TaxTMI 
TaxTMI 
2013 (9) TMI 882
X X X X Extracts X X X X
X X X X Extracts X X X X
.... erred in law in deleting the disallowance of Rs.97,867/- under the head entertainment expenses following the ratio lf law laid down by the Hon'ble Delhi High Court in case of Expo Machinery Ltd. reported in 190 ITR page 876 ? (2) Whether, on the facts and in the circumstances of the case the Tribunal have erred in law in deleting the disallowance's of Rs.31,77,716/- under the head"Product Development" ? 2. We have heard Sri Dhanajnay Awasthi, learned counsel for the appellant and perused the records. No one appears for the respondent-assessee despite service of notice by registered post. We have perused the office report dated 18.1.2013 and 22.3.2013 and find the service of notice on the respondent to be sufficient . Question No.1 3. W....
X X X X Extracts X X X X
X X X X Extracts X X X X
....expenses. These employees, according to the assessee were instrumental in developing product for newer application in the same line of business. In the books of accounts the assessee treated 1/3rd of this expense as relating to the previous year relevant for the A.Y. 1992-93 and the remaining 2/3rd expense was written off at 1/3rd each in the succeeding two financial years. According to the assessee the benefit from the research and development was likely to flow for three years and therefore the expenditure on such research and development was also spread over for the period for which the assessee derived benefit. The assessee in the return of income however, claimed the entire expenditure as deductible since they were of revenue in nature....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e in its books of account to this expenditure i.e. claiming 1/3rd of it in three years is the right treatment and hence, it is liable to be allowed as such. The disallowance to the extent of 2/3rd of the expenses was confirmed by the CIT(A). 6. Aggrieved by the order of the CIT(A) allowing expense to the extent of 1/3rd the Revenue filed an appeal before the ITAT. The assessee has also filed an appeal before the ITAT, aggrieved by the order of the CIT (A) allowing the deduction only to the extent of 1/3rd and not the entire expenses. The ITAT allowed the appeal of the respondent - assessee and dismissed the appeal of the revenue by the impugned order. 7. In the impugned order the ITAT has discussed both the factual as well as legal aspect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unting to Rs.31,77,716/- incurred by the assessee on product development shall be governed by provision of Section 35D of the Act is without substance and liable to be rejected. 9. Now coming to the issue of allowing merely 1/3rd expenses in the assessment year in question and leaving the rest for the next two years as held by CIT(A), we find that such deferment in respect of revenue expenditure is wholly unknown under the Income Tax Act. Under the Act, tax is exigible on the "real income" which means actual income received or accrued to the assessee. The treatment given by the assessee in its books of account is not conclusive. The determination of income tax has to be made in accordance with the provisions of the Act. The expenditure are....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... treating such an expenditure as properly attributable not to revenue but to capital." This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nechanga Consolidated Copper Mines Ltd.,(1) it would be misleading to suppose that in all cases, securing a benefit for the business would be prima facie capital expenditure "so long as the benefit is not so transitory as to have no endurance at all." There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none-the-less, be on revenue account and the test of enduring benefit may break down. lt is not every advantage ....