2019 (8) TMI 650 - AT - Income Tax

Disallowance of royalty payment - treat 25% of the royalty payment as capital expenditure and the balance 75% as revenue expenditure - HELD THAT - Issue as to apportionment of the royalty paid by the assessee to M/s. Nippon Piston Ring Co. Ltd., has already been adjudicated by the Co-ordinate Bench of this Tribunal, in the assessee s own case 2017 (7) TMI 1318 - ITAT CHENNAI for the earlier assessment years and the Ld.CIT(A) has followed judicial discipline in following the decision of this Tribunal in assessee s own case for the earlier assessment years, we find no reason to interfere in the order of the Ld.CIT(A). Additional depreciation carried forward from the earlier assessment year - action of the Ld.CIT(A) in allowing the balance of the additional depreciation carried forward from the earlier assessment year - HELD THAT - CIT(A) has followed the judicial discipline in following the decision of the Hon ble Jurisdictional High Court in the case of Brakes India Ltd 2017 (4) TMI 511 - MADRAS HIGH COURT and it is also noticed that the issue is now squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the assessee s own case. In this circumstances, we find no reason to interfere in the order of the Ld.CIT(A) and the same stands upheld. Consequently, Ground Nos. 3.1 to 3.2 of Revenue s appeal for the assessment years 2013-14 2014-15 stands dismissed. In the result the appeals of the Revenue stands dismissed. Disallowance of the deduction U/s.35(2AB) - R D facilities in the case of the assessee have been applied by the DSIR for the purpose of the Section 35(2AB) - HELD THAT - Considering the fact that the AO has not considered the applicability of the provisions of Section 35(1)(iv), in respect of disallowance made by denying the benefit of the exemption U/s.35(2AB), the issue is restored to the file of the AO for re-adjudication in line with the decision of the Hon ble Jurisdictional High Court in the case of M/s. Tube Investments of India 2002 (9) TMI 45 - MADRAS HIGH COURT Consequently Ground No.3 for both of the assessee s appeal for the assessment years 2013-14 and 2014-15 stands partly allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of royalty paid to M/s. Nippon Piston Ring Co. Ltd.
2. Allowance of additional depreciation carried forward from earlier assessment years.
3. Disallowance of deduction under Section 35(2AB) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Royalty Paid to M/s. Nippon Piston Ring Co. Ltd.:
The primary issue in both the Revenue's and assessee's appeals for the assessment years 2013-14 and 2014-15 was the disallowance of royalty payments. The Assessing Officer had disallowed the royalty paid by the assessee, treating it as capital expenditure. The Co-ordinate Bench of the Tribunal, in the assessee’s own case for previous years, had ruled that 75% of the royalty payment should be treated as revenue expenditure and 25% as capital expenditure, following the Supreme Court's decision in Southern Switchgear Ltd. The CIT(A) adhered to this precedent, and both the Revenue and the assessee appealed against this decision. The Tribunal found no reason to interfere with the CIT(A)'s order, which followed judicial discipline. Consequently, the appeals on this ground by both the Revenue and the assessee were dismissed.

2. Allowance of Additional Depreciation Carried Forward from Earlier Assessment Years:
The issue here was whether the balance of additional depreciation carried forward from earlier years could be allowed. Both parties acknowledged that this issue was covered by the Tribunal's decision in the assessee’s own case for the assessment year 2010-11, and the CIT(A) had allowed the balance additional depreciation. The Tribunal upheld the CIT(A)'s decision, noting that it followed the jurisdictional High Court's ruling in Brakes India Ltd. Consequently, the Revenue's appeals on this ground were dismissed.

3. Disallowance of Deduction under Section 35(2AB):
The assessee's appeals for the assessment years 2013-14 and 2014-15 also contested the disallowance of deductions under Section 35(2AB) for R&D expenditures. The Assessing Officer had disallowed the claim due to the absence of approval from DSIR in Form 3CL. The assessee argued that the R&D facilities were approved, and the expenses should be allowed, or alternatively, they should be considered under Section 35(1)(iv). The Tribunal agreed to restore the issue to the Assessing Officer for re-adjudication in line with the jurisdictional High Court's decision in Tube Investments of India. Consequently, these grounds were partly allowed for statistical purposes.

Conclusion:
The appeals of the Revenue in ITA Nos. 3539 & 3540 of 2018 were dismissed, and the appeals of the assessee in ITA Nos. 3501 & 3502 of 2018 were partly allowed for statistical purposes. The order was pronounced in the open court on August 6, 2019, at Chennai.