2022 (12) TMI 736

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....f' by the assessee. 3. The facts apropos this issue are that the assessee is engaged in the activity of Software Development. It debited a sum of Rs.7,15,85,164/- to its Profit and loss account under the head 'Extraordinary item - Project Development cost written off'. The AO called for the details of such costs, which were submitted by the assessee backed by relevant vouchers and evidence. On their verification, the AO observed that the assessee incurred almost 93% of the project costs during financial years 2007-08 to 2009- 10. No expenditure, except debenture interest, was included in the costs for the financial year 2010-11 and such debenture interest cost was reversed in the next year 2011-12. However, for the financial year 2012-13....

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....4. Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee is engaged in the business of software development. The development of a software may get over in a short time or may, in certain cases, go on for a long time extending to certain years. When fully developed, the software becomes an income earning asset, which is sold/licensed over a period. Reverting to the facts, a new project of software development was espoused by the assessee during the financial year 2007-08, which went uninterrupted for three years. After that, there was a lull for two years. Again, the project was taken up in the preceding year. Ultimately, the assessee realized that the project was not workable and w....

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....e could not be put to use as it was shelved. There is a basic fallacy in this approach. Costs incurred on the project of software development, remaining as work-in-progress over the years of incurrence, would have qualified to become an `Intangible asset', eligible for depreciation, only on its successful development. Here is a case in which the project of software development did not fructify and the costs incurred on it remained only as capital work-in-progress before getting written off. In that view of the matter, the basic premise on which the ld. CIT(A) has proceeded does not merit our concurrence. 6. Coming to the view point of the AO, it is seen that he did not dispute the otherwise allowability of the expenses. His point of view....