M/s. Force Motors Lts., Pune V. Deputy Commissioner of Income-tax, Circle -8, Pune

ITA 340/PUN/2021

AI Insights

The case involves Force Motors Limited, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, concerning the assessment year 2007-08. The primary issue was the disallowance of expenditure claimed under section 35(1)(i) of the Income Tax Act, 1961, which pertained to a loss on de-recognition of intangible assets amounting to Rs.4,54,30,719. This expenditure was initially capitalized as an intangible asset under research and design for the development of Heavy Commercial Vehicles. The project was later transferred to MAN Force Trucks Pvt. Ltd., leading to the de-recognition of the intangible asset. The Tribunal noted that the lower authorities did not adequately examine whether the expenditure qualified for deduction under section 35(2) as capital expenditure on scientific research related to the business.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132829 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 03-01-2023
• Assessment Year: 2007-2008
• Appeal Filed On: 24-08-2021
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure

Judgement Text

आयकर अपीलीय अधिकरण “ए” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आयकर अपील सं. / ITA No.340/PUN/2021 धििाारण वर्ा / Assessment Year : 2007-08 Force Motors Limited, Mumbai-Pune Road, Akurdi, Pune-411035 PAN : AAACB7066L .......अपीलार्थी / Appellant बिाम / V/s. Deputy Commissioner of Income Tax, Circle – 8, Pune ......प्रत्यर्थी / Respondent Assessee by : Shri Kishor B. Phadke Revenue by : Shri Ramnath P. Murkunde सुनवाई की तारीख / Date of Hearing : 04-01-2023 घोषणा की तारीख / Date of Pronouncement : 09-01-2023 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : This appeal by the assessee against the order dated 06-07-2021 passed by the National Faceless Appeal Centre (“NFAC”), Delhi for assessment year 2007-08. 2. The assessee raised ground Nos. (1) (a) to (e) amongst which the only issue emanates for our consideration is as to whether the CIT(A), NFAC, Delhi justified in confirming the disallowance of expenditure u/s. 35(1)(i) of the Act. 2 ITA No.340/PUN/2021, A.Y. 2007-08 3. We note that the assessee is a company, conducts its business under the name and style as “M/s. Force Motors Limited”. The assessee is engaged in manufacturing and sale of vehicles. The AO under giving effect proceedings in pursuance of 263 directions noticed that the assessee has debited an amount of Rs.4,54,30,719/- on account of loss on de- recognition of intangible assets. It was explained during the year under consideration, the assessee has undertaken the development of Heavy Commercial Vehicle, and incurred expenditure of Rs.4,54,30,719/- towards research and design. The said expenditure was recognized as intangible asset and capitalized in the books of the assessee under research and design. Later on, the assessee transferred the said project to MAN Force Trucks Pvt. Ltd. w.e.f. 01-07-2006 and debited to profit and loss account on account of loss on de-recognition of intangible assets. We note that admittedly, no evidences were produced before both the authorities below that the assessee enjoyed enduring benefit resulting out of such capital expenditure nor any economic benefit in future on account of this intangible asset. It was argued by the ld. AR before us and also before both the authorities below that the assessee is eligible to claim the said expenditure as capital expenditure u/s. 35(2) of the Act. We note that both the authorities below did not examine whether such deduction is allowable in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee. Admittedly, the assessee contended that the expenditure was incurred on account of R & D in development of Heavy Commercial Vehicles and undertook a project to manufacture Heavy Commercial Vehicles in technical collaboration with MAN Nutzfahrzeuge AG, Germany. It is also not disputed that the expenditure incurred on R & D of Commercial Vehicles project was transferred to its subsidiary. We note that as contended by the ld. AR alternatively the assessee is entitled to get deduction u/s. 35(2) of the Act as the said expenditure is in the nature of capital expenditure. As 3 ITA No.340/PUN/2021, A.Y. 2007-08 discussed above, the AO and CIT(A) did not examine whether such expenditure lead out or expanded on scientific research relating to assessee’s business or not. On perusal of impugned order, we note that no details were submitted by the assessee in this regard which is evident from paras 1, 2 and 4 of the impugned order. Therefore, taking into consideration the facts and circumstances of the case in view of the alternative arguments raised in terms of entitlement of deduction u/s. 35(1)(ii) of the Act, we deem it proper to remand the issue to the file of AO for its fresh consideration in above mentioned terms. The assessee is liberty to filed evidences, if any, in this regard. Thus, the grounds raised by the assessee are allowed for statistical purposes. 4. In the result, the appeal of assessee is allowed for statistical purposes. Order pronounced in the open court on 09 th January, 2023. Sd/- Sd/- (Inturi Rama Rao) (S.S. Viswanethra Ravi) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 09 th January, 2023. रदव आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A), NFAC, Delhi. 4. The CIT concerned. 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, “ए” बेंच, पुणे / DR, ITAT, “A” Bench, Pune. 6. गार्ड फ़ाइल / Guard File. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER, वररष्ठ दनजी सदचव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune