ITAT: Treat as a Revenue Expenses When Developing Software to Clients

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) ruled that the software development expenses for providing the services to clients are the expenses of revenue.

The two-member bench of Vikas Awasthy (Judicial Member) and Gagan Goyal (Accountant Member) found that the expenses would have been made in the normal course of business of the taxpayer and to earn the revenue and profits, therefore the expenses would be on the account of the revenue.

The petitioner engaged in the business of process automation software and hardware engineering, along with software development, technical services exports, and others. During the course of the related assessment year beneath the petition, the taxpayer submitted the expenses for the software development. The expenses were in the sort of the engineers, hotel expenses, insurance, travel expenses, etc.

In the course of assessment proceedings, the Assessing Officer ruled that the expenses on software development would be capital in nature.

The taxpayer has furnished the petition to the CIT (A). The CIT(A) post investigating the concern ruled that the expenses made on the development of the software would be regular business expenses and would be made for the development of the software for use via customers along with the export to foreign customers.

Assessing Officer findings has been reversed via CIT(A) and said that the expenses are to be made on the account of the revenue.

The taxpayer mentioned that the assessing officer would have mistakenly carried that the development of the software expenses would be for the development of the software for the taxpayer’s own usage.

ITAT sustained that the order of CIT(A) mentioned that the expenses would not be for the development of the software for usage via taxpayer but for providing the services to the customers along with the foreign customer.