE AS ALLOWABLE TO ASS ESSEE AS REVENUE EXPENDITURE IN THE RELEVANT ASSESSMENT YEARS. IT I S MADE CLEAR THAT THE ITA NOS. 1075 & 1076/AHD/2009 AND 484 & 485/AHD/201 5 ASSESSEE - SETCO AUTOMOTIVE LTD AY : 2003-04 & 2004-05 6 LD.CIT(A) HAS ALSO OBSERVED THAT IF ANY DEPRECIATIO N IS CLAIMED BY THE ASSESSEE ON THE BASIS OF AOS FINDINGS/HOLDING, THE EXPENDITURE TO BE ELIGIBLE FOR DEPRECIATION SHOULD BE WITHDRAWN. 6. IN THE RESULT, ASSESSEES APPEAL FOR AY 2003-04 IS PARTLY ALLOWED, ASSESSEES APPEAL FOR AY 2004-05 IS ALLOWED AND BOT H THE REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 16 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- SD/- (MANISH BORAD ) ACCOUNTANT MEMBER (R.P. TOLANI) JUDICIAL MEMBER AHMEDABAD; DATED 16/11/2016 *BIJU T., SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD