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2017 (10) TMI 1257 - AT - Income TaxDisallowance of R&D Expenditure u/s 35(1) and unaccounted expenditure under the head R&D - Held that:- Any expenditure relating to business which may be relating to current year or relating to previous expenditure incurred before commencement of the business and restricted to expenses expended within 3 years immediately proceeding the commencement of the business. As per explanation to this sub-clause, the assessee has to submit certificate from the prescribed authority to get the deduction under this head for the expenses incurred before commencement of the business. There is no restriction with regard to expenses expended during the current assessment year. Hence, there is no requirement on the part of the assessee to claim revenue expenditure incurred during the current assessment year. Accordingly, the assessee is eligible to claim deduction u/s 35(1) relating the current year expenditure on R&D. We are in agreement with the findings of Ld. CIT(A). Therefore ground raised by department is dismissed. With regard to deferred revenue expenditure, the assessee has incurred revenue expenditure during this year and classified the same as ‘deferred revenue expenditure’ in order to defer the expenditure in the financial statement. For the purpose of determining taxable income under the IT Act, it has claimed total revenue expenditure incurred during the year, even though classified as deferred revenue expenditure, as expenditure u/s 35(1). Even though the discount is offered in the year of subscription, the discount in fact relates to the tenure of the debentures. It can be spread over to the period of debenture holding. Whereas the nature of expenditure incurred in the given case is R&D. It is peculiar expenditure, it is not necessary that research should be successful all the time, the absorption of the cost depends upon the success rate of the project. It is prudent to absorb the revenue expenses in the year of expenditure incurred, when there is no benefit of enduring nature expected at the time of making such expenditure. It is not brought on record by the revenue authorities that assessee has expended this expenses and there is asset created by such expenditure. Since there is no asset created, which has enduring benefit to the business of the assessee, it is appropriate to allow these expenditure u/s 35(1). - Decided against revenue.
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