TMI Blog2012 (5) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. - ITA No.110/Bang/2011 - - - Dated:- 30-1-2012 - N K Saini, P Madhavi Devi, JJ. For Appellant: Shri Padamchand Khincha, CA For Respondent: Smt Archana Chowdhry, CIT-II(DR) ORDER Per: N K Saini: This appeal is by the assessee against the order dated 15.11.2010 of the CIT(Appeals)-I, Bangalore. 2. Following grounds have been raised in this appeal: 1.1 The learned Assessing Officer had erred in disallowing the cost of application software holding that the amount spent on application software is capital in nature and the learned Commissioner of Income tax (Appeals) has erred in confirming the same subject to allowing 60% Depreciation on the same. 1.2 The learned assessing officer had erred in holding that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 3. The first issue vide grounds 1.1 to 1.3 relates to the disallowance on account of cost of application software. The facts related to this issue in brief are that the assessee company is in the business of process outsourcing covering software infrastructures commonly known as call centres. For the assessment year under consideration, it filed return of income on 30.10.2004 declaring loss of Rs.1,27,28,664. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had claimed purchase on computer application software for own use, as revenue expenditure. The AO pointed out that the similar issue was involved in the earlier year and there was no change of facts on thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutorily on which depreciation was allowable @ 60%. The ld. CIT(A) also observed that even if on principle, if it was to be agreed that the application software having lifespan of only two years suffers from obsolescence and cannot be held to be a capital asset providing any enduring benefit since the statute since A.Y. 2003-04 has been amended to treat such items/goods as capital asset, so it was binding on the AO to hold that the expenditure on purchase of computer software has to be considered as capital expenditure. The ld. CIT(A) accordingly directed the AO to allow depreciation @ 60% amounting to Rs.1,17,62,359 on the said computer software and balance of the addition amounting to RS.78,41,569 was confirmed. 6. Now the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench (Delhi) of this Tribunal, in the case of Amway India Enterprises (supra), has observed as under: For ascertaining as to whether expenditure on computer software gives an enduring benefit to an assessee, the duration of time for which the assessee acquires right to use the software becomes relevant. Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Though we are bound by the decision of the Hon ble jurisdictional High Court and that of the Special Bench, as rightly pointed out by the learned Departmental Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of excess claim of expenditure. 11. The facts related to this issue in brief are that the AO made this addition by observing that an amount of Rs.18,98,870 was shown as sale incentives reversed and disallowed in the A.Y. 2003-04 and the same was reduced from the total income in the computation. He further observed that the sale incentives were not admissible and though it had been disallowed in A.Y. 2003-04, it had not been reversed through P L account for the current year, therefore this was an excess expenditure claimed. Accordingly the same was disallowed. 12. The assessee carried the matter to the ld. CIT(A) and submitted that the amount in question was shown as provision in the P L account for the A.Y. 2003-04 and the same was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t loss account. It was further submitted that when a provision was made in the earlier year for sales incentive, the same was not claimed as a deduction from the business profit and in the year under consideration, the provision to that expenditure was received through P L account. As no deduction was claimed when such provision was made on a reversal thereof, there would be no income chargeable to tax. He also drew our attention towards page 20 of the assessee s compilation, which is a copy of computation of income for the A.Y. 2003-04 and stated that the assessee itself added a sum of Rs.44,18,818 on account of provision for sales bonus and reduced a sum of Rs.25,19,948 which was the actual amount of sales bonus paid as per the certific ..... X X X X Extracts X X X X X X X X Extracts X X X X
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