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2014 (8) TMI 976 - AT - Income TaxDisallowance of product development expenses - expenditure incurred for the designing charges of packaged drinking water bottle and changing of colour of the cap of the beverages bottles - revenue v/s capital - Held that:- The assessee is into manufacturing and sale of fast moving consumer goods products and has various competitors in the market having similar line of products. Keeping with the market trends and pace of consumer preferences, the changes in the design of the products and also the quality of the products is an essential part of market strategy to augment sale and profit. Such an expenditure incurred for designing the product cannot be held to be of enduring benefit. Even otherwise also, if the advantage of such expenditure is merely for augmenting the assessee's trading/ business operations or to carry on the business more efficiently for profitability, leaving the fixed capital untouched, the expenditure would generally be on the revenue account, even though the advantage may have an enduring benefit for a brief period. Here in this case, the assessee has changed the design of the bottle and the colour of the cap as is a regular phenomenon to be carried out between one to two years which cannot be held to be for an enduring benefit or major change in the profit making apparatus. Such expenditures are required for either augmenting the sale or to survive in the market under stiff competition. Therefore, such expenditure has to be treated as revenue expenditure and, accordingly, the disallowance as confirmed by CIT(A) under the head product development expenditure is allowed. - Decided in favour of assesse. Eligibility for deduction under section 80- IB - additional ground raised - Held that:- Assessing Officer in the assessment year 2004-05, while passing the order under section 143(3), has allocated the business/depreciation losses to the demerged company. Such an order was also confirmed by the learned Commissioner (Appeals) also, however, the Tribunal, in that year has allowed the assessee's claim carried forward losses which was apportioned due to demerger. This order of the Tribunal is now subject matter of appeal before the hon'ble High Court. Learned counsel submitted that if the hon'ble High Court reverses the order of the Tribunal, then, there would be no carried forward of losses, hence, will result into positive income and then deduction under section 80-IB has to be allowed. Thus such a plea is too prompt, however, being a legal plea based on statutory provision, we direct the Assessing Officer that in case, as a result of any order passed by the High Court, resulting into setting aside of the Tribunal order or denying the claim of carried forward of losses, then the Assessing Officer while computing the positive income of the assessee for this year, shall examine the claim of deduction under section 80-IB. - Decided in favour of assessee for statistical purposes. Market research expenses - revenue v/s capital - Held that:- Assessee has incurred market research expenditure mainly on the existing products such as "Simply Imlee" and "Frooti" to find out the consumer preferences and choice of various age group consumers, so as to target the sales of these products accordingly. These expenses are incurred for constant endeavour to carry out market research which is inevitable for fast moving consumer goods industry to remain in competition and are routine expenditure carried out in the ordinary course of business for strengthening the existing brands. Therefore, the learned Commissioner (Appeals) has rightly held that such expenses incurred on market research is nothing but revenue expenses - Decided in favour of assesse.
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