Payment made for Usage of Software is Revenue Expenditure: ITAT allows Income Tax Deduction [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that payment made for the usage of the software is revenue expenditure and deduction is allowable.

The assessee was represented by Shri R.M. Mehta and the department was represented by Shri Rajinder Jha.

The assessee, M/s. Bigfoot Retail Solution Pvt. Ltd is engaged in the business of providing IT-enabled and BPO services which filed its return declaring a loss of Rs. 2,20,29,872/-. The assessment was completed under section 143(3) of the Income Tax Act, 1961 on a net loss of Rs. 39,03,530/- resulting in an addition of Rs. 9,95,086/- under section 56(2) (viib). CIT(A) allowed part relief.

It was observed that Nirvana Digital Investment Holding Co. Ltd and Mauritius-based Company and the provisions of section 56(2)(viib) are not attracted. It was submitted that the assessee company falls under the category of Venture Capital Undertaking and that it has received the money from Venture Capital Fund i.e. Nirvana Digital India Fund.

Being a private limited company engaged in the business of IT enabled and BPO services which satisfy the twin conditions prescribed under clause (n) of Regulation 2 of the Venture Capital Funds Regulations. It was also submitted that the impugned expenses were incurred in the course of business of the assessee company and that it was not like personal expenditure. We agree with the above contentions of the assessee.

It was settled that if the expenditure was not incurred for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business but for running the business of the assessee more efficiently, it partakes the character of revenue expenditure. The invoices available on record prove that payment was made for subscription services and use of software and not for any outright purchase and the assessee had no acquisition of software. 

Shri Anil Chaturvedi, accountant member, and Ms. Astha Chandra, judicial member held that the impugned expenditure is of a revenue nature and is allowable as a deduction and set aside the order of the CIT(A).

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates