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Aaiswarya Prints Dyeing and Printing Mills Pvt. Ltd. Versus Additional Commissioner of Income-Tax

2016 (7) TMI 256 - ITAT AHMEDABAD

Software expenditure - revenue or capital - Held that:- It is mentioned in the bill itself that the business software customised expenditure is charged for providing services from April 1, 2007, to March 31, 2008. This bill itself clarifies that this expenditure is incurred for only the financial year 2007-08 and no defect has been pointed out in this bill by the Revenue and, we are, therefore, inclined to believe that the software expenditure is having enduring benefit of not more than a year a .....

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000 the balance amount has been paid in cash. In our view this entry makes the fact very clear that ₹ 25,000 was part of the total value of the rotary machine at ₹ 12,75,000 and further no supporting evidence was placed on record by the assessee to prove that there were two separate bills one for the cost of the machine of ₹ 12,50,000 and the other for expenditure incurred for rotary machine for ₹ 25,000 relating to repair, etc., and, therefore, in these circumstances, we .....

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Shah, Authorised Representative For the Respondent : Dileep Kumar, Senior Departmental Representative ORDER Manish Borad (Accountant Member) 1. The assessee is in appeal against the order of the learned Commissioner of Income-tax (Appeals)-1, Surat, dated June 22, 2011, in Appeal No. CAS-1/296/2010-11. Assessment was framed under section 143(3) of the Income-tax Act, 1961 (in short, "the Act"), for the assessment year 2008-09 by the Additional Commissioner of Income-tax, Range-1, Sura .....

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r section 142(1) of the Act along with detailed questionnaire and served on the assessee. In response to the notice under section 143(2) and section 142(1) of the Act, necessary information was filed along with details. Assessment was completed by the learned Assessing Officer on November 16, 2010, after making certain additions, at an income of ₹ 1,37,57,460. 3. Aggrieved, the assessee went in appeal before the learned Commissioner of Income-tax (Appeals) and the same was dismissed. 4. Th .....

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d Assessing Officer observed that a sum of ₹ 16,93,000 was debited in the profit and loss account under the head "software expenses". After going through the details of expenditure incurred at ₹ 16,93,000 the learned Assessing Officer observed that towards the software purchase of ₹ 15,08,000 bill and challan issued by Dynamic Softlink Pvt. Ltd., Surat, were dated March 31, 2007, which fall in the financial years 2006-07 and 2007-08 relevant to the assessment year but .....

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allation of customised software was going on up to May, 2007, and the bill was actually received in the first week of May, 2007, and as such the liability crystallised during May, 2007, so it was debited in the books relevant to the assessment year 2008-09. However, the learned Assessing Officer was not satisfied with the reply of the assessee and disallowed the expenditure of ₹ 15,08,000 on the basis of the observation that it should not be allowed for the assessment year 2008-09 as it pe .....

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6. Now, the assessee is in appeal before the Tribunal. The learned authorised representative submitted that the assessee is engaged in a business of processing of art silk grey cloth and for processing activities and accounts department new software was to be installed hence contract was given to software supplying company. The installation work was started in the previous year hence advance money were given. The installation procedure was completed in April of the financial year under consider .....

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ork is started in one year and gets completed in next year and the same thing has happened in our case as installation of software was started in the financial year 2006-07 and was completed in the financial year 2007-08. Part payment was made in the previous year and on completion of work in April, 2007, payment was completed. Now, the supplier of software raised the bill on March 31, 2007, but issued in May, 2007, and your appellant also received the bill in April, 2007, hence your assessee ga .....

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ame in the financial year 2007-08 and work was also completed in that year only but the company issued the bill dated March 31, 2007. Hence, in the facts and circumstances of the case the learned Assessing Officer was not justified in disallowing the amount of ₹ 15,08,000. 7. On the other hand, the learned Departmental representative supported the orders of the lower authorities. 8. We have heard the rival contentions and perused the material on record. Through this ground the assessee has .....

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ess software at ₹ 15,08,000 which formed part of the software expenses, ledger for the financial year 2007-08 wherein the total expenditure for the year has been shown at ₹ 16,93,000 which is inclusive of bill for ₹ 15,08,000 issued by Dynamic Softlink Pvt. Ltd. The learned Assessing Officer while dealing with the expenditure of ₹ 15,08,000 has disallowed the expenditure on bare footing that the bill is dated March 31, 2007, and as the assessee maintains the books of acco .....

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We further observe that certainly the impugned bill of ₹ 15,08,000 issued by Dynamic Softlink Pvt. Ltd. is dated March 31, 2007, but the learned authorised representative has been submitting since the assessment proceedings that business software which was specifically customised for the year was handed over to the assessee on May 1, 2007, due to some required changes and corrections. Due to this reason that the liability of the expenditure of ₹ 15,08,000 actually crystallised durin .....

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e reason which indicates that the assessee has intentionally entered the expenditure for the financial year 2007-08 rather than in the financial year 2006-07. However, we observe that there has been no cross-verification of the expenditure booked by the assessee with the confirmation of the party issuing the bill as to whether they both have been entered in the same assessment year and also no substantial evidence has been placed on record by the assessee to prove that liability crystallised in .....

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on it is revealed that M/s. Dynamic Softlink Pvt. Ltd. have either booked the revenue of ₹ 15,08,000 during the assessment year 2008-09 or the impugned software was handed over to the assessee in April, 2007, for use then certainly the contention of the assessee can be accepted that the liability crystallised during assessment year 2008-09 only and for verification of these limited aspects, the matter is set aside to the file of the learned Assessing Officer who will call the requisite inf .....

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ich is absolutely erroneous and needs to be deleted. 12. Through this ground the assessee has challenged the order of the learned Commissioner of Income-tax (Appeals) for sustaining the action of Assessing Officer in treating the software expenses of ₹ 1,82,300 as capital expenditure instead of revenue expenditure. 13. The learned authorised representative submitted that software expenses for the year booked by the assessee in its books of account in the assessment year 2008-09 stood at &# .....

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tal expenditure whereas in fact these are general software expenditure which are incurred regularly and yearly basis and are of revenue in nature. 14. On the other hand, learned Departmental representative relied on the orders of the lower authorities. 15. We have heard the rival contentions and perused the material on record. Through this ground the assessee is aggrieved with the order of the learned Commissioner of Income-tax (Appeals) for sustaining the action of the Assessing Officer in trea .....

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300 in this ground. The sum of ₹ 1,82,300 was incurred in the following manner : Dynamic Softlink P. Ltd. ₹ 1,56,000 Trivia Info ₹ 1,460 Trivia Info ₹ 11,000 Redington India Ltd. ₹ 5,000 Redington India Ltd. ₹ 8,840 ₹ 1,82,300 While going through the above bills, we find that apart from expend iture of ₹ 1,56,000 paid to Dynamic Softlink P. Ltd., the remaining amount of ₹ 26,300 are minor expenditure for software upgradation and other related .....

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r providing services from April 1, 2007, to March 31, 2008, and after adding VAT four per cent. which comes to ₹ 6,000 the total expenditure amount of bills is ₹ 1,56,000. This bill itself clarifies that this expenditure is incurred for only the financial year 2007-08 and no defect has been pointed out in this bill by the Revenue and, we are, therefore, inclined to believe that the expenditure of ₹ 1,82,300 incurred on software expenditure is having enduring benefit of not more .....

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debited under the head "factory expenses" as capital expenditure instead of revenue expenditure, which is absolutely erroneous and needs to be deleted. 17. During the course of assessment proceedings the learned Assessing Officer observed that a sum of ₹ 25,000 was paid in cash towards rotary machine account which was balance payment out of the total value of the machine at ₹ 12,75,000 out of which ₹ 12,50,000 was booked under the head "fixed asset" and the .....

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ccepted by the learned Commissioner of Income-tax (Appeals) and the ground of the assessee was dismissed. 18. Now, in appeal before us, the learned authorised representative submitted that expenditure of ₹ 25,000 was incurred for factory and forms part of total factory expenses of ₹ 4,51,408 and is of revenue in nature. 19. The learned Departmental representative opposed the submissions of learned authorised representative and supported the orders of the lower authorities. 20. We hav .....

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