Case Law Details
DCIT Vs Landis+ Gyr Ltd. (ITAT Kolkata)
Expenditure incurred for construction / acquisition of new facility which had to be abandoned midway will be allowable as a revenue expenditure as incurred wholly or exclusively for the purpose of assessee’s business. It is to be noted that in the instant case also, the expenditure incurred by the appellant was for the purpose of installation of new ERP package which did not sail through and had to be abandoned midway. Hence, the expenditure incurred did not give rise to any enduring benefit to the appellant neither did it result in creation of a capital asset. The Hon’ble Calcutta HC, in the case of Graphite India Limited reported (221 ITR 420) has also held, that expenditure which did not result in bringing into existence if any capital asset of enduring nature would be admissible as revenue expenditure.
Assessee claimed deduction for expenditure of Rs. 28,18,250/- pertaining to installation of SCALA ERP software. The said project was abandoned during the year and SCALA ERP software was not installed. Hence, revenue deduction was claimed by assessee for the expenses incurred. Detailed reply was filed during assessment proceedings in support of the claim of the assessee. However, assessing officer disallowed the deduction for said expense stating that it is a capital expenditure which yields benefit for a longer period. However, AO allowed depreciation on the said expense @60%.
On appeal, the Ld. CIT(A) vide its order dated 11-08-2017 allowed the claim of the assessee stating that expense incurred by the assessee should be treated as revenue expenditure relying on the decision of Hon’ble Kolkata High Court in the case of Binani Cement Ltd. (2015) 233 Taxman 340 (Cal).We note that during the previous year under consideration, the assessee recognized an expenditure of Rs. 28,18,250/- in its profit and loss account. The said amount pertained towards an unsuccessful attempt to install an ERP package called SCALA. The said package failed to meet the requirements of the assessee and hence the project had to be abandoned midway. The expenditure incurred on said package was recognized in profit and loss account and was claimed as a revenue deduction u/s 37(1) of the Act. That being so, we decline to interfere in the order of ld CIT(A), his order on this issue is hereby accepted and the grounds of appeal raised by the Revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
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