COMMISSIONER OF INCOME TAX Vs. DENSO INDIA LTD.

JUDGEMENT

(1.) 2006, passed by the Income -tax Appellate Tribunal (Tribunal) whereby the Tribunal has dismissed the appeal of the Revenue and confirmed the order of the CIT(A) and held that AO was not justified in disallowing the deduction on account of expenditure incurred by the assessee for establishing a separate cell for developing import substitute components. The facts of the case are that the assessee -company is engaged in the business of manufacture of auto electrical parts for which it was importing several components. The assessee -company considered that, instead of importing the components, it would be more beneficial to have the components locally procured and indigenously manufactured, and for this purpose a separate cell was set up for developing import substitute components. The object of this special cell was to identify local manufacturers for the import components substitutes, prepare drawings for the components so required by the assessee -company, seek manufacture of the components by the local manufacturers under the supervision and direction for quality control of components. Towards this cell, expenditure was incurred by the assessee - company on salaries wages, travelling expenses etc. and which was shown by the assessee -company in its books of account, under the head "Deferred revenue expenditure". The AO treated this expenditure as of a capital nature and disallowed the deduction claimed by the assessee mainly for the following reasons :

(2.) Before the CIT(A), the assessee -company contended that despite the treatment given in the books of account by the assessee -company as deferred revenue expenditure, the fact remains that the said expenditure was of revenue nature. The CIT(A) accepted the stand of the assessee -company, inter alia, for the following reasons :

(3.) Before us it is not disputed by the appellant that the expenditure incurred towards salaries, wages, travelling expenses, etc., are revenue in nature, however, the counsel for the appellant has contended that since there was enduring benefit from the expenditure, the said expenditure is capital in nature. Reliance was placed upon Assam Bengal Cement Co. Ltd. vs. CIT (1955) 27 ITR 34 (SC) on the meaning of capital expenditure and on Taparia Tools Ltd. vs. Jt. CIT (2003) 180 CTR (Bom) 256 : (2003) 260 ITR 102 (Bom) and CIT vs. Kanyakumari District Co -operative Spinning Mills Ltd. (2003) 182 CTR (Mad) 151 : (2003) 264 ITR 684 (Mad) for the same purpose.