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TMI Blog2024 (8) TMI 1365X X X X Extracts X X X X X X X X Extracts X X X X ..... income. The assessee explained the expenditure was incurred for development of one software product on HR Management System in the name of "ProHR" for linking strategy and performance with integrated payroll and Web based self-service which was started in the year 2009-10. The expenditure of Rs. 19,27,806/- relates to expenses for the development of this software which was to be capitalized as intellectual Property Rights upon completion of the Project and the same would be amortized for a period of two to four years. However, due to technological obsolescence, the said project is not likely to result in any economic benefits to the assessee. Therefore, the capital work-in-progress of this project was written off and ultimately the project was abandoned. Further New Technology from Microsoft - Dotnet was popular in the market, which was cloud based technology and cost efficiency. Therefore the software project prepared by the assessee namely "Pro-HR" could not get a single client and the same was abandoned. However the Assessing Officer relying upon various case laws disallowed the claim and added the expenses as the income of the assessee and demanded tax thereon. 3. Aggrieved ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusively for the purpose of business or profession. The appellant respectfully prays that the impugned expenditure incurred of Rs. 19,27,806/- is also allowable on the grounds of commercial principles and expediency as this was a genuine expenditure expended during the AY: 2013-14 wholly and exclusively for the purpose of business of the appellant. Accordingly, your appellant prays that it may please be held that the impugned disallowance of Rs. 19,27,806/- is not sustainable and deserves to be deleted. 4. Your appellant craves leave to add / amend / edit / delete / change / modify all or any of the grounds before or at the time of hearing. 5. The Ld. Counsel reiterated the arguments made before the Lower Authorities and submitted that the assessee decided to abandon the development of the software "ProHR". Since the software had not fructified as the assessee was not successful in validation of Alpha version of the subject software by initial trials/live testing/feedback, without which completion of software development could not have been achieved. Further due to technological obsolescence, the development of the software "ProHR" was ultimately abandoned by the assessee. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of British Insulated & Helsby Cables Ltd. Vs. Atherton 5. The principle as stated therein was as under: "When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital." 1. However, notwithstanding that a reference had been made to the said principle of law, the Apex Court held that the "enduring benefit test was not a certain or conclusive test and cannot be applied mechanically without regard to the particular facts and circumstances of a given case and that what was material to consider was the nature of the advantage and that it is only where the advantage was in the capital held that the expenditure would be disallowable on an application of this test. If the advantage consisted merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably, while leaving the fixed cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et came into existence or not would become a relevant factor and that if there was no creation of a new asset, then the expenditure incurred would be of revenue nature and that if the new asset came into existence which was of an enduring benefit, then such expenditure would be of a capital nature. This view was also followed in the case of Commissioner of Income-tax, Ranchi Vs. Tata Robins Fraser Ltd. 13. Applying the ratio of the aforementioned judgments in the present case, it can be seen that the appellant is admittedly in the business of development of software solution and management, and therefore, it's endeavour to develop a new software was nothing but an endeavour in its existing line of business of developing software solutions. Admittedly, the product which was sought to be developed, never came into existence and the same was abandoned. No new asset came into existence which would be of an enduring benefit to the assessee, and therefore, in these circumstances, the expenditure could only be said to be revenue in nature." 8.1. The Hon'ble Bombay High Court in the case of CIT-Vs- Idea Cellular Ltd. (cited supra) wherein it was held as follows: "....9. We have care ..... X X X X Extracts X X X X X X X X Extracts X X X X
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