2024 (6) TMI 898 - ITAT DELHI

Nature of expenses - Disallowances of product development expenses - AO observed that no supporting documents were furnished by the assessee - the case of the revenue is that the expenditure incurred by the assessee towards product development are in nature of capital expenditure given enduring benefit to the assessee - HELD THAT - As gone through the entire list of expenditure, we find none of the expenditure incurred thereon would give any enduring benefit to the assessee. All these expenditure are genuine regular revenue expenditure incurred by the assessee. As stated earlier the assessee has been using its own employees and the material regularly purchase for its manufacturing facilities on proportion basis for the purpose of development of new product. This are only in the nature of revenue expenditure for the assessee. We are in complete agreement with the ld AO that there is no concept of deferred revenue expenditure under the income tax Act as specifically provided in section 35AB, 35ABB etc. Considering the nature of expenditure incurred by the assessee towards product development we hold that the entire expenditure thereon are purely revenue in nature and accordingly would be eligible for deduction as revenue in nature and accordingly would be eligible for deduction as revenue expenditure in the year of incurrence. We find that similar list of expenditure incurred by the assessee for AY 2018- 19 were allowed by the ld AO himself u/s 143(3) - Ground raised by the assessee are allowed. Disallowance liquidated damages - CIT(A) observed that obtaining no object certificate (NOC) from pollution control board is prerequisite, Since, there was a delay in obtaining the same by the assessee the assessee could not fulfill the supply of goods are deliver this obligation in accordance with contract with its customers, thus effectively incurred by the assessee for violation of law in force - HELD THAT - No penalty of any amount whatsoever has been levied by any regulatory board such as pollution control board or by MOEF on the assessee for not alleged violation. The present liquidated damages as tabulated above were incurred by the assessee as part of its contractual obligation with the customers. In fact the customers had deducted the said amount while making payments to the assessee for some breach of contractual terms by the assessee. Hence, this is no provision at all as stated by the AO are its actual payment of expense by the assessee. The assessee having incurred these liquidated damages as part of contractual obligation with the customers on claims the same as a revenue expenditure. We are not in complete agreement with the contentions raised by the assessee. There is no dispute with these liquidated damages were indeed paid by the assessee only to its customers and not to any other 3rd party. There is no dispute that these liquidated damages were paid by the assessee only as part of the non fulfillment of contractual obligation as per terms of contract with the customers. Hence, it clearly becomes allowable expenditure in the hands of the assessee. Accordingly, Ground raised by the assessee allowed. Disallowances made on account of employees contribution to PF and ESI - HELD THAT - This issue is no longer res integra in view of the recent decision of Checkmate 2022 (10) TMI 617 - SUPREME COURT wherein, it has been held that if the employees contribution to F and ESI were remitted beyond the due date prescribed under respective dates the same would not be allowable in the case of the assessee if it is remitted before due date of filing of income u/s 139(1) of the Act.