TaxTMI 
TaxTMI 
2020 (8) TMI 174
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....956/Del/2016 (A.Y. 2002-03) "1. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition of Rs. 1,94,03,906/- being expenses incurred on Enterprise Resource Planning ("ERP") and software expenses, holding the same as capital expenditure." ITA NO. 1957/Del/2016 (A.Y. 2003-04) "1. That on facts and circumstances of the case and in law, the CIT(A) erred in confirming the addition of Rs. 34,44,637/- being expenses incurred on Enterprise Resource Planning ("ERP") and software expenses, holding the same as capital expenditure." ITA NO. 1958/Del/2016 (A.Y. 2004-05) 1. That on the facts and circumstances of the case and in law, the CIT(A) erred in not directing the assessing officer to allow deduction of Rs. 2,87,484, being expenses relatable to the relevant assessment year but debited in the Profit & Loss Account of the subsequent assessment year(s). 2. That on the facts and circumstances of the case and in law, the CIT(A) erred in not directing the assessing officer to allow depreciation of Rs. 35,89,089, based on the revised depreciation chart filed during the course of assessment proc....
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....ncome of the assessee at Rs. 14,71,34,801/-, which was set-off against available brought forward losses / allowances. Long term capital loss of Rs. 1,27,04,048/- for the year as claimed by the assessee was allowed to be carried forward to subsequent years in accordance with the provisions of Section 74 of the Income Tax Act, 1961. The book profits in terms of Section 115JB was assessed at Rs. 5,92,24,133/- and the tax due thereon was fully adjusted against the taxes already paid by the assessee. Thus, the summary of the additions / disallowances made by the Assessing Officer are as follows: i) Interest on SDF loan: Addition of Rs. 63,90,848/- (ii) ERP, Software & Design Development & BPR Expenses: Addition of Rs. 81,62,280/- (iii) Short Charging of Interest on Loan/Advance to Carvanserai Ltd.: Addition of Rs. 90,95,883/- iv) Bad Debts written off: Addition of Rs. 5,83,352/- v) Commission: Addition of Rs. 91,834/- vi) Dividend Income: Addition of Rs. 3,00,000/- 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. As regards to Groun....
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....ughout the world and has its application in processing and documenting business data. The SAP software is divided into sub-modules like work-flow management, human resources, finance and accounting, logistics, production, etc. The software provides capability to surpass the boundaries between departments in an organization and the integrated modules work together and support the individual departments. The Ld. AR submitted that the Assessing Officer failed to appreciate that aforesaid expenses incurred merely facilitated the day-to-day business operations and did not result in any enduring benefit in the capital field, ignoring the following facts: i) ERP is a standardized software and not a customized software. Further, ERP is an application software and not an operating software; ii) The software does not involve transfer of any technology for the production of any particular product nor it is an integral part of any particular machinery used in manufacture of finished products by the assessee; iii) The assessee only had the limited right to use the software for the purpose of business; the assessee cannot copy, translate, disassemble, etc., the softwar....
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....e expenditure is allowable revenue expenditure. The Hon'ble Supreme Court in the case of Empire Jute Co Ltd vs CIT: 124 ITR l laid down the test for determining as to what constitutes capital expenditure. The ratio decidendi laid down in the fore said judgment has been reiterated in the following decisions: * CIT vs Associated Cement Companies Ltd: 172 ITR 257 (SC) * Alembic Chemical Works Co. Ltd vs CIT: 177 ITR 377 (SC) The aforesaid expenditure on computer software too, it is submitted, did not result in an enduring benefit in the capital field and, therefore, the same is not in the nature of capital expenditure. The Hon'ble Delhi High Court in the case of CIT vs K & Co. 181 CTR 378 upheld that the order of the Tribunal holding that expenditure incurred by assessee on maintenance of computer and their upgradation including development of software was in the nature of revenue expenditure and did not give rise to any substantial question of law. The Ld. AR relied on the decision of Hon'ble Delhi High Court in the case of CIT vs GE Capital Services Ltd. 300 ITR 420 (Del) wherein purchase of MS Office software was held to be of revenue nature since it was not cu....
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....xman 28 (Del Trib.) • ST Microelectronics Private Ltd v. CIT: 145 TTJ 553 (Del Trib.) • Bank of Punjab Ltd v. JCIT: 122 Taxman 235 (Chd Trib.) • Business Information Processing Services v. ACIT: 73 ITD 304 (Jaipur Trib.) • ITC Classic Finance Ltd v. DCIT: 112 Taxman 155 (Kol Trib.) • ACIT v. SRA Systesm Ltd.: 153 ITD 338 (Chennai Trib.) • Nimbus Communication Ltd. v. Addl. CIT 149 ITD 508 (Mum. Trib.) • Sanghvi Savla Stock Brokers Ltd: 152 ITD 820 (Mum Trib.) In view of the above, the Ld. AR submitted that expenditure incurred by the assessee towards implementation of ERP system in the business, in the present modern era of fast changing technology, cannot be said to result in acquisition of any capital asset nor can be said to have resulted in any benefit of enduring nature, to be regarded as capital expenditure. Further, since the right to use the underlying software is acquired by the assessee to integrate the functioning of the business as a whole, no revenue per-se was generated by the assessee from any of such licensed software. The same merely resulted in the business operations bei....
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....e as result of said expenditure. The said expenditure has been incurred only for smooth working and for improving the functioning of the organization. The Assessing Officer ignored the fact that in today's fast changing technology where software becomes obsolete for smooth functioning of the business, the software needs to be replaced / upgraded by an assessee from time to time, the software, in any, case cannot also be said to result in any enduring benefit to the assessee to be considered and thus, it cannot be held as capital expenditure. The case laws referred by the Ld. AR supports the contentions of the assessee as expenditure incurred on computer software does not constitute enduring benefit to term the same as capital in nature. Thus, the Assessing Officer as well as the CIT(A) failed to take cognizance of the decisions of the various High Court and the Apex Court as well as the nature of the expenditure incurred by the assessee. Hence, Ground No. 1 of Assessee's appeal is allowed. 8. As regards to Ground No. 2 relating to disallowance under Section 14A of the Act to the extent of Rs. 86,398/-, the Ld. AR submitted that during the year under consideration, the assessee e....
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.... The said expression "in relation to" has been judiciously explained in various decisions to mean some real, dominant and immediate relationship. In this regard, the Ld. AR pointed out the decision of Hon'ble Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers: 233 CTR 42, wherein it has been held that there must be a proximate relationship of expenditure with exempt income, for the purposes of making disallowance of same under Section 14A of the Act. In the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT 328 ITR 81, the Hon'ble Bombay High Court, while deciding the issue of disallowance under Section 14A of the Act, following the aforesaid the Hon'ble Supreme Court decision in Walfort Shares & Stock Brokers (supra), observed that disallowance under Section 14A can be effected only when a proximate cause for disallowance is established, stating the relationship of the expenditure with income which does not form part of the total income. The Ld. AR also relied upon the decision of the Hon'ble Delhi High Court in case of Maxopp Investment Ltd. 203 Taxman 364 wherein the Hon'ble High Court, while approving the contention raised by the assessee held that the term "expenditu....
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....ed automatically by direct transfer to the bank account of the assessee. In this regard, the Ld. AR pointed out that in the subsequent Assessment Year, i.e., 2002-03, even though the assessee earned dividend income amounting to Rs. 7,52,875, no disallowance under Section 14A of the Act was made by the Assessing Officer. Thus, the Ld. AR submitted that the Assessing Officer accepted the contention of the assessee that no expenditure has been incurred for earning the dividend income and therefore no disallowance under Section 14A was called for. Accordingly, the Assessing Officer erred in disallowing, on an ad-hoc basis Rs. 3 lacs under section 14A of the Act, without appreciating that no expenditure was actually incurred for earning dividend income and without bringing any evidence on record to establish nexus between the expenditure and earning of dividend income. 9. The Ld. DR relied upon the Assessment Order. 10. We have heard both the parties and perused all the relevant material available on record. From the perusal of records, it can be seen that the Assessing Officer accepted the contention of the assessee that no expenditure has been incurred for earning the dividend i....