TMI Blog2008 (2) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of CIT(A)- IX, Mumbai dated 31-8-2004. 2. We have heard both the sides and have also perused the materials placed on record and applicable legal position. 3. In ground No. 1, the assessee is aggrieved by the decision of ld. CIT(A) in up-holding the action of Assessing Officer in disallowing the research and development expenses of Rs. 25,42,620. The assessee has also raised an additional ground claiming allowability of the same under section 37 of the Act if it was not allowable under section 35(1) of the Income-tax Act. The learned counsel for the assessee requested for admission of additional ground as it was purely on legal issue. 4. The ld. D.R., objected the same. On due consideration of facts and circumstances and applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment, hence, development of prototype for the future sale of similar product did not tantamount to R D and, hence, the Assessing Officer formed an opinion that the assessee had rightly classified such expenses as of the nature of capital expenditure in its books of account. The Assessing Officer also held that assessee also did not meet the conditions of section 35(1) of the Act as the assessee already had the expertise in the field and the product was being developed as per the requirement of the customer i.e. A.C.C. who was also willing to market such mixture- cum -dispenser developed, manufactured and supplied to them, hence, the expenditure was to be treated as incurred for creating an asset having income generation capacity in futur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being a manufacturer of capital machinery for infrastructure project, was required to carry out R D continuously and to customize its standard products according to customers specific requirements. The ld. CIT(A), however, confirmed the order of Assessing Officer by holding that the assessee was not entitled for deduction under section 35(1) of the Income-tax Act for the reason that activities classified as R D were not exempted when expertise was utilized to develop the product as per requirement of customer and also for the reason that assessee was also having technical know-how concerning manufacture of mixture dispenser. Aggrieved by this, the assessee is in appeal before us. 6. The ld. D.R., on the other hand, placed strong reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had been explained under section 43(4) of the Act and research development activities carried on by the assessee fell within the ambit of this definition, hence, entire expenditure of revenue nature was allowable under section 35(1) of the Act and expenditure of capital nature was allowable under section 35(1)( iv ) read with section 35(2)( ia ) of the Act. In addition to these contentions, the ld. Counsel further placed reliance on the written submissions made before the ld. CIT(A). 8. We have considered the submissions made by both sides, material on record and orders of authorities below. It is noted that the assessee-company is engaged in the business of manufacturing of capital goods i.e. plant and machinery to be employed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 prototy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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