M/s. General Motors India Pvt.Ltd., Haryana V. The CIT-II, Baroda

ITA 1576/AHD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63189 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 15-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B K
• Keywords: Depreciation; Difference of opinion; Change of opinion; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT , JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1576/AHD/2009 ASSESSMENT YEARS :2005-06 M/S GENERAL MOTORS INDIA PRIVATE LIMITED CHANDRAPURA INDUSTRIAL ESTATE HALOL-389351 DISTRICT PANCHMAHALS GUJARAT V/S . COMMISSIONER OF INCOME TAX- III 2 ND FLOOR, ANNEXE, AAYAKAR BHAVAN RACE COURSE CIRCLE, BARODA GUJARAT PAN NO. A B YPG8709K (APPELLANT) .. (RESPONDENT) BY APPELLANT SHRI MILIN MEHTA, A.R. /BY RESPONDENT SHRI B.K.S. PANDYA, CIT DR /DATE OF HEARING 04.12.2012 /DATE OF PRONOUNCEMENT 07.12.2012 O R D E R PER : T.R.MEENA, ACCOUNTANT MEMBER THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF CIT-III, BARODA, ORDER DATED 19.0 3.2009 FOR A.Y. 2005-06. THE EFFECTIVE GROUND OF APPEAL IS AGAINST PASSING O RDER U/S.263 WHICH HAS BEEN TAKEN BY THE APPELLANT IN GROUND NO.3 IS AS UN DER: 3. THE CIT ERRED IN FACT AND ALSO IN LAW IN, WHILE ACCEPTING THE EXPENSES ARE INCURRED FOR PURPOSE OF BUSINESS, DISA LLOWING DEPRECIATION AMOUNTING TO RS.1,80,58,339/- (CALCULA TED @ 25% ON RS. 7,22,33,356) GRANTED BY THE A.O. IN THE ORIG INAL ORDER CONSEQUENT TO R&D EXPENSES BEING ASSESSED AS BEING CAPITAL IN ITA NO. 1576/AHD/09 A.Y. 05-06 PAGE 2 NATURE (HAVING ENDURING BENEFIT) ON THE GROUND THAT NO ASSET IS GENERATED ON WHICH DEPRECIATION CAN BE ALLOWED AS P ER RULES. 2. IN THIS CASE, THE ORDER U/S.143(3) WAS PASSED BY DCIT, PANCHMAHAL CIRCLE, GODHRA ON 27.12.2006, WHEREIN LD. A.O. MADE ADDITION UNDER THE HEAD RESEARCH & DEVELOPMENT EXPENSES AT RS. 7,22,33,35 6/- AFTER ALLOWING THE DEPRECIATION @ 25%. THE A.O. OBSERVED THAT THE ASS ESSEE HAD DEBITED RS.9,58,00,000/- UNDER THE HEAD RESEARCH & DEVELOP MENT EXPENSES WHICH WERE FOUND TO HIM AS CAPITAL IN NATURE. OUT OF THI S, THE APPELLANT HAD VOLUNTARY REDUCED EXPENSES BY 2.36/- CRORE AND OFFERED FOR TA XATION. REMAINING AMOUNT OF RS.7,22,33,356/- WAS CLAIMED BY THE APPELLANT FO R PURCHASE OF VEHICLES OF DIFFERENT TYPE FOR EXAMINATION AND TEST AND THE RES EARCH & DEVELOPMENT BEING A RECURRING AND ON GOING PROCESS IN THE CAR M ANUFACTURING INDUSTRY TO KEEP THE COMPANY ABREAST WITH THE COMPETITIVE MARKE T. AS PER THE A.O., THESE EXPENSES FOUND FOR ENDURING BENEFIT. THESE E XPENSES ALSO INCLUDE SALARY PAID, PETROL EXPENSES, VEHICLE EXPENSES, SPA RES ETC. THE LD. A.O. FINALLY MADE ADDITION OF RS. 7,22,33,356/- IN THE I NCOME OF THE APPELLANT AND ALLOWED THE DEPRECIATION @ 25%. THE CIT-III, BAROD A, HAD GIVEN NOTICE U/S. 263. THE APPELLANT ALSO REPLIED AND THE EXPLANATIO N OF THE ASSESSEE IS AS UNDER: (I) RESEARCH AND DEVELOPMENT EXPENSES AMOUNTING TO RS.7,22,33,356/- HAS BEEN CLAIMED BY US AS REVENUE EXPENDITURE IN OUR TAX RETURN FOR A.Y. 2004-05. HO WEVER THE LD. ASSESSING OFFICER HAS DISALLOWED THE SAID EXPENDITURE HOLDING THE SAME TO RESULT IN AN ENDURI NG ITA NO. 1576/AHD/09 A.Y. 05-06 PAGE 3 BENEFIT THEREBY BEING CAPITAL IN NATURE. THIS IS I NCORRECT AND IS CONTESTED BY US IN AN APPEAL FILED WHICH IS PENDING ADJUDICATION. THE PRODUCT WHICH THE COMPANY DEALS IN ARE VEHICLES AND IT IS ESSENTIAL THE VEHICLES ARE ANALY ZED CONTINUOUSLY THROUGH TESTING E.G. VEHICLES WHICH AR E DEFECTIVE AND RETURNED BACK ARE CHECKED FOR FAULTS. THERE IS NO ASSET BEING CREATED. THUS THE EXPENSES ARE N OT CAPITAL AND ARE TO BE ALLOWED. IT IS SUBMITTED THA T THE SAME BE ALLOWED AND THE ASSESSMENT ORDER PASSED BY THE L D. A.O. BE AMENDED ACCORDINGLY. (II) DEPRECIATION ON NON-FACTORY BUILDING RS.74,35, 885/- NON FACTORY BUILDING CONSISTS OF ADMINISTRATIVE OFF ICE BUILDING SITUATED IN HALOL. THEY ARE NO RESIDENTIA L BUILDING/PREMISES OWNED BY THE COMPANY. THIS IS FU RTHER SUBSTANTIATED BY THE TAX AUDIT REPORT AS WELL AS FA CTS EXAMINED BY THE LD. A.O. PRIOR TO PASSING OF THE ASSESSMENT ORDER. AFTER CONSIDERING THE ASSESSEES REPLY, LD. CIT-III , BARODA HAS HELD AS UNDER: HOWEVER SUCH EXPENDITURE DOES NOT GIVE RISE TO ANY ASSET ON WHICH DEPRECIATION CAN BE ALLOWED AS PER RULES AND HENCE THE ASSESSING OFFICER IS DIRECTED TO WITHDRAW THE DEPRE CIATION OF RS.1,80,58,339/-. AS REGARDS, THE ISSUE RELATING T O DEPRECIATION OF RS.74,35,885/- ON NON-FACTORY BUILDING, IT WOULD BE FAIR AND JUST TO DIRECT THE ASSESSING OFFICER TO COLLECT THE ASSETWI SE DETAILS OF SUCH NON- FACTORY BUILDINGS AND ALLOW THE DEPRECIATION AT TH E CORRECT RATES AS PROVIDED UNDER THE RELEVANT INCOME-TAX RULES 1962 A ND APPENDIX THERETO. THE ASSESSEE SHALL FURNISH ALL THE DETAIL S AND IN CASE IT IS FOUND THAT EXCESS DEPRECIATION IS ALLOWED THE SAME SHALL BE WITHDRAWN BY THE ASSESSING OFFICER. ITA NO. 1576/AHD/09 A.Y. 05-06 PAGE 4 3. NOW THE ASSESSEE CARRIED THE MATTER BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THE ASSESSEE HAD CLAIMED T HIS EXPENDITURE AS REVENUE EXPENDITURE. HOWEVER, THE LD. A.O. ADDED IT BEING TREATED THIS EXPENDITURE AS CAPITAL EXPENDITURE ON WHICH DEPRECI ATION @ 25% WAS ALLOWED. THE APPELLANT HAS CARRIED THIS MATTER BEF ORE THE CIT(A), WHICH IS PENDING. THUS, THE ORDER OF THE A.O. HAD BEEN MERG ED WITH CIT(A). THEREFORE, CIT DOES NOT HAVE ANY JURISDICTION TO CO NSIDER THIS ASPECT. FURTHER, THE ADDITION MADE BY THE A.O., AFTER DETAILED INVES TIGATION AND ADDED THE SAME EXPENDITURE IN THE INCOME OF THE ASSESSEE. TH E CIT WAS NOT RIGHT TO GIVE DIRECTION TO WITHDRAW THE DEPRECIATION ON IT. HOWEVER, THE SECOND ISSUE REGARDING DEPRECIATION ON NON-FACTORY BUILDING HAD BEEN ALLOWED EVEN AFTER 263 ORDER EFFECT GIVEN BY THE A.O. IN FAVOUR OF THE APPELLANT. THUS, THIS IS A CHANGE OF OPINION BY THE CIT-III, BARODA WHICH IS N OT PERMITTED BY LAW. FROM THE SIDE OF THE REVENUE, IT WAS ARGUED THAT WHEN TH ERE IS NO ASSET IN EXISTENCE, THE APPELLANT CANNOT CLAIM DEPRECIATION ON IT. THE LD. A.O. HAD ALLOWED THE DEPRECIATION WITHOUT MAKING ANY INQUIRY . THUS, HE REQUESTED TO CONFIRM THE ORDER OF 263, PASSED BY THE CIT-III, BA RODA. 4. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW AND GONE THROUGH THE FACTS. THE LD. A.O. HAS INQUIRED AND GONE THRO UGH THE DETAILS OF EXPENSES WHICH HAS BEEN FOUND BY HIM AS ENDURING NATURE ON W HICH EVEN DEPRECIATION @ 25% HAS BEEN ALLOWED BY HIM. THEREFORE, IT IS TA NTAMOUNT TO CHANGE OF OPINION. THE ADDITION MADE IN ORIGINAL ORDER BY A.O . HAD BEEN DISPUTED BY THE ITA NO. 1576/AHD/09 A.Y. 05-06 PAGE 5 ASSESSEE BEFORE THE CIT(A). THE ORDER OF A.O. HAD BEEN MERGED WITH CIT(A) ON THESE ISSUES. THUS, WE SET ASIDE THE ORDER OF C IT-III, BARODA. IT IS CLARIFIED THAT WE HAVE NOT EXPRESSED ANY VIEW ON NATURE OF EX PENSES WHETHER IT IS CAPITAL OR REVENUE AND ALSO WHETHER DEPRECIATION IS ALLOWABLE OR NOT. THEREFORE, THE LOWER AUTHORITIES ARE FREE TO TAKE D ECISION AS PER LAW. 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 07.12.2012 SD/- SD/- ( MUKUL KR. SHRAWAT ) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER TRUE COPY S.K.SINHA ! ! ! ! '! '! '! '! / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. '(' ) * / CONCERNED CIT 4. *- / CIT (A) 5. !./ ), ) , 12( / DR, ITAT, AHMEDABAD 6. /45 67 / GUARD FILE. BY ORDER/ , 8/ 1 ': ) , 12( ; STRENGTHEN PREPARATION & DELIVERY OF ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 05.12.2012 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE XXX 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 06.12.2012 4) DATE OF CORRECTION ,, ,, 5) DATE OF FURTHER CORRECTION XXX 6) DATE OF INITIAL SIGN BY MEMBERS 07.12.2012 7) ORDER UPLOADED ON 07.12.2012 8) ORIGINAL DICTATION PAD HAS BEEN ENCLOSED IN THIS FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 07.12.2012 ITA NO. 1576/AHD/09 A.Y. 05-06 PAGE 6