2010 (7) TMI 1084 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to the classification of assets for depreciation, treatment of software expenses as revenue or capital expenditure, and the nature of repair and maintenance expenses incurred by the assessee.

Classification of assets for depreciation:
The appeal was filed by the revenue against the order of the Commissioner of Income-tax (Appeals) regarding the classification of assets like air conditioner, refrigerator, and office equipment for the purpose of depreciation. The assessee claimed these items as part of plant and machinery, while the Assessing Officer considered them to fall under 'Furniture and fittings.' The CIT(A) decided in favor of the assessee, stating that the assets in question demonstrate the nature of "plant and machinery" and not furniture and fittings. The Tribunal upheld the CIT(A)'s decision, emphasizing that the definition of "Plant" should be construed broadly, and the assets fulfilled the function of a plant in the assessee's trading activity.

Treatment of software expenses:
Another issue was the treatment of software expenses as revenue or capital expenditure. The AO disallowed a portion of the software expenses claimed by the assessee as revenue expenditure. However, the CIT(A) held that the software expenses were recurring in nature and provided no enduring benefit, thus allowing them as revenue expenditure. The Tribunal upheld the CIT(A)'s decision, allowing the entire software expenses as revenue expenditure and withdrawing the depreciation granted by the AO.

Nature of repair and maintenance expenses:
The third issue involved the treatment of repair and maintenance expenses of building as revenue or capital in nature. The AO disallowed a significant amount of expenses incurred by the assessee towards the reconstruction of the RCC roof of an existing building. The CIT(A) held that the expenditure was revenue in nature as it involved replacing the existing roof necessary for carrying on the business. The Tribunal agreed with the CIT(A)'s decision, allowing the entire expenditure as revenue and withdrawing the depreciation granted by the AO.

Conclusion:
The Tribunal dismissed the appeal filed by the revenue, upholding the decisions of the CIT(A) on all grounds. The judgment was pronounced on 23rd July 2010.