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2008 (2) TMI 655 - AT - Income TaxDisallowance on the research and development expenses - technical collaboration for up-gradation and improvement and development of new products - business of manufacturing of capital goods i.e. plant and machinery to be employed by cement & steel companies and other companies engaged in the infrastructure products - HELD THAT:- We find that the activities carried on by the assessee have certainly resulted into expansion of knowledge in the field of applied sciences, hence, the expenditure incurred by the assessee can certainly be termed as expenditure incurred on ‘scientific research’. As regards the presentation of the same as the capital expenditure, in the books of account by the assessee, it is a settled principle that the treatment given in the books of account is not conclusive to determine the deductibility or otherwise of an expenditure, hence, such treatment in the books of account is not relevant for the purpose of allowability of the expenditure. We would like to further state that R&D activities carried on by the assessee resulted into product development, process development, indigenization, product support and these activities have been carried on by the assessee in a continuous manner for years together and no material has been brought on record by the revenue to controvert these claims of the assessee, hence, merely for the reason that assessee is having a technical collaboration or is developing various prototypes, these activities cannot be termed as not of the nature of scientific research. Thus, we hold that the expenditure claimed by the assessee as revenue is allowable u/s 35(1) of the Act and capital expenditure incurred by the assessee in this regard is allowable u/s 31(iv) r/w section 35(2) of the Act. Thus, this ground of the assessee stands accepted. Since we have held so, therefore, the alternate contention raised by the assessee by way of additional ground is not adjudicated. Accordingly, ground No. 1 stands accepted. Disallowance out of travelling expenses on the basis of rule 6D - HELD THAT:- Admittedly, it is not a case of revenue that these expenses involve some personal element therein. The only basis for such disallowance is established is rule 6D which is not in operation in the year under consideration. In these circumstances, we hold that the order of the ld. CIT(A) is not correct in law, hence, we quash the same. Accordingly, we accept this ground of the assessee. In the result, appeal filed by the assessee stands allowed.
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