TaxTMI 
TaxTMI 
2017 (6) TMI 1376
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....axable income had escaped assessment. 2. While completing the assessment u/s. 143(3) read with section 147 of the Act, the AO observed that the assessee had debited to the profit and loss account and amount of Rs. 7. 09 crores under the head exceptional items, that as per the notes on account the amount in question pertained to cost towards development of software products, solutions and management. He asked the assessee to show cause as to why the exceptional items should not be disallowed and to file any evidence to support the claim with regard to allowability of the expenditure as revenue expenses. After considering the submission of the assessee dated 26. 12 . 2012 and 30/07/2013, the AO held that expenses incurred for the purpose of business of an assessee could be allowed u/s. 37, that the onus was on the assessee to prove that expenses were incurred wholly and exclusively for the purpose of business. He referred to the case of Rambahdur Thakur (261 ITR 390)and held that the expenditure was incurred in connection with the development of a new product, that same was being treated as part of capital work in progress, that when the new product was not viable the expenditure ....
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....ia Ltd (13 ITR 43), Essar Steel Ltd (53 SOT 40), IL & FS Education and Technology Services Private Ltd (supra) and Indoram Synthetic India Private Ltd. (supra). 5. We have heard the rival submissions and perused the material before us. We find assessee is engaged in the business of developing software, that it had debited an amount of Rs. 7. 09 crore as exceptional item in its books of accounts under the head developing a new item, that the expenditure of the product pertained to the AY. 2004-05 to AY. 2007-08, that in the year under consideration it abandoned the development of the software, that it claimed the expenditure as revenue expenditure, that the AO disallowed the same. Expenditure incurred on development of a product of the same line of business, in our opinion, held to be allowed as revenue expenditure. It is possible that the assessee, may due to certain reasons, abandoned the product but that would not make the expenditure of capital nature. Entries in the books of accounts are important to a certain extent only. What is to be seen is the real nature of the expenditure. In the case under consideration the incurring of expenditure is not in doubt, the AO has not hel....
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...., design and engineering fee, travelling and other expenses of administrative nature, that in the normal course, these expenses would be treated as revenue expenditure, that the unit, which the assessee proposed to set up had inextricable linkage with the existing business of the assessee. that the proposed business was not an individual business but vertical expansion of the existing business, that the test of existing business with common administration and common fund was met. Since the project was abandoned, no new asset also came to be created. The expenditure was deductible. 5. 2. We would also like to refer to the matter of IL& FS (supra). We are reproducing the facts of the case and the operative part of the order and same read as under: "3. Ground No 1 relates to the disallowance/addition of Rs. 83, 20, 841/- made by the AO and the same was confirmed by the Ld. CIT(A) treating the expenditure for 'development of contents' as the capital expenditure as against the the assessee claiming it as revenue expenditure. 3. 1 Briefly stated, during the year under consideration, the assessee, a company engaged in the business of development of education software ....
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....It started a new project for production of Hot Rolled Coil (HRC) - Assessing Officer noticed that while preparing balance sheet and Profit and loss account, assessee had taken income and expense of HRC project to work-inprogress because commercial production of HRC started after 31-3-1996 - However, while filing return of income assessee had claimed same as revenue expenditure - According to assessee, it had started trial production during previous year and made substantial sales and, thus, it was entitled to claim expenses in question as deduction - Assessing Officer disallowed expenses on ground that business of HRC project had not started commercial production - Whether since HRC project was an extension of existing business, revenue expenditure incurred even prior to commercial production had to be allowed as deduction - Held, yes - Whether, further, assessee's claim in respect of interest on capital borrowed and lease rent relating to said business was also to be allowed - Held, yes. " 4 Following the ratios in the said decisions of the co-ordinate benches of the ITAT, we are of the view that the expenditure incurred by the assessee on infructuous capital....
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....ed to set up a new project for the manufacture of methanol. Thus, the case is of no help to decide the issue. Effective ground of appeal against the AO. ITA/3629/Mum/2015-AY. 2006-07: 6. Facts of the case for the year under appeal are similar to the facts of AY. 2007-08. Following our order for that year, we dismiss the effective ground raised by the AO for this year also. CO. / 14/Mum/2017/ AY: 2007-08: 7. In its CO, the assesse has raised the issue of validity of re-opening. It was found that the CO was filed on . Thus, there was delay of 1056 days. In its application the assessee has mentioned that in the CO it had raised a legal issue and regarding the validity of the issue of notice u/s. 148 and passing of order u/s. 143(3) r. w. s. 147 of the Act, that being a legal issue, it had a right to raise the same anytime before the disposal of the appeal. 7. 1. During the course of hearing before us, the AR stated that the assessee was under bonafide belief that CO can be filed any time if only a legal issue was to be contested, that it could be treated as a prayer made under Rule 27 of the ITAT, Rules, 1963(Rules). He referred to the matter of Achieve Reality Develope....