TaxTMI 
TaxTMI 
2017 (1) TMI 956
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....ue expenditure. 2.1. Briefly stated, the facts are that assessee-company filed its return of income for the A.Y. 2008-09 on 30.09.2008 declaring loss of Rs. 1,42,78,056/-. The nature of business is software development and related activities. The AO on examination of the details of bills submitted by the assessee-company along with copy of agreement for services, noticed that it had incurred an expenditure of Rs. 3,98,41,574/- for product development and customized software development and later on it marketed the same to its clients. The AO has narrated the details at page 3-5 of the assessment order dated 10.12.2010 passed by him. The AO held the said expenditure as intangible asset u/s 32(1)(ii) and allowed depreciation @25% on the above and made addition of Rs. 2,98,81,181/- (Rs. 3,98,41,574/- minus Rs. 99,60,393/-) 2.2 The assessee-company preferred an appeal against the order of the AO before the learned CIT(A). In respect of treatment of consultancy expenditure of Rs. 3,98,41,574/- as capital expenditure and considering the same as an intangible assets, the learned CIT(A) sent a copy of written submission and additional evidence filed by the of the assessee- company be....
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....sessee's explanation regarding cancellation of invoice/s by M/s. IFlex Solutions Ltd. and raising of fresh invoice and for amounts adjusted against provisions made and re-compute disallowance accordingly after due verification. 2.3 Before us, the learned counsels of the assessee-company filed a summary of the details of consultancy charges. Broadly stated it is as under: Sl No. Name of the entity Narration as per assessment order Nature of services 1. Godrej Infotech Ltd. Our charges for providing consultancy and technical assistance for product development and customized software development Technical assistance for product development and customized software development 2. Quexst Solutions Pvt. Ltd. The invoice is towards software development services of software product Provision of software development services for software product 3. I-flex Solutions Ltd. Professional fees for consultants - Offshore Professional fees for consultants - Offshore Software development services Software development services 4. Data Software Research Co. Pvt. Ltd. Towards software support services provided by our person Charge for softwa....
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....the operation or business of Cashtech or resulting from any work which the contractor shall have carried out pursuant to this Agreement and all rights of action for damages for infringement of such intellectual property rights for the entire period of the subsistence of the intellectual property rights and any renewals and extensions thereof and irrevocably undertake and confirm to execute, upon receipt of a request from Cashtech. All necessary and adequate documents to confirm the same.'' 2.7 Similar is the agreement between the assessee and the other entities. The assessee has engaged them to perform software services, for product development and customized software development. 2.8 A similar issue arose before ITAT, Pune Bench in the case of Opus Software Solutions (P) Ltd. vs. ACIT (2012) 139 ITD 427. In this case the assessee was engaged in the business of development of software products. The claim of the assessee was that it was engaged in the development of various software packages, like Trade Now, Electra ATM, Electra Card and Electra Payment Gateway (EPG), etc. The assessee explained to the AO that the expenditure incurred on development of such products was to the....
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....uched, the expenditure would be of revenue account, even though the advantage may endure for an indefinite future." In the present case, in our view, the expenditure on development of new product in the line of business being carried out by the assessee is an expenditure related to such business and benefit to the assessee is in the revenue field, inasmuch as it seeks to improve the profitability of the assessee and the enduring benefit cannot be regarded to be in the capital field. The parity of reasoning laid down by the Hon'ble Apex Court in the case of Empire Jute Co Ltd (supra), as extracted above, clearly supports the stand of the assessee, inasmuch as the expenditure in question merely results in development of new products by the assessee in its existing line of business. Even otherwise, it is noteworthy that none of the expenditures in question are of capital nature and in fact, the expenditure which has been referred to by us in the earlier paragraph clearly are such expenditure, which are incurred in the course of carrying on of business.'' 2.9 In view of the foregoing reasons, the 1st ground of appeal of the assessee is allowed. 3. As we have allowed the 1st gr....
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.... the details filed before the AO, it would be apparent that the entire expenditure towards travel and conveyance by the directors were incurred wholly and exclusively for the purpose of business. Commercial expediency was explained by stating that as most of the clients are located outside India, the assessee is required to frequently visit the clients for rendering of services and maintaining and developing the existing business relationship and for new business opportunities. It was submitted by them that the names of clients visited and the purpose of the said meeting were furnished to the AO. There is a direct nexus between the expenditure incurred on directors' travel and expenses carried out by the assessee. The learned counsels also submitted that the assessment made on the basis of ad-hoc disallowance is liable to be deleted. 4.4 The learned DR supported the order passed by the learned CIT(A). 4.5 We have heard the rival submissions and perused the relevant material on record. We find that the conclusion arrived at by the AO that the sales were not made to new foreign clients, hence there is no requirement of prolonged visit of a week or so is not based on reasons. ....