NCLAT: Can’t Dismiss Restoration App. if Filed in 30 Days from Date of Dismissal of Original App.  ||  Delhi HC: Communication between Parties through Whatsapp Constitute Valid Agreement  ||  Delhi HC Seeks Response from Govt. Over Penalties on Petrol Pumps Supplying Fuel to Old Vehicles  ||  Centre Notifies "Unified Waqf Management, Empowerment, Efficiency and Development Rules, 2025"  ||  Del. HC: Can’t Reject TM Owner’s Claim Merely because Defendant Could have Sought Removal of Mark  ||  Bombay HC: Cannot Treat Sole Director of OPC, Parallelly with Separate Legal Entity  ||  Delhi HC: Can Apply 'Family of Marks' Concept to Injunct Specific Marks  ||  HP HC: Can’t Set Aside Ex-Parte Decree for Mere Irregularity  ||  Cal. HC: Order by HC Bench Not Conferred With Determination by Roster is Void  ||  Calcutta HC: Purchase Order Including Arbitration Agreement to Prevail Over Tax Invoice Lacking it    

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