Software license fees duration less than two years is revenue expenditure: ITAT Bangalore

ITAT Bangalore held that if the duration of software license is less than two years, then it should be treated as revenue expenditure and if the duration is more than two years, then it should be treated as capital expenditure.

Facts- The case of the assessee was selected for scrutiny. As the assessee had international transaction, AO referred the case to TPO. The shortfall adjustment made for SWD segment at Rs.235,727,549 and for ITeS segment at Rs.505,298,858. Further, TPO computed interest on delay receivables by allowing 30 days credit period at Rs.19,99,96,106. Accordingly the total adjustment u/s. 92CA was made at Rs.941,022,513 and the TPO passed the order on 29.07.2021.

Based on the above order of TPO, AO passed the filed assessment order. Being aggrieved, assessee preferred the present appeal. Assessee has also contested disallowance of software expenses as capital in nature.

Conclusion- Held that the assessee had not submitted the invoice-wise details of outstanding receivables from its AEs before the ld TPO. Accordingly, matter remanded back.

Held that in the case of CIT v. Toyota Kirloskar Motor (P) Ltd. that if the period of software is less than two years, then it will be treated as revenue expenditure. During the course of hearing the ld. AR of the assessee submitted that software/license fee has been incurred throughout the year. In the case on hand the entire expenditure incurred during the year has been debited into profit & loss account, accordingly if period of two years has not expired in the impugned assessment year, the balance amount should be treated as payment in advance and not be claimed in the profit & loss account entirely and it should be accounted over the period of life of the software/license fee.

FULL TEXT OF THE ORDER OF ITAT BANGALORE