The respondent/assessee who is dealing in
manufacture of software development and telephone/fax,
modems, said to have incurred expenditure of
Rs.7,28,14,022/- towards development costs upto
31.03.2000 which is said to be towards research and
development for the assessment year 2000-2001. The
data/fax/modems sale realization was Rs.3,84,39,328/- and
telephony and speech coders sale realization was
Rs.31,01,950/-. It was contention of the assessee before the
Assessing Officer for the assessment year 2001-2002 that a
sum of Rs.1,85,71,285/- is a set off against development
cost and the balance is shown in the balance sheet. The
assessee described the same as reduction in the value of the
semi-finished inventory. It is the contention of the assessee
that the reduction of the cost incurred towards research and
development could be in three ways. (1) Write off of entire
amount towards profit in the year of incurrence. (2) claim it
as deferred reduction at the rate of 1/5th for each
assessment year or proportionate to the estimated sales and
(3) claim depreciation of the material value as per its value.
2. The assessee contends that in the present case,
he has sought reduction proportionate to the sale realization.
3. Sri Indrakumar, learned Sr. counsel for the
revenue, per contra strenuously submitted that the written
and oral submissions made by the assessee could not
suggest that the development costs incurred is towards
research and development and the same is being set off
against profit and loss account towards sale realization for
the assessment year in question. The assessee submitted
that he seeks proportionate write off against semi-finished
goods inventory. That means for future anticipated inventory
sales the deduction sought for is impermissible. This Court
had framed following substantial law for consideration while
admitting the appeal.
"Whether the Tribunal was correct in
holding that semi finished goods to the extent of
Rs.1,85,71,285/- should be allowed as a
revenue expenditure which was purely based on
estimate since the actual product had not been
completed and sold in the open market."
4. On thorough consideration of the submissions
made at the Bar, we find that the arguments submitted in
appeal does not appear to be one correctly projected before
the Assessing Officer. Further, it is also not clear that
whether Rs.7,28,14,022/- pertains to research and
development of the products. It is also not clear the entire
semi-finished products are made in the process of research
and development or otherwise. The assessee had sought
"proportionate write off against the semi-finished goods
inventory". The said expression used does not clearly suggest
whether the assessee was seeking reduction on research and
development expenditure proportionately towards the sale
made in the year in question.
5. It is the contention of the counsel for the
assessee that expression "reduction in value of semi-finished
inventory" would pertain to research and development
expenditure. This aspect also has not thoroughly gone into
by the Assessing Officer. Therefore, in order to appreciate
disputed facts correctly. Accordingly, the order of the
Tribunal and authorities below are set aside and the matter
is remitted to the Assessing Officer for fresh assessment after
giving proper opportunity to the assessee. In view of the
remand, the question of law is not answered. All contentions
are kept open for both sides to establish their stand. The
appeal is disposed of.
Sd/-
JUDGE
Sd/-
JUDGE
NM*