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2014 (1) TMI 1305 - AT - Income Tax


Issues:
1. Deletion of addition on account of capitalization of software expenses.
2. Allowance of deduction for expenses without TDS deduction and subsequent reversal.
3. Deletion of addition on account of capitalization of license fee paid.

Issue 1: Deletion of addition on account of capitalization of software expenses:
The Revenue appealed against the deletion of an addition of Rs. 19,20,127 on account of capitalization of software expenses for the assessment year 2008-09. The ITAT found that this issue had been previously addressed in favor of the assessee by ITAT decisions in earlier years. The ITAT referred to cases from AY 2003-04 onwards where similar claims were allowed by the ITAT. The ITAT held that based on the consistent rulings in preceding years, there was no justification to interfere with the CIT(A)'s order. Therefore, the ITAT rejected Ground No.1 of the Revenue's appeal.

Issue 2: Allowance of deduction for expenses without TDS deduction and subsequent reversal:
The Revenue challenged the CIT(A)'s direction to allow a deduction of Rs. 88,87,668 for expenses where TDS was not deducted, but the entry was reversed in a subsequent year. The ITAT considered arguments from both sides. The Revenue contended that each year should be treated independently for expenditure assessment and that reversal of entry in a subsequent year should not impact the deduction claim in the initial year. The ITAT disagreed with the CIT(A) and held that the deduction for the expenditure was rightly disallowed by the Assessing Officer. However, to prevent double taxation, the ITAT directed the AO to verify if the reversed entry in the subsequent year should not be treated as income. Consequently, Ground No.2 of the Revenue's appeal was allowed.

Issue 3: Deletion of addition on account of capitalization of license fee paid:
The Revenue disputed the deletion of an addition of Rs. 10,79,660 for capitalization of license fee paid to a company for voice software usage. The ITAT observed that the license fee was paid for only one year as per the agreement, making it ineligible for capitalization. As the Revenue did not challenge the factual finding by the CIT(A), the ITAT upheld the CIT(A)'s decision on this point. Therefore, Ground No.3 of the Revenue's appeal was rejected.

In conclusion, the ITAT partly allowed the Revenue's appeal by upholding the addition on software expenses but disallowing the deduction for expenses without TDS deduction and sustaining the deletion of the addition on the license fee payment. The decision was pronounced on 31st July 2013.

 

 

 

 

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