2015 (1) TMI 474 - HC - Income Tax

Fees paid to carry out due diligence for laying pipeline for supply of gas - revenue v/s capital expenditure - Held that - The project was for expansion of laying down the pipeline for supply of gas which is regular business of the assessee and the expansion of the business by laying down pipe line was one of the purpose for which the feasibility report was to be prepared and the expenses were incurred. Thus the Tribunal cannot be said to have committed any error treating the expenses as business expenses or revenue expanses. Expenses claimed for purchase of Software - revenue v/s capital expenditure - Held that - The Tribunal correctly found that the projects of software programmes could be said as revenue expenditure. Be it noted that the licence of software programmes was not for resale of such software or for further sale of software but was for the use of software in running day to day business of the assessee. Estimated profit on WIP - Tribunal delete the addition - Held that - Tribunal correctly concluded that as the assessee has regularly offered the tax, there is no reason to separately consider the work in progress and the expenses incurred thereto for different method for the purpose of assessment of tax. - Decided against the revenue.

Summary

Issues:
1. Disallowance of fees paid for due diligence for laying pipeline
2. Treatment of expenses claimed for purchase of software
3. Addition of estimated profit on work in progress

Analysis:

Issue 1: Disallowance of fees paid for due diligence for laying pipeline
The appellant challenged the Tribunal's decision to delete the disallowance of fees paid for due diligence for laying a gas pipeline, arguing that such expenses should be treated as capital expenditure. The Tribunal justified its decision by stating that if the expenditure is incurred to facilitate business promotion or expansion, it can be considered a business expense rather than capital expenditure. The appellant relied on a previous court decision but failed to convince the court as the project in question was related to the regular business of laying down a gas pipeline for expansion. The court upheld the Tribunal's decision, concluding that the expenses were rightly treated as business expenses, and no substantial legal questions arose.

Issue 2: Treatment of expenses claimed for purchase of software
Regarding the expenses claimed for the purchase of software, the Tribunal considered them to be revenue expenditure as the software was intended for internal business use and not for resale. The court found no error in the Tribunal's decision, agreeing that such expenses should indeed be categorized as revenue expenses. Therefore, the court upheld the Tribunal's decision on this issue as well.

Issue 3: Addition of estimated profit on work in progress
The Tribunal's decision to not separately consider work in progress and related expenses for a different assessment method was challenged. The Tribunal reasoned that since the assessee regularly offered tax, there was no need to segregate work in progress for tax assessment purposes. The court concurred with the Tribunal's reasoning, finding no error in its decision. Consequently, the court concluded that no substantial legal questions arose in this regard and dismissed the appeal.

In summary, the court dismissed the appeal as it found no substantial legal questions in the issues raised by the appellant regarding the treatment of expenses related to due diligence for laying a pipeline, purchase of software, and addition of estimated profit on work in progress.