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2007 (9) TMI 457 - ITAT MUMBAIDeferred revenue expenditure - Deduction in the computation of income u/s 37 - expenditure incurred towards research and development of new products or for modification of existing products - HELD THAT:- It is also not disputed that the assessee is required to develop through its own R&D certain model products which can be offered to various defence and other establishments. Both the Assessing Officer and the CIT(A) also recorded that such products developed by the assessee may never be purchased by any customer. On these facts we have to necessarily conclude, that under the peculiar facts and circumstances of the case and the line of business that the assessee is, it is required to mandatorily incur this expenditure to be in business. Thus the expenditure has been wholly and exclusively expended for the purpose of business. The only ground of disallowance is that the assessee has not written off the entire revenue expenditure in the year under consideration in its books of account. There is no dispute of the fact that the expenditure in question has crystallised during the year and has been incurred for the purpose of business. It is also not in dispute that no asset of enduring nature has been acquired by the assessee on incurring of this expenditure. It is well settled that the entries in the books of account cannot be the basis whether a receipt is taxable or not or whether expenses are allowable as a deduction or not. Courts are compelled to go by the true nature of receipts and not to go by the entries made in the books of account. Coming to the decisions relied upon by the learned counsel for the revenue we find that the same has been considered in the case of Amar Raja Batteries [2004 (4) TMI 280 - ITAT HYDERABAD-B], which is squarely applicable to the facts of this case. The expenditure, is of revenue in nature and no enduring benefit accrues to the assessee. Such expenditure has been claimed as revenue expenditure in the earlier years by the assessee, though in the accounts they had given a different treatment. Thus for all these reasons we allow this ground of the assessee. In the result, the appeal filed by the assessee is partly allowed.
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