The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench consisting of Mahavir Prasad, Judicial Member, and Waseem Ahmed, Accountant Member held that expenditure on maintenance, backup, and support services to existing hardware and software is revenue in nature.
Commissioner of Income Tax (CIT) disallowed the up-gradation of software expenses of about Rs.1,58,585/-. The assessee, Gujarat Industries Power Co. Ltd. incurred up-gradation of software expenditure to integrate the internal communication system email to Lotus notes within the company. This expenditure has been incurred only for facilitating the trading operation leaving the fixes untouched. However, the assessing officer (AO) disallowed the above expenditure under-treated as capital expenditure being enduring the nature. The CIT confirmed this addition after allowing depreciation on these expenses.
The Assessing Officer referred to provisions of section 199 and held the entire amount of Rs,78.1 crores as includible in book profits u/s.115JB for such alternate reasoning and that out of Rs.78.1 crore, only Rs.16.01 crore is to be considered as income assessable in. In Assessment Year (A.Y) 2006-07, the appellant received a partial claim of Rs.23 crore (out of DPC of Rs.78.1 crore) and included the same in book profits. An Amount of Rs.23 crore was excluded by the appellant from the taxable income of A.Y.2006-07 under normal provisions on the ground that Rs.78.1 crore in full had already been included in taxable income as per normal provisions of the Act. In other words, credit of TDS of Rs.16.01 crore to be allowed in various assessment years would be Rs.3.2819 crore (16.01/78.1) in A.Y.2004-05, Rs.4.7149 crore (23/78.1) in A.Y.2006-07 and remaining, i.e. Rs.8.0132 crore in A.Y.2007- 08, subject to verification by the Assessing Officer of the calculations with reference to income assessable in each year.
The Counsels for the appellants, Mohd. Usman and Purushottam Kumar submitted that the jurisdictional High Court in the case of CIT v. N.J. India Invest (P.) Ltd. held that Expenditure on maintenance, backup, and support services to existing hardware and software is revenue in nature, and therefore allows the expenditure as revenue in nature.
The Tribunal following the decision of the High Court held that “Expenditure on maintenance, back-up, and support services to existing hardware and software is revenue in nature, and therefore allow the expenditure as revenue in nature.”
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