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TMI Blog2016 (6) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at the instance of the assessee. ITA No.879/Ahd/2013, relating to quantum addition, is directed against the order of the ld. Commissioner of Income-tax (Appeals)-6, Ahmedabad dated 06.02.2013, wherein the assessment u/s 143(3) of the Act for Assessment Year 2007-08 was framed on 20.12.2010 by DCIT (OSD), Range-1, Ahmedabad and ITA No.3189/Ahd/2015, relating to penalty u/s 271(1)(c) of the Act, is directed against the order of the ld. Commissioner of Income-tax (Appeals)-1, Ahmedabad dated 31.08.2015 and penalty order u/s 271(1)(c) was framed on 21.03.2014 by DCIT(OSD), Range-1, Ahmedabad. As these two appeals are related to the same assessee in relation to quantum addition and penalty u/s 271(1)(c), they have been taken up together for the sake of convenience. 2. First we will take up ITA No.879/Ahd/2013. The assessee has raised following grounds of appeal:- 1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law facts and therefore requires to be suitably modified. It is submitted that it be so done now. 2. The learned Commissioner has erred in not allowing the deduction in respect of software e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Aggrieved, the assessee is now in appeal before the Tribunal. 6. The ld. Authorized Representative submitted that during the year under consideration the revenue expenditure of ₹ 35,30,328/- was incurred towards purchasing application software and also towards upgrading the existing software. However, during the assessment proceedings, while verifying these details, ld. Assessing Officer framed assessment by treating ₹ 35,30,328/- as capital expenditure, allowed depreciation on the same @ 60% and thereby making an addition of ₹ 14,12,131/-. The ld. Authorized Representative submitted that the expenditure of ₹ 35,30,328/- was incurred for purchasing application software as well as upgradation of the existing application software and they did not work on standalone basis but required to be fitted to a computer system to work and the software just enhanced the efficiency of the operation and therefore, even if the benefit of the same was available for more than a year, but they did not result into acquisition of any capital asset nor it could be said to be an enduring benefit looking to the rate of obsolescence in the electronic industry. The ld. Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of the lower authorities. 8. We have heard the rival contentions and perused the material on record. The sole grievance of the assessee in this appeal is against the action of the ld. CIT(A) in treating the expenditure of ₹ 35,30,328/- towards purchasing and upgrading software as capital expenditure which has been claimed by the assessee as revenue expenditure in its return of income. The itemize break-up of the impugned expenditure of ₹ 35,30,328/- is as under:- Sr. No. Particulars Amount (Rs.) 1. Software License 16,07,497 2. AUTO CAD LT-2007 59,280 3. AUTO CAD Software 118,560 4. AUTO Desk Software 1,274,624 5. Software Subsct Ser 306,400 6. SPC Software 55,120 7. Software Charges 93,847 8. Software Install ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenditure, the Assessee will have to be granted depreciation @ 60% on WDV basis in A.Y. 06-07 and also in subsequent years. The depreciation of WDV for subsequent years will work out to ₹ 2,09,630/- (for A.Y.07-08), ₹ 83,854 (for A.Y. 08-09), ₹ 33,542(for A.Y. 09-10) and so on. Considering the totality of the facts, the total taxable income of ₹ 35.85 crore as determined by the AO, the changes that would be required to be made in subsequent assessments orders if the depreciation is to be allowed in all subsequent years and the peculiar facts of the case, we are of the view that the claim of the assessee be allowed in the present case. We may however add that the allowance of the expenditure in the present case should not be considered as a precedence for allowance of the expenditure. Thus these grounds of the Assessee are allowed. 10. We further observe that the Hon ble Delhi High Court in the case of CIT vs. Asahi India Safety Glass Ltd (supra) has also dealt with the similar issue, wherein the assessee incurred revenue expenditure towards application software to be run on oracle application and the decision was given in favour of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said expenses as being recurring in nature to upgrade and/or to run the system. [Para 9.1] In the background of the aforementioned findings, it cannot be said that the expenses brought about in an enduring benefit to the assessee. The Assessing Officer was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (assessment year 1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of ₹ 150 crores and that even without this expenditure it would have continued to achieve the said turnover, though the expenditure in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the Assessing Officer in support of its order is flawed and, hence, it would have to be rejected. [Para 10] Secondly, the mere fact that the Assessing Officer records that the expenditure, in financial year 1997-98 (assessment year 1998-99), was incurred towards what he terms as an 'on-going project' would not ipso facto give it a colour of capital exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs which may call for expenses to be incurred in the field of software I applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The Assessing Officer has erred precisely for these very reasons. [Para 12] The contention of the revenue that in the books of account, the assessee had not written off the expense in issue, while in the succeeding assessment year only a part of the expense had been written off and, therefore, the assessee's own understanding of the nature of the expense involved was that it was expended on capital account is be rejected. The reason being: that the treatment of a particular expense or a provision in the books of account can never be conclusively determinative of the nature of the expense. An assessee cannot be denied a claim for deduction which is otherwise tenable in law on the ground that the assessee had treated it differently in its books. [Para 13 13.1] Therefore, the aforesaid contention is of no avail to the revenue. [Para 13.2] Therefore, the Tribunal was correct in law in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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