2014 (6) TMI 923 - HC - Income Tax

Addition for purchase of computer software - revenue v/s capital expenditure - CIT(A) deleted the addition and confirmed by ITAT - Held that - Considering the aforesaid finding recorded by the Commissioner of Income Tax (Appeals) as well as the tribunal, it cannot be said that the tribunal and the Commissioner of Income Tax (Appeals) have committed any error in deleting the aforesaid disallowance. We are in complete agreement with the view taken by the tribunal as well as the Commissioner of Income Tax (Appeals) while deleting the aforesaid disallowance. Under the circumstances, the proposed question nos. (b) and (c) are held against the revenue and so far as the proposed question no. (a) is concerned, as the amount involved is only ₹ 2,50,000/-, on the smallness of the amount involved, we decline to entertain the said question. - Decided against revenue

Summary

Issues:
1. Disallowance of purchase of computer software as capital expenditure.
2. Disallowance of unexplained and unverifiable expenses.
3. Addition of unexplained unsecured loan.

Analysis:

Issue 1: Disallowance of purchase of computer software as capital expenditure
The appellant, engaged in BPO services, declared 'NIL' income but faced additions by the Assessing Officer for purchase of computer software, disallowance of expenses, and unexplained unsecured loan. The Commissioner of Income Tax (Appeals) allowed depreciation, deleted the addition for computer software, and provided relief for the appellant. The CIT(A) observed that the software was technical with specific purposes, not a capital asset, and directed deletion of the addition. The tribunal confirmed this decision, leading to the revenue's appeal. The High Court found no error in deleting the disallowance, agreeing with the tribunal and CIT(A). The appeal was dismissed due to the insignificance of the amount involved.

Issue 2: Disallowance of unexplained and unverifiable expenses
The Assessing Officer disallowed expenses as unexplained and unverifiable, but the CIT(A) directed deletion after considering the appellant's submissions and proper documentation. The tribunal upheld this decision. The High Court found no perversity in the tribunal and CIT(A) findings, agreeing with the deletion of the disallowance. The proposed question against this issue was held against the revenue.

Issue 3: Addition of unexplained unsecured loan
The Assessing Officer added an unexplained unsecured loan, but the CIT(A) directed deletion after reviewing the appellant's submissions and evidence. The tribunal confirmed this decision. The High Court found the addition unjustified, as the appellant provided substantial evidence, and the AO did not raise specific defects. The addition was held unsustainable in law, and the proposed question on this issue was held against the revenue.

In conclusion, the High Court dismissed the appeal, upholding the decisions of the tribunal and CIT(A) regarding the disallowances and additions made by the Assessing Officer.