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2015 (12) TMI 455

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..... ory of apportioning expenditure between taxable and nontaxable income speaks about reasonable and fair basis to be followed in making the disallowance u/s 14A of the Act, we note that there is uncontroverted finding in para 6.11 of the impugned order that there is no borrowing by the assessee during the year. The Assessing Officer is directed to make the disallowance in the light of the aforesaid decision from Hon’ble jurisdictional High Court. Decided in favour of revenue for statistical purposes - ITA NO.4981/Mum/2011 - - - Dated:- 14-10-2015 - Shri Joginder Singh, Judicial Member, and Shri Rajesh Kumar, Accountant Member For The Revenue : Shri Samuel Darse-DR For The Assessee : Shri S.Venkatraman ORDER Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 25/02/2011 of the ld. First Appellate Authority, Mumbai. First ground raised by the assessee pertains to disallowing website registration expenses amounting to ₹ 1,09,03,798/- as capital expenditure. 2. During hearing, the crux of argument advanced on behalf of the assessee is that the impugned issue is covered by the decision from Hon ble Delhi High Cour .....

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..... it had not acquired the absolute ownership of the software but only the right to use the software. The A.O. did not accept the contention and treated the expenditure as capital expenditure and allowed depreciation @ 25%. Before the CIT(A) it was submitted that the assessee has purchased licenses of two software, i.e. MS Office and Marketing Data Management System, the life span of which is very short due to fast technological obsolesces. Therefore, the expenditure is of revenue nature. He relied on the decision of the Special Bench in the case of Amway Enterprises 111ITD 112 (Del) (SB). After considering the facts and contentions of the assessee the CIT(A) deleted the addition stating as under:- 5. I have carefully considered the above facts and find merit in the contentions of the appellant. From the very nature of the software, the payment of such expenses on such application software though enduring in nature, does not result in acquisition of any capital asset and merely enhances the productivity and has to be treated as revenue. The concept of enduring benefit must respond to the changing economic realities of the business. Apart from the case of Amway Enterprise (supra .....

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..... nditure as capital in nature stating that the life span of the website is quite long and it is an asset in the cyber space. However, he allowed depreciation @ 25% on website development charges. Before the CIT(A) it was submitted that the website is a very cost effective tool of advertisement/marketing of the company s business. It is a medium of corporate communication and offers advantages over traditional mode of advertisement. Therefore it is essentially an advertisement expenditure allowable as revenue expenditure. After hearing the learned A.R. and considering the facts the CIT(A) deleted the addition by holding as under: - 9. I have carefully considered the above fact and do not find any merit in the observations and findings of the AO. Expenditure incurred on website development is although enduring in nature, the intent and purposes behind the development is not to create an asset but only to provide a means for disseminating the information about the assessee among its clients. In the case of CIT vs. Indian Visit.com P. Ltd. (2008) 219 CTR 603 (Del), on identical facts, such expenditure was held to be revenue expenditure akin to printing of pamphlets etc. It was st .....

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..... dition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel and the aforesaid order of the Tribunal dated 28/01/2011, if kept in juxtaposition and analyzed, we note that while dismissing the appeal of the Revenue, the Tribunal has already considered the decision from Hon ble Delhi High Court in the case of CIT vs Indian Visit.com Pvt. Ltd. (2008) 219 CTR 603 (Del.), wherein, it was held as under:- Just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of expenditure on a website, there is no change in the fixed capital of the assessee. Although the website may provide an enduring benefit to an assessee, the intent and purpose behind development of a website is not to create an asset but only to provide a means for disseminating the information about the assessee. The same could very well have been achieved and, indeed, in the past, it was achieved by pr .....

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