The DCITPanchmahal Circle, Godhra V. M/s. Gujarat Setco Cluch Ltd., Kalol

ITA 1337/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9443 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 18-02-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 05-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Capital asset; Depreciation; Tax effect; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV , JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NOS. 1337 & 1339/AHD/2011 ASSESSMENT YEARS :2002-03 & 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, PANCHMAHAL CIRCLE, CIVIL LINES ROAD, GODHRA V S . GUJARAT SETCO CLUTCH LTD. (NOW SETCO AUTOMOTIVE LTD.) BARODA GODHRA HIGHWAY, KALOL - 389330 PAN NO. AA ACG7777K (APPELLANT) .. (RESPONDENT) ! ' / BY REVENUE SMT. SONIA KUMAR, SR. D.R. ' /BY ASSESSEE SHRI MILIN MEHTA, A.R. % ' /DATE OF HEARING 18.02.2016 &'() ' /DATE OF PRONOUNCEMENT 19.02.2016 O R D E R PER : SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER THESE TWO APPEALS FILED BY ASSESSEE ARE AGAINST THE ORDERS OF CIT(A)- VI, BARODA, DATED 25.02.2011 FOR A.YS. 2002-03 AND 2007-08. 2. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED THA T THOUGH THE APPEALS OF ASSESSEE RELATE TO TWO DIFFERENT ASSESSMENT YEARS, BUT THE ISSUE IN BOTH THE APPEALS ARE IDENTICAL AND THUS, BOTH THE APPEALS CA N BE HEARD AND DISPOSED OF TOGETHER. LD. D.R. DID NOT OBJECT TO THE AFORESAID CONTENTION OF LD. A.R. WE ITA NOS. 1337 & 1339/AHD/11 A.YS. 02-03 & 07-08 [DCIT VS. GUJARAT SETCO CLUTCH LTD.] PAGE 2 THEREFORE PROCEED TO DISPOSE OF BOTH THE APPEALS BY A CONSOLIDATED ORDER AND PROCEED WITH FACTS FOR A.Y. 2007-08. 3. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER: AT FIRST, WE TAKE ITA NO.1339/AHD/2011 (A.Y. 2007-0 8) 4. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURING OF CLUTCH DRIVEN PLATE AND CLUTCH COV ER ASSEMBLY. THE ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 07-08 ON 30.10.2007 DECLARING TOTAL INCOME OF RS.15,95,73,50 7/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER, THE ASSESSMEN T WAS FRAMED U/S.143(3) OF THE ACT VIDE ORDER DATED 18.12.2009 AND THE TOTAL I NCOME WAS DETERMINED AT RS. 16,30,69,200/-. AGGRIEVED BY THE ORDER OF ASSE SSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO VIDE O RDER DATED 25.02.2011 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY T HE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED T HE FOLLOWING GROUNDS : I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) ERRED IN DELETING ADDITION OF RS.35,08,241/- OF PRODUCT DEVELOPMENT E XPENSES RELYING IN THE CASE OF HONDA SEIL CARS INDIA LTD. (2007) 111 TTJ ( DEL) 630 WHEN THE FACTS OF THE CASE ARE DIFFERENT. II). THE LD.CIT(A) FAILED TO APPRECIATE THAT THE I TAT, AHMEDABAD, SPL. BENCH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD. (2009) 1 17 ITD 001 HAS HELD THAT WHEN THE EXPENDITURE TREATED AS DEFERRED REVEN UE EXPENDITURE RESULTS IN THE CREATING OF ANY CAPITAL ASSET, TANGIBLE OR I NTANGIBLE., A CASE CAN BE MADE OUT TO TREAT THE SAME AS CAPITAL EXPENDITURE. III). THE LD.CIT(A) FAILED TO APPRECIATE THAT MERE DISALLOWANCE OF DEPRECIATION DOES NOT MEAN THAT NO CAPITAL ASSET HAS BEEN BROUGH T INTO EXISTENCE. IV). THE LD.CIT(A) FAILED TO APPRECIATE THAT IN TH E ANNUAL REPORT FOR THE F.Y.2001-02 UNDER THE HEAD SIGNIFICANT ACCOUNTING P OLICIES, IT IS STATED THAT THE COST INCURRED ON PRODUCT DEVELOPMENT AND T ECHNICAL KNOWHOW IS ACCUMULATED AND TREATED AS DEFERRED REVENUE EXPENDI TURE. WHEN THE COST IS ACCUMULATED AS TECHNICAL KNOWHOW IT IS INTANGIBL E CAPITAL IN NATURE. ITA NOS. 1337 & 1339/AHD/11 A.YS. 02-03 & 07-08 [DCIT VS. GUJARAT SETCO CLUTCH LTD.] PAGE 3 5. BEFORE US, LD. D.R. SUBMITTED THAT THE SOLITARY ISSUE IN THE GROUND IS WITH RESPECT TO ALLOWABILITY OF PRODUCT DEVELOPMENT EXPENSES. 6. ON PERUSING THE COMPUTATION OF INCOME FILED ALON G WITH RETURN OF INCOME, A.O. NOTICED THAT ASSESSEE HAS CLAIMED DEDU CTION OF RS.50,07,186/-, BEING PRODUCT DEVELOPMENT EXPENSES WHICH THOUGH WAS TREATED BY IT AS DEFERRED REVENUE EXPENSES IN THE ACCOUNTS BUT WAS C LAIMED AS REVENUE EXPENDITURE WHILE COMPUTING TOTAL INCOME. A.O. WAS OF THE VIEW THAT THE EXPENSES WERE INCURRED FOR THE PURPOSE OF DEVELOPME NT OF NEW PRODUCTS AND THEREFORE, THE BENEFIT OF THE EXPENDITURE EXTENDED TO SUCCEEDING YEARS AND THEREFORE, THE EXPENDITURE WAS CAPITAL IN NATURE AN D COULD NOT BE ALLOWED AS REVENUE EXPENSES. HE, ACCORDINGLY, DISALLOWED RS.5 0,07,186/- AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF ASSESSING O FFICER, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) WHO FOLLOWING HIS OWN DECISION IN ASSESSEES OWN CASE FOR A.Y. 2002-03, ALLOWED THE A PPEAL OF THE ASSESSEE BY HOLDING AS UNDER: 2.2 I HAVE CONSIDERED THE MATTER, WHICH IS COVERED BY DECISION IN ORDER NO.CAB/VI-465/07-08 FOR A.Y. 2002-03 IN APPELLANTS CASE. FOLLOWING THE SAME, PRODUCT DEVELOPMENT EXPENSES OF RS.35,08,241/- ARE DIRECTED TO BE ALLOWED AS REVENUE EXPENSES. EXPORT DEVELOPMENT EXPENSES OF R S.14,98,945/- MAY BE ALLOWED SUBJECT TO VERIFICATION BY THE ASSESSING OF FICER THAT FOREIGN TRAVEL WAS FOR APPELLANTS BUSINESS. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. 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. ASHI MA SYNTEX 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 ASSESSEES OWN CASE FOR A.Y. 2002-03. LD. CIT(A) AFTER CONSIDERING THE VAR IOUS DECISIONS CITED IN ITA NOS. 1337 & 1339/AHD/11 A.YS. 02-03 & 07-08 [DCIT VS. GUJARAT SETCO CLUTCH LTD.] PAGE 4 HIS ORDER AND AFTER ALSO CONSIDERING THE DECISION O F SPECIAL BENCH 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 O F 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 CONSIDERING THE DECISIONS CITED THEREIN HAS ALLOWED THE APPEAL OF T HE ASSESSEE, NO INTERFERENCE TO THE ORDER OF LD. CIT(A) IS CALLED F OR. HE, THUS, SUPPORTED THE ORDER OF LD. CIT(A). 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 C APITAL IN NATURE. WE FIND THAT LD. CIT(A) WHILE DECIDING THE APPEAL F OR A.Y. 2002-03 AND FOLLOWING IT HAS GIVEN A FINDING THAT DUE TO INCURR ING OF PRODUCT DEVELOPMENT EXPENSES, THE INSTALLATION CAPACITY DID NOT INCREAS E AND ASSESSEE DID NOT SET UP A SEPARATE AND INDEPENDENT UNIT FROM MANUFACTURI NG AND NO CAPITAL ASSET WAS BROUGHT INTO EXISTENCE. HE HAS FURTHER HELD TH AT ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT DETERMINATIVE OF THE ALLOWABILITY OR OTHERWISE OF THE EXPENDITURE. BEFORE US, REVENUE HAS NOT BROUGHT AN Y MATERIAL ON RECORD TO CONTROVERT THE FINDING OF LD. CIT(A). IN VIEW OF T HE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) . 10. THUS, THE GROUND OF REVENUE IS DISMISSED. NOW, WE TAKE ITA NO.1337/AHD/2011 (A.Y. 2002-03) 11. THE GROUNDS RAISED BY REVENUE READ AS UNDER: I). ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD.CIT(A) ERRED IN DELETING ADDITION OF RS.24,98,062/- OF PRODUCT DEVELOPMENT E XPENSES RELYING IN THE CASE OF HONDA SEIL CARS INDIA LTD. (2007) 111 TTJ ( DEL) 630 WHEN THE FACTS OF THE CASE ARE DIFFERENT. ITA NOS. 1337 & 1339/AHD/11 A.YS. 02-03 & 07-08 [DCIT VS. GUJARAT SETCO CLUTCH LTD.] PAGE 5 II). THE LD.CIT(A) FAILED TO APPRECIATE THAT THE I TAT, AHMEDABAD, SPL. BENCH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD. (2009) 1 17 ITD 001 HAS HELD THAT WHEN THE EXPENDITURE TREATED AS DEFERRED REVEN UE EXPENDITURE RESULTS IN THE CREATING OF ANY CAPITAL ASSET, TANGIBLE OR I NTANGIBLE., A CASE CAN BE MADE OUT TO TREAT THE SAME AS CAPITAL EXPENDITURE. III). THE LD.CIT(A) FAILED TO APPRECIATE THAT MERE DISALLOWANCE OF DEPRECIATION DOES NOT MEAN THAT NO CAPITAL ASSET HAS BEEN BROUGH T INTO EXISTENCE. IV). THE LD.CIT(A) FAILED TO APPRECIATE THAT IN TH E ANNUAL REPORT FOR THE F.Y.2001-02 UNDER THE HEAD SIGNIFICANT ACCOUNTING P OLICIES, IT IS STATED THAT THE COST INCURRED ON PRODUCT DEVELOPMENT AND T ECHNICAL KNOWHOW IS ACCUMULATED AND TREATED AS DEFERRED REVENUE EXPENDI TURE. WHEN THE COST IS ACCUMULATED AS TECHNICAL KNOWHOW IT IS INTANGIBL E CAPITAL IN NATURE. 12. BEFORE US, AT THE OUTSET, LD. A.R. SUBMITTED TH AT THE PRESENT APPEAL OF THE REVENUE NEEDS TO BE DISMISSED ON ACCOUNT OF LOW TAX EFFECT IN VIEW OF THE CBDT CIRCULAR NO. 21 OF 2015 DATED 10.12.2015. THE LD. D.R. FAIRLY ADMITTED THAT THE TAX EFFECT IS LESS THAN THE LIMIT PRESCRIBED BY THE AFORESAID CBDT CIRCULAR. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON PERUSING THE GROUNDS OF APPEAL RAISED BY THE REVENUE, WE FIND THAT REVENUE IS AGGRIEVED BY THE DELETION OF ADDITI ON OF RS.24,98,062/-, THE TAX EFFECT OF WHICH IS BELOW RS.10 LACS. AS PER TH E ANNOUNCEMENT OF CENTRAL BOARD OF DIRECT TAXES (CBDT) DATED 10.12.2015 (CIRC ULAR NO. 21 OF 2015), NO DEPARTMENT APPEALS ARE TO BE FILED AGAINST RELIE F GIVEN BY LD. CIT(A) BEFORE THE INCOME TAX TRIBUNAL UNLESS THE TAX EFFEC T, EXCLUDING INTEREST EXCEEDS RS. 10 LACS AND IT FURTHER STATES THAT THE INSTRUCTIONS WILL APPLY RETROSPECTIVELY TO THE PENDING APPEALS. IN THE PRES ENT CASE, SINCE IT IS AN UNDISPUTED FACT THAT ON THE ADDITIONS WHICH ARE IN DISPUTE, THE TAX EFFECT IS LESS THAN RS. 10 LACS AND IN THE ABSENCE OF ANY MAT ERIAL ON RECORD BY THE REVENUE TO DEMONSTRATE THAT THE ISSUE IN THE PRESEN T APPEAL IS COVERED BY EXEMPTIONS SPECIFIED IN CLAUSE (8) OF THE CBDT CIRC ULAR, WE ARE OF THE VIEW THAT THE MONETARY LIMIT PRESCRIBED BY THE INSTRUCTI ONS OF THE AFORESAID CBDT ITA NOS. 1337 & 1339/AHD/11 A.YS. 02-03 & 07-08 [DCIT VS. GUJARAT SETCO CLUTCH LTD.] PAGE 6 CIRCULAR WOULD BE APPLICABLE TO THE PRESENT APPEAL OF THE DEPARTMENT AND THEREFORE THE PRESENT APPEAL IS NOT MAINTAINABLE ON ACCOUNT OF LOW TAX EFFECT. IN SUCH CIRCUMSTANCES, WE DISMISS THE APPEAL OF REV ENUE WITHOUT EXPRESSING ANY OPINION ON MERITS OF THE CASE. 14. IN THE RESULT, THE APPEAL OF REVENUE FOR A.Y. 2 002-03 IS DISMISSED. 15. IN THE RESULT, BOTH THE APPEALS OF REVENUE AR E DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 19/02/201 6 SD/- SD/- ( SHAILENDRA KUMAR YADAV ) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD: DATED 19 /02/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- *+ , -. / APPELLANT /+ 01-. / RESPONDENT 2+ 345 6 / CONCERNED CIT 4+ 6- , / CIT (A) 9+ :; < 045 , 45) = 3 / DR, ITAT, AHMEDABAD 6+ < ?@ A B / GUARD FILE. BY ORDER/ ,/= ,! , 45) = 3