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TMI Blog2014 (1) TMI 873X X X X Extracts X X X X X X X X Extracts X X X X ..... Per TS Kapoor, AM:- This is an appeal filed by the revenue against the order of Ld CIT(A) dated 19.3.2012. The grounds raised by the revenue are as under:- 1. Whether on the facts and in the circumstances of the case, the Ld CIT(A) was right on facts and in law in annulling the assessment. Whereas the Hon'ble Apex Court in the case of CIT v. PVS Beedies Pvt. Ltd. 237 ITR 13 has held that re-opening of assessment on the basis of factual error is permissible under the law. 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) was in deleting the addition of Rs.45,94,516/- by merely observing that I am of the opinion that the expenditure incurred by the appellant on purchase of software was allowable as revenue expenditure and not capital in nature. 3. Whether on the facts and in the circumstances of the case, the Ld CIT(A) was right in treating the expenditure of Rs.1,14,86,291/- on purchase of software as revenue. Whereas computer software was introduced as a depreciable asset under Rule 5(1) read with appendix-1 of the IT Rules, 1962 with effect from assessment year 2003-04 and the assessee was eligible to claim only depreciation on such purchase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided to Assessing Officer during original assessment proceedings. Therefore, reopening after a period of four year was not justified as it amounted to change of opinion. Reliance in this respect was placed on a number of case laws as noted in CIT(A)''s order from pages 11 to 30. On merits of the case, it was submitted that the appellant treats those software purchases as revenue items which are to be utilized in the development of other softwares. These expenses are in the nature of application software license fees which were payable to the vendors. The expenses representing the software purchase was mainly towards smooth functioning of the business of the assessee and not for acquiring any capital asset. The software was used mainly for updating rationalizing the existing system and the benefits derived there from were neither permanent nor enduring in nature. The expenditure incurred on software primarily was in the nature of annual renewal of software licenses. The said expenditure pertained to application software tools that were used in regular business of software development and testing. It was further submitted that this can be distinguished from software that may have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income. It is true that computer software has been treated as depreciable asset under Rule 5(1) of IT Rules, 1962 w.e.f. assessment year 2003-04 but said rule was already available before the Assessing Officer when the original assessment order was passed on 27.3.2006. The expenditure on software purchased aggregating to Rs.1,14,86,291/- had been allowed by the Assessing Officer while passing the assessment order u/s 143(3) of the act after due application of his mind and after due scrutiny of relevant information. Thus all the relevant facts and information were available before the Assessing Officer when the original assessment order was passed and it cannot be inferred that the same had either lost sight of Assessing Officer or there was any failure on the part of appellant to disclose truly and fully all material facts necessary for assessment. Xxxxxxxxxxxxx xxxxxxxxxxxxx Therefore, on the ground of change of opinion the assessment order under appeal is not legally sustainable and consequently annulled." 6. Regarding merits of the case, the Ld CIT(A) observed that assessee had purchased software for its various units and software purchased were to be utilized in the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgument, the Ld DR argued that the reopening u/s 147/148 was rightly done as assessee had not fully disclosed the complete facts. Regarding merits of the case, he relied upon the order of Assessing Officer. 9. The Ld AR, on the other hand, took us to page 28 of paper book and invited our attention to Note-2 wherein assessee had disclosed the treatment of software as revenue expenditure. He also invited our attention to page 62 and invited our attention to Point No.3 of letter dated 3.3.2006 written to ACIT, Bangalore in which in reply to the query during original assessment proceedings the assessee had explained the claim of software as revenue expenditure. Our attention was also invited to paper book pages 64 to 67 wherein break up of various software tool purchased during the year was placed. In view of the above, the Ld AR argued that payments were revenue in nature as was evident from the number of payments which were made for various software tools. He further argued that after completion of original assessment proceedings the assessee was issued rectification notice u/s 154 for rectification of mistake and for making disallowance of such software expenses and reply to that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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