ITO, NEW DELHI vs. M/S. GRYPHON APPLIANCES LIMITED, NEW DELHI

This appeal is filed by revenue against the order of the Ld. CIT (Appeals) –VV, New Delhi. The Ld. CIT (A) order dated 28/8/2014 for assessment year 2010-11, wherein the addition made by the Ld. Income Tax Officer, Ward – 12 (2), New Delhi (the Ld. AO) , Assessing Officer vide his order dated 28/03/2013 passed under section 143 (3) of the Income Tax Act, 1961 (the Act) wherein on account of the expenditure incurred by the assessee on dyes and moulds was held to be capital expenditure, was deleted by the Ld. CIT (Appeal) holding the same to be revenue in nature. The revenue was further aggrieved that the Ld. CIT (A) has admitted the agreement based on which he has allowed the claim of the assessee and therefore there is a violation of rule 46A of the Income Tax Rules, 1962.

The assessee company is engaged in the business of distribution of „Black and Decker‟ and Gryphon home products. During the year it is also entered into distribution ship off „Hitkari” brand of crockery. It filed its return of income on 7/10/2010 declaring income of Rs. 15,27,673/–. During the assessment proceedings it was noted that the assessee has debited the sum of Rs. 3658103/– under the head “Dyes & Moulds” hence assessee was asked to justify that by this expenditure should not be treated as a capital expenditure. The assessee submitted before the Ld. Assessing Officer and assessee is having an exclusive marketing for the goods manufactured in the USA by Black and Decker. The above company not only manufactures these products in the various manufacturing units owned by it but also in Page | 1 ITO ward 12 (2), New Delhi V Gryphone Appliances Limited New Delhi Del 2014 A Y 2010-11 countries other than home country. Therefore, the components which go into manufactured these goods have to meet stringent specifications. It was submitted that even as to difference can render the product, defective and unusable. It was further stated that these products which are sold in India to be specifically modified to Indian requirement and therefore the case and moulds for these components is responsibility of the assessee and therefore it is paid for this moulds and dies to that particular company. Therefore, it was stated that these are the regular expenditure for manufacturing goods for which the sale is been shown by the assessee in the profit and loss account and these are the manufacturing expenses and not capital in nature. However, the Ld. Assessing Officer did not accept the claim of the assessee and stated that these are reusable items and are capital expenditure. Accordingly, he made an addition of Rs. 3658103/– to the total income of the assessee.

The assessee aggrieved with the order of the Ld. Assessing Officer preferred an appeal before the Ld. CIT (A) who deleted the disallowance. He further referred to the agreement between the manufacturer and the assessee one of the condition agreed to between the parties was that the appellant shall pass the supplier the cost of dies and moulds is required from time to time for the purpose of making such home products. He further held that since the appellant company is not the manufacturer and the fact that such dies and moulds do not have a long life and more importantly the agreement between the parties does not provide for supply of depreciated dies and moulds to the appellant company the expenses cannot be held to be capital expenditure. Therefore revenue is in appeal.

The Ld. Departmental Representative vehemently supported the order of the Ld. Assessing Officer. He submitted that dies and moulds are necessarily a capital asset acquired by the assessee and therefore the expenditure thereon should be considered as capital expenditure. Moreover, he submitted that the Ld. CIT(A) has entertained the agreement between the assessee and its principal manufacturer, which was not available before the Ld. Assessing Officer and therefore CIT(A) has violated the provisions of Rule 46A of the Income Tax Rules, 1962.

Despite notice, none appeared on behalf of the assessee and therefore the issue is decided on the basis of the evidences available on record on merits.

We have carefully considered the contentions of the Ld. Departmental Representative and also perused the orders of the lower authorities. Undisputedly the business of the assessee is marketing of the product of a US company. That company manufactures the products which are being sold in India by the assessee. According to the agreement entered into between the