TMI Blog2023 (1) TMI 771X X X X Extracts X X X X X X X X Extracts X X X X ..... the judicial precedents are in favour of the assessee that consumables are revenue expenditure and are allowed to the assessee as deduction in the year in which those are put in line of production, Therefore, the order of the learned assessing officer passed after due enquiry about such claim, cannot be held to be erroneous. Allowability of depreciation on technical know-how - During the assessment year 2003 04 that entity amalgamated with the assessee company and the capital work in progress of that company was also taken over by the assessee. The above capital work in progress represented the expenses incurred on finance cost, operating expenses, excise duty, salaries et cetera which were not existing in the form of any tangible form. However, in September 2000, fire took place and the plant and machinery were damaged. The assessee claimed subsequently depreciation on that plant and machinery, therefore the learned and CIT was of the view that when the asset itself is not in existence, the assessee is not entitled to any depreciation. However the fact clearly shows that the above plants were rebuilt in 2001, based on technical feasibility it was held to be utilizable. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of appeal: GROUND I: 1.1. On the facts and in circumstances of the case and in law, the Commissioner of Income tax (Large Taxpayer Unit), Mumbai ( the CIT ) erred in invoking the jurisdiction u/s. 263 of the Income Tax Act, 1961 ( the Act ) on the alleged ground that the assessment order passed by the Assistant Commissioner of Income tax (LTU), Mumbai ( the AO ) u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 ( the Act ) was erroneous to the extent of the expenditure on catalyst claimed as revenue expenditure u/s. 37(1) of the Act and depreciation claimed u/s. 32(1) of the Act on Technical Know-how and Embedded Process Technology of Rasal Unit. 1.2. The Learned CIT erred in not appreciating the fact that the AO had already applied his mind during the course of assessment proceedings by raising specific queries and accepting the details and replies filed by the Appellant on the said issues raised u/s. 263 of the Act and as such the order passed by the AO would not be held as erroneous. 1.3. The Learned CIT further erred in not appreciating the fact that the AO had allowed Appellant's claim by taking a plausible view and as such the order of the AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of income and book profit u/s. 115JB of the Act was shown at ₹Nil. 04. The above return of income was picked up for scrutiny. As assessee has entered into international transactions reference was made to the Ld. Transfer Pricing Officer to determine the Arm s Length Price of international transactions. By order dated 28.01.2013, ld TPO passed order u/s. 92CA (3) of the Act, an adjustment of ₹45,78,73,000/- was made. Consequently, the draft order was passed on 28.02.2013. Assessee filed objection before the DRP- 2, Mumbai on 29.11.2013 wherein the transfer pricing adjustment was modified to ₹10,97,84,000/-. Consequent to that, assessment order u/s. 143(3) r.w.s. 144C (13) was passed determining total income of the assessee at loss of ₹ 14,28,98,820. The ld. AO a. Disallowed ₹30,22,002/- being expenditure incurred u/s. 35(1)(iv) of the Act. b. Disallowance u/s. 14(A) was determined at ₹2,79,011 against exempt income earned by the assessee. c. Certain sundry balances were written off , so an addition of ₹1,40,823/- was made thereon. d. There were certain differences and mismatch in Form No. 26AS accordingly, addition of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f deduction of catalyst expenditure was examined by the ld. AO starting with the A.Y. 2006-07 to 2008-09 where the query was raised and the ld.AO allowed the claim of the assessee. Only in A.Y. 2009-10, despite AO allowing the same, the ld. CIT has invoked the provision of 263 of the Income Tax Act. It is not the case of the ld.CIT that AO has not examined the same. The ld.AR put to our attention the queries raised by the AO on the same issue for A.Y. 2006-07 to 2010-11 where in assessment order passed u/s. 143(3) of the Act allowing the claim of the assessee. It was submitted that the ld.AO has applied his mind on the issue for several years, and has correctly allowed the above expenditure. He is submitted that mere CIT holding a different view does not empowered him to invoke provisions of Section 263 of the Act. ii. It was further submitted that identical issue of catalyst expenditure and its allowability of revenue expenditure has been decided by the co-ordinate bench in case of JCIT vs. Tirumalai Chemcials Ltd 9 SOT 744 wherein the catalyst were held to be a revenue expenditure iii. merely because in the books of accounts Expenditure were shown as deferred expenditure th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-07, depreciation was allowed. Therefore, revision proceedings for 2009-10 are not sustainable on this issue. xi. It was further stated that the claim of depreciation on embedded processed technology and technical know-how was not interfered for A.Y. 2007-08 2008-09. xii. It was further stated that individual assets were added to the block of assets during the F.Y. 2005-06, depreciation was claimed and allowed. The individual assets have lost its identity once those are part of the block of assets and separate written down value cannot be determined of individual assets. xiii. It was further stated that the claim of depreciation is required to be examined in the first year of its claim, therefore, in subsequent years; it could not have been disturbed. xiv. It was further stated that since the ld.AO does not have power to deny depreciation on building, plant and machinery or technical know-how this year, consequently, the ld.CIT also does not have the power to withdraw the claim. Therefore, it was stated that the order of the ld.CIT is not sustainable in law. 08. The ld. AR submitted that for A.Y. 2010-11, the provision of Section 263 of the Act was invoked only wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... talyst should be allowed in computing the total income even though the same has been amortized in the books of accounts and the life of catalyst is more than 2 years. This was replied by the assessee by the letter dated 18.12.2012 by submitting the detailed note on catalyst. Based on this, ld.AO allowed the claim of the assessee. It is also apparent that in earlier years the ld.AO raised similar kind of query and has allowed the claim of the assessee. 012. Whether catalyst expenditure is a revenue expenditure and is allowable in the year in which it is issued to production line, It was held that they have merely used as consumables, is decided in favour of assessee in following judicial precedents:- i. JCIT vs. Tirumalai Chemicals Ltd in 25 CCH 281 ii. DCIT V Aditya Birla Nuvo Limited 67 taxmann.80 iii. Cibatul Limited V DCIt 118 taxman 28 ( Ahd) 013. No judicial precedent was shown to us that consumables are capital expenditure and those are not allowable in the year of use in production line. Thus, the view taken by the LD AO is a plausible and sustainable view. Further, the identical view has been taken by the learned assessing officer of the detailed examination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2008 09. In view of this, it was stated that the technical know-how has been used and is eligible for depreciation. Thus on the above basis the assessee is eligible for depreciation on the above technical know-how. All depreciation schedules for respective assessment years starting from financial year 2005 06 onwards are available on file itself. We also carefully gone through the notice issued under section 263 of the act dated 25/2/2016. In paragraph number 3.1 the learned CIT is referring that depreciation allowed on building and plant and machinery is not correct for assessment year 2009 10 where such assets were already destroyed in September 2000. The order passed under section 263 dated 29/3/2016; in paragraph number 7, the learned PCIT is referring the claim of depreciation on know-how. The assessment order passed by the learned assessing officer under section 143 (3) read with section 263 of the income tax act dated 29/7/2016 resulted into disallowance of disallowance of depreciation amounting to ₹ 7,265,473/ which included the depreciation on building and plant and machinery. Thus, the learned assessing officer did not disallow the depreciation only on tec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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