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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
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.
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.”
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
During the First Appellate Proceedings, the CIT(Appeals) confirmed
the same.
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
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.”
Aggrieved with the order of the Ld. CIT(Appeals), the assessee filed
appeal before us by raising the grounds as extracted above.
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.