9911796707
TMI Blog2016 (10) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... "the Act") vide order dated 19/12/2011 and the total income was determined at Rs. 39,86,46,102/-. Aggrieved by the order of the Assessing Officer (AO), assessee carried the matter before the ld.CIT(A), who vide order dated 23/08/2013 (in Appeal No. CIT(A)-VI/DCIT(SD)/R-1/225/11-12) granted partial relief to the assessee. Aggrieved by the order of the ld.CIT(A), Revenue and Assessee are in appeal(s) before us. 2.2. The Revenue in ITA No.2479/Ahd/2013 has raised the following grounds:- 1. The CIT(A) has erred in law and on facts by considering the capital expenses of Rs. 2.27 crores as revenue expenses. 2. The CIT(A) has overlooked the fact that the expenses in question are not recurring in nature and have given benefit of enduring nature of the assessee, such expenses cannot be regarded as current repairs and are therefore, not deductible u/s.30/31 of the I.T.Act, 1961. 2.3. On the other hand, the Assessee in ITA No.2463/Ahd/2013 has raised the following grounds:- 1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law & facts and therefore requires to be suitably modified. It is submitted that it be so done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,66,776) as being capital in nature and disallowed the same. He however, allowed depreciation @10% and accordingly made an addition on net amount of Rs. 2,05,05,853/-. Aggrieved by the order of the AO, assessee carried the matter before ld.CIT(A) who deleted the addition by holding as under:- "7.5. In the assessment order A.O observed that appellant had debited to P&L account a sum of Rs. 1,12,17,505/- under the head repairs and maintenance of building and a sum of Rs. 1,15,66,776/- under the head repairs and maintenance of others; appellant had submitted ledger accounts of building repairs and other repairs, alongwith the copies of invoices; for the amounts exceeding Rs. 1 lakh; appellant had failed to offer any explanation as to why the expenditure should not be treated as capital expenditure; the said expenditure was capital in nature and accordingly it was being capitalized and depreciation was being allowed @ 10%. Accordingly, AO made the impugned disallowance. 7.6. The contentions of the Ld.A.R are that all the invoices for the value of Rs,5,000/- and more were submitted to the A.O vide the letters 10/11/2011 & 08/12/2011; other repairs included furniture repairs, sanita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had undertaken to bear cost of repairs for buildings. In accordance with the sec.31 (i) the amount paid on account of current repairs to machinery, plant or furniture is allowable deduction. As per the explanation below both the sections, inserted by the Finance Act 2003 w.e.f. 01/04/2004, such expenditure shall not include any capital expenditure. In the instant case all the premises of the appellant are rented premises. The amount of expenditure incurred towards repairs of buildings is Rs. 1,12,17,505/-. As stated by the A.O himself at para-2 of page-8 of the assessment order, the nature of the repairs was flooring, laying sheets and roofs re-surfacing roads, providing transparent PVC sheets etc. AO's observation at parg-4 of page-8 of the ; assessment order that the appellant had carried out complete renovation of the factory building is without any basis. As seen from the year wise details of building repairs furnished in the written submission, appellant has been incurring expenditure every year. In the immediately preceding assessment year it had incurred expenditure of over 72 lakhs compared to the expenditure of around 112 lakhs in the year under consideration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e existing asset." It is also seen that the appellant itself capitalized an amount of Rs. 11,10,99,085/- under the head plant and machinery and an amount of Rs. 65,36,701/- under the head building. It is not a case wherein the entire expenditure towards plant and machinery, building and other repairs has been claimed as revenue expenditure. Keeping in view the facts of the case, the case-laws relied on by the A.R and the above mentioned judgment, A.O is directed to allow the expenditure claimed towards building and other repairs and withdraw the depreciation allowed in the assessment order. This ground of appeal is allowed." 4. Aggrieved by the order of ld.CIT(A), Revenue is now in appeal before us. 4.1. Before us, ld.Sr.DR supported the order of AO. Ld.AR on the other hand reiterated the submissions made before the AO and the ld.CIT(A) and further submitted that the necessary details were filed before the AO and also before the ld.CIT(A). Ld.AR further submitted that assessee manufactures heavy equipments due to which assessee has to incur expenses on repairs frequently and that similar expenses were incurred in earlier years and the same were allowed by the Revenue authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A)-VI/DCIT (OSD)/R-1/293/10-11, it was held by me as under:- "4.2. Identical issue arose in the immediately preceding A.Y. 2006-07 in appellant's own case. Vide the order dtd. 17/02/2011 in appeal No.CIT(A)-VI/Addl.CIT.R-1/299/09- 10, my predecessor held as under." "5.3. I have considered the facts of the case, assessment order and appellant's submission. Appellant purchased computer softwares for the purpose of its business however computer software is part of asset used for the purpose of business. It has been held in several decisions that computer software is a capital asset and part of computers for the purpose of claim of depreciation. As per depreciation schedule, item number 5 of machinery and plant section is computers including computer software on which 60% depreciation is allowable. Since computer software is clearly included as an item of asset eligible for depreciation, claiming the same @100 percent is not correct. In view of this, the addition made by the assessing officer is confirmed." Following the said order, impugned disallowance is upheld. This ground of appeal is dismissed." Facts remaining the same, following my order for A.Y. 2007-08, impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 93,847 8. Software Installed 15,0000 Total 35,30,328 The above referred expenditure of Rs. 35,30,328/- are mainly relating to the purchase of application software and upgradation of existing software. The ld. Assessing Officer has treated the impugned expenditure of Rs. 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 Rs. 35,30,328/- and a disallowance of Rs. 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 Rs. 35,30,328/- has not been incurred to purchase any new software but they are either application software to run the existing software installed in the computers and also the expenditure has been incurred towards upgradation of the existing application software, because in the fast changing technology world, the software, which was purchased by the assessee in the previous years, needs to be upgraded or updated so as to be suitable with the current technologies brought in by various competitors as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive 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 results in creation affixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards running a business as against an expense undertaken for the benefit of the business as a whole. In other words, the expenditure which is incurred, which enables the profit making structure to work more efficiently leaving the source of the 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 technology and software application, which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that the expenditure incurred in the said assessment year was for removing deficiencies which were found in the software installed in the earlier assessment year, and that out of a sum of Rs. 1.71 crores, a sum of Rs. 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 the basis of which he denied the exemption to the assessee. [Para 10.1] Software is nothing bui another word for computer programmes, i.e., instructions, that make the hardware work. Software is broadly of two types, i.e., the systems software, which is also known as the operating system which controls the working of the computer: while the other being applications such as word processing programs, spread sheets and database which perform the tasks for which people use computers. Besides these, there are two other categories of software, these being: network software and language software. The network software enables groups of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 11. Applying the ratio of above decision of Hon'ble Delhi High Court as well as decision of Co-ordinate Bench in assessee's own case, we are of the view that the impugned expenditure of Rs. 35,30,328/- 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) was not correct in confirming the disallowance of Rs. 14,21,131/- and we accordingly delete this disallowance. Thus, the assessee's appeal is allowed." 9.1. Before us, Revenue has not placed on record any material to demonstrate that the expenditure incurred by assessee is for the purchase any new software nor has pointed out any distinguishing feature in the facts of the case in the year under consideration and the facts of the case for earlier years. Before us Revenue has also not placed any material to demonstrate that order of the Coordinate Bench of Tribunal in assessee's own case for earlier years has ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
