2022 (4) TMI 227 - AT - Income Tax

Deduction u/s 35(1)(iv) for the expenses incurred on engineering and design charges - Disallowance of amount being profit on sale of research and development stating that scientific research was done on behalf of Ford and reimbursement was made by it, and there was no element of profit in it, therefore, the entire amount was required to be offered to tax by the assessee - CIT(A) has dismissed the appeal of the assessee stating that the amount offered for tax was not supported with the relevant document - HELD THAT - As observed that A.O has also stated that the contention of the assessee that amount has already been offered for tax not supported with relevant documents. We find that in the paper book the assessee has placed various documents and details stating that expenses incurred by the assessee in design and development of the auto components activity has been capitalized as engineering and development cost in the books of account in the past years and claimed deduction u/s 35(1)(iv) as capital expenditure incurred on scientific research. After taking into consideration the submission and material placed in the paper book we are of the considered view that it is appropriate to restore this issue to the fact of the A.O for deciding a de novo after examination/verification of the relevant document and detail filed by the assessee in support of its claim after affording adequate opportunity to the assessee. This ground of appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Rectification order passed under section 154 of the Income-tax Act beyond the limitation period.
2. Passing a rectification order without considering the absence of a mistake apparent from the record.
3. Addition of profit recorded in the books of accounts on realizing from Ford Motor Company.

Issue 1:
The appellant challenged the order passed under section 154 of the Income-tax Act, claiming it was beyond the limitation period. The appellant argued that the notice served was outside the 4-year period from the end of the financial year in which the draft assessment order was passed. The appellant contended that the rectification order should be deemed null and void due to this reason.

Issue 2:
The appellant contested the rectification order under section 154, asserting that there was no mistake apparent from the record. The appellant argued that the order was passed without considering this crucial fact. The appellant requested that the rectification order be declared null and void on these grounds.

Issue 3:
Regarding the addition of profit from Ford Motor Company, the assessing officer added INR 3,67,14,142 to the total income of the assessee. The appellant explained that the entire consideration received from Ford had been offered to tax, and the profit amount had been reduced while computing the total income. However, the assessing officer did not accept this submission, leading to the addition of the profit to the total income. The appellant appealed, providing detailed explanations and supporting documents, emphasizing that the profit was merely an accounting entry and should not be considered taxable income under the Income-tax Act.

The appellate tribunal acknowledged the appellant's arguments, directing a de novo examination by the assessing officer to verify the relevant documents and details supporting the appellant's claim. The tribunal allowed the appeal for statistical purposes, dismissing some grounds while partially allowing the appeal in favor of the assessee.