Tribunal rules in favor of assessee on capitalization of R&D costs

The Tribunal allowed the appeal partly, ruling in favor of the assessee on the capitalization of Engineering Research and Development costs. The Tribunal found that the payments made were for the non-exclusive use of technology and not for acquiring any intangible asset, thereby directing the disallowance to be deleted. Other grounds not pressed by the assessee were dismissed. The judgment was pronounced on 01st June 2023.

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Issues involved: The only issue pressed in the appeal is against the capitalization of Engineering Research and Development cost incurred by the assessee during the year, which was claimed as revenue expenditure.

Judgment Summary:

1. Issue: Capitalization of Engineering Research and Development cost
The assessee, a Joint Venture engaged in manufacturing and selling seats for passenger cars, claimed deduction for Engineering and Development costs. The AO treated the amount as capital expenditure, disallowing it and allowing depreciation. The Tribunal examined the Engineering Recovery Agreement with Lear Corporation and Tachi-S Company, which stated the payment was for non-exclusive use of technology based on production volume. The agreement clearly indicated that the assessee did not have control over intellectual property rights, making the payment a royalty for technology use, not an intangible asset. The Tribunal overturned the lower authorities' decision, directing the disallowance to be deleted.

2. Conclusion
The Tribunal allowed the appeal partly, dismissing the other grounds not pressed by the assessee's representative.

3. Separate Judgment:
No separate judgment was delivered by the judges.

4. Date of Order:
The order was pronounced in the Open Court on 01st June, 2023.

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