Madras HC: Repeated Remand Orders U/S 37 A&C Act are Unworkable Without Reversing Merits  ||  Delhi High Court: Unproven Immoral Conduct of a Parent Cannot Influence Child Custody Decisions  ||  Delhi High Court: Counsel Cannot Treat Passovers or Adjournments as an Automatic Right  ||  Delhi HC: Landlord’s Rent Control Act Rights Cannot be Waived by Contract With Tenant  ||  Bom HC: Arbitrator Who Halts Proceedings over Unpaid Revised Fees Effectively Withdraws From Office  ||  SC Holds That if Some Offences Are Quashed On Compromise, The FIR Cannot Continue For Others  ||  SC Holds That Prior Opportunity to See Accused Can Render Test Identification Proceeding Unreliable  ||  Allahabad HC: Employees of Constituent Institutions are not Entitled to Central University Benefits  ||  Calcutta High Court: Juvenile Accused Eligible to Apply for Anticipatory Bail under Section 438 CrPC  ||  J&K & L HC: Departmental Proceedings Not Halted by Pending Criminal Case Without Showing Prejudice    

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 2025 - All Rights Reserved