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Issues involved: Disallowance of deferred revenue expenditure claimed by the assessee for assessment years 2003-04 and 2004-05.
Assessment Year 2003-04: The Assessing Officer disallowed a portion of the deferred revenue expenditure claimed by the assessee, stating that the expenses should have been written off over a period of six years based on the assessee's accounting policy. The Assessing Officer held that only 1/6th of the expenses claimed should be allowed, as the development of samples for new products was likely to benefit the company over multiple years. The CIT (Appeals) allowed the full expenses, emphasizing that revenue expenses are to be allowed in the year they are incurred, regardless of how they are treated in the books of account. Assessment Year 2004-05: Similar to the previous year, the Assessing Officer disallowed a portion of the deferred revenue expenditure claimed by the assessee. The CIT (Appeals) again allowed the full expenses, stating that the expenses were necessary for the efficient running of the business and were incurred for the purposes of business, hence should be allowed as revenue expenses in the year they were incurred. Legal Precedents and Arguments: The assessee relied on various legal precedents to support their claim that revenue expenses should be allowed in the year they are incurred, irrespective of how they are treated in the books of account. The decisions of the Supreme Court and High Courts emphasized that expenses incurred wholly and exclusively for the purpose of business must be allowed in their entirety in the year they are incurred. The Tribunal also noted that the treatment of expenses in the books of account does not determine their allowability, and expenses necessary for the efficient running of the business should be considered revenue expenses. Conclusion: The Tribunal confirmed the decisions of the CIT (Appeals) for both assessment years, stating that the expenses in question were necessary for the business and should be allowed as revenue expenses in the respective years they were incurred. The Tribunal rejected the revenue's appeal, emphasizing that the statutory provisions dictate the allowability of expenses, not the treatment in the books of account. Judges: Vimal Gandhi, President A.K. Garodia, Accountant Member
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