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TMI Blog2022 (9) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... only. There may be several permutations and combinations that may arise for determining whether the expenditure is revenue or capital and each case must, of course, be dealt with on the broad principles that have been accepted by the Courts. Finally, Hon ble Court in Jay Engineering Works Ltd.[ 2007 (10) TMI 286 - DELHI HIGH COURT] held that since the control over the two units is in the hands of the same management and administration and there was unity of control leading to an inter-connection, inter-dependence and inter-lacing of the two ventures such that it can be said that the fuel injection equipment project is only an extension of the existing business of the assessee and, therefore, the expenditure incurred by the assessee on this Project is a revenue expenditure. Considering this decision, the matching concept as invoked by Ld. AO would have no application. Further, the earning of income is not a requirement before an expenditure could be claimed by the assessee. Thus disallowance as made by Ld. AO and as confirmed by CIT(A) is not sustainable in law and the same is liable to be deleted. We order so. The Ld. AO is directed to re-compute the income of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Proceedings 5.1 The assessee being resident corporate assessee is stated to be engaged in repairs and maintenance activities. The assessee computed business loss of Rs.65.40 Lacs. During the course of assessment proceedings, it transpired that the assessee incurred expenditure of Rs.164.82 Lacs under the head project expenses Biotechnology . It was explained that the expenditure was incurred in the business of Bio-technology R D and the assessee had expended such amount. 5.2 However, Ld. AO held that assessee did not have any income relatable to Bio-technology R D and the unit was in fledgling stage and no business was carried out. The cardinal principle laid down in the charging Section 28 is that the business should have been carried on by the assessee before an expense could be allowed to the assessee. The expenses incurred till setting up of business would be capital expenditure only and would not attain the character of revenue. Further, the expenses were incurred in setting the profit earning machinery in motion. As per the Act, expenses of revenue nature incurred during running of business and generation of income could only be allowed as revenue expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant. Where the appellant has not commenced the business for which the scientific research is undertaken, no deduction is admissible except to the extent provided under the explanation. The assessee did not produce any certificate from the prescribed authority certifying any amount as allowable in this regard. Therefore, the claim u/s 35(1)(i) was held to be not admissible. 6.4 The approval of Department of Scientific and Industrial Research (DSIR) was stated to be only to avail exemption from customs duty on import of capital goods and the same was not the certificate as prescribed in Explanation to Section 35(1)(i). The provisions of Sec.35(3) would not apply since the R D expenses are disallowed on the preliminary ground itself that the expense is not related to appellant's business of repairs and technical services. In this case, the deduction itself will be admissible only on the basis of certificate of prescribed authority to be obtained by the assessee. Reliance was placed on the decision of Hyderabad Tribunal in DCIT V/s Bharat Biotech International Ltd (2014) 42 Taxman.com 204. In this decision, it was held that the development activity in itself could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996 and its business had already commenced and it is not the case that the business had not commenced. 10. The provisions of Sec.35(1) provide for deduction of expenditure on scientific research which is laid out or expended on scientific research related to business. The explanation provide that where such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary (as defined) 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. The prescribed authority as defined in Rule 6(1) mean Director General (Income-tax Exemptions) in concurrence with Secretary, Department of Scientific and Industrial Research, Government of India. We have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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