The Pune bench of the Income Tax Appellate Tribunal (ITAT) has held that product development charges on existing businesses can be treated as revenue.
This appeal was filed by the Revenue against the order dated 19-04-2018 passed by the Commissioner of Income Tax (Appeal) in deleting the disallowance of Rs.1,74,94,046/- on account of product development charges treating the same as revenue.
The assessee company engaged in the business of manufacturing automobiles signalling lights and other electrical items and filed a return of income declaring a total income of Rs.2,56,73,220/- and the AO determined the same at Rs.4,31,12,090/- by making disallowance of Rs.3,17,32,165/- by an order passed u/s. 143(3) r.w.s. 92CA(3) of the Act.
It was observed that the AO treated the expenditure relating to product development charges as capital and allowed depreciation on the same while the assessee treated the expenditure as revenue.Theassessee contended that AO treated the expenditure as capital but the assessee treated it as revenue in its books and claimed it as revenue expenditure in the return of income and CIT(A) allowed it as revenue.
It was observed that there was no concession made by the assessee before the AOandwas challenging the disallowance made by the AO on account of product development charges treating expenditure incurred thereon as capital expenditure.
The Tribunal consists of Shri R S Syal, vice president and Shri S SViswanethra Ravi, Judicial member observed that the issue of revenue expenditure was not examined by the AO and remanded the issue to AO for its fresh consideration given the submissions made by the assessee by giving proper opportunity to the assessee. Shri Sharad Shah appeared on behalf of the assessee and Shri M.G. Jasnani appeared on behalf of the revenue.
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