Revenue's Petition Dismissed: Software License Fee Classified as Revenue Expenditure

The Deputy Commissioner of Income Tax, Company Circle – 1 (2), Chennai Versus M/s Chona Financial Services Pvt. Ltd.

The Deputy Commissioner of Income Tax, Company Circle – 1 (2), Chennai Versus M/s Chona Financial Services Pvt. Ltd. - TMI Issues:
1. Appeal filed due to audit objection.
2. Classification of software license fee as revenue or capital expenditure.
3. Authority to decide classification of expenditure - Assessing Officer or Audit Wing.
4. Reopening of assessment under Section 148 of the Income-tax Act.

Analysis:
1. The Revenue filed a Miscellaneous Petition seeking the recall of the Tribunal's order dated 31.05.2017, contending that the appeal was filed due to an audit objection. The Departmental Representative argued that the appeal was initially decided based on the tax effect being less than 10 lakhs, but due to the audit objection regarding a software license fee claimed as revenue expenditure, an additional demand of &8377; 9,06,767 arose, necessitating a merit-based decision.

2. The assessee claimed &8377; 16,16,000 as revenue expenditure for software license fee during the relevant year, which the Assessing Officer initially allowed. However, the Audit Wing reclassified it as capital expenditure. The Tribunal held that the classification of expenditure should be determined by the Assessing Officer, with the Audit Wing having the role of highlighting any misclassifications. In this case, the Assessing Officer maintained the revenue expenditure classification, leading to the reopening of assessment under Section 148.

3. The Tribunal emphasized that the license fee paid for software should be considered revenue expenditure, as asserted by the Assessing Officer. Despite the Audit Wing's differing opinion, the Tribunal found no merit in the Revenue's Miscellaneous Petition, ultimately dismissing it.

4. The Tribunal dismissed the Revenue's Miscellaneous Petition, affirming the Assessing Officer's classification of the software license fee as revenue expenditure. The decision was pronounced on 2nd November 2018 in Chennai.