Commissioner Of Income Tax,Faridabad v. M/S. A.r. Industries Pvt. Ltd.faridabad

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 272 of 2006Date of Decision: 1.12.2010 Commissioner of Income Tax,Faridabad --- Appellant Versus M/s. A.R. Industries Pvt. Ltd.Faridabad --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT:Ms. Urvashi Dhugga, Standing Counselfor the appellant-Revenue. Mr. S.K. Mukhi, Advocatefor the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated3.5.2005, passed by the Income Tax Appellate Tribunal, Delhi Bench‘SMC’ New Delhi, (in short “the Tribunal”) in ITA No. 3706/DEL/2004,relating to the assessment year 2000-01. The appeal was admitted for determination of the followingsubstantial question of law by this Court: “Whether on the facts and in the circumstances of the case,the ITAT was right in law in holding the expenditure ofRs.9,20,000/- incurred for development of new models andsamples as Revenue expenditure in nature?” The facts necessary for adjudication, as narrated in the appealare that the assessee filed its return for the assessment year in questiondeclaring loss of Rs. 14,23,090/-. The assessment under Section 143(3)was completed at a loss of Rs. 3,08,229/- vide order dated 28.3.2003.During assessment proceedings, it was noticed that the assessee haddeducted a sum of Rs. 9,20,000/- on account of development charges. Inresponse to the query made by the assessing officer, the assesseeexplained that the development charges of Rs. 9,20,000/- comprised ofraw material, foundry chemicals, labour charges, fuel etc.. Finding theexplanation not satisfactory, the expenditure of Rs. 9,20,000/- was treatedas capital expenditure and deduction of that amount was disallowed. Theassessing officer disallowed certain other deductions also, which are notbeing noticed as the same are not challenged before this Court. The Commissioner of Income Tax (Appeals), [hereinafterreferred to as “CIT(A)”] vide order dated 26.7.2004, confirmed thedisallowance made by the assessing officer. Aggrieved thereby, theassessee carried appeal before the Tribunal. The Tribunal did not approvethe approach of the assessing officer and the CIT(A) and consequentlydeleted the disallowance made by the assessing officer and confirmed bythe CIT(A). It is how the Revenue is in appeal before this Court. We have heard learned counsel for the parties and perused The point for consideration in this appeal is, whether a sum ofRs. 9,20,000/- which according to the assessee was incurred asexpenditure for development of new models and samples of the vehicles,was admissible as revenue expenses? The Tribunal, after examining the matter, recorded as under: It is how the Revenue is in appeal before this Court. We have heard learned counsel for the parties and perused The point for consideration in this appeal is, whether a sum ofRs. 9,20,000/- which according to the assessee was incurred asexpenditure for development of new models and samples of the vehicles,was admissible as revenue expenses? The Tribunal, after examining the matter, recorded as under: “After considering the rival submissions, I find that assesseedeserves to succeed on this ground. There is no dispute thatthe expenses were incurred and the payments were made bythe assessee company. The expenses were incurred oncastings, labour and electricity. These expenses cannot beheld capital in nature because they did not have any benefit ofenduring nature. The samples were prepared for getting theorder from various companies i.e. Mahindra & Mahindra,Balero, Scorpio and Tata Indica. The samples were sent forapproval of the product and thereafter the product wasproduced. Therefore, any expenditure incurred on samplesand on castings for preparing the samples cannot be heldcapital in nature. I further note that the assessee companyfiled return showing loss. Therefore, it cannot be said thatthere was any motive behind the expenditure shown asrevenue as there was no effect on revenue. The assessedincome of the assessee is in negative figure, therefore, for thisreason also I am of the view that the expenditure incurred byassessee are allowable as revenue in nature. In view of allthese facts and circumstances, I direct the AO to treat theseexpenses as revenue in nature and allow the same.” A categorical finding has been recorded that samples wereprepared for getting orders from various companies, like, Mahindera andMahindera, Bolero, Scorpio and Tata Indica. The assessee had sent thesamples for approval and after having received the consent from saidcompanies, production was carried out. The expenditure which wasincurred on the samples and casting could not be held to be capital innature. No fault could be pointed out by the learned counsel for theappellant in the order of the Tribunal. In view of the above finding, thesubstantial question is decided against the Revenue and in favour of theassessee. The appeal is accordingly dismissed. (AJAY KUMAR MITTAL)JUDGE (ADARSH KUMAR GOEL)JUDGE