ACIT-4(1)(1), MUMBAI, MUMBAI vs. BNP PARIBAS INDIA SOLUTIONS PVT. LTD., MUMBAI

आदेश / ORDER PER BEENA PILLAI, JUDICIAL MEMBER:

These are cross-appeals filed by the assessee as well as the Revenue for A.Y. 2014–15 arising out of the impugned order passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter the “Ld.CIT(A)”] dated 11/09/2025. The Revenue has also preferred appeal for A.Y. 2018–19 against the impugned order dated 04/06/2025 passed by the NFAC, Delhi.

Since common issues are involved, these appeals were heard together and are being disposed of by way of this consolidated order.

1) Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that the software expenses amounting to Rs 37,87,67,000/- incurred by the assessee were revenue in nature, ignoring the fact that such expenditure resulted in enduring benefit to the assessee and hence was rightly treated as capital expenditure by the Assessing Officer”. 2) Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that software expenses amounting to ₹37,87,67,000/- were revenue in nature, without appreciating that such expenditure resulted in acquisition of software tools and licenses of enduring utility and benefit to the

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. assessee, and hence rightly treated as capital expenditure by the Assessing Officer 3) Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) failed to appreciate that the expenditure incurred towards software acquisition, database support, and license renewal formed an integral part of a capital asset that enhanced the assessee’s business infrastructure, and therefore, the AO was justified in allowing depreciation thereon and disallowing the balance amount” 4) Whether on the facts and in the circumstances of the case and in law, The learned CIT(A) erred in not considering the judicial precedents relied upon by the AO, which support the proposition that expenditure on software, particularly of high value and enduring utility, qualifies as capital expenditure”. 5) Whether on the facts and in the circumstances of the case and in law The learned CIT(A) failed to appreciate that the magnitude of the software expense and its recurring nature alone does not alter its capital character, especially when the software contributes to the long-term efficiency and profitability of the business operations”. 6) Whether on the facts and in the circumstances of the case and in law The order of the learned CIT(A) is contrary to the facts, applicable judicial precedents, and statutory provisions, and thus, the order of the AO treating the impugned software expenditure as capital and allowing depreciation thereon may kindly be restored”. 2.1. Identical issue has been raised by the revenue for AY 2014- 15:

“1) Ground 1. Whether, on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs.4,49,36,812 made by the Assessing Officer by treating software expenditure as capital in nature and allowing full deduction as revenue expenditure, without appreciating that the said expenditure was incurred for acquisition and upgradation of software systems providing enduring benefit to the assesse.

2) Ground 2. Whether the learned CIT(A) erred in law and on facts in holding that software expenditure incurred towards purchase and development of software platforms is revenue in nature, ignoring the settled legal position that expenditure resulting in acquisition of an asset of enduring nature is capital expenditure eligible only for depreciation u/s 32.

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. 3) Ground 3. Whether the learned CIT(A) failed to appreciate that the Assessing Officer had allowed depreciation at the rate of 60 percent on such software expenditure in accordance with law, and therefore the disallowance of Rs. 4,49,36,812 was justified.

4) Ground 4. Whether the learned CIT(A) erred in directing the Assessing Officer to recompute OR restrict the levy of interest u/s 234B and 234C, when the charging of such interest is mandatory and consequential under the provisions of the Income-tax Act.

5) Ground 5. Whether the learned CIT(A) was justified in holding that penalty proceedings initiated u/s 271(1)(c) were infructuous merely because the addition was deleted, ignoring that initiation of penalty was valid and consequential upon detection of furnishing of inaccurate particulars of income by the assesse.

6) Ground 6. The appellant craves leave to add, amend, OR alter any of the above grounds of appeal before OR during the course of hearing, in the interest of justice.”

2.2. The Assessee raised following grounds of appeal for AY 2014- 15:

“1) On the facts and circumstances of the case and in law, while disposing of Ground No. 9 raised before Honorable CIT(A),NFAC, the Honorable CIT(A), NFAC erred in holding the said Ground to be academic in nature without adjudicating it as an independent ground and thereby, erred in not explicitly granting relief to the Appellant in respect of the double disallowance of Rs. 22,94,08,377.

2) On the facts and circumstances of the case and in law, the Honorable CIT(A), NFAC has erred in not adjudicating the Ground No. 9 on merits and that the learned AO, NFAC erred in computing the total income of the Appellant by adding the disallowance made in the assessment order passed under section 143(3) of the Act amounting to Rs 22,94,08,377 to the returned income without appreciating the fact that the Appellant has already added back the said income while filing its return of income in response to notice issued under section 148 of the Act thereby resulting in double taxation of income to that extent.”

The issue raised by the Revenue in both the years relates to the treatment of software expenditure as capital or revenue in nature.

Brief facts of the issue are as under:

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. 3.1. During the course of assessment proceedings, the Ld.AO observed that the assessee incurred substantial expenditure towards software acquisition, licenses, database support, and related IT infrastructure. The Ld.AO was of the view that such expenditure resulted in an enduring benefit to the assessee and formed part of its capital framework, and accordingly treated the same as capital in nature. The Ld.AO thus allowed depreciation at the prescribed rate and disallowed the balance amount.

3.2. On an appeal before the Ld.CIT(A), after examining the nature of expenditure, it was held that, the same to be revenue in nature. The Ld.CIT(A) directed the Ld.AO to allow the claim in full.

Aggrieved by the same, the Revenue is in appeal before this Tribunal.

4.2. Per contra, the Ld.AR submitted that the expenditure incurred by the assessee was towards software licenses, renewals, maintenance, database support and periodic upgrades, which are

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. recurring in nature and do not result in creation of any independent capital asset. It was submitted that in the fast- changing technological environment, such software becomes obsolete within a short span of time and requires continuous replacement and upgradation. It was further contended that the expenditure is incurred wholly and exclusively for the purpose of carrying on the business efficiently and therefore is allowable as revenue expenditure.

We have perused the submissions advanced by both sides in light of the records placed before this Tribunal.

5.1. It is observed from the material placed on record that the expenditure incurred by the assessee is predominantly towards software licences, database access, support services and periodic upgrades. Such expenditure does not result in the creation of any independent or enduring capital asset but merely facilitates the smooth and efficient functioning of the business operations of the assessee. In the present era of rapid technological advancement, software systems require constant updates and replacements, thereby diluting the traditional test of enduring benefit.

5.2. Hon’ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT reported in (2021) 432 ITR 471 has categorically observed that in cases of software transactions, what is granted is merely a limited right to use the software and no

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. transfer or purchase of copyright is effected. It has been held that unless there is acquisition of rights in or over the copyright itself, the payment cannot be regarded as resulting in creation of a capital asset. The ratio thus clearly supports the proposition that expenditure incurred for use of software, without acquisition of proprietary or copyright rights, remains in the revenue field.

5.3. In the present case, the Revenue has not brought any material on record to demonstrate that the assessee has acquired any copyright or proprietary rights in the software so as to constitute a capital asset. The expenditure, therefore, remains in the nature of facilitating day-to-day business operations and cannot be treated as capital in nature.

We, therefore, find no infirmity in the view taken by Ld. CIT(A) in allowing the claim of the assessee.

Accordingly, the grounds raised by the Revenue on this issue for both the years are dismissed.

Assessee’s appeal for A.Y. 2014-15.

Brief facts on this issue is as under:

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. 7.1. The assessee originally claimed deduction of year-end provisions created in accordance with applicable accounting standards. Vide intimation issued under section143(1)(a), the claim was disallowed on the ground that tax had not been deducted at source.

7.2. Subsequently, reassessment proceedings were initiated for earlier years and the assessee, in order to avoid litigation and considering the stand taken by the Department, suo motu disallowed the said provisions in the year of creation and claimed consequential deduction in the year in which tax was deducted at source or the provisions were reversed. The assessee furnished detailed reconciliation explaining this position before the lower authorities as well as before us.

7.2. However, the Ld.AO again made addition of the same amount in the year under consideration, thereby resulting in double disallowance.

“5.2. Since relief has been allowed to the Appellant vide adjudication over Ground 5 and thereby, directing the AO to delete the addition of Rs.4,49,36,812/-, Grounds 1 to 4 and 6 to 9 become academic nature.” Aggrieved by the order of Ld.CIT(A), assessee is in appeal before this Tribunal.

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. amount while filing return in response to notice under section 148 and therefore no further addition could be made. It was further submitted that the issue is revenue neutral and represents only a timing difference and that the Ld. CIT(A) erred in not adjudicating the ground on merits.

9.2. The Ld. DR relied upon the orders of the lower authorities. It was contended that the assessee could not have raised this issue in the present appeal. She objected to the arguments advanced by the Ld.AR by submitting that the claim could not have been made in the return filed in lieu of notice issued under section 148 of the Act as it was time barred.

9.3. The Ld.DR was directed to file written submission in respect of her arguments which has not been complied with. We are therefore based on the oral arguments advanced by her considering the claim as under.

We have perused the submissions advanced by both sides in light of the records placed before this Tribunal.

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. demonstrating that the same amount has already been offered/disallowed in earlier years. 10.1. The objection of the Ld.DR that the assessee could not have made such claim in the return filed in response to notice under section 148 on the ground that the same was time barred is, in our view, misplaced in the facts of the present case, as the assessee has not made any fresh claim but has merely realigned the timing of deduction so as to avoid double disallowance of the same amount. 10.2. In such circumstances, the action of the Ld. AO in again making addition of the very same amount in the year under consideration results in apparent double disallowance, which is impermissible in law, subject however to necessary verification of the factual position. We further note that the Ld.CIT(A) has erred in treating the ground as academic without adjudicating the issue on merits, despite the fact that the grievance of the assessee goes to the root of correct computation of income. 10.3. Considering the submissions of the assessee and the reconciliation placed on record, we deem it fit to restore the issue to the file of the Ld. AO for the limited purpose of verification of the assessee’s claim. The Ld. AO is directed to examine whether the impugned amount has already been disallowed/offered in earlier years and whether the corresponding deduction has been claimed in the year of deduction of tax at source or reversal of provision. Upon such verification, the Ld. AO shall grant appropriate relief in accordance with law so as to avoid double taxation.

Accordingly, this Ground raised by assessee is allowed for statistical purposes.

ITA 5354/MUM/2025 BNP PARIBAS INDIA SOLUTIONS PVT LTD. In the result, the appeals filed by the Revenue for A.Y. 2014– 15 and A.Y. 2018–19 stand dismissed and the appeal filed by the assessee for A.Y. 2014–15 stands allowed for statistical purposes.

Order pronounced in the open court on 30/04/2026.

Sd/- Sd/- PRABHASH SHANKAR BEENA PILLAI ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai Dated: 30/04/2026 SC. Sr. P.S.

Copy to:

ACIT-4(1)(1), MUMBAI, R.NO. 642, 6TH FLOOR, AAYAKAR 1 BHAVAN, M.K.ROAD, MUMBAI, MUMBAI-400020, MAHARASHTRA

BNP PARIBAS INDIA SOLUTIONS PVT LTD., BLOCK B3, 9 TH FLOOR, NIRLON 2 KNOWLEDGE PARK VILLAGE PAHADI, GOREGAON EAST., MUMBAI-400063, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE