Professional Fee paid for Product Development is Business Expenditure: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) in M/s. Nov Sara India Pvt. Ltd v. ACIT held that the professional fee paid for product development is business expenditure which can be deducted from the total income.

The assessee contended that they have incurred expenditure of Rs.18,86,648/- on account of software development expenditure. The Assessing Officer held that the same amount to capital expenditure as it has given a benefit of enduring nature to the assessee.

The assessee claimed that it is a license fee and, therefore, it cannot be giving any benefit of enduring nature. The CIT (Appeals), on first appeal, held that it was for the development of new products and, therefore, same is a capital expenditure.

The bench, after hearing the rival contentions, held that the above expenditure is product development expenditure and not software development expenditure. “The above expenditure has been paid as a professional fees to M/s. Express Marketing, Dehradun, towards the development of new product in the unit I related to equipment required by rigs in oil industry. It was not a new line of business, but was merely expenditure in development of the existing line of the business. The assessee is engaged in the business of manufacturing of machineries and equipments and development is for the same product. In view of this such expenditure cannot be held to be capital expenditure, but it is a revenue expenditure.”

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