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TMI Blog2014 (1) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of CIT v. PVS Beedies Pvt. Ltd. 237 ITR 13 has held that re-opening of assessment on the basis of factual error is permissible under the law. 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) was in deleting the addition of Rs.45,94,516/- by merely observing that I am of the opinion that the expenditure incurred by the appellant on purchase of software was allowable as revenue expenditure and not capital in nature. 3. Whether on the facts and in the circumstances of the case, the Ld CIT(A) was right in treating the expenditure of Rs.1,14,86,291/- on purchase of software as revenue. Whereas computer software was introduced as a depreciable asset under Rule 5(1) read with appendix-1 of the IT Rules, 1962 with e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be consumed by the company over a short period. Further it was submitted that software application in the production process for saleable software was similar to raw material/consumable used in manufacturing industries. The Assessing Officer relying upon Rule 5(1) and Appendix-1 of IT Rules, 1962 read with section 32 of Income Tax Act, 1961 arrived at the conclusion that computer software means any computer programme recorded an any disc, tap, perforated media or other information storage device and therefore, he held that the amount spent was capital expenditure and made the addition accordingly and allowed depreciation @ 60% as applicable in the case of computer software. 4. Dissatisfied with the order the assessee filed appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that are installed in IT systems and act as a backbone to the IT infrastructure. Applications tools are software that enhances the efficiency of the operations and aids the primary process. It is akin to consumables used for production in the manufacturing industries and did not have any enduring benefit. The expenditure incurred on software written off also included expenditure incurred towards upgrade of certain existing application software. Application software programme have a very short shelf live and have to be upgraded constantly from time to time by adding patches and modules that upgrade the base programme. This does not result in increasing the life of the software but merely increase the capability during the short period of us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure incurred on purchase of software has already disclosed by the appellant in the return of income. It is true that computer software has been treated as depreciable asset under Rule 5(1) of IT Rules, 1962 w.e.f. assessment year 2003-04 but said rule was already available before the Assessing Officer when the original assessment order was passed on 27.3.2006. The expenditure on software purchased aggregating to Rs.1,14,86,291/- had been allowed by the Assessing Officer while passing the assessment order u/s 143(3) of the act after due application of his mind and after due scrutiny of relevant information. Thus all the relevant facts and information were available before the Assessing Officer when the original assessment order wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, if so, then the expenditure would be in capital field. Further if the software is purchased for up- gradation as applicable or having user license period of one year then the expenditure would operate in revenue field. I find that the very nature and description of software purchased by the appellant suggest that these were in the nature of application of up-gradation of software. A vital fact which appears to have been over-looked by the Assessing Officer. He further held that since the assessee was eligible for deduction u/s 10B of the Act in respect of Hyderabad Unit and deduction section 80HHE in respect of Bangalore Unit, the making of disallowance would increase the profits from these units and after giving benefits of these sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. In view of the above, the Ld AR argued that payments were revenue in nature as was evident from the number of payments which were made for various software tools. He further argued that after completion of original assessment proceedings the assessee was issued rectification notice u/s 154 for rectification of mistake and for making disallowance of such software expenses and reply to that was submitted on 26.3.2008. Our attention was also invited to page 72 of paper book and it was argued that after assessee's reply nothing was heard from the Department and suddenly notice u/s 148 was issued. In view of the above arguments, it was submitted that Ld CIT(A) had rightly deleted the additions. 10. We have heard the rival submissions of bot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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