A.N. Pahuja, Accountant Member - These cross appeals filed on 24.01.2012 by the Revenue and the corresponding cross-objection[CO] filed on 18.07.2012 by the assessee against an order dated 31.10.2011 of the ld. CIT(A)-LTU, New Delhi, raise the following grounds:-

I.T.A. No.1074/Del./2008[Revenue]

1. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 1,09,23,694/- being aggregate amount of expenditure incurred as HIPACK-warranty Module HIPACK-Sales Modules and HIPACK-Parts Module.

2. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the expenditure referred to in ground no.1 above is revenue expenditure.

3. The appellant craves leave to and add to alter, amend or vary from the above grounds of appeal at or before the time of hearing."

I.T.A. No.220/Del./2012[Assessee]

1. "That the CIT(A) erred on facts and in law in confirming the disallowance of Rs. 1,25,11,088/- made by the Assessing Officer, in respect of licence fee paid to Honda Motor Co. Japan(HMCL) for purchase of HIPACK Software Factory Module, Module, holding the same to be capital expenditure.

2. That the CIT(A) erred on facts and in law in holding that functions of the 'Factory Module' part of the software facilitated in production and was directly linked with fixed capital items, without appreciating that said module did not form integral part of the manufacturing process of the assessee.

3. Without prejudice, that the CIT(A) erred on facts and in law in not directing the Assessing Officer to allow depreciation on the aforesaid amount held to be capital expenditure."

2. Facts, in brief, as per relevant orders are that original assessment in this case was completed on a loss of Rs. 848,61,712/- vide order dated 21.3.2002 u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act) in pursuance to return declaring loss of Rs. 14,59,91,000/- filed on 29.12.1999..Inter alia, an amount of Rs. 2,34,34,782/- on account of purchase of computer software expenses(HIPACK) was disallowed, being capital expenditure. Subsequently, the assessment was reopened u/s 147 of the Act with the service of a notice issued u/s 148 of the Act on 20.12.2005 and the reassessment was completed on a loss of Rs. 5,59,712/-. On appeal, loss was determined at Rs. 53,79,620/- vide order dated 5th March, 2009 in pursuance to order of the ld. CIT(A). On further appeal, the ITAT vide their order dated 26th September, 2008 set aside the issue of software expenses of Rs. 2,34,34,782/- to the file of the AO with the directions to redecide the issue in the light of tests laid down by the Special Bench of the Tribunal in the case of Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112/21 SOT 1 (Delhi)(SB). Accordingly, the assessee pointed out before the AO, the following tests laid down by the Special Bench :-

"(a) where the assessee acquires a computer software/ licence to use such software, the assessee acquires a tangible asset and becomes owner thereof.

(b) where the life of computer software is shorter (say less than two years), it may be treated as revenue expenditure. Any software having its utility to the assessee beyond two years can be considered as accrual of benefit of enduring nature;

(c) Once the test of ownership and enduring benefit is satisfied, the question whether expenditure on computer software is capital or revenue is to be seen on a case to case basis from the point of view of its utility to a businessman and how important an economic or functional role it plays in his business."

2.1 In the light of aforesaid tests laid down by Special Bench, the assessee pointed out the nature of HIPACK software, which had four schedules and according to the assessee, performed following functions:

"1. HIPACK-Factory (User Division- Manufacturing & Purchasing)

(a) Bill of Material for car production viz., maintenance of parts list etc.

(b) Production scheduling

(c) Part order