That is exactly the case at my current gig. It doesn't matter how many hours you put into a project. If any of the code is AGPL, our legal team will squash the project.
Sounds like a very narrow minded legal team, AGPLv3 code is the core of many modern businesses.
Actually, I think they're being cautious. You may be fine for now, using AGPL code, but if it's modified at some point in the future, then the viral issues kick in. That's probably what the lawyers are worried about. You can't assume that everything will stay the same.
Quite a few people here agree with you.
I'm far from the only one rinning a business atop AGPLv3 software :P
Amazon was the pioneer of SaaSifying AGPLv3 software.