IN THE INCOME TAX APPELLATE TRIBUNAL
BEFORE SHRI R.P. TOLANI AND SHRI T.S. KAPOOR
ITA No. 4458/Del/11
A.Yrs. 2004-05
DCIT Cir. 11(1),
(Appellant)
Vs.
M/s India International House Ltd.,
4686,
PAN/ GIR No.AAACI 2399P
(Respondent)
AND
C.O. No. 377/
(In ITA No. 4458/Del/11
A.Yr. 2004-05
M/s India International House Ltd.,
4686,
(Appellant)
Vs.
DCIT Cir. 11(1),
(Respondent)
Department by:
Respondent by: Sh. P.K. Rastogi CA
O R D E R
PER R.P. TOLANI, J.M:
This is revenue’s appeal and assessee’s cross-objection against CIT(A)’s order dated
2. Sole effective ground taken by the revenue in its appeal is as under:
“On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs. 93,48,300/- made on account of treatment of design and other charges as capital in nature.”
3. Brief facts are: The assessee is engaged in the manufacturing of hardware made of brass such as electric switch cover, door handles and lock handles etc. Prior to this year the assessee was into exports of these goods to
3.1. Aggrieved, assessee preferred first appeal where assessee relied on plethora of judgments in the cases of:
- CIT Vs. Elecon Engg. Co. Ltd. 170 CTR 267;
- CIT Vs. Greaves Cotton Ltd. 244 ITR 149 (MP);
- CIT Vs. IAEC Pumps Ltd. (1998) 232 ITR 316 (SC);
- CIT Vs. Westerewrk Engineers Ltd. 124 CTR 174 (Bom);
- CIT Vs. Kirloskar Pneumaic Ltd. 202 ITR 309 (Bom.);
- CIT Vs. Praga Tools Ltd. 157 ITR 282;
- CIT Vs. Modi Olivetti Ltd. (2004) 3 SOT 22 (
- CIT Vs. Indian Carbon Ltd. 221 ITR 264;
- CIT Vs. Leke Place Hotels Ltd. 131 Taxman 836 (Raj.);
- CIT Vs. Hari Vignesh Motors Pvt. Ltd. 282 ITR 338 (Mad.);
- Crescent Capacitor Vs. CIT 149 ITR 285 (
- ITO Vs. Bharat Heavy Plate & Vessels Ltd. 38 ITD 299.
3.2. CIT(A) allowed the claim of the assessee by holding that the expenditure in question was revenue in nature. Aggrieved, revenue is in appeal before us. The assessee has filed cross-objection in support of CIT(A)’s order.
4. Learned D.R. relies on the order of Assessing Officer .
5. Learned counsel for the assessee , on the other hand, contends that:
(i) development and remaking of designs is a regular feature of the assessee’s business and is thus process of change of designs is inextricably linked with the profitability of the assessee’s business.
(ii) Assessee was in
(iii) Had assessee not paid designing charges to HBL in that case the alternate assessee would have paid the royalty on the goods exports which would have been clearly allowable. In this case
since HBL insisted for a contract based on providing designs and marketing the assessee’s goods, accordingly it was a commercial decision, based on business acumen.
(iv) Such engineering designs development are incurred for the purpose of expansion/ extension and increasing the range of the products and their utility. The same is done in the regular course of business.
5.1. In this case the agreement was not renewed after one year as the assessee was not able to obtain sufficient number of orders from U.K and thus renewing the agreement would have costed more, resulting in wasteful expenditure. Thus by non-renewal the assessee saved itself from getting into further losses to protect the revenue generating apparatus. Reliance is placed on Hon’ble Supreme Court judgment in the case of Empire Jute Co. Ltd. Vs. CIT 124 ITR 1 (SC) for the proposition that the expenditure incurred by the assessee to conduct its business more effectively and more profitably has integral connection with the profit making process, the same is to be held as revenue expenditure.
5.2. The assessee has relied on number of other judgments which are mentioned in CIT(A)’s order.
6. We have heard rival contentions and gone through the relevant material available on record. As the facts emerge, the assessee was already into the business of manufacture and supply of manufacture in U.S. Market. The entry into the supply of
7. In the result, Revenue’s appeal as well as assessee’s cross-objection stand dismissed.
Order pronounced in open court on
Sd/- Sd/-
(T.S. KAPOOR) (R.P. TOLANI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:
MP
Copy to:
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR