9911796707
TMI Blog2017 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... f the income Tax Act and thereby sustaining the disallowance of Rs. 24,65,578/- made by the assessing officer. 1.d. That without prejudice to the above, the Ld. CIT(A) while treating the expenditure incurred on development of software as capital in nature erred in not allowing, alternatively (depreciation on the same. 2. On the Facts and the circumstances of the case the order passed by the C1T (Appeal)- XIII is bad in law and against the facts of the case." Apart from that the assessee has also raised additional grounds which read as under:- "That in the fact and circumstances of the case and in law the Ld. CIT (A) has failed to appreciate that the expenses of Rs. 24,65,578/- incurred on the development of the software project "SIMS" resulted in creation of trading asset/ stock in trade in case of the appellant, who is in the business of software development and was thus even otherwise an allowable business loss / expenditure written off during A.Y. 2009-10 under Sections 28/29 of the Income Tax Act, 1961, on account of the same having become obsolete through passage of time." Since the aforesaid additional grounds raises an alternative contention and is purely a legal pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed refers to section 43B. * Our claim of expenses is allowable u/s 371(1)." 3. However, the ld. Assessing Officer held that the said expenditure cannot be allowed u/s 37(1) because, this expenditure has been accumulated over the period of 4 to 5 years back and the benefit is expected to be spread over a number of years and as such the same are capital in nature. Since, the assessee has in-house software development for the purpose of business, therefore, the claim of the assessee will be allowed u/s 35D and accordingly, he held that the assessee would be entitled for deduction of Rs. 99,131/- being 1/5thof total software development and the excess claim of Rs. 23,66,447/- has been disallowed and added to the income of the assessee. 4. Before the Learned CIT(Appeals), the assessee submitted that as per its regular accounting policy, it has been amortizing carried forward expenditure in relation to the software products, here in this case a software product named as SIMS (sales information management system) was developed on which expenditure amounting to Rs. 24,65,578/-, was incurred in the F.Y.2003-04 (relevant to AY 2004-05). The said software was developed for selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment of software is amortized during the year and is to be claimed whenever the said product comes up for sale. This has been done so under the matching principle of the cost associated with the revenue. The said expenditure has been written off in this year for reason that the assessee company realized that the said software product was not commercially and technically viable due to fast change in the technology and the software programme and assessee's software SIMS had become obsolete during the year. Thus, as a prudent businessman the assessee has written off in this. He also submitted that similar write off for other software was made in the A.Ys. 2006- 07 and 2007-08 which has been accepted by the department in the scrutiny proceedings u/s 143(3) and in the A.Y. 2008-09 also similar written off of various software products has been done for which no disallowance has been made. Thus, the following principle of consistency and fact that the assessee has been following similar accounting policy for earlier years the assessee's claim should not be disallowed. The main plank of his argument was that the write off of software products in this year was on the ground that it has bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been also allowed by the department either under the scrutiny proceedings u/s 143(3) or the return income has not been disturbed. In this year the assessee has written off all the expenses of Rs. 24,65,578/- which was amortized during the A.Y. 2004-05, on the ground that this product has become obsolete. 9. However, the manner in which the assessee has been amortizing the expenses and later on writing it off the expenses which has been amortized earlier is not appreciable, because if an expenditure has been incurred for development of software product which is to be sold, then same should go to enhance the value of stock-in-trade and in the year in which its written off on the ground that the said product is not saleable and is rendered obsolete, the same can be claimed as business loss. The other manner would be to take it as part of work-in-progress of saleable product and claim the expense against the revenue realised. The expenses incurred in the development of software is for sale then definitely it is of revenue in nature and the same is allowable only while computing the income chargeable as business income. However, without going into the accounting entries and accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
