ITO, NEW DELHI vs. M/S CREATNET SERVICES LTD., NEW DELHI

Aggrieved by this, the assessee filed appeal before the CIT(A). The CIT(A) observed as follows:- “6. I have discussed the matter with the AR of the assessee, perused the Assessment order, grounds of appeal, written submissions and paper book very carefully. The assessee company was going to develop software for supply chain management and outsourcing for apparel industry in India or retail export markets/stores in other developed countries. Therefore, the company had spent Rs.71,91,409/- in Assessment Year 2002-03 and 2003-04. However, the software at the testing state developed technical snag and the assessee had to abandon the project forever. Therefore, the deferred revenue expenditure made by the assessee company of Rs.71,91,409/- had been written off by the company in its books of account. There is no hanky panky

The Ld. DR submitted that the Assessing Officer has rightly disallowed the said software expenses. The Ld. DR relied on the observations of the Assessing Officer which are as under: “10. Moreover, the burdens on the assessee to furnish all relevant supporting material that establish its claim. In the absence of supporting documents the assessee is not entitled to claim the expenses. In this case the assessee stated that so much amount was incurred on development of software program but in support failed to furnished detail to whom the same was developed, agreement with the concerned party, etc. The assessee also failed to state what was happened to the software in question whose developing charge was about 1 crore. Once any software is developed the same cannot be destroyed its own unless and until it is destroyed. As per provision of the Income Tax Act only those expenses which are incurred in order to earn income is allowable. There are two types of expenses one is Revenue and other is Capital expenses. Revenue expenses is allowable during the year in which it is incurred and other expenses which are not revenue

Thus, the Ld. DR submitted that the Assessing Officer has rightly rejected the same after verifying relevant documents. The CIT(A) failed to look into these aspects. Thus, the order of CIT(A) has to be quashed.

The Ld. AR relied upon the order of the CIT(A) and submitted that the Assessing Officer has not taken the cognizance of the relevant material while making additions. The Ld. AR further submitted that the Assessing Officer failed to understand the business of the assessee because the Assessing Officer had neither gone to the assessee’s business premises nor discussed the business with top executives at the factory premises by discussing the matter with them in person nor tried to understand the business model. The assessee was a sole facilitator to material movements in garments industries from India to developed countries. The garments manufacture in India by many other companies is delivered to retail stores in developed countries like Europe and USA. This is called supply chain management, managed by the assessee. The assessee company had to collect information’s from different retail stores of renowned brands and collecting the information from different companies manufacturing garments inn India and make a link between them.

We have heard both the parties and perused all the records. It is pertinent to note that all the relevant material was before the Assessing Officer. The Assessing Officer has not looked into the actual business activity of the Assessee company during the Assessment Year 2002-03 and 2003-04. The assessee company was going to develop software for supply chain management and outsourcing for apparel industry in India or retail export markets/stores in other developed countries. Therefore, the company had spent Rs.71,91,409/- in Assessment Year 2002-03 and 2003-04. However, the software at the testing state developed technical snag and the assessee had to abandon the project forever.

In result, appeal of the Revenue is dismissed.