ITAT Bangalore: Expenses on computer software not capital expenditure. Deemed dividend addition not sustainable. The ITAT Bangalore allowed the appeal by the assessee against the CIT(A)'s decision. The ITAT held that the expenses on computer software should not be ...
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ITAT Bangalore: Expenses on computer software not capital expenditure. Deemed dividend addition not sustainable.
The ITAT Bangalore allowed the appeal by the assessee against the CIT(A)'s decision. The ITAT held that the expenses on computer software should not be treated as capital expenditure and that the addition of deemed dividend u/s 2(22)(e) was not sustainable as the recipient was not a shareholder of the lender company. The ITAT referred to relevant legal provisions and precedents to support its decision. As a result, the addition was directed to be deleted, and the appeal was partly allowed on October 12, 2012.
Issues involved: Appeal against order treating computer software expenses as capital expenditure and addition of deemed dividend u/s 2(22)(e) of the Income Tax Act.
Issue 1 - Computer Software Expenses: The assessee appealed against the CIT(A)'s decision to treat expenses on computer software as capital expenditure and allowing depreciation at 60%. The ITAT upheld the CIT(A)'s order without delving into the nature of the software, citing the quantum of the amount in dispute.
Issue 2 - Deemed Dividend u/s 2(22)(e): The AO taxed a sum received by the assessee as deemed dividend u/s 2(22)(e) of the Act, based on a loan received from another company where directors of both companies held substantial shareholdings. The CIT(A) confirmed the addition as deemed dividend, considering the transactions as loans and not advances.
The ITAT referred to a Special Bench decision and subsequent High Court rulings, highlighting that for the deeming provision of section 2(22)(e) to apply, the recipient must be a shareholder of the lender company. The ITAT differentiated the present case from a previous decision involving a partnership firm, concluding that as the assessee was not a shareholder in the lender company, the addition u/s 2(22)(e) was not sustainable. Consequently, the addition was directed to be deleted, and the appeal was partly allowed.
The judgment was pronounced on October 12, 2012, by the Appellate Tribunal ITAT Bangalore, with Shri N.V. Vasudevan and Shri Jason P. Boaz as members, in response to an appeal by the assessee against the CIT(Appeals)-I, Bangalore's order for the assessment year 2007-08.
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