M/s. Sogefi Engine Systems India Private Limited (formerly Sogefi-MNR Engine Systems India Pvt Ltd), Bangalore V. Deputy Commissioner of Income Tax, Circle- 6(1)(2), Bangalore

MA 149/BANG/2021

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 4572 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 1 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 28-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 26-09-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VENKATESH KUMAR
• Keywords: Business expenditure; Capital expenditure
• Section: 254(2); 72; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER MP Nos. 147 to 151/Bang/2021 [in ITA Nos.1696 to 1698/Bang/2019, 2089/Bang/2019 & 757/Bang/2016 Assessment years : 2013-14 to 2016-17 & 2012-13 Sogefi Engine Systems India Private Limited [formerly Sogefi-MNR Engine Systems India Pvt. Ltd.], 54/3/B, Ejipura Main Road, Vivek Nagar, Bangalore – 560 047. PAN: AAFCM 6821K Vs. The Assistant Commissioner of Income Tax, Circle 6(1)(2), Bangalore. APPLICANT RESPONDENT Appellant by : Shri Venkatesh Kumar, Advocate Respondent by : Shri Priyadarshi Mishra, Addl.CIT(DR)(ITAT), Bengaluru. Date of hearing : 22.04.2022 Date of Pronouncement : 29.04.2022 O R D E R Per Chandra Poojari, Accountant Member By these miscellaneous petitions, the assessee wants to rectify the earlier order of the Tribunal dated 15.07.2021. MP Nos. 147 to 151/Bang/2021 Page 2 of 9 2. The ld. AR submitted that in the case of ACIT v. C.N.Ananthram (2004) 266 ITR 470 (Kar. High Court) it has been observed that ‘the language used in section 254(2) makes it abundantly clear that Tribunal is conferred with the power to amend the order passed under section 254(1) of the Act, if the tribunal is satisfied that the order made under section 254(1) of the Act suffers from ‘mistake apparent from the record.’ It is necessary to point out that the object of the power conferred under section 254(2) of the Act must refer to the materials on record which were not considered or misread which led to the passing of patently wrong order under section 254(1) of the Act’. 3. In the present case as well, it was submitted that the Tribunal while passing the order u/s.254(1) of the Act, had not considered the paper book page nos. 1 to 14 filed on 07.04.2021 which were already on the record. therefore, this makes order of the tribunal erroneous and liable to be recalled on the facts and circumstance of the case for giving fresh hearing within the scope of sec.254(2) of the Income-tax Act, 1961. 4. That, the purchase of design services from Filterauto S.A France (as referred in paper book page nos. 1 to 14) for improving is efficiency or its profit earning apparatus and the consequent advantages are not of a permanent degree but short-lived in view of further vast and rapid developments in the field of automotive sector. For the said proposition the assessee had relied on the judgment of the Hon’ble Supreme Court in the case of Alembic Works Co. Ltd v. CIT (1989) 177 ITR 377 (SC) wherein it has been held thus: - “The rapid strides in science and technology in the field should make us little slow and circumspect in too readily pigeon-holing an outlay, such as this, as capital ... the idea of the “once for all’ payment and ‘enduring benefit’ are not to be treated as something akin to statutory conditions; nor are the notion of ‘capital’ or MP Nos. 147 to 151/Bang/2021 Page 3 of 9 ‘revenue’ a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression ‘asset or advantage of an enduring nature’ was evolved to emphasise the element of sufficient degree of durability appropriate to the context. There is also no single definitive criterion which by itself, is determinative whether a particular outlay is capital or revenue. The ‘once for all’ payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a common-sense way having regard to the business realities. In a given case the test of ‘enduring benefit’ might break down’. 5. However, this fact was completely misread by the Tribunal in para no.34-page no.20 with the finding that ‘As such, it cannot be held as expenditure incurred in the ordinary course of carrying day to day business of the assessee. On the other hand, it is for deriving enduring benefit in the long run business plan’, therefore, this observation deserves to be recalled for being perverse& also on the facts and circumstances of the case. 6. It is reiterated that the Tribunal has failed to appreciate that ‘expenditure incurred on ‘Design services’ purchased from the Filter auto SAS France, (Group Concern) as referred in paper book page nos. 1 to 14 with an objective to carrying on or conduct of the business or is intrinsically connected with the running of a business, more efficiently and with improved technique, such an outlay is not made for the initiation of the new business or for the expansion of the business or for the substantial replacement of the business equipment, nor is it expenditure for acquiring into existence an asset or an advantage of enduring nature to the business and thus expenditure is to be regarded as revenue expenditure even though may endure for some indefinite future. 7. The ld. AR submitted that the Tribunal ought to have considered the judgement in case of CIT v. Harig Crank Shafts Ltd (2009) 310 ITR (St.) 3 MP Nos. 147 to 151/Bang/2021 Page 4 of 9 (SC) wherein it has been observed that ‘the assessee incurred expenditure in respect of product development. The expenditure having been found to be genuine, the expenditure not have been claimed u/s.35D and expenditure having been accepted earlier by the AO, the product development expenses were held deductible as business expenditure. 8. It is submitted that the Tribunal has erroneously observed in para no.35-page no.20-21 “However, we observe that 70% share of assessee company is acquired by M/s. Filtrauto, SA of France as such the assessee charges only 30% of this expenditure to P & L account and 70% of R & D expenditure was considered as intangible assets by showing it in the balance sheet and it is not because of matching principle the expenditure bifurcated as above”. 9. With the due respect, the said observation made by the Tribunal is contrary to principles laid down by the Apex court in CIT v. Walchand& Co (1967) 65 ITR 381 (SC) & J.K. Woolen Mfrs. v. CIT (1969) 72 ITR 612 (SC); wherein it has held that ‘the test of prudence by substituting its own view in place of the businessman’s view has not been approved by the Apex court’. 10. It is submitted that the Hon’ble tribunal has erroneously observed in para no.32-page no.18-19 thus:- “........., in other words, the benefit of R & D is not for running business, but for securing advantage in the capital field and it was not established by the assessee that it was incurred out of circulating capital. In these circumstances, we are not in a position to apply the ratio laid down by the Hon’ble Supreme Court in the case of Empire Jute Co. Ltd” 11. However, it is submitted that, the said observation is contrary to the ratio laid down by the very same case by the Hon’ble Supreme court, wherein it is observed that ‘Fixed and circulating capital also sometimes MP Nos. 147 to 151/Bang/2021 Page 5 of 9 breaks down because there are many forms of expenditure which do not fall easily within these two categories. Moreover, there may be cases where expenditure, though referable to or in connection with fixed capital, is nevertheless allowable as revenue expenditure, e.g., an expenditure for persevering and maintaining capital asset or interest paid on the unpaid purchases price of a capital asset. Empire Jute Co Ltd v. CIT (1980) 124 ITR 1,11 (SC). 12. It is submitted that the Tribunal has erroneously observed in para no.34-page no.20 the Hon’ble tribunal has observed thus:- “........., As such, it cannot be held as expenditure incurred in the ordinary course of carrying day to day business of assessee. On the other hand, it is for deriving enduring benefit in the long run business plan”. 13. However, it is submitted that this observation is contrary to ratio laid down by the Hon’ble Supreme Court in the case of Gotan Lime Syndicate v. CIT (1966) 59 ITR 718, 727 (SC) where in it has been held that ‘ Test of ‘enduring benefit’ is not a certain or conclusive test, it cannot be applied blindly and mechanically, thus it would be misleading to suppose that, in all cases, “securing a benefit for the business is prime facie capital expenditure, so long as the benefit is not so transitory as to have no endurance at all. 14. The Tribunal ought to have considered the judgement in Bombay Steam Navigation Co. (1965) 56 ITR 52, 59, 60 (SC) and CIT v. Kirkend Coal Co., (1970) 77 ITR 530 (SC) where in it is observed that’ whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all facts and circumstances, and by the application of principles of commercial trading. The question must be viewed in the larger context of business necessity or expediency. If the outgoing of expenditure is so related to the carrying on MP Nos. 147 to 151/Bang/2021 Page 6 of 9 or conduct of business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character the possession of which is a condition of the carrying on of the business the expenditure may be regarded as revenue expenditure. 15. The Tribunal ought to have followed the judgement of the Hon’ble Supreme Court in the case of Abdual Kayoom v. CIT (1962) 44 ITR 689, 703 (SC): “what is attributable to capital and what to revenue has led to a long string of cases here and in the English courts. The decisions of this court in Assam Bengal Cement Co. Ltd v. Commissioner of Income-tax (1955) 27 ITR 34 (SC) and Pingle Industries case (1960) 40 ITR 67 (SC) have considered all the leading cases, and have also indicated the test, which are usually applied in such cases. It is not necessary for us to cover the same ground again. Further none of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another case is not enough, because even a single significant detail may alter the entire aspect. In such case one should avoid the temptation to decide cases by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of business, the nature of expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases. 16. The ITAT has completely ignored to consider the following Judgments of Apex Court/ High Court which were relied and placed on record the ‘List of Citation’ on 07.04.2021: - MP Nos. 147 to 151/Bang/2021 Page 7 of 9 • In the case of Kedarnath Jute Mfg. Co Ltd vs. CIT (1971) 82 ITR 363 (SC), wherein it has been held that’ Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might taken of its right nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. • In the case of PCIT v. Vijayeshwari Textiles Ltd (2020) 121 taxmann.com 20 (Madras) wherein it has been held that ‘product development expenditure is deductible even though said expenditure was to be amortized over a period of 3 years as per accounting practice adopted by assessee. • In the case of CIT v. Arvind Products Ltd (2018) 93 taxmann.com 454 (Guj), where the expenditure incurred on product development and claimed deduction for same under u/s.37(1), in view of the fact that expenditure incurred did not involve development of new produce or even a new technique or technology to manufacture existing product more efficiently rather it was aimed at improving quality of the existing products of assessee, thus, assessee’s claim for duction was to be allowed. • In Perfect Engineering Products Ltd v. Addl. CIT (2013) 36 taxmann.com 502 (Mum) held that, where expenditure in question is relatable to business of assessee then simply for reasons that these have been given some enduring benefit to assessee, same cannot be regarded as capital expenditure. 17. For the above reasons, the applicant prays that this Tribunal to recall the order in ITA Nos.1696 to 1698/Bang/2019, 2089/Bang/2019 & 757/Bang/2016 in the interest of justice. 18. On the other hand, the ld. DR submitted that there is no mistake apparent on the record so as to recall the order of the Tribunal. MP Nos. 147 to 151/Bang/2021 Page 8 of 9 19. We have heard both the parties and perused the material on record. In this case, the assessee came in appeal with regard to allowability of R&D expenditure. The Tribunal decided the issue after considering the entire facts and circumstances of the case against the assessee. Now the contention of the ld. AR is that there are mistakes in the order of the Tribunal which are to be rectified and appeal to be decided in favour of the assessee. 20. We have carefully gone through the entire arguments made by the ld. AR and also the case laws cited by him. The issue before the Tribunal was with regard to allowability of R&D expenditure. The Tribunal has given categorical findings in its order from para 27 to 40 and decided the issue against the assessee holding that R&D expenditure is not in revenue nature which was determined on appreciation of the facts of the case. The above finding of the Tribunal in its order is not liable to be interfered with unless the Tribunal has taken into consideration any irrelevant material or failed to take into consideration any relevant material or the conclusion of the Tribunal is perverse in the sense that no reasonable person on the basis of facts before the Tribunal could have come to the conclusion which the Tribunal has come. In the present case, the Tribunal has taken note of the relevant circumstances which appeared on record and which are referred to by the assessee as well as the department. It has not taken into account any material which can be said to be irrelevant in arriving at its conclusion for considering whether R&D expenditure is revenue or capital expenditure. The Tribunal considered the facts of the case and take on possible view. The assessee may not agree with the view of the Tribunal which cannot lead to rectification of the order u/s. 254(2) of the Act. If we consider the present argument of the ld. AR, it amounts to allow the assessee to reargue the case so as to review the earlier order of the Tribunal which is not permitted u/s. 254(2) of the Act. The Tribunal has MP Nos. 147 to 151/Bang/2021 Page 9 of 9 given a categorical finding that R&D expenditure incurred by the assessee is not in the nature of revenue and otherwise, it is in the capital field which cannot be allowed while computing income of the assessee. This decision is based on the various decisions cited in that order. Being so, we do not find no mistake which is apparent on record so as to rectify the earlier order of the Tribunal. 21. Accordingly, all the miscellaneous petitions are dismissed. Pronounced in the open court on this 29 th day of April, 2022. Sd/- Sd/- ( BEENA PILLAI ) ( CHANDRA POOJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 29 th April, 2022. /Desai S Murthy / Copy to: 1. Applicant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order Assistant Registrar ITAT, Bangalore.