Delhi H.C : the assessee was not financially sound and was a loss-making concern and therefore, instead of claiming the entire deduction for product development expenses as a revenue expenditure in one year, it claimed the deduction on a deferred revenue basis

High Court Of Delhi

CIT vs. Harig Crank Shafts Ltd.

Section 35D, 37(1), 260A

Asst. Year 1997-98, 1998-99

Madan B. Lokur & Manmohan Singh, JJ.

IT Appeal No. 550 of 2006

23rd April, 2008

Counsel appeared :

Ms. Prem Lata Bansal, for the Appellant : Rajan Bhatia, for the Respondent

JUDGMENT

MADAN B. LOKUR, J. :

The Revenue is aggrieved by an order dt. 17th June, 2005 passed by the Tribunal, Delhi Bench ‘G’ in ITA No. 2774 and 2775/Del/2003 relevant for the asst. yrs. 1997-98 and 1998-99.

The assessee had incurred some expenditure to the extent of about Rs. 6.9 crores towards product development. It appears that the assessee was not financially sound and was a loss-making concern and therefore, instead of claiming the entire deduction for product development expenses as a revenue expenditure in one year, it claimed the deduction on a deferred revenue basis.

In the first asst. yr. 1996-97, the AO passed an assessment order under s. 143(3) of the IT Act, 1961, accepting the submission of the assessee and 10 per cent of the expenses were allowed.

In the subsequent years (which is what we are concerned with) the AO apparently treated the claim of the assessee as being under s. 35D of the IT Act, 1961. On this basis, he disallowed the expenditure claimed by the assessee as having been incurred in earlier years. This view was upheld by the Commissioner of Income-tax (Appeals) [‘CIT(A)’].

Aggrieved by the view taken by the AO and the CIT(A), the assessee filed an appeal before the Tribunal and that was decided in favour of the assessee. It is for this reason that the Revenue is now before us.

The Tribunal was of the view that there was nothing to show that the expenditure incurred by the assessee was bogus. On the other hand, it was found as a matter of fact that the expenditure was genuine. In these circumstances, the claim made by the assessee was required to be allowed.

The Tribunal also found that the claim was not under s. 35D of the Act as mentioned by the AO and by the CIT(A) and that there was some confusion in this regard. The claim under s. 35D of the Act was for preliminary expenses and not for product development expenses.

The Tribunal also noted that for the asst. yr. 1996-97, the claim made by the assessee had been allowed by the AO and following the decision of the Supreme Court in Radhasoami Satsang vs. CIT (1991) 100 CTR (SC) 267 : (1992) 193 ITR 321 (SC) it was held that there should be some consistency in the view taken by the assessing authority. The decision of the Supreme Court has been followed by this Court in several cases, including in CIT vs. A.R.J. Security Printers (2003) 183 CTR (Del) 323 : (2003) 264 ITR 276 (Del). To get out of this situation, learned counsel for the Revenue went to the extent of contending that the AO did not apply his mind while passing the assessment order relevant for the asst. yr. 1996-97. We are unable to accept this contention since the order was passed under s. 143(3) of the IT Act. Learned counsel for the Revenue then clarified her contention by saying that this particular aspect of allowing the deduction claimed by the assessee was not specifically dealt with by the AO.

We are of the opinion that in view of the decision of this Court in CIT vs. Kalvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617 : (2002) 256 ITR 1 (Del)(FB) and CIT vs. Eicher Ltd. (2007) 213 CTR (Del) 57 : (2007) 294 ITR 310 (Del), this contention is not open to the Revenue.

In the circumstances, the expenditure having been found to be genuine, the expenditure not having been claimed under s. 35D of the Act and in view of the fact that the expenditure has been accepted earlier by the AO, we are of the opinion that no substantial question of law arises for consideration.

This appeal is accordingly disposed of with costs of Rs. 5,000. The costs shall be deposited by the Revenue within four weeks by way of a cheque drawn in favour of Registrar General of this Court who will utilise the amount for juvenile justice. List this matter for compliance on 28th May, 2008.

[Citation : 325 ITR 304]