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2015 (6) TMI 1052 - ITAT MUMBAI

2015 (6) TMI 1052 - ITAT MUMBAI - TMI - Allowance of expenses incurred on account of acquisition of software license - revenue v/s capital expenditure - Held that:- Keeping with the tests as laid down by the Special Bench of the ITAT, in the case of CIT vs. Amway India Enterprises, (2008 (2) TMI 454 - ITAT DELHI-C ), three tests have to be met in order to pass the expenditure incurred on account of software expenses as capital, or otherwise. These are the ownership test, the enduring benefit tes .....

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more than two years. Rather, it has not been disputed that all but one of the items of expenditure have a life much less than two years. Apropos the functionality test, the Department again does not refute the fact that the software license was acquired by the assessee to carry out its routine operations in a more efficient manner. Further, the fixed capital of the assessee has not been shown to have undergone any change as a consequence of the acquisition of the license. In fact, it was either .....

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the use of the software to over two years, fetching an enduring benefit to the assessee. The ld. CIT(A) added back this amount as a capital expenditure while granting depreciation thereon. The assessee has not challenged this add back before us. Thus, the ld. CIT(A) has duly taken into consideration all the relevant factors for deciding the expenditure to be a revenue expenditure. In this regard, reliance placed by the assessee on the case of “Raychem RPG Ltd.” (2011 (7) TMI 953 - Bombay High Co .....

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. CIT(A) in allowing the expenses of ₹ 63,92,692/-, incurred on account of acquisition of software license, as revenue expenditure. 2. The assessee company is engaged in the business of pre-employment screening on behalf of the employers. During the year, it claimed deduction of ₹ 69,59,572/- on account of software license fees. The assessee maintained that as per its accounting policy, these fees were treated as deferred revenue expenditure in the assessee s books. During the year, .....

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ction of ₹ 67,04,692/-, included therein. The ld. CIT(A) allowed the expenditure, brining the Department in appeal before us. 3. Challenging the impugned order, the ld. D.R. has contended that the ld. CIT(A), while wrongly allowing the expenses on account of acquisition of software license fee as revenue expenditure, has erred in not taking into taken into consideration, the observations made by the A.O. while making the addition. 4. On the other hand, the ld. Counsel for the assessee has .....

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expenditure claimed. The ld. Counsel for the assessee has placed reliance on the decision of the Hon ble jurisdictional High Court in the case of CIT vs. Raychem RPG Ltd. , [2012] 346 ITR 138 (Bom). 5. We have heard the parties and have perused the material available on record. The details of the expenses claimed during the year are as follows:- Sr. No. Particulars of the party (M/s) Amount(Rs) TDS deducted and paid (Rs) Coverage Details 1 First Advantage Corporation 2,89,841 December 2008 to M .....

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TDS software used for filing TDS returns. 6 Wipro Limited 65,617 1,619 01-07-2009 to 30-06-2010 Support service for maintenance of Sonic firewall (Chennai) 7 Wipro Limited 65,876 1,619 27-06-2009 to 30-06-2010 Support service for maintenance of Sonic firewall (Chennai) 8 First Indian Corporation 3,12,000 38,851 One time Cost Software for indexing operations documents 9 First Advantage Background Services 3,87,881 August 2009 to June 2010 Software liucense for getting access to salesforce.com, a .....

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13 Inflow Technologies Pvt. Ltd. 5,46,910 59,870 December 2009 to December 2010 Software license used to block restricted websites 14 First Advantage Hiring Management Systems 3,44,097 - 01-07-2009 to 30-06-2010 Annual hosting fees & maintenance charge 15 Inflow Technologies Pvt. Ltd. 1,21,097 13,352/- 01-03- 2010 to 31-12-2010 Software license used to block restricted websites. Total 67,04,692 6. The expenses, it is seen, undisputedly, were treated as deferred revenue expenditure by the ass .....

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1/- was debited in the books of account as software license fees and this was included in the total amount of ₹ 69,59,572/-. The balance amount was debited in the books of account in the subsequent years. The total amount of ₹ 67,04,692/- was claimed as expenditure. There is no dispute that such accounting method has been followed by the assessee consistently. The A.O., however, held the expenditure to be a capital expenditure and made addition of ₹ 69,59,572/- twice and no ded .....

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test. In the present case, as rightly considered by the ld. CIT(A), none of these tests fails the claim of the assessee. The software was not owned by the assessee. The assessee acquired the license only to use the same. The license fee was not paid for obtaining any right qua the transfer of the software. Then, obsolescence also does not prove any enduring benefit to the assessee. It is not the case of the Department that the longevity of the software is any more than two years. Rather, it has .....

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