INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Revenue or capital expenditure - Expenditure incurred for development of new product/formula by assessee engaged in manufacturing of pharmaceuticals products -

Assessee was engaged in business of manufacture and export of pharmaceuticals products. Assessee was carrying on business in two units. Assessee claimed deduction under section 10B in respect of one unit and deduction of expenditure under section 37(1) in respect of product developed in second unit. AO alleged that assessee itself in books of account capitalized expenses but for income tax purposes it was claimed as revenue expenditure. Accordingly AO disallowed expenses claimed under section 37(1) on allegation that expenses incurred for developing formula, which gave enduring benefits was capital in nature. Held: Assessee produced a new product (Sucralose) from which enduring benefit was derived. Therefore, same was to be treated as capital expenditure. An asset was brought into existence for enduring benefit of business and therefore, same was to be treated as capital expenditure. Expenditure was not made for bringing into existence an asset for running of business or working with it with a view to produce profits. Same could not be treated as revenue expenditure. It was pertinent to mention assessee itself in books of account showed it as capital expenditure.

Distinguished: Alembic Chemical Works Co. Ltd. v. Commissioner of Income Tax', (1989) 177 ITR 0377 (SC): 1989 TaxPub(DT) 1096 (SC), Commissioner of Income Tax v. Denso India Ltd.', (2009) 318 ITR 0140 (Del) : 2009 TaxPub(DT) 1869 (Del-HC) Commissioner of Income Tax v. Hero Honda Motors Limited', (2015) 372 ITR 0481 (DELHI) : 2015 TaxPub(DT) 0611 (Del-HC).

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2006-07 & 2007-08

SUBSCRIBE FOR FULL CONTENT

OR Try Reload the Page