DCIT 8(2), MUMBAI vs. PERFECT ENGINEERING PRODUCTS LTD, MUMBAI

आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the revenue is directed against the order dated 17-04-2014 of Commissioner of Income Tax (Appeals)-17, Mumbai (Hereinafter called as the CIT(A)) for assessment year 2010-11. The assessee has raised the following grounds of appeal:

2. “Whether on the facts and circumstances of the case and in law, the ld. CIT(A) erred in upholding the claim of the assesee of deduction u/s 35(1)(i) without appreciating that the assessee company itself had treated similar expenditure in the earlier years and claimed depreciation thereon?”

(A.Y. 2010-11) DCIT Vs. M/s. Perfect Engineering Prdoucts Ltd. 3. The AO during the course of scrutiny proceeding observed that the assessee had claimed Rs.6,46,18,933/- as research and development expenditure and asked the assessee to justify its claim which was replied by the assessee vide letter dated 15.11.12 stating that the expenditure was incurred in connection with research and development and the same was rightly claimed u/s 35(1)(i) of the Act. It was also however stated that similar expenditure which included Raw material, stores, labour, power & fuel, processing charges and interest etc was treated as intangible asset in the earlier year depicting the same on the assets side of the balance sheet and depreciation at the rate of 25% accordingly in the that year and also during the year in respect of opening WDV. The assessee submitted that these expenses were of revenue in nature and were allowable u/s 35(1)(i),35(1)(iv) and 37(1) of the Act notwithstanding the fact the same were capitalized in the earlier year. The ld. AO rejected the contention of the assessee by coming to the conclusion that these expenditure had result in enduring benefit for longer a period. Thus, the benefit of the said expenditure would be accruing over and above current year and the claim of the assessee was not tenable. The ld. AO also observed that in the earlier year the similar expenditure was capitalized and depreciation at the rate of 25% on the same by referring to the assessment order for the AY 2009-10 in which the w.d.v of the R&D expenditure was worked out at Rs.15,21,60,264/-. The ld. AO treated the R&D expenditure as capital in nature and allowed the depreciation at the rate

(A.Y. 2010-11) DCIT Vs. M/s. Perfect Engineering Prdoucts Ltd. of 25% and the net disallowance made by the AO worked out at Rs.4,84,64,199/- accordingly.

“In view of the foregoing, we have no hesitation in directing the A.O. to allow the assessee’s claim in respect of the scientific expenditure incurred on research expenses for the current year/s u/s.35(1)(iv); the assessee having itself considered it as capital expenditure. Consequently, no (A.Y. 2010-11) DCIT Vs. M/s. Perfect Engineering Prdoucts Ltd. amount would survive for being carried over as the WDV of the relevant ‘block of assets’ u/s.43(6); the assesee having already secured all deduction for the immediately preceding year/s. the decisions of the tribunal are based the material on record as also, in no less measure, on the arguments advanced before it. Our order being at variance with that for AY 2007-07, we restrict the applicability of the same only to the years under appeal, so as not to prejudice the case of either party for any other year. We decide accordingly.”