The assessee in the books had capitalized the expenses on new product development and that proved to be fatal when it attempted to claim such expenditure as revenue for income tax purposes before Karnataka High Court in 427ITR425.
The High Court held that it is pertinent to mention here that the assessee himself in the books of account had shown it as capital expenditure thus pointing to an acquired advantage of enduring nature. Therefore, the Assessing Officer, the Commissioner of Income-tax (Appeals), and the Tribunal have rightly treated the expenditure incurred by the assessee for the development of a new asset as capital expenditure.
Thus the treatment in accounts, therefore, can somewhat point to the aim and object of expenditure being to bring an asset/advantage into existence and that therefore can be a determining factor for allowance of a deduction for expenditure