M/s. Rapsri Engineering Industries Ltd., Ramanagar V. Assistant Commissioner of Income-Tax, Bangalore

ITA 2322/BANG/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4791 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 28-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B K GURUNATHAN
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B ENGALURU BEFORE S HRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I TA NO S . 2321 & 2322 / BANG/2 0 1 6 (ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 ) M/S.RAPS R I ENGINEERING INDUSTRIE S LTD. PLOT NO.31, 8F, SY.NO.170 PART, KIADB INDUSTRIAL AREA, HAROHALLI II PHASE, KANAKAPURA TALUK, RAMANAGAR DIST.562112 PAN:AAA VR 8612 G VS. APPELLANT ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 5(1)(1) BENGALURU. RESPONDENT APPE LLANT BY : SHRI B.K.GURUNATHAN, ADVOCATE. RESPONDENT BY : SHRI AJIT KUMAR, CIT (DR) DATE OF HEARING : 14 /03/2018 DATE OF PRONOUNCEMENT : 31 /05/2018 O R D E R PER I NTURI RAMA RAO, AM : TH ESE ARE APPEALS FILED BY THE ASSESSEE DIRECTED AGAINST DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 6, BENGALURU [CIT(A)] DATED 06/09/2016 FOR THE ASSESSMENT YEAR 2011 - 12 AND 01/09/2016 FOR THE ASSESSMENT YEAR 2012 - 13. SINCE COMMON ISSUE IS INVOLVED IN BOTH THE APPEALS, WE PROCEED TO DISPOSE OF THE SAME BY THIS COMMON ORDER. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL: ITA NO S . 2321 & 2322 /BANG/20 16 PAGE 2 OF 4 3. BRIEFLY, FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956. THE RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2012 - 13 WAS FILED ON 01/10/2012 DECLARING TOTAL INCOME OF RS.2,52,42,800/ - . AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER (AO) AT TOTAL INCOME OF RS.3,21,28,406/ - . WHILE DOING SO , THE AO DENIED THE CLAIM ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENDITURE OF RS.1,75,96,643/ - . ACCORDING TO THE AO , THE EXPENDITURE IS NOT REVENUE IN NATURE AS THIS EXPENDITURE IS INCURRED TO DEVELOP A NEW PRODUCT. THE EXPENDITURE IS OF ENDURING BENEFIT AND THERE FORE EXPENDITURE IS CAPITAL IN NATURE. HOWEVER, THE AO TREATED 25% OF THE EXPENDITURE AS R & D ITA NO S . 2321 & 2322 /BANG/20 16 PAGE 3 OF 4 EXPENDITURE AND ALLOWED THE SAME AND THE BALANCE IS TREATED A S CAPITAL AS IT RESULTED IN CREATION OF INTELLECTUAL PROPERTY AND ALLOWED DEPRECIATION AT 25% . 4. ON APPEAL BEFORE THE LD.CIT(A) THE SAME WAS CONFIRMED BY VIDE IMPUGNED OR BY HOLDING AS UNDER: 5. B EING AGGRIEVED BY THIS ORDER , THE ASSESSEE IS BEFORE US . 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. A N IDENTICAL ISSUE HAD COME UP BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEAR S 2009 - 10 AND 2011 - 12 IN THE ASSESSEE S OWN CASE IN ITA NOS. 1656 AND 1657 /BANG/2014 WHEREIN IT WAS HELD AS FOLLOWS : 4. W E HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PER THE ABOVE DISCUSSION, IT COMES OUT THAT EVEN AFTER REVERSAL OF THIS JUDGMENT OF HON BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF TAPARIA TOOLS LTD. VS . JCIT (SUPRA) BY HON BLE 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 INDIA LTD. VS. ACIT (SUPRA) ALSO, THE ASSESSEE HAS TO ESTABLISH THAT THE IMPUGNED EXPENDITURE IS REVENUE EXPENDITURE AND NOT CAPITAL EXPENDITURE BY ESTABLISHING T HAT 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 FINDING OF ANY OF THE LOWER AUTHORITIES ON THIS ASPECT AND THEREFORE, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR A FRESH DECISION AND THE ASSESSEE 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 ORDER RENDERED IN THE CASE OF DCIT VS. METALMAN AUTO (P) LTD. (SUPRA), WE FIND THAT THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE IN THAT CASE, THE DISPUTE WAS ABOUT RESEARCH & DEVELOPMENT EXPENSES. IN FACT AS PER LAST FEW LINES OF PARA 10 OF THAT JUDGMENT IT WAS HELD THAT IF THE EXPENDITURE IS INCURRED TO IMPROVE AN EXISTING PRODUCT, IT IS REVENUE EXPENDITURE BUT IF IT IS FOR DEVELOPMENT OF A NEW PRODUCT, ITA NO S . 2321 & 2322 /BANG/20 16 PAGE 4 OF 4 IT IS CAPITAL EXPENDITURE. HENCE, WE FEEL IT PROPER TO RESTORE THE MATTER B ACK 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 EXPENS ES IS NOT OF CAPITAL NATURE. NEEDLESS TO SAY, ADEQUATE OPPORTUNITY OF BEING HEARD SHOULD BE PROVIDED TO BOTH SIDES. R ESPECTFULLY FOLLOWING THE DECISION , WE REMIT THIS ISSUE BACK TO THE AO TO EXAMINE TH E ISSUE AS TO WHETHER THE EXPENDITURE HAS RESULTED IN CREATION OF CAPITAL EXPENDITURE OR NOT I N THE LIGHT OF THE DIRECTION GIVEN BY THIS TRIBUNAL FOR EARLIER YEAR. 7. I N THE RESULT THE APPEAL FILED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY , 2018 SD/ - SD/ - ( SUNIL KUMAR YADAV ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : BENGALURU. D A T E D : 31 / 0 5 /201 8 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE