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An expenditure incurred to earn an income is revenue expenditure, e.g., salary of the staff, advertisement expenses, etc. as the 'deferred revenue expenditure', to be Background Recently, the Supreme Court of India (the Supreme Court) in the case of Taparia Tools Limited1 (the taxpayer) held that there is no concept of deferred revenue expenditure in the Income-tax Act, 1961 (the Act) except under specified provisions where amortisation is specifically provided. Sec. The expression "Wholly & exclusively" used in section 10(2) (xv) of the Income-tax Act, 1922 (Which corresponds to section 37(1) of the Income-tax Act, 1961) does not mean "necessary". act about its allowance from business income. The judicial pronouncements establish that the initial onus is on the taxpayer to prove that the expenses incurred are wholly and exclusively for the The concept of deferred revenue expenditure is not in the Income Tax Act. Originally, the assessing officer allowed the claim on the basis of entries in the books of accounts. 2. Expenses such as under section 35D, 35DD, 35E of income tax act 1961 amortized in the books over a period of years but are allowed for tax purpose wholly in the first year. The out go is to be treated as a deferred revenue expenditure and is allowable over a period of four years pro-data starting from the relevant assessment year. The concept of deferred revenue expenditure is essentially an accounting concept and alien to the Act. The said order of assessment was framed under Section 143(3) of the Income Tax Act, 1961. Deferred revenue expenditure based on matching concept of expenses relating to income is slowly gaining judicial recognition. 27 April 2011 1.On AS-26, intangible assets, becomes mandatory, an enterprise cannot recognize any expenditure as deferred revenue expenditure. However market research and promotional expenditure fall outside the ambit of R&D deductions so … It alleged that the same has not been expended “wholly and exclusively” for the purposes of taxpayers’ businesses. Preliminary expenses, expenses incurred for amalgamation, advertisement expenditure etc. In income tax Act also there are only two types of expenditure, viz., capital expenditure and revenue expenditure. 40(a)(ia) of the Income Tax Act,1961 emphasis on that expenditure covered under mentioned TDS sections paid to resident and debited Profit & Loss Account will not be allowed as deduction while computing the income under the head “Profit and Gains of Business or Profession”, if :- expenditure under section 37(1) of the Income-tax Act, 1961 (“Act”). Ordinarily, it is for the assessee to decide whether any expenditure should be … (iv) Purpose of transaction. e.g. So, there is no clear provision under the I.T. In view of that, the referred expenditure has to be expensed out in the year of occurrence itself. The scheme of s. 35 of the Income tax Act, 1961 provide for deduction upto 200% for research and development expenditure irrespective of whether capital or revenue in nature. Section (S.) 145 of the Income-tax Act, 1961 (ITA) provides that taxable income of an assessee falling under the heads “Profits and gains of business or profession” or “Income from other sources”, shall be computed in accordance with either cash or mercantile system of accounting which is … If the amount is spent on increasing the earning capacity of an asset, it is capital expenditure, e.g., expenditure incurred for fitting new windows of factory building. The assessee treated the same as deferred revenue expenditure in the accounts but while filing the return claimed the entire expenses as revenue expenditure. On the basis of entries in the books of accounts relating to Income is slowly judicial. 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