2010 (1) TMI 1271 - AT - Income Tax

Summary

Issues involved: Two appeals by the department and the assessee against the order of the CIT(A) relating to assessment year 2002-03.

Product Development Expenses:
The department appealed against the holding that product development expenses of Rs. 36,97,528 were revenue in nature and allowable u/s 37(1). The AO disallowed the expenses as capital in nature, citing a previous Tribunal decision. The CIT(A) differentiated the case, stating the expenses were for upgrading existing products, not for a new line of business. The Tribunal upheld the CIT(A)'s decision, noting the expenses were revenue in nature as they were incurred in the existing line of business.

Depreciation Recomputation:
The assessee appealed for recomputation of depreciation based on the WDV as on 1.4.1997 by reducing the depreciation allowed for AY 1999-00. The assessee had not claimed depreciation from FY 1996-97 onwards due to a Supreme Court decision. The CIT(A) directed the AO to recompute depreciation for the year under consideration based on the actual disallowed depreciation for AY 1999-00. The Tribunal confirmed this decision, finding it reasonable.

Reopening of Assessment u/s 147:
The issue was against the reopening of assessment u/s 147. The AO reopened the assessment based on depreciation allowed for AY 1999-00. The Tribunal's decision on AY 1999-00 impacted the depreciation for subsequent years, making the issue of reopening assessment academic. Consequently, the appeal of both the department and the assessee was dismissed.

The judgment addressed the disputes regarding the nature of product development expenses, recomputation of depreciation, and the reopening of assessment u/s 147, providing detailed reasoning for each issue and ultimately dismissing the appeals of both parties.