Business expenditure – Capital or revenue expenditure – Section 37 – A. Ys. 2007-08 and 2008-09 – Development charges on research and testing of components – Revenue expenditure

For the A. Ys. 2007-08 and 2008-09, the assessee had claimed that development charges on research and testing components is revenue expenditure. The Assessing Officer rejected the claim. The Tribunal allowed the assessee’s claim on the ground that in several previous assessment years the plea of the assessee that it was revenue expenditure was accepted.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i) The assessee incurred the development charges on research and testing of components. This did not result in a benefit to it of enduring nature so as to characterize the development charges as capital expenditure. Testing of products and components is essentially a continuous process which permeats different accounting years. It is an integral part of the routine manufacturing and monitoring activity. It can not obviously be a one-time event.

ii) The Revenue had not been able to persuade the Court that an error had been committed in any of the previous assessment years where the assessee’s explanation was accepted and the expenditure on development charges was treated as revenue expenditure.

iii) In the facts and circumstances of the case, the rule of consistency was adopted and the plea of the revenue to remand the matter to the Assessing Officer for a fresh determination was declined.”