M/s. Alpha Design Technologies Private Limited, Bangalore V. Income Tax Officer, Ward- 1(1)(2), Bangalore

ITA 1521/BANG/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6807 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 21-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRASHANTH CHANDRASHEKAR; BRINGING INTO EXISTENCE A; WAY OF RESEARCH
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 148; 37; 143(3); 37(1); 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER IT A NO S . 1516 TO 1521/BANG/2019 ASSESSMENT YEAR S : 2009 - 10 & 2011 - 12 TO 2015 - 16 M/S. ALPHA DESIGN TECHNOLOGIES PRIVATE LIMITED, NO.9, INTERFACE ACCOLADE, SERVICE ROAD, HAL 2 ND STAGE, INDIRANAGAR, BANGALORE 560 008. PAN: AAECA 3323P VS. THE INCOME TAX OFFICER, WARD 1(1)(2), BANGALORE. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : S HRI PRASHANTH CHANDRASHEKAR, CA RESPONDENT BY : SHRI KANNAN NARAYANAN, JT.C IT(DR)(ITAT ), BENGALURU. DATE OF HEARING : 04 .0 1 .202 1 DATE OF PRONOUNCEMENT : 27 .0 1 .202 1 O R D E R PER BENCH ALL THESE FILES ARE FILED BY THE ASSESSEE AGAINS T THE SEPARATE ORDERS OF THE CIT(APPEALS)-1, BENGALURU DATED 01.03.2019 F OR ASSESSMENT YEARS 2009-10 [PASSED U/S. 143(3) R.W.S. 263 OF THE ACT] & AYS 2011-12 TO 2015- 16 [U/S. 143(3) OF THE ACT]. WHICH WERE HEARD TOG ETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF BREVITY AND CONVE NIENCE. 2. COMMON GROUNDS OF APPEAL HAVE BEEN RAISED IN THE SE APPEALS AS FOLLOWS:- ITA NOS.1516 TO 1521/BANG/2019 PAGE 2 OF 24 1. THE LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWA NCE OF REVENUE EXPENDITURE OF RS 1,95,00,144 (AY 2009-10), RS.17,32,84,994 (AY 2011-12), RS.19,65,08,727 (AY 2 012-13), RS.10,57,08,949 (AY 2014-15) & RS..12,31,60,586 (AY 2015- 16) CLAIMED UNDER SECTION 37 OF THE ACT, BY DISREGA RDING THE FACT THAT THE EXPENDITURE INCURRED ARE OF REVENUE IN NAT URE AND IS SPENT FOR THE PURPOSE OF BUSINESS ACTIVITY OF THE APPELLA NT. THE AO HAS NOT CONSIDERED THE APPELLANTS CLAIM OF RESEARCH & DEVELOPMENT (R&D EXPENDITURE) TO THE TUNE OF RS.14, 04,48,321 (AY 2013-14) VIDE LETTER DATED 23.11.2015. FURTHER, THE LD. CIT(A) HAS IGNORED THE CLAIM MADE AND HAS NOT PASSE D A SPEAKING ORDER ON THE SAME. 2. THE LD CIT(A) HAS DISALLOWED THE CLAIM AS REVENUE E XPENDITURE ON A WRONG NOTION THAT THE EXPENDITURE ARE SPENT FO R DEVELOPMENT OF NEW PRODUCT. 3. THE LD CIT(A) HAS FAILED TO APPRECIATE THE FACT THA T, THE APPELLANT IS IN ONE LINE OF BUSINESS AND THE NATURE OF THE BU SINESS REQUIRES HUGE R&D EXPENSE TO BE RELEVANT IN THE BUSINESS FIE LD, FOR BEING UPDATED AND COMPETITIVE, WHICH DO NOT RESULT IN ADV ANTAGE OF ENDURING NATURE, AND HENCE THE R&D EXPENDITURE INCU RRED BY THE APPELLANT ARE TO BE ALLOWED AS REVENUE EXPENDITURE. 4. THE LD CIT(A) WHILE DISALLOWING THE EXPENDITURE HAS FAILED TO RECOGNIZE THE FACT THAT THE HON'BLE ITAT IN APPELLA NT'S OWN CASE FOR AY 2007-08 AND 2008-09 HAVING THE SAME FACTS HA D ALLOWED THE R&D EXPENDITURE AS REVENUE IN NATURE. 5. IN SIMILAR CASES, THE HON'BLE ITAT HAS RULED THAT RESEARCH & DEVELOPMENT EXPENSE IS REVENUE IN NATURE WHEN THE S AME DOES NOT RESULT IN NEW PRODUCT OR NEW LINE OF BUSINESS. ( ITA 2229 / 2011 ITAT HYDERABAD DR.REDDY'S LABORATORIES LTD VS ADDL CIT, ITA 584/PN/2011 ITAT PUNE OPUS SOFTWARE SOLU TIONS PVT LTD VS ACIT, ITA 1711/PN/2012 ITAT PUNE DCIT VS AUTOLINE INDUSTRIES LTD). FOR THE ABOVE AND OTHER GROUNDS THAT MAY BE URGED A T THE TIME OF HEARING OF THE APPEAL, YOUR APPELLANT HUMBLY PRAYS THAT THE APPEAL MAY BE ALLOWED AND JUSTICE RENDERED. ITA NOS.1516 TO 1521/BANG/2019 PAGE 3 OF 24 3. WE SHALL FIRST TAKE UP FOR CONSIDERATION THE APP EAL FOR THE AY 2009- 10. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPPLY OF DEFENS E ELECTRONICS AND PROVISION OF SERVICES TO DEFENSE ESTABLISHMENTS. I T IS SUBMITTED THAT THE LINE OF BUSINESS OF THE ASSESSEE REQUIRES HUGE EXPENSE I N RESEARCH AND DEVELOPMENT (R&D) ACTIVITY TO STAY RELEVANT IN THE MARKET AND TO EXHIBIT TO THE CUSTOMER THAT THEY HAVE THE CAPABILITY TO ADOPT AND MODIFY THE PRODUCTS AND SERVICES AS PER THEIR DEMANDS AND NEEDS. AS PER THE ACCOUNTING POLICY, THESE EXPENDITURE ARE ACCOUNTED AS INTANGIB LE ASSETS / INTANGIBLE ASSETS UNDER DEVELOPMENT IN THE BOOKS OF ACCOUNTS, SINCE THE R&D ACTIVITY ENHANCES THE KNOW-HOW, TECHNICAL KNOWLEDGE, SKILL E TC., OF THE ASSESSEE AND ITS TECHNICAL MANPOWER. THE MAJOR EXPENDITURE I NCURRED FOR R&D ARE REMUNERATION TO THE EMPLOYEES, RENT OF THE R&D CENT RE, PROFESSIONAL CHARGES AND PURCHASE OF MATERIALS. THE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT IS CLAIMED AS EXPENDITURE IN THE RE TURN OF INCOME DUE TO THE FOLLOWING COUNTS: (I) THE EXPENDITURE ON R&D HAS NOT CREATED NEW PROD UCT OR IT HAS NOT RESULTED IN NEW LINE OF BUSINESS. (II) THE EXPENDITURE INCURRED ARE REVENUE IN NATURE . (III) THE EXPENDITURE HAS NOT RESULTED IN ACQUISITI ON / CONSTRUCTION OF A CAPITAL ASSET. (IV) THE EXPENDITURE IS INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. 4. ACCORDINGLY, FOR AY 2009-10 RS. 1,95,00,144 INCU RRED IN THIS REGARD HAS BEEN CLAIMED AS BUSINESS EXPENDITURE IN ITS RET URN OF INCOME. THE RETURN WAS SELECTED FOR ASSESSMENT BY ISSUE OF NOTI CE U/S 148 OF THE INCOME TAX ACT, 1961 [THE ACT] AND THE AO COMPLETED THE ASSESSMENT BY ACCEPTING THE RETURNED LOSS AND PASSED ORDER U/S 14 3(3) R.W.S 147 OF THE ACT DATED 26.03.2014. ITA NOS.1516 TO 1521/BANG/2019 PAGE 4 OF 24 5. SUBSEQUENTLY, THE LD PRINCIPAL COMMISSIONER OF I NCOME TAX, BANGALORE-I [PR.CIT] INVOKING THE PROVISIONS OF SEC TION 263 OF THE ACT DIRECTED THE AO TO REFRAME THE ASSESSMENT AND DISAL LOW RS.1,95,00,144 CLAIMED AS DEFERRED REVENUE EXPENDITURE AS IT WAS P REJUDICIAL TO THE INTERESTS OF THE REVENUE. 6. BASED ON THE DIRECTION OF THE PR. CIT, THE AO IS SUED NOTICE AND COMPLETED THE ASSESSMENT BY DISALLOWING RS.1,95,00, 144 CLAIMED AS R&D EXPENDITURE. THE ASSESSEE BROUGHT TO THE NOTICE OF THE AO THAT THE ITAT IN APPELLANT'S OWN CASE FOR AY 2007-08 AND 2008-09 IN ITA NOS.1384 & 1385/BANG/2013 ON THE SAME ISSUE BY ITS ORDER DATED 22.01.2015 HAD RULED IN FAVOUR OF THE ASSESSEE. HOWEVER, THE AO ON THE GROUND THAT THE DEPARTMENT HAS APPEALED AGAINST THE AFORESAID ITAT ORDER, DISALLOWED THE CLAIM OF THE APPELLANT. 7. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). THE ASSESSEE BROUGHT TO THE NOTICE OF THE LD. CIT(A ) THAT IN ITS OWN CASE FOR AY 200708 AND 2008-09, THE HON'BLE ITAT HAS RU LED IN ITS FAVOR ON THE ISSUE OF ALLOWANCE OF EXPENDITURE INCURRED FOR VARI OUS R&D PROJECTS EVEN THOUGH THE SAME ARE NOT DEBITED TO PROFIT AND LOSS ACCOUNT IN THE FINANCIAL STATEMENTS AS PER THE ACCOUNTING POLICY OF THE ASSE SSEE. THE CIT(APPEALS), HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE AND WAS OF THE VIEW THAT THE R&D EXPENDITURE RESULTS IN NEW PRODUCT. HE UPHELD THE ACTION OF THE AO IN TREATING THE R&D EXPENDITUR E TREATING IT AS CAPITAL EXPENDITURE. 8. AS FAR AS THE ASSESSEES RELIANCE ON THE ORDER O F TRIBUNAL FOR AYS 2007-08 & 2008-09 IN ITS OWN CASE IS CONCERNED, THE CIT(APPEALS) WAS OF THE VIEW THAT THE TRIBUNAL IN THOSE CASES HAD CONSI DERED VARIOUS SUB-HEADS OF INPUT EXPENDITURE INCURRED ON THESE PROJECTS AND EXAMINED THE NATURE OF THE EXPENDITURE INDIVIDUALLY, WHILE CLASSIFYING THE SAME INTO REVENUE AND ITA NOS.1516 TO 1521/BANG/2019 PAGE 5 OF 24 CAPITAL. WHILE DOING SO, ACCORDING TO THE CIT(A), THE TRIBUNAL RELIED ON THE REMAND REPORT OF THE AO REGARDING THE NATURE OF EXP ENDITURE AND ASSUMED THAT THE CLAIM OF THE ASSESSEE AS TO ITS NATURE I.E ., STAFF REMUNERATION, TRAVEL EXPENDITURE, PROFESSIONAL CHARGES, ETC. HAS NOT BEE N DISPUTED BY THE LOWER AUTHORITIES AND FURTHER THE TRIBUNAL HAS ASSUMED TH AT IN THE REMAND REPORT, THE AO HAS ALSO NOT DOUBTED THE GENUINENESS OF EXPE NDITURE. HOWEVER, AS PER 4 OF THE REMAND REPORT WHICH IS EXTRACTED AT PA GE 8 OF THE IMPUGNED ORDER, THE CIT(A) WAS OF THE VIEW THAT THE AO HAS G IVEN A CATEGORICAL FINDING THAT ALL THESE EXPENSES HAVE BEEN INCURRED FOR SPECIFIC PROJECTS AS INPUTS AND ACCORDINGLY HAS GIVEN A FINDING THAT THE ENTIRE EXPENDITURE ON THE PRODUCT DEVELOPMENT BY THE ASSESSEE IS CAPITAL IN NATURE. THEREFORE THE AO IN THE ORIGINAL ORDER AS WELL AS IN THE REMA ND REPORT, HAD CONSISTENTLY HELD THAT THE SAID EXPENDITURE INCURRE D FOR DEVELOPMENT OF THE PROJECTS IS CAPITAL IN NATURE. IN THE REMAND REPOR T, THE AO HAD NOT CONCEDED AS TO THE BIFURCATION OF THE EXPENSES VIZ. , STAFF REMUNERATION, TRAVEL EXPENDITURE AND PROFESSIONAL CHARGE. THE AO SIMPLY HAS NOT QUESTIONED THE GENUINENESS OF THE INDIVIDUAL INPUT COMPONENTS. THE CIT(A) WAS THEREFORE OF THE OPINION THAT THE ITAT F OR AYS 2007-08 & 2008- 09 HAD PROCEEDED ON A MISTAKEN PRESUMPTION THAT THE AO AGREED THAT THE STAFF REMUNERATION, TRAVEL EXPENDITURE AND PROFESSI ONAL CHARGE EXPENSES ETC. (OTHER THAN THE MATERIALS PURCHASED) INCURRED AS PART OF PRODUCT DEVELOPMENT AS REVENUE IN NATURE. 9. WITH REGARD TO THE TRIBUNALS OBSERVATION IN THE ORDER FOR AYS 2007- 08 & 2008-09 THAT THE CIT(A) HAD MADE AN ANALYSIS O F THE EXPENDITURE AND COME TO A CONCLUSION CERTAIN EXPENDITURE WERE FOR A CQUIRING CAPITAL ITEMS. THE CIT(A) WAS OF THE VIEW THAT THE CIT(A) FOR THE AYS 2007-08 & 2008-08 HAD ALSO GIVEN A FINDING QUANTIFYING THE REVENUE EX PENDITURE AND HAD LISTED THE INPUT COST HEADS AS REVENUE AND CAPITAL FOR THE SAKE OF DESCRIBING ITA NOS.1516 TO 1521/BANG/2019 PAGE 6 OF 24 THEM, HOWEVER, HE HAD HELD IT TO BE ONE COMMON CAPI TAL EXPENDITURE, WHILE DIRECTING THE AO TO GRANT DEPRECIATION ON THE SAME. 10. THE CONCLUSIONS OF THE CIT(APPEALS) WERE AS FOL LOWS:- 5.4.11 CONSIDERING ALL THE ABOVE, I AM NOT CONVINC ED, WITH THE APPELLANTS SUBMISSION THAT THE EXPENDITURE UNDER S CRUTINY IS REVERIE IN NATURE, REASON BEING, THAT THE EXPENDITURE IS IN CURRED FOR CREATING THE NEW PRODUCTS WHICH FALL IN THE CATEGORY OF NEW INVENTIONS GIVING RISE TO INTELLECTUAL PROPERTY TO THE APPELLANT AND THUS IT WOULD BE AN 'INTANGIBLE ASSET'. THE APPELLANT ITSELF ACCOUNTED IN THE BOOKS OF ACCOUNT UNDER THE HEAD `R & D PROJECT' AND CARRIED TO THE BALANCE SHEET DIRECTLY. THIS ENTIRE EXPENDITURE IS CONSIDER ED AS CAPITAL EXPENDITURE AND CATEGORISED AS 'INTANGIBLE ASSET'. DESPITE THE FACT OF CLAIMING THE SAME AS REVENUE EXPENDITURE IN THE COM PUTATION OF INCOME, THESE ASSETS REMAINED AS ASSETS UNDER THE H EAD 'R & D PROJECT' AND NO ADJUSTMENT/DELETION MADE IN THE BAL ANCE SHEET. 5.4.12 SINCE ALL THE INPUT COSTS INCLUDING SALARIES , PROFESSIONAL CHARGES, MATERIALS IMPORTED, FINANCE COST, ETC., GO ING TO DEVELOP A NEW CAPITAL ASSET WHERE IN APPELLANT RECOGNISES INT ELLECTUAL PROPERTY, GIVING RISE THE ENDURING BENEFIT TO THE APPELLANT, THEY CANNOT BE CONSIDERED BY SPLITTING AND EXAMINING INPUT COST SE PARATELY, LEST THE OUTCOME WOULD TOTALLY DEFEAT THE VERY PURPOSE. 5.4.13 EVEN THE APPELLANT IN ITS FINANCIALS AND THE AO IN THE IMPUGNED ORDER AND ALSO THE CIT(A), HAVE DEALT THE ENTIRE EXPENDITURE IN ONE BASKET(INCURRED TOWARDS THE CREA TION OF NEW INTANGIBLE ASSET (CAPITAL PRODUCT) DEVELOPMENT). 5.4.14 THUS, I AM OF THE VIEW THAT-THE EXPENDITURE INCURRED FOR DEVELOPING THE. PROJECT PROTO TYPES BY THE APPELLAN T RELATING TO DEVELOPMENT OF INTANGIBLE ASSET CANNOT BE WEIGHED O R ASSESSED BASED ON THE INPUT COSTS. IT HAS TO BE TREATED AS O NE ITEM ONLY. THE EXPENDITURE INCURRED BY THE ASSESSEE ON SUCH PROJEC TS IS LIABLE TO BE TREATED AS CAPITAL EXPENDITURE AS THE SAME HAS RESU LTED IN GIVING RISE TO ENDURING BENEFIT TO THE ASSESSEE BY BRINGING INT O EXISTENCE A TOTALLY NEW PRODUCT UPON WHICH THE APPELLANT HAS RE COGNIZED THE INTELLECTUAL PROPERTY. THE POSITION OF THE SETTLED LAW THAT 'THE EXPENDITURE RESULTING IN ADVANTAGE OF ENDURING NATU RE IS A CAPITAL EXPENDITURE', IS NOT DISTURBED OR REVERSED BY ANY J UDICIAL FORA. ITA NOS.1516 TO 1521/BANG/2019 PAGE 7 OF 24 11. THE CIT(A) UPHELD THE DISALLOWANCE BY TERMING T HE SAME AS CAPITAL OUTGO AND CITING THE REASON THAT THE SAID AMOUNT W AS TREATED AS INTANGIBLE ASSET UNDER THE HEAD DEVELOPMENT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. 12. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD ENCLOSED THE FOLLOW ING DOCUMENTS FOR THE SIX ASSESSMENT YEARS: A. FINANCIAL STATEMENT FOR THE SIX ASSESSMENT YEARS . B. STATEMENT OF COMPUTATION OF INCOME FOR THE SIX A SSESSMENT YEARS. C. ITRS FOR THE SIX ASSESSMENT YEARS. 13. THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM FOR EACH A.Y. AS FOLLOWS:- A.Y R & D EXPENSE 2009-10 1,95,00,144 2011-12 17,32,84,974 2012-13 19,65,08,727 2013-14 14,04,48,321 2014-15 10,57,08,949 2015-16 12,31,60,586 14. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD NOT CLAIMED THE AMOUNT INCURRED TOWARDS R&D AS REVENUE EXPENDITURE IN THE A.Y. 2013-14 IN THE ITR. IT WAS SUBMITTED THAT THE SAID CLAIM WAS MADE BY FILING A REVISED COMPUTATION WITH THE ASSESSING OFFICER. THE SAID C LAIM WAS ALSO MADE BEFORE THE CIT(A). 15. LD. AR SUBMITTED THAT THE ASSESSEE WAS IN THE B USINESS OF SUPPLY OF EQUIPMENTS, TECHNOLOGY AND SOLUTIONS (ESPECIALLY IN ELECTRO OPTICS FIELD) TO DEFENCE ESTABLISHMENTS EITHER DIRECTLY OR IN COLLAB ORATION WITH FOREIGN VENDORS (AS A OFFSET PARTNER) THE LD. AR SUBMITTED THAT THE NATURE OF THE BUSINESS IN WHICH THE ASSESSEE WAS OPERATING REQUIR ED HUGE INVESTMENT IN ITA NOS.1516 TO 1521/BANG/2019 PAGE 8 OF 24 RESEARCH AND DEVELOPMENT AND THE R&D UNDERTAKEN BY THE ASSESSEE IS NOT A GREEN FIELD PROJECT, I.E., SOMETHING WHICH IS NEW BUT THE R&D EXPENDITURE WAS INCURRED FOR MODIFICATION, IMPROVEM ENT OF AN EXISTING PRODUCT OR ADAPTION OF EXISTING PRODUCTS TO MEET TH E REQUIREMENT OF THE CUSTOMERS. THE ASSESSEE WAS RECOGNIZED AS AN APPRO VED IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY BY THE DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH, MINISTRY OF SCIENCE AND TECHNO LOGY. 16. THE LD. AR SUBMITTED THAT THE ASSESSEES BUSINE SS IS WIDE AND ENCOMPASSES NUMEROUS PRODUCTS. ACCORDING TO THE LD . AR, THE GESTATION PERIOD (THE PERIOD WHEN A REQUEST FOR PROPOSAL/REQU EST FOR INDENT IS FLOATED CULMINATING INTO A SALE ORDER) IS LONG AND CAN RUN INTO SEVERAL YEARS AND THE PRODUCTS OFFERED ARE TESTED IN VARIOUS CONDITIONS. ACCORDING TO THE LD. AR, ALL THIS REQUIRES CONSTANT IMPROVEMENT, MODIFICATIO N/ADAPTION TO THE REQUIREMENT OF THE CUSTOMER AND THESE MODIFICATIONS /ADAPTIONS ARE UNDERTAKEN DURING THE PHASE EVEN BEFORE THE ORDER I S SECURED. THE LD. AR SUBMITTED THAT BASED ON THE CONTINUOUS R&D EXPOSURE , THE ASSESSEE WILL BE ABLE TO PARTICIPATE IN VARIOUS REQUEST FOR PROPO SALS/REQUEST FOR INDENTS TO QUALIFY FOR SUBMITTING THE BID AND PARTICIPATING IN TRIALS OF THE PRODUCTS/SOLUTIONS. ACCORDING TO THE LD. AR, THE O UTCOME OF THESE PROCESSES IRRESPECTIVE OF SECURING THE SALE ORDER O R NOT IS THAT THE ASSESSEE GAINS TECHNICAL KNOW-HOW AND THIS TECHNICA L KNOW-HOW (REPOSITORY) HELPS THE ASSESSEE TO STAY RELEVANT IN THE MARKET AND TO EXHIBIT TO THE CUSTOMER THAT THEY HAVE THE CAPABILITY TO AD OPT AND MODIFY THE PRODUCTS AND SERVICES AS PER THEIR DEMANDS AND NEED S. 17. THE LD. AR SUBMITTED THAT THE ASSESSEE HAD INCU RRED EXPENDITURE IN THE FORM OF REMUNERATION TO EMPLOYEES OF TECHNICAL CAPABILITY, TRAVELLING EXPENSES AND PROVIDING TRAINING TO THEM IN DIFFEREN T SPHERES OF TECHNOLOGY USED BY DEFENCE ESTABLISHMENTS AND THE EXPENDITURE INCURRED FOR THESE ACTIVITIES PRIMARILY INCLUDES REMUNERATION TO STAFF , PURCHASE OF MATERIAL, ITA NOS.1516 TO 1521/BANG/2019 PAGE 9 OF 24 PROFESSIONAL CHARGES PAID TO CONSULTANTS AND TRAVEL LING EXPENSES. THUS, IT WAS SUBMITTED THAT THE NATURE OF THIS EXPENSE IS O F REVENUE. 18. FURTHER, THE LD. AR SUBMITTED THAT THE R&D EXPE NDITURE INCURRED BY THE ASSESSEE IS ALLOWABLE UNDER SECTION 37, SINCE T HE SAID EXPENDITURES MEET ALL THE CONDITIONS CONTAINED IN SECTION 37, VI Z. THE EXPENDITURE ARE INCURRED FOR THE PURPOSE OF BUSINESS; THEY ARE FOR PERSONAL PURPOSE AND IS NOT A CAPITAL EXPENDITURE. 19. THE LD. AR SUBMITTED THAT THE CIT(A) TREATED TH E R&D EXPENDITURE AS CAPITAL EXPENDITURE FOR THE REASON THAT THE SAID EXPENDITURE HAD RESULTED IN DEVELOPMENT OF NEW PRODUCT, THE SAID AMOUNT WAS PRESENTED IN BALANCE SHEET AS INTANGIBLE ASSET UNDER DEVELOPMENT AND THE PURPOSE TEST HAS TO BE APPLIED TO TEST THE CHARACTER OF THE EXPENDITURE AS CAPITAL OR REVENUE. 20. THE LD. AR REITERATED THAT THE ASSESSEE INCURRE D THESE EXPENDITURE TO MODIFY/IMPROVE/ADAPT THE EXISTING PRODUCTS OR TE CHNOLOGY TO MEET THE REQUIREMENT OF THE CUSTOMERS AND THE NATURE OF THE BUSINESS REQUIRES THE INCURRING OF R&D EXPENDITURE, DEMONSTRATE TECHNICAL CAPABILITIES TO THE PERSPECTIVE CLIENTS AND TO SECURE SALE ORDERS. ACC ORDING TO THE LD. AR, THE INCURRENCE OF R&D EXPENDITURE DOES NOT RESULT IN OB TAINING A BENEFIT OF ENDURING NATURE (SALE ORDERS) ALWAYS AND IN MANY CA SES, THE TECHNICAL KNOWLEDGE (REPOSITORY) IS IMPORTANT. THE LD. AR R ELIED ON THE JUDGMENT OF THE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. RAJASTHAN SPG. & WVG. MILLS LTD. (2004) 137 TAXMANN 249 . THE HIGH COURT HELD AS FOLLOWS: 16. FROM THE AFORESAID JUDGMENTS OF THE SUPREME CO URT, IT IS APPARENT THAT MERELY BECAUSE THE AMOUNT SPENT HAS B EEN USED FOR CONSTRUCTION OF A BUILDING OR STRUCTURE OF PERMANEN T NATURE IS NOT THE DECISIVE TEST FOR HOLDING THE EXPENSES TO BE CAPITA L OUT-LAY OR REVENUE OUT-LAY. THE TWO TESTS EMERGING FROM THE AF ORESAID DECISIONS ARE THAT FIRSTLY WHERE THE BUILDING OR CONSTRUCTIO N OF ANY PERMANENT STRUCTURE IS BROUGHT INTO EXISTENCE IS BY ITSELF NO T SUFFICIENT TO HOLD ITA NOS.1516 TO 1521/BANG/2019 PAGE 10 OF 24 THE EXPENSES TO BE CAPITAL NATURE INVARIABLY. WHERE SUCH CONSTRUCTION DOES NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSETS TO BE TRADE OF ASSESSEE OR THE PROPERTY DOES NOT BECOME T HE PROPERTY OF THE ASSESSEE, IT DOES RESULT IN ACQUISITION OF CAPITAL ASSETS OF THE ENDURING NATURE BY THE ASSESSEE. SECONDLY, IT IS ALSO CLEARL Y DISCERNIBLE THAT IF SUCH EXPENSES IS INCURRED FOR THE PURPOSE OF BUSINE SS FOR DERIVING ANY BENEFIT WHETHER TO PRESERVE THE BUSINESS OR TO FACILITATE THE RUNNING OF THE BUSINESS MORE SMOOTHLY OR TO MAKE BU SINESS MORE PROFITABLE OR TO SECURE ANY OTHER ADVANTAGE FOR THE ASSESSEES BUSINESS OR INCURRING EXPENDITURE BY SEEKING EXEMPT ION FROM OR REDUCTION IN INCURRING OF OTHER EXPENSES WHICH WOUL D HAVE BEEN ORDINARILY ALLOWABLE AS REVENUE EXPENDITURE OF ASSE SSEES BUSINESS, SUCH EXPENSES ARE TO BE TREATED AS HAVING BEEN INCU RRED WHOLLY AND EXCLUSIVELY FOR BUSINESS OF THE ASSESSEE AND REVENU E EXPENDITURE. SUCH EXPENSES CANNOT BE CONSTRUED AS A CAPITAL EXPE NSES. .. 22. THE PRINCIPLE WAS CONSIDERED BY THE SUPREME CO URT IN EMPIRE JUTE CO. LTD. VS. CIT (1980) 124 ITR 11. IN THE SA ID CASE, THE COURT OBSERVED THAT THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT MAY NONE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIR ED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDER IS THE NATURE OF THE ADVANT AGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICA TION OF THIS TEST. IF THE ADVANTAGE CONSIST MERELY IN FACILITATING THE ASSESSEES TRADING OPERATIONS OR IN ENABLING THE MANAGEMENT IN CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENT LY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHE D, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANT AGE MAY ENDURE FOR AN INDEFINITE FUTURE. THE TEST OF ENDURI NG BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AND MECHANICALLY WITHOUT REGARD TO THE PART ICULAR FACTS AND CIRCUMSTANCES OF A GIVEN CASE. ITA NOS.1516 TO 1521/BANG/2019 PAGE 11 OF 24 21. THUS, THE LD. AR SUBMITTED THAT THE NATURE OF T HE BUSINESS IN WHICH THE ASSESSEE OPERATES REQUIRES THE INCURRENCE OF R& D EXPENDITURE TO BE RELEVANT, ENRICH THE TECHNICAL REPOSITORY WHICH HEL P IN CARRYING THE BUSINESS MORE EFFECTIVELY AND EFFICIENTLY. THEREFORE, IT WA S SUBMITTED THAT THE R&D EXPENDITURE INCURRED IS NOT OF CAPITAL NATURE. 22. THE LD. AR ALSO RELIED ON THE JUDGMENT OF THE S UPREME COURT IN THE CASE OF TAPARIA TOOLS LTD. VS. JCIT (2015) 55 TAXMANN.COM 3 6 , WHEREIN THE APEX COURT RULED THAT MERELY BECAUSE A DIFFEREN T TREATMENT WAS GIVEN IN THE BOOKS OF ACCOUNTS CANNOT BE A FACTOR WHICH W OULD DEPRIVE THE ASSESSEE FROM CLAIMING THE ENTIRE EXPENDITURE AS A DEDUCTION. IT WAS HELD AS UNDER:- 19. IN THE INSTANT CASE, AS NOTICED ABOVE, THE ASS ESSEE DID NOT WANT SPREAD OVER OF THIS EXPENDITURE OVER A PERIOD OF FI VE YEARS AS IN THE RETURN FILED BY IT, IT HAD CLAIMED THE ENTIRE INTER EST PAID UPFRONT AS DEDUCTIBLE EXPENDITURE IN THE SAME YEAR. IN SUCH A SITUATION, WHEN THIS COURSE OF ACTION WAS PERMISSIBLE IN LAW TO THE ASSESSEE AS IT WAS IN CONSONANCE WITH THE PROVISIONS OF THE ACT WHICH PERMIT THE ASSESSEE TO CLAIM THE EXPENDITURE IN THE YEAR IN WH ICH IT WAS INCURRED, MERELY BECAUSE A DIFFERENT TREATMENT WAS GIVEN IN THE BOOKS OF ACCOUNT CANNOT BE A FACTOR WHICH WOULD DEP RIVE THE ASSESSEE FROM CLAIMING THE ENTIRE EXPENDITURE AS A DEDUCTION. IT HAS BEEN DETERMINATIVE OR CONCLUSIVE AND THE MATTER IS TO BE EXAMINED ON THE TOUCHSTONE OF PROVISIONS CONTAINED IN THE ACT (SEE KEDARNATH JUTE MFG. CO. LTD. VS. CIT (1971) 82 ITR 363 (SC); TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT (1997) 227 ITR 172/93 TAXMAN 502 (SC); SUTLEJ COTTON MILLS LTD . VS. CIT (1979) 116 ITR 1 (SC) AND UNITED COMMERCIAL BANK V S. CIT (1999) 240 ITR 355/106 TAXMAN 601 (SC). 23. THE LD. AR SUBMITTED THAT THE CIT(A)S OBSERVAT ION THAT THE TRIBUNAL IN ASSESSEES OWN CASE WRONGLY PROCEEDED TO BIFURCA TE AND SPLIT THE EXPENSES INCURRED BY THE ASSESSEE INTO REVENUE AND CAPITAL, IS NOT PROPER AS THE ENTIRE EXPENDITURE WAS INCURRED FOR A SPECI FIC PURPOSE. ITA NOS.1516 TO 1521/BANG/2019 PAGE 12 OF 24 24. THE LD. AR FURTHER RELIED ON THE DECISION OF TH E TRIBUNAL IN THE CASE FOR A.YS. 2007-08 AND 2008-09 WHEREIN A SIMILAR ISS UE WAS CONSIDERED. ON EXAMINATION OF THE REMAND REPORT OF THE ASSESSIN G OFFICER AND THE ORDER OF THE CIT(A), THE TRIBUNAL ALLOWED REVENUE EXPENDI TURE AS SUCH AND ALLOW DEPRECIATION ON THE ITEMS OF CAPITAL ITEMS PRESENT IN THE R&D EXPENSE. THE LD. AR RELIED ON THE DECISION OF THE TRIBUNAL I N THE FOLLOWING CASES WHERE THE TRIBUNAL HAD RULED R&D EXPENSES AS REVENU E IN NATURE WHEN THE SAME DOES NOT RESULT IN NEW PRODUCT OR NEW LINE OF BUSINESS: I) OPUS SOFTWARE SOLUTIONS PVT. LTD. VS. ACIT (ITA 584/PN/2011) II) DCIT VS. AUTOLINE INDUSTRIES LTD. (ITA 1711/PN /2012) (PUNE) III) DR. REDDYS LABORATORIES LTD. VS. ADDL. CIT ( ITA 2229/HYD/2011 & 85/HYD/2013) (HYDERABAD). 25. IN THE CASE OF OPUS SOLUTIONS ( SUPRA ), THE TRIBUNAL HELD THAT EXPENDITURE INCURRED FOR THE DEVELOPMENT OF NEW PRO DUCT IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE IS IN THE REVEN UE FIELD SINCE THE SAME WOULD IMPROVE THE PROFITABILITY OF THE ASSESSEE AND THE ENDURING BENEFIT CANNOT BE REGARDED TO BE IN THE CAPITAL FIELD. THE TRIBUNAL HELD HAS FOLLOWS: 10. IN OUR CONSIDERED OPINION, THE AFORESAID PROP OSITION OF THE REVENUE IS ABSOLUTE ALIEN TO THE BUSINESS REALITIES UNDER WHICH THE ASSESSEE IS OPERATING QUITE CLEARLY, THE ASSESSEE I S IN THE BUSINESS OF SOFTWARE DEVELOPMENT WHICH ENTAILS FAST TECHNOLOGIC AL CHANGES AND IN THAT VIEW, THERE IS NO PERMANENCE ATTACHED TO AN Y PRODUCT DEVELOPED. IN FACT, IT IS QUITE UNDERSTANDABLE THA T THE BUSINESS OF THE ASSESSEE IS EXPOSED TO VOLATILITY OF NEW AND UPCOMI NG TECHNOLOGICAL ADVANCES AND THE PRODUCTS DEVELOPED BY IT MAY NOT B E SUSTAINABLE OVER A PERIOD OF TIME TO COMPETE IN THE MARKET PLAC E. THEREFORE, IN THIS BACKGROUND ONE HAS TO EXAMINE AS TO WHETHER TH E EXPENDITURE INCURRED ON DEVELOPMENT AND LAUNCHING OF NEW PRODUC TS IN THE SAME LINE OF BUSINESS RESULTS IN AN ADVANTAGE IN THE REV ENUE FIELD OR IN THE CAPITAL FIELD. HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE CO. LTD.(SUPRA) HAS HELD AND ACCEPTED THAT THE EXPENDIT URE RESULTS IN AN ENDURING BENEFIT TO THE ASSESSEE, , YET FOLLOWING D ISCUSSION BY THE HONBLE SUPREME COURT WOULD SHOW THAT EACH AND EVER Y INCIDENCE ITA NOS.1516 TO 1521/BANG/2019 PAGE 13 OF 24 OF ENDURING BENEFIT WOULD NOT RESULT IN CLASSIFICAT ION OF EXPENDITURE AS A CAPITAL EXPENDITURE: THERE MAY BE CASES WHERE EXPENDITURE EVEN IF INCUR RED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY , NONETHELESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURING BENEFIT MAY BREAKDOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING NATURE ACQUIRED BY AN ASSESSE E THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN T HIS TEST. WHAT IS MATERIAL TO CONSIDER IS NATURE OF THE ADVAN TAGE IN A COMMERCIAL SENSE AND IT IS ONLY WHERE THE ADVANTA GE IS IN THE CAPITAL FIELD THAT THE EXPENDITURE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF TH E ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEES TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEES BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FI XED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE OF REVE NUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR A N INDEFINITE FUTURE. IN THE PRESENT CASE, IN OUR VIEW, THE EXPENDITURE O N DEVELOPMENT OF NEW PRODUCT IN THE LINE OF BUSINESS BEING CARRIED O UT BY THE ASSESSEE IS AN EXPENDITURE RELATED TO SUCH BUSINESS AND BENE FIT TO THE ASSESSEE IS IN THE REVENUE FIELD, INASMUCH AS IT SEEKS TO IM PROVE THE PROFITABILITY OF THE ASSESSEE AND THE ENDURING BENE FIT CANNOT BE REGARDED TO BE IN THE CAPITAL FIELD. THE PARITY OF REASONING LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUT E CO. LTD. (SUPRA), AS EXTRACTED ABOVE, CLEARLY SUPPORTS THE S TAND OF THE ASSESSEE, INASMUCH AS THE EXPENDITURE IN QUESTION M ERELY RESULTS IN DEVELOPMENT OF NEW PRODUCTS BY THE ASSESSEE IN ITS EXISTING LINE OF BUSINESS. EVEN OTHERWISE, IT IS NOTEWORTHY THAT NO NE OF THE EXPENDITURES IN QUESTION ARE OF CAPITAL NATURE AND IN FACT, THE EXPENDITURE WHICH HAS BEEN REFERRED TO BY US IN THE EARLIER PARAGRAPH CLEARLY ARE SUCH EXPENDITURE , WHICH ARE INCURRED I N THE COURSE OF CARRYING ON OF BUSINESS. 26. FURTHER, THE LD. AR SUBMITTED THAT THE TRIBUNAL HELD THAT THE TREATMENT IN THE BOOKS OF ACCOUNTS DOES NOT HAVE IN TERFERENCE IN THE CLAIM OF THE EXPENDITURE AS REVENUE IN NATURE AS FOLLOWS: - ITA NOS.1516 TO 1521/BANG/2019 PAGE 14 OF 24 11. THE OTHER OBJECTION OF THE REVENUE THAT THE AS SESSEE HAD TREATED THE IMPUGNED EXPENDITURE AS A DEFERRED REVENUE EXPE NDITURE IN THE BOOKS OF ACCOUNT AND CLAIMED IT AS A REVENUE EXPEN DITURE IN THE COMPUTATION OF INCOME, IS OF NO CONSEQUENCE. THE H ONBLE SUPREME COURT IN THE CASE OF KEDARNATH JUTE MFG. C O. LTD (SUPRA) AND ALSO THEREAFTER IN THE CASE OF TUTICORIN ALKALI CHEMICALS VS. CIT 227 ITR 172 (SC) AND SUTLEJ COTTON MILLS LTD. VS. CIT 116 ITR 1 (SC) HAS SUPPORTED THE PROPOSITION THAT THE ENTRIES IN THE BOOKS OF ACCOUNT CANNOT BE DEMONSTRATIVE OF THE TRUE NATURE OF A TRANSACTION. THE TRUE NATURE OF A TRANSACTION IS TO BE ASSESSED NOT ON THE BASIS OF THE ENTRIES IN THE BOOKS OF ACCOUNT ALONE, BUT HAVI NG REGARD TO THE REALITIES OF THE TRANSACTION. IN THIS VIEW OF THE M ATTER, THE AFORESAID OBJECTION IS OF NO CONSEQUENCE. 27. FURTHER, THE LD. AR RELIED ON THE DECISION OF T HE TRIBUNAL IN THE CASE OF DCIT VS. AUTOLINE INDUSTRIES LTD. (SUPRA) , THE TRIBUNAL FOLLOWED THE DECISION IN THE CASE OF OPUS SOLUTIONS (SUPRA) AND HELD AS FOLLOWS:- 10. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAD DEVELOPED A TECHNIQUE FOR REDUCING THE WEIGHT OF MACHINERY, WHI CH IN TURN WAS APPROVED BY M/S. TATA MOTORS FOR MANUFACTURING AND WAS USED BY THE ASSESSEE FOR MANUFACTURING THE BODY PARTS FOR T HE SAID CONCERN. IT IS AN ADMITTED FACT THAT BECAUSE OF THE AFORESAI D EXPENDITURE INCURRED BY THE ASSESSEE IN THE YEAR 2009-10 BEING REVENUE OF RS.4.20 CRORES RECEIVED BY THE ASSESSEE IN THE YEAR 2009-10 BEING THE SHARING BENEFIT ON ACCOUNT OF REDUCTION IN WEIG HT FOR THE FIRST 1,20,000 VEHICLES. THE FIRST ASPECT OF THE ISSUE IS THAT WHERE THE ASSESSEE HAD CLAIM THE SAID EXPENDITURE BY WAY OF D EDUCTION IN ITS COMPUTATION OF INCOME? THE LAW ON THIS ACCOUNT OF ANY PERSON OR HOW IT IS REFLECTED IN THE BALANCE SHEET AND/OR THE PROFIT & LOSS ACCOUNT IS OF NO CONSEQUENCE, IN DETERMINING WHETHE R THE SAID EXPENDITURE IS AN ALLOWABLE DEDUCTION OR NOT. THE LAW ON THE ISSUE IS THAT THE ACCOUNTING TREATMENT GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS NOT DETERMINATIVE WHETHER OR NOT THE EXP ENDITURE IS ALLOWABLE AS A DEDUCTION. IN ORDER TO BE ELIGIBLE F OR DEDUCTION, IT HAS TO BE SEEN WHETHER THE EXPENDITURE IS REVENUE IN NA TURE, THEN IN SUCH CIRCUMSTANCES, THE SAID EXPENDITURE IS TO BE CAPITA LIZED IN THE HANDS OF THE ASSESSEE. LOOKING AT THE NATURE OF EXPENDIT URE INCURRED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE SAME IS REVEN UE EXPENDITURE ALLOWABLE AS DEDUCTION IN THE HANDS OF THE ASSESSEE EITHER UNDER THE ITA NOS.1516 TO 1521/BANG/2019 PAGE 15 OF 24 PROVISIONS OF SECTION 35(1)(I) OR 37(1) OF THE ACT. THE EXPENDITURE HAVING BEEN INCURRED BY THE ASSESSEE BY WAY OF RESE ARCH, WHICH RESULTED IN REDUCTION IN THE WEIGHT OF BODY PARTS A ND ALSO GENERATION OF REVENUE IN THE HANDS OF ASSESSEE TO THE EXTENT O F RS.4.20 CRORES CANNOT BE SAID TO BE CAPITAL EXPENDITURE. EVEN IF THE EXPENDITURE IS OF ENDURING BENEFIT, BUT HAVING NOT BEEN INCURRED I N THE CAPITAL FIELD, IS TO BE ALLOWED AS DEDUCTION IN VIEW OF THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN OPUS SOFTWARE SOLUTIONS (P) LT D. VS ACIT(SUPRA). AS REFERRED BY US IN THE PARAS HEREI NABOVE, THE NATURE OF EXPENDITURE IS NOT SUCH THAT IT CAN BE SAID TO B E CAPITAL EXPENDITURE AND IN THE ABSENCE OF PRODUCT DEVELOPED BY THE ASSESSEE HAVING BEEN PATENTED, WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REGARD. UPHOLDING THE ORDER OF CIT (A), WE DISMISS THE GROUND OF APPEAL NO. 1 RAISED BY THE REVENUE. 28. FURTHER, THE LD. AR SUBMITTED THAT IN THE CASE OF DR. REDDYS LABORATORIES LTD. VS. ADDL. CIT (SUPRA) , THE TRIBUNAL HELD THAT AN EXPENDITURE FOR DEVELOPING NEW DRUG IN THE SAME LI NE OF BUSINESS OF THE ASSESSEE IS TO BE ALLOWED AS REVENUE EXPENDITURE. 29. IN VIEW OF THE ABOVE JUDGMENTS OF THE TRIBUNAL, THE LD. AR SUBMITTED THAT THE R&D EXPENSES INCURRED FOR MODIFICATION/ADA PTION OF EXISTING PRODUCTS WAS CLAIMED AS REVENUE EXPENDITURE EVEN TH OUGH THE SAME WAS ACCOUNTED AS INTANGIBLE ASSET UNDER DEVELOPMENT IN THE BOOKS OF ACCOUNTS. HENCE, APPLYING THE RATIO LAID DOWN IN THE AFORESAI D DECISIONS, THE LD. AR SUBMITTED THAT THE EXPENDITURE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. 30. FOR THE A.Y. 2013-14, THE LD. AR SUBMITTED THAT THE R&D EXPENDITURE OF RS.14,04,48,321/- WAS NOT CLAIMED IN THE INCOME TAX RETURN. THE LD. AR SUBMITTED THAT BOTH THE ASSESSING OFFICE R AND THE CIT(A) REJECTED THE CLAIM OF THE ASSESSEE EVEN THOUGH THE ASSESSEE FILED A REVISED COMPUTATION WITH THE ASSESSING OFFICER. THE LD. AR RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD. 172 TAXMANN 258 WHEREIN IT WAS HELD THAT WHERE A CLAIM NOT MADE IN THE ITR CLAIMED DURING THE APPEAL PROCEEDIN GS WAS TO BE ALLOWED ITA NOS.1516 TO 1521/BANG/2019 PAGE 16 OF 24 BASED ON THE OBSERVATION OF THE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383 (SC) . IN VIEW OF THE ABOVE, THE LD. AR PLEADED THAT THE TRIBUNAL MAY DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM MADE THROUGH THE REVISED COMPUTATIO N FILED WITH THE ASSESSING OFFICER WHICH WAS NOT CLAIMED IN THE ITR FOR A.Y. 2013-14. 31. THE LD. DR RELIED ON THE ORDERS OF LOWER AUTHOR ITIES. 32. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE ASSESSEE IN THIS CASE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SUPPLY OF DEFENCE ELECTRONICS AND PROVISION OF SERV ICES TO DEFENCE ESTABLISHMENTS. THE LINE OF BUSINESS REQUIRES INVE STMENT IN R&D ACTIVITY. THE ASSESSEE IN THESE ASSESSMENT YEARS INCURRED RES EARCH EXPENDITURE TREATED AS CAPITAL IN NATURE IN FINANCIAL STATEMENT S AS FOLLOWS:- A.Y SALARY COST RENT TRAVELLING EXPENSES FINANCE CHARGES PURCHASE OF MATERIALS TECHNICAL FEE/ PROFESSIONAL CHARGES MAINTE- NANCE AND OTHER EXPENSES TOTAL 2009-10 52,98,797 47,64,800 18,53,541 1, 18,588 72,82,587 - 1,81,831 1,95,00,144 2011-12 5,48,55,459 1,49,14,943 1,96,00,420 2,53,73 ,399 2,93,35,600 1,97,42,385 89,62,788 17,32,84,974 2012-13 7,86,21,614 90,00,000 1,05,18,275 - 7,73 ,08,394 1,77,98,554 32,61,890 19,65,08,727 2013-14 8,55,26,000 90,00,000 92,15,000 - 2,5 6,38,821 76,50,000 34,18,500 14,04,48,321 2014-15 3,52,00,000 1,58,50,000 - - 1,88,08,949 3,5 8,50,000 - 10,57,08,949 2015-16 75,00,000 - - - 5,36,60,585 6,20,00,000 - 12,31,60,586 33. THE ASSESSEE CAPITALIZED THIS EXPENDITURE IN TH E BOOKS OF ACCOUNT AS INTANGIBLE ASSET; HOWEVER, WHILE FILING THE RET URN OF INCOME, THE ASSESSEE CLAIMED IT AS DEDUCTION AS BUSINESS EXPEND ITURE, WHICH WAS DISALLOWED BY THE LOWER AUTHORITIES. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IT IS A REVENUE EXPENDITURE TO BE ALLOWED WHIL E COMPUTING THE INCOME OF ASSESSEE. ITA NOS.1516 TO 1521/BANG/2019 PAGE 17 OF 24 34. NOW THE QUESTION IS, WHETHER THIS EXPENDITURE I NCURRED BY THE ASSESSEE TOWARDS R&D SHOULD BE TREATED AS REVENUE O R CAPITAL EXPENDITURE? IT IS A WELL-ACCEPTED LEGAL PREPOSITI ON THAT NO TEST OF UNIVERSAL APPLICATION CAN BE LAID DOWN TO DETERMINE THE QUEST ION WHETHER AN EXPENDITURE INCURRED BY THE ASSESSEE IS REVENUE OR CAPITAL. IT DEPENDS ON THE OVERALL FACTS AND CIRCUMSTANCES OF EACH CASE. S UCH MATTERS HAVE TO BE DECIDED FROM A PRACTICAL VIEW AND ON APPLICATION OF THE PROPER PRINCIPLES OF LAW. COURTS ARE OF THE VIEW THAT KEEPING IN MIND TH E GROUND REALITIES OF BUSINESS, AO SHOULD CONSIDER THE PURPOSE OF A PARTI CULAR EXPENDITURE. A FEW PRINCIPLES IN THIS REGARD CAN BE ENUMERATED AS UNDER:-- (I) ONE OF THE GUIDELINES FOR DISTINGUISHING REVENUE EXPENDITURE FROM CAPITAL EXPENDITURE IS THAT IF THE EXPENDITURE IS INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT IT W OULD BE CAPITAL EXPENDITURE. BUT, THE TEST OF ENDURING BENE FIT IS NOT A CERTAIN OR CONCLUSIVE TEST AND IT IS NOT BE APPLIED BLINDLY AND MECHANICALLY. IN OTHER WORDS EVERY ADVANTAGE OF END URING NATURE ACQUIRED BY AN ASSESSEE IS NOT COVERED BY TH E SAID CONCEPT. IN A GIVEN CASE, THE TEST OF ENDURING BENE FIT MIGHT BREAK DOWN. THE IDEA OF ONCE FOR ALL PAYMENT AND EN DURING BENEFIT ARE NOT SOMETHING AKIN TO STATUTORY CONDITI ONS; NOR ARE THE NOTIONS OF CAPITAL OR REVENUE A JUDICIAL FETISH . CONCEPTS OF CAPITAL/REVENUE EXPENDITURE ARE NOT ETERNAL VERITIE S, BUT ARE FLEXIBLE ONES. (II) WHAT IS MATERIAL IN THIS REGARD IS TO CONSIDER TH E TYPE, NATURE AND CHARACTER OF THE ADVANTAGE IN A COMMERCIAL SENS E ON ONE HAND AND ON THE OTHER TO LOOK IN TO THE AIM, INTEND ED OBJECT, EFFECT OF THE EXPENDITURE AND IN THE LARGER CONTEXT OF NECESSITY AND EXPEDIENCY. LEGAL RIGHTS SECURED IN THE PROCESS ARE ALSO RELEVANT IN DECIDING THE ISSUE. (III) IF THE EXPENDITURE IS RELATED TO THE CARRYING ON OR CONDUCT OF THE BUSINESS OR IS INTRINSICALLY CONNECTED WITH THE RUNNING OF A BUSINESS THE EXPENDITURE IS TO BE REGARDED AS REV ENUE EXPENDITURE EVEN THOUGH THE ADVANTAGE MAY ENDURE FO R SOME INDEFINITE FUTURE. ITA NOS.1516 TO 1521/BANG/2019 PAGE 18 OF 24 (IV) A PAYMENT MADE WITH A VIEW TO OBTAIN THE BENEFIT OF TECHNICAL ASSISTANCE FOR RUNNING THE ASSESSEE'S BUS INESS MORE EFFICIENTLY SO AS TO EARN MORE PROFITS AND 'NOT BY WAY OF TRANSFER OF FRUITS OF RESEARCH ONCE AND FOR ALL', C AN BE TREATED AS AN ITEM OF REVENUE EXPENDITURE. (V) EXPENDITURE INCURRED IN CONNECTION WITH THE PROFI T EARNING APPARATUS WOULD BE REVENUE EXPENDITURE. (VI) WHERE THE ADVANTAGE IS ON THE CAPITAL FILED THE EXP ENDITURE WOULD BE TREATED A CAPITAL EXPENDITURE. IF THE ADVA NTAGE LEAVES THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT. (VII) EXPENDITURE IN THE ACQUISITION OF A CONCERN WOULD B E CAPITAL EXPENDITURE; EXPENDITURE IN CARRYING ON THE CONCERN WOULD BE REVENUE EXPENDITURE. (VIII) AN EXPENDITURE CANNOT BE CONSIDERED TO BE CAPITAL EXPENDITURE MERELY ON THE GROUND THAT THE AMOUNT IN VOLVED IS LARGE. THE QUANTUM OF EXPENDITURE INVOLVED CANNOT A LTER THE NATURE AND CHARACTER OF THE EXPENDITURE. (IX) THE SOURCE OR MANNER OF THE PAYMENT ARE OF NO CONSE QUENCE IN DECIDING THE ISSUE. (X) THE QUESTION WHETHER A PARTICULAR PAYMENT MADE BY AN ASSESSEE UNDER THE TERMS OF AN AGREEMENT FORMS A PA RT OF CAPITAL EXPENDITURE OR REVENUE EXPENDITURE, WOULD D EPEND UPON SEVERAL FACTORS., NAMELY, WHETHER THE ASSESSEE OBTAINED A COMPLETELY NEW PLAN WITH A COMPLETE NEW PROCESS A ND COMPLETELY NEW TECHNOLOGY FOR MANUFACTURE OF THE PR ODUCT OR THE PAYMENT WAS MADE FOR THE TECHNICAL KNOW-HOW WHI CH WAS FOR THE BETTERMENT OF THE PRODUCT IN QUESTION W HICH WAS ALREADY BEING PRODUCED; WHETHER THE IMPROVISATION M ADE IS PART AND PARCEL OF THE EXISTING BUSINESS OR A NEW B USINESS WAS SET UP WITH THE SO-CALLED TECHNICAL KNOW-HOW FOR WH ICH PAYMENTS WERE MADE; WHETHER ON EXPIRY OF THE PERIOD OF AGREEMENT THE ASSESSEE IS REQUIRED TO GIVE BACK THE PLANS AND DESIGNS WHICH WERE OBTAINED, BUT THE ASSESSEE COULD ITA NOS.1516 TO 1521/BANG/2019 PAGE 19 OF 24 MANUFACTURE THE PRODUCT IN THE FACTORY THAT HAS BEE N SET UP WITH THE COLLABORATION OF THE FOREIGN FIRM; THE CUM ULATIVE EFFECT ON A CONSTRUCTION OF THE VARIOUS TERMS AND C ONDITIONS OF THE AGREEMENT; WHETHER THE ASSESSEE DERIVED BENEFIT S COMING TO ITS CAPITAL FOR WHICH THE PAYMENT WAS MADE. IF F ROM THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES IT TRANS PIRES THAT THE PURPOSE BE THE ACQUISITION OF AN ASSET/A RIGHT OF A PERMANENT CHARACTER WAS A PRE-REQUISITE TO THE COMMENCEMENT OR CONTINUANCE OF THE BUSINESS, THE EXPENDITURE WOULD BE A CAPITAL EXPENDITURE. (XI) IF THE AMOUNT SPENT WAS FOR THE PURPOSE OF BRINGING INTO EXISTENCE A NEW ASSET OR OBTAINING A NEW ADVANTAGE, THEN OBVIOUSLY SUCH AN EXPENDITURE WOULD FALL IN THE CAT EGORY OF CAPITAL EXPENDITURE. (XII) IF THE AMOUNT IS SPENT FOR PRESERVING AND MAINTAINI NG THE PRESENT ASSET IN EXISTENCE, IT CANNOT BE SAID THAT THE EXPENDITURE SO INCURRED IS CAPITAL IN NATURE. (XIII) WHERE THE OBJECT OF INCURRING AN EXPENDITURE IS TO EFFECT A CAPITAL STRUCTURE AS A RESULT OF WHICH CERTAIN INCI DENTAL ADVANTAGE FLOWS, THE EXPENDITURE WILL BE OF CAPITAL NATURE. CAPITAL EXPENDITURE CAN BE INCURRED AFTER A COMPANY IS FLOATED OR AFTER IT STARTS ITS BUSINESS. (XIV) ORDINARILY, THE WORD CAPITAL EXPENDITURE REFERS TO THE EXPENDITURE WHICH IS OF A PERMANENT NATURE OR FOR S ECURING TANGIBLE OR INTANGIBLE PROPERTY, CORPOREAL OR INCOR POREAL RIGHT. 35. WE HAVE CAREFULLY GONE THROUGH THE SIGNIFICANT ACCOUNTING POLICIES ADOPTED BY THE ASSESSEE IN THESE ASSESSMENT YEARS W HICH ARE AS FOLLOWS:- A) AYS 2009-10, 2011-12, 2012-13 & 2013-14 (4 YEAR S) 5. INTANGIBLE ASSET: THE KNOW-HOW, TECHNICAL KNOWLEDGE, DESIGNS AND OTHE R INTELLECTUAL PROPERTIES ACQUIRED AND DEVELOPED ARE STATED AT COST LESS ITA NOS.1516 TO 1521/BANG/2019 PAGE 20 OF 24 THE ACCUMULATED AMORTIZATION AND ACCUMULATED IMPAIR MENT LOSSES. THE COST INCLUDES THE PURCHASE PRICE, DUTIES AND TA XES AND ANY DIRECTLY ATTRIBUTABLE EXPENDITURE ON MAKING THE ASS ET READY FOR ITS INTENDED USE. THE COST OF SELF GENERATED INTANGIBLE ASSET WILL IN CLUDE THE COST OF MATERIAL AND SERVICES USED, THE SALARIES AND OTHER EMPLOYEE COSTS OF PERSONNEL DIRECTLY ENGAGED IN GENERATING THE ASSET, OTHER DIRECTLY ATTRIBUTABLE EXPENDITURE AND THE OVERHEADS NECESSAR Y TO GENERATE THE ASSET. THE INTANGIBLE ASSET WILL BE AMORTIZED OVER ITS USE FUL LIFE. B) AY 2014-15 E) INTANGIBLE ASSET: THE KNOW-HOW, TECHNICAL KNOWLEDGE, DESIGNS AND OTHE R INTELLECTUAL PROPERTIES ACQUIRED AND DEVELOPED ARE STATED AT COST LESS THE ACCUMULATED AMORTIZATION AND ACCUMULATED IMPAIR MENT LOSSES. THE COST INCLUDES THE PURCHASE PRICE, DUTIES AND TA XES AND ANY DIRECTLY ATTRIBUTABLE EXPENDITURE ON MAKING THE ASS ET READY FOR ITS INTENDED USE. THE COST OF SELF GENERATED INTANGIBLE ASSET WILL IN CLUDE THE COST OF MATERIAL AND SERVICES USED, THE SALARIES AND OTHER EMPLOYEE COSTS OF PERSONNEL DIRECTLY ENGAGED IN GENERATING THE ASSET, OTHER DIRECTLY ATTRIBUTABLE EXPENDITURE AND THE OVERHEADS NECESSAR Y TO GENERATE THE ASSET. F) RESEARCH AND DEVELOPMENT COST REVENUE EXPENDITURE ON RESEARCH AND DEVELOPMENT IS EXPENSED OFF UNDER THE RESPECTIVE HEADS OF ACCOUNT IN THE YEAR I N WHICH IT IS INCURRED. ITA NOS.1516 TO 1521/BANG/2019 PAGE 21 OF 24 EXPENDITURE ON DEVELOPMENT ACTIVITIES, WHEREBY RESE ARCH FINDINGS ARE APPLIED TO A PLAN OR DESIGN FOR THE PRODUCTION OF NEW OR SUBSTANTIALLY IMPROVED PRODUCTS AND PROCESSES, IS C APITALISED, IF THE COST CAN BE RELIABLY MEASURED, THE PRODUCT OR PROCE SS IS TECHNICALLY AND COMMERCIALLY FEASIBLE AND THE COMPANY HAS SUFFI CIENT RESOURCES TO COMPLETE THE DEVELOPMENT AND TO USE AND SELL THE ASSET. THE EXPENDITURE CAPITALISED INCLUDES THE COST OF MATERI ALS, DIRECT LABOUR AND AN APPROPRIATE PROPORTION OF OVERHEADS THAT ARE DIRECTLY ATTRIBUTABLE TO PREPARING THE ASSET FOR ITS INTENDE D USE. OTHER DEVELOPMENT EXPENDITURE IS RECOGNISED IN THE STATEM ENT OF PROFIT AND LOSS AS AN EXPENSE AS INCURRED. G) AMORTIZATION INTANGIBLE ASSETS ARE AMORTISED IN THE STATEMENT OF PROFIT AND LOSS OVER THEIR ESTIMATED USES LIVES, FROM THE DATE THAT THEY ARE AVAILABLE FOR USE BASED ON THE EXPECTED PATTERN CONSUMPTION O F ECONOMIC BENEFITS OF THE ASSET. ACCORDINGLY, AT PRESENT, THE SE ARE BEING AMORTISED ON STRAIGHT LINE BASIS. AN INTANGIBLE ASSET IS DERECOGNIZED ON DISPOSAL OR WHEN NO FUTURE ECONOMIC BENEFITS ARE EXPECTED FROM ITS USE AND DIS POSAL. LOSSES ARISING FROM RETIREMENT AND GAINS OR LOSSES ARISING FROM DISPOSAL OF AN INTANGIBLE ASSET ARE MEASURED AS THE DIFFERENCE BETWEEN THE NET DISPOSAL PROCEEDS AND THE CARRYING AMOUNT OF THE AS SET AND ARE RECOGNIZED IN THE STATEMENT OF PROFIT AND LOSS. C) AY 2015-16 F) INTANGIBLE ASSET: THE KNOW-HOW, TECHNICAL KNOWLEDGE, DESIGNS AND OTHE R INTELLECTUAL PROPERTIES ACQUIRED AND DEVELOPED ARE STATED AT COST LESS THE ACCUMULATED AMORTIZATION AND ACCUMULATED IMPAIR MENT LOSSES. THE COST INCLUDES THE PURCHASE PRICE, DUTIES AND TA XES AND ANY DIRECTLY ATTRIBUTABLE EXPENDITURE ON MAKING THE ASS ET READY FOR ITS INTENDED USE. THE COST OF SELF GENERATED INTANGIBLE ASSET WILL IN CLUDE THE COST OF MATERIAL AND SERVICES USED, THE SALARIES AND OTHER EMPLOYEE COSTS OF PERSONNEL DIRECTLY ENGAGED IN GENERATING THE ASSET, OTHER DIRECTLY ITA NOS.1516 TO 1521/BANG/2019 PAGE 22 OF 24 ATTRIBUTABLE EXPENDITURE AND THE OVERHEADS NECESSAR Y TO GENERATE THE ASSET. G) RESEARCH AND DEVELOPMENT COST REVENUE EXPENDITURE ON RESEARCH AND DEVELOPMENT IS EXPENSED OFF UNDER THE RESPECTIVE HEADS OF ACCOUNT IN THE YEAR I N WHICH IT IS INCURRED. EXPENDITURE ON DEVELOPMENT ACTIVITIES, WHEREBY RESE ARCH FINDINGS ARE APPLIED TO A PLAN OR DESIGN FOR THE PRODUCTION OF NEW OR SUBSTANTIALLY IMPROVED PRODUCTS AND PROCESSES, IS C APITALISED, IF THE COST CAN BE RELIABLY MEASURED, THE PRODUCT OR PROCE SS IS TECHNICALLY AND COMMERCIALLY FEASIBLE AND THE COMPANY HAS SUFFI CIENT RESOURCES TO COMPLETE THE DEVELOPMENT AND TO USE AND SELL THE ASSET. THE EXPENDITURE CAPITALISED INCLUDES THE COST OF MATERI ALS, DIRECT LABOUR AND AN APPROPRIATE PROPORTION OF OVERHEADS THAT ARE DIRECTLY ATTRIBUTABLE TO PREPARING THE ASSET FOR ITS INTENDE D USE. OTHER DEVELOPMENT EXPENDITURE IS RECOGNISED IN THE STATEM ENT OF PROFIT AND LOSS AS AN EXPENSE AS INCURRED. H) AMORTIZATION INTANGIBLE ASSETS ARE AMORTISED IN THE STATEMENT OF PROFIT AND LOSS OVER THEIR ESTIMATED USES LIVES, FROM THE DATE THAT THEY ARE AVAILABLE FOR USE BASED ON THE EXPECTED PATTERN CONSUMPTION O F ECONOMIC BENEFITS OF THE ASSET. ACCORDINGLY, AT PRESENT, THE SE ARE BEING AMORTISED ON STRAIGHT LINE BASIS. AN INTANGIBLE ASSET IS DERECOGNIZED ON DISPOSAL OR WHEN NO FUTURE ECONOMIC BENEFITS ARE EXPECTED FROM ITS USE AND DIS POSAL. LOSSES ARISING FROM RETIREMENT AND GAINS OR LOSSES ARISING FROM DISPOSAL OF AN INTANGIBLE ASSET ARE MEASURED AS THE DIFFERENCE BETWEEN THE NET DISPOSAL PROCEEDS AND THE CARRYING AMOUNT OF THE AS SET AND ARE RECOGNIZED IN THE STATEMENT OF PROFIT AND LOSS. 36. AS SEEN FROM THE ABOVE, THE ASSESSEE HAS TREATE D THE R&D EXPENDITURE AS CAPITAL EXPENDITURE BY SHOWING IT AS INTANGIBLE ASSETS IN ITS BALANCE SHEET. HOWEVER, IT IS NOT KNOWN WHETHER TH E INTANGIBLE ASSETS ITA NOS.1516 TO 1521/BANG/2019 PAGE 23 OF 24 SHOWN BY THE ASSESSEE IN ITS BALANCE SHEET INCLUDES REVENUE EXPENDITURE OR NOT? IN EARLIER ASSESSMENT YEARS, THE CIT(APPE ALS) HAD MADE ANALYSIS OF EXPENDITURE WHICH ARE REVENUE OR CAPITAL AND THE REVENUE EXPENDITURE WAS ALLOWED AS DEDUCTION. BEING SO, THE TRIBUNAL D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN AYS 2007-08 & 2008-09, IT A NOS.1384 & 1385/BANG/2013 IN ASSESSEES OWN CASE. IN THOSE AS SESSMENT YEARS, THE CLASSIFICATION OF EXPENDITURE WAS SHOWN AS FOLLOWS: - A.Y. CAPITAL EXPEND ITURE REVENUE EXPENDITURE 2007 - 08 35,83,34 6 105,79,544 2008 - 09 91,68, 575 269,98,824 3 37. THE AO IN EARLIER ASSESSMENT YEARS TREATED THE ABOVE ENTIRE EXPENDITURE AS CAPITAL EXPENDITURE. THE CIT(APPEAL S) ALLOWED THE REVENUE EXPENDITURE AS A DEDUCTION, HOWEVER, ALLOWED DEPREC IATION ON THE CAPITAL EXPENDITURE. AGAINST THIS, THE DEPARTMENT WENT IN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL IN PARA 10 OF THE ORDER HEL D AS UNDER:- 10. IN THE LIGHT OF THE ABOVE POSITION OF LAW, AND CONSIDERING THE FACTS BEFORE US, WE HAVE NO HESITATION IN DIREC TING THE AO TO ALLOW THE CLAIM OF ASSESSEE TO THE EXTENT OF RS.1,0 5,79,544/- FOR ASSESSMENT YEAR 2007-08 AND RS.2,69,98,843/- FOR AS SESSMENT YEAR 2008-09 AS REVENUE EXPENDITURE AND ALLOW DEPRECIATI ON ON THE CAPITAL ITEMS WORTH RS.35,82,436/- FOR ASSESSMENT Y EAR 2007-08 AND RS.91,68,575/- FOR ASSESSMENT YEAR 2008-09 AFTER VE RIFYING CLASS OF ASSET IN WHICH THESE FALL, AS PER LAW. ORDERED ACCO RDINGLY. 38. HOWEVER, FOR THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE R&D EXPENDITURE WHICH WAS TREATED AS REVENUE EXPENDITUR E IN ITS PROFIT & LOSS ACCOUNT IS NOT SEPARATELY BROUGHT ON RECORD BY THE ASSESSEE BEFORE US. HENCE, IT IS APPROPRIATE TO REMIT THE ISSUE TO THE FILE OF THE CIT(APPEALS) FOR PROPER CLASSIFICATION OF R&D EXPENDITURE WHICH IS I N THE NATURE OF REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. THEREAFTER THE PORTION OF REVENUE ITA NOS.1516 TO 1521/BANG/2019 PAGE 24 OF 24 EXPENDITURE ON R&D TO BE ALLOWED AS BUSINESS EXPEND ITURE IN THESE ASSESSMENT YEARS. ON THE OTHER HAND, THE R&D EXPEN DITURE WHICH IS IN THE NATURE OF CAPITAL EXPENDITURE HAS TO BE DISALLOWED AND DEPRECIATION TO BE GRANTED. WITH THESE OBSERVATIONS, WE REMIT THE ISS UE IN DISPUTE IN ALL THESE ASSESSMENT YEARS TO THE FILE OF THE CIT(APPEALS) FO R FRESH CONSIDERATION. 39. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF JANUARY, 2021. SD/- SD/- ( GEORGE GEORGE K . ) ( CHAND RA PO OJARI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 27 TH JANUARY, 2021. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.