2010 (5) TMI 622

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....ax (Appeals) erred in deleting the addition of Rs. 10,30,500 made by the Assessing Officer treating the payment to Derpol as capital expenditure taking the view that it was revenue expenditure. According to the scope of work defined in agreement and other documents, the nature of expenses incurred by the assessee-company is of enduring/capital in nature." 2. The assessee-company is engaged in the business of software development and deployment. It filed its return of income on November 30, 2006 declaring total loss of Rs. 11,29,655 for the relevant assessment year. During the course of the assessment proceedings, it was noticed by the Assessing Officer that the assessee has claimed a deduction of expenses of Rs. 10,30,500, being the paym....

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....ng Officer stated that the revenue generated from M/s. Spice Communication P. Ltd. had no connection to the services provided by M/s. Derpol Investment Ltd. inasmuch as, the assessee has started availing of the services of M/s. Derpol Investment Ltd. only from January, 2006 though the receipts from M/s. Spice Communication P. Ltd. were pertaining to the period prior to the date of execution of the agreement with M/s. Derpol Investment Ltd. The Assessing Officer even otherwise had taken a view that the expenses incurred by the assessee had resulted into a benefit of enduring nature to the assessee, and hence, held to be a capital expenditure. He, therefore, disallowed the deduction of Rs. 10,33,500 and added the same to the assessee's total ....

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.... Investment Ltd. to the appellant. I am of the view that such expenditure are revenue in nature as they are neither enduring nor any asset has come into existence. It is simply the advisory services obtained by the appellant from M/s. Derpol Investment Ltd. to modify the system to meet the requirement of its clients, namely, M/s. Spice Communication P. Ltd. In totality of all these facts and circumstances I have no hesitation to uphold that the expenses claimed by the appellant of Rs. 10,30,500 are revenue expenses only and directed to be allowed." 4. Hence, the Department is in appeal before us. 5. We have heard both parties and have carefully gone through the orders of the authorities below. We have carefully perused the material pl....