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JCB India Ltd Versus Versus Asstt Commissioner Of Income Tax

2015 (6) TMI 924 - ITAT DELHI

Reopening of assessment - disallowance of development charges - Held that:- It is an undisputed position that expenses in question are incurred on testing the performance of local components vis-à-vis similar components used outside India, to improve performance, import substitution and monitoring compliance with safety standards, and for bench marking performance of it's products. This exercise is essentially a continuous process which permeates different accounting years, and does not result i .....

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Sudhir And Pramod Kumar JJ. For the Appellant : G C Srivastava & Sourabh Srivastava, For the Respondent : P Dam Kaunajma ORDER Per: Pramod Kumar: 1. This appeal, filed by the assessee, is directed against the order dated 30th March, 2013 passed by the learned CIT(A) in the matter of assessment under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as the Act'), for the assessment year 2004-05.2. Grievances of the assessee, as pressed before us, are as follo .....

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had recorded in the reasons for reopening of the assessment that depreciation @ 25% was allowable on the development charges. 3. It is a case of reopened assessment and one of the reasons for reopening the assessment was that the assessee had claimed an expenditure of ₹ 1,87,31,381/- against development charges in the profit and loss account, whereas, according to the Assessing Officer, since the "expenditure is on machine, the expenditure so made should have been capitalised and the .....

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in this head inter alia includes expenses on:- Testing the performance of local components (vendor & JCB India vis-a-vis similar components used in JCB machines outside India.- Component testing/research to improve performance, import substitution and monitor compliance with prescribed safety standards. - Testing of competitor machines/components to benchmark performance of JCB machines/components" 4. This explanation, however, did not impress the Assessing Officer. He proceeded to reje .....

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r lines, the development charges amounting to ₹ 1,87,31,381/- debited to the P&L account during the year under consideration revenue expenditure are held to be expenses of capital in nature. Therefore, the development expenses of ₹ 1,87,31,381/- are disallowed. Accordingly, an addition of ₹ 1,87,31,381/- is made." 5. Aggrieved by the disallowances made, assessee carried the matter in appeal before the ld. CIT(A) but without any success,. While rejecting the grievance o .....

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e of the nature described in sections 30 to 36 and the expenditure which is in the nature of capital expenditure or personal expenses of the assessee. In the case of Atherton Vs. British Insulated & Helsby Cables Ltd. (1925) 10 Tax Cases 155 (HL), the assessee company claimed to deduct a sum which it had settled upon trust to forma the nucleus of a pension fund for its employees. The House of Lords rejected the claim on the ground that the expenditure was capital in nature. In this case, the .....

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CIT vs. Finlay Mills Ltd. (1951) 20 ITR 475 (SC) at p. 477, in the case of Indian Molasses Col. Ltd. Vs. CIT (1959) 37 ITR 66 (SC) at p. 162. Further, this principle of law has been explained by the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT (1980) 17 CTR (SC) 113: (1980) 124 ITR 1 (SC) In this case, the Hon'ble Supreme Court has laid down the following principles of law :- (i) It is not a universally true proposition that what may be a capital receipt in the hands .....

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of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on m .....

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is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency. On the analysis of the above quoted decisions, the following principles of law emerge:- (i) Generally. When the expenditure is incurred for obtaining an advantage of enduring benefit, it would be on capital account. So, how .....

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by the appellant show that the expense has been incurred on payment of testing charges which have resulted in enduring benefit to the appellant. Since the expenditure incurred by the appellant has resulted into enduring benefit to the appellant, and therefore, the expenses are capital in nature. In view of the findings above the disallowance made by the AO is as per law. This ground of appeal is dismissed." 6. The assessee is not satisfied with the stand so taken by the learned CIT(A) and i .....

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. Ground no.2 of the assessee's appeal is covered in favour of the assessee by the decision of this Bench of the Tribunal in the assessee's own case for the Assessment Year 1996-97, wherein the Tribunal followed its own order for the Assessment Year 1994-95 order dt. 27th December, 2012 and for the Assessment Year 1995-96 vide order dt. 25th Feb., 2004. It was submitted to us that the department has accepted this decision of the ITAT on this issue. The Ld. D.R. could not controvert these .....

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