2013 (11) TMI 149 - AT - Income Tax

Software consumable expenses revenue or capital expenditure - Held that - Following Amway India Enterprises 2011 (11) TMI 4 - DELHI HIGH COURT The expenditure was incurred for application software and not for system software The software was not of enduring nature and would become obsolete - Therefore it is revenue expenditure - Decided in favour of assessee. Software and hardware expenses Held that - The assessee did not made a claim before AO but submitted before FAA that the software/ hardware was for trading purposes the assessee never claimed these as assets of the appellant-company - profit arising out of trading of these was offered for taxation - The issue remitted back for fresh adjudication Partly allowed in favour of assessee. Deduction u/s 80HHE On the basis of regular provisions under profits and gains from business and profession or book profits as per section 115JB - Held that - Following Bhari Information Technology systems P. Ltd. 2011 (10) TMI 19 - Supreme Court of India Deduction under Section 80HHE has to be worked out on the basis of adjusted book profit under Section 115JA and not on the basis of the profits computed under regular provisions of law applicable to computation of profits and gains of business - Decided in favor of assesseee.

Summary

Issues:
1. Allowability of Software Consumable Expenses
2. Capitalization of Software and Hardware Expenses
3. Interest levy under sections 234B and 234C
4. Deduction under section 80HHE for computing book profits
5. Carry forward of losses
6. Relief under section 90
7. Issue of refund order

Issue 1: Allowability of Software Consumable Expenses
The appellant challenged the order allowing Software Consumable Expenses of Rs. 4.32 crores. The Assessing Officer considered it as capital expenditure, but the First Appellate Authority allowed the appeal, citing previous rulings. The Tribunal found the expenditure was revenue in nature, incurred for application software, and not system software. Relying on relevant case law, the Tribunal decided in favor of the assessee, allowing the appeal.

Issue 2: Capitalization of Software and Hardware Expenses
The AO disallowed Rs. 15.38 crores claimed as Software Consumable Expenses/cost of Hardware, treating it as capital expenditure. The FAA allowed the appeal, stating the purchases were for trading operations and not assets. The Tribunal found that the matter should be sent back to the AO for a decision on merits. Therefore, this issue was partly allowed in favor of the AO.

Issue 3: Interest levy under sections 234B and 234C
The parties agreed that interest under section 234B was not levied and section 234C interest was applicable. The Tribunal disposed of the grounds accordingly, resulting in a partial allowance of the Revenue's appeal.

Issue 4: Deduction under section 80HHE for computing book profits
The AO computed book profits at Rs. 47.67 crores, disallowing the deduction under section 80HHE claimed by the appellant. The Tribunal, following the Supreme Court's decision, held that the deduction should be calculated based on adjusted book profit under section 115JB. Consequently, the issue was decided in favor of the assessee, and the appeal was partly allowed.

Issue 5: Carry forward of losses
The assessee did not press Ground Nos. 4 to 6, leading to their dismissal during the hearing.

Issue 6: Relief under section 90 and Issue of refund order
The Tribunal did not specifically allow relief under section 90 as claimed by the appellant. The issue of the refund order was not addressed in detail in the provided text.

In conclusion, the judgment addressed various issues related to the assessment of income tax for the appellant, covering aspects such as the allowability of expenses, capitalization of expenditures, interest levies, deductions, and carry forward of losses. The Tribunal's decisions were based on legal interpretations, case law references, and the specific circumstances of each issue presented before them.