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TMI Blog2012 (6) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 - I.C. Sudhir, G.S. Pannu, JJ. R.D. Onkar for the Appellant. Ms. Neera Malhotra for the Respondent. ORDER G.S. Pannu, Accountant Member This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals)-V, Pune dated 15.02.2010 which, in turn, has arisen from order dated 26.3.2004 passed by the Assessing Officer, under section 143(3) of the Income-tax Act, 1961 (in short "the Act), pertaining to the assessment year 2001-02. 2. The solitary Ground raised by the assessee in this appeal reads as follows: "The ld CIT(A) erred in disallowing expenses on product testing and validation Rs. 42,21,665/- (net) grounded under Product Development Expenses by treating the said expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commenced production and, therefore, the same were treated as a deferred revenue expenditure in the account books and were amortized from the assessment year 1999-2000 onwards and deduction under section 35AB of the Act was accordingly claimed. So, however, the impugned expenditure had nothing to do with the project development expenditure incurred in the assessment year 1998-99 and stands on a different footing. The said expenditure was incurred on testing and validation of the products manufactured by the assessee and was incurred in the course of business and was only special development costs. In this regard, it is submitted that the testing is carried out at the collaborator's place in Germany under stimulated conditions and the said t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lopment cost During the course of assessment proceedings, the assessee-company has claimed deduction in respect of development cost of Rs. 42,21,665/- which have been incurred during the relevant previous year. It was submitted that the above expenditure (which is treated as Deferred Revenue Expenditure in the books of accounts) was inadvertently not claimed in the return of income. It is submitted that the above represents special development costs paid to Behr GmbH Co. Germany for preparation of design and drawings and development of prototype samples. In my opinion, the above expenses are not of revenue nature and represent capital expenditure in the nature of intangible assets and hence, depreciation is allowable thereon. Though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, before the Commissioner of Income-tax (Appeals), it was brought out that the expenditure was incurred for the testing of the products and was not incurred in connection with development of any product before commencement of business. In this case, reference as been made to para 17 of the order of the Commissioner of Income-tax (Appeals) wherein the pleas of the assessee have been enumerated in points ( i ) to ( v ). It was, therefore, contended that the nature of the expenditure be determined on the basis of the position that it has been incurred on testing and validation of the products in the course of carrying on of the business and was liable to be treated as revenue expenditure following the ratio of the judgments stated afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals) in rejecting the claim merely on account of the assessee having put-forth such claim only at the time of assessment proceedings, is not determinative. So, however, before proceeding to examine as to whether the expenditure qualifies to be revenue expenditure as claimed by the assessee, it is sine qua non that appropriate facts are taken into consideration. 10. In this connection, it appears from the record that both the authorities below have proceeded on the basis that the expenditure was incurred on payment to Behr GmbH Co. Germany for preparation of design, drawings and development of prototype samples. Ostensibly, the said assumption of facts by the Assessing Officer is on the basis of the statements made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The orders of the authorities below are accordingly set aside and the issue is restored to the file of the Assessing Officer, who shall cull out the appropriate facts and thereafter, determine the nature of the expenditure in accordance with law. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard in support of its claim of treating the amount of expenditure represented by Rs. 42,21,665/- as a revenue expenditure. The Assessing Officer shall consider the submissions and material that may be put-forth by the assessee and then adjudicate the matter in accordance with law. We hold so. 11. In the result, the appeal of the assessee is allowed for statistical purposes. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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