Tribunal upholds CIT(A)'s order on depreciation for Jigs & Fixtures, dismisses Revenue's appeal.

The tribunal directed the AO to grant depreciation at 40% on Jigs and Fixtures moulds and upheld the CIT(A)'s order treating the application works fee as revenue expenditure, thereby dismissing the Revenue's appeal.

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Issues Involved:
1. Deletion of addition made by the Assessing Officer on account of excess claim of depreciation on Jigs and Fixtures moulds.
2. Deletion of addition made by the Assessing Officer under section 40a(i) on account of expenses claimed in respect of application works fee.

Detailed Analysis:

1. Deletion of Addition on Account of Excess Claim of Depreciation on Jigs and Fixtures Moulds:

The first issue raised by the Revenue was the deletion of the addition of Rs.42,13,654/- made by the Assessing Officer (AO) due to the excess claim of depreciation on Jigs and Fixtures moulds. The assessee had claimed depreciation of Rs.1,16,78,594/- at the rate of 40%, while the AO opined that it should be restricted to 25%.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] noted that the ITAT, Delhi Bench, in the assessee's own case for earlier years, had upheld the claim of 40% depreciation on these items. Consequently, the CIT(A) deleted the addition made by the AO.

The tribunal, after hearing both counsels and perusing the records, found that the issue was squarely covered in favor of the assessee through several decisions of the Tribunal, including orders for A.Y. 2004-05 and A.Y. 2005-06. Since there was no change in law and facts in the current year compared to earlier years, the tribunal directed the AO to grant depreciation at 40%.

2. Deletion of Addition under Section 40a(i) on Account of Application Works Fee:

The second issue involved the deletion of the addition of Rs.4,34,45,274/- made by the AO under section 40a(i) concerning expenses claimed for application works fee. The AO noted that the assessee claimed Rs.4,34,45,274/- for application work fee expenses, which was eventually recovered from the customer and considered it as 'capital expenditure.'

The AO held that the expenditure was for the development of new AC systems for Maruti cars and classified it as technical know-how covered under section 40(a)(i), suggesting it should be treated as capital expenditure and allowed depreciation at 25%.

Upon appeal, the CIT(A) elaborated that the expenditure was incurred towards the cost of air conditioners for car models manufactured by Maruti Udyog Ltd. and was in the nature of revenue expenditure. The CIT(A) cited several judicial pronouncements, including the Apex Court's decisions, to support the view that the expenditure was not for acquiring a capital asset but for carrying on existing business more effectively. The CIT(A) directed the AO to treat the expenditure as allowable business expenditure under section 37(1) of the Act, thereby deleting the disallowance and addition of Rs.4,34,45,274/-.

The Revenue appealed against this order, raising an additional ground that the CIT(A) erred in deleting the addition and treating the expenditure as revenue instead of capital.

The tribunal, after hearing both counsels and reviewing the records, found that the application works involved modifications and development necessary for adapting the products to Indian conditions and customer requirements. The tribunal observed that the prototypes created were working models that frequently changed and did not provide an enduring benefit, thus not falling in the capital field. The tribunal relied on the decision of the Hon'ble Apex Court in Empire Jute Co. Ltd. vs. C.I.T., which emphasized the nature of the advantage in a commercial sense. The tribunal concluded that the prototypes facilitated the assessee's trading operations without acquiring any capital asset.

Therefore, the tribunal upheld the CIT(A)'s order, finding no illegality or infirmity, and dismissed the Revenue's appeal.

Conclusion:

The tribunal directed the AO to grant depreciation at 40% on Jigs and Fixtures moulds and upheld the CIT(A)'s order treating the application works fee as revenue expenditure, thereby dismissing the Revenue's appeal.

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