PERFECT ENGINEERING PRODUCTS LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 36/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4127 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 03-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PARAS S SAVLA; D K SHIVARAM
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI , ! ! ! ! '! !, $ BEFORE SHRI SANJAY ARORA, A. M. AND SHRI VIJAY PAL RAO, J. M. ./ I.T.A. NOS. 33 & 36/MUM/2012 ( ' ( !)( ' ( !)( ' ( !)( ' ( !)( / / / / ASSESSMENT YEAR: 2007-08 & 2008-09) PERFECT ENGINEERING PRODUCTS LTD. 31, GOLDEN BEACH, RUIA PARK, JUHU, VILE-PARLE, MUMBAI-400 049 ' ' ' ' / VS. DY. CIT-8(2), ROOM NO.209, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 * ./ + ./ PAN/GIR NO. AABCP 6180 E ( *, / APPELLANT ) : ( -.*, / RESPONDENT ) *, / / APPELLANT BY : SHRI D. K. SHIVARAM & SHRI PARAS S. SAVLA -.*, 0 / / RESPONDENT BY : SHRI SANTOSH KUMAR '! 0 12 / // / DATE OF HEARING : 02.07.2013 3) 0 12 / DATE OF PRONOUNCEMENT : 31.07.2013 4 / O R D E R PER SANJAY ARORA, A. M.: THESE ARE A SET OF TWO APPEALS BY THE ASSESSEE, I.E ., IN RESPECT OF TWO CONSECUTIVE ASSESSMENT YEARS, BEING (AYS) 2007-08 & 2008-09, AG ITATING THE ORDERS BY THE FIRST APPELLATE AUTHORITY DATED 24.06.2011 AND 20.10.2011 RESPECTIVELY FOR THE SAID TWO YEARS, DISPOSING THE ASSESSEES APPEALS CONTESTING ITS ASS ESSMENTS U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE SAID YEAR S. 2 ITA NOS. 33 & 36/MUM/2012 (A.Y. 07-08 & 08-09) PERFECT ENGINEERING PRODUCTS LTD. VS. DY. CIT 2.1 AT THE VERY OUTSET, IT WAS OBSERVED THAT THE AS SESSEES APPEAL FOR A.Y. 2007-08 IS DELAYED BY A PERIOD OF 112 DAYS; HAVING BEEN FILED ON 03.01.2012 , WHILE THE DATE OF COMMUNICATION OF THE ORDER APPEALED AGAINST IS 15.0 7.2011. THE CONDONATION PETITION IS ON RECORD, WHICH IS ACCOMPANIED BY SEPARATE AFFIDAV ITS BY THE MANAGING DIRECTOR, SHRI AMBRISH VIJAY SHAH; SHRI R.A. JAGTAP, THE INSTRUCTI NG CHARTERED ACCOUNTANT, AND SHRI MITHILESHKUMAR RAJDEV SINGH, AN EMPLOYEE OF THE SAI D TAX CONSULTANT, TO THE SAME EFFECT, STATE THAT THE IMPUGNED ORDER, ON BEING RECEIVED WA S DULY FORWARDED TO THE COUNSEL, WHO PREPARED THE APPEAL IN TIME, WHICH WAS SENT FOR THE SIGNATURE OF THE APPEAL PAPERS AND DEPOSIT OF THE APPEAL FEES TO THE ASSESSEE-COMPANY. ACCORDINGLY, THE APPEAL FEE WAS DEPOSITED ON 25.07.2011 AND THE APPEAL MEMO CONSEQUENTLY SIGNED BY THE MD ON 27.07.2011. FURTHER, DUE TO OVERSIGHT BY THE CONCER NED STAFF, SHRI MITHILESHKUMAR RAJDEV SINGH, THE PAPERS COULD NOT BE TRACED, AND WERE LOC ATED SUBSEQUENTLY, RESULTING IN THE DELAY. THE LD. AR WOULD ALSO BRING TO OUR NOTICE AN ORDER BY THE TRIBUNAL IN THE CASE OF KARLA ENGINE VS. DY. CIT (IN ITA NO. 32 & 3460/MUM/2012 DATED 21.06.2013 ), WHEREIN SIMILAR DELAY IN IDENTICAL CIRCUMSTANCES HAD OCCURR ED, WITH EVEN THE DATES OF THE RECEIPT OF THE ORDER; THE PAYMENT OF THE APPEAL FEES, AS WE LL AS THE PERSONS INVOLVED, BEING THE SAME. THE SAME FOUND ACCEPTANCE BY THE TRIBUNAL, CO NSIDERING IT TO BE A SUFFICIENT CAUSE. THE LD. DR, ON THE OTHER HAND, WOULD STATE THAT IT IS A CLEAR CASE OF LATCHES ON THE PART OF THE ASSESSEE AND, FURTHER, THE MATTER BEING FACTUAL , NO SUPPORT FROM THE DECISION IN ANOTHER CASE COULD BE DRAWN. 2.2 AFTER HEARING THE PARTIES, THE BENCH WAS OF THE VIEW THAT THE DELAY UNDER THE CIRCUMSTANCES HAD OCCURRED ON ACCOUNT OF NEGLIGENCE AT THE END OF THE COUNSEL, FOR WHICH THE ASSESSEE, WHO HAD DULY SIGNED THE PAPERS IN TIM E, ALSO DEPOSITING THE APPEAL FEES, CANNOT BE MADE TO SUFFER. IN THIS VIEW OF THE MATTE R, THE DELAY STOOD CONDONED, AND THE HEARING IN THE MATTER PROCEEDED WITH, ADMITTING THE APPEAL. 3. THE ISSUE ARISING IN BOTH THE APPEALS BEING COMM ON, THE SAME WERE TAKEN UP TOGETHER FOR HEARING, AND ARE BEING DISPOSED OF VID E A COMMON, CONSOLIDATED ORDER. FOR 3 ITA NOS. 33 & 36/MUM/2012 (A.Y. 07-08 & 08-09) PERFECT ENGINEERING PRODUCTS LTD. VS. DY. CIT THE SAKE OF CONVENIENCE, THE REFERENCE TO THE FACTS /FIGURES WOULD BE FOR THAT A.Y. 2007- 08, THE FIRST OF THE TWO YEARS. 4.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF THE ASSESSEE, IT WAS SUBMITTED BY THE LD. AR, ITS COUNSEL, THAT THE ONLY ISSUE UNDER APP EAL RELATES TO THE DISALLOWANCE OF EXPENDITURE ON RESEARCH AND DEVELOPMENT INCURRED IN THE SUM OF RS.570.95 LACS. THE ASSESSEE INCURRED THE SAID EXPENDITURE IN THE SUM O F RS.898.37 LACS, CLAIMING 100% DEPRECATION THEREON. THE A.O. WAS, HOWEVER, OF THE VIEW THAT THE SAME RESULTED IN AN INTANGIBLE ASSET, WHICH QUALIFIES FOR DEPRECATION @ 25% U/S.32 OF THE ACT. THE ASSESSEES CONTENTION OF THE SAID EXPENDITURE BEING ALLOWABLE IN FULL U/S. 35(1)(IV), I.E., WHERE REGARDED AS CAPITAL EXPENDITURE, OR IN THE ALTERNAT IVE AS A REVENUE EXPENDITURE U/S.35(1)(I) OR 37(1), WAS FOUND NOT ACCEPTABLE BY HIM. THE SAME FOUND CONFIRMATION IN APPEAL BY THE LD. CIT(A); HE HAVING UPHELD THE A.O.S VIEW FOR A. Y. 2006-07, WHEREIN AGAIN A SIMILAR TREATMENT WAS MADE BY THE A.O. THE CLAIM OF DEPRECI ATION WAS, ACCORDINGLY, WORKED OUT BY HIM AT RS.327.42 LACS, AS UNDER: PROJECT DEVELOPMENT AND RESEARCH EXPENSES (INTANGIB LES) W.D.V. AS ON 01.04.2006 4,11,31,211 ADDITIONS DURING THE YEAR 8,98,36,842 13,09,68,053 LESS: DEPRECIATION @ 25% 3,27,42,012 W.D.V. AS ON 31.03.2007 9,82,26,041 THE MATTER FOR A.Y. 2006-07 HAS SINCE BEEN RESOLVED , AT LEAST UP TO THE STAGE OF THE TRIBUNAL, WITH IT HOLDING THE SAID EXPENDITURE TO B E REVENUE EXPENDITURE, ALLOWABLE IN FULL U/S.37(1) OF THE ACT. HE WOULD THEN ADVERT TO THE R ELEVANT PARTS OF THE SAID ORDER, PLACING A COPY OF THE SAME ON RECORD (IN ITA NO.5311/MUM/20 11 DATED 16.04.2013). IN THIS VIEW OF THE MATTER, THE APPEALS FOR TWO YEARS IN APPEAL MAY ALSO BE DECIDED LIKEWISE, I.E., ALLOWING THE ASSESSEES CLAIM IN FULL U/S. 37(1) OF THE ACT. 4.2 THE LD. DR, ON THE OTHER HAND, WOULD RELY ON TH E ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4 ITA NOS. 33 & 36/MUM/2012 (A.Y. 07-08 & 08-09) PERFECT ENGINEERING PRODUCTS LTD. VS. DY. CIT THE ASSESSEE HAS CLARIFIED OF THE RESEARCH AND DEVE LOPMENT EXPENDITURE AS BEING INCURRED ON THE RESEARCH AND DEVELOPMENT OF A NEW P RODUCT, CAPITALIZING THE SAME IN ITS BOOKS OF ACCOUNT. THE SAME WOULD SIGNIFY OF IT BEIN G CAPITAL IN NATURE, EVEN AS CONSIDERED BY THE ASSESSEE AND, FURTHER, FOR ITS BU SINESS. IN FACT, WE OBSERVE NO DISPUTE IN THIS REGARD; THE REVENUE HAVING ITSELF ALLOWED DEPR ECIATION ON THE SAME. THE SAME WOULD THUS BE ELIGIBLE FOR DEDUCTION IN FULL U/S. 35(1)(I V), WHICH ALLOWS FOR THE SAME WHERE CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH IS INCUR RED IN RESPECT OF THE ASSESSEES BUSINESS. THIS IS AS THE TWIN CONDITIONS TO WHICH A CLAIM UND ER THE SAID PROVISION IS SUBJECT TO, I.E., AS SPECIFIED U/S. 35(2), STAND APPARENTLY FULFILLED ; THE EXPENDITURE BEING ADMITTEDLY INCURRED AFTER 31.03.1967 AND, TWO, DOES NOT INCLUD E ANY EXPENDITURE ON LAND, AS AGAIN EVIDENT FROM THE FACT OF ALLOWANCE OF DEPRECIATION THEREON. WE ARE, AS SUCH, UNABLE TO FATHOM THE DISPUTE OR THE CONTROVERSY ATTENDING THE INSTANT CASE, WHICH PERHAPS HAS ARISEN ON ACCOUNT OF THE ASSESSEES CLAIM OF THE SAID EXPE NDITURE, CONTRARY TO ITS OWN STAND, AS BEING OF REVENUE NATURE. THE SAME, HOWEVER, IT MAY BE NOTED, WHETHER CONSIDERED U/S. 35(1)(I) OR S. 37(1), STANDS MADE BY IT IN THE ALTE RNATIVE. THE REVENUES STAND THAT THE SAME RESULTS IN AN INT ANGIBLE ASSET IS AGAIN WITHOUT BASIS INASMUCH AS IT HAS BEEN NOT ABLE TO SPECIFY A S TO WHAT INTANGIBLE ASSET HAS RESULTED BY INCURRING THE IMPUGNED EXPENDITURE, AND FOR WHIC H A SPECIFIC QUERY WAS PUT TO THE LD. DR DURING HEARING, TO NO FIRM REPLY. FURTHER, EVEN ASSUMING IT HAS, FOR WHICH WE WOULD HAVE TO ASCERTAIN THE EXACT PURPOSE OF THE SAID EXP ENDITURE, AS WHERE IT HAS GIVEN RISE TO SOME PERCEPTIBLE BODY OF KNOWLEDGE, PATENT, PRODUCT PROTOTYPE, ETC., ERSTWHILE NOT AVAILABLE, THE SAID EXPENDITURE BEING ALLOWABLE UND ER A SPECIFIC PROVISION OF THE ACT, I.E., S. 35(1)(IV), THE SAME WOULD PREVAIL OVER THE GENER AL PROVISION OF S. 32(1), UNDER WHICH THE REVENUE ALLOWS DEPRECIATION THEREON. IN ANY CAS E, THE ELIGIBILITY TO DEPRECIATION WOULD NOT BE AN IMPEDIMENT IN ALLOWING THE ASSESSEE S CLAIM U/S. 35(1)(IV). ON THE CONTRARY, IT IS THE ASSESSEE WHO IS RESTRICTED IN S TAKING THE CLAIM FOR THE SAME EXPENDITURE UNDER MORE THAN ONE PROVISION, UNLESS WHERE EXPRESS LY ALLOWED BY THE STATUTE, AS EXPLAINED BY THE APEX COURT IN THE CASE OF ESCORTS LTD. V. UNION OF INDIA [1993] 199 ITR 43 (SC). 5 ITA NOS. 33 & 36/MUM/2012 (A.Y. 07-08 & 08-09) PERFECT ENGINEERING PRODUCTS LTD. VS. DY. CIT COMING TO THE ASSESSMENT FOR AY 2006-07, THE FACT T HAT THE TRIBUNAL ALLOWED THE ASSESSEES CLAIM U/S.37(1) WOULD, THEREFORE, ONLY I MPLY THAT THE SAID EXPENDITURE IS NOT QUA SCIENTIFIC EXPENDITURE, WHETHER IN THE REVENUE OR IN THE CAPITAL FIELD, AND WHICH IS ADMITTEDLY NOT THE CASE OF EITHER PARTY BEFORE US. THAT IS, THE EXPENDITURE BEING ADMITTEDLY ON SCIENTIFIC RESEARCH, THERE IS NO BASI S FOR NOT ALLOWING THE CLAIM U/S. 35(1), ONLY WHEREUPON, I.E., ON A FINDING OF IT NOT FALLIN G OR BEING COVERED U/S. 35, COULD THE SCOPE OF THE SAME FALLING U/S.37(1) BE CONSIDERED. FURTHER, BOTH THE PARTIES HAVE REGARDED THE SAME AS CAPITAL EXPENDITURE. WE, THEREFORE, NOT WITHSTANDING THE FACT THAT THE ASSESSEE STANDS ALLOWED DEDUCTION QUA THE SAID EXPENDITURE FOR THAT YEAR U/S. 37(1), CON SIDER IT AS NOT RELEVANT, INASMUCH WE FIND IT AS BEING RATHER C ONTRARY TO THE CASE OF EITHER PARTY. 6. IN VIEW OF THE FOREGOING, WE HAVE NO HESITATION IN DIRECTING THE A.O. TO ALLOW THE ASSESSEES CLAIM IN RESPECT OF THE SCIENTIFIC EXPEN DITURE INCURRED ON RESEARCH EXPENSES FOR THE CURRENT YEAR/S U/S.35(1)(IV); THE ASSESSEE HAVI NG ITSELF CONSIDERED IT AS CAPITAL EXPENDITURE. CONSEQUENTLY, NO AMOUNT WOULD SURVIVE FOR BEING CARRIED OVER AS THE WDV OF THE RELEVANT BLOCK OF ASSETS U/S. 43(6); THE A SSESSEE HAVING ALREADY SECURED FULL DEDUCTION FOR THE IMMEDIATELY PRECEDING YEAR/S. THE DECISIONS BY THE TRIBUNAL ARE BASED THE MATERIAL ON RECORD AS ALSO, IN NO LESS MEASURE, ON THE ARGUMENTS ADVANCED BEFORE IT. OUR ORDER BEING AT VARIANCE WITH THAT FOR AY 2006-0 7, WE RESTRICT THE APPLICABILITY OF THE SAME ONLY TO THE YEARS UNDER APPEAL, SO AS NOT TO P REJUDICE THE CASE OF EITHER PARTY FOR ANY OTHER YEAR. WE DECIDE ACCORDINGLY. 7. IN THE RESULT, THE ASSESSEES APPEALS FOR BOTH T HE YEARS ARE ALLOWED. 5 16 ' (51 0 !71 0 1 89 ORDER PRONOUNCED IN THE OPEN COURT ON JULY 31, 2013 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; :' DATED : 31.07.2013 6 ITA NOS. 33 & 36/MUM/2012 (A.Y. 07-08 & 08-09) PERFECT ENGINEERING PRODUCTS LTD. VS. DY. CIT !.'. ./ ROSHANI , SR. PS 4 0 -1' ;')1 4 0 -1' ;')1 4 0 -1' ;')1 4 0 -1' ;')1/ COPY OF THE ORDER FORWARDED TO : 1. *, / THE APPELLANT 2. -.*, / THE RESPONDENT 3. < ( ) / THE CIT(A) 4. < / CIT CONCERNED 5. '!?@ -1' , , / DR, ITAT, MUMBAI 6. @A( B / GUARD FILE 4' 4' 4' 4' / BY ORDER, C CC C/ // / 8 8 8 8 (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI