Appeal allowed for prepaid software expenses disallowance, assessing officer directed to permit expenses incurred

The appeal was allowed in favor of the assessee concerning the disallowance of prepaid software expenses. The Tribunal directed the assessing officer to allow the expenses, noting that the invoices and written submissions provided by the assessee supported the validity of the expenses for a 12-month contract. Despite the ld CIT(A) upholding the disallowance without proper verification, the Tribunal found in favor of the assessee based on the evidence presented, ultimately allowing the appeal and instructing the assessing officer to permit the expenses incurred for prepaid software maintenance.

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Issues Involved: Disallowance of prepaid software expenses

Analysis:
1. The appeal was against the order of the ld. CIT(A)-49, Mumbai for Assessment Year 2014-15, concerning the disallowance of prepaid software expenses of Rs. 3,03,372 out of total annual maintenance charges of Rs. 3,37,080. The assessing officer disallowed the expenses, claiming they were only for one month based on the invoice date.

2. The assessee argued that the expenses were for annual maintenance of software and stress analysis, covering a 12-month contract from 31st December 2013 to 31st December 2014. The assessing officer did not request details before disallowing the expenses. The assessee reversed the prepaid amount for nine months, amounting to Rs. 2,52,810, and claimed only the net expenditure.

3. The ld AR submitted complete details to the ld CIT(A), including the contract agreement and evidence of expenses incurred. However, the disallowance was upheld without proper verification by the ld CIT(A), who claimed no submissions were made, despite written submissions and supporting documents provided by the assessee.

4. The ld DR for the revenue supported the lower authorities' decision, stating that the assessee failed to explain the facts as recorded in the order. However, the assessing officer's remand report acknowledged that the bills and vouchers submitted by the assessee were in order.

5. The Tribunal noted that despite the sufficient material on record, including invoices and written submissions, the ld CIT(A) affirmed the disallowance without examining the facts. The Tribunal directed the assessing officer to allow the expenses, considering the assessing officer's acceptance in the remand report that the submissions of the assessee were in order.

6. The tax invoice clearly indicated the validity of the maintenance contract until 31st December 2014, with the purchase order placed on 10.02.2014 and the invoice generated on 10.03.2014. Consequently, the grounds of appeal raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

7. The order was pronounced on 16/06/2020, directing the assessing officer to allow the expenses incurred by the assessee for prepaid software maintenance, as supported by the evidence presented during the proceedings.

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