The Income Tax Appellate Tribunal Mumbai ruled that the software license expenditure on similar products to be revenue in nature.
The tribunal noted that during the year under consideration, the assessee incurred the software license expenditure of Rs.2,05,79,751 towards purchase of Microsoft licenses, Microsoft server product maintenance, Microsoft desk product maintenance, e-TDS software, license for use of data base for access to data-salesforce.com, mobile app, etc.
The bench found that the issue whether software license expenditure incurred by the assessee is revenue or capital expenditure, is recurring in nature and has been decided in favour of the assessee by the coordinate bench of the Tribunal in preceding years.
The tribunal found that in DCIT v/s M/s First Advantage Private Limited, for the assessment year 2010-11, the coordinate bench of the Tribunal vide order held the software license expenditure on similar products to be revenue in nature.
Following the order passed by the coordinate bench of the Tribunal in assessee’s own case, the bench found no infirmity in the order in treating the software license expenditure as revenue in nature. As a result, ground raised in Revenue’s appeal was dismissed.
For second ground the tribunal found that during the assessment proceedings vide notice issued under section 142(1) of the Act, the assessee was asked to show cause as to why the disallowance should not be made under section 40(a)(ia) of the Act, as it has not deducted TDS on the total payment made to the contractors and fee for professional or technical service or the assessee has deducted TDS on part payment and has not deposited the same within time.
In response thereto, the assessee submitted that TDS under section 194C and section 194J of the Act has been deducted at the specified rate and paid on the major portion of the amount paid to contractors and fee for professional or technical service.
The bench observed that there is no material contrary to the assessee’s submission that the relevant details were submitted before the learned CIT(A) in this regard and 30% of Rs.98,363, i.e. Rs.29,063 was disallowed in its computation of income by the assessee.
Facts
The assessee is a private limited company engaged in the business of employment background screening services.
For the year under consideration, the assessee filed its return of income on 29/11/2017 declaring a total income of Rs. 25,01,35,460 under the normal provisions and book profit under section 115JB of the Act at Rs.8,10,93,284.
The return filed by the assessee was selected for complete scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee.
The Assessing Officer vide order passed under section 143(3) of the Act assessed the total income of the assessee at Rs.36,72,33,727 under normal provisions of the Act, inter-alia, after disallowing software license expenses treating the same as capital in nature, and making disallowance under section 40(a)(ia) of the Act. The learned CIT(A), vide impugned order, granted relief to the assessee and deleted the aforesaid disallowance.
Conclusion
The bench viewed that the CIT(A) has rightly deleted the disallowance made by the AO under section 40(a)(ia) of the Act, and found disallowance of 30% of the total payments to be unjustified. Accordingly, the order passed by the CIT(A) on this issue is affirmed by the tribunal.
Case Details
Case Name: ACIT v/s First Advantage Pvt Ltd
Citation: ITA no.1380/Mum./2024
Tribunal: ITAT Mumbai
Coram: Shri B.R. Baskaran, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member
