2017 (5) TMI 297 - AT - Income Tax

Disallowance of software expenses - capital expenditure OR revenue expenditure - Held that - CIT(A) has held that expenditure on software for billet heater programming was of capital nature since it resulted into an enduring benefit to the assessee. The Ld. CIT(A) has further reported that life of this kind of software was not less than 2 years and stated that depreciation on the same to be allowed as applicable. We find that assessee failed to disprove the facts as elaborated in the findings of the Ld.CIT(A),therefore we do not find any reason to interfere in the findings of the Ld CIT(A). Disallowance of deduction u/s. 80IA - claim not available to the assessee in respect of COGEN Unit I and and COGEN Unit II as both had generated power for captive use only - Held that - Respectfully following the Hon ble Gujarat High Court in the case of Alembic Ltd. 2016 (7) TMI 1239 - GUJARAT HIGH COURT wherein allowed the claim of the assessee even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression derived from could have no application to the case where the provisions of section 80-IA got attracted. - Decided in favour of assessee

Summary

Issues involved:
1. Disallowance of software expenses as capital expenditure
2. Disallowance of deduction under section 80IA of the Income Tax Act
3. Charging of interest under sections 234B and 234D of the Income Tax Act
4. Initiation of penalty proceedings under section 271(1)(c)

Issue 1: Disallowance of software expenses as capital expenditure
The assessing officer disallowed software expenses as capital expenditure, treating it as enhancing machinery efficiency with enduring benefit. The CIT(A) partially allowed the appeal, holding software expenses as capital in nature. The ITAT upheld the CIT(A)'s decision, stating the expenditure resulted in an enduring benefit to the assessee, and depreciation was to be allowed. The assessee failed to disprove the facts, leading to no interference in the CIT(A)'s findings.

Issue 2: Disallowance of deduction under section 80IA
The assessing officer disallowed deduction under section 80IA for COGEN Unit I and II, stating they generated power for captive use only. The CIT(A) upheld the disallowance, using the average rate of power purchase by GUVNL as the market rate. The assessee cited a favorable ITAT decision in another case. The ITAT referred to a judgment of the Hon'ble Gujarat High Court, upholding the assessee's claim to compute deduction at selling price, as in the assessee's own case. Following the High Court's decision, the ITAT allowed this ground of the assessee.

Issues 3 to 5: Charging of interest and penalty proceedings
Grounds 3 to 5, regarding charging of interest under sections 234B and 234D, and initiation of penalty proceedings under section 271(1)(c), were of a general nature and did not require adjudication. The ITAT partly allowed the appeal based on the findings related to the specific issues discussed above.

In conclusion, the ITAT upheld the CIT(A)'s decision on the disallowance of software expenses as capital expenditure and allowed the deduction under section 80IA based on the judgment of the Hon'ble Gujarat High Court. The general issues of charging interest and penalty proceedings were not addressed separately, as they did not require adjudication.