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TMI Blog2015 (3) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It is still further relevant to note that the manufacturing of products from such developed prototypes was meant only to the customers who had given sample and the products so manufactured could not be sold to anyone else. These facts clearly indicate that it is not the case that the assessee set up its business for the first time on the basis of prototypes developed by spending on R&D during the year in question. It is in the same business for more than two decades. The expenses incurred by the assessee during the year under consideration were only to conform to the specifications of customers so as to get the supply orders in the regular course of business. Further such prototypes were of limited use meant only for manufacturing the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struments. Deduction of ₹ 14,10,032/- was claimed on account of Research and development expenses. On being called upon to explain as to why these R D expenses be not treated as capital, the assessee stated that the company was manufacturing brass musical instruments as per the samples/specifications given by the buyers. It was explained that on receiving the samples/specifications, the company develops the products in-house to the satisfaction of the buyer. During the year in question, the assessee company received samples from M/s W. Schreiber of Germany and Besson Musical Instruments Ltd. of Great Britain which were its major customers. The assessee stated that it received samples and on that basis, developed prototypes for regular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions advanced on behalf of the assessee and ordered for the deletion of the addition. 4. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee is a company in existence for last more than twenty years doing the same business. During the year under consideration it incurred the above referred expenditure on R D for developing prototypes of the products to be supplied to specific customers strictly as per the specifications and samples given by them. It is further a matter of record that if the prototype so developed does not conform to the samples supplied by the customer, no orders can be expected, in which case the expenditure so incurred on develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. When we peruse the details of total R D expenses, as reproduced above, it becomes manifest that all the four items, namely - Custom duty/expenses on importing of free samples; Consultancy charges; Cost of material used for in-house development transferred from Raw material cost; and Cost of direct labour transferred from labour cost - are in the nature of revenue expenses. No shred of such expenses can be construed as capital expenditure. The fact that the assessee incurred total R D expenses as above has not been disputed by the AO. Rather, the undisputed nature of such expenses has been reproduced in the assessment order. The above discussion shows that the assessee incurred R D expenses in relation to its business and these were of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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