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

ITA 1338/AHD/2011

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8877 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Ahmedabad
• Next Hearing Date: 20-03-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SONIA KUMAR
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./ ITA NO.1338/AHD/2011 / ASSTT. YEAR: 2005-2006 DCIT, PANCH MAHAL CIRCLE GODHRA. VS. GUJARAT SETCO CLUTCH LTD. (NOW SETCO AUTOMOTIVE LTD.) BARODA GODHRA HIGHWAY KALOL 389 330 PAN : AAACG 7777 K) / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI SONIA KUMAR, SR.DR ASSESSEE BY : SHRI PRATIK SHAH, AR ! / DATE OF HEARING : 20/03/2017 '#$ ! / DATE OF PRONOUNCEMENT: 20/03/2017 %& / O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST OR DER OF THE LD.CIT(A)-VI, BARODA DATED 25.2.2011 PASSED FOR THE ASSTT.YEAR 2005- 06. 2. FOLLOWING GROUNDS OF APPEAL WOULD PROJECT GRIEVA NCE OF THE REVENUE: I) ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE ID.CIT(A) ERRED IN DELETING ADDITION OF RS.60,98,670/- OF PRO DUCT DEVELOPMENT EXPENSES RELYING IN THE CASE OF HONDA S EIL CARS ITA NO.1338/AHD/2011 2 INDIA LTD. (2007) 111 TTJ (DEL) 630 WHEN THE FACTS OF THE CASE ARE DIFFERENT. II) THE ID.CIT(A) FAILED TO APPRECIATE THAT TH E ITAT, AHMEDABAD, SPL.BENCH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LTD. (2009) 117 ITD 001 HAS HELD THAT WHEN THE EXPE NDITURE TREATED AS DEFERRED REVENUE EXPENDITURE RESULTS IN THE CREATING OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE, A CASE C AN BE MADE OUT TO TREAT THE SAME AS CAPITAL EXPENDITURE. III) THE ID.CIT(A) FAILED TO APPRECIATE THAT ME RE DISALLOWANCE OF DEPRECIATION DOES NOT MEAN THAT NO CAPITAL ASSET HA S BEEN BROUGHT INTO EXISTENCE. IV) THE ID.CIT(A) FAILED TO APPRECIATE THAT IN THE ANNUAL REPORT FOR THE F.Y.2001-02 UNDER THE HEAD SIGNIFICANT ACCO UNTING POLICIES, IT IS STATED THAT THE COST INCURRED ON PRODUCT DEVE LOPMENT AND TECHNICAL KNOWHOW IS ACCUMULATED AND TREATED AS DEF ERRED REVENUE EXPENDITURE. WHEN THE COST IS ACCUMULATED A S TECHNICAL KNOWHOW IT IS INTANGIBLE CAPITAL IN NATURE. 3. IN RESPONSE TO THE NOTICE OF HEARING, THE LD.COU NSEL FOR THE ASSESSEE FILED A LETTER STATING THEREIN THAT THE IS SUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVOUR OF THE ASSESSE E BY THE DECISION OF THE ITAT RENDERED IN ITA NO.1339/AHD/2011 PASSED FO R THE ASSTT.YEAR 2007-08. IT HAS ALSO BEEN POINTED OUT THAT THIS AP PEAL WAS HEARD ON 18.2.2016, BUT SINCE THE DEPARTMENT FAILED TO MENTI ON CORRECT AMOUNT IN THE GROUND OF APPEAL, THEREFORE, THE TRIBUNAL HA S RELEASED THE APPEAL FOR A.Y.2005-06 WITH LIBERTY TO THE REVENUE TO AMEN D ITS GROUND OF APPEAL. INSPITE OF ORDER OF THE ITAT DATED 18.2.20 16 NO STEPS HAVE BEEN TAKEN BY THE REVENUE. THE LD.DR WAS UNABLE TO GIVE ANY EXPLANATION AS TO WHY THE CORRECT AMOUNT HAS NOT BE EN MENTIONED IN THE GROUND AND WHY THE REVENUE FAILED TO RECTIFY IT S GROUNDS OF APPEAL. HOWEVER, AFTER TAKING INTO CONSIDERATION THE ORDER OF THE ITAT IN ASSTT.YEAR 2007-08 AND THE SPECIFIC OBJECTION POINT ED OUT TO THE REVENUE, WE DO NOT DEEM IT APPROPRIATE TO GIVE FURT HER TIME TO REVENUE BECAUSE NOTHING WOULD TURN OUT ON THAT COUNT. REVE NUE HAS STATED AN ITA NO.1338/AHD/2011 3 AMOUNT OF RS.60,98,670/- INSTEAD OF CORRECT FIGURE OF RS.80,07,486/-. EVEN IF WE TAKE COGNIZANCE OF CORRECT AMOUNT OF RS. 80,07,486/- THEN ALSO THE APPEAL OF THE REVENUE WOULD BE DISMISSED. THEREFORE, WE DO NOT GIVE FURTHER TIME TO THE REVENUE TO AMEND THIS GROUND OF APPEAL. ORDER OF THE TRIBUNAL IN THE ASSTT.YEAR 2007-08 REA DS AS UNDER: AT FIRST, WE TAKE ITA NO.1339/AHD/2011 (A.Y. 2007- 08) 4. THE ASSESSEE IS A COMPANY STATED TO BE ENGAGED I N THE BUSINESS OF MANUFACTURING OF CLUTCH DRIVEN PLATE AN D CLUTCH COVER ASSEMBLY. THE ASSESSEE ELECTRONICALLY FILED ITS RET URN OF INCOME FOR A.Y. 07-08 ON 30.10.2007 DECLARING TOTAL INCOME OF RS.15,95,73,507/-. THE CASE WAS SELECTED FOR SCRUTI NY AND THEREAFTER, THE ASSESSMENT WAS FRAMED U/S.143(3) OF THE ACT VIDE ORDER DATED 18.12.2009 AND THE TOTAL INCOME WAS DET ERMINED AT RS. 16,30,69,200/-. AGGRIEVED BY THE ORDER OF ASSES SING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) W HO VIDE ORDER DATED 25.02.2011 ALLOWED THE APPEAL OF THE ASSESSEE . AGGRIEVED BY THE ORDER OF LD. CIT(A), REVENUE IS NOW IN APPEA L BEFORE US AND HAS RAISED THE 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 PRO DUCT DEVELOPMENT EXPENSES RELYING IN THE CASE OF HONDA S EIL 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 IT AT, AHMEDABAD, SPL. BENCH IN THE CASE OF ACIT VS. ASHIMA SYNTEX LT D. (2009) 117 ITD 001 HAS HELD THAT WHEN THE EXPENDITURE TREATED AS DEFERRED REVENUE EXPENDITURE RESULTS IN THE CREATING OF ANY CAPITAL ASSET, TANGIBLE OR INTANGIBLE., 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 HA S BEEN BROUGHT INTO EXISTENCE. IV). THE LD.CIT(A) FAILED TO APPRECIATE THAT IN THE ANNUAL REPORT FOR THE F.Y.2001-02 UNDER THE HEAD SIGNIFICANT ACCOUNTI NG POLICIES, IT IS STATED THAT THE COST INCURRED ON PRODUCT DEVELOP MENT AND TECHNICAL KNOWHOW IS ACCUMULATED AND TREATED AS DEF ERRED ITA NO.1338/AHD/2011 4 REVENUE EXPENDITURE. WHEN THE COST IS ACCUMULATED A S TECHNICAL KNOWHOW IT IS INTANGIBLE CAPITAL IN NATURE. 5. BEFORE US, LD. D.R. SUBMITTED THAT THE SOLITARY ISSUE IN THE GROUND IS WITH RESPECT TO ALLOWABILITY OF PRODUCT D EVELOPMENT EXPENSES. 6. ON PERUSING THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF INCOME, A.O. NOTICED THAT ASSESSEE H AS CLAIMED DEDUCTION OF RS.50,07,186/-, BEING PRODUCT DEVELOPM ENT EXPENSES WHICH THOUGH WAS TREATED BY IT AS DEFERRED REVENUE EXPENSES IN THE ACCOUNTS BUT WAS CLAIMED 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 EXPENDIT URE EXTENDED TO SUCCEEDING YEARS AND THEREFORE, THE EXPENDITURE WAS CAPITAL IN NATURE AND COULD NOT BE ALLOWED AS REVENUE EXPENSES . HE, ACCORDINGLY, DISALLOWED RS.50,07,186/- AND ADDED TO THE INCOME. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE 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 DEVEL OPMENT EXPENSES OF RS.35,08,241/- ARE DIRECTED TO BE ALLOW ED AS REVENUE EXPENSES. EXPORT DEVELOPMENT EXPENSES OF RS.14,98,945/- MAY BE ALLOWED SUBJECT TO VERIFICATI ON BY THE ASSESSING OFFICER THAT FOREIGN TRAVEL WAS FOR A PPELLANTS 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 ACI T VS. ASHIMA SYNTEX LTD. (2009) 117 ITD 001. SHE, THUS, SUPPORTE D 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 SUB MITTED THAT WHILE DECIDING THE ISSUE IN ASSESSEES OWN CASE FOR A.Y. 2002-03. LD. CIT(A) AFTER CONSIDERING THE VARIOUS DECISIONS CITED IN HIS ORDER AND AFTER ALSO CONSIDERING THE DECISION OF SP ECIAL BENCH IN CASE OF ACIT VS. ASHIMA SYNTEX LTD.(SUPRA) HAD DECI DED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE POINTED OUT TO THE RE LEVANT FINDING OF LD. CIT(A) IN A.Y. 2002-03. HE, THEREFORE, SUBMITTE D THAT SINCE THERE ARE NO CHANGE IN FACTS IN THE YEAR UNDER CONS IDERATION AND ITA NO.1338/AHD/2011 5 SINCE, LD. CIT(A) AFTER CONSIDERING THE DECISIONS C ITED 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). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE, THE ISSUE IS ABOUT ALLOWABILITY OF PRODUCT DEVELOPMENT EXPENSES WHICH WERE HELD BY A.O . BE A CAPITAL IN NATURE. WE FIND THAT LD. CIT(A) WHILE DE CIDING THE APPEAL FOR A.Y. 2002-03 AND FOLLOWING IT HAS GIVEN A FINDI NG THAT DUE TO INCURRING OF PRODUCT DEVELOPMENT EXPENSES, THE INST ALLATION 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 THA T ENTRIES IN THE BOOKS OF ACCOUNT WERE NOT DETERMINATIVE OF THE ALLO WABILITY OR OTHERWISE OF THE EXPENDITURE. BEFORE US, REVENUE HA S NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDING OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO I NTERFERE WITH THE ORDER OF LD. CIT(A). 4. THE GROUNDS TAKEN BY THE REVENUE IN ASSTT.YEAR 2 007-08 ARE IDENTICAL WITH GROUNDS TAKEN IN THIS ASSESSMENT YEA R EXCEPT VARIATION OF THE QUANTUM. THUS, THE ISSUE OTHERWISE ALSO IS COV ERED IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL HAS POINTED OUT DEFECT IN T HE AMOUNT MENTIONED BY THE REVENUE IN ITS GROUND NO.1. INTERIM ORDER O F THE TRIBUNAL DATED 18.2.2016 READS AS UNDER: DATE: 18.02.2016 ITA NO. 1338/AHD/2011 AT THE TIME OF DICTATION OF ORDER, IT WAS NOTICED T HAT IN THE GROUND RAISED BY REVENUE, THE DISPUTED AMOUNT IN GROUND NO .L IS STATED TO BE RS.60,98,670/-, WHEREAS THE ADDITION THAT IS MADE B Y THE A.O. IN THE ORDER PASSED U/S. 143(3) (ORDER DATED 31/12/2007) T HE AMOUNT DISALLOWED IS RS.80,07,486/-. IN VIEW OF THE DISCRE PANCY BETWEEN THE GROUNDS TAKEN BY THE REVENUE IN APPEAL AND THE AMOU NT DISALLOWED, THE APPEAL IS DE-HEARD AND IS RELEASED FOR THE NECESSAR Y ACTION AT THE END OF REVENUE. REGISTRY IS DIRECTED TO INFORM BOTH THE PARTIES. SD/- SD/- (SHAILENDRAKUMAR YADAV) (ANILCHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO.1338/AHD/2011 6 5. SINCE SUFFICIENT OPPORTUNITY HAS BEEN GIVEN TO T HE REVENUE, BUT IT DID NOT RECTIFY THE MISTAKE IN ITS GROUNDS OF APPEA L. WITHOUT GETTING OURSELVES INFLUENCED BY NON-RECTIFICATION OF ABOVE MISTAKE, WE ARE ABLE TO GO FURTHER TO DECIDE THE MATTER. EVEN OTHERWISE , WE FIND NO DISPARITY OF FACTS OF THE ASSTT.YEAR 2007-08 WITH THAT OF THI S ASSESSMENT YEAR. THIS ISSUE IS SQUARELY COVERED AGAINST THE REVENUE BY THE ORDER OF THE TRIBUNAL DATED 19.2.2016 (SUPRA), AND RESPECTFULLY FOLLOWING THE SAME, WE DO NOT FIND ANY MERIT IN THIS APPEAL OF THE REVE NUE. IT IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 20 TH MARCH, 2017. SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER