Laser Soft Infosystems Ltd. v. Income Tax Officer

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The Tax PublishersITA No.l07/Mds/2012 2013 TaxPub(DT) 0929 (Chen-Trib) INCOME TAX ACT, 1961 --Capital or revenue expenditure--Product development expenditure Generating income in future-- Income Tax Act, 1961, Section 37 INCOME TAX ACT, 1961 --DepreciationRate Computer software-- Income Tax Act, 1961, Section 32 In The ITAT, Chennai A Bench N. S. Saini, A.M. & Vikas Awasthy, J.M. Laser Soft Infosystems Ltd. v. ITO ITA No.l07/Mds/2012 A.Y. 2007-08 31st January, 2013 Respondent by : Vikram Vijayaraghavan, Advocate Shaji P. Jacob, Addl. CIT ORDER *Vikas Awasthy, J.M.* This appeal has been preferred by the assessee impugning the order of the Commissioner (Appeals)-IV, Chennai dt. 1-11-2011 relevant to the assessment year 2007-08. The only issue involved in the appeal is whether the product development cost is revenue or capital in nature? 2. The brief facts of the case are that the assessee is a company engaged in the business of development and export of computer software mainly for the Banking and Financial service sector. For the assessment year 2007-08, the assessee filed its return of income on 31-10-2007 admitting income of 3,38,58,500. The case of the assessee was selected for scrutiny. The assessing officer vide order dt. 24-12-2009 disallowed certain expenses and made additions in the income returned by the assessee. The assessing officer inter alia made additions on account of expenditure incurred by the assessee on product development. The assessee claimed the expenditure to be Revenue in nature. The stand of the assessee before the assessing officer was that since the expenditure relates to salary, travel, rentals, consumables, electricity charges etc. which primarily relates to day to day functioning of the organization, therefore, the same are to be allowed as revenue expenditure. As per the assessee, similar revenue expenditure is incurred by the company whenever it develops a new product or enhances an existing product to meet the emerging market demand. Since the expenditure is done in anticipation of future orders, these are classified as product development expenditure. In tune with the companys accounting policies, such product development expenses are treated as deferred expenditure in the books and written off equally over a period of three years commencing from the subsequent year. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersITA No.l07/Mds/2012
2013 TaxPub(DT) 0929 (Chen-Trib)

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Product development expenditure Generating income in future--

Income Tax Act, 1961, Section 37

INCOME TAX ACT, 1961

--DepreciationRate Computer software--

Income Tax Act, 1961, Section 32

In The ITAT, Chennai A Bench

N. S. Saini, A.M. & Vikas Awasthy, J.M.

Laser Soft Infosystems Ltd. v. ITO

ITA No.l07/Mds/2012

A.Y. 2007-08

31st January, 2013

Respondent by : Vikram Vijayaraghavan, Advocate

Shaji P. Jacob, Addl. CIT

ORDER

Vikas Awasthy, J.M.

This appeal has been preferred by the assessee impugning the order of the Commissioner (Appeals)-IV, Chennai dt. 1-11-2011 relevant to the assessment year 2007-08. The only issue involved in the appeal is whether the product development cost is revenue or capital in nature?

2. The brief facts of the case are that the assessee is a company engaged in the business of development and export of computer software mainly for the Banking and Financial service sector. For the assessment year 2007-08, the assessee filed its return of income on 31-10-2007 admitting income of 3,38,58,500. The case of the assessee was selected for scrutiny. The assessing officer vide order dt. 24-12-2009 disallowed certain expenses and made additions in the income returned by the assessee. The assessing officer inter alia made additions on account of expenditure incurred by the assessee on product development. The assessee claimed the expenditure to be Revenue in nature. The stand of the assessee before the assessing officer was that since the expenditure relates to salary, travel, rentals, consumables, electricity charges etc. which primarily relates to day to day functioning of the organization, therefore, the same are to be allowed as revenue expenditure. As per the assessee, similar revenue expenditure is incurred by the company whenever it develops a new product or enhances an existing product to meet the emerging market demand. Since the expenditure is done in anticipation of future orders, these are classified as product development expenditure. In tune with the companys accounting policies, such product development expenses are treated as deferred expenditure in the books and written off equally over a period of three years commencing from the subsequent year.