ITAT allows appeal for software cost, instructs re-examination and verification.

The appeal was allowed by the ITAT for statistical purposes. The ITAT directed the Assessing Officer to re-examine the disallowance of the cost of application software as capital expenditure, with 60% depreciation allowed on the software. Additionally, the ITAT instructed the AO to verify the excess claim of expenditure related to sales incentives to prevent double taxation. The matter was remanded back to the AO for fresh adjudication based on the duration of use of the software and proper verification of the claimed expenditure.

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Issues:
1. Disallowance of cost of application software as capital expenditure.
2. Disallowance of excess claim of expenditure.

Issue 1: Disallowance of cost of application software as capital expenditure

The appeal was against the disallowance of the cost of application software by the Assessing Officer, treated as capital expenditure. The Assessing Officer held that the software purchase amount was capital in nature, disallowing it entirely. The appellant contended that the expenditure was revenue in nature, as it did not create a capital asset with enduring benefits, citing relevant case laws. The CIT(A) observed that post an amendment in A.Y. 2003-04, computer software was to be capitalized with 60% depreciation allowed. The CIT(A) directed 60% depreciation on the software, confirming the balance as capital expenditure. The ITAT noted a similar issue in the preceding year and referred to a Special Bench decision, directing the matter back to the AO for fresh adjudication based on the software's duration of use.

Issue 2: Disallowance of excess claim of expenditure

The AO disallowed Rs.18,98,870 as excess expenditure claimed, related to sales incentives reversed and not added back in the current year. The CIT(A) upheld the disallowance, stating the provision lacked statutory or judicial support, being contingent and uncertain. The appellant argued that the provision was reversed in the previous year and not claimed as a deduction, thus should not be added back. The ITAT found that the amount was already offered for taxation in the earlier year, leading to double taxation. Consequently, the ITAT set aside the CIT(A)'s order and remanded the matter to the AO for proper verification, ensuring no double taxation.

In conclusion, the ITAT allowed the appeal for statistical purposes, directing the AO to re-examine both issues in light of the provided details and legal principles.

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