2019 (7) TMI 870 - AT - Income Tax

Rectification u/s 254 - allowability of revenue expenses - whether assessee has set up its business or not during the year under consideration, which had a bearing on allowability of expenses as claimed by assessee while computing income of the assessee for relevant AY? - HELD THAT - Tooling are part of capital expenditure for setting up manufacturing and assembly unit for aircraft structures at Hyderabad albeit same were provided by Lockheed Martin, USA under JV agreement, The Lockheed Martin shall continue to be the owner of these tools and will be dealt with in its books of accounts by Lockheed Martin. The assessee was to be provided with these tools by Lockheed Martin free of cost without any rent. The Lockheed Martin in order to provide these tools to assessee vide its contractual obligation, instead purchased these tools from assessee who inturn got it fabricated from TCS, Tata Technologies Limited and TAL Manufacturing Solutions Limited. Thus, the assessee in order to get these tools manufactured granted further sub-contract to TCS,TTL and TAL. Thus, to the extent the tribunal order dated 08.08.2018 held that these tools are to be capitalised in the books of accounts of the assessee is definitely an mistake which crept in the order dated 08.08.2018 dehors JV agreement and Tooling agreement now produced before the Bench in MA proceedings and we hold that this mistake where-ever it occurs in the appellate order dated 08.08.2018 passed by tribunal stands corrected, because these tools were the property of Lockheed Martin, USA and not the assessee and accordingly shall be accounted for in the books of accounts of Lockheed Martin. This MA is to be partly allowed so far as to correct mistake which crept in tribunal order dated 08.08.2018 which were owing to non production of JV agreement and Tooling agreement before the tribunal when the appeal was originally heard on 10.07.2018, which mistakes we dealt with as above and ordered for their correction but so far as ultimate decision/conclusions taken by tribunal vide order dated 08.08.2018 that the business of the assessee was not set up till the end of previous year and the assessee cannot be allowed deduction of ₹ 2,10,11,032/- as revenue expenses for the year under consideration had not been shaken in this MA proceedings as these mistakes as pointed out by assessee which crept in the aforesaid order dated 08.08.2018 passed by tribunal are not significant to recall the order of the tribunal qua ground no. 2(a) to 2(c). The scope under Section 254(2) of the 1961 Act is very limited to correcting mistakes apparent from records and not to review the decision taken earlier by tribunal. We have ordered rectification of mistakes which crept in the order dated 08.08.2018 passed by tribunal vide this MA order which in our considered view shall redress grievance of the assessee but we are afraid that the final decision taken by the tribunal vide its order dated 08.08.2018 cannot be changed as it remained unshaken. Thus, this MA is partly allowed as indicated above.

Summary

Issues Involved:
1. Whether the assessee's business was set up during the year under consideration.
2. Allowability of expenses claimed by the assessee as revenue expenses.
3. Rectification of mistakes in the tribunal's order.

Issue-Wise Detailed Analysis:

1. Whether the assessee's business was set up during the year under consideration:
The tribunal examined whether the assessee had set up its business during the relevant assessment year, which would affect the allowability of claimed expenses. The assessee, a joint venture between Tata Advanced Systems Ltd. and Lockheed Martin Aerostructure Corporation, was in the process of setting up a manufacturing unit for aircraft structural articles in Hyderabad. The tribunal found that the business was not set up during the year as the manufacturing unit was still under construction and not operational by the end of the relevant year. Consequently, the tribunal held that the expenses incurred were pre-operative and could not be allowed as business expenses.

2. Allowability of expenses claimed by the assessee as revenue expenses:
The assessee claimed expenses amounting to ?2,10,11,032/- as revenue expenses, which included personnel, office, and administrative expenses. The tribunal, however, held that these expenses were pre-operative in nature and should be capitalized as part of the project cost. The tribunal noted that the assessee's activities, such as employing technical staff and reviewing assembly operation sheets, were preparatory steps for setting up the manufacturing unit and did not constitute the commencement of business operations. Therefore, the tribunal disallowed the claimed expenses as revenue expenses.

3. Rectification of mistakes in the tribunal's order:
The assessee filed a Miscellaneous Application under Section 254(2) of the Income-tax Act, 1961, seeking rectification of mistakes in the tribunal's order dated 08.08.2018. The assessee argued that the tribunal erred in holding that the tools and jigs were to be capitalized in its books and that Lockheed Martin was responsible for setting up the project. The assessee presented two agreements—the JV agreement and the Tooling agreement—to support its claims. Upon review, the tribunal acknowledged the mistakes and corrected them, clarifying that the tools and jigs were the property of Lockheed Martin and should be accounted for in its books. The tribunal also corrected the finding that Tata and the assessee were responsible for implementing the project, not Lockheed Martin. However, the tribunal maintained its original decision that the business was not set up during the relevant year and that the expenses could not be allowed as revenue expenses.

Conclusion:
The tribunal concluded that the assessee's business was not set up during the relevant year, and the claimed expenses were pre-operative and not allowable as revenue expenses. The tribunal rectified the mistakes in its original order regarding the capitalization of tools and jigs and the responsibility for project implementation but upheld its decision to disallow the claimed expenses. The Miscellaneous Application was partly allowed to correct the identified mistakes, but the final decision remained unchanged.