TaxTMI 
TaxTMI 
2022 (7) TMI 258
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....on on the intangible assets of INR 22,500,657 On the facts and in the circumstances of the case, the learned CIT(A) erred in facts and law in confirming the disallowance of depreciation on the intangible assets on the grounds that the expenditure incurred towards availing of professional and legal services during pre-operative period i.e. before commencement of the commercial operation, is revenue in nature, which qualifies for capitalization among various fixed assets. Reduction in MAT credit - INR 7,300,338 3. Software expenses for INR 4,591,040 (net of depreciation) On the facts and in the circumstances of the case, the learned CIT(A) erred in facts and law in confirming the disallowance made towards software expenses on the ground that complete detail of software expenses was not furnished, without considering the detailed submission made by the Appellant and treating the same as capital in nature. 4. Initiation of penalty proceedings That the appellant prays that directions be given to grant all such relief and arising from the above grounds and also relief consequential thereto. That the Appellant craves leave to add to....
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....ort & non-airport activities. (iii) The above mentioned agreements provide an enabling business or commercial right to the assessee which is owned and used by the assessee for the purpose of its business, the costs identified and allocated to such rights will qualify for capitalization as intangible assets u/s. 32 of the Act, & (iv) The relevant intangible assets are eligible for depreciation @ 25% on the WDB. 6. The AO rejected the submissions of the assessee on the ground that the expenses are incurred by the assessee in obtaining support mostly by way of payment towards legal, technical and management fees for availing services, which cannot be termed as incurred for acquiring business or commercial rights falling under the definition of intangible assets. According to him, depreciation thereon was not allowable. Therefore, he disallowed the entire depreciation claimed towards intangible assets. 7. On appeal, the CIT(Appeals) confirmed the disallowance relying on the decision of the CIT(A) in assessee's own case for the AY 2010-11 wherein the depreciation was disallowed. Aggrieved, the assessee is in appeal before the Tribunal. 8. Before us, the ld. AR....
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.... the expenditure incurred on computer software which has a short duration should be treated as revenue in nature. 12. The AO rejected the submissions of the assessee on the ground that the software acquired provides firstly, the right, and secondly, enduring benefit to the assessee. The AO was of the view that the assessee has the right to exploit the software as per the requirement which is the commercial right in the nature of intangible asset and relied on the Supreme Court decision in Devidas Vithaldas & Co. v. CIT, 84 ITR 227 (SC). He concluded that the software expenses bring enduring benefit to the assessee and was capital in nature but the AO allowed depreciation @ 60% on the capitalized software expenses. 13. On appeal, the CIT(Appeals) upheld the order of the AO on the reasoning that assessee has not furnished any break-up of the expenditure to analyse whether the payments are made towards acquisition of software license or annual updation to decide the enduring benefit. Aggrieved, the assessee is in appeal before the Tribunal. 14. Before us, the assessee has filed application for admission of additional evidence consisting of detailed break-up of software expend....
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....ich is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and, hence, to be treated as revenue expenditure. In fact, this court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for....
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....it. The Explanation to the section states for the purposes of this section, "book profit" means the net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased by the amount mentioned in the Explanation. One such amount which we are concerned is in sub-clause (c) the amount or amounts set aside to provisions made for meeting liabilities, other than ascertained liabilities. By the Finance (No. 2) Act of 2009, with effect from April 1, 1998, the present clause (g) has been substituted by including the amount or amounts set aside as provision for diminution in the value of any asset. Therefore, in the light of the aforesaid judgment, the finding recorded by the Tribunal cannot be sustained. The said amount is to be added to the book profit and in that view of the matter, the third substantial question of law is answered in favour of the Revenue and against the assessee." 18. We notice that the Hon'ble High Court in this case has held that even if the application has an enduring benefit, it does not result in acquisition of capital asset. 19. The decision relied on by the ld. DR in Toyota Kirloskar Motor (P) Ltd. (s....