M/s. Sogefi Engine Systems India Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Circle- 6(1)(2), Bangalore

ITA 1697/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0567 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2021
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-06-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 29-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRIYADARSHI MISHRA BENGALURU
• Assessee Lawyers: VENKATESH KUMAR
• Keywords: Capital asset; Depreciation; Rule of consistency; Question of law; Cost of acquisition; Revised return; Revenue expenditure; Capital expenditure; TDS
• Section: 143(1); 201; 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI , JUDICIAL MEMBER ITA NOS.1696 TO 1698/BANG/2019, 2089/BANG/2019 & 757/BANG/2016 ASSESSMENT YEAR S : 2013 - 14 TO 20 1 6 - 1 7 & 2012 - 13 SOGEFI ENGINE SYSTEMS INDIA PRIVATE LIMITED [FORMERLY SOGEFI-MNR ENGINE SYSTEMS INDIA PVT. LTD.], 54/3/B, EJIPURA MAIN ROAD, VIVEK NAGAR, BANGALORE 560 047. PAN: AAFCM 6821K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 6(1)(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI VENKATESH KUMAR, ADVOCATE RESPONDENT BY : SHRI PRIYADARSHI MISHRA, ADDL.CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 25 .0 6 .202 1 DATE OF PRONOUNCEMENT : 15 .0 7 .202 1 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS VIZ., ITA NOS.1696 TO 1698/BANG/2019 AND 2089/BANG/2019 ARE APPEALS BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF CIT(APPEALS) FOR THE ASSESSMENT YEARS 2013-14 TO 20 16-17. ITA NOS.1696 TO 1698/BANG/2019 PAGE 2 OF 24 2. ITA NO.757/BANG/2016 FOR AY 2012-13 DATED 22.12 .2017 IS A RECALLED APPEAL WHICH IS LISTED FOR HEARING IN VIEW OF THE ORDER OF THE TRIBUNAL IN MP NO.36/BANG/2018 DATED 18.5.2018 TO A DJUDICATE GROUND NO.2 OF THE APPEAL, WHICH READS AS FOLLOWS:- 2. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE TH AT THE PROFESSIONAL & LEGAL CHARGES INCURRED ATTRIBUTABLE TO PRODUCT DEVELOPMENT AND WHICH HAS BEEN CONSISTENTLY CLAIMED AND ALLOWED AS REVENUE EXPENDITURE IN THE PREVIOUS A SSESSMENT YEARS 2010-11 & 2011-12 AND THEREFORE, THE FINDING OF THE CIT(A) IS TOTALLY CONTRARY TO THE SETTLE LAW OF PR INCIPLE OF CONSISTENCY. 3. AT THE TIME OF HEARING, THE ASSESSEE FILED THE C OMMON CONSOLIDATED GROUNDS OF APPEAL, WHICH ARE TAKEN UP FOR ADJUDICAT ION IN LIEU OF ORIGINAL GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN ITS APP EALS IN ITA NOS.1696 TO 1698/BANG/2019 AND 2089/BANG/2019. THE COMMON CONS OLIDATED GROUNDS IN THESE APPEALS ARE AS FOLLOWS:- 1. THE CIT(A) ERRED IN NOT HOLDING THAT THE EXPE NSES INCURRED ON DESIGN AND TECHNICAL CONSULTANCY TOWARD S IMPROVING THE EXISITING PRODUCT IN THE SAME LINE OF BUSINESS AS' REVENUE EXPENDITURE'. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE EXPEND ITURE OF DESIGN AND TECHNICAL SERVICES INCURRED TOWARDS IMPR OVING THE EXISTING PRODUCT WHICH HAS THE EFFECT OF LONG-TERM OR ENDURING BENEFIT TO THE APPELLANT AND THEREFORE, IT NEEDS TO BE CAPITALIZED AS 'CAPITAL EXPENDITURE'. 3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE E XPENDITURE OF DESIGNING AND TECHNICAL CONSULTANCY SERVICES IS NOT MADE FOR THE PURPOSE OF BRINGING INTO EXISTING ANY ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE THE PROFIT IT IS REVENUE EXPENDITURE. 4. THE CIT(A) HAS FAILED TO APPRECIATE THE PRINCIP LE ACCEPTED BY THE REVENUE FOR EARLIER A.Y. 2010-11 & 2011-12 W AS THAT THE ITA NOS.1696 TO 1698/BANG/2019 PAGE 3 OF 24 ENTIRE EXPENDITURE OF PRODUCT DEVELOPMENT WAS ALLOW ED AS REVENUE EXPENDITURE AND NO EXPENDITURE IS TO BE ALL OCATED TO THE CAPITAL IN NATURE. 4. THE FACTS OF THE CASE FOR AY 2013-14 ARE THAT THE APPELLANT COMPANY ENGAGED IN THE MANUFACTURE OF AUTOMOTIVE FI LTERS FOR TWO AND FOUR- WHEELERS AND OTHER FILTRATION PRODUCTS AND SYSTEMS, FILED ITS RETURN ON 18.9.2013. THE RETURN WAS PROCESSED U/S 143(1) AND SELECTED FOR SCRUTINY. THE AO TREATED LEASE HOLD IMPROVEMENT EXPENDITURE A S CAPITAL EXPENDITURE AND ALLOWED DEPRECIATION THEREON. THIS ADDITION HAS NOT BEEN CONTESTED IN APPEAL. 5. THE SECOND ADDITION MADE BY THE AO PERTAINS TO T HE EXPENDITURE OF RS.51,67,652/- ON R&D ACTIVITIES CLAIMED BY THE APP ELLANT AS REVENUE EXPENDITURE. THE AO OBSERVED THAT THE AMOUNT WAS CA PITALIZED IN THE BOOKS BUT IN THE COMPUTATION OF INCOME, IT WAS REDU CED AS ADMISSIBLE WITH THE NARRATION DEVELOPMENT EXPENSES CREDITED TO P&L ACCOUNT FOR CAPITALIZATION ALLOWED UNDER I T NOW CONSIDERED . THE AO, FOLLOWING THE ORDER OF THE CIT(A) FOR THE PRECEDING YEAR, DISALLO WED THE PRODUCT DEVELOPMENT CHARGES OF RS.51,67,652/- AS BEING CAPI TAL IN NATURE AND ALLOWED DEPRECIATION THEREON. SIMILARLY IN THE OTH ER ASSESSMENT YEARS THE DISALLOWANCE ON THIS COUNT IS AS FOLLOWS:- A Y AMOUNT (RS.) 2012 - 13 89,47,220 2014 - 15 61,89,234 2015 - 16 53,28,482 2016 - 17 68,13,452 6. ON APPEAL, THE CIT(APPEALS) CONFIRMED THE ORDER OF AO ON THIS ISSUE. ITA NOS.1696 TO 1698/BANG/2019 PAGE 4 OF 24 7. THE LD. AR SUBMITTED THAT THE ASSESSEE COMPANY SOGEFI MNR FILTRATION INDIA PRIVATE LIMITED (FORMERLY M.N. RA MARAO FILTERS PRIVATE LIMITED) ('THE COMPANY') WAS INCORPORATED ON 22 JUL Y 2008 AS A PRIVATE LIMITED COMPANY UNDER THE PROVISIONS OF CHAPTER IX OF THE COMPANIES ACT, 1956 ON CONVERSION OF A PARTNERSHIP FIRM, M N RAMAR AO AND COMPANY. THE REGISTERED OFFICE OF THE COMPANY IS SITUATED IN BANGALORE, INDIA. 8. THE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFA CTURING DIFFERENT TYPES OF FILTERS PRIMARILY FOR AUTOMOTIVE INDUSTRIE S MORE PARTICULARLY FOR TWO AND FOUR WHEELERS AND FILTERS FOR CLEAN ROOMS, POLL UTION CONTROL, AND INDUSTRIAL REQUIREMENTS. 9. M/S.FILTRAUTO, SA OF FRANCE HAD ACQUIRED 70% EQU ITY SHARES FROM SHAREHOLDERS OF M.N. RAMARAO FILTERS P LTD IN THE Y EAR NOV 2008 UNDER AUTOMATIC ROUTE WITH DUE APPROVAL FROM RESERVE BANK OF INDIA. CONSEQUENT TO INVESTMENT, THE NAME OF THE COMPANY WAS CHANGED TO M/S. SOGEFI MNR FILTRATION INDIA PRIVATE LIMITED. THE COMPANY HAS M ANUFACTURING FACILITIES IN BANGALORE AND IN PUNE. THE MAJOR CUSTOMERS TO INCLU DE M&M, BAJAJ, TVS AND OTHER TWO WHEELER MANUFACTURERS. 10. THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE COMPANY IS INTO MANUFACTURING, DISTRIBUTION AND SALE OF PRODUCTS SU CH AS AIR INTAKE AND COOLING SYSTEMS, FILTERS (OIL FILTERS, ENGINE AIR F ILTERS, FUEL FILTERS, ETC.,) SUSPENSIONS AND PRECISION SPRINGS AND OTHER COMPONE NTS FOR CARS, TRUCKS AND OTHER VEHICLES WHICH OPERATES, INTER ALIA , IN EUROPE, SOUTH AMERICA, UNITED STATES, CHINA, INDIA AND WORLDWIDE. THE ASS ESSEE COMPANY HAS DEVELOPED THROUGH ITS R & D PLATFORM, ALL THE NECES SARY EXPERTISE, EXPERIENCE, ORGANIZATION AND MEANS IN THE DEVELOPME NT OF PRODUCTS. IT ENTERED INTO 'INTERCOMPANY SERVICE AGREEMENT' WITH THE SUBSIDIARIES OF SOGEFI SAS, FRANCE, FOR TAKING ASSISTANCE AND ADVIC E IN THE ABOVE FIELD AND ITA NOS.1696 TO 1698/BANG/2019 PAGE 5 OF 24 TO MEET ITS CLIENT'S EXPECTATIONS IN INDIA. THE COP Y OF THE INTERCOMPANY SERVICES AGREEMENT IS FILED. 11. IN THE PREVIOUS YEAR 2013-14 RELEVANT TO THE AS SESSMENT YEAR 2014- 15, 'SOGEFI SAS, FRANCE (GROUP CONCERN)' HAS PROVID ED ITS SERVICES AND ASSISTANCE WHICH ARE IN THE NATURE OF FTS - 'COST O F THE PERSONNEL AND OTHER LINKED COSTS' PER PROJECT BASIS, BELONGING TO THE R & D PLATFORM AND LINKED TO PRODUCT DEVELOPMENT PROJECTS OF THE ASSESSEE COM PANY. THESE COSTS ARE DULY FOLLOWED ON TIME, MATERIALS AND OTHER EXPE NSES BASIS THROUGH A SPECIFIC PROJECT. THE COPIES OF THE INVOICE ARE FIL ED. 12. IT IS SUBMITTED THAT THE SERVICES PROVIDED BY T HE 'GROUP CONCERN' ARE IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES' [FTS ] AND IT IS FOR DEVELOPMENT/IMPROVISING OF EXISTING PRODUCTS OF THE ASSESSEE COMPANY, IN RESPECT OF WHICH TDS HAS BEEN DEDUCTED U/S.195 AND DETAILS IN THE FORM 15CA & 15CB FOR THE REMITTANCE MADE OUTSIDE INDIA H AD BEEN DULLY FILED BEFORE THE AO. IT IS SUBMITTED THAT FTS IS IN THE NATURE OF PERSONNEL COST DIRECTLY EMPLOYED FOR PRODUCT DEVELOPMENT OF THE AS SESSEE COMPANY. ALL THESE EXPENSES ARE REVENUE IN NATURE WHICH IS FOR M ODIFICATION OF EXISTING PRODUCTS OR FOR DEVELOPMENT OF NEW PRODUCTS WITH TH E ASSETS UNDER THE SAME MANAGEMENT, WITH THE SAME WORK FORCE & EXPERTI SE, WITH THE SAME EXISTING MACHINERY INCLUDING THE BUILDING. IT WAS F URTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT ADDED ANY NEW MACHINERY OR NEW CAPITAL ASSET AND THESE EXPENSES ARE ONLY ON THE DAY-TO-DAY RUNNI NG OF THE EXISTING BUSINESS. THESE EXPENSES ARE TO FACILITATE THE EXIS TING BUSINESS OF THE COMPANY LEAVING THE FIXED ASSETS UNTOUCHED. HENCE, ELIGIBLE TO CHARGE TO PROFIT AND LOSS ACCOUNT AS 'REVENUE EXPENDITURE ALL OWABLE U/S.37 OF THE ACT. 13. IT IS FURTHER SUBMITTED THAT THE AO CONSIDERED THE PROFESSIONAL AND LEGAL CHARGES INCURRED IN RESPECT OF PRODUCT DEVELO PMENT ACTIVITIES CARRIED ITA NOS.1696 TO 1698/BANG/2019 PAGE 6 OF 24 ON IN THE PREVIOUS ASSESSMENT YEARS 2010-11 & 2011- 12 AND ALLOWED U/S. 37 OF THE ACT. 14. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE IS E NGAGED IN THE BUSINESS OF MANUFACTURE OF OIL, DIESEL, AIR FILTERS AND FILTER ASSEMBLIES AND PARTS RELATED TO ENGINE MEANT FOR AUTOMOTIVE INDUST RIES. AS A PART OF ITS EXISTING BUSINESS, THE COMPANY IS ENGAGED IN DESIGN SERVICES, MAINLY MEANT FOR CAPTIVE CONSUMPTION, FOR IMPROVISATION OF EXISTING PRODUCTS OF THE COMPANY AND DEVELOPMENT OF NEW PRODUCTS FOR THE AUT OMOTIVE CUSTOMERS. THE COMPANY IS ALSO INTO EXPORT SALE OF DESIGN SERV ICES TO ITS GROUP COMPANIES SITUATED OUTSIDE INDIA. THE COSTS RELATED TO DESIGN SERVICES INTER-ALIA TO INCLUDE :- A) SALARIES & WAGES OF DESIGN ENGINEERS AND OTHER EMPLOYEES INVOLVED IN DEVELOPMENT; B) MINOR MATERIALS LIKE PROTOTYPES AND OTHER TESTIN G MATERIALS; C) ALL OTHER DIRECT COSTS RELATED TO EMPLOYEES LIKE TRAVELLING AND LODGING; D) RENT AND ELECTRICITY FOR THE DESIGN DEPARTMENT; E) DEPRECIATION ON FIXED ASSETS DIRECTLY USED FOR DEVELOPMENT; G) OTHER DIRECT EXPENSES TO INCLUDE PRINTING AND STATIONERY, CONSUMABLES, OFFICE EXPENSES; AND H) ALL OTHER INDIRECT AND ALLOCABLE COMMON COSTS LI KE EXPENSES OF PURCHASE EMPLOYEES; SALARIES OF COMMON EMPLOYEES. I) COSTS OF DESIGN SERVICES IMPORTED FROM GROUP COMPANIES SITUATED OUTSIDE INDIA. ITA NOS.1696 TO 1698/BANG/2019 PAGE 7 OF 24 15. ALL THE ABOVE EXPENSES ARE DEVELOPMENT EXPENSES INCURRED BY THE COMPANY IN ANTICIPATION OF FUTURE INCOME AND TO MEE T THE MATCHING PRINCIPLE, THE COMPANY IS CAPITALIZING 70% OF THE A BOVE EXPENSES UNDER 'INTANGIBLE ASSET' AND THE BALANCE 30% IS EXPENSED OUT IN THE INCOME STATEMENT AS REVENUE EXPENSES. 16. EVERY DEVELOPMENT OF A NEW PRODUCT OR IMPROVISA TION WITH REFERENCE TO EXISTING PRODUCT IS CALLED PROJECT AND ASSIGNED WITH SPECIFIC NAME AND NUMBER. PROJECTS WILL BE IDENTIFIED ON THE BASIS OF CONTROL AND FUTURE ECONOMIC BENEFITS. THE COSTS INCURRED IN THE DEVELO PMENT PHASE OF THE IDENTIFIED PROJECTS ARE CAPITALIZED ONLY AFTER DETA ILED STUDY IN TERMS OF:- (1) THE TECHNICAL FEASIBILITY OF COMPLETING THESE P ROJECTS; (2) THE INTENTION TO COMPLETE THESE PROJECTS TO THE COMMERCIAL ADVANTAGE OF THE COMPANY; (3) THE ABILITY TO USE OR SELL PRODUCTS BY MAKING U SE OF THESE PROJECTS; (4) THE MANNER WITH WHICH THESE PROJECTS WILL GENER ATE PROBABLE FUTURE ECONOMIC BENEFITS; (5) THE AVAILABILITY OF TECHNICAL, FINANCIAL AND OT HER TYPES OF RESOURCES APPROPRIATE IN COMPLETING THE DEVELOPM ENT OF THESE PROJECTS; & (6) THE ABILITY TO RELIABLY EVALUATE THE COST ATTRI BUTABLE TO THESE PROJECTS; 17. THE COSTS CAPITALIZED UNDER INTANGIBLE ASSETS ARE REVIEWED IN FREQUENT INTERVALS AND SAME ARE ALLOCATED TO THE PR OJECTS WHICH ARE IN PROGRESS IN PROPORTION TO THEIR EXPECTED SALES. ALS O, PROJECTS ARE REVIEWED IN FREQUENT INTERVALS TO IDENTIFY THEIR PROGRESS, L IKELY SUCCESS OR FAILURE. APPROPRIATE TREATMENT FOR THE EXPENSES ACCOUNTED UN DER INTANGIBLE ASSETS ITA NOS.1696 TO 1698/BANG/2019 PAGE 8 OF 24 ARE PROVIDED IN THE BOOKS ON THE BASIS OF RELATED S UCCESS OR FAILURE. IF THE PROJECT IS SUCCESSFUL, THE COMPANY IS ASSURED OF FU TURE INCOME GENERATION AND THE COSTS ACCUMULATED ON THIS SUCCESSFUL PROJEC T WILL BE EXPENSED OUT IN P&L ACCOUNT IN 36 MONTHS UNDER 'AMORTISATION CHA RGES'. HOWEVER, IF THE PROJECT IS UNSUCCESSFUL AT A GIVEN POINT OF TIME, T HE TOTAL COSTS ACCUMULATED FOR SUCH UNSUCCESSFUL PROJECT ARE EXPENSED OUT IN T HE SAME MONTH AS 'PROJECTS WRITTEN OFF'. 18. THE SOFTWARES THAT ARE BEING USED FOR DEVELOPME NT ACTIVITIES ARE AS BELOW:- 1. STAR CCM 2. ANSYS DESIGN MODELER 3. PTC SOFTWARE CREO PARAMETIC 4. FLOEFD 19. DURING YEAR UNDER REVIEW, THE COMPANY HAS PASSE D THE FOLLOWING JOURNAL ENTRIES IN ITS BOOKS FOR TREATMENT OF DEVEL OPMENT EXPENSES. PARTICULARS DR CR TO INTANGIBLE ASSETS 3,80,81,099 PROFESSIONAL & LEGAL EXPENSES 91,13,452 MINOR MATERIALS 16,49,214 TRAVELLING & CONVEYANCE 53,75,596 SALARIES & WAGES 2,19,42,837 PARTICULARS DR CR AMORTISATION CHARGES 2,37,98,801 TO INTANGIBLE 2,37,98,801 PARTICULARS DR CR DEVELOPMENT EXPENSES (W/OFF) 81,35,401 81,35,401 81,35,401 ITA NOS.1696 TO 1698/BANG/2019 PAGE 9 OF 24 20. IT IS ONCE AGAIN RETREATED THAT THE ASSESSEE C OMPANY HAD BIFURCATED SUM OUT OF TOTAL EXPENDITURES, SALARY & WAGES ,TELE PHONE, TRAVELING EXPENSES, OTHER ADMINISTRATION EXPENSES AND ALLOCAT ED TO THE MODIFICATION OF EXISTING PRODUCT / DEVELOPMENT NEW PRODUCT WITH THE ASSET UNDER THE SAME MACHINERY, WITH THE SAME WORK FORCE AND EXPERT ISE WITH THE SAME MACHINERY INCLUDING THE BUILDING. 21. THE AMOUNT ON ACCOUNT OF THE ABOVE TREATED AS C APITAL EXPENDITURE UNDER INTANGIBLE ASSETS CANNOT BE TREATED AS CAPITA L EXPENDITURE ON DISALLOWANCE UNDER THE INCOME TAX ACT. THE COMPANY ON ACCOUNT OF THE ABOVE, HAD NOT PURCHASED ANY NEW MACHINERY OR CREAT ED ANY NEW CAPITAL ASSETS AND THE EXPENDITURES INCURRED BY THE COMPANY IS ONLY ON DAY TO DAY RUNNING BUSINESS. THE BIFURCATION HAS BEEN MADE SE PARATELY FOR THE PRODUCTS UNDER WHICH ,CERTAIN ITEMS WERE TO BE MODI FIED AND CERTAIN NEW ITEMS WERE TO BE MANUFACTURED TO EARN MORE PROFITS OR ADVANTAGE IN THE LONG RUN. 22. ON THE ALLOWABILITY OF THE ABOVE INTANGIBLE ASS ET UNDER THE INCOME TAX ACT, KEEPING IN VIEW THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD., IT WAS SUBMITTED THAT THE NATURE OF THE ADVANTAGE HAS TO BE SEEN IN A COMMERCIAL SENSE. THE HON'BLE SUPREME COURT HAS HELD THAT WHEREAS IN THE CAPITAL FIELD ON LY THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION ON THE TEST S, WHEREAS EXPENDITURE HAS BEEN INCURRED FOR OBTAINING AN ADVANTAGE OF END URING BENEFIT; BUT WHEREAS THE EXPENDITURES IS INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFITS ON REVENUE ACCOUNT, THE POSITION WILL BE DIFFERENT I.E.,IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE'S TRADING OPERATIONS OR ENABLING IT TO CARRY ON THE BUSINESS TO BE CARRI ED OUT MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED ASSETS UNTO UCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE FOR ITA NOS.1696 TO 1698/BANG/2019 PAGE 10 OF 24 AN INDEFINITE FUTURE. LOOKING FORM THIS ANGLE, THE EXPENDITURE INCURRED BY THE COMPANY WAS WITH A VIEW TO EARN MORE PROFITS, W HILE LEAVING ITS FIXED CAPITAL UNTOUCHED. IT IS FURTHER SUBMITTED THAT IN SOME OF THE ITEMS THE PROJECT HAS BEEN ABANDONED ALSO AND SOME WERE EVEN COMPLETED OR CONTINUED AND THEREFORE, ALTHOUGH THE ASSESSEE COMP ANY INTENDED TO OBTAIN ADVANTAGES OR ENDURING BENEFIT, IT WAS IN TH E REVENUE FIELD. IN SUPPORT OF THIS ARGUMENT, RELIANCE WAS PLACED ON TH E HONBLE HIGH COURT OF PUNJAB & HARYANA IN CIT V. M/S. ESCORTS AUTO COMPONENTS LTD. (2011) 197 TAXMAN 42 (P&H) WHEREIN IT WAS HELD AS UNDER:- BY NO STRETCH OF IMAGINATION, THE EXPENDITURE INCU RRED BY THE ASSESSEE COULD BE REGARDED AS CAPITAL EXPENDITURE. MERELY BECAUSE THE ASSESSEE HAD DECLARED BY GIVING A NOTE IN ITS ORIGINAL RETURN THAT IT WAS AN EXPENDITURE PERTAINING TO NEW PROJECT AND WAS CAPITAL IN NATURE, THE ASSESSING OFFICER COULD NOT HAVE TREATED THE SAME AS THE CAPITAL EXPENDITURE. MOREOV ER, WHEN THE COMMISSIONER (APPEALS) ASKED FOR THE COMMENTS OF TH E ASSESSING OFFICER, HE NEITHER COMMENTED ON THE NATU RE OF THE EXPENDITURE INCURRED NOR DID HE COMMENT ON THE TREA TMENT OF THE ACCOUNTING ENTRIES IN THE BOOKS OF ACCOUNT. THE ASS ESSING OFFICER SIMPLY PLACED RELIANCE UPON THE NOTE GIVEN BY THE A SSESSEE IN ITS ORIGINAL RETURN, WHICH HAD BEEN REGARDED AS INSUFFI CIENT. MOREOVER, UNDER SECTION 139(5), THE ASSESSEE WAS EN TITLED TO FILE THE REVISED RETURN RECTIFYING THE ERROR COMMITTED I N SHOWING THE EXPENDITURE. MOREOVER, THE FINDING OF THE TRIBUNAL THAT THE EXPENDITURE INCURRED WAS REVENUE EXPENDITURE AND/OR FOR BUSINESS PURPOSE, HAD NEITHER BEEN CHALLENGED, NOR THERE WAS ANY CHALLENGE TO THE FINDING THAT NO CAPITAL ASSET HAD COME INTO EXISTENCE. THE TRIBUNAL HAD RECORDED IN ITS ORDER T HAT THE REVENUE DID NOT EVER DOUBT THAT THE EXPENDITURE INCURRED WA S EXCLUSIVELY AND WHOLLY FOR THE PURPOSE OF BUSINESS. THEREFORE, NO QUESTION OF LAW AROSE FOR DETERMINATION OF THE HIGH COURT. [PAR A 7] 23. IT WAS THEREFORE SUBMITTED THAT DISALLOWANCE OF ANY INTANGIBLE ASSETS CLAIMED BY ASSESSEE U/S. 37 OF THE ACT WAS NOT JUST IFIED AND THE SAME WAS ALLOWABLE. ITA NOS.1696 TO 1698/BANG/2019 PAGE 11 OF 24 24. THE LD. AR ALSO DREW OUR ATTENTION TO NOTES ON CLAUSES IN RESPECT OF R&D EXPENSES WHICH READS AS FOLLOWS:- P) RESEARCH AND DEVELOPMENT EXPENSES REVENUE EXPENDITURE PERTAINING TO RESEARCH IS CHARG ED TO THE STATEMENT OF PROFIT AND LOSS. DEVELOPMENT COSTS OF PRODUCTS ARE ALSO CHARGED TO THE STATEMENT OF PROFIT AND LOSS UN LESS A PRODUCT'S TECHNICAL FEASIBILITY HAS BEEN ESTABLISHED, IN WHIC H CASE SUCH EXPENDITURE IS CAPITALISED. THE AMOUNT CAPITALISED COMPRISES EXPENDITURE THAT CAN BE DIRECTLY ATTRIBUTED OR ALLO CATED ON A REASONABLE AND CONSISTENT BASIS TO CREATING, PRODUC ING AND MAKING THE ASSET READY FOR ITS INTENDED USE. FIXED ASSETS UTILISED FOR RESEARCH AND DEVELOPMENT ARC CAPITALISED AND DE PRECIATED IN ACCORDANCE WITH THE POLICIES STATED FOR FIXED ASSET S. 25. HE ALSO RELIED ON THE FOLLOWING JUDGMENTS:- PCIT V. VIJAYESHWARI TEXTILES LTD. (2020) 121 TAXMANN.COM 20 (MADRAS) HELD THAT, PRODUCT DEVELOPMENT EXPENSES ARE DEDUCT IBLE EVEN THOUGH SAID EXPENDITURE WAS TO BE AMORTISED OV ER A PERIOD OF 3 YEARS AS PER ACCOUNTING PRACTICE ADOPTE D BY ASSESSEE. CIT V. ARVIND PRODUCTS LTD. (2018) 93 TAXMANN.COM 4 54 (GUJ) HELD, WHERE ASSESSEE INCURRED EXPENDITURE ON PRODUC T DEVELOPMENT AND CLAIMED DEDUCTION FOR SAME UNDER SECTION 37(1), IN VIEW OF FACT THAT EXPENDITURE SO INCURRED DID NOT INVOLVE DEVELOPMENT OF A NEW PRODUCT OR EVE N A NEW TECHNIQUE OR TECHNOLOGY TO MANUFACTURE EXISTING PRODUCT MORE EFFICIENTLY RATHER IT WAS AIMED AT IMP ROVING QUALITY OF EXISTING PRODUCTS OF ASSESSEE, ASSESSEE' S CLAIM FOR DEDUCTION WAS TO BE ALLOWED. CIT V. TEJAS NETWORKS INDIA (P) LTD. (2014) 52 TAXMANN.COM 513 (KAR) ITA NOS.1696 TO 1698/BANG/2019 PAGE 12 OF 24 HELD, WHERE ASSESSEE COMPANY CLAIMED PRODUCT DEVELOPMENT EXPENSES FOR UPGRADING EXISTING PRODUCT S, SAME WAS TO BE TREATED AS REVENUE EXPENDITURE AS DU E TO SEVERE COMPETITION, CONSTANT UPGRADATION WAS REQUIR ED. KEDARNATH JUTE MFG. CO. LTD. V. CIT (1971) 82 ITR 3 63 (SC) HELD, WHETHER THE ASSESSEE IS ENTITLED TO A PARTICU LAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LA W RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSE SSEE MIGHT TAKEN OF ITS RIGHT NOR CAN THE EXISTENCE OR A BSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONC LUSIVE IN THE MATTER. EMPIRE JUTE CO. LTD. V. CIT (1980) 124 ITR 1 (SC) WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE A DVANTAGE IN A, COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADV ANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT O F THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENT LY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNT OUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN T HOUGH THE ADVANTAGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AN D MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS AN OUTGO ING ON ACCOUNT OF REVENUE DEPENDS ON WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VIEW RATHER THAN UPON THE JURISTIC CLASSIFICATION O F THE LEGAL RIGHTS, IF ANY, SECURED, EMPLOYED OR EXHAUSTED IN T HE PROCESS. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. ITA NOS.1696 TO 1698/BANG/2019 PAGE 13 OF 24 RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321 (SC) HELD THAT, IN THE ABSENCE OF ANY MATERIAL CHANGE J USTIFYING THE DEPARTMENT TO TAKE A DIFFERENT VIEW FROM THAT T AKEN IN EARLIER PROCEEDINGS, THE QUESTION OF THE EXEMPTION OF THE ASSESSEE APPELLANT SHOULD NOT HAVE BEEN REOPENED. STRICTLY SPEAKING RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A UNIT, WHAT WAS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR; WHERE A FUNDAMENTAL ASPECT PERMEATI NG THROUGH THE DIFFERENT ASSESSMENT YEARS HAS BEEN FOU ND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORD ER, IT WOULD NOT BE AT ALL APPROPRIATE TO ALLOW THE POSITI ON TO BE CHANGED IN A SUBSEQUENT YEAR. [THE COURT EMPHASIZED THAT THE DECISION IS CONFINED TO THE FACTS OF THE CASE AND MAY NOT BE TREATED AS AN AUTH ORITY ON ASPECTS WHICH HAVE BEEN DECIDED FOR GENERAL APPLICA TION]. PCIT V. QUEST INVESTMENT ADVISORS (P) LTD. (2018) 9 6 TAXMANN.COM 157 (BOM) HELD, WHERE ENTIRE EXPENDITURE OF ASSESSEE FOR EARL IER YEARS AND SUBSEQUENT YEARS WAS SET OFF AGAINST PROFESSIONAL INCOME AND NO EXPENDITURE WAS ALLOCATE D TO CAPITAL GAIN, IN ABSENCE OF ANY CHANGE IN CIRCUMSTA NCES, FOLLOWING RULE OF CONSISTENCY, TRIBUNAL WAS JUSTIFI ED ALLOWING SAME IN RELEVANT ASSESSMENT YEARS ALSO. PERFECT ENGINEERING PRODUCTS LTD. V. ADDL. CIT (201 3) 36 TAXMANN.COM 502 (MUM) HELD, WHERE EXPENDITURE IN QUESTION ARE RELATABLE T O BUSINESS OF ASSESSEE THEN SIMPLY FOR REASONS THAT T HESE HAVE GIVEN SOME ENDURING BENEFIT TO ASSESSEE, SAME CANNOT BE REGARDED AS CAPITAL EXPENDITURE. 26. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT AS SESSEE HAS AVAILED TECHNICAL ASSISTANCE FROM ITS AE SITUATED IN FOREIG N COUNTRY, THEREBY OBTAINED ENDURING BENEFIT AND ALSO FIXED CAPITAL HA S BEEN INCREASED BY ITA NOS.1696 TO 1698/BANG/2019 PAGE 14 OF 24 INCURRING THIS EXPENDITURE. THE ASSESSEE HAS CONSO LIDATED ITS MARKET WHICH IS FOR MORE THAN A YEAR AND ITS BRAND VALUE H AS INCREASED IN INDIAN MARKET. IT WAS STATED THAT EACH ASSESSMENT YEAR IS AN INDEPENDENT ASSESSMENT YEAR. IN THE EARLIER AY 2010-11 & 2011- 12, THE AO HAS NOT APPLIED HIS MIND AND HE JUST CHOSE TO PASS THE ASSE SSMENT ORDER WITHOUT CONSIDERING THE ISSUE IN PROPER PERSPECTIVE. THAT ORDER CANNOT BIND THE APPELLATE AUTHORITY AND IT CANNOT BE CONSIDERED AS A BINDING PRECEDENT IN SUBSEQUENT ASSESSMENT YEAR AND THE SUBSEQUENT ASSES SING OFFICER CAN DRAW A DIFFERENT CONCLUSION IF THERE IS ADEQUATE JU STIFICATION FOR DEFAULT OF THE EARLIER VIEW. IN THE PRESENT CASE, ACCORDING TO TH E LD. DR, NEW AND FRESH FACTS & MATERIAL WAS GATHERED BY THE AO AND HAS TAK EN A DIFFERENT VIEW TREATING THE R&D EXPENDITURE AS CAPITAL EXPENDITURE WHICH CANNOT BE FAULTED WITH. 27. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF AUTOM OTIVE FILTERS FOR TWO AND FOUR WHEELERS AND OTHER FILTRATION PRODUCTS AND SYSTEMS. IN THESE ASSESSMENT YEARS THE ASSESSEE INCURRED AND CLAIMED R&D EXPENDITURE WHICH WAS DISALLOWED BY THE AO AS FOLLOWS:- A Y AMOUNT (RS.) 2012 - 13 89,47,220 2013 - 14 51,67,652 2014 - 15 61,89,234 2015 - 16 53,28,482 20 16 - 17 68,13,45 2 28. THE ASSESSEE HAS CAPITALIZED 70% OF R&D EXPENDI TURE IN ITS BALANCE SHEET AS CAPITAL EXPENDITURE AND CHARGED 30 % AS R&D EXPENDITURE TO P&L ACCOUNT IN THESE ASSESSMENT YEAR S. HOWEVER, WHILE FILING THE RETURN OF INCOME, THE ASSESSEE CLAIMED T HE ENTIRE R&D EXPENDITURE AS A DEDUCTION BY TREATING IT AS REVENU E EXPENDITURE WHICH WAS ITA NOS.1696 TO 1698/BANG/2019 PAGE 15 OF 24 DISALLOWED BY THE AO. THE CLAIM OF ASSESSEE BEFORE US IS THAT THE SAID EXPENDITURE TO BE TREATED AS REVENUE EXPENDITURE TH OUGH A PORTION HAS BEEN CLAIMED BY ASSESSEE AS CAPITAL EXPENDITURE IN THE BALANCE SHEET BY PLACING RELIANCE ON THE JUDGMENT OF SUPREME COURT I N THE CASE OF EMPIRE JUTE CO. LTD. (SUPRA) . 29. NOW THE QUESTION IS, WHETHER THIS EXPENDITURE I NCURRED BY THE ASSESSEE TOWARDS R&D SHOULD BE TREATED AS REVENUE O R CAPITAL EXPENDITURE? IT IS A WELL-ACCEPTED LEGAL PREPOSITI ON THAT NO TEST OF UNIVERSAL APPLICATION CAN BE LAID DOWN TO DETERMINE THE QUEST ION WHETHER AN EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE OR CAPITAL. IT DEPENDS ON THE OVERALL FACTS AND CIRCUMSTANCES OF EACH CASE. S UCH MATTERS HAVE TO BE DECIDED FROM A PRACTICAL VIEW AND ON APPLICATION OF THE PROPER PRINCIPLES OF LAW. COURTS ARE OF THE VIEW THAT KEEPING IN MIND TH E GROUND REALITIES OF BUSINESS, AO SHOULD CONSIDER THE PURPOSE OF A PARTI CULAR EXPENDITURE. A FEW PRINCIPLES IN THIS REGARD CAN BE ENUMERATED AS UNDER:-- (I) ONE OF THE GUIDELINES FOR DISTINGUISHING REVENUE EXPENDITURE FROM CAPITAL EXPENDITURE IS THAT IF THE EXPENDITURE IS INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT IT WOULD BE CAPITAL EXPENDITURE. B UT, THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR CONCLU SIVE TEST AND IT IS NOT TO BE APPLIED BLINDLY AND MECHANICALL Y. IN OTHER WORDS EVERY ADVANTAGE OF ENDURING NATURE ACQU IRED BY AN ASSESSEE IS NOT COVERED BY THE SAID CONCEPT. IN A GIVEN CASE, THE TEST OF ENDURING BENEFIT MIGHT BREA K DOWN. THE IDEA OF ONCE FOR ALL PAYMENT AND ENDURING BENEF IT ARE NOT SOMETHING AKIN TO STATUTORY CONDITIONS; NOR ARE THE NOTIONS OF CAPITAL OR REVENUE A JUDICIAL FETISH. CO NCEPTS OF CAPITAL/REVENUE EXPENDITURE ARE NOT ETERNAL VERITIE S, BUT ARE FLEXIBLE ONES. (II) WHAT IS MATERIAL IN THIS REGARD IS TO CONSIDER THE TYPE, NATURE AND CHARACTER OF THE ADVANTAGE IN A COMMERCI AL SENSE ON ONE HAND AND ON THE OTHER TO LOOK IN TO TH E AIM, INTENDED OBJECT, EFFECT OF THE EXPENDITURE AND IN T HE LARGER ITA NOS.1696 TO 1698/BANG/2019 PAGE 16 OF 24 CONTEXT OF NECESSITY AND EXPEDIENCY. LEGAL RIGHTS S ECURED IN THE PROCESS ARE ALSO RELEVANT IN DECIDING THE IS SUE. (III) IF THE EXPENDITURE IS RELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS OR IS INTRINSICALLY CONNECTED WITH THE RUNNING OF A BUSINESS THE EXPENDITURE IS TO BE REGA RDED AS REVENUE EXPENDITURE EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR SOME INDEFINITE FUTURE. (IV) A PAYMENT MADE WITH A VIEW TO OBTAIN THE BENEFIT OF TECHNICAL ASSISTANCE FOR RUNNING THE ASSESSEE'S BUS INESS MORE EFFICIENTLY SO AS TO EARN MORE PROFITS AND 'NO T BY WAY OF TRANSFER OF FRUITS OF RESEARCH ONCE AND FOR ALL' , CAN BE TREATED AS AN ITEM OF REVENUE EXPENDITURE. (V) EXPENDITURE INCURRED IN CONNECTION WITH THE PROFIT EARNING APPARATUS WOULD BE REVENUE EXPENDITURE. (VI) WHERE THE ADVANTAGE IS ON THE CAPITAL FILED THE EXP ENDITURE WOULD BE TREATED A CAPITAL EXPENDITURE. IF THE ADVA NTAGE LEAVES THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT. (VII) EXPENDITURE IN THE ACQUISITION OF A CONCERN WOULD B E CAPITAL EXPENDITURE; EXPENDITURE IN CARRYING ON THE CONCERN WOULD BE REVENUE EXPENDITURE. (VIII) AN EXPENDITURE CANNOT BE CONSIDERED TO BE CAPITAL EXPENDITURE MERELY ON THE GROUND THAT THE AMOUNT INVOLVED IS LARGE. THE QUANTUM OF EXPENDITURE INVOL VED CANNOT ALTER THE NATURE AND CHARACTER OF THE EXPEND ITURE. (IX) THE SOURCE OR MANNER OF THE PAYMENT ARE OF NO CONSEQUENCE IN DECIDING THE ISSUE. (X) THE QUESTION WHETHER A PARTICULAR PAYMENT MADE BY A N ASSESSEE UNDER THE TERMS OF AN AGREEMENT FORMS A PA RT OF CAPITAL EXPENDITURE OR REVENUE EXPENDITURE, WOULD D EPEND UPON SEVERAL FACTORS., NAMELY, WHETHER THE ASSESSEE OBTAINED A COMPLETELY NEW PLAN WITH A COMPLETE NEW PROCESS AND COMPLETELY NEW TECHNOLOGY FOR MANUFACTU RE ITA NOS.1696 TO 1698/BANG/2019 PAGE 17 OF 24 OF THE PRODUCT OR THE PAYMENT WAS MADE FOR THE TECH NICAL KNOW-HOW WHICH WAS FOR THE BETTERMENT OF THE PRODUC T IN QUESTION WHICH WAS ALREADY BEING PRODUCED; WHETHER THE IMPROVISATION MADE IS PART AND PARCEL OF THE EXISTI NG BUSINESS OR A NEW BUSINESS WAS SET UP WITH THE SO-C ALLED TECHNICAL KNOW-HOW FOR WHICH PAYMENTS WERE MADE; WHETHER ON EXPIRY OF THE PERIOD OF AGREEMENT THE AS SESSEE IS REQUIRED TO GIVE BACK THE PLANS AND DESIGNS WHIC H WERE OBTAINED, BUT THE ASSESSEE COULD MANUFACTURE THE PR ODUCT IN THE FACTORY THAT HAS BEEN SET UP WITH THE COLLAB ORATION OF THE FOREIGN FIRM; THE CUMULATIVE EFFECT ON A CONSTR UCTION OF THE VARIOUS TERMS AND CONDITIONS OF THE AGREEMENT; WHETHER THE ASSESSEE DERIVED BENEFITS COMING TO ITS CAPITAL FOR WHICH THE PAYMENT WAS MADE. IF FROM THE TERMS O F THE AGREEMENT BETWEEN THE PARTIES IT TRANSPIRES THAT TH E PURPOSE BE THE ACQUISITION OF AN ASSET/A RIGHT OF A PERMANENT CHARACTER WAS A PRE-REQUISITE TO THE COMMENCEMENT OR CONTINUANCE OF THE BUSINESS, THE EXPENDITURE WOULD BE A CAPITAL EXPENDITURE. (XI) IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN EXPENDITURE WOULD FALL IN THE CAT EGORY OF CAPITAL EXPENDITURE. (XII) IF THE AMOUNT IS SPENT FOR PRESERVING AND MAINTAINI NG THE PRESENT ASSET IN EXISTENCE, IT CANNOT BE SAID THAT THE EXPENDITURE SO INCURRED IS CAPITAL IN NATURE. (XIII) WHERE THE OBJECT OF INCURRING AN EXPENDITURE IS TO EFFECT A CAPITAL STRUCTURE AS A RESULT OF WHICH CERTAIN INCI DENTAL ADVANTAGE FLOWS, THE EXPENDITURE WILL BE OF CAPITAL NATURE. CAPITAL EXPENDITURE CAN BE INCURRED AFTER A COMPANY IS FLOATED OR AFTER IT STARTS ITS BUSINESS. (XIV) ORDINARILY, THE WORD CAPITAL EXPENDITURE REFERS TO THE EXPENDITURE WHICH IS OF A PERMANENT NATURE OR FOR S ECURING TANGIBLE OR INTANGIBLE PROPERTY, CORPOREAL OR INCOR POREAL RIGHT. ITA NOS.1696 TO 1698/BANG/2019 PAGE 18 OF 24 30. WE HAVE CAREFULLY GONE THROUGH THE SIGNIFICANT ACCOUNTING POLICIES ADOPTED BY THE ASSESSEE IN THESE YEARS. FIXED ASSETS (FOR ALL AYS) FIXED ASSETS ARE CARRIED AT COST OF ACQUISITION OR CONSTRUCTION LESS ACCUMULATED DEPRECIATION AND PROVISION FOR IMPAIRME NT OF ASSETS. THE COST OF FIXED ASSETS INCLUDES TAXES, DUTIES, FR EIGHT AND OTHER INCIDENTAL EXPENSES RELATED TO THE ACQUISITION AND CONSTRUCTION OF THE RESPECTIVE ASSETS. EXPENDITURE ON RESEARCH ACTIVITIES, UNDERTAKEN WITH THE PROSPECT OF GAINING NEW SCIENTIFIC OR TECHNICAL KNOWLEDGE AN D UNDERSTANDING, IS RECOGNISED IN PROFIT OR LOSS AS I NCURRED. DEVELOPMENT ACTIVITIES INVOLVE A PLAN OR DESIGN FOR THE PRODUCTION OF NEW OR SUBSTANTIALLY IMPROVED PRODUCT S AND PROCESSES. DEVELOPMENT EXPENDITURE IS CAPITALISED O NLY IF DEVELOPMENT COSTS CAN BE MEASURED RELIABLY, THE PRO DUCT OR PROCESS IS TECHNICALLY AND COMMERCIALLY FEASIBLE, F UTURE ECONOMIC BENEFITS ARE PROBABLE, AND THE COMPANY INTENDS TO A ND HAS SUFFICIENT RESOURCES TO COMPLETE DEVELOPMENT AND TO USE OR SELL THE ASSET. THE EXPENDITURE CAPITALISED INCLUDES THE COST OF MATERIALS, DIRECT LABOUR, OVERHEAD COSTS THAT ARE D IRECTLY ATTRIBUTABLE TO PREPARING THE ASSET FOR ITS INTENDE D USE, AND CAPITALISED BORROWING COSTS. OTHER DEVELOPMENT EXPE NDITURE IS RECOGNISED IN PROFIT OR LOSS AS INCURRED. NOTES TO ACCOUNTS : INTANGIBLE ASSETS ARE ENCLOSED AS ANNEXURE-I TO THIS ORDER. 31. THE ARGUMENT OF THE LD. AR IS THAT IT HAS NOT R ESULTED IN ANY ENDURING BENEFIT TO THE ASSESSEE AND EVEN IF IT IS ENDURING BENEFIT, THE SAID EXPENDITURE IS IN THE NATURE OF REVENUE AND DEDUCTI ON TO BE ALLOWED. 32. THIS ARGUMENT OF THE LD. AR HOLDS NO FIELD. TH E ASSESSEE ITSELF HAS TREATED THE SAID EXPENDITURE AS CAPITAL EXPENDITURE IN ITS BOOKS OF ACCOUNT AND REITERATED THE SAME IN ITS ANNUAL REPORT THAT I T IS CAPITAL EXPENDITURE. ITA NOS.1696 TO 1698/BANG/2019 PAGE 19 OF 24 CONTRARY TO THIS, THE ASSESSEE IS TRYING TO ESTABLI SH THAT THE EXPENDITURE IS IN REVENUE FIELD. HOWEVER, THE EXPENDITURE IS NOT INCURRED IN THE CONDUCT OF DAY TO DAY AFFAIRS OF THE ASSESSEE COMPANY. ON THE OTHER HAND, IT WAS INCURRED FOR SECURING ENDURING BENEFIT WHICH IS FOR A LONGER PERIOD NOT PERTAINING TO A SINGLE YEAR WHEN IT WAS INCURRED FO R. IN OTHER WORDS, THE BENEFIT OF R&D IS NOT FOR RUNNING BUSINESS, BUT FOR SECURING ADVANTAGE IN THE CAPITAL FIELD AND IT WAS NOT ESTABLISHED BY THE ASSESSEE THAT IT WAS INCURRED OUT OF CIRCULATING CAPITAL. IN THESE CIRC UMSTANCES, WE ARE NOT IN A POSITION TO APPLY THE RATIO LAID DOWN BY THE HONBL E SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD. CITED SUPRA . FURTHER, THE ASSESSEE HAS ALSO NOT ESTABLISHED THAT THE EXPENDITURE WAS INCURRED T O FACE SEVERE COMPETITION SO AS TO CARRY OUT CONSTANT UPGRADATION . BEING SO, WE ARE NOT IN A POSITION TO CONSIDER THE RATIO LAID DOWN BY TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF TEJAS NETWORK INDIA (P) LTD. (SUPRA) . AS SUCH, BY NO STRETCH OF IMAGINATION, THE EXPENDITURE CAN B E TREATED AS INCURRED IN THE REVENUE FIELD. AS SEEN FROM THE FACTS OF THE C ASE AND FROM ACCOUNTING POLICIES FOLLOWED BY THE ASSESSEE, IT IS OBSERVED T HAT THE EXPENDITURE WAS INCURRED FOR CONDUCTING TECHNICAL FEASIBILITY REPOR T AND COMPLETING THE PROJECT AND THE PURPOSE OF INCURRING THE EXPENDITUR E IS TO SECURE COMMERCIAL ADVANTAGE TO THE COMPANY. 33. WE HAVE ALSO GONE THROUGH THE DIRECTORS REPORT SPECIFICALLY FOR THE YEAR ENDED 31 ST MARCH 2016 RELATING TO AY 2016-17 WHICH READS AS FOLLOWS:- 1) RESEARCH AND DEVELOPMENT: A) SPECIFIC AREAS IN WHICH R & D CARRIED OUT BY THE COMPANY. CONTINUOUS IMPROVEMENTS IN ALL FILTERS WITH THE TEC HNOLOGY FROM PARENT COMPANY AND ASSOCIATED COMPANIES; INSTALLATI ON OF STATE OF THE ART TECHNOLOGY IN-HOUSE R&D FOR CONTINUOUS IMPR OVEMENTS IN ITA NOS.1696 TO 1698/BANG/2019 PAGE 20 OF 24 EXISTING PRODUCTS AND DEVELOPMENT OF NEVI, PRODUCTS ; CONTINUOUS INVESTMENT PLANS ON I?&D AREAS. B) BENEFITS DERIVED AS A RESULT OF THE ABOVE R & D THE RESULTS ARE IN THE FARM OF INCREASE IN BUSINESS FROM THE EXISTING CUSTOMERS AND ADDITION OF NEW CUSTOMERS AN D REDUCTION IN REJECTION ON ACCOUNT OF QUALITY ISSUES. C) FUTURE PLAN OF ACTION THE COMPANY PLANS TO INVEST CONTINUOUSLY IN DEVELOP MENT OF NEW PRODUCTS WHICH ARE ENVIRONMENTAL FRIENDLY WITH THE HELP OF ITS GROUP SOGEFI WHO ARE PIONEERS IN AUTOMOTIVE FILTERS AND FILTER ASSEMBLIES. D) SPECIFIC EXPENDITURE ON R & I) REFER TO THE AU DITED FINANCIALS. 34. A READING OF THE ABOVE MAKES IT CLEAR THAT THE ASSESSEE HAS BEEN INCURRING THIS EXPENDITURE FOR IMPROVING EXISTING P RODUCTS AS WELL AS DEVELOPING OF NEW PRODUCTS, THEREBY EXISTING BUSINE SS FROM THE EXISTING CUSTOMERS HAS BEEN INCREASED AS WELL AS NEW ADDITIO NAL CUSTOMERS ADDED. IT HAS ALSO RESULTED IN REDUCTION IN REJECTION ON A CCOUNT OF QUALITY ISSUES. AS SUCH, IT CANNOT BE HELD AS EXPENDITURE INCURRED IN THE ORDINARY COURSE OF CARRYING DAY TO DAY BUSINESS OF ASSESSEE. ON THE O THER HAND, IT IS FOR DERIVING ENDURING BENEFIT IN THE LONG RUN BUSINESS PLAN. 35. THE OTHER CONTENTION OF THE LD. AR IS THAT TO M EET THE MATCHING PRINCIPLE, THE COMPANY HAS CAPITALIZED 70% OF R&D E XPENDITURE UNDER THE HEAD INTANGIBLE ASSETS AND BALANCE 30% HAS BEEN C LAIMED AS REVENUE EXPENSES BY CHARGING IT TO P&L ACCOUNT. HOWEVER, W E OBSERVE THAT 70% SHARES OF ASSESSEE COMPANY IS ACQUIRED BY M/S. FIL TRAUTO, SA OF FRANCE, AS SUCH THE ASSESSEE CHARGES ONLY 30% OF THIS EXPEN DITURE TO P&L ACCOUNT AND 70% OF R&D EXPENDITURE WAS CONSIDERED AS INTANG IBLE ASSETS BY ITA NOS.1696 TO 1698/BANG/2019 PAGE 21 OF 24 SHOWING IT IN THE BALANCE SHEET AND IT IS NOT BECAU SE OF MATCHING PRINCIPLE THE EXPENDITURE WAS BIFURCATED AS ABOVE. 36. BEING SO, WE HOLD THAT THE EXPENDITURE IS IN TH E CAPITAL FIELD AND TO BE CONSIDERED AS NOT ALLOWABLE. ON OTHER HAND, THE ASSESSEE IS ENTITLED ONLY FOR DEPRECIATION AT APPLICABLE RATE. THIS GRO UND OF ASSESSEE IS PARTLY ALLOWED FOR ALL THE ASSESSMENT YEARS I.E., AYS 2013 -14 TO 2016-17. 37. FOR AY 2012-13, THIS ISSUE WAS ALREADY CONSIDER ED BY THE TRIBUNAL VIDE ORDER DATED 22.12.2017. ACCORDINGLY THERE IS NO REQUIREMENT OF ADJUDICATION OF THIS GROUND AND THE APPEAL IS RECAL LED BY THE TRIBUNAL VIDE MP NO.36/BANG/2018 DATED 18.5.2018 ONLY TO DECIDE T HE ISSUE ON PRINCIPLE OF CONSISTENCY. ACCORDINGLY, NOW WE WILL DEAL WITH REGARD TO GROUND NO.2 ON ALLOWABILITY OF EXPENDITURE ON THE PRINCIPLES OF CONSISTENCY IN ALL THESE ASSESSMENT YEARS. 38. THE CONTENTION OF THE LD. AR IS THAT IN AYS 201 0-11 & 2011-12, THE AO HIMSELF HAS ALLOWED EXPENDITURE FOLLOWING THE PR INCIPLES OF CONSISTENCY, THIS EXPENDITURE TO BE ALLOWED IN ALL THESE ASSESSM ENT YEARS. FOR THIS PURPOSE HE RELIED ON THE JUDGMENT OF SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG (SUPRA). FIRST OF ALL, IT IS PERTINENT TO MENTION THAT AS HELD BY THE HONBLE SUPREME COURT, THIS DECISION IS CONFINED TO THE FACTS OF THAT CASE AND CANNOT BE TREATED AS AN AUTHORITY ON ASPECTS WHICH HAVE BEEN DECIDED FOR GENERAL APPLICATION. HENCE, THE A SSESSEE CANNOT TAKE SUPPORT OF THE DECISION IN THE CASE OF RADHASOAMI SATSANG (SUPRA) . FURTHER THE DECISION TAKEN BY THE AO IN ONE ASSESSM ENT YEAR DO NOT CONSTITUTE BINDING PRECEDENT IN ANY SUBSEQUENT ASSE SSMENT YEAR. AT THE SAME TIME, IF IT IS ONLY A CASE OF DIFFERENT OPINIO N BEING HELD ON THE SAME FACTS, MATERIAL AND ASPECTS ALREADY CONSIDERED, THE SUBSEQUENT AO SHOULD NOT PROCEED ON HIS OWN TO TAKE A CONTRARY DECISION AND INSTEAD, HE SHALL TAKE THE SAME DECISION. HOWEVER IT IS NEITHER REQU IRED NOR APPLICABLE AS A ITA NOS.1696 TO 1698/BANG/2019 PAGE 22 OF 24 RULE TO TAKE THE SAME DECISION WHEN THERE IS QUALIT ATIVE DIFFERENCE OF FACTS, EVENTS AND MATERIAL CONSIDERED BETWEEN THE EARLIER AO AND THE SUBSEQUENT AO. IN OTHER WORDS, THE SUBSEQUENT AO I S ENTITLED TO TAKE A DIFFERENT VIEW OF THE MATTER IF THERE IS AMPLE JUST IFICATION. THEREFOR, IF WHILE DECIDING THE ISSUE, IF THE FIRST AO DID NOT HAVE PA RTICULAR MATERIAL BEFORE HIM OR DID NOT TAKE INTO CONSIDERATION PARTICULAR FACTS AND IF THE SECOND AO IS SATISFIED THAT IF THIS MATERIAL FACTS HAD BEEN TAKE N INTO CONSIDERATION, DECISION OF THE FIRST AO WOULD HAVE BEEN DIFFERENT WHICH WOULD JUSTIFY THE SECOND AO IN NOT ADHERING TO THE DECISION OF THE FI RST AO. ON APPLYING THE SAID LEGAL PRINCIPLE TO THE FACTS OF THE PRESENT CA SE, IT WAS FOUND THAT THE FIRST AO IN EARLIER AYS 2010-11 & 2011-12 TAKEN A D ECISION IN A ROUTINE MANNER, WITHOUT GOING INTO THE FACTS OF THE CASE PR OPERLY, EXAMINING THE NATURE OF EXPENDITURE INCURRED BY ASSESSEE WITH REF ERENCE TO THE ACCOUNTING POLICIES DISCLOSED BY ASSESSEE AND IN A MECHANICAL MANNER HE HAS TAKEN THE DECISION, THOUGH IT WAS WRONG, IT WAS NOT SCRUTINIZED BY THE HIGHER FORUM. THE TRIBUNAL HAD NO OCCASION TO EXAM INE THE ISSUE BECAUSE IT REACHED FINALITY BY THE ORDER OF AO ONLY AND THE RE WAS NO FURTHER PROCEEDINGS EITHER BEFORE CIT, CIT(A) OR TRIBUNAL. 39. IN THE PRESENT CASES, THE ISSUE WAS DECIDED BY THE AO AGAINST THE ASSESSEE AFTER GOING THOROUGHLY WITH THE FACTS OF T HE CASE AND EXAMINING THE SAME WITH THE ACCOUNTING POLICIES FOLLOWED BY A SSESSEE AND HE DISALLOWED THE CLAIM BY TREATING THE R&D EXPENDITUR E AS A CAPITAL EXPENDITURE. IT HAS TRAVELLED TO CIT(APPEALS) AND HE HAS ALSO GIVEN A CONCRETE FINDING THAT IT IS CAPITAL EXPENDITURE. W E ARE ALSO AGREEING WITH THE SAME AFTER EXAMINING THE ISSUE IN THE LIGHT OF FACTS ENUMERATED BEFORE US. WE FIND THAT THERE IS CONSIDERABLE FORCE IN TH E REASONS GIVEN BY THE LOWER AUTHORITIES. IN OUR OPINION, GOING THROUGH T HE FACTS OF THE CASE, THE ENTIRE COMPLEXION OF THE CASE HAS BEEN CHANGED COMP ARED TO ASSESSEES CASE IN THE EARLIER AYS 2010-11 & 2011-12. BEING S O, THE LOWER AUTHORITIES ITA NOS.1696 TO 1698/BANG/2019 PAGE 23 OF 24 ARE ENTITLED TO TAKE A DIFFERENT VIEW WHEN ALTOGETH ER DIFFERENT CASE WAS PRESENTED BEFORE THEM. AT THIS STAGE, IT IS APPROP RIATE TO REFER TO THE CASELAWS WHEREIN IT IS HELD THAT BENCH CAN DRAW DIF FERENT CONCLUSION IF THERE IS ADEQUATE JUSTIFICATION TO DEPART FROM THE EARLIER VIEW I.E., WHERE SUBSEQUENTLY NEW OR MORE FACTS COME TO LIGHT [ RAJA BAHADUR VISHESHWARA SINGH V. CIT [1961] 41 ITR 685 (SC); CIT V. BRIJ LAL LOHIA MAHABIR PRASAD KHEMKA [1972] 84 ITR 273 (SC); NAMDANG TEA CO. LTD. V. CIT [1982] 138 ITR 326 (CAL); CIT V. MANAKLAL PORWAL [1986] 160 ITR 243 (RAJ.) ETC.] OR IF THE EARLIER BENCH OMITTED TO CON SIDER CERTAIN MATERIAL ASPECTS [ RAJA BAHADUR VISHESHWARA SINGH V. CIT [1961] (41 ITR 685 (SC); DWARKADAS KESARDEO MORARKA V. CIT [1962] 44 ITR 529 (SC); CIT V. MOHANLAL RANCHHODAS [1993] 203 ITR 304 (GUJ.); CIT V. KALPETTA ESTATES LTD. [1995] 211 ITR 635 (KER.). IN THE CASE OF CIT V. KALPETTA ESTATES LTD. (SUPRA), HON'BLE KERALA HIGH COURT HAVE FURTHER ST ATED THAT THE TRIBUNAL IS ENTITLED TO TAKE A DIFFERENT VIEW O F THE MATTER ON A CLOSER AND MORE INTELLIGENT ANALYSIS. 40. THUS, FROM THE JUDGMENTS ENUMERATED ABOVE, WE A RE OF THE OPINION THAT EARLIER DECISION OF THE AO CANNOT BIND THE TRI BUNAL SO AS TO FOLLOW THE SAME. AS SUCH, WE DO NOT FIND ANY MERIT IN THE ARG UMENT OF THE LD. AR THAT CONSISTENCY HAS TO BE FOLLOWED FROM YEAR TO YEAR, S INCE THE AO ALLOWED THE EXPENDITURE IN AYS 2010-11 & 2011-12. THIS GROUND IN ALL THE APPEALS IS DISMISSED. 41. IN THE RESULT, ALL THE APPEALS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 15 TH DAY OF JULY, 2021. SD/- SD/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH JULY, 2021. / DESAI S MURTHY / ITA NOS.1696 TO 1698/BANG/2019 PAGE 24 OF 24 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.