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TMI Blog2017 (10) TMI 1257X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue expenditure, the assessee has incurred revenue expenditure during this year and classified the same as ‘deferred revenue expenditure’ in order to defer the expenditure in the financial statement. For the purpose of determining taxable income under the IT Act, it has claimed total revenue expenditure incurred during the year, even though classified as deferred revenue expenditure, as expenditure u/s 35(1). Even though the discount is offered in the year of subscription, the discount in fact relates to the tenure of the debentures. It can be spread over to the period of debenture holding. Whereas the nature of expenditure incurred in the given case is R&D. It is peculiar expenditure, it is not necessary that research should be successful all the time, the absorption of the cost depends upon the success rate of the project. It is prudent to absorb the revenue expenses in the year of expenditure incurred, when there is no benefit of enduring nature expected at the time of making such expenditure. It is not brought on record by the revenue authorities that assessee has expended this expenses and there is asset created by such expenditure. Since there is no asset created, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3/2011 upto 31/03/2012 and the same was put before the assessee. Assessee had furnished revised computation of income by withdrawing the claim of deduction u/s 35(2AB) of the Act and claimed the same expenditure under the head deferred revenue expenditure. He further noted that assessee had claimed in P L Account as deferred revenue expenditure. Accordingly, AO had disallowed the above expenditure by observing that there is no concept of deffered revenue expenditure in the Income-tax Act and also in accounting standards. 3. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). 4. The CIT(A) has allowed the claim of the assessee with regard to deduction u/s 35(1) relating research and development expenditure by observing as under: 3.4 First of all the assessee did not claim the deduction u/s 35(2AB)/35D. Secondly, it did not claim any weighted deduction. Further, I have gone through the provisions of section 35, Rule 6 and the prescribed forms for obtaining the permission from the competent authority. There is no form prescribed to claim deduction u/s 35(1). Further, even otherwise, the expenses mentioned at Para 3.2 are permissible u/s 37, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 4,38,34,823/- represent revenue expenditure and is allowable as deduction. 5) Any other ground or grounds that may be urged at the time of hearing. 6.1 Revenue has raised the following grounds of appeal: 1. In the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition of ₹ 66,24,000/- towards disallowances of R D expenditure on the ground that no prescribed form is required to claim expenditure u/s.35(1), whereas it is clearly mentioned in the said section that a certificate from the prescribed authority is required. 2. In the facts and in the circumstances of the case, the learned Ld. CIT(A) erred in stating that the R D expenditure of ₹ 66,24,000/- was also allowable u/s.37(1) without appreciating the fact that the expenditure in order to be allowable u/s. 37(1) should be an expenditure not of the nature described in sections 30 to 36. 3. In the facts and in the circumstances of the case, the learned Ld. CIT(A) ought to have provided an opportunity to verify the claim of the assessee as per Rule 46A of the I.T. Rules. 4. Any other ground that may be urged at the time of hearing. 7. Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73) on payment of any salary as defined in Explanation 2 below sub-section (5) of section 40A to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced; Thus, it can be seen from the explanation above, that certificate from the prescribed authority is required in case; (i) the expenditure is laid out or expended before the commencement of the business (ii) on payment of any salary as defined in Explanation 2 below sub-section (5) of section 40A to an employee engaged in such scientific research or on the purchase of materials used in such scientific research (iii) the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business. Further, it is seen from the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arch, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall, to the extent it is certified by the prescribed authority to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;] From the above, it is clear that any expenditure relating to business which may be relating to current year or relating to previous expenditure incurred before commencement of the business and restricted to expenses expended within 3 years immediately proceeding the commencement of the business. As per explanation to this sub-clause, the assessee has to submit certificate from the prescribed authority to get the deduction under this head for the expenses incurred before commencement of the business. There is no restriction with regard to expenses expended during the current assessment year. Hence, there is no requirement on the part of the assessee to claim revenue expenditure incurred during the current assessment year. Accordingly, the assessee is eligible to claim deduction u/s 35(1) of the IT Act relating the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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