LINGUANEXT TECHNOLOGIES PRIVATE LIMITED,PUNE vs. ITO WARD 14(3), PUNE, PUNE

Aggrieved assessee preferred an appeal before Ld. CIT(A) furnishing details/written submission but failed to succeed. Now the assessee is in appeal before this Tribunal challenging the additions affirmed by Ld. CIT(A). 4. Ld. Counsel for the assessee vehemently argued referring to the written submission filed before Ld. CIT(A) and also referring to the documents filed in the paper book – 1 containing 98 pages along with referring to the decisions in support of the claim that the expenditure incurred towards patent drafting and translation expenses for software development are revenue expenditure. So far 3 as disallowance u/s 14A of the Act is concerned, it is stated that even though Ld. Assessing Officer had failed to record any satisfaction prior to making the alleged disallowance but even otherwise in view of the settled judicial precedent disallowance u/s 14A of the Act cannot exceed exempt income earned during the year. 5. On the other hand, Ld. DR vehemently argued supporting the orders of both the lower authorities. 6. We have heard rival contentions and perused the record records placed before us and carefully gone through the decisions referred and relied by Ld. Counsel for the assessee. 7. Ground no.1 is general in nature which needs no adjudication. 8. Ground no.2 relates to disallowance of professional fees paid for drafting application for patents at Rs.15,69,849/- treated as capital expenditure by both the lower authorities. We observe that during the year assessee incurred Rs.15,69,849/- as legal charges for filing patent application. Ledger Account of patent, copyright and trademark expenses is placed at page no.70 to 71. Ledger Account of expenditure towards professional charges incurred for the professional services mainly includes the amount charged by M/s Evalue Serve against the invoices raised for patent drafting, 4 docketing attorney and USPTO charges. Undisputedly, the patent for which the alleged expenditure was incurred has not been registered till date. It has been stated before us by Ld. Counsel for the assessee that the assessee has followed Accounting Standard 26 and since the patent for which the expenditure was incurred has not been capitalized in the financial statement considering the non- satisfaction of recognition and measurement criteria, the alleged amount has been claimed as ‘revenue expenditure’. We also observe that the alleged expenditure incurred has not created new asset during the year for which it is claimed. 9. We therefore considering the facts of the case and also considering that the genuineness of the expenditure is not in dispute, are of the view that since the expenditure in question before us has been incurred in the regular course of business and no specific intangible asset has been created, therefore, the assessee deserves the deduction of the alleged expenses of Rs.15,69,849/- u/s 37(1) of the Act and it has been rightly claimed as ‘revenue expenditure’. Thus, ground no.2 raised by the assessee is allowed. 10. Ground no.3 relates to the translation expenses for software development. This claim of the assessee has been denied by Ld. Assessing Officer treating it to be a capital expenditure. We 5 observe that the assessee in the business of providing solutions for enterprise application language localization across all industry verticals for which the assessee requires experts who can translate various words into the customers specified language. The translation expenses is specific to each sale as the dictionary prepared for one customer once is hardly of any use in any other sale. We also observe that no new asset came into existence and the expenditure is customer specific and has no enduring benefit. Further, the intention of the expenditure is to facilitate sales and not develop software. Therefore, since the alleged expenditure towards translation expenses for software development has been incurred in the regular course of business for the year under consideration, the same is hereby treated as ‘revenue expenditure’ and the claim made by the assessee deserves to be allowed. Finding of Ld. CIT(A) is reversed and ground no.3 of the assessee is allowed. 11. Ground no.4 relates to disallowance u/s 14A of the Act. Though the assessee has claimed that Ld. Assessing Officer has not made proper satisfaction, we however considering the fact that the assessee had earned dividend income from mutual funds investments only at Rs.1210/- therefore, in light of the decisions of the Co-ordinate Bench of Delhi Tribunal in the case of Joint 6 Investment (P.) Ltd. vs. CIT (2015) 59 taxmann.com 295 (Delhi) wherein it has been held that disallowance u/s 14A of the Act cannot exceed exempt income earned by it, we affirm the disallowance u/s 14A of the Act at Rs.1210/- and delete the remaining amount of disallowance at Rs.1,02,574/-. Thus, ground no.4 raised by the assessee is partly allowed. 12. Ground no.5 being alternate needs no adjudication as we have already dealt with effective ground nos.2, 3 and 4. 13. Ground no.6 is general in nature needs no adjudication. 14. In the result, the appeal of the assessee is partly allowed. Order pronounced on 20th day of March, 2025. (S. S. VISWANETHRA RAVI) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 20th March, 2025. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The Addl/JCIT(A)-6, Chennai. 4. The Pr. CIT/CIT concerned. 5. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “SMC” बᱶच, पुणे / DR, ITAT, “SMC” Bench, Pune.

गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER,