TMI Blog2018 (1) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of renewal of licence fees to the vendor on an annual bais which does not accrue any enduring benefit to the assessee and that the same were paid towards smooth functioning of business of the assessee and not paid for acquiring any capital assets. These findings were not controverted by the ld DR before us. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 2 raised by the revenue is dismissed. Optical fibre expenses - revenue or capital expenditure - Held that:- Expenses towards the same towards replacement on a monthly basis, which itself goes to prove that the same is incurred on a recurring basis and there is no enduring value benefit to the assessee on the previously replaced cable wires. Moreover, we find that the assessee had incurred a sum of ₹ 14,56,604/- in the previous year ended 31.3.2009 relevant to Asst Year 2009-10, which the ld AR stated that the same was allowed by the ld AO as revenue expenditure. This was not controverted by the revenue before us. - Decided against revenue - I.T.A No. 1318/Kol/2015 - - - Dated:- 6-12-2017 - Shri N.V.Vasudevan, JM And Shri M.Balaganesh, AM For The App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tning and extreme heat during the high summer seasons. As a result, such items require constant and frequent replacements and the expenditure incurred do not bring into Existence any asset capable of generating any income. In most of the cases, the value of spares are below ₹ 5,000/-. The assessee also placed reliance on the decision of the Hon ble Madras High Court in the case of CIT vs Southern Roadways Ltd reported in 288 ITR 15 (Mad) and 304 ITR 84 (Mad) . The assessee also placed reliance on the decision of the Hon ble Delhi High Court in the case of CIT vs Asahi India Safety Glass Ltd reported in 203 Taxman 277 (Del) . 2.3. The ld CITA deleted the disallowance by observing as under:- 6.2. I have considered the submission of the AR of the appellant in the backdrop of the assessment order. I find that the AO has not given any cogent finding or reasoning that the impugned expenses were capital in nature against the contention of the assessee that they were of revenue in nature. He has merely stated that since the expenses related to balance sheet items the same were capital in nature as well. It is my considered opinion that expenses incurred with respect to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinguished the enduring benefit in the revenue field and enduring benefit in the capital field. They had held that pursuant to incurrence of expenses, if there is some enduring benefit in the revenue field, then the same would only amount to revenue expenditure. We hold that the expenditure incurred by the assessee towards technology upgradation charges which requires frequent replacement due to rapid change in technology and constant need for upgradation would only be revenue in nature. Hence we do not find any infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 1 raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition of ₹ 10,09,593/- made by the ld AO treating software expenses as capital expenditure in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO observed that the assessee had debited software expenses of ₹ 10,09,593/- in its Profit and Loss Account under the head Selling, Distribution and Administrative Expenses and the assessee was asked as to why the same should not be treated as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sesse on software primarily was in the nature of annual renewal of software licences. 3.3. The ld CITA deleted the disallowance by observing as under:- 7.2. I have considered the submission of the AR of the appellant and perused the assessment order. I have also perused through the above cited case law in the case of Motorola India Electronics (P) Ltd. vs. Dept. of Income Tax as decided by the ITAT, Delhi Bench E New Delhi in I.T.A. No. 2977/Del/2012 for the assessment year 2003-04 dated 28.06.2013. Based on the material facts on records as well as the decision of the Hon ble ITAT, Delhi as above in the case of Motorola India Electronics Pvt. Ltd., I find that the software expenses were incurred by way of renewal of license fees to the vendor on an annual basis which should be considered as revenue expenses. These expenses representing software was mainly paid towards smooth functioning of business of the assessee and not paid for acquiring any capital assets. The software was used mainly for updating and rationalizing the existing system and the benefits derived therefrom were neither permanent nor enduring nature. The expenditure incurred by the assessee on software p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical fibre expenses as capital expenditure in the facts and circumstances of the case. 4.1. The brief facts of this issue is that the ld AO observed that the assessee had debited Optic Fibre expenses of ₹ 37,90,878/- and Fiber Optic Laying expenses of ₹ 10,49,850/- in its Profit and Loss Account under the head Selling, Distribution and Administrative Expenses and the assessee was asked as to why the same should not be treated as capital expenditure. The ld AO observed that the assessee could not adduce any acceptable explanation and accordingly disallowed the same but however granted depreciation @ 15% on the same in the assessment. 4.2. The assessee submitted that among other ingredient, Optical Fiber Cable is the main ingredient mainly used for transmitting speed at a minimum of 512 kbps- 5 mbps to home broadband. Such optic fiber is fitted in the open space and passing through pole to pole and some time it is passing through trees where pole system is not available and never be possible to protect optical fiber from heavy shower, lightening and from the heavy duty vehicle when passing beneath the optic fiber and it is of course out of control of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s would have to be continuously replaced which are subjected to constant wear and tear due to the rigours of nature like storms, heavy downpours, lightning etc. as well as the adverse impact of movements of heavy vehicles. In this respect constant replacements of fibre cables do not bring about any enduring benefit to the appellant and therefore cannot be considered as being related to capital expenditure. I find a similar issue had come up before the ITAT, Bench 'A', Hyderabad in the case of DCIT, Circle 1(1), Hyderabad vs. M/s Akash Cable TV Network in ITA No. 678/Hyd/2009 dated 30.06.2010 for the AY 2006-07 wherein it was held as follows: The very fact that the optical fiber cable was laid by the assessee for continuing in the business of transmitting signal through cable net work system establishes that the assessee did not acquire any new asset which is of enduring in nature. Therefore, in our opinion, merely because the optical fiber cable gives better quality of signal to the customers/viewers it cannot be construed as giving enduring benefit to the assessee. In our opinion, replacement of cable is an essential requirement for continuation in the business. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c fibre cables used in smooth functioning of internet broadband services cannot be compared with normal cable wires which are used in the business of television channels through cable network. We find that in the facts before the co-ordinate bench of Hyderabad Tribunal in the case of DCIT vs Akash Cable TV Network (P) Ltd in ITA No. 678/Hyd/2009 for Asst Year 2006-07 dated 30.6.2010 also, the assessee there had replaced the traditional cable into optical fibre cable. The contention of that assessee was that the traditional cable was cut and damaged by the rival cable network operators. The assessee therein had to necessarily replace the damaged part of the cables alone and not the entire cable by optical fibre cable for transmitting TV signals. It was held that these are done only for better signals for the viewers and due to this no new customers could be obtained by that assessee. The replacement of optic fibre cables were done only for satisfying the existing customers and for retaining the existing customers with that assessee. In these circumstances, the Hyderabad Tribunal held that optical fibre cables were laid by the assessee for continuing in the business of transmitting s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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