2021 (8) TMI 457 - AT - Income Tax

Remand for R&D Expense Disallowance Review - Importance of Fair Assessment

Indo Japan Agro Tech Ltd. Versus ITO, Ward-12 (2) New Delhi

The Tribunal remanded the issue back to the Commissioner of Income Tax (Appeals) for a thorough examination of the Research & Development expenditure ... Nature of expenditure - Expenditure incurred on Research & Development - revenue or capital expenditure - CIT(A) upheld the action of the AO holding that the assessee did not file any supportive details to verify the claim of expenditure and, therefore, the disallowance was sustained by him - HELD THAT:- Although full details were available before the AO, however, the AO was of the view that the expenses have the nature of creating enduring benefit and, therefore, it squarely falls under capital in nature. CIT(A), without going through the various details filed before the AO had dismissed the appeal filed by the assessee on the ground that the assessee failed to file the supportive details to verify the claim of expenditure. In other words, he has not gone through the details filed before him. Considering all we deem it proper to restore the issue to the file of the CIT(A) with a direction to verify the details already on record and decide the issue as per fact and law by passing a speaking order on the issue of capital or Revenue nature of the expenses. While doing so, he shall give due opportunity of being heard to the assessee. I hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. Issues:1. Disallowance of deduction for Research & Development expenditure.Analysis:The appeal was against the disallowance of a deduction for Research & Development expenditure amounting to Rs. 21,00,000. The Assessing Officer (AO) disallowed the expenditure as capital in nature, leading to a penalty initiation under section 271(1)(c) of the Income Tax Act, 1961. The AO found that the expenditure aimed at increasing knowledge and skill, indicating an enduring benefit. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision.The appellant contended that not all enduring benefits should be treated as capital expenditure and argued that the CIT(A) did not thoroughly review the details submitted. The appellant requested a fresh adjudication based on the existing record. The Departmental Representative supported the CIT(A)'s decision, citing relevant legal provisions and Acts.The Tribunal observed that the AO and CIT(A) treated the expenditure as capital without fully considering the details provided. The Tribunal noted that the CIT(A) did not adequately review the submitted details and decided to remand the issue back to the CIT(A) for a thorough examination. The Tribunal directed the CIT(A) to verify the existing details and decide on the nature of the expenditure, ensuring the appellant is given a fair hearing. Consequently, the grounds raised by the appellant were allowed for statistical purposes, and the appeal was allowed.In conclusion, the Tribunal's decision highlighted the importance of a comprehensive review of details before making judgments on the nature of expenditures. The case emphasized the need for a fair and thorough assessment process to determine the appropriate treatment of expenses, ensuring adherence to legal principles and providing opportunities for parties to present their case effectively.