The classification of software expenditures as capital or revenue depends on the specific nature of the expenditure, with deductions under sections 10AA and 80JJAA requiring careful scrutiny.

ORDER

PER BEENA PILLAI, JUDICIAL MEMBER

Present miscellaneous petitions arise out of consolidated order passed by this Tribunal dated 30.11.2022 passed in the appeals filed by the assessee as well as revenue for assessment years 2007-08 to 2011-12.

2. He submitted that the impugned order has relied on the order passed by this Tribunal in assessee’s own case in ITA No. 718/Bang/2017, for assessment year 2012-13 facts being admittedly same, and also as largely the issues were common. He submitted that the common issues have been tabulated specifying the paras considering identical issue in AY 2012-13 at page 2- 7 of the impugned order. The Ld.AR submitted that, certain typographic mistake has crept in the impugned order and the assessee is also seeking clarification of certain issues as under:

Both sides have filed a chart to highlight the issues raised in the MA’s filed by the assessee as well as revenue:

3. Issue No. 1:

3.1 The Ld.AR submitted that while considering the issue relating to software expenditure treated as capital in nature, this Tribunal has relied upon the decision of Hon'ble Supreme Court in case of Engineering Analysis vs. CIT reported in 433 ITR 471 to remit the issue to the Ld.AO instead of relying on the decision of Hon'ble Karnataka High Court in the case of CIT vs. IBM India Pvt. Ltd. reported in 357 ITR 18.

We note that this issue is raised by the assessee in M.P. Nos. 171 & 172/Bang/2023 and in M.P. Nos. 186 & 176/Bang/2023 by the revenue.

3.2 The Ld.AR while submitting on the issue relied on M.P. No. 157/Bang/2023 dated 25/10/2023 in IT(TP)A No. 718/Bang/2017 for A.Y. 2012-13 wherein this issue has been addressed and rectified.

On the contrary, the Ld.DR relied on the orders passed by this Tribunal.

3.3 We have perused the records and the issue contested by the assessee as well as the revenue in the respective grounds for the years under consideration. It is noted that this Tribunal while considering the issues in the respective assessment years as per the chart placed in the impugned order at page 4 directed the Ld.AO to verify the details as per the decision of Hon'ble Supreme Court in Engineering Analysis vs. CIT (supra), as against the that decision of Hon'ble Karnataka High Court in the case of CIT vs. IBM India Pvt. Ltd. (supra). It is further noted that identical mistake was clarified and corrected by this Tribunal in AY 2012- 13 in M.P. No. 157/Bang/2023 dated 25/10/2023 relied by the Ld.AR. We accordingly hold as under:

The issue alleged is regarding the disallowance of software expenses to be capital in nature. Alternative prayer of the assessee was to consequently allow depreciation at 60% instead of 25%.

It is the submission of the Ld.AR that the payment made towards application software does not result in acquisition of any asset. It merely enhances the productivity or foundation. He submitted that it is an aid in the manufacturing process in the form of a tool and the payment made towards purchase of such application software is to be treated as revenue expenditure.

We note that this issue is rectified in M.P. No. 157/Bang/2023 (supra) in assessee’s own case for AY 2012-13 by observing as under:

“4……….Now the contention of the assessee is that the whole of this expenditure should be allowed as a revenue expenditure as this is relating to application software and not relating to system software. In our opinion, if it is an application software,