2023 (6) TMI 727 - AT - Income Tax

Nature of expenses - Addition on account of production development expenses - revenue or capital expenditure - HELD THAT - As relying on assessee own case for the AY 2013-14 2021 (8) TMI 690 - ITAT AHMEDABAD appellant has treated the capitalized R D expenses as revenue expenses and at the same time it has added back the amortized amount debited to P L Account resulting into income as it appears from the record. As in the earlier Assessment Years the identical claim of product development expenses was allowed as revenue expenses. Therefore, taking into consideration the entire aspect of the matter the of such addition on account of capital expenditure as made by the AO has been rightly done by the CIT(A) without any ambiguity so as to warrant interference. Appeal filed by the revenue is dismissed.

Summary

Issues Involved:
The judgment involves the issue of treatment of production development expenses as capital or revenue expenditure for the assessment year 2014-15.

Summary:
The Appellate Tribunal ITAT Ahmedabad considered the appeal regarding the addition of Rs. 4,90,45,701/- on account of production development expenses for the assessment year 2014-15. The Assessing Officer (AO) treated the expenses as capital in nature, disallowing the deduction claimed by the assessee, a limited company engaged in manufacturing HDPE/PP jumbo bags and trading of HDPE granules woven bags. The AO found that the expenses were shown in the balance sheet under long term loans and advances and other current assets but lacked evidence of new product development or increased profitability. The AO concluded that the expenses were capital in nature and should be added to the income of the assessee.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who deleted the addition after considering the appellant's submissions and the auditors' determination of expenses towards new product development. The CIT(A) noted that the AO had not raised doubts about the genuineness of the expenses and allowed the deduction based on past practices and treatment of expenses in previous assessment years.

The Revenue appealed against the CIT(A)'s order, but the ITAT upheld the decision, citing a previous order in the assessee's own case for the assessment year 2013-14 where the issue was decided in favor of the assessee. The ITAT found no reason to interfere with the CIT(A)'s finding, ultimately dismissing the Revenue's appeal.

In conclusion, the ITAT dismissed the Revenue's appeal, affirming the deletion of the addition made by the AO on account of product development expenses, considering the treatment of expenses as revenue expenditure based on past practices and lack of evidence challenging the genuineness of the expenses.