KAIZEN INNOVATIVE PRODUCTS P. LTD, NAVI MUMBAI V. ITO 10(3)(4), MUMBAI

ITA 756/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55484 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 29-09-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: ARUN CHABRA
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER I T A NO: 756/MUM/2010 (ASSESSMENT YEAR: 2005-06) M/S KAIZEN INNOVATIVE PRODUCTS PVT. LTD. APPELLA NT (NOW KNOWN AS TOKHEIM INDIA PRIVATE LIMITED) NAVI MUMBAI (PAN: AAACK3414F) VS INCOME TAX OFFICER 10(3)(4), MUMBAI RESPONDENT ASSESSEE BY: MR ARUN CHABRA REVENUE BY: MR A K NAYAK DATE OF HEARING: 29 TH SEPTEMBER 2011 DATE OF PRONOUNCEMENT: 10 TH OCTOBER 2011 O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE, WHICH IS A PRIV ATE LIMITED COMPANY ENGAGED IN THE ASSEMBLY AND SALE OF A RANGE OF FUEL DISPENSERS TO DOWNSTREAM OIL RETAIL INDUSTRY. WE A RE CONCERNED WITH THE ASSESSMENT YEAR 2005-06. THE APPEAL ARISES OUT OF THE ASSESSMENT ORDER FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, ON 30.11.2007. 2. THE FIRST GROUND RELATES TO THE DISALLOWANCE OF PRODUCT DEVELOPMENT EXPENDITURE OF ` 1,29,33,039/- CLAIMED AS REVENUE 2 ITA NO:756/MUM/2010 EXPENDITURE. IN THE COURSE OF THE ASSESSMENT PROCE EDINGS THE ASSESSEE CLAIMED THE AFORESAID EXPENDITURE AS PRIMA RILY REVENUE IN NATURE AND SUBMITTED THAT IT WAS THROUGH OVERSIGHT THAT THE ENTIRE EXPENDITURE WAS NOT CLAIMED AS A DEDUCTION IN THE R ETURN AND ONLY DEPRECIATION OF ` 12,98,100/- WAS CLAIMED ON THE FOOTING THAT THE PRODUCT DEVELOPMENT EXPENDITURE AND THE PRELIMINARY EXPENSES CONSTITUTED CAPITAL EXPENDITURE ON WHICH DEPRECIATI ON WAS ALLOWABLE. THE ASSESSING OFFICER NOTED THAT SINCE THE ASSESSEE HAD NOT COMMENCED COMMERCIAL PRODUCTION DURING THE RELEVANT YEAR, NO PROFIT AND LOSS ACCOUNT WAS PREPARED AND ALL THE EXPENSES WERE TO BE CARRIED FORWARD UNDER THE HEAD PRODUCT DEVELOPMENT EXPENDITURE AND WRITTEN OFF OVER A PERIOD OF THREE YEARS FROM T HE DATE ON WHICH COMMERCIAL PRODUCTION COMMENCED. IN THIS VIEW OF T HE MATTER HE DISALLOWED THE ASSESSEES CLAIM THAT THE EXPENDITUR E SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE CLAIM FOR DEPR ECIATION ON THE FOOTING THAT THE EXPENDITURE WAS CAPITAL EXPENDITUR E WAS ALSO NOT CONSIDERED BY THE ASSESSING OFFICER. ON APPEAL, TH E CIT(A) ENDORSED THE VIEW TAKEN BY THE ASSESSING OFFICER. IN THE FU RTHER APPEAL BEFORE US THE LEARNED REPRESENTATIVE FOR THE ASSESSEE FAIR LY STATED THAT THOUGH THE ASSESSEE IS NOT GIVING UP ITS CLAIM FOR ALLOWAN CE OF THE EXPENDITURE AS PRODUCT DEVELOPMENT EXPENDITURE, IT WOULD PRESS ITS ALTERNATIVE CLAIM, ARTICULATED IN GROUND NO.2 THAT IF THE EXPEN DITURE IS NOT ALLOWED AS REVENUE EXPENDITURE, THE ASSESSEE SHOULD BE ENTI TLED TO 3 ITA NO:756/MUM/2010 DEPRECIATION. ON A CAREFUL CONSIDERATION OF THE CL AIM RELATING TO THE PRODUCT DEVELOPMENT EXPENDITURE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS REQUIRED WITH THE ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES. THE FIRST GROUND IS ACCORDINGLY DISMI SSED. 3. GROUND NOS.2 AND 3 REPRESENT THE ALTERNATIVE CLA IM OF THE ASSESSEE TO THE EFFECT THAT IT SHOULD BE ALLOWED DE PRECIATION ON THE PRODUCT DEVELOPMENT EXPENDITURE. IT IS SUBMITTED T HAT THE CIT(A) WAS NOT JUSTIFIED IN DISMISSING THE ALTERNATIVE CLAIM. IT IS POINTED OUT THAT THE CIT(A) DID NOT PROPERLY APPRECIATE THE LANGUAGE IN WHICH EXPLANATION 4 BELOW SECTION 32(1) IS COUCHED. WE HAVE CAREFULLY EXAMINED THE FACTS RELATING TO THE CLAIM. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE HAD NOT COMMENCED COMMERCIAL PRODUCTION DURING THE RELEVANT PREVIOUS YEAR. HOWEVER, IT IS SEEN THAT BEFORE THE CIT(A) THE ASSESSEE HAD PUT FORTH THE CLAIM THAT IT HAD EFFECTED SALE O F SAMPLE PRODUCTS AMOUNTING TO ` 12,29,478/- WHICH WAS REDUCED FROM THE GROSS FIGURE OF PRODUCT DEVELOPMENT EXPENDITURE. THE CIT(A) REFUSE D TO CONSIDER THE SALE OF SAMPLE PRODUCTION AS COMMENCEMENT OF THE BU SINESS. WITH PARTICULAR REFERENCE TO THE ASSESSEES CLAIM FOR DE PRECIATION, HE NOTED THAT THE ASSESSING OFFICER DID NOT DISCUSS THIS ISS UE AT ALL IN THE ASSESSMENT ORDER. HE THEREFORE PROCEEDED TO EXTRAC T EXPLANATION 4 BELOW SECTION 32(1) AND HELD THAT THE EXPLANATION R EQUIRED MANUFACTURE OR PROCESSING OF GOODS IN THE WORK OF A MINE, OIL-WELL OR OTHER MINERAL DEPOSITS FOR THE WINNING OF ACCESS TH ERETO AND SINCE THE 4 ITA NO:756/MUM/2010 ASSESSEE WAS NOT DOING ANY SUCH WORK AND WAS MERELY MANUFACTURING A MACHINE USED TO MEASURE PETROL, THE ASSESSEES CL AIM FOR DEPRECIATION WAS NOT COVERED BY THE LANGUAGE EMPLOY ED BY EXPLANATION 4. WE FIND THAT THE CIT(A) HAS OMITTED THE WORD OR APPEARING IN EXPLANATION 4 AFTER THE WORDS MANUFAC TURE OR PROCESSING OF GOODS AND BEFORE THE WORDS IN THE WORKING OF A MINE, OIL-WELL ... THE EXPLANATION IS WORDED AS FOLLOWS: - EXPLANATION 4 FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION KNOW- HOW MEANS ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR IN THE WORKING OF A MINE, OIL-WELL OR OTHER SOURCES OF MINERAL DEPOSITS (INCLUDING SEARCHING FOR DISCOVERY OR TESTING OF DEPOSITS FOR THE WINNING OF ACCESS THERETO). THE OMISSION TO READ THE WORD OR IN THE EXPLANATI ON BY THE CIT(A) HAS LED TO HIS ERRONEOUS CONCLUSION THAT THE MANUFA CTURE OR PROCESSING OF GOODS SHOULD BE IN THE WORKING OF A MINE, OIL-WE LL OR OTHER SOURCES OF MINERAL DEPOSITS. TAKING INTO ACCOUNT THE CORR ECT WORDING OF THE EXPLANATION, IT SEEMS TO US THAT KNOW-HOW WOULD M EAN ANY INDUSTRIAL INFORMATION OR TECHNIQUE WHICH IS LIKELY TO ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS AND SUCH KNOW-HOW NEED NOT BE O NLY IN THE FIELD OF WORKING OF A MINE, OIL-WELL OR OTHER SOURCES OF MINERAL DEPOSITS. ANY INDUSTRIAL INFORMATION OR TECHNIQUE LIKELY TO ASSIS T IN THE MANUFACTURE OR PROCESSING OF GOODS GENERALLY WOULD ALSO QUALIFY AS KNOW-HOW FOR THE PURPOSE OF CLAIMING DEPRECIATION THEREON UNDER THE EXPLANATION. THE 5 ITA NO:756/MUM/2010 OMISSION TO READ THE WORD OR IN THE EXPLANATION H AS LED TO AN ERRONEOUS CONCLUSION BY THE CIT(A) IN DEALING WITH THE ASSESSEES ALTERNATIVE CLAIM. THE PROPER COURSE IS TO RESTORE THE MATTER TO THE FILE OF THE CIT(A) WITH A DIRECTION TO HIM TO DISPOSE OF THE ASSESSEES ALTERNATIVE CLAIM (GROUND NOS: 2 AND 3 BEFORE US) B Y TAKING INTO ACCOUNT THE PROPER LANGUAGE USED IN EXPLANATION 4 B ELOW SECTION 32(1). WE ACCORDINGLY RESTORE THE ISSUE TO THE FIL E OF THE CIT(A), WHO SHALL DISPOSE OF THIS POINT IN ACCORDANCE WITH LAW AND AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD . 4. GROUND NO.4 IS AGAINST THE DISALLOWANCE OF PRELI MINARY EXPENSES OF ` 37,814/- ON THE GROUND THAT THE BUSINESS OF THE APPELLANT DID NOT COMMENCE DURING THE RELEVANT YEAR . IT IS ALTERNATIVELY CONTENDED THAT THE PRELIMINARY EXPENSES SHOULD HAVE BEEN AMORTIZED UNDER SECTION 35D OF THE ACT. THIS GROUND WAS NOT ARGUED BEFORE US. IN ANY CASE, WE SEE NO MERIT IN THE SAME. IT IS DI SMISSED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER 2011. SD/- SD/- (J SUDHAKAR REDDY) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 10 TH OCTOBER 2011 SALDANHA 6 ITA NO:756/MUM/2010 COPY TO: 1. M/S KAIZEN INNOVATIVE PRODUCTS PVT. LTD. (NOW KNOWN AS TOKHEIM INDIA PRIVATE LIMITED) A-174, TTC INDUSTRIAL AREA, MIDC KHAIRANE VILLAGE, NAVI MUMBAI 400 709 2. ITO 10(3)(4), MUMBAI 3. CIT-10, MUMBAI 4. CIT(A)-22, MUMBAI 5. DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI