Case Law Details
ACIT Vs Mercedes-Benz India Pvt. Ltd (ITAT Pune)
In the line of business of assessee i.e. manufacture and sale of passenger cars, the automobiles which were manufactured were governed by Central Motor Vehicles Act (CMV Act) and Central Motor Vehicle Rules (CMV Rules). Under the said regulations, it is mandatory to seek approval from the agency of the Government before making any technical changes in the existing model and also before introducing new vehicle / any upgraded version of existing vehicle before its commercial use. The ARAI makes the certification in this regard. Rules 91 to 126A of CMV Rules regulate the construction, equipment and maintenance of motor vehicles. The requirement of Rule 126 is that every manufacturer or importer of motor vehicles shall submit Prototype of vehicles, to be manufactured or imported by him, for testing by the Vehicle Research and Development Establishment of the Ministry of Defence of the Government of India or ARAI, Pune or the Central. In the process of homologation, the assessee is under compulsion to provide to ARAI, for testing purpose, the auto components as well as entire vehicle, in case it wants to upgrade the same and/or import the new vehicle. After testing, ARAI issues a certificate of homologation for the particular vehicle. The assessee claims that material which was provided to ARAI and once it was returned to the assessee and the same was mainly scrapped as from safety perspective, it cannot be used in new cars. The assessee had debited cost of such material consumed during homologation process and also the cost of certification under the head homologation cost. It was put to the assessee that what happens to the engines in fully built cars or new cars, which were sent for certification and it was fairly pointed out that in case they were in usable condition, the same were not destroyed. In case of any technical variation in any existing vehicle or any of the components that the assessee wants to introduce in the existing vehicles, it was incumbent upon the assessee to get homologation certificate before any change was so introduced. Another expenditure which was incurred was that ARAI may in random, choose any car (as produced) for conducting conformity of production. Hence, it were not only the initial stage for which specifications need to be approved from ARAI but even for the existing vehicles, random checks were made that the assessee was manufacturing the same in conformity with the procedure laid down. The expenditure thus, laid out was for the purpose of smooth running of business and the revenue expenditure merits to be allowed in the hands of assessee. The assessee had also filed breakup of homologation expenses incurred during the year under consideration and we have perused the same. Hence, there is no merit in the stand of authorities below in disallowing the same on the ground that the said expenditure may have enduring benefit to the business of assessee.
The Hon’ble Supreme Court in Empire Jute Co. Ltd. Vs. CIT (1980) 124 ITR 1 (SC) had laid down that test of enduring benefit cannot be applied blindly and mechanically, without regard to particular facts and circumstances. Merely because the aforesaid expenditure results in an enduring benefit would not make such expenditure as capital in nature, as while allowing any expenditure in the hands of assessee, the intent and purpose of expenditure is to be kept in mind and whether the same is incurred for smooth running of business, then, such expenditure is revenue in nature. Accordingly,we direct the Assessing Officer to allow homologation expenses of ₹ 1.25 crores (approx.).
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal preferred by the Revenue emanates from the order of the ld. CIT(A)-6, Pune dated 04-09-2018 for assessment year 2014-15 as per the following grounds of appeal
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