M/s Rapsri Engineering Industries Ltd, Bangalore V. Joint commissioner of Income tax, Bangalore

ITA 1656/BANG/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5419 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 13-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 24-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Assessee Lawyers: V K GURUNATHAN
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH A, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 1656 & 1657 (BANG) 2014 (ASSESSMENT YEARS : 2009 10 & 2011 12) M/S RAPSRI ENGINEERING INDUSTRIES LIMITED, NO. 39 & 40/2, GOWDANAPALYA, SUBRAMANYAPURA POST, BANGALORE 556067 PAN : AAACR8612G APPELLANT VS THE JCIT (OSD), CIRCLE 12 (4), BANGALORE RESPONDENT ASSESSEE BY : SHRI V. K. GURUNATHAN, ADVOCATE REVENUE BY : SMT. SWAPNA DAS, JCIT DR DATE OF HEARING : 13-04-2017 DATE OF PRONOUNCEMENT: : 28-04-2 017 O R D E R PER A. K. GARODIA, AM. BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND TH ESE ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE LEARNED CIT (A) III BANGAL ORE BOTH DATED 19.09.2014 FOR A. Y. 2009 10 AND 2011 12. BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. IN BOTH THESE YEARS, THE ASSESSEE HAS RAISED SEV ERAL GROUNDS BUT THE GRIEVANCE IS ONE AND COMMON. THE GRIEVANCE IS ABOU T DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENDITURE OF RS. 78,47,719/- IN A. Y. 2009 10 AND RS. 101,80,927/- IN A. Y. 2011 12 OUT OF WHICH, T HE LEARNED CIT (A) DIRECTED THE AO TO ALLOW DEPRECIATION. ITA NOS.1656 & 1657(BANG)2014 2 3. LEARNED AR OF THE ASSESSEE SUBMITTED THAT THE LE ARNED CIT (A) HAS FOLLOWED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF TAPARIA TOOLS LTD. VS. JCIT AS REPORTED IN 260 ITR 102 BUT THIS JUDGMENT HAS BEEN REVERSED BY THE HONBLE APEX COURT AS PER ITS JUDGM ENT REPORTED IN 372 ITR 605. HE SUBMITTED THAT IN VIEW OF THIS, THE ORDER O F LEARNED CIT (A) IS NOT SUSTAINABLE. AT THIS JUNCTURE, IT WAS POINTED OUT B Y THE BENCH THAT AS PER THE ASSESSMENT ORDER, THIS IS THE OBJECTION OF THE AO THAT THE IMPUGNED EXPENDITURE IS NOT REVENUE EXPENDITURE BUT CAPITAL EXPENDITURE BECAUSE IT IS IN THE NATURE OF CONTINUOUS PROCESS TO DEVELOP AND IMPROVE NEW PRODUCTS WHICH CREATES VALUE ADDITION FOR THE PRODUCT WHICH IS AN ENDURING BENEFIT AND THUS CAPITAL IN NATURE. THE BENCH POINTED OUT T HAT LEARNED CIT (A) FOLLOWED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF TAPARIA TOOLS LTD. VS. JCIT (SUPRA) ONLY IN THIS CO NTEXT THAT IT WAS HELD BY HONBLE BOMBAY HIGH COURT IN THIS JUDGMENT THAT WHE N THE EXPENSES CLAIMED BY THE ASSESSEE ARE SHOWN TO BE DEFERRED RE VENUE EXPENDITURE AS IN THE PRESENT CASE, THEN IT IS ALLOWABLE IN AN YEAR A S PER MATCHING CONCEPT. THE BENCH OBSERVED THAT EVEN AFTER REVERSAL OF THIS JUDGMENT OF HONBLE BOMBAY HIGH COURT BY HONBLE APEX COURT, THE ASSESS EE HAS TO ESTABLISH THAT THE IMPUGNED EXPENDITURE IS REVENUE EXPENDITUR E AND NOT CAPITAL EXPENDITURE. IN REPLY, LEARNED AR OF THE ASSESSEE P LACED RELIANCE ON THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S TEJAS NE TWORKS INDIA LTD. VS. ACIT IN ITA NO. 470/B/2006 DATED 08.06.2007, COPY ON PAG ES 102 TO 127 OF THE PAPER BOOK. IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA 19 OF THIS TRIBUNAL ORDER WHERE THE TRIBUNAL OBSERVED THAT THE BENEFIT IS NOT DERIVED FOR A PERIOD MORE THAN 5 YEARS. THE BENCH WANTED TO KNO W THE NO. OF YEARS FOR ITA NOS.1656 & 1657(BANG)2014 3 WHICH THE BENEFIT IS AVAILABLE IN THE PRESENT CASE. IN REPLY, HE SUBMITTED THAT ON THIS ASPECT, NO MATERIAL IS READILY AVAILABLE AN D THERE IS NO FINDING OF ANY OF THE LOWER AUTHORITIES ON THIS ASPECT AND THEREFO RE, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR A FRESH DECISIO N AND THE ASSESSEE WILL ESTABLISH THAT IN THE PRESENT CASE ALSO, THE EXPENS ES ARE NOT OF CAPITAL NATURE. THEREAFTER, HE ALSO PLACED RELIANCE ON ANOT HER TRIBUNAL ORDER RENDERED IN THE CASE OF DCIT VS. METALMAN AUTO (P) LTD. AS REPORTED IN 78 ITD 327 (CHD.). LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PER THE ABOVE DISCUSSION, IT COMES OUT THAT EVEN AFTER REVERSAL OF THIS JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF TAPARIA TOOLS LTD. VS . JCIT (SUPRA) BY HONBLE APEX COURT, THE ASSESSEE HAS TO ESTABLISH THAT THE IMPUGNED EXPENDITURE IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE. IN VIEW OF THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S TEJAS NETWORKS IN DIA LTD. VS. ACIT (SUPRA) ALSO, THE ASSESSEE HAS TO ESTABLISH THAT THE IMPUGN ED EXPENDITURE IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE BY ESTABLIS HING THAT NO. OF YEARS FOR WHICH THE BENEFIT IS AVAILABLE IN THE PRESENT CASE IS LESS THAN 5 YEARS BUT IT IS SUBMITTED BY THE LEARNED AR OF THE ASSESSEE THAT ON THIS ASPECT, NO MATERIAL IS READILY AVAILABLE AND THERE IS NO FINDI NG OF ANY OF THE LOWER AUTHORITIES ON THIS ASPECT AND THEREFORE, THE MATTE R MAY BE RESTORED BACK TO THE FILE OF AO FOR A FRESH DECISION AND THE ASSESSE E WILL ESTABLISH THAT IN THE PRESENT CASE ALSO, THE EXPENSES ARE NOT OF CAPITAL NATURE. REGARDING THE THIRD JUDGMENT CITED BEFORE US BEING THE TRIBUNAL O RDER RENDERED IN THE CASE OF DCIT VS. METALMAN AUTO (P) LTD. (SUPRA), WE FIND THAT THIS JUDGMENT IS NOT ITA NOS.1656 & 1657(BANG)2014 4 APPLICABLE IN THE PRESENT CASE BECAUSE IN THAT CASE , THE DISPUTE WAS ABOUT RESEARCH & DEVELOPMENT EXPENSES. IN FACT AS PER LAS T FEW LINES OF PARA 10 OF THAT JUDGMENT IT WAS HELD THAT IF THE EXPENDITURE I S INCURRED TO IMPROVE AN EXISTING PRODUCT, IT IS REVENUE EXPENDITURE BUT IF IT IS FOR DEVELOPMENT OF A NEW PRODUCT, IT IS CAPITAL EXPENDITURE. HENCE, WE F EEL IT PROPER TO RESTORE THE MATTER BACK TO CIT (A) FOR A FRESH DECISION IN THE LIGHT OF ABOVE DISCUSSION AND AFTER CONSIDERING THE JUDGMENTS NOTED ABOVE OR WHICH MAY BE AVAILABLE BY THAT TIME AND AFTER CONSIDERING THE FACTS TO BE BROUGHT ON RECORD BY THE ASSESSEE TO ESTABLISH THAT THE EXPENSES IS NOT OF C APITAL NATURE. NEEDLESS TO SAY, ADEQUATE OPPORTUNITY OF BEING HEARD SHOULD BE PROVIDED TO BOTH SIDES. 5. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (LALIET KUMAR) SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBE R PLACE: BANGALORE: D A T E D : 28.04.2017 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NOS.1656 & 1657(BANG)2014 5 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER. 1 2 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER