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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 ..... nd circumstances of the case and in law, the learned CIT(A) erred in confirming levy of interest under section 234B of the Act. 3. In the facts and circumstances of the case and in law, the learned CIT(A) erred in confirming levy of interest under section 234D of the Act." 2. The facts as submitted by the assessee before the Assessing Officer are extracted, for convenience : "The assessee-company is engaged in the business of manufacturing specialised engineering goods. In the regular course of our business, we supply goods to customers such as Electricity Boards BEST Undertaking, Nuclear Power Projects for their highly specialised applications. Each plant of our customer is ordinarily unique tailor-made plant in terms of infrastructure and desired applications. This poses challenges for us inasmuch that the goods which are supplied to them should match their plant and other intended requirements with precision to that extent none of the items that we supply is a standardised item. Development of a non-standardised item to suit such requirement of a customer necessarily involves substantial study of client requirement conceptual thinking on our part experimentation, mode ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we can expect to receive the order. There is no guarantee that the product on which we have readied ourselves will result in our being able to procure the order. The order may eventually be awarded to some other competitor, the client may withdraw the tender, he may alter the design. In all such situations, the expense incurred by us would end up in a total loss. The product developed by us will almost always be tailor-made and specific to a particular plant of a specific customer. There can, therefore, be only one single taker of a given product. Hence, each order that we target needs independent development in its own right. There have been instances in the past that we failed to accomplish result at the end of development in time. Also there have been instances where despite our hard labour. We could not compete with overseas suppliers or MNC's. But in order to be in this business where technology development is dominant there is no alternative but to incur such expenditure. All the expenses [of which break up has been given] comprise of revenue items. It is not as if that we have created or installed any capital equipments for ourselves by incurring the expenditure. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account is not at all determinative of the issue. Yours Honours may kindly consider these authorities. At Annexure B are certain extracts which suggest that the Courts have been pleased to admit allowance for expenses of a revenue nature in the year of incurrence in spite of the circumstance that the expense so incurred has been treated differently in the books of account as deferred revenue expenditure." 2.1 The Assessing Officer treated the expenses in question as deferred revenue expenditure and allowed the same only to the extent which the assessee has recorded in its books of account as revenue expenditure. The first appellate authority after considering the submissions of the assessee in his order had rejected the assessee ground mainly on account of the following : (i) The project on which the expenses were made was not commissioned during the year under consideration; (ii) The assessee-company itself has not debited the entire amount to the profit and loss account and suo motu deferred it for write off in the subsequent years in the accounts; (iii) The assessee has not received any business on incurring the said expenses; (iv) The assessee has voluntarily treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 005] 97 TTJ (Delhi) 108. 6. Smt. Malati Sridharan, the learned departmental representative arguing on behalf of the revenue strongly relied on the order of the CIT(A) and submitted that the assessee in its books of account maintained under the Companies Act has treated above expenditure as a deferred revenue expenditure. She submitted that only an amount of Rs. 13,99,747 was debited to the profit & loss account and the balance amount of Rs. 55,98,988 has been treated in the balance-sheet as deferred revenue expenditure. The expenses of Rs. 69,98,735 pertained to different projects which have not taken up in the year under consideration. She pointed out that the assessee had in its own submissions, stated that it may or may not get the contract for execution of these projects. She relied on sections 4, 2(45) and 145 and submitted that section 145 lays down the manner of computation of income chargeable under the heads "Profits and gains of business or profession" and "Income from other sources" and mandates that the same be in accordance with the method of accounting regularly employed by the assessee and the only exception to this general principle is when the Assessing Officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24619 24619 24619 24619 Electricity 123050 24610 24610 24610 24610 24610 Printing & Stationery 63250 12650 12650 12650 12650 12650 Conveyance & Cartage 159230 31846 31846 31846 31846 31846 Postage & Telephone 130230 26046 26046 26046 26046 26046 Director Remuneration 216000 43200 43200 43200 43200 43200 Tours & Travels 499320 99864 99864 99864 99864 99864 Miscellaneous expenses 254340 50868 50868 50868 50868 50868 Consultancy 690870 138174 138174 138174 138174 138174 A close look at the nature of these expenditures shows that no asset has been acquired by the assessee. Similar expenditure is being incurred by the assessee year after year. The following gives the details : Financial year Amount Expended Rs. (in lakhs) Sales Revenue Rs. (in lakhs) 1997-98 26.00 298.63 1998-99 Nil 322.95 1999-2000 59.03 778.96 2000-01 69.98 568.28 2001-02 Nil 370.76 2002-03 6.50 280.76 2003-04 4.60 322.23 2004-05 11.30 388.84 2005-06 12.80 431.53 2006-07 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 280 , which is squarely applicable to the facts of this case, it was held that - "The undisputed fact is that the expenditure is in the revenue field. The only issue to be considered is whether the assessee can claim the entire expenditure in this year itself, even though it had written off this expenditure in the books over a period of five years. Though the assessee has written off the expenditure in its books of account over a period of five years, it must be allowed in its entirety in the year in which it was incurred, if it is revenue expenditure and if it is wholly and exclusively incurred for the purposes of business. The assessee had launched a new product and incurred heavy advertisement expenditure. The period for which the assessee can be said to have secured benefit by incurring this expenditure cannot be reasonably estimated. The undisputed fact is that the new product launched may fail to take off in the year of launch itself or may have a long life as a product. There is no way in which it can definitely be estimated that the benefit of the expenditure would last for a particular period of time. The entries in the books of account do not clinch the issue either w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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