AI Drafter 
TaxTMI 
TaxTMI 
2013 (11) TMI 466
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.... new products and hence, the said expenditure cannot be allowed as a business deduction. c) All the Research and Development Expenditure was debited to the P & L Account by the assessee and therefore, question of allowing the amount of Rs. 2,23,03,663/- u/s. 35 does not arise. d) The expenditure of Rs. 2,23,03,663/- has been incurred for setting up the GE Linear Project and hence, the expenditure incurred prior to commencement of the business is not allowable. 3) The learned CIT (A) failed to appreciate that: a) The expenditure of Rs. 2,23,03,663/- was incurred on development of new products and not on one project and therefore, the expenditure was allowable as a revenue expenditure u/s. 37 (1). b) The nature of expenditure of Rs. 2,23,03,663/- was that of revenue expenditure clearly allowable u/s. 29 to 37 of Income Tax Act. c) Just because, in the earlier year, the assessee had capitalized such R & D Division expenditure and claimed depreciation thereon, it did not imply that the assessee could not claim such expenditure as a deduction u/s. 35 / 37 in this year. d) Even....
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....ave been written off @ 100% as special export unit started function during the year. The AO observed that assessee is unable to substantiate the relevant expenditure incurred with the exports made during the year under consideration and whether the expenditure had any enduring benefit for which reason they were treated as deferred revenue expenditure till last year and why in the year under consideration the entire expenditure have been written off @100%. The AO observed that claim of assessee is not in accordance with any accounting principle or in accordance with any provisions of the Act. According to AO assessee could not produce any evidence to show that these expenses have been incurred for the scientific research and development and assessee is not able to substantiate that those expenses are really incurred wholly and exclusively for the purpose of business and due to which there was positive impact on the turnover of the business. Thereafter, the A.O has observed that even if the contention/explanation of the assessee is accepted, from the nature of these expenditure it can be viewed loosely as in-house development of know-how involving various trials and errors but cannot....
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....duction u/s.29 to 37 of the I.T. Act. In specific the expenditure was being claimed u/s.35. The appellant has relied upon decisions of the Supreme Court in 82 ITR 263 & 116 ITR 1 to press its arguments that the claim of the assessee cannot be decided on the basis of the accounting entries made in its books of account. The appellant has stated that the expenditure of Rs.2,23,02,662/-, incurred during the year, is different from the expenditure on the EATON and the GE Liner projects. That a bonafide change in the accountancy policy is allowable. In this regard the appellant has relied upon the following four decisions: [202 ITR 789], [173 ITR 347], [193 ITR 349] & [253 ITR 137]. With regard to the A.O.'s contention that, the expenditure is capital in nature, it is submitted that expenditure on development of products in the existing line of business is revenue. This is because no enduring benefit results from the same. Reliance in this regard on the following decisions: DCIT vs. Max India Ltd. [105 TTJ 1002], Glaxo Smith Kline Consumer Healthcare Ltd. vs. ACIT [112 TTJ 94] (Chd.), Escorts Ltd. vs. ACIT (2....
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....f the product to which these expenditure pertain. The data given by the assessee is in the shape of purchase and expenditure vouchers which does not throw any light with regard to end use. He rejected the claim of the assessee regarding research and development expenditure on the ground that audit report does not show that any expenditure had been incurred with reference to section 35 of the Act. Ld. CIT(A) has also rejected the claim of the assessee regarding allowability of these expenditure under section 37 of the Act as according to Ld. CIT(A) these expenditure have been incurred for setting up of G.E. Liner Product which only commenced operation during the year and keeping in view this fact he observed that any expenditure incurred prior to the commencement of business would be capital in nature, therefore, even according to section 37 such claim of the assessee cannot be allowed. Ld. CIT(A) has also referred to provisions of section 145(1) of the Act, which speaks of accounting method regularly being employed by the assessee and referring to the decision in the case of Radhasoami Satsang Vs. CIT, 60 Taxaman 248, Ld. CIT(A) has applied the rule of consistency, according to whi....
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....CIT(A). Referring to the nature of expenditure it was submitted that they are all in the nature of revenue expenditure. Therefore, he pleaded that the claim of the assessee has wrongly been rejected by the Ld. CIT(A). Ld. A.R also relied upon the following decisions: (1) Opus Software Sales (P) Ltd. vs. ACIT, 139 ITD 427 (Pune). In the said case assessee company was engaged in the business of development of software products. It claim expenditure of Rs.2.77 cores towards product development. The claim was disallowed by the AO on the ground that it gave enduring benefit to the assessee, therefore, capital in nature. Ld. CIT(A) confirmed the disallowance. Before Tribunal it was the case of the assessee that it was engaged in the business of development and sale of various software packages used by banking sector. The expenditure was mainly in respect of salaries of employees who worked for development of such software products and some other direct expenditure. These expenditure did not result in creation of any fixed asset in as much as the product which was manufactured were indented for sale. As against that the arguments of revenue were that assessee itself considered such exp....
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.... ITR 363(SC). (2) Glaxo Smith kline Consumer Healthcare Ltd. vs. ACIT, 112 TTJ 94 : In the said case it was held that product development expenses incurred by the assessee for introducing and developing new products in the existing line of business merely enabled the assessee to remain competitive in the market and retain customer preferences and loyalty towards its brand of products, therefore, it is allowable as revenue expenditure. (3) Softlink International Pvt. Ltd. vs. ACIT- ITA No.417 to 419/PN/2008 order dated 14th February, 2012 (unreported decision) - In the said case the company was dealing in development of software and it developed two new products namely " Imaging" and "Panacea" on which it claimed product development expenditure of Rs.15,88,286/-, which was held allowed by the Tribunal as revenue expenditure. Copy filed at pages 41 To 69 of the paper book. (4) Renu Electronics Pvt. Ltd., ITA No.1709/PN/2005 order dated 30th April, 2009 (unreported decision) copy filed at pages 70 to 75 of the paper book. In the said case assessee company was engaged in the business of manufacturing of programmable logic controller for use in various consumer electronic produ....
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....y gone through the assessment order, the order of Ld. CIT(A) and the documents referred to by Ld. AR. In the books of accounts the assessee has treated them as research and development expenditure. In the computation depreciation @100% has been claimed thereon. Initially, it was the claim of the assessee that these expenditure having been incurred are allowable under section 35(1)(i) and 35(1)(iv) of the Act. Such claim was also made even in respect of WDV of these expenditure as earlier assessee had claimed 25% depreciation. During the course of assessment proceedings the assessee dropped its claim regarding 100% depreciation on WDV of these expenditure. However, on the expenditure incurred during the year it continued to claim them as expenditure incurred on research and development eligible for deduction under section 35(1)(i) and 35 (1)(iv) of the Act and alternatively it was claimed that the same is allowable as revenue expenditure under section 37 of the Act. The AO rejected the claim of the assessee regarding expenditure related to research and development as assessee could not produce any evidence to show that these expenditure are incurred for the scientific research and d....
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....tomorrow. When the assessee company is already in the business and had incurred expenditure on development of new products relating to some business, the expenditure incurred has to be treated as revenue expenditure as no new capital asset is acquired by the company. Reference was made to several decisions. In para- 11 it was clearly submitted that expenditure incurred is in the existing line of business. In para-5 it was submitted that the photographs of products developed are also furnished and details regarding growth in the business of the assessee was also given. In the year 2005-06 assessee's turnover was to the tune of Rs.42.72 crores which rises to Rs.135.83 crores in 2008-09 and this was only due to the reason that assessee was continuously developing new products and thus it was claimed that expenditure incurred is allowed under section 35/37 of the Act. 6.2 Despite all these submissions Ld. CIT(A) has just simply relied upon the fact that in the audit report in the column described for expenditure to be incurred under section 35 the auditor had mentioned "NA", in the earlier years the assessee had capitalized similar expenditure on the ground that it was a new line of....