2013 (6) TMI 658 - AT - Income Tax

Software expenses - CIT(A) deleted the addition - Held that - As decided in CIT Vs. O.K. Play India Ltd 2011 (2) TMI 454 - PUNJAB AND HARYANA HIGH COURT as relying on CIT v. Varinder Agro chemicals Ltd. 2008 (10) TMI 100 - PUNJAB AND HARYANA HIGH COURT Since technology is fast changing and day-by-day systems are being developed in a new way, software may be needed like raw material - view taken by the Tribunal that computer software expenses were revenue in nature, is correct. Also see Alembic Chemical Works Co. Ltd. V. CIT 1989 (3) TMI 5 - SUPREME Court . In favour of assessee. Categorization of items purchased - Printers and routers - electrical equipments or energy savings devices - CIT(A) deleted the addition - Held that - As decided in DCIT Vs. Datacraft India Ltd. (2010 (7) TMI 642 - ITAT, MUMBAI) it was held that the router and switches can be classified as computer hardware when they are used along with computer and when there functions are integrated with a computer. It was concluded that in such a situation the routers and switches are to be included in back of computers for the purposes of demanding the rate of depreciation. Also see ITO Vs. Samiran Majumdar (2005 (8) TMI 293 - ITAT CALCUTTA-B) wherein the issue was whether printers and scanners being integral part of computer system can be treated as computer for the purpose of allowing higher rate of appreciation as answered in affirmative. In favour of assessee. Business development expenses - CIT(A) deleted the disallowness - Held that - Undoubtedly, the assessee co-operative bank has distributed gifts, mementos, school bags, etc to the children of its members such distribution of gifts was allowable as business expenditure was an identical issue decided in ACIT Vs. The Gujarat State Co-operative Bank Ltd. 2013 (6) TMI 438 - ITAT AHMEDABAD wherein the order of Karajan Co-operative Cotton Sales (1992 (1) TMI 39 - GUJARAT High Court) followed and expenditure was allowed. In favour of assessee.

Summary

Issues:
1. Disallowance of software expenses claimed as revenue expenditure.
2. Categorization of printers and routers as energy-saving devices for depreciation.
3. Disallowance of business development expenses claimed by the assessee.

Issue 1 - Disallowance of Software Expenses:
The appeal by the Revenue challenged the deletion of an addition made by the assessing officer on account of disallowance of software expenses. The AO allowed depreciation on software purchases at 60% but disallowed the remaining amount as revenue expenditure, considering it capital in nature. The CIT(A) ruled in favor of the assessee, stating the expenses were for the upgradation of existing hardware and software, constituting revenue expenditure. The ITAT, citing a High Court decision, affirmed the CIT(A)'s findings, dismissing the Revenue's ground.

Issue 2 - Categorization of Printers and Routers:
The AO added an amount to the taxable income, contending that printers and scanners were not part of computers and thus not eligible for the higher depreciation rate claimed by the assessee. However, the CIT(A) accepted the assessee's explanation that these items were eligible for the claimed depreciation. The ITAT referred to precedents where routers and switches were classified as computer hardware, supporting the assessee's claim. Consequently, the ITAT dismissed the Revenue's ground against the deletion of the addition.

Issue 3 - Disallowance of Business Development Expenses:
The AO disallowed business development expenses claimed by the assessee, arguing that the gifts distributed were not solely for business purposes but also benefited the children of bank members. The CIT(A) disagreed, noting the promotional nature of the gifts and directed the addition to be deleted. The ITAT, considering a similar case and the principle of a cooperative bank as a separate entity, upheld the CIT(A)'s decision, ruling in favor of the assessee. Therefore, the ITAT dismissed the Revenue's ground challenging the deletion of the addition.

In conclusion, the ITAT at Ahmedabad dismissed the Revenue's appeal, affirming the decisions of the CIT(A) regarding the disallowance of software expenses, categorization of printers and routers, and disallowance of business development expenses claimed by the assessee.