Case Law Details
Indo British Garments P. Ltd. Vs ACIT (ITAT Delhi)
The solitary issue in this appeal is that the assessee has capitalized the said expenses in their financial statements and treated the same as royalty and claimed the same as revenue expenditure in the computation of income. The AO held that since the assessee itself has capitalized the said expenses in its financial statements and disallowed revenue expenditure claimed. The facts revealed that the assessee entered into a software license agreement with World Fashion Exchange India Pvt. Ltd. for ERP software named WFX-ERP-II and claimed that since the payment was for the use of software, the same should be treated as royalty and allowed as revenue expenditure. We find that the same has been capitalized in the books of accounts. Since, the same has been capitalized, we confirm the order of the revenue authorities and as the payment made is for obtaining computer software, we hold that the assessee is eligible to claim depreciation as per the provisions of Income Tax Act.
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals have been filed by the assessee against the order of ld. CIT(A)-4, New Delhi dated 17.01.2018 and the order of ld. CIT(A)-22, New Delhi dated 28.02.2018.
2. Since, the issue involved in both the appeals are identical, they were heard together and being adjudicated by a common order.
Disallowance of Expenditure:
3. The solitary issue in this appeal is that the assessee has capitalized the said expenses in their financial statements and treated the same as royalty and claimed the same as revenue expenditure in the computation of income. The AO held that since the assessee itself has capitalized the said expenses in its financial statements and disallowed revenue expenditure claimed. The facts revealed that the assessee entered into a software license agreement with World Fashion Exchange India Pvt. Ltd. for ERP software named WFX-ERP-II and claimed that since the payment was for the use of software, the same should be treated as royalty and allowed as revenue expenditure. We find that the same has been capitalized in the books of accounts. Since, the same has been capitalized, we confirm the order of the revenue authorities and as the payment made is for obtaining computer software, we hold that the assessee is eligible to claim depreciation as per the provisions of Income Tax Act.
4. In the result, the appeals of the assessee are allowed. Order Pronounced in the Open Court on 14/11/2022.
