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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Saktijit Dey & Shri G Manjunatha
Date of hearing 22-01-2018 Date of pronouncement 31-01-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the revenue is directed against the order of the CIT(A)-2, Mumbai dated 30-07-2004 and it pertains to AY 1998-99. 2. The brief facts of the case are that the assessee has originally filed this appeal against the order of CIT(A)-2, Mumbai and the appeal of the assessee has been disposed of by ITAT, E-Bench, Mumbai vide order dated 06-01-2017. Subsequently, the assessee has filed miscellaneous application requesting for recalling of order passed by the ITAT, on the ground that the ITAT has not adjudicated grounds 9 & 10 in the original appeal filed by the revnue. The ITAT, E-Bench in MA No.142- 143/Mum/2017 dated 20-10-2017 recalled the order dated 06-01-2017
2 ITA 7441/Mum/2004 for the limited purpose of adjudication of grounds 9 & 10 in the appeal.
The grounds 9 & 10 in the appeal read as follows:-
"On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in directing the assessing officer to allow the deduction of product development expenses of Rs.72,05,91,200 u/s.37(l) of the I.T.Act without appreciating the facts brought on record by the assessing officer that the product development expenses are covered by the section 35D of the Act and accordingly 175th of expenditure is eligbile for deduction during the year." 10. "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in deleting disallowance of Rs.3,25,809 made by the assessing officer on account of expenses on enterprises resource planning without appreciating the facts brought on record by the assessing officer that the expenditure is deferred revenue expenditure."
The first issue that came up for our consideration from ground No. 9 is disallowance of product development expenses of Rs.72,05,91,200.
The Ld.AR for the assessee, at the outset, submitted that the issue involved in this appeal is squarely covered in favour of the assessee by the order of ITAT in assessee’s own case for AY 1999-2000 TO 2002-03 in 3598, 3599 and 3601/Mum/2011 wherein under similar set of facts, the ITAT directed the AO to allow product development expenses.
Having heard both the sides and considered material available on record, we find that the ITAT in assessee’s own case for AY 1999-2000 has considered similar issue of disallowance of product development expenses in favour of the assessee. The relevant portion of the order is extracted below:-
It is noted that similar disallowance made by AO in assessment year 2003-04
3 ITA 7441/Mum/2004 onwards which were deleted by First Appellate Authority, and the revenue has not filed further appeal before the Tribunal. The orders in all subsequent years have attained finality. The product development expenses include expenses on development of new product and variants of existing product. It has been explained that such development takes a span of time before commercial production. In our view, such an expenditure is a regular developmental activity under taken by the assessee in its existing course of business and not a new line of business. Thus, on the basis of parity of reasoning laid down in the case of Tata Iron and Steel Company (supra), such expenditure is revenue in nature. Considering that the revenue has accepted such an order of CIT(A) for assessment year 2003-04 onwards, the impugned order of Id CIT(A) deserve to be upheld. In view of the aforesaid discussion, and for the sake of consistency the order of Id CIT(A) is affirmed. Thus, the Ground of appeal raised by the revenue is dismissed.
In this view of the matter and consistent with the view taken by the co-ordinate bench, we direct the AO to allow deduction towards product development expenses.
The next issue that came up for our consideration is disallowance of travelling expenditure on implementation of ERP Software of Rs.3,25,809. The Ld.AR for the assessee submitted that the issue involved in this ground is also squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court, in the case of CIT vs Rajchem RPG Ltd (2012) 346 ITR 318 (Bom), wherein the Hon’ble High Court observed that expenses incurred for enterprise resource planning package, facilitates the assessee’s trading operations or enabled the management to conduct the assessee’s business more efficiently or more profitably, but it was not in the nature of profit-making apparatus. Therefore, the expenditure was to be allowed. We find that the Hon’ble Bombay High Court, under similar set of facts has allowed 4 ITA 7441/Mum/2004 expenditure incurred on implementation of ERP. The relevant portion of order is extracted below:- “Held, (i) that the Tribunal in the assessee's own case for the assessment year 2001-02 had allowed the software expenditure as revenue expenditure finding that software did not form part of the profit-making apparatus of the assessee. Further, it held that the business of the assessee was that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and the software was an enterprise resource planning package and, hence, it facilitated the assessee's trading operations or enabled the management to conduct the assessee's business more efficiently or more profitably but it was not in the nature of profit-making apparatus. Therefore, the expenditure was to be allowed. (ii) That the question whether the Tribunal was right in deleting the additions made in respect of the scrap sales while computing the eligible deduction under section 80HHC was to be restored to the file of the Tribunal for fresh consideration.”
In this view of the matter and respectfully following the ratio of Hon’ble Bombay High Court in the case of CIT vs Rajchem RPG Ltd (supra), we direct the AO to allow travelling expenses incurred on implementation of ERP.
In the result, grounds 9 & 10 raised by the revenue are dismissed. Order pronounced in the open court on 31st January, 2018.