Software Development Expenditure is Revenue in Nature: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that Software Development Expenditure is revenue in nature.

The solitary issue agitated by the Revenue in appeal is against findings of the CIT(A) in holding Software Development Expenditure as revenue in nature in favour of the assessee, M/s. Sikraft Infotech Private Limited.

Anuj Kisnadwala appearing on behalf of the assessee submitted that the assessee is engaged in the business of process automation software and hardware engineering including software development, export of technical services, etc. During the period relevant to the assessment year under appeal, the assessee had claimed expenditure towards Software Development Rs.7,09,55,807.

The said expenditure was in the nature of salaries of Engineers, hotel expenses, insurance, travel expenses, etc. In assessment proceedings the Assessing Officer held the expenditure on Software Development as capital in nature.

Aggrieved by the assessment order dated 20/12/2019, the assessee filed appeal before the CIT(A). The CIT(A) after examining the facts held that the expenditure on Software Development, is regular business expenditure and has been incurred for Development of Software for use of clients including export to overseas clients.

Dilip K. Shah representing the Department, vehemently defended the assessment order. The Departmental Representative submitted that the CIT(A) has erred in holding Software Development Expenditure as revenue in nature.

A Division Bench consisting of Vikas Ashwathy, Judicial member and Gagan Goyal, Accountant Member held that “The expenditure has been incurred in the regular course of business of the assessee and for earning revenue and profits, hence, the expenditure is on revenue account. The Departmental Representative has not been able to controvert the findings of the CIT(A). We find no infirmity in the order of CIT(A) on this issue.”

To Read the full text of the Order CLICK HERE

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