TaxTMI 
TaxTMI 
2015 (8) TMI 467
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment year 2002-03, and the same was admitted on the following questions of law : "(i) Whether the Tribunal was right in holding that the deferred revenue expenditure in the aggregate incurred by the assessee towards the product development is not allowable ? (ii) Whether the Tribunal was right in holding that the deferred revenue expenditure claimed by the assessee is not allowable in terms of the Explanation to section 35 of the Income-tax Act ? (iii) Whether the Tribunal was right in holding that the assessee is not entitled to the deduction of the prior year's expenditure forming part of the deferred revenue expenditure even though, such a claim is allowable in law as per the decision of the Supreme Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ritten off during the year, even though the total expenditure during the year was to the tune of Rs. 1,35,56,259. The assessee carried forward the expenditure to the next financial year 2001-02 (assessment year 2002-03) and claimed the expenditure to the tune of Rs. 2,27,43,213, of which only a sum of Rs. 34,44,649 was allowed by the Assessing Officer, while completing the assessment under section 143(3) of the Act by an order dated February 25, 2005. The Assessing Officer disallowed the claim of expenditure relating to Rs. 1,92,98,564 stating that there is no provision for carrying forward such expenditure. In brief, the finding of the Assessing Officer is as follows : "It will be seen from the above details that the assessee has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f section 35. As per the submissions made by the assessee, the assessee has written off Rs. 18,89,182 for the financial year 2000-01 relevant to the assessment year 2001-02. The balance is treated as deferred scientific expenditure. There is no concept like deferred scientific research expenses in the Income-tax Act. The research and development expenses as envisaged under section 35 of the Income-tax Act and as relevant to the assessee's case states as under : '(1) In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. Explanation.-Where ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ordingly restrict the assessee's claim only to the extent of Rs. 34,44,649. The balance expenses of Rs. 1,92,98,564 are disallowed as not pertaining to this year and added to the assessee's total income." (emphasis supplied) 2.4. Calling into question the assessment order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax. (Appeals), while concurring with the findings of the Assessing Officer, dismissed the appeal holding that the expenditure incurred by the assessee on research and development falls within the purview of section 35 of the Act and since the business of the assessee has already commenced, the expenditure shall be allowed only in the year in which it wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....-Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary (as defined in Explanation 2 below sub-section (5) of section 40A) to an employee engaged in such scientific research or on the purchase of materials, used in such scientific research the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced.....