TMI Blog2002 (1) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of threshing of raw tobacco into bidi patti and other by-products. 10. The Commissioner (Appeals) deleted the impugned addition with following observations: "It is contended that with this in view, the appellant has incurred scientific research expenses even in the subsequent years. It is contended that the appellant has continued to incur expenditure on scientific research even in the subsequent years and has incurred expenditure in the process of trial and errors. It is contended that the equipments made in its R D Centre have been continuously modified since desired results were not achieved during trial runs. It is contended that some of the equipments so developed have even been discarded/scrapped since during the trial run they did not perform up to the expectation. It is contended that since the appellant has incurred the expenses on scientific research, and since the said expenditure is connected with the processes that are being developed with the help of new machinery which are not available in the market, the said expenditure is allowable under section 35(1)(iv). It is contended that the appellant is incurring the expenditure to develop something which non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the welfare of worker employed in that business or, as the case may be, all businesses of that class; It is respectfully submitted that the expenditure incurred by the assessee on scientific research perfectly falls into description of sub-clauses (i) and (iii)(a) of sub-section (4) of section 43 mentioned above. Therefore, the disallowance made by the learned DCIT (Asstt.) deserves to be deleted. To explain the point further we submit as under: The Company had appointed M/s. Buffalo Design Research to under take the study of existing methods and procedures adopted in tobacco processing units. They carried out extensive study and concluded (copy of report enclosed as Annexure "C") that present methods of tobacco processing were totally unscientific, highly hazardous to employees working in such units and in terms of productivity and yield totally inefficient. They therefore advised the company to set up a R D Centre so that new processes and machineries can be developed for improving the efficiency of tobacco threshing operations on scientific basis. Accordingly, the company set up exclusive R D Centre at S. Nos. 231, 238 to 241, village Piplag, Tal.: Nadiad, Dist. Khed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as firm conviction to carry out research till desired results are achieved. The assessee has taken decision in this respect and the Board of Directors of the company are informed from time to time about progress of research and development activities carried out by the assessee. In the circumstances explained above, it will not be correct to say that expenses of Rs. 5,46,094 incurred by the assessee is merely an expenditure of capital nature towards design of plant and machinery it is expenditure towards development of scientific methods and processes. to process raw tobacco with the objective of creating better conditions of work for the employees. (ii) to attain high yield as compared to conventional yields obtained in the processes. (iii) to improve the quality of tobacco by making it puffy for better burning. (iv) to flatten tobacco stems and use the same in bidi patti and (v) to ensure higher productivity in the long run. It may be noted here that during subsequent years i.e. in assessment year 1992-93 and assessment year 1993-94, the assessee has incurred further R D expenses of Rs. 17,72,973 and Rs. 6,02,088 respectively on capital account towards developme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was manual and a few processors use some primitive machines for threshing and grading. The assessee-company started its business from June 1989 and the year under consideration was the second year of the commercial production of tobacco business. The assessee initially were threshing tobacco--"Bidi Patti" by manual process as installation of mechanical process would mean loss of time and money which was unhealthy for business. However, in the very second year, took steps to install machineries etc. for threshing tobacco Bidi Patti by mechanical process. As per Assessing Officer in para 7.4 of his order the assessee engaged an institution viz. M/s. Buffalo Design Research of Pune for the purpose of designing of the machine used for threshing purposes and that accordingly, the institution designed machine which got manufactured by the assessee-company and installed in its premises. Here, it is pertinent to mention about the so-called 'scientific research' as pointed out by M/s. Buffalo Design Research in its letter dated 10-9-1988 and 14-10-1988, same are reproduced as under: "(a) Bidi tobacco processing is different from cigarette tobacco processing. In the cigarette tobacco proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly, according to the Concise Oxford Dictionary, this expression means "endeavour to discover new or collate old facts, by scientific study of a subject', according to section 43(4)(i) "scientific research" means any activities for the extension of knowledge in the fields of natural or applied science". Section 43(4)(i) reference to scientific research related to a business or class of business include--(a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all business of that class". The definition of 'research' and 'development' according to Accounting Standard, AS-8, issued by the Council of the Institute of Chartered Accountants of India on 'Accounting for Research and Development" is as under: "(i) Research is original new scientific or technical knowledge and understanding; (ii) development is the translation of research findings or other knowledge into a play or design for the production of new or substantially improved material, devices, products, process systems or services prior to the commencement of commercial productions" 13.3 In the light of above meaning of "Scientific", "Science", "Research", ..... X X X X Extracts X X X X X X X X Extracts X X X X
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