INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Expenditure incurred on account of redesigning of moulds to create new designs of components manufactured by assessee to the satisfaction of customer - Expenditure incurred in ordinary course of business

Assessee-company was engaged in manufacture of various parts of automobile components. It claimed deduction under the head “scientific expenditure”. AO alleged that the said claim was not allowable since neither the assessee obtained any approval from the scientific authority nor the amount was paid to any university or research organization and hence not eligible for deduction under section 35(1)(ii). However, CIT (A) allowed the said expenditure as revenue expenditure on the ground that the same was incurred by the assessee during regular course of business. Further, Tribunal upheld the order of CIT (A). Aggrieved, Revenue was in appeal. Held: Admittedly, the conditions required for claiming expenditure under section 35 was not satisfied by assessee. Nonetheless, the assessee was entitled to claim the said expenditure in the “Residuary Provisions” of section 37. There was no dispute that the said expenditure was incurred in the ordinary course of business. Further, the expenditure incurred on account of redesigning of moulds to create new designs of components manufactured by assessee to the satisfaction of the customer was nothing but 'revenue expenditure' incurred in the ordinary course of business of the assessee. Therefore, CIT(A) was justified in allowing such expenditure as revenue expenditure.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2007-08

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