TaxTMI 
TaxTMI 
2026 (5) TMI 688
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....f the case and in law, the learned CIT(A) erred in holding that the software expenses amounting to Rs 37,87,67,000/- incurred by the assessee were revenue in nature, ignoring the fact that such expenditure resulted in enduring benefit to the assessee and hence was rightly treated as capital expenditure by the Assessing Officer". 2) Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that software expenses amounting to Rs.37,87,67,000/- were revenue in nature, without appreciating that such expenditure resulted in acquisition of software tools and licenses of enduring utility and benefit to the assessee, and hence rightly treated as capital expenditure by the Assessing Officer 3) Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the expenditure incurred towards software acquisition, database support, and license renewal formed an integral part of a capital asset that enhanced the assessee's business infrastructure, and therefore, the AO was justified in allowing depreciation thereon and disallowing the balance amount" 4) Whether on the fac....
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....t. 5) Ground 5. Whether the learned CIT(A) was justified in holding that penalty proceedings initiated u/s 271(1)(c) were infructuous merely because the addition was deleted, ignoring that initiation of penalty was valid and consequential upon detection of furnishing of inaccurate particulars of income by the assessee. 6) Ground 6. The appellant craves leave to add, amend, OR alter any of the above grounds of appeal before OR during the course of hearing, in the interest of justice." 2.2. The Assessee raised following grounds of appeal for AY 2014- 15: "1) On the facts and circumstances of the case and in law, while disposing of Ground No. 9 raised before Honourable CIT(A),NFAC, the Honourable CIT(A), NFAC erred in holding the said Ground to be academic in nature without adjudicating it as an independent ground and thereby, erred in not explicitly granting relief to the Appellant in respect of the double disallowance of Rs. 22,94,08,377. 2) On the facts and circumstances of the case and in law, the Honourable CIT(A), NFAC has erred in not adjudicating the Ground No. 9 on merits and that the learned AO, NFAC erred in computing the total income ....
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....e and requires continuous replacement and upgradation. It was further contended that the expenditure is incurred wholly and exclusively for the purpose of carrying on the business efficiently and therefore is allowable as revenue expenditure. We have perused the submissions advanced by both sides in light of the records placed before this Tribunal. 5. The issue that arises for our consideration is whether the expenditure incurred by the assessee towards software is capital or revenue in nature. 5.1. It is observed from the material placed on record that the expenditure incurred by the assessee is predominantly towards software licences, database access, support services and periodic upgrades. Such expenditure does not result in the creation of any independent or enduring capital asset but merely facilitates the smooth and efficient functioning of the business operations of the assessee. In the present era of rapid technological advancement, software systems require constant updates and replacements, thereby diluting the traditional test of enduring benefit. 5.2. Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT reported in (2021....
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....8. On an appeal before the Ld.CIT(A), the ground raised by the assessee was treated as academic by observing as under:- "5.2. Since relief has been allowed to the Appellant vide adjudication over Ground 5 and thereby, directing the AO to delete the addition of Rs. 4,49,36,812/-, Grounds 1 to 4 and 6 to 9 become academic nature." Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this Tribunal. 9. The Ld.AR submitted that the action of the Ld.AO has resulted in taxing the same income twice which is impermissible in law. It was submitted that the assessee already disallowed the amount while filing return in response to notice under section 148 and therefore no further addition could be made. It was further submitted that the issue is revenue neutral and represents only a timing difference and that the Ld. CIT(A) erred in not adjudicating the ground on merits. 9.2. The Ld. DR relied upon the orders of the lower authorities. It was contended that the assessee could not have raised this issue in the present appeal. She objected to the arguments advanced by the Ld.AR by submitting that the claim could not have been made in the return filed in lieu of noti....