TaxTMI 
TaxTMI 
2015 (6) TMI 395
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....ring the assessment proceedings, AO while examining the P&L A/c noticed that assessee has debited an amount of Rs. 89,47,827/- towards 'Software Expenses'. He issued a notice to the assessee calling upon to show cause why the expenses incurred should not be treated as 'Capital Expenditure'. In reply to the said show cause notice, as noted by the AO, the assessee submitted that software purchased being application software and not system software it has to be allowed as 'Revenue Expenditure'. The Assessing Officer (AO) after considering the submissions of assessee and on examining the details furnished, found that assessee had purchased two types of software viz., KMPC 4 Data preparation Software & MPS Data preparation Software from Kodak Versamark. The AO accessing information from the internet found that KMPC 4 data preparation Software is a vector-based processing and onchip memory service to super charge the performance of adhoc reports and query response times by up to 70 times faster with no new equipment. The software helps in analyzing more data and getting rapid results to critical data queries. It also automatically reduces the cost of processing an....
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....o the appellant which was hitherto unavailable. 6.13 From the point of view of functional tests, it is seen that these new software systems change the very core operations of the appellant with a significant change in technology. They also enable the appellant to conduct operations which were hitherto not possible. 6.14 On the other hand, the software systems are not just upgrade, rather they are complete and new solutions in themselves. They are designed to last much more than two years being technology altering in scope. 6.15 Thus, both from the point of view of functionality as well as from the economic time span the new software systems pass the tests of capital expenditure. I have therefore no hesitation in holding that the expenditure in question is capital in nature and it has brought about a distinct capital asset into existence. The addition on this account is ordered to be sustained and the assessing officer is directed to allow depreciation as per law". Being aggrieved, assessee is before us. 4. The Ld. AR more or less reiterating what was stated before the departmental authorities submitted that the software purchased being in nature of application software ....
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....tably, while leaving the fixed capital untouched, the expenditure would be on revenue account. The Special Bench however, observed, if assets/advantage is part of profit earning apparatus, it is capital. Observing as above, the Special Bench laid down certain broad parameters for determining the nature of expenditure which are as under: i. If the software forms part of profit making apparatus of assessee's business, it is to be treated as capital. ii. If the software is more expensive and if there are associated capital expenditure like purchase of new computer for manning the software, it is more likely to be a central tool of the business and it will be more enduring in nature adding to the profit earning apparatus. iii. If the acquisition of software radically changes the way operations hitherto was carried on, the expenditure will be capital. iv. If the life span of the software is more than two years, the expenditure will be capital. Reverting back to the facts of the present case, as could be seen the AO at least in the case of one of the software, viz., MPC 4 data preparation software has observed that it enhances the technical capacity of the computers. If t....
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....ture' as no new asset of enduring benefit has come into existence. As far as false ceiling and partition charges is concerned, Ld. AR submitted that they are also of the same nature and cannot be considered to be of any enduring benefit to the assessee. He therefore submitted that assessee's claim should be allowed. The Ld. DR on the other hand submitted that as far as replacement of flooring is concerned, the same has to be treated as 'Capital Expenditure' as replacement of a capital item will always be a 'Capital Expenditure'. As far as false ceiling and partition charges are concerned, Ld. DR submitted that as they are completely new items, they have to be treated as 'Capital Expenditures'. 8. We have considered the submissions of the parties and perused the materials on record. On examining the details of expenditure, we are of the view that expenditure incurred towards replacement of flooring cannot be considered to be a 'Capital Expenditure' as no new asset comes into existence as a result of such expenditure, rather, the expenditures incurred is more in the nature of maintenance of a capital asset. However, as far as false ceiling a....
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....annot be allowed. Accordingly, he disallowed depreciation on foreign exchange fluctuation loss capitalized to the value of computer and added back the amount of Rs. 52,791/-. When the assessee challenged the disallowances before the First Appellate Authority, Ld.CIT(A) after considering the submissions of the assessee in the light of account standard 11 as well as the provisions of Section 43A held that, as per the statutory provision, the change in the value of the asset can be recognized only at the time of payment and not before that. Thus, he approved the view of the AO that no adjustment to the cost of asset can be made on notional losses or gains. In this context, he relied upon a decision of the Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India Pvt. Ltd., [312 ITR 254]. 10. We have heard the parties and perused the orders of the revenue authorities as well as the other materials on record. It is manifest from record that deduction claimed by the assessee is on the basis of notional loss due to foreign exchange fluctuation. In our view, no addition or deduction can be made to the cost of the asset on account of such notional loss/gain on account of f....
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....unt of Rs. 50,000/- claimed to be towards insurance payment relating to earlier years is concerned, we are of the view that the same requires examination by the AO. Therefore, to the limited extent of verifying the payment of Rs. 50,000/-, we remit the issue back to the file of AO to verify and allow the expenditure if assessee's claim is found to be correct. This ground is partly allowed for statistical purposes. 13. In ground No.7, assessee has challenged the disallowance of expenditure amounting to Rs. 2,82,600/- under the head 'Miscellaneous Expenditure'. Briefly, the facts are during the assessment proceedings, the AO found that assessee has claimed an amount of Rs. 20,14,022/- towards miscellaneous expenses. When AO called upon the assessee to explain the nature of expenditure with supporting evidences, the assessee submitted the details of expenditure with supporting vouchers. However, on verification of the information submitted, the AO noticed that expenditure booked under the heads 'business promotion' amounting to Rs. 5,20,815/- and miscellaneous expenses of Rs. 6,09,491/- are through self-made vouchers and are not supported by any authentic bills.....