2011 (7) TMI 1014

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.... ITR 459 (Mad) had not become final. The short facts, apropos are that the assessee engaged in the manufac- ture of permanent magnets, had in its books shown under the head "Miscellaneous expenditure" a sum of Rs. 27,05,401 being pre-production expenses in relation to bonded permanent magnet. As per the details given by the assessee, such pre-production expenses comprised of the following : Pre-production expenses Amount in lakhs Travelling expenses 14.17 Market salary and execution expenses 8.20 Material charges 1.09 Salaries and wages 2.17 Spares and tools 1.15 Professional fees 0.30 Total 27.08 As per the assessee, such amount was incurred in connection with extension of its existing ....

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....t the assessee itself had treated such expenses as capi- tal outgoes in its books, argument of the assessee was that such "miscel- laneous expenditure" though shown in the assets side of its balance-sheet prepared in accordance with the mandate under the Companies Act, 1956, this was not a decisive test to be applied for the purpose of determining allowance under the Income-tax Act, 1961. The learned Commissioner of Income-tax (Appeals) was appreciative of these contentions. Relying on the decision of the hon'ble jurisdictional High Court in the case of Rane (Madras) Ltd., the learned Commissioner of Income-tax (Appeals) came to a conclusion that the assessee was introducing only a new product in the same line of business that it was alread....

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.... of new product, called "bonded permanent magnet" was in the same line of business. The assessee was not a new concern starting manufacturing of magnets, but on the other hand had been in the business and was only trying to introduce a new type of magnet. If we look at the expenditure details given at paragraph 2 above, which has been taken from the assessment order, none of the amounts could be considered as capital outgoes. But for the fact that these were incurred in connection with development of a new product, these would automatically be allow- able as revenue expenditure. But as already mentioned by us, the new pro- duct fell under the same genre of the products that the assessee was already manufacturing, viz., permanent magnets. We....