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2021 (1) TMI 71 - AT - Income TaxAllowability of product development expenses - as per AO even though said development expenditure was capitalised in books, the same was claimed as admissible deduction while computation of income - Assessee submitted by assessee that, expenditure on product development is revenue expenditure. Alternatively, assessee also contended that, even if the expenditure is otherwise treated as capital in nature, assessee is still eligible to claim in terms of section 35(1)(iv) because, these expenditures are incurred by assessee on scientific research and related to business, within the meaning of section 43(4) - HELD THAT - We note that facts and issue considered by this Tribunal in assessment year 2005-06 . 2016 (6) TMI 1407 - ITAT BANGALORE are same with the year under consideration. Therefore, respectfully following the view taken by this Tribunal in assessment year 2005-06 in assessee's own case, we remand this issue to Ld. CIT(A). Ld. CIT(A) is directed verify whether, assessee acquires any copyright/ownership in respect of products sold developed. Ld. CIT(A) is directed to decide the issue based on documents/evidences filed by assessee in light of decision in case of Talisma Corporation Pvt. Ltd. 2013 (12) TMI 1419 - KARNATAKA HIGH COURT . Grounds raised by revenue stands allowed for statistical purposes.
Issues:
1. Whether the expenditure incurred on software development process claimed under section 35(1)(iv) of the IT Act is justified? Analysis: The case involves an appeal by the revenue against an order passed by the Ld. CIT(A)-6, Bangalore for the assessment year 2008-09. The appellant, a private limited company engaged in software development services, claimed certain expenses related to product development as a deduction under section 35(1)(iv) of the IT Act. The Assessing Officer (AO) disallowed the claim, stating that the expenditure was not revenue expenditure but was capitalized in the books. The AO held that the activity did not qualify as scientific research under section 43(4) of the Act. The Ld. CIT(A) allowed the claim based on precedents like CIT Vs. Talisma Corporation and Tejsa Networks Ltd. The Ld. CIT(A) observed that the expenditure, even if capital in nature, should be allowed as a deduction under section 35(1)(iv) if it is related to scientific research and business activities. The revenue challenged the Ld. CIT(A)'s decision, arguing that the requirements specified under section 43(4)(ii) regarding ownership of product development were not met. The appellant cited previous tribunal decisions regarding similar issues in earlier assessment years. The Tribunal noted that in a previous assessment year, a similar claim was remanded to the Ld. CIT(A) for further verification. In line with the previous decision, the Tribunal remanded the issue to the Ld. CIT(A) in the current case to determine whether the appellant acquires any copyright/ownership in the developed products. The Ld. CIT(A) was instructed to decide based on the evidence and documents submitted by the appellant in accordance with the decision of the Hon'ble Karnataka High Court in the case of Talisma Corporation Pvt. Ltd. In conclusion, the Tribunal allowed the grounds raised by the revenue for statistical purposes, remanding the issue back to the Ld. CIT(A) for further examination. The appeal filed by the revenue was allowed for statistical purposes, and the order was pronounced in the open court on 29th September 2020.
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