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TMI Blog2012 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... he IT Act for transfer of machinery from production department to research & development department. 2. The brief facts are that in this case against returned income of Rs.21,86,700/- order u/s 143(3) of the Act was passed on 31-03-2000 determining total income at Rs.80,43,735/- by making various additions including the addition on account of research and development capital expenditure of Rs.14,76,411/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee reduced Written Down Value (WDV) of plant and machinery of Rs.19,68,548/- as the same was transferred to Research & Development Department and had also claimed 100% depreciation on the machines transferred u/s 35(1) (iv) of the Act. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT Ahmedabad "B" Bench vide order dated 02-11-2007 in ITA Nos. 2945 & 2946/Ahd/2003 remitted the matter to the Assessing for deciding the issue afresh. Pursuant to the directions of the Tribunal, the assessee made submissions before the Assessing Officer. The assessing Officer vide order dated 24-10-2008 (order giving effect to ITAT's order) did not allow depreciation at 100% for the reason that there was no replacement of the machines in the production department though the machines were the main machines. The assessee could not bring on record any evidence as to the manner in which the assessee could manage the production without the machines that were transferred. He thus upheld the earlier decision. Aggrieved by the order of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim. No evidence or technical reports showing utilization of two machines for analysis of complaints received about the existing products or for development of new product designs have been filed. The appellant has also not been able to satisfactorily explain, as to how manufacturing continued without replacing these two machines. The Andhra Pradesh High Court's decision in the case of Yamuna Digital Electronics Pvt. Ltd. relied upon by the appellant is of no assistance to the appellant, since appellant has not been able to adduce any evidence regarding actual use of the two machines for the purpose of research and development activity whereas, in that case there was a definite finding that machines were utilized for the purpose of resear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. (1959), 37 ITR 66 (SC) and Nainital Bank Ltd. (1966) 62 ITR 638 (SC) interpreted the meaning of "Expenditure" as equivalent to "Expenses", which is money laid out. The Court had further held that "Idea of "spending" in the sense of "paying out of away" money is the primary meaning of expenditure - Expenditure, which is deductible for Income tax purposes is the one, which is towards an existing liability". Under section 35, what is allowable is "Expenditure incurred", interpreted by the Supreme Court as "spending"/ "paying out of money towards an existing liability". Transfer of machines, which were acquired in earlier years to the R & D Department in this year cannot be said to be "Expenditure incurred" envisaged u/s. 35 (2)(ia). Thus, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment to R & D Department and was actually utilized for research and development work. The learned DR further submitted that the assessee was not able to satisfactorily explain as to how the manufacturing activity continued without replacing the aforesaid two machines. The learned DR further submitted that u/s 35 of the Act what is allowable is "expenditure incurred" which means actual spending/paying of money. The transfer of machines which were acquired in earlier years to the R & D Department cannot be construed as incurring of "expenditure incurred" as envisaged in section of the Act. He further placed reliance on the decision in the case of Multi Metal Ltd. (2002) 254 ITR 652 (Raj.). He thus supported the orders of the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... research has indeed been carried out on various products. However, from the same Director's Report on page 4 under the item No.4 (i) under the head "Total Expenditure on R & D" it can also be seen that it is stated that no expenditure has been incurred on capital account. 5.1 We find that the Hon'ble Rajasthan High Court in the case of Multi Metals Ltd. Vs CIT (2002), 254 ITR 652 (Raj.), held as under: "Section 35 of the Income-tax Act, 1961, provides that if the assessee has incurred any expenditure on scientific research, he/it will be eligible for the deduction as provided under section 35 on account of the assets acquired for scientific research. For the purposes of depreciation it is enough if the assessee owns the asset but for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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