TaxTMI 
TaxTMI 
2012 (6) TMI 205
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....y the assessee in this appeal reads as follows: "The ld CIT(A) erred in disallowing expenses on product testing and validation Rs. 42,21,665/- (net) grounded under Product Development Expenses by treating the said expenses as capital in nature." 3. The dispute in this appeal relates to the treatment of an expenditure of Rs. 42,21,665/-. The said expense was debited under the head 'Project Development Expenditure'. In the account books, the said expenditure had been treated as a deferred revenue expenditure whereas the same was claimed as a revenue expenditure in the course of assessment proceedings. The Assessing Officer as well as the Commissioner of Income-tax (Appeals) have not agreed to the claim of the assessee of treating the sa....
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....urred in the course of business and was only special development costs. In this regard, it is submitted that the testing is carried out at the collaborator's place in Germany under stimulated conditions and the said tests are required to bring in improvisation and modifications in the products manufactured by the assessee. At pages 23 to 67 of the Paper Book dated 10.2.2012, the photocopy of invoices raised for the testing of the products and the test reports issued by the collaborator Behr GmbH, Germany have been enclosed in support of such plea. 6. The learned Counsel submitted that the Assessing Officer proceeded on an incorrect assumption that the expenditure was incurred on preparation of design, drawing and development of prototype....
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....development of prototype samples. In my opinion, the above expenses are not of revenue nature and represent capital expenditure in the nature of intangible assets and hence, depreciation is allowable thereon. Though the assessee company has opted not to claim depreciation on all other assets, depreciation is allowable on development costs of Rs. 42,21,665/- as intangible assets in view of my detailed discussion made in earlier para." On the above basis, it was pointed out that the assessee itself submitted that the expenditure represented special development cost paid to Behr GmbH & Co. Germany for preparation of design, drawings and development of prototype samples and therefore, no fault can be found with the determination of the na....
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.... that it has been incurred on testing and validation of the products in the course of carrying on of the business and was liable to be treated as revenue expenditure following the ratio of the judgments stated aforesaid. 9. We have carefully considered the rival submissions. The crux of the controversy revolves around the nature of the expenditure of Rs. 42,21,665/- which has been debited in the account books under the head 'Product Development Expenditure'. The Assessing Officer as well as Commissioner of Income-tax (Appeals) has treated the same as capital expenditure by noticing that it represented special development cost paid to the foreign collaborator Behr GmbH & Co. Germany for preparation of design, drawings and development of p....
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....nt to Behr GmbH & Co. Germany for preparation of design, drawings and development of prototype samples. Ostensibly, the said assumption of facts by the Assessing Officer is on the basis of the statements made by the assessee. Before the Commissioner of Income-tax (Appeals) and, in a more detailed manner before us, it has been pleaded that the expenditure was on account of product testing and validation and was distinct from the expenditure for preparation of design and drawings and development of prototype samples. In our considered opinion, before addressing the legal aspects of the controversy, it is imperative that the complete and true particulars of the expenditure are culled out. Before us, the assessee has submitted photocopies of in....