- (1.) The appeal is directed against a judgement and order dated 19th May, 2006 passed by the learned Income Tax Appellate Tribunal pertaining to the assessment year 1998-1999. The revenue has come up in appeal. The following questions were formulated at the time of admission of the appeal:- " I. Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in allowing expenditure of Rs.46,26,552/- on development of machineries as revenue expenditure though the machineries developed were neither used for the business of the assessee nor sold ? II. Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in failing to adjudicate upon the question of allowance of provision of Rs.21,70,93,280/- for advertisement under the erroneous impression that it was covered by the remand report submitted by the Assessing Officer ? III. Whether, on the facts and circumstances of the case, the Income Tax Appellate Tribunal has erred in allowing bank charges of Rs.1,78,08,000/- paid to guard against fluctuations in the foreign exchange rate for payment of loan taken for import of machineries as revenue expenditure contrary to the specific provisions of Explanation 3 to section 43A of the Income Tax Act, 1961 ? "
(2.) In so far as the first question is concerned the undisputed facts and circumstances are that four several machines were developed by the assessee at a cost of Rs.46,26,552/-. However, after the machines were developed the assessee found that the technology used had already become obsolete. Therefore, the machines were not put to use of manufacturing purposes.
(3.) The assessee decided not to sell the machine as a scrap because doing so might enable the competitors to know technical knowhow developed by the assessee. Therefore, they decided to use the parts of the machines so developed by way of spare parts in future. This explanation was not acceptable to the assessing officer. He was of the opinion that the claim was not allowable for the following reasons:- " The assessee submitted that the machinery were not sold in the market. It may cause damage to their business. It is explained in para-3 of the letter of the assessee dated 08/03/2001 that this machineries were dismantled and spare parts were used wherever possible so that it does not fall in the hands of the competitors. Taking the above explanation of the assessee in consideration, the question remains that the user of spare parts in the regular business activities of the assessee is also the user of the machineries for the business activities of the assessee did not furnish any details to show what are the spare parts used in the possible way in the business of the assessee, what is the value of such spare parts and what is the actual amount of infructuous capital assets. ";