Commissioner of Income Tax vs Deltron Ltd.

In this appeal u/s 260A of the Income Tax Act, 1961 ("the Act"), the Revenue is aggrieved by an order dated February 6, 2006, passed by the Income Tax Appellate Tribunal ("the Tribunal"), Delhi Bench "E", in I.T.A. No. 4115/Del/2002, relevant to the assessment year 1999-2000.

The issue that is before us is whether the assessed had incurred a capital expenditure of Rs. 87,22,447 on purchase of axial machine along with machinery spares and computers which was claimed as a research and development expenditure allowable u/s 35(1) of the Act.

The Assessing Officer ("the AO"), merely had a look at the brochure of the machine and came to the conclusion that the machine was not used for research and development work and on this basis disallowed the expenditure.

On appeal, the Commissioner of Income Tax (Appeals)("the CIT (Appeals)"), noted that Section 35(3) of the Act, prior to its substitution by the Finance Act, 1999, with effect from April 1, 2000, required an issue of this nature to be referred to the prescribed authority whose decision would be final. The prescribed authority in so far as for determining whether the asset is or was being used for research and development was the Department of Scientific and Industrial Research in the Ministry of Science and Technology. The Commissioner of Income Tax (Appeals), Therefore, held that the Assessing Officer could not have disallowed the expenditure without following the said procedure.

Being aggrieved, the Revenue preferred an appeal before the Tribunal which by the impugned order dismissed the appeal confirming the view taken by the Commissioner of Income Tax (Appeals).

Having heard learned Counsel for the parties we find that the prescribed authority in this case was certainly not the Assessing Officer and he could not determine whether the machinery used by the petitioner was for research and development purposes or not. Even assuming for the sake of arguments that the Assessing Officer had the authority, the least that would have been expected of him was to confirm physically whether or not the machine was being used for research and development purposes. No conclusion could be arrived at by the Assessing Officer by merely looking at the brochure. Under the circumstances, we are of the view that there is no error in the order passed by the Tribunal.

Learned Counsel for the Revenue submits that the matter should be remanded to the Assessing Officer who could in turn refer to the prescribed authority the question whether the machinery was used for research and development or not. After a gap of so many years, we do not think it appropriate to do so. We are also of the view that it would put an unreasonable burden on the assessed to show what the machinery was being used for almost 8-9 years ago. We may also note that for an earlier assessment year 1996-97, when a similar question arose with respect to some other machinery, an inspection was carried out at the instance of the Commissioner of Income Tax (Appeals) on September 21, 1999. As per the report submitted to the Commissioner of Income Tax (Appeals), the assessed was found to be maintaining a separate research and development wing. This was also confirmed by the Tribunal.

We also find that the order passed by the Commissioner of Income Tax (Appeals) in the instant case to the effect that the Assessing Officer was not competent to decide whether the machinery in question was being used for research and development purposes or for manufacturing activity was issued on July 15, 2002. Soon thereafter, the Revenue could have made an attempt to find out the actual use of the machine but it did not bother to do so. In the circumstances, we do not accept the prayer made by learned Counsel for the Revenue that the matter be sent back to the Assessing Officer for a fresh determination of the issue.

No substantial question of law arises.

The appeal is dismissed.