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2007 (9) TMI 457 - AT - Income TaxDeferred revenue expenditure - Deduction in the computation of income u/s 37 - expenditure incurred towards research and development of new products or for modification of existing products - HELD THAT - It is also not disputed that the assessee is required to develop through its own R D certain model products which can be offered to various defence and other establishments. Both the Assessing Officer and the CIT(A) also recorded that such products developed by the assessee may never be purchased by any customer. On these facts we have to necessarily conclude that under the peculiar facts and circumstances of the case and the line of business that the assessee is it is required to mandatorily incur this expenditure to be in business. Thus the expenditure has been wholly and exclusively expended for the purpose of business. The only ground of disallowance is that the assessee has not written off the entire revenue expenditure in the year under consideration in its books of account. There is no dispute of the fact that the expenditure in question has crystallised during the year and has been incurred for the purpose of business. It is also not in dispute that no asset of enduring nature has been acquired by the assessee on incurring of this expenditure. It is well settled that the entries in the books of account cannot be the basis whether a receipt is taxable or not or whether expenses are allowable as a deduction or not. Courts are compelled to go by the true nature of receipts and not to go by the entries made in the books of account. Coming to the decisions relied upon by the learned counsel for the revenue we find that the same has been considered in the case of Amar Raja Batteries 2004 (4) TMI 280 - ITAT HYDERABAD-B which is squarely applicable to the facts of this case. The expenditure is of revenue in nature and no enduring benefit accrues to the assessee. Such expenditure has been claimed as revenue expenditure in the earlier years by the assessee though in the accounts they had given a different treatment. Thus for all these reasons we allow this ground of the assessee. In the result the appeal filed by the assessee is partly allowed.
Issues Involved:
1. Allowability of expenditure of Rs. 55,98,988 as revenue expenditure. 2. Levy of interest under section 234B of the Income Tax Act. 3. Levy of interest under section 234D of the Income Tax Act. Detailed Analysis: 1. Allowability of Expenditure of Rs. 55,98,988 as Revenue Expenditure: The primary issue revolves around whether the expenditure of Rs. 55,98,988 incurred by the assessee should be treated as revenue expenditure fully deductible in the computation of total income under sections 28, 35, 37, or any other applicable provisions of the Income Tax Act. The assessee argued that the expenditure was incurred in the regular course of business, involving substantial study, experimentation, and model testing to develop non-standardized items tailored to customer requirements. The expenses included personnel costs, travel expenses, and costs for developing prototypes and demo units. The assessee contended that these expenses were of a revenue nature and did not result in the creation of any capital asset or enduring benefit. The Assessing Officer (AO) treated these expenses as deferred revenue expenditure, allowing only the portion recorded in the books of account as revenue expenditure. The CIT(A) upheld this view, citing that the project was not commissioned during the year, the assessee had not debited the entire amount to the profit and loss account, and no business was received as a result of incurring these expenses. The CIT(A) also noted that the assessee had voluntarily treated part of the expenditure as capital expenditure in its books. The Tribunal, however, held that the expenditure was wholly and exclusively for the purpose of business and was of a revenue nature. The Tribunal emphasized that the treatment of expenditure in the books of account does not determine its allowability for tax purposes. Citing the case of Amar Raja Batteries v. Asstt. CIT, the Tribunal concluded that the entire expenditure should be allowed in the year it was incurred, irrespective of its treatment in the books of account. 2. Levy of Interest under Section 234B: The second issue pertains to the levy of interest under section 234B of the Income Tax Act. The assessee argued that interest under section 234B should not be levied when income is offered to tax under section 115JB (Minimum Alternate Tax). The Tribunal referred to the judgment of the Special Bench of the Tribunal in the case of Sutlej Cotton Mills Ltd. v. Asstt. CIT and the Karnataka High Court in Jindal Thermal Power Co. Ltd. v. Dy. CIT, which held that interest is leviable on the profits determined under section 115JB. Accordingly, the Tribunal dismissed the assessee's ground and upheld the levy of interest under section 234B. 3. Levy of Interest under Section 234D: The final issue concerns the levy of interest under section 234D of the Income Tax Act. The assessee contended that section 234D, introduced with effect from 1-4-2003, could not be applied retrospectively to the assessment year 2001-02. The Tribunal agreed with the assessee, citing the decision of the Delhi Bench of the Tribunal in Glaxo Smithkline Asia (P.) Ltd. v. Asstt. CIT, which held that section 234D is a substantive provision and cannot be applied retrospectively. Therefore, the Tribunal upheld the assessee's contention that interest under section 234D could not be charged for the assessment year 2001-02. Conclusion: The appeal filed by the assessee was partly allowed. The Tribunal allowed the entire expenditure of Rs. 55,98,988 as revenue expenditure, upheld the levy of interest under section 234B, and ruled against the retrospective application of section 234D, thereby disallowing the levy of interest under this section for the assessment year 2001-02.
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