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2007 (11) TMI 260 - HC - Income TaxAssessee owned a bottling plant & manufactured soft drinks assessee is an industrial establishment already set up but had launched a new product - assessee is entitled to deduction u/s 37(3D) in respect of the expenditure on advertisement and publicity incurred on launch of its new product - held that the settle (bottles) and crates in the assessee s case do not constitute its stock-in-trade and should be treated as plant hence bottles & crates are entitled to depreciation as plant
Issues Involved:
1. Whether the Income-tax Appellate Tribunal is legally correct in permitting the assessee to change its method of accounting in respect of bottles and crates and in concluding that bottles and crates constitute 'plant' disregarding past practices. 2. Whether the Income-tax Appellate Tribunal is legally correct in holding that the bottles and crates do not constitute stock-in-trade and should be treated as 'plant'. 3. Whether the assessee is entitled to change its method of accounting in respect of bottles and crates disregarding previous High Court decisions. 4. Whether the assessee is entitled to benefit under section 37(3D) of the Income-tax Act for advertisement expenditure incurred on launching a new product. Detailed Analysis: Issue 1: Change of Accounting Method and Classification of Bottles and Crates as 'Plant' The court examined whether the Income-tax Appellate Tribunal (ITAT) was correct in allowing the assessee to change its accounting method and classify bottles and crates as 'plant'. The assessee, a private limited company, initially treated bottles and crates as stock-in-trade but later claimed 100% depreciation under section 32(1)(ii) treating them as 'plant'. The Assessing Officer rejected this claim, but the Commissioner of Income-tax (Appeals) and subsequently the ITAT upheld it. The court referenced its earlier decision in CIT v. Agra Beverages Corpn. P. Ltd. [2008] 300 ITR 295, affirming that bottles and crates should be treated as 'plant'. The court relied on precedents from other High Courts, including CIT v. Prem Nath Monga Bottlers P. Ltd. [1997] 226 ITR 864 (Delhi) and CIT v. Saurashtra Bottling P. Ltd. [1997] 232 ITR 270 (Guj). Thus, the court answered this question in favor of the assessee. Issue 2: Classification of Bottles and Crates as 'Plant' vs. Stock-in-Trade The court addressed whether the ITAT was correct in holding that bottles and crates should be treated as 'plant' rather than stock-in-trade. The court reiterated its position from previous judgments, emphasizing that the classification of bottles and crates as 'plant' was appropriate given their use in the business of manufacturing soft drinks. The court confirmed that the ITAT's decision was legally sound and supported by precedent, thereby ruling in favor of the assessee. Issue 3: Entitlement to Change Accounting Method The court considered whether the assessee could change its accounting method disregarding previous decisions such as Balraj Virmani v. CIT [1974] 97 ITR 69. The court did not find any compelling reason to deviate from its earlier stance that allowed the assessee to change its accounting method. The court maintained that the assessee's revised method of accounting, which treated bottles and crates as 'plant', was permissible and consistent with legal precedents. Issue 4: Benefit under Section 37(3D) for Advertisement Expenditure The court examined whether the assessee was entitled to the benefit under section 37(3D) for advertisement expenses incurred in launching a new product. The assessee argued that the phrase "set up an industrial undertaking" did not necessitate the establishment of a new unit but could apply to existing units launching new products. The court agreed, noting that section 37(3D) aimed to encourage diversification and promotional activities for new products by existing industrial undertakings. The court cited the Andhra Pradesh High Court's decision in CIT v. Hyderabad Bottling Co. P. Ltd. [2000] 243 ITR 476, which supported this interpretation. The court concluded that the assessee was entitled to the benefit under section 37(3D) and overturned the Tribunal's contrary decision. Conclusion: The court ruled in favor of the assessee on all issues, affirming that: 1. The ITAT was correct in permitting the change in accounting method and classifying bottles and crates as 'plant'. 2. Bottles and crates should be treated as 'plant' and not stock-in-trade. 3. The assessee was entitled to change its accounting method. 4. The assessee was eligible for the benefit under section 37(3D) for advertisement expenses on launching a new product. There was no order as to costs.
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