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TMI Blog2016 (10) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... on record any material to demonstrate that the expenditure incurred by assessee is for the purchase any new software nor has pointed out any distinguishing feature in the facts of the case in the year under consideration and the facts of the case for earlier years. Before us Revenue has also not placed any material to demonstrate that order of the Coordinate Bench of Tribunal in assessee’s own case for earlier years has been set aside by higher judicial authorities. In view of the aforesaid facts and following the reasoning given by the Coordinate Bench while deciding the issue in earlier years, this ground of assessee is allowed. - I.T.A. No.2479/Ahd/2013, I.T.A. No.2463/Ahd/2013 - - - Dated:- 29-8-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Revenue : Shri Shri James Kurian, Sr.DR For The Assessee : Shri Sanjay R.Shah, AR ORDER PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : These cross-appeals by the Revenue and the Assessee are directed against the order of the Commissioner of Income Tax(Appeals)-VI, Ahmedabad dated 23/08/2013 passed for Assessment Year (AY) 2008- 09. 2. The relevant facts as culled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is submitted it be so held now. 2.2. Learned Commissioner has also erred in relying upon the order of Hon'ble CIT(A) for A.Y. 2007-08 which was based on the wrong premise that depreciation schedule includes computer which in turn includes computer software on which 60% depreciation is allowable and therefore deduction of software expenses cannot be allowed. It is submitted it be so held now. 2.3. Learned Commissioner has erred in not giving direction to the learned AO to allow the depreciation at the rate of 60% on the software expenditure disallowed in the AY 2007-08 2006-07, while computing total income for the year under consideration. 3. We first take up Revenue s appeal in ITA No.2479/Ahd/2013. 3.1. Both the grounds raised by Revenue being inter-connected are considered together. 3.2. During the course of assessment proceedings and on perusing the details of manufacturing and other expenses, AO noticed that assessee had debited ₹ 1,12,17,505/- under the head Repairs and Maintenance of Building and ₹ 1,15,66,776/- under the head Other Repairs and Maintenance Expenses . Assessee was asked to justify the claim of expenses and why it not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceeding ₹ 50,000/- in respect of the building repairs show that the payments were made to 23 different parties through which different types of repair works were carried out; since the company is in the business of manufacture of heavy engineering industrial goods like hydraulic crane [which are heavy equipment], the manufacturing process including shifting and storage results in lot of wear and tear to the building; all the premises of the appellant company are rented except one at Ahmedabad Vatva office which is under 99 years lease; as regards the other repairs, all the necessary details like ledger account of the parties, the purpose of repairs, invoices of more than ₹ 5,000/- were submitted to the A.O vide submission dtd. 26/0972011, 18/10/2011, 10/11/2011 08/12/2011; this expenditure did not create any new asset; the Ahmedabad Vatva office was taken on 99 years lease in the year 1978 i.e. 30 years ago; as may be seen from point 3.1 of page-12 of the lease agreement appellant is responsible to keep the premises in good and tenable repair; as may be seen from resolution dtd. 26/11/2008 it was decided to purchase land at Sanand with a view to shifting the factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. A.O has not brought any material on record to suggest that any new asset has come into existence or the expenditure was towards replacement of the existing assets. Therefore I am of the view that impugned disallowance of building repairs and other repairs is not in accordance with law. Reliance is placed in this regard on the case of ACIT Vs. M.P. Warehousing Logistic Corpn. Ltd 52 SOT 40 (Indore) (2012). In the said case the assessment years involved were 2005-06 to 2008-09, i.e. after insertion of Explanation below Sec.30 31. In the said case Tribunal held as under: To decide the applicability of section 31(i) the primary test is not whether the expenditure is revenue or capital in nature. The basic test to find out as to what would constitute current repair is that the expenditure must have been incurred to 'preserve and maintain' an already existing asset and the object of expenditure must not be to bring a new asset into existence or to obtain a new advantage. Repair implies the existence of a part of the machine/plant or furniture which has malfunctions. The entire machine/plant or furniture, if replaced, the expenditure so incurred would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e building which necessitates incurring of expenditure and the expenses were normal repair expenditure. He has further noted that going by the nature of expenses incurred it cannot be stated that any new asset has come into existence and that similar expenses were incurred by the assessee in earlier years and have been allowed by the Revenue in scrutiny assessments and that AO has not brought any material which could prove of bringing any new asset into existence or that the expenditure was towards replacement of existing assets. Before us, Revenue has not brought any material on record to point out any fallacy in the finding of ld.CIT(A). In view of the aforesaid facts, we see no reason to interfere with the order of ld.CIT(A) and thus this ground of Revenue is dismissed. 6. In the result, Revenue s appeal in ITA No.2479/Ahd/2013 for AY 2008-09 is dismissed. 7. Now, we take up Assessee s appeal in ITA No.2463/Ahd/2013 for AY 2008-09. 7.1. First ground being general requires no adjudication. 7.2. Second ground is with respect to software expenses:- 7.3. During the course of assessment proceedings, AO noticed that assessee had incurred software expenses of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the year under appeal are identical to that of AY 2007-08 as has also been noted by the ld.CIT(A) and since in AY 2007-08 the issue has been decided in assessee s favour by the Coordinate Bench and therefore following the order of the Coordinate Bench, the ground of the assessee be allowed. Ld.Sr.DR on the other hand supported the orders of lower authorities. 9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The issue in the present is whether the software expenses are allowable are Revenue expenses. We find that the ld.CIT(A) while deciding the issue has noted that identical facts arose in assessee s own case in AY 2007-08. He thereafter following the decision of his predecessor, decided the issue against the assessee. We find that against the order of ld.CIT(A) for AY 07-08 the matter was carried before the Coordinate Bench of Tribunal (ITAT B Bench Ahmedabad). The Coordinate Bench of Tribunal vide order dated 02/05/2016 decided the issue in favour of assessee by observing as under:- 8. We have heard the rival contentions and perused the material on record. The sole grievance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell as required for increasing the operational efficiency of the original software. 9. We also find that the Co-ordinate Bench has dealt with the similar issue in assessee s own case for Assessment Year 2006-07 in ITA Nos. 1328 1310/Ahd/2011, dated 29.04.2014, dealing with the software expenditure of ₹ 8,73,485/- as to whether it is a capital or revenue expenditure, allowed the assessee s appeal by observing as under:- 14. We have heard the rival submissions and perused the material on record. It is an admitted fact that Assessee had incurred ₹ 8,73,485/- on software expenses and was claimed as revenue expenses. It is the submission of the assessee that the expenses were for the purchase of software application having a short life span. AO has considered the expenses as capital expenditure and eligible for depreciation @60% and granted depreciation of ₹ 5,24,091/- and thereby made a disallowance of ₹ 3,49,384/-. In the present case, the incurring of expenses has not been disputed by the Revenue. It is also a fact that the matter pertains to AY 2006-07 and if the impugned expenses is considered to be capital expenditure, the Assessee will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with technology and software application, which do not in any manner supplant the source of income or added to the fixed capital of the assessee. [Para 9] This is the approach which the Supreme Court has applied even in cases where there is a once for all or a lump sum payment. What is to be seen in the facts of the instant case, is that the Assessing Officer, as a matter of fact, has returned a finding that the expenditure undertaken was for overhauling the accountancy of the assessee and to efficiently train the accounting staff of the assessee. The Tribunal, which is decidedly the final fact finding authority, has after noticing the material on record observed that the expenditure was incurred under various sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal rightly came to the conclusion that none of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. The Tribunal classified the said expenses as being recurring in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tware and language software. The network software enables groups of computers to communicate with each other, while language software provides with tools required to write programmes. [Para 11] The aforesaid would show that what the assessee acquired through A was an application software which enabled it to execute tasks in the field of accounting, purchases and inventory maintenance. The fact that the application software would have to be updated from time to time based on the requirements of the assessee in the context of the advancement of its business and/or its diversification, if any; the changes brought about due to statutory amendments by law or by professional bodies like the Institute of Chartered Accountants of India, which are given the responsibility of conceiving and formulating the accounting standards from time to time, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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