Assistant Commissioner Of Income Tax v. Growth Avenues Limited....opponent(S

O/TAXAP/1799/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1799 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ ASSISTANT COMMISSIONER OF INCOME TAX....Appellant(s) Versus GROWTH AVENUES LIMITED....Opponent(s) ================================================================ Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERIandHONOURABLE MR.JUSTICE K.J.THAKER Date : 13/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned judgment and order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench (hereinafter referred to as ITAT) dated 18.11.2004 in ITA No. 4231/Ahd/2003 for the Assessment Year 2000-01, the revenue has preferred the present Tax Appeal. 1.1This Court while admitting the present appeal formulated the following substantial question of law for consideration: Whether, on the facts and in the circumstances of the case, and in law, the Honourable Tribunal is right in admitting the additional ground for consideration that the cost of purchase of new software being Rs. 25.25 lakhs was revenue expenditure and not capital expenditure? 2. The assessee firm is engaged in the business of brokerage of shares i.e. purchase and sales of shares on behalf of their clients and thereby earning brokerage or commission as the case may be. The Assessing Officer disallowed certain deductions claimed by the assessee as bad debts under section 36(1)(viii) of the Act. The Assessing Officer also disallowed certain payments made to partnership firm known as Growth Avenue under Section 40A(2)(b) of the Act. On appeal, the CIT (Appeals) confirmed the findings of the Assessing Officer and dismissed the appeal. 3. On appeal before the ITAT by the assessee, by impugned judgment and order, ITAT vide order dated 18.11.2004 partly allowed the appeal and deleted the deductions disallowed by the Assessing Officer towards bad debts and the payment made to M/s. Growth Avenue under section 40A(2)(b) of the Act. 4. Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 5. Mr. Sudhir Mehta, learned Counsel appearing on behalf of the appellant – revenue has submitted that as such the issue involved in the present Tax Appeal is now not res integra in view of the decision of the Honble Supreme Court in the case ofCommissioner of Income – Tax vs. Arawali Constructions Co. (P) Ltd reported in (2003) 259 ITR 30 wherein the Hon’ble Supreme Court has held that the expenditure on acquisition of technical know how is capital expenditure, therefore, the expenditure on acquiring the computer software as expenditure of capital nature. 4. Being aggrieved and dissatisfied with the impugned judgment and order passed by the ITAT, the revenue has preferred the present Tax Appeal for consideration of the aforesaid substantial question of law. 5. Mr. Sudhir Mehta, learned Counsel appearing on behalf of the appellant – revenue has submitted that as such the issue involved in the present Tax Appeal is now not res integra in view of the decision of the Honble Supreme Court in the case ofCommissioner of Income – Tax vs. Arawali Constructions Co. (P) Ltd reported in (2003) 259 ITR 30 wherein the Hon’ble Supreme Court has held that the expenditure on acquisition of technical know how is capital expenditure, therefore, the expenditure on acquiring the computer software as expenditure of capital nature. 6. We have heard Shri Mehta, learned Counsel appearing on behalf of the Department. A similar question came up before this Court in the case of Commissioner of Income Tax – I vs. N.J. India Invest (P) Ltd reported in [2013] 32 taxmann.com 367 (Gujarat) and this Court while deciding the said issue has held that software development and upgradation would include data administration services, information and technology support services, software asset management services etc which was in nature of maintenance, back up and support service to existing hardware and software and did not give any fresh or new benefit and therefore the same shall be considered as revenue expenditure. We are not giving any elaborate reasons for the same as in the case of N.J. India Invest (Supra) it is held by this Court that such expenses are required to be treated as revenue expenditure. 7.The Tribunal in the impugned order has observed that these expenditures are allowable as revenue expenditures as the software of computer needs quick changes/replacement and has relied upon the Tribunal’s decision in the case of Lubi Electricals Pvt. Ltd vs. DCIT. The Tribunal has followed the order passed earlier in the aforesaid case and accordingly sent back the matters to decide the same in accordance with the said decision and allow the claim of the assessee accordingly. We are in complete agreement with the reasonings adopted by the Tribunal on facts also. 8. In view of the above, the present Tax Appeal is held in favour of the assessee and consequently, the impugned judgment and order passed by the ITAT is confirmed. Hence, the present Tax Appeal is dismissed. No costs. (K.S.JHAVERI, J.) divya (K.J.THAKER, J)