TaxTMI 
TaxTMI 
TaxTMI 
2020 (8) TMI 669
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....he CIT(A)-1 has erred in sustaining the addition made by the . learned AO. The order passed by the lower income-tax authorities are bad in law and not derived from the instant facts, and liable to be quashed. 2. The learned CIT(A) has erred in - (a) Treating expenditure incurred towards salary cost during the tax year, to be capital in nature; (b) Disregarding the provisions of Accounting Standard 26 and recognized the salary expenditure, incurred towards research of the Company's planned software platform, as capital in nature; (c) Construing the salary costs to be in the nature of capital work-in-progress; (d) Assuming that the platform would eventually give an enduring benefit to the Company, after its development - without giving consideration to the fact that the platform developmental activities were eventually shelved in the subsequent tax year. (e) Disregarding the jurisdictional binding ratio of the Hon'ble Karnataka High Court, while adjudicating the issue. 3. The learned CIT(A) has erred in (a) Treating expenditure incurred towards marketing, which was towards the overall promotion of the products of the Company during the tax year, to be capital in natur....
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....The assessee vide its letter dated 21.8.2017 submitted that the product that it was developing cannot be termed as an independent product, which can be put to use. It was only working to bring out specific market output by simplifying the business of Appnexus, for less sophisticated client base, who could neither afford to hear specialized Ad operations nor afford to pay license fee for Appnexus. The assessee further submitted that it has spent various expenses including salaries on technical personnel and marketing expenses in USA to gauge the effect of this new software platform. However, due to rapid change of technology and shifting of advertisement from desktop to mobile platform, the software being developed by the assessee was abandoned and closed since the product was very unusable. Further, at no point of time, this new platform was put to use and no depreciation is claimed on the project. Therefore, expenses incurred for conducting feasibility study of the new software platform cannot be considered as capital expenditure, which gives enduring benefit to the assessee. 5. The A.O. was not convinced with the explanation of the assessee and according to him, the software pla....
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....s accorded by the A.O. in treating the expenditure to be capital in nature. Aggrieved by the CIT(A) order, the assessee is in appeal before us. 8. The Ld.A.R. for the assessee submitted that the Ld. CIT(A) has erred in treating expenditure incurred towards salary cost of technical person involved in development of new software platform and marketing expenses incurred for conducting feasibility study of new software platform is capital in nature, which gives enduring benefit to the assessee without appreciating fact that the new software platform developed by the assessee was never put to use and the same has been abandoned during next financial year. The A.R. further submitted that expenditure incurred by the assessee towards salary cost were revenue in nature as the entire team was dedicated to make an offering for the North American market SME segment, thus there was no development of any new independent product for this market, accordingly, the salary cost cannot be capitalised. Further, the marketing expenses were incurred in order to show cause the capabilities of Adadyn to the potential customers and this is a clear indication that other expenses were incurred primarily towa....
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....fit to the assessee arises only when a product is developed and a new asset came into existence. Unless the product developed, comes in the form of a new product, which can be independently used, then it cannot be said that the product would give enduring benefit to the assessee. In this case, on perusal of facts available on record, it is very clear from facts brought out by the A.O. that actually the assessee is developing a new software platform but such new platform was abandoned during the subsequent financial year due to rapid change in technology and shifting of technology from desktop to mobile platform. The product has never been put to use and no depreciation has been claimed. Further, the expenditure incurred towards development of new software platform was treated as part of revenue expenditure and has never been debited to capital work in progress in the books of accounts. Therefore, we are of the considered view that when the product was in development stage during the year under consideration and the same has never been put to use even in subsequent financial year and finally abandoned, then it cannot be termed that an independent product was came into existence, wh....