TMI Blog2018 (5) TMI 1173X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's existing business and was for the purpose of improving the quality of the existing products. As rightly pointed out by the counsel for the assessee, in somewhat similar situations, three High Courts have held that the expenditure should be treated as revenue expenditure. See Commissioner of Income tax, Faridabad v. Escorts Auto Components Ltd. [2008 (3) TMI 248 - PUNJAB AND HARYANA HIGH COURT], Commissioner of Income tax, Bangalore v. Tejas Networks India (P.) Ltd [2014 (10) TMI 364 - KARNATAKA HIGH COURT] and Commissioner of Incometax I v. ACL Wireless Ltd. reported in [2013 (12) TMI 1160 - DELHI HIGH COURT] - Decided in favour of assessee. - R/Tax Appeal No. 1389 of 2007 - - - Dated:- 2-5-2018 - MR. AKIL KURESHI AND MR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the said amount was paid to Arvind Mills Limited on actual cost basis for product development. This product development was in the nature of improvement of different types of fabrics produced by the assessee. The expenditure was in relation to improvement of the existing products of the assessee and not for development of new product. The expenditure was therefore revenue in nature. 4. The Assessing Officer did not accept such contentions. He was of the opinion that the benefit of newly developed or improved product would be available to the assessee for long duration. Such expenditure therefore would be resulting into enduring benefits. He therefore disallowed such expenditure and instead treated it as capital expenditure. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y may depend on various factors such as how well the products are marketed, how the market receives it and presence of similar products in the market. If there are superior products already in the market, the advantage of the assessee may be neutralized. The Tribunal was essentially of the opinion that whether any advantage would accrue to the assessee or not out of such product development being highly uncertain, the expenditure cannot be treated as capital in nature. 7. Having heard learned counsel for the parties and having perused documents on record, what emerges is that the assessee who was engaged in manufacturing textile products, had expended the amount in question for product development undertaken by a sister concern of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment opposed his claim. The High Court held that lifespan of such products was very short due to severe competition, constant upgradation of original products was required and the expenditure was therefore treated as revenue expenditure. 11. Division Bench of Delhi High Court in case of Commissioner of IncometaxI v. ACL Wireless Ltd. reported in [2014] 361 ITR 210 (Delhi) , held and observed that an expenditure which enables profit making structure to work more efficiently leaving the source of profit making structure untouched, would be revenue in nature. 12. Under the circumstances, both the questions are answered against the Revenue. Before closing, however, we may observe that we should not be seen to have approved the en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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