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I-T - Expenditure incurred for upgradation of technology, because of rapid replacement and constant need for existence, are of revenue nature: ITAT

By TIOL News Service

KOLKATA, JAN 01, 2018: THE ISSUE BEFORE THE TRIBUNAL IS - Whether when expenditure are made in relation to technology upgradation charges, which requires frequent replacement due to rapid change in technology and constant need for upgradation, the same will be treated as revenue in nature. YES IS THE ANSWER.

Facts of the case:

The Assessee-company, engaged in the business of providing broadband and cable services, filed its return for the AY under consideration. During the course of assessment proceedings, the AO observed that the Assessee had debited in its P&L Account technology upgradation expenses and therefore, asked the Assessee as to why the same should not be treated as capital expenditure. The Assessee contended that the said expenditure was incurred for maintenance of the transmitting system and in the process of such maintenance, it had incurred some expenses which were of revenue nature. However, the AO did not satisfied with the reply of the Assessee and treated the same as capital expenditure and accordingly make disallowance.

Tribunal held that,

++ the CIT(A) on verification of the bills for these upgradation charges, had come to a conclusion that the cost of spares are less than Rs 5,000/- and are frequently replaceable which does not accrue any enduring benefit to the assessee. We find that the case laws relied upon by the counsel for the assessee in the case of Southern Roadways Ltd and also in Asahi India Safety Glass Ltd squarely applies to the case of the assessee. We also find that the decision of the Supreme Court in the case of Empire Jute Co., where their Lordships had duly distinguished the enduring benefit in the revenue field and enduring benefit in the capital field. They had held that pursuant to incurrence of expenses, if there is some enduring benefit in the revenue field, then the same would only amount to revenue expenditure. We hold that the expenditure incurred by the assessee towards technology upgradation charges which requires frequent replacement due to rapid change in technology and constant need for upgradation would only be revenue in nature. Hence we do not find any infirmity in the order of the CIT(A) in this regard.

(See 2018-TIOL-06-ITAT-KOL)


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