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2023 (1) TMI 771 - AT - Income TaxRevision u/s 263 - PCIT directed the AO to disallow catalysts expenditure which was claimed by the assessee as deferred revenue expenditure to the amortize over life of the catalyst as treated in its books of accounts - Whether catalyst expenditure is a revenue expenditure and is allowable in the year in which it is issued to production line? - HELD THAT - No judicial precedent was shown to us that consumables are capital expenditure and those are not allowable in the year of use in production line. Thus, the view taken by the LD AO is a plausible and sustainable view. Further, the identical view has been taken by the learned assessing officer of the detailed examination in earlier years. In those years, the view taken by the learned assessing officer was not found to be erroneous. There is no reason demonstrated before us that for assessment year 2009 10 the order of the learned assessing officer is erroneous various for assessment year 2006 07 until 2008 09 that order is free of any error. However, we do not have any hesitation that when the judicial precedents are in favour of the assessee that consumables are revenue expenditure and are allowed to the assessee as deduction in the year in which those are put in line of production, Therefore, the order of the learned assessing officer passed after due enquiry about such claim, cannot be held to be erroneous. Allowability of depreciation on technical know-how - During the assessment year 2003 04 that entity amalgamated with the assessee company and the capital work in progress of that company was also taken over by the assessee. The above capital work in progress represented the expenses incurred on finance cost, operating expenses, excise duty, salaries et cetera which were not existing in the form of any tangible form. However, in September 2000, fire took place and the plant and machinery were damaged. The assessee claimed subsequently depreciation on that plant and machinery, therefore the learned and CIT was of the view that when the asset itself is not in existence, the assessee is not entitled to any depreciation. However the fact clearly shows that the above plants were rebuilt in 2001, based on technical feasibility it was held to be utilizable. The above plant was rebuilt in financial year 2005 06 and the same was capitalizing the books of accounts. Thereon, depreciation was allowed since then. From the above plant production was also made which was also disclosed from financial year 2005 06 to financial year 2008 09. In view of this, it was stated that the technical know-how has been used and is eligible for depreciation. Thus on the above basis the assessee is eligible for depreciation on the above technical know-how. All depreciation schedules for respective assessment years starting from financial year 2005 06 onwards are available on file itself. AO did not disallow the depreciation only on technical know-how but the building and plant and machinery completely. Even otherwise, the reason for the show cause notice was different then the conclusion arrived at by the learned PCIT. There is no notice/show cause/opportunity to the assessee to explain the depreciation on technical know-how. Even as such, the claim of the depreciation was directed to be disturbed on the basis of user test. The fact shows that capitalization of asset was in earlier years, depreciation is allowed in those years, production has been made from that plant, and the user test is satisfied. Thus, we do not find any error in allowing depreciation to the assessee on the above technical know-how. No error in the order of the learned assessing officer by allowing the claim of assessee of revenue expenditure of catalyst as well as depreciation on technical know-how for assessment year 2009 10. Accordingly, the revisionary order passed under section 263 by CIT (large taxpayer unit) is not sustainable and hence quashed. Appeals of the assessee are allowed.
Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act. 2. Treatment of expenditure on catalyst as capital or revenue expenditure. 3. Allowability of depreciation on Technical Know-how and Embedded Process Technology. Issue-wise Detailed Analysis: 1. Jurisdiction under Section 263 of the Income Tax Act: The Commissioner of Income Tax (CIT) invoked jurisdiction under Section 263 of the Income Tax Act, 1961, on the grounds that the assessment orders for A.Y. 2009-10 and 2010-11 were erroneous and prejudicial to the interests of the revenue. The CIT argued that the Assessing Officer (AO) allowed certain claims without proper examination, specifically the expenditure on catalyst and depreciation on Technical Know-how and Embedded Process Technology. The assessee contended that the AO had already scrutinized these claims in previous assessment years (A.Y. 2006-07 to 2008-09) and allowed them after due consideration. The Tribunal noted that the AO had indeed examined these issues in detail in earlier years and allowed the claims, which were not disturbed by the CIT. 2. Treatment of Expenditure on Catalyst: The CIT directed the AO to disallow the expenditure on catalyst, treating it as capital expenditure because the benefit from the catalyst was spread over more than a year. The assessee argued that the expenditure on the catalyst was a deferred revenue expenditure and should be treated as revenue expenditure under Section 31 or Section 37(1) of the Act. The Tribunal observed that the AO had examined this issue in earlier years and allowed the claim. The Tribunal also cited judicial precedents (e.g., JCIT vs. Tirumalai Chemicals Ltd) where similar expenditures were treated as revenue expenditure. The Tribunal concluded that the AO's view was plausible and sustainable, and the CIT's invocation of Section 263 was not justified. 3. Allowability of Depreciation on Technical Know-how and Embedded Process Technology: The CIT directed the AO to examine the claim of depreciation on Technical Know-how and Embedded Process Technology, alleging that the assessee failed to establish the existence and use of these assets. The assessee argued that the Technical Know-how was acquired for manufacturing specific chemicals and was not destroyed in a fire accident. The Tribunal noted that the Technical Know-how had been used for production, and depreciation was allowed in earlier years. The Tribunal also observed inconsistencies in the CIT's order, where the notice issued was for disallowance of depreciation on building, plant, and machinery, but the final order directed disallowance on Technical Know-how. The Tribunal concluded that the claim of depreciation was correctly allowed by the AO and quashed the CIT's order under Section 263. Conclusion: The Tribunal found no error in the AO's orders allowing the claims for revenue expenditure on catalyst and depreciation on Technical Know-how for A.Y. 2009-10 and 2010-11. Consequently, the revisionary orders passed by the CIT under Section 263 for both assessment years were quashed, and the appeals of the assessee were allowed.
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