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TMI Blog2007 (9) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt without ourselves being confident has the potential risk of embarrassment litigation and damages. Exposure of faulty thoughts to the client would mean loss of reputation and goodwill. It is hence that we need to be extremely careful in our homework even before we approach the client with any proposal or offer. After all we have to compete against multinationals like Siemens, ABB, Alstom, etc. The process of development begins either after the tender is floated by a client or when we hear the news from company announcements or other sources that a particular customer is thinking of setting up a plant for which he is likely to source certain engineering products belonging to our field. We do, therefore, star upon conceiving the probably requirements intricacies that the application is likely to involve the level of standards which the product may need to meet in different contingencies when it is interfaced with other components of the plant etc. One alternative for us may be to make matter little easy may be to approach some overseas consultants - but that would be firstly expensive secondly uncertain of result thirdly some of them themselves may be our competitors at the bid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ety of expenditure should be allowed as deduction." [Emphasis supplied] The assessee-company again submits its submission vide letter dated 24-3-2004 which is also reproduced as under : "This refers to the discussion that we had with your Honours yesterday. Thereafter we have vide our written and oral submissions elaborated the nature of expenditure of Rs. 69,98,735 incurred by us during the year. We have also elaborated upon the business compulsions under which these expenses are being incurred by us. We reiterate having submitted to your Honours that these expenses are pure revenue expenses in the nature of salary, tour, travel, consultation fees, purchases for experimentations on prototypes, etc. The personnel who were engaged in this activity worked on multiple products. They also attended to the normal working operations of the unit. Incurrence of such expenditure is our regular feature. The expenditure has not resulted in creation of any asset. It has not added to our installed capacity. It was a cost we had to incur for advertising and proving our credentials. Had we not incurred these costs ourselves we would have had to spend much more by retaining cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture in its books of account. (v) What is substantially capitalised by the assessee in the balance-sheet, cannot be changed when it comes to the stage of computation of income. He rejected the plea of the assessee. Aggrieved, the assessee is before us. 3. Shri D.B. Shah, the learned counsel for the assessee repeated the contentions made before the revenue authorities. The sum and substance of his contention is that the assessee is continuously in the lookout for fresh business and that it is necessary on its part to development tailor-made products of non-standardised items to suit the requirements of customers and offer them to certain clients. Such development involves conceptual thinking, experimentation, model testing, survey of clients' requirements, giving demonstrations, etc. and the expenditure incurred for these things are revenue in nature. That treatment of a particular item in the books of account, does not determine the allowability or otherwise of that item as expenditure in the income-tax computation. That the revenue has in fact agreed that the contention of the assessee that this expenditure is revenue expenditure and has to be allowed as such and that the only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 145 have not been regularly followed. She vehemently contended that the assessee after having made entries in its books of account consistent with the method of accounting followed by it, he cannot be permitted to seek assessment of his income for income-tax purposes on a different basis on the ground that another basis may also be permissible under the method of accounting followed by the assessee. She relied on the following case laws in support of her contentions : 1. Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802 (SC). 2. Asstt. CIT v. Amtrex Appliances Ltd. [2005] 94 TTJ (Ahd.) 396. 3. ITO v. Shreyas Shipping Ltd. [2003] 86 ITD 556 (Mum.) 7. With regard to ground No. 2 she submitted that charging of interest under section 234B is consequential and mandatory, even while computing book profits under section 115JB. Similarly on charging of interest under section 234D she submitted that the amendment was effective from 1-6-2003 and that all proceedings taken thereafter, authorise the Assessing Officer to levy the interest. 8. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of papers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8.3 Now we come to the issue as to whether it is a capital expenditure. It is not the case of the revenue that the expenditure incurred is capital expenditure. 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. If any authorities are required to be cited on this case on this issue we derive strength strongly from the following decisions : 1. CIT v. India Discount Co. Ltd. [1970] 75 ITR 191 (SC). 2. Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). 8.5 Coming to the decisions relied upon by the learned counsel for the revenue we find that the same has been considered by the Hyderabad Bench of the Tribunal in the case of Amar Raja Batteries (supra). The expenditure, as already stated, 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. 9. Coming to the ground of charge of interest expenditure under section 234B on book profits determined under section 115JB, we find that the issue is covered in favour of the revenue and against the assess ..... 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