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2017 (4) TMI 1261 - ITAT PUNEDisallowance of product development - nature of expenses - revenue or capital expenditure - Held that:- In the first round of assessment proceedings the said expenditure was connected with the expenditure incurred in the first year of commencement of business on product development and hence, the expenditure was held to be capital in nature. However, where expenditure on testing of the product which is required to be incurred on a regular basis and which does not result into creation or acquisition of any assets, then there is no merit in holding the expenditure to be of enduring benefit. The assessee is carrying out this exercise of modification and improvisation in the products in order to test suitability in the environment in which it is to be used and hence, the said expenditure is duly allowable in the hands of the assessee as revenue expenditure. The bill wise nature of expenses are tabulated at page 6 of the order of CIT(A) and perusal of the same reflects expenditure to be revenue in nature. Once, the expenditure has not been incurred for the development of new product but is for the improvisation of the products already being manufactured by the assessee, then such an expenditure which is a regular expenditure incurred by the assessee for smooth and efficient working of its business, is to be allowed as revenue expenditure in its hands - Decided against revenue. TPA - selection of comparable - Held that:- In the IT Enabled Services Division, the assessee was providing services to its parent company in Germany and was a limited scope service provider, thus companies functionally dissimilar with that of assessee need to be deselected from final lit of comparable. Allocation of lease line cost to two segments operated by the assessee i.e. manufacturing segment and ITES segment - Held that:- The assessee had estimated the use of two lines out of six lines for Design Engineering Segment i.e. about 40% of the lease line cost. However, the TPO and the CIT(A) were of the view that 80% of the total cost was attributable to Design Engineering Segment. The case of the assessee was that it had consistently followed the said allocation procedure on the basis of usage and since out of six lines, two lines were used by ITES segment, then there was no need to disturb the same. The assessee was operating both the segments and where the assessee had consistently followed a basis for allocation of the lease line cost, then there is no merit in adhoc apportionment of the said cost basis. Hence, we reverse the orders of TPO and the CIT(A) in this regard and allow the ground raised by the assessee. Disallowance of provision for warranty - Held that:- Direct the Assessing Officer to allow the claim of the assessee vis-à-vis provision for warranty. See case of Thermax Babcock & Wilcox Ltd.[2001 (5) TMI 173 - ITAT PUNE].
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