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Bosch Rexroth (India) Limited Versus Dy. Commissioner of Income tax (OSD) , Range-1, Ahmedabad

2016 (6) TMI 789 - ITAT AHMEDABAD

Addition towards purchasing and upgrading software - revenue or capital expenditure - Held that:- The impugned expenditure incurred by the assessee is revenue expenditure, because the same has been incurred towards the purchase of application software and upgradation charges which were required to run efficiently the existing software as well as license charges for using the existing software uninterruptly so as to run the business efficiently. We are, therefore, of the view that the ld. CIT(A) .....

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These two appeals are directed at the instance of the assessee. ITA No.879/Ahd/2013, relating to quantum addition, is directed against the order of the ld. Commissioner of Income-tax (Appeals)-6, Ahmedabad dated 06.02.2013, wherein the assessment u/s 143(3) of the Act for Assessment Year 2007-08 was framed on 20.12.2010 by DCIT (OSD), Range-1, Ahmedabad and ITA No.3189/Ahd/2015, relating to penalty u/s 271(1)(c) of the Act, is directed against the order of the ld. Commissioner of Income-tax (Ap .....

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to the provisions of law & facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned Commissioner has erred in not allowing the deduction in respect of software expenses of Rs.l4,12,131 paid in respect of purchase of operating software allowable as revenue expenditure u/s 37 of the Act. It is Submitted that it be so held now. 2.1 Learned Commissioner has erred in not allowing the said expenses u/s 37 of the Act by wrongly relying upon the o .....

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as based on the wrong premise that depreciation schedule includes computer which in turn includes computer software on which 60% depreciation is allowable and therefore deduction of software expenses cannot be allowed. It is submitted it be so held now. 2.3. Learned Commissioner has erred in not giving direction to the learned AO to allow the depreciation at the rate of 60% on the software expenditure disallowed in the AY 2006-07, while computing total income for the year under consideration. 3. .....

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mages - ₹ 6,95,481.00 3. Disallowance u/s 40(a)(ia) - Rs.19,28,563.00 Total Rs.40,36,175.00 4. Aggrieved, the assessee went in appeal before the ld. CIT(A), who partly allowed the assessee s appeal by deleting the addition of ₹ 6,95,481/- and ₹ 19,28,563/- made towards liquidated damages and disallowance u/s 40(a)(ia) of the Act; and addition of ₹ 14,12,131/- towards Software Expenses was confirmed. 5. Aggrieved, the assessee is now in appeal before the Tribunal. 6. The l .....

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d. Authorized Representative submitted that the expenditure of ₹ 35,30,328/- was incurred for purchasing application software as well as upgradation of the existing application software and they did not work on standalone basis but required to be fitted to a computer system to work and the software just enhanced the efficiency of the operation and therefore, even if the benefit of the same was available for more than a year, but they did not result into acquisition of any capital asset nor .....

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the case in the facts on hand. 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, because the software becomes obsolete with technological innovation and advancement within a short span of time. In the case of the assessee, the impugned software expenditure of ₹ 35,30,328/- are either in the form of up-gradation of existing application soft .....

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respect to the application software, the nature of advantage has to be seen in a commercial sense and if advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of assessee s business to be carried on more efficiently or more profitably, while leaving the fixed capital untouched, the expenditure would be on revenue account. Accordingly, the result of the above tests of enduring benefit and functional test, it is indicative that expenditu .....

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ve supported the orders of the lower authorities. 8. We have heard the rival contentions and perused the material on record. The sole grievance of the assessee in this appeal is against the action of the ld. CIT(A) in treating the expenditure of ₹ 35,30,328/- towards purchasing and upgrading software as capital expenditure which has been claimed by the assessee as revenue expenditure in its return of income. The itemize break-up of the impugned expenditure of ₹ 35,30,328/- is as unde .....

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₹ 35,30,328/- as capital expenditure on the only footing that the assessee will receive the benefit for more than a year and has also allowed 60% depreciation on this expenditure of ₹ 35,30,328/- and a disallowance of ₹ 14,21,131/- has been made. However, from going through the submissions of the ld. Authorized Representative, we are able to understand that the impugned expenditure of ₹ 35,30,328/- has not been incurred to purchase any new software but they are either app .....

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9. We also find that the Co-ordinate Bench has dealt with the similar issue in assessee s own case for Assessment Year 2006-07 in ITA Nos. 1328 & 1310/Ahd/2011, dated 29.04.2014, dealing with the software expenditure of ₹ 8,73,485/- as to whether it is a capital or revenue expenditure, allowed the assessee s appeal by observing as under:- 14. We have heard the rival submissions and perused the material on record. It is an admitted fact that Assessee had incurred ₹ 8,73,485/- on s .....

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to AY 2006-07 and if the impugned expenses is considered to be capital expenditure, the Assessee will have to be granted depreciation @ 60% on WDV basis in A.Y. 06-07 and also in subsequent years. The depreciation of WDV for subsequent years will work out to ₹ 2,09,630/- (for A.Y.07-08), ₹ 83,854 (for A.Y. 08-09), ₹ 33,542(for A.Y. 09-10) and so on. Considering the totality of the facts, the total taxable income of ₹ 35.85 crore as determined by the AO, the changes that .....

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the case of CIT vs. Asahi India Safety Glass Ltd (supra) has also dealt with the similar issue, wherein the assessee incurred revenue expenditure towards application software to be run on oracle application and the decision was given in favour of the assessee by observing as under:- The test of enduring benefit is not a certain or a conclusive test which the Courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure .....

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profit making structure untouched, would be an expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably, leaving the fixed assets untouched, would be an expenditure in the nature of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage would, thus, collapse in such like cases. It would be only truer in cases which deal with tec .....

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y train the accounting staff of the assessee. The Tribunal, which is decidedly the final fact finding authority, has after noticing the material on record observed that the expenditure was incurred under various sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal rightly came to the conclusion t .....

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1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of ₹ 150 crores and that even without this expenditure it would have continued to achieve the said turnover, though the expenditure in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the Assessing Officer in supp .....

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t year was for removing deficiencies which were found in the software installed in the earlier assessment year, and that out of a sum of ₹ 1.71 crores, a sum of ₹ 49 lakhs was incurred to modify, customize and upgrade the software installed, while the balance expenditure was used for development and implementation, it returned a finding that the expenses were incurred to upgrade and run the system. In view of these findings, the Assessing Officer discovered an erroneous principle on .....

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there are two other categories of software, these being: network software and language software. The network software enables groups of computers to communicate with each other, while language software provides with tools required to write programmes. [Para 11] The aforesaid would show that what the assessee acquired through A was an application software which enabled it to execute tasks in the field of accounting, purchases and inventory maintenance. The fact that the application software would .....

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ount of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software I applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The Assess .....

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