Product Development Expenditure is ‘Revenue’ in Nature: ITAT allows Income Tax Deduction [Read Order]
![Product Development Expenditure is ‘Revenue’ in Nature: ITAT allows Income Tax Deduction [Read Order]](https://www.taxscan.in/wp-content/uploads/2022/05/Product-Development-Expenditure-Revenue-Nature-ITAT-Deduction-Taxscan.jpeg "Product Development Expenditure is ‘Revenue’ in Nature: ITAT allows Income Tax Deduction [Read Order]")
The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the expenditure incurred on testing and validation of the products is revenue in nature to allow deduction under the provisions of the Income Tax Act, 1961. During the previous year relevant to the assessment year under consideration, the appellant-assessee, Mahale Behr India Pvt. Ltd, incurred an expenditure...
The Income Tax Appellate Tribunal (ITAT), Pune bench has held that the expenditure incurred on testing and validation of the products is revenue in nature to allow deduction under the provisions of the Income Tax Act, 1961.
During the previous year relevant to the assessment year under consideration, the appellant-assessee, Mahale Behr India Pvt. Ltd, incurred an expenditure of Rs.2,45,34,542/- on testing and validation, out of which a sum of Rs.1,02,94,971/- was recovered from the customers, and the balance of product development expenditure of Rs.1,42,39,571/- was claimed as revenue expenditure. However, the Assessing Officer had treated the same as capital expenditure and allowed the depreciation by holding that the expenditure was incurred to improve the existing products.
The Tribunal bench comprising Shri Inturi Rama Rao, Accountant Member, and Shri Sonjoy Sarma, Judicial Member observed that the true nature of the expenditure had not been doubted by the Assessing Officer.
Holding that the expenditure was incurred only up-gradation of existing products are revenue in nature, the Tribunal held that “undisputedly, the appellant is in the business of manufacturing of automotive components since 1999. As a result of this expenditure, no new asset has been created nor new product did actually materialize. The expenditure was only incurred for the purpose of facilitating the existing business of manufacturing automotive components and enabling the management to conduct the business operations more efficiently and productively. The Hon’ble Supreme Court in the case of (i) Empire Jute Co. Ltd. v. CIT, 124 ITR 1 and (ii) Alembic Chemical Works Co. Ltd. v. CIT, 177 ITR 377 (SC) held that expenditure incurred on the existing business incurred in connection with the existing business.”
Shri R. D. Onkar appeared for the assessee.
To Read the full text of the Order CLICK HERE
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