Mahle Behr India Private Limited, Pune V. Deputy Commissioner of Income tax,

ITA 2935/PUN/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5847 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJEEV GHEI
• Assessee Lawyers: R D ONKAR
• Keywords: Capital asset; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUN E . , , ! , ' # BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AW ASTHY, JM . / ITA NO. 2935/PUN/2016 '% & '& / ASSESSMENT YEAR : 2004-05 MAHLE BEHR INDIA PRIVATE LIMITED. GAT NO.626/1/2 & 622/1/0, 29, MILESTONE, PUNE-NASHIK HIGHWAY, VILLAGE : KURULI, TALUKA : KHED PUNE-410 501 PAN : AABCB2186L .... / APPELLANT (% / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CICLE-8, PUNE. / RESPONDENT ASSESSEE BY : SHRI R.D. ONKAR REVENUE BY : SHRI SANJEEV GHEI / DATE OF HEARING : 30.01.2019 / DATE OF PRONOUNCEMENT : 30.01.2019 ) / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORD ER OF COMMISSIONER OF INCOME TAX (APPEALS)-6, PUNE DATED 02.09.20 16 FOR THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 2 ITA NO. 2935/PUN/2016 A.Y.2004-05 BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 6, PUNE ( CITA) IN THE SECOND ROUND OF APPEAL, YOUR APPELLANT MAHLE BEHR INDIA PRIVATE LIMITED (FO RMERLY NAMED BEHR INDIA LIMITED) SUBMITS FOLLOWING GROUNDS OF AP PEAL FOR YOUR DUE AND SYMPATHETIC CONSIDERATION 1. THE LEARNED CIT A ERRED IN CONFIRMING THE DISALLOWA NCE OF THE AMOUNT OF IRRECOVERABLE TRADE ADVANCE ACTUALLY WRIT TEN OFF RS. 13,95,263/- WHICH WAS PAID FOR IMPROVEMENT TO THE S UPPLIER OF BLOWER MOTOR BEING ONE OF THE COMPONENTS USED AND A SSEMBLED IN THE AUTOMOTIVE AIR CONDITIONERS MANUFACTURED AND SU PPLIED BY THE APPELLANT IN ITS ORDINARY COURSE OF CONDUCT OF BUSI NESS. 2. THE LEARNED CITA FAILED TO APPRECIATE THAT THE WRIT E OFF OF SAID TRADE ADVANCE WAS BUSINESS LOSS ALLOWABLE UNDER SEC TION 28/37 OF THE INCOME TAX ACT, 1961. 3. THE LEARNED CITA ERRED IN DRAWING AN INCORRECT INFE RENCE THAT THE SAID ADVANCE GIVEN BY THE APPELLANT WAS IN CONNECTI ON WITH DEVELOPMENT OF A NEW PRODUCT UNDER A NEW PROJECT AN D THEREFORE THE EXPENDITURE/LOSS CLAIMED BY THE APPELLANT WAS I N THE CAPITAL FIELD. THE LEARNED CITA ERRED IN NOT FOLLOWING THE DIRECTIONS GIVEN BY THE HONOURABLE TRIBUNAL IN THE APPELLANT'S CASE IN THE FIRST ROUND OF APPEAL IN THIS REGARD. IT IS PRAYED THAT THE DISALLOWANCE OF SAID BUSINESS LOSS BE DELETED. 4. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF APPEAL. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF AUTOMOTIVE AIR CONDITIONERS SYSTEMS, PARTS THEREOF, HEAT EXCHANGERS & VENTILATION UNITS FOR PASSENGER CARS. THE AS SESSEE FILED ITS RETURN OF INCOME ON 29.10.2004 DECLARING NIL INCOME AFTER SET TING OFF OF BROUGHT FORWARD LOSSES. IN THE ASSESSMENT PROCEEDINGS U /S.143(3) R.W.S.254 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRE D TO AS THE ACT), THE ASSESSING OFFICER COMPLETED ASSESSMENT DETERMINING TOT AL INCOME AT RS.14,55,83,013/- UNDER NORMAL PROVISIONS WHICH IS HIGHER THA N THAT OF THE BOOK PROFIT UNDER MAT PROVISION. IN THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE GIVING APPEAL EFFECT IN THE ORDER AGAIN ADDED SUM OF RS.13,95,263/- ON ACCOUNT OF PRODUCT DEVELOPMENT EXPENSE S BY HOLDING THAT THE SAME FALLS WITHIN THE SCOPE OF CAPITAL NATURE. 3 ITA NO. 2935/PUN/2016 A.Y.2004-05 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE CIT(APPEALS) CONFIRMED THE SAME. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE NARRATED THE FACTS STATING THAT THE ASSESSEE PAID SUM OF RS.13,95,263/- TO M/S. IFB INDUSTRIES LTD. TOWARDS DEVELOPMENT COST FOR BLOWER MOTOR WHICH IS REQUIRED AS SP ARE PARTS FOR MANUFACTURING IN THE AUTOMOTIVE AIR CONDITIONERS. THE SA ID PARTY NEITHER FAILED TO DELIVER THE SAID GOODS AND FAILED TO RETURN THE TRADE ADVANCE TO THE ASSESSEE. THE SAID PAYMENT WAS MADE IN THE EARLIER ASSESSMENT YEAR. CONSIDERING THE SAID FACTS, ASSESSEE DE CIDED TO WRITE OFF OF HIS TRADE ADVANCE AND CLAIMED THE SAME AS ALLOWABLE EXP ENDITURE UNDER THE HEAD PRODUCT DEVELOPMENT EXPENSES. HOWEVER, THE ASSESSING OFFICER DID NOT ALLOW THE CLAIM HOLDING THAT IT IS CAPITAL IN NATURE. THE CIT(APPEALS) CONFIRMED THE SAME BY HOLDING THAT DEVELOPMENT OF SPARE PARTS CONSTITUTES DEVELOPING THE ASSET OF ENDURING NATURE. 5.1 FURTHER, LD. COUNSEL OF THE ASSESSEE FILED WRITTEN ARGUM ENTS. FOR THE SAKE OF COMPLETENESS, THE WRITTEN ARGUMENTS FILED BY THE A SSESSEE ARE EXTRACTED HEREIN BELOW: 1.THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUF ACTURE AND SALE OF AIR CONDITIONERS , HEAT EXCHANGERS AND PARTS THEREOF IN THE AUTOMOTIVE SEGMENT AND COMMENCED ITS BUSINESS IN TH E PREVIOUS YEAR RELEVANT TO A.Y. 1999-2000. 2. IN THE FIRST ROUND OF APPEAL HONOURABLE TRIBUNAL RESTORED THE ISSUE TO THE AO TO EXAMINE IT IN THE LIGHT OF THE DIRECTI ONS GIVEN. (KINDLY REFER PARA 6.3 , 6.6 TO 6.9 PAGES 23 , 24 TO 26 OF THE ORDER). 3. THE APPELLANT HAD GIVEN TRADE ADVANCE IN THE ORD INARY COURSE OF CONDUCT OF ITS BUSINESS TO MODIFY AND SUPPLY A COMP ONENT VIZ. BLOWER MOTOR WHICH IS FITTED IN THE AIR CONDITIONERS MANUF ACTURED AND SOLD. 4. THE SAID ADVANCE WAS GIVEN TO ONE OF THE REGULAR VENDORS IFB INDUSTRIES. THE SAID VENDOR FAILED TO BRING IN MODI FICATIONS AND SUPPLY THE SAID COMPONENT WITHIN REASONABLE TIME PERIOD AN D THE SAID ADVANCE BECAME IRRECOVERABLE. THE APPELLANT THEREFO RE WROTE OFF THE SAID TRADE ADVANCE UNDER THE HEAD PRODUCT DEVELOPME NT EXPENSES IN ITS BOOKS OF ACCOUNT. 4 ITA NO. 2935/PUN/2016 A.Y.2004-05 5. THE LEARNED AO AND THE CITA HAVE DRAWN INCORRECT INFERENCE THAT THE SAID AMOUNT IS CAPITAL EXPENDITURE INCURRED UND ER NEW PROJECT AND WRITE OFF OF SUCH AMOUNT IS CAPITAL LOSS. 6. IT IS SUBMITTED THAT THE APPELLANT HAD GIVEN THE SAID TRADE ADVANCE FOR BRINGING IN MODIFICATIONS IN THE COMPONENT REGU LARLY PURCHASED BY IT AND FITTED M THE FINISHED PRODUCT MANUFACTURED B Y IT VIZ. AIR CONDITIONERS. THE SAID COMPONENT IS AKIN TO RAW MAT ERIAL USED IN THE MANUFACTURE OF FINISHED PRODUCT. THE SAID ADVANCE W AS THEREFORE NOT GIVEN FOR PROCURING CAPITAL ASSET. THE SAID ADVANCE WAS GIVEN IN THE ORDINARY COURSE OF CONDUCT OF BUSINESS AND ON THE F AILURE OF THE VENDOR TO BRING IN DESIRED MODIFICATIONS AND SUPPLY THE CO MPONENT WITHIN REASONABLE TIME THE APPELLANT HAS WRITTEN OFF THE S AID AMOUNT PAID AS IRRECOVERABLE. 7. THE NON RECOVERY OF THE TRADE ADVANCE AMOUNTED T O BUSINESS LOSS ALLOWABLE U/S. 28/ 37 OF THE INCOME TAX ACT. RELIANCE IS PLACED ON THE DECISIONS OF HON'BLE DELHI HIGH COURT IN MOHAN MEAK INS LTD. REPORTED IN 348 ITR 109 ( COPY PLACED) AND HON'BLE SUPREME C OURT IN THE CASE OF MYSORE SUGAR CO. LTD. 46 ITR 649. 6. AGGRIEVED WITH THE ORDER OF THE LD. CIT(APPEALS), THE AS SESSEE FILED APPEAL BEFORE US BY RAISING THE GROUNDS AS EXTRACTED ABOVE. 7. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE FIND THAT THERE IS NO DISPUTE ABOUT REQUIREMENT OF THE SAID BLOWER MOTOR OF SPA RE PARTS FOR MANUFACTURING OF THE AIR-CONDITIONERS. BUSINESS MODEL OF THE ASSESSEE INVOLVES THE OUTSOURCING OF THE SPARE PARTS. IT IS UNDISPU TED FACT THAT THE PAYMENTS MADE BY THE ASSESSEE ARE GENUINE. FURTHER, T HERE IS NO DISPUTE ABOUT THE RETURN OF THE SAME BY THE M/S. IFB INDUSTR IES LIMITED TO THE ASSESSEE. THE ONLY LIMITED ISSUE FOR OUR ADJUDICATION, IF THE SAID ADVANCES PAID TOWARDS DEVELOPMENT COST TO BOWLER MOTOR, CONSTITU TES CAPITAL IN NATURE OR NOT. ON HEARING BOTH THE PARTIES AND FURTHER RELYING ON THE CITED DECISION IN THE CASE OF MOHAN MEAKINS LTD. REPORTED AS 3 48 ITR 109 AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MYSORE SUGAR CO. LTD. REPORTED 46 ITR 649, WE FIND THAT IT IS DECIDED ISSUE THAT THE SUCH WRITE OFF OF SAID TRADE ADVANCE WAS BUSINESS LOSS AND ALLOWA BLE EXPENDITURE. IN THE PRESENT CASE, WE FIND THAT THE ADVAN CES ARE 5 ITA NO. 2935/PUN/2016 A.Y.2004-05 UNDISPUTEDLY GIVEN FOR MANUFACTURING BOWLER MOTOR AND THE SUPPLIER NEITHER DELIVERED THE SAID GOODS NOR RETURNED THE ADVAN CE TO THE ASSESSEE. HENCE, IN OUR VIEW, IT FALLS WITH THE SCOPE OF TRADE ADVANCE . ACCORDINGLY, WE ARE OF THE CONSIDERED VIEW THAT THE CLAIM OF THE ASSESSEE IS ALLOWABLE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 30TH DAY OF JANUARY, 2019. SD/- SD/- ( ! /VIKAS AWASTHY) ( . / D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; !' / DATED : 30 TH JANUARY, 2019 SB ) * +',- . ', / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT (APPEALS)-6, PUNE. 4. THE PR. CIT-5, PUNE. 5. %&' () , * () , +,- , / DR, ITAT, A BENCH, PUNE. 6. './ 01 / GUARD FILE. // TRUE COPY // * 2 / BY ORDER, 3 (- /PRIVATE SECRETARY * () , / ITAT, PUNE.