Kerala High Court: ED Can Investigate Without FIR in Scheduled Offence Cases (CMRL Matter)  ||  Delhi High Court Upholds TRAI Rule Capping TV Advertisements at 12 Minutes Per Hour  ||  Supreme Court Directs High Courts to Deliver Judgments in 3 Months and Bail Orders in One Day  ||  Supreme Court: Successful Resolution Applicant Cannot Negotiate Further After CoC Approval  ||  Supreme Court: Succession Law Applies, Not Primogeniture, to Ex-Royal’s Private Estate Inheritance  ||  Supreme Court: Writ Jurisdiction Cannot Challenge Arbitrator’s Section 16 Decision  ||  Supreme Court: Sanyasi Status Cannot Be Ground to Reject Land Compensation Claim  ||  Supreme Court: Section 33(1)(a) of Arbitration Act Cannot Alter Nature of Interest in Award  ||  Supreme Court: Society Office Bearers Not Liable for Cheque Dishonour Without Active Business Role  ||  Supreme Court: Asking a Woman to Adjust in Marriage Does Not Amount to Cruelty By In-Laws    

Mahale Behr India Pvt. Ltd. Vs. Deputy Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (17 May 2022)

Expenditure incurred for up-gradation of existing products is revenue expenditure

MANU/IP/0221/2022

Direct Taxation

The issue in the present appeal relates to the allowability of the expenditure claimed as product development expenses of Rs.1,42,39,571 as revenue expenditure. The Appellant Company incurred a sum of Rs.1,42,39,571 as product development expenses. The nature of the expenditure was explained by the Appellant company before the Assessing Officer that, the Appellant is in the business of manufacture and sale of air conditioning systems and its part and components thereof for its customers Indica Car of Tata Motors Limited and Mahindra and Mahindra since 1999. The Assessing Officer held that, the expenditure was incurred on the development of products and designs for which the assessee had obtained the patents and, therefore, the expenditure is capital in nature.

On appeal before the learned CIT(A), the learned CIT(A) taking into consideration the fact that the Appellant had tested new prototypes for which the customers have reimbursed the expenses on sale of prototypes. Learned CIT(A) also held that there is new line of product and therefore such expenditure ought to have been capitalized and, accordingly, confirmed the action of the Assessing Officer. The issue in the present appeal relates to whether or not the expenditure incurred on testing and validation of the products is capital in nature.

Undisputedly, the Appellant is in the business of manufacturing of automotive components since 1999. As result of this expenditure, no new asset has been created nor new product did actually materialize. The expenditure was only incurred for the purpose of facilitating the existing business of manufacturing of automotive components and enabling the management to conduct the business operations more efficiently and productively. The Hon'ble Supreme Court in the case of (i) Empire Jute Co. Ltd. v. CIT and (ii) Alembic Chemical Works Co. Ltd. v. CIT, held that expenditure incurred on the existing business incurred in connection with the existing business. Updating existing products should be allowed as revenue expenditure.

The expenditure was incurred only up-gradation of existing products, present Tribunal is of the considered opinion that the expenditure is not in the nature of capital but revenue expenditure. Accordingly, the Assessing Officer is directed to allow the expenditure as revenue nature. The appeal filed by the assessee stands allowed.

Tags : ASSESSMENT   EXPENDITURE   NATURE  

Share :        

Disclaimer | Copyright 2026 - All Rights Reserved