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TMI Blog2012 (10) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was duly processed under Section 143(1) of Income-tax Act, 1961 (in short 'the Act'). Later on, assessee's case was selected for scrutiny. During the course of scrutiny proceedings, it was noted by the Assessing Officer that assessee had shown a sum of Rs. 2,51,40,055/- as capital work-in-progress in its balance sheet. In the notes to the balance sheet, assessee explained such sum as expenses for R&D for software development, which was capitalized. Assessing Officer from the computation of income noted that assessee had charged a sum of Rs. 86,47,623/- coming within the total amount of Rs. 2,51,40,055/-, as a revenue outgo. Explanation was sought from the assessee as to why the said claim should not be disallowed. In reply, assessee su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any case, these were expenditure wholly attributable to its business activities. Alternatively, it was submitted that the claim was also allowable under Section 35(1)(i) of the Act. Reliance was placed on the decision of Hon'ble Apex Court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT (82 ITR 363) in addition to the decisions of Andhra Pradesh High Court in the case of Nathmal Bankatial Priks & Co. v. CIT (122 ITR 168) and Karnataka High Court in the case of Hanuman Motor Service v. CIT (66 ITR 88). Ld. CIT(Appeals), relying on the decision of Hon'ble Apex Court in the case of Kedarnath Jute Manufacturing Co. Ltd. (supra), held that the expenses claimed by the assessee were essentially period costs. According to ld. CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions. The total amount of expenses capitalized by the assessee in its books of accounts as part of work-in-progress was Rs. 2,52,40,055/-. It is not disputed that the sum of Rs. 86,47,623/- considered for disallowance by the Assessing Officer was part of the above amount. Assessee was admittedly engaged in the business of electronic publishing. Electronic publishing definitely required development of software and such software developed by its very nature will result in enduring benefit to the assessee. For development of such software, assessee had incurred expenses and shown such expenses as part of its capital work-in-progress. This treatment was apparently in accordance with Accounting Standards in respect of accounting for sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has been consistent and definite in making entries interest he account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted Accounting Standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation." It is clear from the above decision of Hon'ble Apex Court that treatment in the books of accounts has a strong bearing on determining whether an amount is allowable or not. We are of the opinion that none of the authorities below considered the relevant Accounting Standards and nature of business of the assessee while deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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