M/S RAPSRI ENGINEERING INDUSTRIES LTD,BANGALORE vs. JOINT COMMISSIONER OF INCOME TAX, BANGALORE

ITA 1656/BANG/2014Status: DisposedITAT Bangalore28 April 2017AY 2011-125 pages

AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the assessee needs to establish that the expenditure is revenue in nature, not capital. Since no material was readily available to prove this, the matter was restored to the CIT(A) for fresh adjudication.

What were the facts?

The assessee claimed product development expenditure as revenue expenditure. The CIT(A) allowed depreciation on this expenditure, following a Bombay High Court judgment that was later reversed by the Supreme Court.

What were the issues?

Whether product development expenditure is revenue or capital in nature, and the burden of proof on the assessee to establish its revenue character.

Which sections of the Income-tax Act were involved?

Not explicitly mentioned, but relates to the distinction between capital and revenue expenditure.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’, BANGALORE

Before: SHRI A. K. GARODIA & SHRI LALIET KUMAR

For Appellant: Shri V. K. Gurunathan, Advocate

For Respondent: Smt. Swapna Das, JCIT DR

PER A. K. GARODIA, AM.

Both these appeals are filed by the assessee and these are directed against two

separate orders of the learned CIT (A) – III Bangalore both dated 19.09.2014 for A.

Y. 2009 – 10 and 2011 – 12. Both these appeals were heard together and are being

disposed of by this common order for the sake of convenience.

In both these years, the assessee has raised several grounds but the grievance is one and common. The grievance is about disallowance of Product Development Expenditure of Rs. 78,47,719/- in A. Y. 2009 – 10 and Rs. 101,80,927/- in A. Y. 2011 – 12 out of which, the learned CIT (A)

directed the AO to allow depreciation.

Learned AR of the assessee submitted that the learned CIT (A) has followed

the judgment of Hon’ble Bombay High Court rendered in the case of Taparia reversed by the Hon’ble apex court as per its judgment reported in 372 ITR

605.

He submitted that in view of this, the order of learned CIT (A) is not sustainable. At this juncture, it was pointed out by the bench that as per

the assessment order, this is the objection of the AO that the impugned

expenditure is not revenue expenditure but capital expenditure because it is in the nature of continuous process to develop and improve new products

which creates value addition for the product which is an enduring benefit

and thus capital in nature. The bench pointed out that learned CIT (A)

followed the judgment of Hon’ble Bombay High Court rendered in the case of Hon’ble Bombay High Court in this judgment that when the expenses

claimed by the assessee are shown to be deferred revenue expenditure as in the present case, then it is allowable in an year as per matching concept.

The bench observed that even after reversal of this judgment of Hon’ble

Bombay High Court by Hon’ble apex court, the assessee has to establish

that the impugned expenditure is revenue expenditure and not capital

expenditure. In reply, learned AR of the assessee placed reliance on the tribunal order rendered in the case of M/s Tejas Networks India ltd. vs. ACIT

in ITA No. 470/B/2006 dated 08.06.2007, copy on pages 102 to 127 of the comes out that even after reversal of this judgment of Hon’ble Bombay High

Court rendered in the case of Taparia Tools Ltd. vs. JCIT (Supra) by Hon’ble

apex court, the assessee has to establish that the impugned expenditure is revenue expenditure and not capital expenditure. In view of the tribunal

order rendered in the case of M/s Tejas Networks India ltd. vs. ACIT (Supra) Research & Development Expenses. In fact as per last few lines of Para 10 of that judgment it was held that if the expenditure is incurred to improve an existing product, it is revenue expenditure but if it is for development of a new product, it is capital expenditure. Hence, we feel it proper to restore the matter back to CIT (A) for a fresh decision in the light of above discussion

and after considering the judgments noted above or which may be available

by that time and after considering the facts to be brought on record by the assessee to establish that the expenses is not of capital nature. Needless to say, adequate opportunity of being heard should be provided to both sides.

In the result, both appeals of the assessee are allowed for statistical

purposes.

Order pronounced in the open court on the date mentioned on the caption page. (LALIET KUMAR) (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER Place: Bangalore: D a t e d : 28.04.2017 am*

Copy to : 1 Appellant 2 Respondent 3 CIT(A)-II Bangalore 4 CIT 5 DR, ITAT, Bangalore. 6 Guard file By order

AR, ITAT, Bangalore

Date of Dictation ………………………………………………………..

Date on which the typed draft is placed before the dictating Member ………………………………….

Date on which the approved draft comes to the Sr. P. S. ……………………………………………………………….. 4 Date on which the order is placed before the dictating Member for pronouncement ………………..

Date on which the order comes back to the Sr. P.S. …………………………………………………………..

Date of uploading the order on website …………………………………………………………………………..

If not uploaded, furnish the reason for doing so……………….

Date on which the file goes to the Bench Clerk ……………………………..

Date on which order does for Xerox & endorsement ……………………………….

10.

Date on which the file goes to the Head Clerk……………. 11 The date on which the file goes to the

Recent GST High Court judgments

Search GST case law →