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2021 (7) TMI 771 - AT - Income TaxNature of expenditure - Lease hold improvement expenditure - expenses incurred on design and technical consultancy towards improving the exisiting product in the same line of business - Revenue or capital expenditure - CIT(A) held that the expenditure of design and technical services incurred towards improving the existing product which has the effect of long-term or enduring benefit to the appellant and therefore, it needs to be capitalized as 'capital expenditure' - HELD THAT:- The assessee has been incurring this expenditure for improving existing products as well as developing of new products, thereby existing business from the existing customers has been increased as well as new additional customers added. It has also resulted in reduction in rejection on account of quality issues. As such, it cannot be held as expenditure incurred in the ordinary course of carrying day to day business of assessee. On the other hand, it is for deriving enduring benefit in the long run business plan. The other contention of the ld. AR is that to meet the matching principle, the company has capitalized 70% of R&D expenditure under the head “intangible assets” and balance 30% has been claimed as revenue expenses by charging it to P&L account. However, we observe that 70% shares of assessee company is acquired by M/s. Filtrauto, SA of France, as such the assessee charges only 30% of this expenditure to P&L account and 70% of R&D expenditure was considered as intangible assets by showing it in the balance sheet and it is not because of matching principle the expenditure was bifurcated as above. Being so, we hold that the expenditure is in the capital field and to be considered as not allowable. On other hand, the assessee is entitled only for depreciation at applicable rate. This ground of assessee is partly allowed for all the assessment years i.e., AYs 2013-14 to 2016-17.
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