TMI Blog2013 (9) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... the existing products using different materials for making the same suitable for even other applications. The expenditure incurred by the assessee on development of Stainless Steel liners thus was relating to its existing business and the same, cannot be treated as capital expenditure merely on the basis of accounting treatment given by the assessee. Moreover a perusal of the details of the development expenditure in question incurred by the assessee clearly shows that the entire expenditure incurred by the assessee was basically of revenue in nature and it cannot be said by any stretch of imagination that same resulted in any enduring benefited to the assessee and that too in the capital filed - expenditure in question incurred by the assessee on product development is revenue expenditure allowable u/s- 37(1) - Decided in favour of assessee. - ITA No.32,3460/Mum/2012 - - - Dated:- 21-6-2013 - P M Jagtap And Vivek Varma, JJ. For the Appellant : Shri Dr. K Shivaram For the Respondent : Shri Surinder Jit Singh ORDER:- PER : P M Jagtap These two appeals preferred by the assessee are directed against the orders of the Ld. CIT(A)-17 Mumbai, dated 24.06.2011 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the office of CA to file the appeal of the assessee within time and the said delay also has been explained by the concerned person duly supported by his affidavit. Keeping in view the depositions made in the said affidavit as well as other facts borne out from the record including the fact that the Tribunal appeal fee was paid by the assessee well in time, we are satisfied that the delay in filing the appeal is for sufficient cause and it is a fit case to condone the said delay. Accordingly, we condone the said delay and now proceed to dispose of the appeal of the assessee on merit. 4. First we shall take up the appeal of the assessee for A.Y.2007-08. The relevant facts of the case giving rise to this appeal are as follows. The assessee is a company which is engaged in the business of manufacturing of automobile parts and castings. The return of income for A.Y. 2007-08 was filed by the assessee on 31.10.2007 declaring total income of Rs.48,02,740/-. During the course of assessment proceedings, it was noticed by the AO that the assessee has incurred product development expenditure of Rs.3,80,58,493/- in the year under consideration which was capitalized in the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO on account of product development expenditure treating the same as of capital nature was challenged by the assessee in the appeal filed before the Ld. CIT(A), and the following contentions were raised on behalf of the assessee before the Ld. CIT(A.) in support of its case on this issue: That the assessee is in the business of manufacturing of original parts for automobile manufacturers, which require expenditure in R D. From the details of expenditure in question it can be seen that these are revenue in nature. The expenditure capitalized in the books of accounts pertains to the R D Department; relating to product development and hence, allowable u/s. 37/35. It is trite law that expenditure incurred on development of new product in the existing line of business is revenue in nature. Reliance is placed upon several decisions. Depiction of an expenditure in the books of accounts is not a deciding factor for determining the nature of the expense. Reliance was placed upon a number of decisions. 8. The above contentions raised on behalf of the assessee were not found acceptable by the ld. CIT(A). He held that the expenditure incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... products. He contended that the manufacturing of Stainless Steel liners thus was not a new line of business and the same being expansion of the existing business of the assessee, the expenditure incurred on development of stainless steel liners is purely of revenue nature. He contended that the said expenditure thus is allowable as deduction u/s 37(1) as held by the Tribunal in the case of M/s. Perfect Engineering Products (Supra). 10. The Ld. DR, on the other hand, submitted that the assessee himself treated expenditure in question incurred on product development as capital expenditure in the books of account and this treatment given by the assessee clearly shows that the same is of capital nature. He contended that the details of the said expenditure as given on page no. 6 of assessment order show that a separate wing or section was working for the product development which was not a part of the existing business of the assessee but was a new line of business. He submitted that even the application of the new product being developed by the assessee was in all together different fields. He contended that the manufacturing of the Stainless steel liners thus was a new project and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n decided in favour of the assessee by Pune bench of this Tribunal. In the said case, the assessee was engaged in the business of manufacturing of programmable logic controllers for use in various consumer electronic products. During the relevant year, product development expenditure of Rs. 15,37,582/- was incurred by the assessee and the same was capitalized in the books of account under the head "research and development" claiming depreciation thereon. In the computation of total income for the purpose of income-tax, the product development expenditure however was entirely claimed by the assessee as deduction being revenue in nature. The AO, however, treated the said expenditure as capital in nature on the ground that it had generated intangible asset and accordingly allowed only depreciation thereon. When the matter was carried to the Tribunal, the claim of the assessee was that the product development expenditure was allowable u/s-35(1)(iv) as well as section 37(1). The Tribunal fist examined the claim of the assessee u/s-37(1) and held that the expenditure in question incurred by the assessee on the raw-material, engineers salary, testing charges, tooling charges, development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penditure incurred by the assessee is relatable to its business. As per well established law treatment in the accounts book is not conclusive factor to determine the nature of the expenditure and reference in this regard can be made to the decision of Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT (supra). As per decision of Hon ble Supreme Court in the case of Empire Jute Company Ltd. (supra) the true test to ascertain the nature and import of expenditure is to examine the same from commercial perspective. Even if, it is being accepted that the expenditure results in an enduring benefit to the assessee, yet every incidence of enduring benefit would not result in a classification of expenditure as a capital expenditure and this is clear from the following observation from the said decision. "There may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may breakdown. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is natu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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