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2015 (11) TMI 1374 - ITAT PUNE

2015 (11) TMI 1374 - ITAT PUNE - TMI - Expenditure incurred towards product and development expenditure - revenue v/s capital expenditure - CIT(A) treated as revenue - Held that:- Admittedly, the assessee is engaged in the business of manufacture and sale of highway axles and components for tractors, earth moving equipment etc. Since the market is very competitive one, the assessee has to come out with new features in the products to remain in the field. Therefore, it is a necessity for the asse .....

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cts and circumstances of the case is very negligible for which it cannot be considered as capital in nature. In view of the above and in view of the detailed reasoning given by the Ld.CIT(A), we find no infirmity in the order of the CIT(A) on this issue - Decided against revenue

Expenditure incurred towards shifting of its manufacturing operations - revenue v/s capital expenditure - CIT(A) treated as revenue - Held that:- Shifting expenditure incurred by the assessee is for carrying o .....

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his order for earlier years in assessee’s own case, disallowed warranty provision made during the year. We find the Tribunal in assessee’s own case for A.Y. 2006-07 has deleted such disallowance. Since the issue has already been decided by the Tribunal in favour of the assessee, therefore, in absence of any contrary material brought to our notice against the order of the Tribunal in assessee’s own case, on this issue, we find no infirmity in the order of the CIT(A) deleting such addition - Decid .....

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was justified in treating the expenditure incurred towards product and development expenditure as revenue in nature, when in fact the benefit of enduring nature is sought to be obtained by incurring the same? 3. Facts of the case, in brief, are that the assessee is a company engaged in the business of manufacture and sale of highway axles and components for tractors, earth moving equipment etc. During the course of assessment proceedings the AO noticed that the assessee has debited an amount of .....

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nto existence an asset or advantage of an enduring benefit to the business which is being carried on, or for extension of the business that is going on, or for a substantial replacement of an existing business asset, the same would be capital expenditure. From the head of expenditure, i.e. product development expenditure it is very much clear that it will give enduring benefit to the assessee. Relying on the decision of the DRP in the case of Behr India Ltd. for A.Y. 2006-07 the AO treated the e .....

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he file of the AO for fresh adjudication. 5. Based on the arguments advanced by the assessee the Ld.CIT(A) deleted the addition by observing as under : 6.1 The appellant is engaged in the business of manufacture & sale of off highway axles for tractors, earthmoving equipment, etc. The appellant has incurred the Product development expenses on testing and processing of tools owned by the customer and kept with the appellant for the purpose of processing in the ordinary course of conduct of ap .....

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and exclusively for the purpose of appellant's business operations. The appellant has placed reliance in support of the claim for deduction of Product development expenses on the decision of Hon'ble Gujarat High Court wherein it is held that the Product & Development expenditure incurred in connection with the testing of the product and not in connection with the testing of owned machinery or plant installed in order to manufacture the product does not bring into existence any capita .....

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rting the order of the CIT(A) submitted that because of the competition in the market the assessee has to come out with new features every year to remain in the field. Therefore, there is constant upgradation of the original product already manufactured and sold by the assessee. He submitted that the said recurring expenses consist of performance tests, reimbursement of prototype development of components/sub-parts and testing expenses. Such expenses have not resulted into creation or acquisitio .....

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asis in the operation of assessee s business and therefore fully allowable in the year of incurring of expenses. Referring to the decision of Hon ble Gujarat High Court in the case of Gujarat Small scale Industries Corporation Ltd. Vs. CIT reported in 142 ITR 35 he submitted that the Hon ble High Court in the said decision has held that expenditure incurred after the manufacturing of a product but before marketing it in order to test its quality and suitability for market is a revenue expenditur .....

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pment expenditure incurred by the assessee as capital expenditure in nature as against revenue in nature treated by the assessee. After allowing depreciation of ₹ 67,806/- out of the total expenditure of ₹ 2,71,223/- the AO made addition of ₹ 2,03,417/- to the total income of the assessee. We find the Ld.CIT(A) following the decision of the Hon ble Gujarat High Court in the case of Gujarat Small scale Industries Corporation (Supra) held that the product development expenditure .....

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ble Gujarat High Court in the case of Gujarat Small scale Industries Corporation (Supra) has held that expenses incurred after the manufacture of a product but before marketing it in order to test its quality and suitability for marketing is revenue expenditure in nature. Similar view has been taken by the Coordinate Bench of the Tribunal in the case of sister concern of the assessee, i.e. Spicer India Ltd. (Supra). The various other decisions relied on by the Ld. Counsel for the assessee also s .....

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the revenue reads as under : 2. Whether on the facts and in the circumstances of the case, the CIT(A) was justified in treating the expenditure incurred towards shifting of its manufacturing operations as revenue in nature, when the nature of the expense itself suggest that it is not a recurring expenditure and is incurred very few times in the entire business life of the assessee? 11. Facts of the case, in brief, are that the assessee in its profit and loss account has debited an amount of  .....

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ase of Sitalpur Sugar Works Ltd. reported in 49 ITR 160 the AO held that the expenditure of ₹ 6,70,000/- on account of shifting expenses is capital in nature. He accordingly disallowed the same and added to the total income of the assessee. 12. In appeal the Ld.CIT(A) deleted the addition by observing as under : 6.3 Ground No.3 is regarding disallowance of ₹ 6,70,000/- incurred by the appellant towards shifting of its manufacturing operations from former rented location at Chakan to .....

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s a revenue expenditure. In support of its contention, the appellant has placed reliance in the case of L Ltd. (supra). In view of the above facts and in the circumstances of the case, the disallowance of ₹ 6,70,000/- is deleted. 13. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 14. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered t .....

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evant observation of the Tribunal at para 6 of the order reads as under : 6. We have considered the submissions made by both the sides. It is evident that the facts of the case are entirely different from the facts existing in the case of Sitalpur Sugar Works Ltd (1). on which the Revenue relies. In that case the assessee, doing business of manufacturing sugar at Sitalpur, found that the place suffered from ravages of floods and the quality of sugarcane was not in sufficient quantity there. With .....

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had in its previous set up. The Supreme Court did not lay down Assistant a general rule that shifting expenses should in every case be considered Assistant capital expenditure. We are in fact aware that in another High Court decision shifting expenses have been allowed Assistant revenue expenditure, though we cannot readily lay our hands thereon, nor has the assessee brought that decision to our notice. The facts on record indicate that the assessee which was carrying on business in a convenient .....

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al in nature.s.37(1) authorises the assessee to claim Assistant allowable any expenditure not in the nature of capital or personal expenses, which is laid out or expended wholly and exclusively for the purpose of business. The expenditure in question is surely laid out wholly and exclusively for the purpose of business and was not in the nature of capital expenditure. We, therefore, hold that the authorities below were wrong in not allowing the expenditure, and we direct the Income-tax Officer t .....

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. Whether on the facts and in the circumstances of the case, the CIT(A) was justified in deleting the disallowance made on the issue of provision for warranty, without appreciating that the provision has not been made on a scientific basis? 17. Facts of the case, in brief, are that the assessee has shown warranty provision of ₹ 21,49,404/- in the balance sheet. In the notes to computation of total income, the assessee has stated that As per its sales policy, during the warranty period, the .....

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deduction in the return of income . The AO, therefore, asked the assessee to justify the claim of expense on account of provision for warranty of ₹ 21,49,404/- along with basis for computation of provisions, details of provision claimed in the earlier year and returned back during the year, amount not being utilized etc. Since there was no response from the assessee and since the warranty provision made during the year was ₹ 7,96,200/-, the AO following the orders of his predecessors .....

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sions of the appellant. After hearing the appellant I find that this issue is squarely covered in favour of the assessee by the decision of the Tribunal in I.T.A. No.1805/PN/2012 dated 22/10/2013 in assessee's own case for A.Y. 2006-07 wherein the issue has been decided as under:- "We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We find the Ld. CIT(A) while decid .....

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e amount of ₹ 12,70,996/- provided on account of warranty liability during the year was reversed back in next year and actual expenses were shown at ₹ 18.87 lakhs, therefore, in view of the decision of Hon'ble Supreme Court in the case of Rotork Controls India Pvt. Ltd. (Supra) we find no infirmity in the order of the Ld. CIT(A) deleting the addition. Accordingly, the same is upheld. The grounds raised by the revenue are dismissed". 6.5 It is further brought to my notice tha .....

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