The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently allowed the assessee, Indo British Garments Pvt Ltd to claim depreciation on the revenue expenditures incurred on license agreement of ERP software as the transaction was of capital nature.
The assessee was represented by CA Kamal Bansal and the revenue by Ravi Kant Choudhary.
The assessee had entered into a software license agreement with World Fashion Exchange India Pvt. Ltd. for ERP software named ‘WFX-ERP-II’.
Subsequently, the assessee claimed that, since the payment was for the use of software , the same should be treated as royalty and allowed as revenue expenditure.
The tribunal of Judicial Member N K Choudhary and Accountant Member B R R Kumar observed that the same has been capitalized in the books of accounts.
The Assessing Officer had held that since the assessee itself has capitalized the said expenses in its financial statements and disallowed revenue expenditure claimed.
Since the assessee had capitalized the revenue expenditure, the order of the AO that disallowed the revenue expenditure has been upheld by the tribunal. However, it was observed that the assessee was entitled to claim depreciation as per the provisions of the Income Tax Act, 1961.
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