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

ITA 4604/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4195 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 04-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NEELAM C JADHAV
• Keywords: Capital asset; Depreciation; Capital expenditure
• Section: 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI AMIT SHUKLA, JM AND SHRI RAJESH KUMAR, AM ./ I.T.A. NO 4604/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) DY. COMMISSIONER OF INCOME TAX- 8(2), ROOM NO. 209/216A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. / VS. M/S. PERFECT ENGINEERING PRODUCTS LTD. 31, GOLDEN BEACH, RUIA PARK, JUHU, MUMBAI-49. ./ ./PAN/GIR NO. AABCP 6180E ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAJESH OJHA / RESPONDENT BY : MS. NEELAM C. JADHAV / DATE OF HEARING : 12/01/2016 !'# / DATE OF PRONOUNCEMENT : 04/02/2016 $% / O R D E R PER RAJESH KUMAR, A. M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17-04-2014 OF COMMISSIONER OF INCOME TAX (APPEALS)-17, MUMBAI (HE REINAFTER CALLED AS THE CIT(A)) FOR ASSESSMENT YEAR 2010-11. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2 ITA NO. 4604/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. PERFECT ENGINEERING PRDOUCTS LTD. 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE CLAIM OF THE ASSESEE OF DEDUCTION U/S 35(1)(I) WITHOUT APPRECIATING THAT BY ITS VERY NATURE SUCH EXPENDITURE RESULTS IN ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE AND IS CAPITAL EXPENDITURE? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN UPHOLDING THE CLAIM OF THE ASSESEE OF DEDUCTION U/S 35(1)(I) WITHOUT APPRECIATING THAT THE ASSESSEE COMPANY ITSE LF HAD TREATED SIMILAR EXPENDITURE IN THE EARLIER YEARS AND CLAIMED DEPREC IATION THEREON? 2. THE COMMON ISSUE RAISED IN GROUND NO. 1 & 2 IS A GAINST THE UPHOLDING THE CLAIM OF THE ASSSESSEE U/S 35(1)(I) OF THE ACT BY IGNORING THE FACT THAT SAID EXPENDITURE WAS CAPITAL IN NATURE AND ALSO IGNORING THE FACT THAT IN THE EARLIER YEARS THE ASSESSEE HAD TREATED THE SIMILAR EXPENDITURE AS CAPITAL ASSET AND CLAIMED DEPRECIATION @ 25% THEREON. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE EFILED ITS RETURN OF INCOME ON 14.10.2010 DECLARING A LOSS OF RS.94,65,190/- WHILE COMPUTING THE LOSS U/S 115JB OF THE ACT AT RS.6,88, 45,389/-. THE ASSESEE COMPANY DURING THE YEAR INCURRED RS. 6,46,18,933/- WHICH WA S SHOWN UNDER THE HEAD INTANGIBLE ASSSETS I.E. DEVELOPMENT EXPENDITURE BUT WHILE COMPUTING THE TOTAL INCOME , THE SAME WAS CLAIMED AS DEDUCTION U/S 35(1)(I) OF THE ACT AS BEING R&D EXPENDITURE AND THUS WRITTEN OF FULLY DURING THE YE AR. 3 ITA NO. 4604/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. PERFECT ENGINEERING PRDOUCTS LTD. 3. THE AO DURING THE COURSE OF SCRUTINY PROCEEDING OBSERVED THAT THE ASSESSEE HAD CLAIMED RS.6,46,18,933/- AS RESEARCH AND DEVELO PMENT EXPENDITURE AND ASKED THE ASSESSEE TO JUSTIFY ITS CLAIM WHICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 15.11.12 STATING THAT THE EXPENDITURE WAS INCURRED IN CONNECTION WITH RESEARCH AND DEVELOPMENT AND THE SAME WAS RIGHTLY CLAIMED U/S 35(1)(I) OF THE ACT. IT WAS ALSO HOWEVER STATED THAT SIMILAR EXPENDITURE WHICH INCLU DED RAW MATERIAL, STORES, LABOUR, POWER & FUEL, PROCESSING CHARGES AND INTERE ST ETC WAS TREATED AS INTANGIBLE ASSET IN THE EARLIER YEAR DEPICTING THE SAME ON THE ASSETS SIDE OF THE BALANCE SHEET AND DEPRECIATION AT THE RATE OF 25% ACCORDINGLY IN THE THAT YEAR AND ALSO DURING THE YEAR IN RESPECT OF OPENING WDV. THE ASSESSEE SUBMI TTED THAT THESE EXPENSES WERE OF REVENUE IN NATURE AND WERE ALLOWABLE U/S 35(1)(I),35(1)(IV) AND 37(1) OF THE ACT NOTWITHSTANDING THE FACT THE SAME WERE CAPITALIZED IN THE EARLIER YEAR. THE LD. AO REJECTED THE CONTENTION OF THE ASSESSEE BY COMING T O THE CONCLUSION THAT THESE EXPENDITURE HAD RESULT IN ENDURING BENEFIT FOR LONG ER A PERIOD. THUS, THE BENEFIT OF THE SAID EXPENDITURE WOULD BE ACCRUING OVER AND ABO VE CURRENT YEAR AND THE CLAIM OF THE ASSESSEE WAS NOT TENABLE. THE LD. AO ALSO OB SERVED THAT IN THE EARLIER YEAR THE SIMILAR EXPENDITURE WAS CAPITALIZED AND DEPRECI ATION AT THE RATE OF 25% ON THE SAME BY REFERRING TO THE ASSESSMENT ORDER FOR THE AY 2009-10 IN WHICH THE W.D.V OF THE R&D EXPENDITURE WAS WORKED OUT AT RS.15,21,6 0,264/-. THE LD. AO TREATED THE R&D EXPENDITURE AS CAPITAL IN NATURE AND ALLOWE D THE DEPRECIATION AT THE RATE 4 ITA NO. 4604/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. PERFECT ENGINEERING PRDOUCTS LTD. OF 25% AND THE NET DISALLOWANCE MADE BY THE AO WORK ED OUT AT RS.4,84,64,199/- ACCORDINGLY. 4. THE LD. AR SUBMITTED BEFORE US THAT THE CASE OF THE ASSESSEE WAS COVERED BY THE ORDER OF THE TRIBUNAL IN ITS OWN CASE IN ITA NO . 33&36/MUM/2012 (A.Y.2007- 08 &2008-09) DATED 21-08-13 AND FURTHER ARGUED THAT IN VIEW OF THE SAID ORDER OF THE CO-ORDINATE BENCH, THE APPEAL OF THE REVENUE DE SERVED TO BE DISMISSED BY UPHOLDING THE ORDER OF THE CIT(A). THE LD. DR PER C ONTRA, WAS IN AGREEMENT WITH THE ARGUMENT OF THE LD. AR QUA THE ISSUE BEING COVE RED BY ABOVE ITA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM THE COPY OF THE JUDGMENT IN ITA NO. 33&36 /MUM/2012 (A.Y.2007-08 &2008-09) THAT THE SIMILAR ISSUE WAS DECIDED BY THE TRIBUNAL C BENCH MUMBAI IN FAVOUR OF THE ASSESEE WHEREIN IT HAS BEEN HELD T HAT EXPENDITURE INCURRED ON RESEARCH WAS ADMISSIBLE U/S 35(1)(I) OF THE ACT. THE RELEVANT PARA 6 IS REPRODUCED AS UNDER: IN VIEW OF THE FOREGOING, WE HAVE NO HESITATION IN DIRECTING THE A.O. TO ALLOW THE ASSESSEES CLAIM IN RESPECT OF THE SCIENTIFIC EXPENDITURE INCURRED ON RESEARCH EXPENSES FOR THE CURRENT YEAR/S U/S.35(1)(IV); THE ASSESSEE HAVING ITSELF CONSIDERED IT AS CAPITAL EXPENDITURE. CONSEQ UENTLY, NO 5 ITA NO. 4604/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. PERFECT ENGINEERING PRDOUCTS LTD. AMOUNT WOULD SURVIVE FOR BEING CARRIED OVER AS THE WDV OF THE RELEVANT BLOCK OF ASSETS U/S.43(6); THE ASSES EE HAVING ALREADY SECURED ALL DEDUCTION FOR THE IMMEDIATELY PRECEDING YEAR/S. THE DECISIONS OF THE TRIBUNAL ARE BASED THE MATERIAL ON RECORD AS ALSO, IN NO LESS MEASURE, ON THE ARGUMENTS ADVANCED BEFORE IT. OUR ORDER BEING AT VA RIANCE WITH THAT FOR AY 2007-07, WE RESTRICT THE APPLICABI LITY 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 DEC IDE ACCORDINGLY. 6. WE FIND THAT THE FACTS OF THE ASSESSEE ARE FULLY COVERED BY THE DECISION OF THE TRIBUNAL AND WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH UPHOLD THE ORDER OF THE CIT(A) BY DISMISSING THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 4TH FEBRUA RY, 2016 SD/- SD/- (AMIT SHUKLA) (RAJESH KUMAR) &' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ( ) MUMBAI; *$ DATED :04.02.2016 PS. ASHWINI GAJAKOSH 6 ITA NO. 4604/MUM/2014 (A.Y. 2010-11) DCIT VS. M/S. PERFECT ENGINEERING PRDOUCTS LTD. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI.