DCIT CIR. 2(1), MUMBAI V. M/s. TATA ENGINEERING & LOCOMOTIVE CO. LTD., MUMBAI

ITA 7441/MUM/2004

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0468 (ITAT-MUMBAI)
• Duration Of Justice: 13 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 1998-1999
• Appeal Filed On: 15-10-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH VYAS
• Assessee Lawyers: MANJUNATHA SWAMY
• Keywords: Revenue expenditure
• Section: 80HHC

Judgement Text

1 ITA 7441/MUM/2004 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.7441 /MUM/2014 (ASSESSMENT YEAR: 1009-99) DCIT, CIR.2(1), MUMBAI VS M/S TATA ENGG & LOCOMOTIV E CO LTD, BOMBAY HOUSE, HOMI MODY STREET, MUMBAI 400 001 PAN : AAACT2727Q APPELLANT BY SHRI MANJUNATHA SWAMY REVENUE BY SHRI DINESH VYAS DATE OF HEARING 22-01-2018 DATE OF PRONOUNCEMENT 31-01-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE CIT(A)-2, MUMBAI DATED 30-07-2004 AND IT PERTAINS T O AY 1998-99. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AS ORIGINALLY FILED THIS APPEAL AGAINST THE ORDER OF CIT(A)-2, MUMBAI A ND THE APPEAL OF THE ASSESSEE HAS BEEN DISPOSED OF BY ITAT, E-BENCH, MUM BAI VIDE ORDER DATED 06-01-2017. SUBSEQUENTLY, THE ASSESSEE HAS F ILED MISCELLANEOUS APPLICATION REQUESTING FOR RECALLING OF ORDER PASSE D BY THE ITAT, ON THE GROUND THAT THE ITAT HAS NOT ADJUDICATED GROUNDS 9 & 10 IN THE ORIGINAL APPEAL FILED BY THE REVNUE. THE ITAT, E-BENCH IN M A NO.142- 143/MUM/2017 DATED 20-10-2017 RECALLED THE ORDER DA TED 06-01-2017 2 ITA 7441/MUM/2004 FOR THE LIMITED PURPOSE OF ADJUDICATION OF GROUNDS 9 & 10 IN THE APPEAL. THE GROUNDS 9 & 10 IN THE APPEAL READ AS FOLLOWS:- 9. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION OF PRODUCT DEVELOPMENT EXPENSES OF RS.72,05,91,200 U/S .37(L) OF THE I.T.ACT WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THE PRODUCT DEVELOPMENT EXPENSES ARE COVERED BY THE SECTION 35D OF THE ACT AND ACCORDINGLY 175 TH OF EXPENDITURE IS ELIGBILE FOR DEDUCTION DURING THE YEAR.' 10. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.3,2 5,809 MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENSES ON ENTERPR ISES RESOURCE PLANNING WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE ASSESSING OFFICER THAT THE EXPENDITURE IS DEFERRED REVENUE EXPENDITURE.' 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION FROM GROUND NO. 9 IS DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENSES OF RS.72,05,91,200. THE LD.AR FOR THE ASSESSEE, AT THE OUTSET, SUBMITTE D THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED IN FAVO UR OF THE ASSESSEE BY THE ORDER OF ITAT IN ASSESSEES OWN CASE FOR AY 199 9-2000 TO 2002-03 IN ITA NOS 3597, 3598, 3599 AND 3601/MUM/2011 WHERE IN UNDER SIMILAR SET OF FACTS, THE ITAT DIRECTED THE AO TO ALLOW PRO DUCT DEVELOPMENT EXPENSES. 4. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND THAT THE ITAT IN ASSESSEES OWN CAS E FOR AY 1999-2000 HAS CONSIDERED SIMILAR ISSUE OF DISALLOWANCE OF PRO DUCT DEVELOPMENT EXPENSES IN FAVOUR OF THE ASSESSEE. THE RELEVANT P ORTION OF THE ORDER IS EXTRACTED BELOW:- 28. IT IS NOTED THAT SIMILAR DISALLOWANCE MADE BY A O IN ASSESSMENT YEAR 2003-04 3 ITA 7441/MUM/2004 ONWARDS WHICH WERE DELETED BY FIRST APPELLATE AUTHO RITY, AND THE REVENUE HAS NOT FILED FURTHER APPEAL BEFORE THE TRIBUNAL. THE ORDER S IN ALL SUBSEQUENT YEARS HAVE ATTAINED FINALITY. THE PRODUCT DEVELOPMENT EXPENSES INCLUDE EXPENSES ON DEVELOPMENT OF NEW PRODUCT AND VARIANTS OF EXISTING PRODUCT. IT HAS BEEN EXPLAINED THAT SUCH DEVELOPMENT TAKES A SPAN OF TIM E BEFORE COMMERCIAL PRODUCTION. IN OUR VIEW, SUCH AN EXPENDITURE IS A R EGULAR DEVELOPMENTAL ACTIVITY UNDER TAKEN BY THE ASSESSEE IN ITS EXISTING COURSE OF BUSINESS AND NOT A NEW LINE OF BUSINESS. THUS, ON THE BASIS OF PARITY OF REASONING LAID DOWN IN THE CASE OF TATA IRON AND STEEL COMPANY (SUPRA), SUCH EXPENDITURE IS REVENUE IN NATURE. CONSIDERING THAT THE REVENUE HAS ACCEPTED SUCH AN O RDER OF CIT(A) FOR ASSESSMENT YEAR 2003-04 ONWARDS, THE IMPUGNED ORDER OF ID CIT( A) DESERVE TO BE UPHELD. IN VIEW OF THE AFORESAID DISCUSSION, AND FOR THE SAKE OF CONSISTENCY THE ORDER OF ID CIT(A) IS AFFIRMED. THUS, THE GROUND OF APPEAL RAIS ED BY THE REVENUE IS DISMISSED. 5. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE AO TO ALLOW DEDUCT ION TOWARDS PRODUCT DEVELOPMENT EXPENSES. 6. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION I S DISALLOWANCE OF TRAVELLING EXPENDITURE ON IMPLEMENTATION OF ERP SOF TWARE OF RS.3,25,809. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE INVOLVED IN THIS GROUND IS ALSO SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COU RT, IN THE CASE OF CIT VS RAJCHEM RPG LTD (2012) 346 ITR 318 (BOM), WH EREIN THE HONBLE HIGH COURT OBSERVED THAT EXPENSES INCURRED FOR ENTERPRISE RESOURCE PLANNING PACKAGE, FACILITATES THE ASSESSEE S TRADING OPERATIONS OR ENABLED THE MANAGEMENT TO CONDUCT THE ASSESSEES BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY, BUT IT WAS NOT IN T HE NATURE OF PROFIT-MAKING APPARATUS. THEREFORE, THE EXPENDITURE WAS TO BE AL LOWED. WE FIND THAT THE HONBLE BOMBAY HIGH COURT, UNDER SIMILAR SET OF FACTS HAS ALLOWED 4 ITA 7441/MUM/2004 EXPENDITURE INCURRED ON IMPLEMENTATION OF ERP. THE RELEVANT PORTION OF ORDER IS EXTRACTED BELOW:- HELD, (I) THAT THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FO R THE ASSESSMENT YEAR 2001-02 HAD ALLOWED THE SOFTWARE EX PENDITURE AS REVENUE EXPENDITURE FINDING THAT SOFTWARE DID NO T FORM PART OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE. FURTHE R, IT HELD THAT THE BUSINESS OF THE ASSESSEE WAS THAT OF MANUFACTUR ING OF TELECOMMUNICATION AND POWER CABLE ACCESSORIES AND T RADING IN OIL RETRACING SYSTEM AND OTHER PRODUCTS AND THE SOF TWARE WAS AN ENTERPRISE RESOURCE PLANNING PACKAGE AND, HENCE, IT FACILITATED THE ASSESSEE'S TRADING OPERATIONS OR ENABLED THE MANAGEMENT TO CONDUCT THE ASSESSEE'S BUSINESS MORE EFFICIENTLY OR MORE PROFITABLY BUT IT WAS NOT IN THE NATURE OF PROFIT-M AKING APPARATUS. THEREFORE, THE EXPENDITURE WAS TO BE ALLOWED. (II) THAT THE QUESTION WHETHER THE TRIBUNAL WAS RIG HT IN DELETING THE ADDITIONS MADE IN RESPECT OF THE SCRAP SALES WH ILE COMPUTING THE ELIGIBLE DEDUCTION UNDER SECTION 80HHC WAS TO B E RESTORED TO THE FILE OF THE TRIBUNAL FOR FRESH CONSIDERATION. 7. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLLOW ING THE RATIO OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RAJ CHEM RPG LTD (SUPRA), WE DIRECT THE AO TO ALLOW TRAVELLING EXPEN SES INCURRED ON IMPLEMENTATION OF ERP. 8. IN THE RESULT, GROUNDS 9 & 10 RAISED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- (SAKTIJIT DEY) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 31 ST JANUARY, 2018 PK/- 5 ITA 7441/MUM/2004 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI