IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD ‘D’ BENCH, AHMEDABAD [Coram: Justice P P Bhatt, President and Pramod Kumar, Vice President]

ITA No.2737/Ahd/2014 Assessment Year: 2009-10 ITT Corporation India Pvt. Ltd. ..…………….. Appellant Plot No.713, Manjusar GIDC, Savli Road, Savli, Vadodara – 391 770.

[PAN: AABCI 7013 D]

vs.

Assistant Commissioner of Income Tax, …………......Respondent Circle – 1(2), Baroda.

Appearances by Dhinal Shah for the Appellant Lalit P. Jain for the Respondent Date of concluding the hearing : 05.12.2018 Date of pronouncement : 04.03.2019

O R D E R

Per Pramod Kumar, Vice President:

1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 18.07.2014 passed by the learned CIT(A)-I, Baroda in the matter of assessment under section 143(3) of the Income-tax Act, 1961, for the assessment year 2009-10.

2. Grievances raised by the appellant are as follows :-

1. The Ld. Commissioner of income Tax (Appeals)-I, Baroda has erred in law and in facts in holding that the expenditure incurred in obtaining the license to use the SAP software programme is a capital asset acquired.

2. The Ld. CIT(A)-I, Baroda has further erred in law and in facts in rejecting the claim of expenditure of Rs.71,53,809/- incurred on obtaining the license to use the SAP software programme as revenue expenditure and upholding the action of the Ld. A.O. in allowing depreciation on such cost. This has resulted into a disallowance of Rs.28,61,524/-. The claim of the appellant is prayed to be allowed.”

3. The assessee is engaged in the business of manufacturing and trading of water pump, industrial and chemicals pump, and accessories. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of Rs.71,53,809/- on SAP-ERP (Enterprise Resource Planning) Software developed by IBM. The Assessing Officer was of the view that as it results in enduring advantage, this expenditure should be treated as a capital expenditure and only depreciation can be allowed, as a deduction in computation of business income, in respect of the same. The reasoning adopted by the Assessing Officer was as follows:-

“5.1 I have considered the submissions of the assessee. However, I am not in agreement with the analysis of position of law as appreciated by the assessee company. The utility of the software SAP-ERP, for the up-gradation and development of which, the assessee has incurred an expenditure of Rs.71,53,809/-, is an online application enterprise resource planning (ERP) software which has been developed by IBM (Germany). The said application software provides for standard solution for many of the business processes and operations of the assessee such as manufacturing, material management, sales and distribution, financial management etc. On an appreciation of these facts a clear inference gets drawn that the assessee has acquired a new advantage of enduring nature in such software procured by it. 5.2 However, since with effect from 01.04.2003, computer software has been classified as intangible asset under the head “Plant” in Appendix-I to income- tax Rules, 1962, the assessee is entitled to depreciation at the rate of 60% on the said capital expenses of Rs. 71,53, 809/-. In view of the above discussion, the entire expenditure of Rs.71,53,809/- is treated as capital expenditure for intangible assets. It was also proposed that this expenditure is to be treated as expenditure for acquiring intangible assets (right to use and exploit particular software).”

4. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Learned CIT(A) confirmed the stand of the Assessing Officer, and observed as follows:-

5. I have considered the facts of the ease as well as the order of the AO and the submission of the AR of the appellant. The only ground of appeal of the appellant is that on the facts and in the circumstances of the case and in law, the Ld. AO has erred i