TMI Blog2017 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... year. The revenue has not disputed the fact that software is not saleable or has ‘nil’ realizable value. It is also the fact stated before us that this software is not sold as it has lost its utility. Thus, on this ground we are of opinion that the said amount of ₹ 24,65,578/- is to be allowed as business loss as technical obsolescence of the inventory while computing the income under section 28/29 of the act in this year. Hence, the appeal of the assessee is allowed on the reasoning given above. - ITA No. 5714/Del./2014 - - - Dated:- 23-5-2017 - SHRI AMIT SHUKLA, JUDICIAL MEMBER, AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Shri Arvind Kumar, Advocate For The Revenue : Shri Anil Kumar Sharma, Sr. DR ORDER PER AMIT SHUKLA, JUDICIAL MEMBER: The aforesaid appeal has been filed by the assessee against impugned order dated 22.08.2012, passed by Ld. CIT (Appeals) for the quantum of assessment u/s 143(3) for the A.Y. 2009-10. The assessee has raised following grounds of appeal which reads as under:- 1. That the Ld. CIT(A) has erred both in facts and in law while sustaining the addition of ₹ 24,65,578/- made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and in respect of which enduring income or benefit is expected to accrue in future are accumulated and deferred until the completion of development, due testing and validation of such software/process or products. The said cost, upon cessation/ completion of such development are amortized on a systematic basis over a reasonable time period considering the expected sale or economic use of the product/process with reference to various factor such as technological and economic obsolescence, uncertainties etc. The company during the year under scrutiny had amortized carried forward from 4/5 years back expenditure in relation to project of SMIS amounting to ₹ 24,65,578/-, the said amortization has been considering expected sale or economic use of the product process with reference to various factors such as technological and economic obsolescence, uncertainties etc. The notes on amortization of software development expenditure is in continuance of our earlier submission in this regard. Further to our submission, we have to state as under:- * The expenditure incurred on the software development in the form of developer salary, expenses attributable to the projec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and duly disclosed in the financial statement of the assessee company. The assessee has been following the same accounting policy consistently since inception and same has been accepted by the department during the scrutiny proceedings in the earlier years. The accounting policy mentioned in the financial statement was as under:- (h) Software/process Development Cost Costs incurred on in-house development of technically feasible/process and or/product capable of commercial marketability/exploitation and in respect of which enduring income or benefit is expected to accrue in future are accumulated and deferred until the completion of development, due testing and validation of such software/process or products. The said costs, upon cessation/completion of such development, are amortized on a systematic basis over a reasonable time period considering the expected sale or economic use of the product/process with reference to various factor such as technological and economic obsolescence, uncertainties etc. The assessee had further submissions in this has regard which has been duly noted by the Learned CIT(Appeals) from pages 5 to 8 of the appellate order. 5. The Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of software development and sale of software products. For developing the software, it has being carrying out in-house development for which it has been incurring expenditure which otherwise is a business expenditure. Since the year in which expenditure has been incurred the software was not ready for sale in the market, therefore, the assessee as a matter of its regular accounting policy, it has been amortizing the same over a reasonable period of time considering the future sale of the product. The reasons given for following such policy was that, the cost should be associated with the revenue and since there was no matching revenue in the year of development of the software and incurring of the expenses, therefore, instead of claiming in that year, the assessee has been amortizing the said claim for making the claim in the future when the product is sold. Here in this case, it has been submitted that the assessee has developed a software product named as SMIS for which it has incurred expenditure of ₹ 24,65,578/- during the A.Y. 2004-05. As the product could not be sold either in the A.Y. 2004-05 or up till AY 2008-09, the assessee company took a decision that the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it considers that the said product cannot be sold at all or it has become scrap. In the year under consideration, the assessee has written off the said amount of expenses, which has been amortized since 2004-05, therefore, the same needs to be allowed as business loss in this year. We also look at the issue form another angle, assessee is a software developer and is developing software for sale, therefore software developed are inventories held for sale by it. Further, the moment assessee feels that the inventory of software held by it for sale cannot be sold in the market because of its technological obsolescence; naturally, this inventory is required to be written off to its realizable value, which has been determined by the assessee at Nil, therefore, the whole amount is written off during the year and claimed as loss. The revenue has not disputed the fact that software is not saleable or has nil realizable value. It is also the fact stated before us that this software is not sold as it has lost its utility. Thus, on this ground we are of opinion that the said amount of ₹ 24,65,578/- is to be allowed as business loss as technical obsolescence of the inventory whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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