Income Tax Appellate Tribunal - Kolkata
Jubilee Investments & Industries Ltd., ... vs Department Of Income Tax on 3 November, 2009
आयकर अपीलीय अधीकरण, Ûयायपीठ - " ए ", कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH : KOLKATA
(सम¢)Before ौी डȣ. ×यागी, Ûयायीक सदःय, एवं/and ौी सी.
डȣ. के. ×यागी, सी.डȣ.
डȣ.राव,
राव लेखा सदःय)
[Before Hon'ble Sri D. K. Tyagi, JM & Hon'ble Sri C. D. Rao, AM]
आयकर अपील संÉया / I.T.A No. 412/Kol/2010
िनधॉरण वषॅ/Assessment Year : 2004-05
Income-tax Officer, Wd-6(2), Kolkata. -Vs- Jubilee Investments & Industries Ltd.
(PA No.AAACR 5115 J)
(अपीलाथȸ/APPELLANT ) (ू×यथȸ/RESPONDENT)
For the Appellant : Shri Sishir Sinha
For the Respondent Sri D. S. Damle
आदे श/ORDER
Per D. K. Tyagi, JM (ौी डȣ.
डȣ. के. ×यागी, ×यागी, Ûयायीक सदःय) The revenue is aggrieved by the order of the Ld. CIT(A)-VII, New Delhi dated 03.11.2009 on the following grounds :
"1. That on the facts and circumstances of the case, the Ld. CIT(A)-VII, New Delhi, has erred in law in deleting the addition of interest expenditure to the tune of Rs.1,77,33,476/-, accepting the explanation of the assesee, without asking for a remand report as per the provision of Rule 46A.
2. That on the facts and circumstances of the cases, the Ld. CIT(A) has erred in law in deleting the addition of Rs.33,45,882/-, claimed as bad debut, without considering the fact that the assessee failed to establish the condition laid down in under section 36(2)(i) which is mandatory for allowance u/s. 36(1)(vii).
3. That on the facts and circumstances of the case, the Ld. CIT(A) has erred in law in deleting the addition of Rs.10,00,000/-, claimed as software development expenses, without considering that such expenditure is capital in nature and also specific rate of interest has been provided in section 32."
2. The appeal of the revenue is time barred by six days and a condition petition has been filed. After hearing the parties and considering the condonation petition, we condone the delay of six days and the appeal has been taken up for hearing on merits.
3. Ground No. 1 relates to deletion of addition of interest expenditure to the tune of Rs.1,77,33,476/-. The AO disallowed the interest expenditure by holding the same to be prior period expenditure. Briefly stated facts of the case as observed by the AO are that during the course of assessment proceedings, the assessee, vide letter dated 24 October, 2006, furnished the details of interest of Rs.3,44,91,422 paid on unsecured loans.
2However, the assessee has debited interest expense of Rs.5,22,24,898 in the Profit & Loss Account. On a specific query requiring the assessee to explain the said difference, the assessee, vide letter dated 27th November, 2006, submitted that the difference of Rs.1,77,33,476 is on account of interest debited relating to earlier financial year 2002-
03. The assessee, vide the said letter, is also stated to have withdrawn its claim of interest expense of the said amount of Rs.l,77,33,476. The AO, however, held that since withdrawal of interest has been made by the assessee by way of the aforesaid letter dated 27th November, 2006 and not by filing a revised return within the time permitted under section 139(5) of the I.T. Act, no cognizance shall be taken of the revised computation filed by the assessee withdrawing the claim of the interest expense of Rs. 1.77 crores. The AO further held that the factum of assessee claiming deduction of prior period expense of Rs.1.77 crores shows that the books of account maintained by the assessee are deficient and do not reflect the true and correct particulars of income. Accordingly, the AO rejected the books of account maintained by the assessee and disallowed the amount of Rs. 1,77,33,476/-. In appeal, the Ld. CIT(A) directed the AO to allow the claim of the assessee. Aggrieved by the said order, now the revenue is in appeal before us.
4. At the time of hearing before us, the Ld. DR submitted that before the AO the assessee vide his letter dated 27th November, 2006 submitted that the difference of Rs.1,77,33,476/- was on account of interest debited relating to earlier FY 2002-03. It has also vide the said letter stated to have withdrawn its claim of interest expenses of the said amount of Rs.1,77,33,476/-. The AO, therefore, held that the factum of assessee claiming deduction of prior period expense of Rs.1.77 crores show that the books of account maintained by the assessee are deficient and do not reflect the true and correct particulars of income. Accordingly, he rejected the books of account maintained by the assessee and disallowed the amount of Rs.1,77,33,746/-. The Ld. CIT(A) had deleted the said addition accepting the explanation of the assessee, without asking for a remand report as per the provision of Rule 46A. He, therefore, concluded that the order of the Ld. CIT(A) may be set aside and that of AO be restored.
5. The Ld. Counsel for the assessee, on the other hand, relied on the orders of the Ld. CIT(A).
36. After hearing both the parties and perusing the material available on record, we find that before the AO the assessee vide his application dated 27th November, 2006 stated to have withdrawn its claim of interest expenses of the said amount of Rs.1,77,33,476/-.Therefore, the AO rejected the books of account maintained by the assessee and disallowed the amount of Rs.1,77,33,476/-. Before the Ld. CIT(A) the assessee's contention was that it had never the intention to forgo the legitimate interest expenditure claimed and debited to P & L Account. It was also submitted that the assesee was undergoing a financial crunch and had suffered huge losses in earlier years. In order to tide over the severe liquidity/financial crunch, it approached through to its lenders for restructuring/rescheduling the outstanding loans/inter corporate deposits and the interest accumulated thereon. Since the negotiations/request of the assesee were pending with the lenders, the assessee was not providing the interest accrued on such loans in the accounts. He also contended that the assessee in the pending appeal before Hon'ble ITAT for the AY 2003-04 raised an additional ground for claiming deduction of the aforesaid interest amount of Rs.1,77,33,476/-. The ITAT vide its order dated 29th May, 2009 was pleased to admit this additional ground and restored the matter back to the file of the Ld. CIT(A) for adjudicating on merits. Based on the aforesaid order, it was submitted before the Ld. CIT(A) that interest expenses should either be allowed in assessment year 2003-04 or 2004-05. The Ld. CIT(A), however, did not pass any order for AY 2003-04 but without obtaining any remand report from the AO accepted the submissions of the assessee and allowed the interest expenses amounting to Rs.1,77,33,476/- during the year under appeal, while on other two issues he did obtain remand report from the AO before deciding the appeal. This action of the Ld. CIT(A), in our considered opinion, was not proper. The Ld. CIT(A) should have obtained remand report from the AO on this issue also as there were many developments which took place between the assessment and appellate proceedings. We, therefore, in the interest of natural justice and fair play restore the matter back to the file of the Ld. CIT(A) to adjudicate afresh after obtaining comments of the AO on these developments and the submissions of the assessee. This ground of revenue's appeal is allowed for statistical purposes.
47. Ground No. 2 relates to deletion of addition of Rs.33,45,882/- claimed as bad debt. In the assessment order, the AO disallowed the total advances and bad debt written off aggregating to Rs.35, 45,822/- comprising of the following amount :
A. i) Loan given to Spentex Industries td. Rs.25,00,000/-
ii) Interest receivable on the above loan for FY 02-03 Rs. 1,80,822/-
B. Advance given to the following parties w/off
i) Special Décor Rs.2,00,000/-
ii) Zeon Synthetics Rs. 30,000/-
iii) Patna Medical Rs.5,00,000/-
iv) Central lPetrochem Rs.1,35,000/- Rs,.8,65,000/-
Rs.35,45,822/-
So far as loan given to Spentex Industries, including interest thereon was concerned, the AO held that the same is not allowable as deduction under the provisions of section 36(1)(vii) of the I. T. Act since the same was not recognized as income in the Profit & Loss Account by the appellant. It was similarly held by the AO in respect of advance of Rs. 2 lakh of Special Décor. As regards the other amount written off aggregating to Rs.6,65,000/-, the AO held that the same are to be allowed as deduction only if the account are squared up during the year. Since the assessee has not filed any evidence of squaring up of account of Zeon Synthetics, Patna Medical and Central Petrochem, the said amount are not allowable as deduction u/s. 36(1)(vii) of the I. T,. Act. Accordingly, the AO disallowed the entire amount of Rs.35,45,822 u/s. 26(1)(vii) of the I. T. Act. In appeal, the ld. CIT(A) deleted the addition as made by the AO.
8. At the time of hearing before us, the ld. DR relied on the order of the AO and submitted that the order of the Ld. CIT(A) may be set aside and that of AO be restored.
9. On the other hand, the Ld. Counsel for the assessee while reiterating his same submissions as submitted before the Ld. CIT(A) relied on the order passed by him and submitted that the amount of Rs.33,45,822/- claimed as bad debt by the assesssee since the assessee is engaged in the business of lending monies etc. and is an NBFC, the loans were given to the debtors in the ordinary course of its NBFC business in the preceding year(s) and since the assessee had no hope of recovering the above loans advanced to the aforesaid debtors, the same were treated as bad debts and written off as irrecoverable in the books of account of the assessee. He also contended that the AO disallowed deduction of bad debts written off with respect to loan advanced to Spentex 5 Industries Ltd. alleging that since the loan/advance given in earlier year(s) did not form part of profit and loss account the same, therefore, cannot be allowed as deduction during the captioned assessment year. As regards the amounts represented on account of loan advanced to Patna Medical & Research Centre, Zeon Synthetic Ltd. and Central Petrochem Ltd., the AO alleged that the assessee failed to furnish the accounts of the said debtors evidencing actual write off of the above amounts in the accounts of such debtors during the year under appeal. In this regard he submitted that the action of the AO in disallowing the claim of bad debts written off by the assessee is not sustainable both on facts and in law and is liable to be deleted for the reasons stated as under :
i) Loan of Rs. 25,00,000, it was submitted, advanced to Spentex Industries Ltd. for the working capital requirements of the said company and the assessee was also charging interest on the said loan advanced in the earlier year(s). During the year under appeal the assessee had written off the above principal sum advanced to the said company as well as the interest of Rs.1,80,822 accrued on the loan advanced. The said company since, was passing through a severe financial crunch and, therefore, the assessee upon reviewing the financial status of the said company prudently decided to write off the said principal amount as well as the interest accrued thereon. The assessee, during the course of assessment proceedings vide letter dated 10.11.2006, had filed the copy of accounts of the above company evidencing actual write off in the books of the assessee. The assessing officer, disallowed the deduction claimed amounting to Rs.26,80,822 on the ground that since the said amount did not form part of the profit and loss account for earlier year(s) when loan was advanced, the same cannot be allowed as deduction in the captioned assessment year under appeal. In this regard the Ld. Counsel submitted that under the Act, bad debts are allowable deduction in the year in which they are written off in the books of accounts in terms of the provisions of section 36(1) (vii) of the Act. He also reiterated that the assessee had advanced the loan to the said company in the ordinary course of its money lending business. Section 36(1)(vii) read with section 36(2) of the Act, provides for allowability of deduction on account of bad debts written off resulting from non-recoverability, while computing the income chargeable under the head 'income from business and profession'. A perusal of the aforesaid provisions indicates that in order that bad debt written off is allowable under section 36(1) (vii) of the Act, the following conditions must be satisfied:6
Debts other than in the business of money lending, Debts other than in the business of money lending • The debt should be revenue in nature;
• The debt or part of the debt should have been taken into account while computing the taxable income for any year;
• The debt is written off as irrecoverable in the accounts of the assessee.
Debts in the business of money lending:
• The debt should have been advanced in the ordinary course of money lending business;
• The debt should have been written off as irrecoverable in the accounts of the assessee.
He also contended that the assessee is admittedly, engaged in the business of money lending and is a NBFC and earns substantial income from this activity. The write off of the loans as bad debts by the appellant satisfies all the following conditions stipulated in section 36(1)(vii) read with section 36(2) of the Act, which are necessary for claiming deduction :
(i) The assessee carries on money lending/fiancé business.
ii) The debt have been advanced in the ordinary course of money lending business;
(iii The debts have been written off as irrecoverable in the accounts of the debtors in assessee's books of account.
iv) No monies have been actually recovered subsequently in respect of such amounts written off In view of aforesaid, it is submitted that the claim of the assessee is bona fide and should be allowed as deduction in the year under consideration.
As regards the balance amount of Rs. 6,65,000 on account of loan advanced to Patna Medical & Research Centre, Zeon Synthetic Ltd. and Central Petrochem Ltd., written off during the year, it is submitted that the assessee had duly submitted the details vide letters dated 24.10.2006 and 1.11.2006, No further documents were asked for by the assessing officer thereafter. The assesseer at the time of hearing before the Ld. CIT(A) filed the accounts of the above three parties to show that the amounts claimed as bad debt in the captioned assessment year were actually written off in the 7 books of accounts. The same are allowable as deduction, since, they satisfy all the conditions provided under section 36(1) (vii) read with section 36(2) of the Act. In view of the aforesaid, the action of assessing officer in disallowing deduction in respect of above amounts on account of bad debts written off calls for being set aside. On being asked by the Ld. CIT(A) to file remand report by the AO, the AO in his report submitted that insofar as loan given to Spentex Industries is concerned, since the assessee is in money lending business, loan advanced amounting to Rs.25 lakh and interest thereon amounting to Rs.l,18.822 is allowable as deduction under section 36(1)(vii) of the 1.T. Act. As regards the other amounts, the assessing officer submitted that the said amount were given by the erstwhile company and the assessee has not produced any document to establish that the erstwhile company was in money lending business. Therefore, the said amounts aggregating to Rs.6,65,000 cannot be allowed as deduction. In reply to the said report, the Ld. AR submitted before the Ld. CIT(A) that the erstwhile Jubilee Investments & Industries Ltd. was an NBFC and was duly registered with RBI pursuant to Section 451A of the RBI Act and was carrying on the business of NBFC and a copy of the registration certificate was placed in the paper book. The advance to the three parties were given in the ordinary course of money lending business and therefore, loss incurred on account of non recovery of the said advance is allowable deduction under section 36(l)(vii) or alternatively under section 28 of the Act. It was further submitted before the Ld. CIT(A) that the assessing officer had, in the assessment order, disallowed the loss of Rs.6,65,000 merely on the ground that the assessee failed to file evidence that accounts of the parties were squared off, which, is factually incorrect. It was further submitted that in the remand report the assessing officer has not commented on the submissions filed justifying write off of the accounts in the books, thereby impliedly accepting the submission of the assessee and an altogether new case is now sought to be made that the erstwhile company was not in the money lending business. The Ld. AR thus pleaded that the disallowance of Rs.6,65,000/- calls for being deleted.
10. After hearing the rival submissions and perusing the material available on record, we find that in respect of Rs.26,80,822/- on account of loan advanced to Spentex Industries Ltd. the AO disallowed the deduction claimed amounting to Rs.26,80,822/- on the ground that since the said amount did not form part of the profit and loss account 8 for earlier year(s) when loan was advanced, the same cannot be allowed as deduction in the captioned assessment year under appeal. But in the remand report, the AO stated that in so far as loan given to Spentex Industries is concerned, since the assesee is in money lending business, loan advanced amounting to Rs.26,80,822/- is allowable as deduction u/s. 36(1)(vii) of the I. T. Act. As regards the other amount i.e. Rs.6,65,000/-, the AO in the remand report stated that the said amount were given by the erstwhile company and the assessee has not produced any document to establish that the erstwhile company was in money lending business. Therefore, the said amounts aggregating to Rs.6,65,000/- cannot be allowed as deduction. While allowing the assessee's claim, the Ld. CIT(A) has held as under :
"I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order as well as in the remand report and the facts and circumstances of the case. Insofar as amount of loan due to Spentex Industries and interest thereon amounting to Rs.26,80,822/- is concerned, the same has been admitted to be allowable as deduction by the assessing officer in the remand report. Accordingly, the said addition is directed to be deleted. As regards three advances aggregating to Rs.6,65,000 (other than advance to Special Decor) it is noticed that the said loans were given by the erstwhile Jubilee Investment and Industries Ltd, which as discussed in the preceding paragraph was a NBFC registered with RBI. The said loans were given in the normal course of business of money lending by the erstwhile company. In the remand report, the assessing officer has challenged the said contention of the appellant, but on perusal of the certificate granted to the erstwhile company, it is noticed that the erstwhile company was actually granted NBFC status by the RBI. Therefore, the contention of the assessing officer that whether or not the erstwhile company was engaged in money lending business is not known has no force. Furthermore, it is noticed that in the assessment order, the assessing officer made disallowance only on the ground that the amounts due to the appellant were not squared up in the books of account and that the said loans were not advanced in the normal course of money lending business. That being so, in my view considered view, since the said loans were given by the erstwhile company, which stood merged with the appellant pursuant to the scheme of amalgamation in the normal course of money lending business had been written off in the books of account, the said amount is allowable as deduction to the appellant. Accordingly, the assessing officer is directed to allow deduction of Rs.6,65,000/-...."
In view of the above and in the absence of any controverting material being brought on record by the revenue, we decline to interfere with the order of the Ld. CIT(A) and the same is hereby upheld. This ground of appeal of the revenue is, therefore, dismissed.
11. Ground No. 3 relates to deletion of addition of Rs.10,00,000/- on account of software development expenses In the assessment order, the AO disallowed the expenditure incurred holding the same to be capital expenditure following the decision 9 of Rajasthan High Court in the case of CIT Vs. Arawali Construction Pvt. Ltd. 259 ITR
30. He also allowed depreciation @ 60% computed at Rs.7,89,480/- and disallowed the balance expenditure of Rs.5,26,320/-. Before the Ld. CIT(A), the Ld. Counsel submitted that the details of the software expenses disallowed by the AO are that - Foreign Exchange Management and Project Finance Management Software Rs.5,00,000/-, Management Information System Software Rs.5,00,000/- and Consultancy charges paid to Umang Credit Capital Ltd. for consultancy on financial matters Rs.3,15,000/- totaling Rs.13,15,800/-. It was also stated that, out of the aforesaid, during the relevant previous year, the assessee incurred expenditure of Rs.l0,00,000/- on account of purchase of above software packages for installation in existing computers and an amount of Rs.3,15,800 was paid to Umang Credit Capital Ltd. for seeking consultancy on financial matters, which was inadvertently debited to the profit and loss account under the head software expenditure. In view of the same, it was submitted that Rs.3,15,800/- was not incurred on purchase of software and, therefore, the same cannot be disallowed as capital expenditure. As regards the balance expenditure of Rs.10,00,000, the AR submitted that the same are allowable revenue expenditure for the following reasons :
"Foreign exchange management and project finance management software amounting to Rs.5,00,000/-.
During the relevant previous year the appellant incurred Rs. 5,00,000/- on account of acquiring foreign exchange management and project finance management software.
The appellant, it is respectfully submitted during the year under consideration sought to venture into foreign exchange business inter alia to deal in foreign currency/ money changer, in line appellant's expansion plan. The aforesaid software, it is respectfully submitted, was application software, which is an essential aid for the appellant for smooth running of its foreign exchange business and for statistical analysis of data required for dealing in foreign currency.
Management information system software amounting to Rs.5, 00,000:
The appellant has incurred expense towards license fee of new software, viz., Management information system software, which was claimed as revenue expenditure. The aforesaid software, it is respectfully submitted, was application software, which is an essential aid for the appellant to carry on statistical analysis/ generate reports to have a better control, smooth functioning of the business, human resource management, etc. The appellant company had been using other software version in the past for effecting control/ facilitation of business. With technology upgradation, expansion of business and also to keep pace with technology levels, the appellant company needed to 10 have an improved version of the software to meet its requirement/ expectations. it is respectfully submitted that with the rapid advances in computer software, the technology acquired in a particular year pales into obsolescence very fast. A continuous upgrading and constant improvement of the software is absolutely essential. It has not been the case of the appellant that it was installing a new computer for the first time, the appellant during the year had only upgraded the software already loaded on the computers. As due to the rapidly changing systems and technology, there is always a continuous upgradation of the computer software. In view of the rapidly changing scenario in the software field, it at times becomes a necessity to adapt to the newer version of the same software already installed in the computer system. In view of same the expenditure was purely revenue in nature. The expenditure on computer software it is submitted did not result in an enduring benefit in the capital field and, therefore, the same is not in the nature of capital expenditure. In any case, it is the respectful submission of the appellant that application software, as explained supra, only aids the business process and does not qualify as a tool of trade. Such a software merely enhances the productivity or efficiency of the business operation and, therefore, the payment for such application software, upgradation or otherwise, does not result in acquisition of any capital asset. He also relied on the following case laws :
1. CIT vs. K & Co: 181 CTR 378 (Delhi)
2. CIT vs. Southern Roadways Ltd. :282 ITR 379 (Mad)
3. Business Information Processing Services vs. ACIT: 73 ITD 304 (Jaipur)
4. ITC Classic Finance Ltd. vs. DCIT: 112 Taxman (Mag.) 155 (Cal)
5. Media Video Ltd. vs. JCIT 122 Taxman (Mag) 28 (Delhi)
6. Bank of Punjab Ltd.: 122 Taxman (Mag.) 235 (Chd.)
7. Sumitomo Corpn. India (P) Ltd v. ACIT: 1 (2005) SOT 91 (Del)
8. Addi. CIT vs. Asahi India Safety Glass: (2006) : 6 SOT 656
9. Glaxo SmithKline Consumer Healthcare vs. ACIT: 112 TTJ 94 (Chd.) After considering the submissions of the Assessee, the Ld. CIT(A) asked remand report from the AO. The AO in the remand report, has accepted the contention of the assessee that expenditure incurred towards Umang Credit & Capital Ltd. amounting to Rs.3,15,800 is allowable as deduction. As regards the balance of Rs.10 lakh, the assessing officer relied upon the assessment order. In reply, the appellant also reiterated the submissions originally made. Aggrieved by the said order, After considering the assessee's submissions and the remand report of the AO, the Ld. CIT(A) directed the AO to allow the expenditure of Rs.10 lakh as revenue deduction and also directed to withdraw depreciation allowed to the assessee. Aggrieved by the said order, now the revenue is in appeal before us.
12. At the time of hearing before us, the Ld. DR relied on the order of the AO and on the other hand, the Ld. Counsel for the assessee relied on the order of the Ld. CIT(A).11
13. After hearing both the sides and also perusing the material available on record, we find that in the remand report the AO has accepted the contention of the assessee that expenditure incurred towards Umang Credit & Capital Ltd. amounting to Rs.3,15,800/- is allowable deduction. But as regards the balance of Rs.10 lakh is concerned, the AO relied upon the assessment order. Before us also the Ld. DR relied upon the order of the AO in respect of Rs.10 lakhs. After considering the detailed submission of the assessee as we have stated hereinabove and also the contention of the Ld. DR, we find that the Ld. CIT(A) has dealt the issue elaborately and for the sake of convenience we reproduce the relevant portion of his order as under :
"11.3. I have carefully considered the submissions made on behalf of the appellant, the findings of the Assessing Officer in the assessment order as well as in the remand report and the facts on record. Insofar as the payment of Rs.3,15,800 to M/s. Umang Capital Limited is concerned, in view of the assessing officer admitting the same to allowable deduction, the disallowance to that extent is hereby directed to be deleted. As regards other software development expense of Rs. 10 lakh, it is noticed that the ITAT Special Bench in the case of Amway India Enterprises v. Dy. CIT [2008) 111 ITD 112 (Delhi) in their detailed judgment held that since software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of the computer software is shorter (say less than two years), it may be treated as revenue expenditure. It was further held that nature of advantage of computer software has to he seen in a commercial sense. If the advantage is in the capital field then the same would be capital expenditure. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably, while leaving the fixed capital untouched, the expenditure would be on revenue account. However, if assets/advantage is part of profit earning apparatus, it is capital. Whether or not expenditure on software is in revenue field, the Special Bench in the aforesaid case summarized their findings in following terms:
"59. Our conclusions on the issue under consideration thus can be summarized as under :
i) When the assessee acquires a computer software or for that matter the license to use such software, he acquires a tangible asset and becomes owner thereof as held above relying on the decision of Hon 'ble Supreme Court in the case of TCS.
ii) Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short. span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on software as capital in nature and the functional test as discussed above also needs to be satisfied.12
iii) Once the tests of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to software as capital in nature and the .functional test as discussed above also needs to be satisfied.
iv) Once the tests of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to be seen from the point of view of its utility to a businessman and how important an economic or functional role it plays in his business. In other words, the functional test becomes more important and relevant because of the peculiar nature of the computer software and its possible use in different circus of business touching either capital or revenue field or its utility to a businessman which may touch either capital or revenue field.
60. Having laid down the criteria for determining the nature of expenditure incurred on acquisition of software, whether capital or revenue, we are of the view that these criteria need to be applied to determine the exact nature of expenditure incurred by the assessees in the present cases/or acquiring different soft wares. Since this exercise is required to be done in respect of each and every software independently having regard to the criteria laid down above, we are of the view that the matter needs to be restored back to the .file of the Assessing Officer for doing such exercise. The Assessing Officer shall examine the question whether expenditure on computer software is capital or revenue in the light of the criteria laid down above after giving an opportunity qf being heard to the assessees. If on such examination, the Assessing Officer comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down in the subsequent paragraphs."
11.4 Applying the aforesaid tests in the present case, it is noticed that the expenditure incurred on the two softwares was in respect of (a) Foreign Exchange Management And Project Finance Management Software and (b) Management Information System Software. On an analysis of the purpose and the nature of the two softwares, as explained in the submissions filed, it is noticed that two softwares were purchased merely to improve operational efficiency of the appellant's business of finance and investment. As regards Foreign Exchange Management and Project Finance Software, the same was to assist the smooth running of foreign exchange business and analysis of statistical data for dealing in foreign currency. Similarly, Management Information System Software was to assist the appellant to carry on statistical analysis, generate reports in day to day business activities of the appellant of finance and investment. Both the softwares are stated to be application software and would require upgradation to improve version after short interval. In these circumstances, applying the tests laid down by the Special Bench of ITAT in Amway India enterprises (supra), I am of the considered view that the expenditure incurred on application software aggregating to Rs. 10 lakh is merely to assist and aid in operation efficiency of the appellant's business activity and is in the nature of revenue expenditure. Accordingly, the assessing officer is directed to allow expenditure of Rs.10 lakh as revenue deduction and is directed to withdraw depreciation allowed to the appellant. This ground of appeal is allowed."
13In this view of the matter and, the Ld. DR at the time of hearing before us, did not controvert the above findings of the Ld. CIT(A) by producing any cogent material/evidence to controvert the above findings of the Ld. CIT(A), we do not find any infirmity in his order and the same is hereby upheld. Therefore, this ground of appeal of the revenue is dismissed.
14. In the result, the appeal of the revenue is partly allowed for statistical purposes.
15 Order is pronounced in the open court on 31.8.10
Sd/- Sd/-
सी.डȣ.राव, लेखा सदःय डȣ. के. ×यागी, Ûयायीक सदःय
(C. D. Rao) (D. K. Tyagi)
Accountant Member Judicial Member
(तारȣख)
तारȣख) Dated : 31st August, 2010
वǐरƵ िनǔज सिचव Jd.(Sr.P.S.)
आदे श कȧ ूितिलǒप अमेǒषतः- Copy of the order forwarded to:
1. अपीलाथȸ/APPELLANT - ITO , Wd-6(2), Kolkata.
2 ू×यथȸ/ Jubilee Investments & Industries Ltd., 31, N. S. Road, Kolkata-
700001
3. आयकर किमशनर/The CIT,
4. आयकर किमशनर (अपील)/The CIT(A), Kolkata.
5. वभािगय ूितनीधी / DR, Kolkata Benches, Kolkata
स×याǒपत ूित/True Copy, आदे शानुसार/ By order,
उप पंजीकार/Deputy Registrar.