Unimed Technologies Limited Vs ACIT (ITAT Ahmedabad)
Core Issue:-Whether expenditure of ₹31,96,245/- incurred on software licenses and renewals is capital in nature or allowable as revenue expenditure under Section 37(1) of the Income-tax Act, 1961?
Brief Facts:
1. The assessee debited ₹31,96,245/- under “software expenses” in its profit & loss account.
2. The Assessing Officer (AO) examined the expenditure and concluded:
- The invoices included tangible items such as rugged computers, barcode scanners, printers, and related accessories.
- These were held to give enduring benefit and hence treated as capital expenditure.
- Disallowance of ₹31,96,245/- made under Section 37(1).
3. In appeal, the assessee clarified:
- Hardware purchases were separately capitalised.
- Disputed expenditure pertained only to software license fees, renewals, and upgrades used for quality control and inventory systems.
- Licenses were for short duration (12 months) and involved recurring charges.
4. The CIT(A):
- Accepted assessee’s contention and found expenditure to be routine and not resulting in creation of any capital asset.
- Held the same as revenue expenditure allowable under Section 37(1).
Arguments before ITAT:
- Revenue’s Argument: AO’s view should be restored; expenditure gave enduring benefit and hence capital in nature.
- Assessee’s Argument:
- Only software licenses and renewals, no enduring asset created.
- Relied on CIT v. Danfos Industries (P) Ltd. [2022] 284 Taxman 475 (Madras HC) where software license valid for one year was held to be revenue expenditure.
ITAT’s Findings & Ruling:
1. It is undisputed that hardware was separately capitalised; disputed expenses relate only to software license renewals and upgrades.
2. Such licenses were for 12 months and intended for day-to-day operations (inventory & quality control systems).
3. Revenue could not provide any evidence to show creation of enduring capital asset or any error in assessee’s claim.
4. Following judicial precedent (Danfos Industries, supra) and settled law that application software/annual license renewals are revenue in nature:
