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Expenditure incurred on Development of Software for use of clients is a Revenue Expense: Income Tax Appellate Tribunal

Team SoOLEGAL 10 Nov 2022 2:42pm

Expenditure incurred on Development of Software for use of clients is a Revenue Expense: Income Tax Appellate Tribunal

The Income Tax Appellate Tribunal, Mumbai Bench of Shri Vikas Awasthy, Judicial Member and Shri Gagan Goyal, Accountant Member held that the software development expenses, in the nature of payment of salaries and allowances to the engineers, travelling expenses etc. incurred in the regular course of business of the assesse and for earning revenue and profits, are expenditures on revenue account. 

This appeal, ITA NO. 1785/MUM/2022 (AY 2017-18), was filed by the Revenue department against the finding of the CIT(A) in holding software development expenditure as revenue in nature. 

The CIT(A) in its order had held that the expenditure on software development is a regular business expenditure and has been incurred for development of software for use of clients including export to overseas clients and held the expenditure to be on revenue account. Thereby reversing the order of the assessing officer. 

Upholding the order of the CIT(A), the bench headed by Shri Vikas Awasthy, Judicial Member and Shri Gagan Goyal, Accountant Member dismissed the appeal of Revenue as devoid of merit and observed that the assesse is engaged in the process of providing automation, software and hardware engineering. The software development expenses claimed by the assesse are in the nature of payment of salaries and allowances to the engineers, travelling expenses, etc. The said expenditure is incurred in the regular course of business of the assesse, which has been named as software development expenditure. The CIT(A) has given a categorical finding that the said expenses or not towards software development for use by the assesse but for rendering services to the clients including overseas clients. Thus, the expenditure has been incurred in the regular course of business of the assesse and for earning revenue and profits, hence, the expenditure is on revenue account. 



Tagged: Expenditure incurred on Development of Software  
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