MAHLE BEHR INDIA PRIVATE LIMITED,PUNE vs. DEPUTY COMMISSIONER OF INCOME TAX,

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ITA 2935/PUN/2016Status: DisposedITAT Pune30 January 2019AY 2004-055 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the irrecoverable trade advance written off as a business loss is an allowable expenditure. The advance was given in the ordinary course of business for a component akin to raw material.

What were the facts?

The assessee, engaged in manufacturing automotive air conditioners, paid a trade advance for the development of a blower motor component. The supplier failed to deliver the goods and return the advance, leading the assessee to write off the amount as a business loss.

What were the issues?

Whether the irrecoverable trade advance written off as product development expense constitutes a business loss allowable under the Income Tax Act.

Which sections of the Income-tax Act were involved?

Section 28,Section 37

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, “A” BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Shri R.D. Onkar
For Respondent: Shri Sanjeev Ghei
Hearing: 30.01.2019Pronounced: 30.01.2019

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-6, Pune dated 02.09.2016 for the assessment year 2004-05.

2.

The grounds raised by the assessee read as under:

2 ITA No. 2935/PUN/2016 A.Y.2004-05

“Being aggrieved by the order passed by the learned Commissioner of Income Tax (Appeals)- 6, Pune ( CITA) in the second round of appeal, Your appellant MAHLE Behr India Private Limited (Formerly named Behr India Limited) submits following grounds of appeal for your due and sympathetic consideration 1. The learned CIT A erred in confirming the disallowance of the amount of irrecoverable trade advance actually written off Rs. 13,95,263/- which was paid for improvement to the supplier of blower motor being one of the components used and assembled in the automotive air conditioners manufactured and supplied by the appellant in its ordinary course of conduct of business. 2. The learned CITA failed to appreciate that the write off of said trade advance was business loss allowable under Section 28/37 of the Income Tax Act, 1961. 3. The learned CITA erred in drawing an incorrect inference that the said advance given by the appellant was in connection with development of a new product under a new project and therefore the expenditure/loss claimed by the appellant was in the capital field. The learned CITA erred in not following the directions given by the Honourable Tribunal in the appellant's case in the first round of appeal in this regard. It is prayed that the disallowance of said business loss be deleted. 4. Your appellant craves leave to add, alter, amend or delete any or all of the above Grounds of Appeal.”

3.

Briefly stated relevant facts include that the assessee is engaged in

the business of automotive air conditioners systems, parts thereof, heat

exchangers & ventilation units for passenger cars. The assessee filed its

return of income on 29.10.2004 declaring Nil income after setting off of

brought forward losses. In the assessment proceedings u/s.143(3)

r.w.s.254 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’),

the Assessing Officer completed assessment determining total income at

Rs.14,55,83,013/- under normal provisions which is higher than that of

the Book Profit under MAT provision. In the assessment proceedings, the

Assessing Officer while giving appeal effect in the order again added sum of

Rs.13,95,263/- on account of product development expenses by holding

that the same falls within the scope of “capital nature”.

3 ITA No. 2935/PUN/2016 A.Y.2004-05

4.

During the First Appellate Proceedings, the CIT(Appeals) confirmed

the same.

5.

Before us, the Ld. Counsel for the assessee narrated the facts stating

that the assessee paid sum of Rs.13,95,263/- to M/s. IFB Industries Ltd.

towards development cost for blower motor which is required as spare parts

for manufacturing in the automotive air conditioners. The said party

neither failed to deliver the said goods and failed to return the trade

advance to the assessee. The said payment was made in the earlier

assessment year. Considering the said facts, assessee decided to write off of

his “Trade Advance” and claimed the same as allowable expenditure under

the head “product development expenses”. However, the Assessing Officer

did not allow the claim holding that it is “Capital in nature”. The

CIT(Appeals) confirmed the same by holding that development of spare

parts constitutes developing the asset of enduring nature.

5.1 Further, Ld. Counsel of the assessee filed written arguments. For the

sake of completeness, the written arguments filed by the assessee are

extracted herein below:

“1.The appellant is engaged in the business of manufacture and sale of air conditioners, heat exchangers and parts thereof in the automotive segment and commenced its business in the previous year relevant to A.Y. 1999-2000. 2. In the first round of appeal Honourable Tribunal restored the issue to the AO to examine it in the light of the directions given. (Kindly refer Para 6.3, 6.6 to 6.9 Pages 23, 24 to 26 of the order). 3. The appellant had given trade advance in the ordinary course of conduct of its business to modify and supply a component viz. blower motor which is fitted in the air conditioners manufactured and sold. 4. The said advance was given to one of the regular vendors IFB Industries. The said vendor failed to bring in modifications and supply the said component within reasonable time period and the said advance became irrecoverable. The appellant therefore wrote off the said trade advance under the head Product development expenses in its books of account.

4 ITA No. 2935/PUN/2016 A.Y.2004-05

5.

The learned AO and the CITA have drawn incorrect inference that the said amount is capital expenditure incurred under new project and write off of such amount is capital loss. 6. It is submitted that the appellant had given the said trade advance for bringing in modifications in the component regularly purchased by it and fitted m the finished product manufactured by it Viz. air conditioners. The said component is akin to raw material used in the manufacture of finished product. The said advance was therefore not given for procuring capital asset. The said advance was given in the ordinary course of conduct of business and on the failure of the vendor to bring in desired modifications and supply the component within reasonable time the appellant has written off the said amount paid as irrecoverable. 7. The non recovery of the trade advance amounted to business loss allowable U/s. 28/37 of the Income Tax Act. Reliance is placed on the decisions of Hon'ble Delhi High Court in Mohan Meakins Ltd. reported in 348 ITR 109 ( Copy placed) and Hon'ble Supreme Court in the case of Mysore Sugar Co. Ltd. 46 ITR 649.”

6.

Aggrieved with the order of the Ld. CIT(Appeals), the assessee filed

appeal before us by raising the grounds as extracted above.

7.

On hearing both the parties on this issue, we find that there is no

dispute about requirement of the said blower motor of spare parts for

manufacturing of the Air-conditioners. Business model of the assessee

involves the outsourcing of the spare parts. It is undisputed fact that the

payments made by the assessee are genuine. Further, there is no dispute

about the return of the same by the M/s. IFB Industries limited to the

assessee. The only limited issue for our adjudication, if the said advances

paid towards development cost to bowler motor, constitutes capital in

nature or not. On hearing both the parties and further relying on the cited

decision in the case of Mohan Meakins Ltd. reported as 348 ITR 109 and

the decision of the Hon'ble Supreme Court in the case of Mysore Sugar Co.

Ltd. reported 46 ITR 649, we find that it is decided issue that the such

write off of said trade advance was business loss and allowable

expenditure. In the present case, we find that the advances are

5 ITA No. 2935/PUN/2016 A.Y.2004-05

undisputedly given for manufacturing bowler motor and the supplier neither delivered the said goods nor returned the advance to the assessee. Hence, in our view, it falls with the scope of “trade advance”. Accordingly, we are of the considered view that the claim of the assessee is allowable.

In the result, appeal of the assessee is allowed. 8.

Order pronounced on 30th day of January, 2019.

Sd/- Sd/- (�वकास अव�थी /Vikas Awasthy) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 30th January, 2019 SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT (Appeals)-6, Pune. 4. The Pr. CIT-5, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.

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