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2020 (10) TMI 404 - AT - Income TaxNature of expenditure - R&D expenditure - revenue or capital expenditure - Alternative claim u/s 35(1)(iv) r.w.s. 35(2)(ia) - As per assessee expenditure incurred for development of new product range as well as valued engineering of existing product ranges and same resulted into enduring benefit to the assessee - CIT(A) rejected the contentions of the assessee and affirmed the finding of the ld.AO - HELD THAT:- AO has not even granted depreciation - overall analysis of the record would indicate that the assessee has incurred this expenditure for fulfilling the requirement of a specified product required to be supplied to a particular customer. Raw- Material, tools designs ultimately determined by the assessee and used for manufacture of customised products were not meant for uniform application for other customers also, and therefore the expenditure incurred for development of customized products and manufactured and sold by the assessee need not to be capitalized. These are to be treated as revenue expenditure and deserve to be allowed under section 37 of the Income Tax Act. Alternative argument of assessee even in that case the expenditure is allowable under section 35 - These are the expenditure which were incurred by the assessee for preparing pro-type or preparing a product specifically required by its customers. In other words, it has incurred certain expenditure for development on a mechanism which can help it to produce a product specifically demanded by a specific customer, and according to the needs of that customer. If any amount is being incurred towards R&D for the purpose of business for manufacturing customized products, then that can be considered under R&D which can be allowed under section 35(1)(iv) r.w.s. 35(2)(ia) of the Act. In view of the above discussion, we are of the view that the claim of the assessee deserves to be allowed.
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