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2006 (6) TMI 422 - AT - Income TaxNature of expenditure - Disallowance on product/development expenses - installed plant - Business loss/deductions - HELD THAT:- From the facts discussed, it is clear that the assessee was already in the business of manufacture of BOPP films and its unit had started commercial production on 6-3-1990 relating to assessment year 1990-91. This fact is admitted by the Assessing Officer in the assessment order, paper book being explanatory notes to the financial statements clearly mentioned that the expenditure incurred by the assessee related to improvement in product specification of BOPP films and also to develop new varieties of the BOPP films. paper book further mentions that the installed capacity of the unit remained at 3150 tonnes. Thus, the expenditure incurred did not result in enhancing the installed capacity of the unit. The assessee has not acquired any new plant and machinery and the expenditure falls in the category of revenue. Since the expenditure incurred related to improving and developing the new varieties of BOPP films already manufactured by the assessee, it cannot be said that the expenses related to setting up of a new unit or for expansion of the existing unit. No disallowance under section 35D could be made for the reason that section 35D deals with the amortisation of certain preliminary expenses before the commencement of the business, or after the commencement of the business, in connection with the extension of industrial undertaking or in connection with the setting up a new industrial unit. In the present case, the expenditure incurred could not be considered to fall in the capital field. Therefore, no disallowance u/s 35D in respect of the expenditure incurred by the assessee could be made. The very fact that the assessee has capitalized or amortised the expenses in the books of account for 8 years would not mean that the assessee has acquired enduring benefit for all the 8 years. Therefore, no disallowance could be made on the ground that expenditure is capital in nature when the nature of expenditure incurred show the same is revenue in nature and was incurred wholly and exclusively for the purpose of business. Thus, we are of the considered opinion that the learned CIT(A) was justified in allowing deduction of the impugned expenditure. We confirm his order and reject the grounds of appeal of the revenue. In the result, the appeal filed by the revenue is dismissed.
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