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Issues involved: Appeal by department and assessee against CIT(A) order for assessment year 2002-03.
Product Development Expenses: The department appealed against the allowance of product development expenses u/s 37(1), contending they were capital in nature. The AO disallowed the expenses based on a Tribunal decision, stating they were for introducing new cereal varieties and thus capital. The CIT(A) differentiated the case from the precedent, noting the expenses were for improving existing products, not setting up a new line of business. The Tribunal upheld the CIT(A)'s decision, finding the expenses were revenue in nature as they related to the existing business of manufacturing cereal flakes. No new assets were acquired, confirming the expenses' allowability u/s 37(1). Depreciation Recomputation: The assessee challenged the AO's computation of depreciation for the year, based on WDV as of 1.4.1997, due to depreciation disallowed in previous years. The CIT(A) directed the AO to recompute depreciation considering the disallowed amount for AY 1999-00. The Tribunal affirmed this decision, stating the depreciation for AY 1999-00 should be considered for the current year's calculation. The assessee's ground was partially allowed, and the Tribunal found no fault in the CIT(A)'s ruling on this issue. Reopening of Assessment u/s 147: The assessment was reopened u/s 147 due to depreciation allowed in AY 1999-00 not being reduced by the assessee. The Tribunal's decision on AY 1999-00's depreciation influenced the assessment for the current year. As the issue became academic with the correct depreciation value determined, the Tribunal deemed it unnecessary to further address the reopening of assessment. Consequently, both the department's and the assessee's appeals were dismissed. *Order pronounced on 20.1.2010*
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