After establishment and before commencement expenditure under sec 35 can claim as revenue expenditure

Last updated: 07 July 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Briefly stated assessee is in the business of manufacturing of Tocopherol Vitamin-E and mixed Tocopherol. AO completed the assessment under section 143(3) disallowing the expenditure claim at `.62,62,182/- and depreciation of `.16,11,204/- on the reason that assessee has not started the business and as there is no commercial production, expenditure pertains to work in progress or cost of inventory cannot be allowed. In the appeal before the CIT (A) it was submitted that assessee has commenced the business and disallowance of expenditure was not correct. After considering the submissions of assessee including the examination of registration with various authorities, the CIT (A) held that assessee has commenced its business activity. However, he proportionately allowed the expenditure being administrative, personnel and other expenses including depreciation while, however, confirming the disallowance of expenditure relating to the research amounting to `.38,33,701/- on the reason that research activity was long drawn process which would result in creation of an asset of enduring benefit in the nature of final result of such research activity. He held the expenditure as capital in nature.

Citation :
Scientific Precision (P) Ltd 411, Shah & Nahar Industrial (Appellant) Vs ACIT 2(3), Room No. 555 5th Floor, Estate, Dr. E. Moses Road Worli Naka Mumbai 400 018 Aayakar Bhavan MK Road Mumbai 400 020 PAN – AAACS 8343 P (Respondent)