Appellate Tribunal remits revenue expenditure claim for software development back for fresh consideration.

The Appellate Tribunal allowed the Revenue's appeal, remitting the matter back to the Assessing Officer for fresh consideration regarding the allowability of the assessee's claim of Rs. 86,47,623/- as revenue expenditure for software development. The Tribunal emphasized the importance of accounting standards and consistency in determining expenses, highlighting that the authorities below did not adequately consider these factors. The decision was based on the need for a re-evaluation in accordance with the law and the nature of the assessee's business activities.

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Issues:
Allowability of claim of Rs. 86,47,623/- as revenue expenditure.

Analysis:
1. The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-VI, Chennai, allowing a claim of Rs. 86,47,623/- of the assessee as revenue expenditure. The Assessing Officer disallowed the claim as he considered the expenses incurred by the assessee for development of software to be eligible for charging against income in the succeeding financial year, bringing an enduring benefit to the assessee.

2. The assessee argued before the ld. CIT(Appeals) that the expenses were period costs wholly attributable to its business activities and should be allowed under Section 30 or Section 35(1)(i) of the Income-tax Act, 1961. The ld. CIT(Appeals) relied on the decision of the Hon'ble Apex Court in Kedarnath Jute Manufacturing Co. Ltd. v. CIT and deleted the disallowance, emphasizing that the treatment in the books of accounts was not decisive in determining the allowability of the claim.

3. The Appellate Tribunal observed that the total expenses capitalized by the assessee for software development were Rs. 2,52,40,055/-, with the disallowed amount of Rs. 86,47,623/- being part of it. The Tribunal noted that electronic publishing required software development, resulting in an enduring benefit to the assessee. While the treatment in the books of accounts is not the sole determinant, it provides insight into how the assessee viewed the expenses for business purposes.

4. Referring to the decision of the Hon'ble Apex Court in CIT v Woodward Governor India P.Ltd, the Tribunal highlighted the importance of accounting standards and consistency in determining the allowability of expenses. The Tribunal concluded that the authorities below did not adequately consider the relevant accounting standards and the nature of the assessee's business in allowing the claim. Therefore, the matter was remitted back to the Assessing Officer for fresh consideration.

5. The Tribunal allowed the Revenue's appeal for statistical purposes, setting aside the orders of the authorities below and directing a re-visit by the Assessing Officer to determine the allowability of the assessee's claim in accordance with law and considering the nature of the business.

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