TMI Blog2021 (1) TMI 1030X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred by the assessee being technical consultancy charges, purchase of raw materials, advertisement charges and electricity charges are in the nature of revenue expenditure, which does not give any enduring benefit to the assessee and hence, same cannot be treated as capital expenditure. Hence we, direct the Assessing Officer to allow deduction towards expenditure as claimed by the assessee in the statement of total income. - Decided in favour of assessee. - I.T.A. Nos. 890 And 891/Chny/2018 - - - Dated:- 20-1-2021 - Shri Justice P.P. Bhatt, President And Shri G. Manjunatha, Accountant Member For the Appellant : Mr.N.Arun Raj, C.A For the Respondent : Mr. G.Johnson, Addl.CIT ORDER PER G.MANJUNATHA, AM: These two appeals filed by the assessee are directed against the common order of the learned CIT(A)-6, Chennai, dated 28.12.2017 and pertain to assessment years 2013-14 2014-15. Since, the facts are identical and issues are common, for the sake of convenience, they were heard together and are disposed of by way of this consolidated order. 2. The assessee has more or less raised common grounds of appeal for all the assessment years, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred certain expenses like consultancy charges, raw material purchases, salary etc. and the same has been treated as deferred revenue expenditure in the financial statements. However, in the statement of total income deduction has been claimed for total expenditure. During the course of assessment proceedings, the AO has called upon the assessee to explain as to why deduction claimed towards deferred revenue expenditure in the statement of income shall not be treated as capital expenditure and added back to work in progress because nature of expenditure incurred are in the nature of capital expenditure which gives enduring benefit to the assessee. In response, the assessee submitted that it is in the business of manufacture of LED lights for which till financial year 2009-10, it has purchased raw materials being LED drives, but from the financial year 2011-12, the assessee intended to manufacture raw materials on its own for which it has incurred certain expenses like technical consultancy charges, purchase of raw materials, advertisement charges etc., which are purely in the nature of revenue expenses and hence, although the same has been treated as deferred revenue expenditure i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture which gives enduring benefit to the assessee, consequently cannot be allowed u/s.37(1) of the Act. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 6. The learned AR for the assessee submitted that the learned CIT(A) has erred in sustaining disallowance of expenses on the analysis of book treatment and the treatment given for such expenses in the income tax computation without appreciating the fact that expenses incurred are in the nature of revenue expenditure which does not give enduring benefit to the assessee. The learned AR further submitted that the learned CIT(A) has erred in holding that assessee has developed a new product which was not competed during the relevant financial year without considering the fact that assessee has already started manufacturing the products and generated revenue from sales and consequently, any expenditure incurred for development of said product, which are in the nature of revenue expenses needs to be allowed as deduction irrespective of the accounting treatment given by the assessee in the books of accounts. The learned AR for the assessee further submitted that the issue is squarely covered in favour of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of expenditure incurred by the assessee are such that they are purely in the nature of revenue expenditure incurred wholly and exclusively for the purpose of business of the assessee. Once the expenditure incurred are in the nature of revenue expenditure, which does not give enduring benefit or brought any new asset, then merely for the reason that the assessee has given different treatment in the books of account for the said expenditure, the same cannot be considered as capital in nature which gives enduring benefit to the assessee. It is well settled principle of law that entries in books of account is not detrimental to claim of deduction towards any expenditure, if such expenditure is deductible in accordance with income tax laws. In this case, the Assessing Officer having not disputed the nature of expenditure incurred being revenue has erred in himself in disallowing claim of deduction slowly on the basis of treatment given in the books of account, even though entries in books of account are not relevant criteria to decide nature of expenditure and its deductibility for the purpose of taxation. The said finding is fortified by the judgement of Hon ble Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. 4. In appeal the Income-tax Appellate Tribunal had opined that though the treatment given by the assessee- company considering the long-term benefits of the said expenditure as deferred revenue expenditure, such treatment alone was not sufficient to conclude that the said expenditure was of capital nature, The Income- tax Appellate Tribunal accordingly held that the said expenditure was clearly of a revenue nature having regard to its very nature as well as purpose for the same was being incurred, viz, being to substitute the components of raw material and as such, the advantage accrued to the assessee is only in the revenue field and not in the capital field. 5. Before us it is not disputed by the appellant that the expenditure incurred towards salaries, wages, travelling expenses, etc -, are revenue in nature, however, the counsel for the appellant has contended that since there was enduring benefit from the expenditure. be said expenditure is capital in nature. Reliance was placed upon Assam Bengal Cement v- CIT[1955)27 ITR 34 (sc) on the meaning of capital expenditure and on Taparia Toots Ltd v. Joint CIT [2003] 260 ITR 102 (Bom ) and CIT v. Kanyakumari Dist.Coop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered view that expenditure incurred by the assessee being technical consultancy charges, purchase of raw materials, advertisement charges and electricity charges are in the nature of revenue expenditure, which does not give any enduring benefit to the assessee and hence, same cannot be treated as capital expenditure. Hence we, direct the Assessing Officer to allow deduction towards expenditure as claimed by the assessee in the statement of total income. 10. In the result, the appeal filed by the assessee is allowed. ITA No. 891/Chny /2018 (A.Y.2014-15):- 11. The facts and issues involved in ITA No. 891/Chny/2018 are identical to the facts and issues which we have already considered in ITA No.890/Chny/2018 for the assessment year 2013-14. The reasons given by us in the preceding paragraphs of ITA No.890/Chny/2018 shall mutatis mutandis apply to this appeal as well. Therefore, for the similar reasons, we, direct the Assessing Officer to allow deduction towards expenditure as claimed by the assessee in the statement of total income. 12. In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 20th January, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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