2009 (9) TMI 159 - HC - Income Tax

Assessing Officer (AO) disallowed the claim of additional depreciation only on the ground that in the original return filed by the assessee the assessee had not furnished Form No. 3AA. This decision of the Assessing Officer was reversed by the Commissioner of Income-tax (Appeals) on the ground that even the revised return was filed within the limitation period and therefore this could not be a ground for disallowance - Tribunal rightly upheld the order of Commissioner inasmuch as a very hyper-technical view was taken by the Assessing Officer in disallowing the additional depreciation. Royalty paid by the assessee to the Korean company at rate calculated per piece of production - Further finding of the Commissioner of Income-tax (Appeals) that payment of royalty was purely a revenue expenditure which was annual expenditure depnding upon the quantum of production in the relevant year as approved by the Income-tax Appellate Tribunal is a finding of fact

Summary

The High Court of Delhi, in the case of 2009 (9) TMI 159 - DELHI HIGH COURT, was presided over by A. K. SIKRI and VALMIKI J. MEHTA JJ. The respondent had initially declared an income of Rs. 10.36 crores under the MAT scheme, later revising the return to claim additional depreciation. The Assessing Officer disallowed the claim due to the absence of Form No. 3AA in the original return, which was later reversed by the Commissioner of Income-tax (Appeals) and upheld by the Income-tax Appellate Tribunal. The court concurred that the furnishing of Form No. 3AA was not mandatory.

Additionally, the Assessing Officer disallowed royalty payments to a Korean company as capital expenditure, which was later reversed by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal. The court found that the royalty was a revenue expenditure, as per the agreement between the parties. The court emphasized that expenditure is an annual expense depending on the production quantity in the relevant year.

The judgment referred to CIT v. J. K. Synthetics Ltd. [2009] 309 ITR 371 (Delhi) to determine whether expenditure is capital or revenue. The court analyzed the nature of the technical aid grant and found that the expenditure was of a revenue nature. The Tribunal correctly distinguished the case of Southern Switchgears Ltd. v. CIT [1998] 232 YFR 359, where royalty was treated as capital expenditure due to lump sum payments, unlike the present case where royalty was based on the quantity of goods produced. The court concluded that the judgment was not applicable to the current case.