INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Consultancy charges, raw-material purchases, salary, etc. - -

Assessee-company, engaged in the manufacture of LED lights, incurred certain expenses like consultancy charges, raw-material purchases, salary, etc., and same were treated as deferred revenue expenditure in financial statements. However, in the statement of total income deduction was claimed for total expenditure. AO held that expenditure was incurred for development of new product including know-how in the nature of intangible asset, which gave enduring benefit to assessee and hence, expenses incurred towards development of new product were to be regarded as capital work-in-progress. Held: Although assessee had treated concerned expenditure as deferred revenue expenditure pending amortization over a period, but the nature of expenditure incurred by the assessee is such that they are purely in the nature of revenue expenditure incurred wholly and exclusively for the purpose of business of the assessee. Once expenditure incurred was in the nature of revenue expenditure, which did not give enduring benefit or brought any new asset, then merely for the reason that the assessee had given different treatment in books of account for said expenditure, the same could not be considered as capital in nature.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14 & 2014-15

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