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

O R D E R

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

BNP Paribas India Solutions Private Limited AY 2017-18 which was revised on 19.03.2019 with revised total income at Rs. 167,17,30,710/. In respect of the grounds raised, assessee had debited expenditure amounting to Rs. 28,24,19,000/- being software expenses in its profit and loss account for the year under consideration. Explanations were called for in this respect for which details were furnished along with corroborative documentary evidences. However, ld. AO after considering the same disallowed the claim of these expenses by treating it as capital in nature. Ld. AO though allowed deduction towards depreciation on the same @ 60%. Ld. In the first appeal, after considering elaborate submissions of the assessee backed by several judicial precedents, ld. CIT(A) allowed the claim of the assessee, treating these software expenses as revenue in nature. Revenue is in appeal before the Tribunal on the relief so granted at the first appellate stage.

b. The said software expenses are annual, recurring in nature, which are paid towards usage of software and do not create any asset or intellectual property. No ownership of the same is transferred to the assessee. Accordingly, software expenses are debited to its profit and loss account, being revenue expenditure in nature. The said treatment is also supported by commercial principles of accounting and in BNP Paribas India Solutions Private Limited AY 2017-18 absence of any contrary provision under the Act, such commercial accounting treatment followed by the assessee in its books of account and as certified by the statutory auditor are uncontroverted. c. The said software expenses have a direct nexus with the business of the assessee and have been incurred wholly and exclusively for its business, allowable u/s. 37(1). d. Ld. AO erred in holding that the software expenses are capital in nature by relying on general proposition of law without having regard to the actual facts of the case and without appreciating the real nature of expenses incurred by the assessee.

4.1. Reference is also made to details furnished by the assessee in the course of assessment proceedings vide submission dated 12.12.2019 copy of which is placed on record. Extract from this submission is are reproduced as under: “The breakup of Software expenses is enclosed as Annexure 2. We wish to submit that these expenses are essentially in the nature of annual maintenance charges, fees for database support, license renewal cost, etc. These software expenditures are incurred as annual fees paid towards usage of software and do not create any software assets or intellectual property to which title or ownership right are created in favor of the Assessee. These software costs are "Period" costs in the sense they are "recurring" costs incurred for usage of the software and hence are revenue expenditure in nature. The benefit of these recurring costs is an annual benefit only and no enduring benefit can be said to arise in subsequent years.” Annexure 2:

BNP Paribas India Solutions Private Limited AY 2017-18 5. Ld. Sr. DR contended that the nature of expense claim by the assessee has not been discussed by the ld. CIT(A) while giving relief. Further, assessee has used the nomenclature of “maintenance” which is not correct for the expenses incurred by it. He also submitted that the case laws relied upon while granting relief by the ld. CIT(A) are not relevant to the facts of the case. He thus, placed reliance on the order of ld. AO.

6.1. No enduring benefits accrued to the assessee by incurring these period costs. Ld. AO has not doubted on the legitimacy of these expenses incurred for the purpose of business. Also, ld. AO has not brought on record any cogent material to evidently demonstrate that any capital asset is brought into existence, resulting into enduring benefits to the assessee by incurring these expenses. No asset has come into existence nor any intellectual property right. Also, there is no transfer of ownership to the assessee in these software, by incurring such expenses.

6.2. The issue before in the present appeal is no longer res integra as dealt by plethora of decisions of the Co-ordinate Benches of ITAT and also by Hon’ble High Courts including that of Karnataka and Delhi. Few

BNP Paribas India Solutions Private Limited AY 2017-18 of these judicial precedents relied upon are listed below for ready reference. i. ACIT vs Matrix Publicities and Media India Private Limited 2025) 175 taxmann.com 706 (Mum) ii. ACIT vs. First Advantage Private Limited (2024) 166 taxmann.com 622 (Mum) iii. ACIT vs. Boots Piramal Health Care Limited (2017) 81 taxmann.com 434 (Mum) iv. Ratilal Becharlal & Sons vs. JCIT (2012) 27 taxmann.com 320 (Mum) v. CGI Information Systems and Management Consultants Private Limited vs. ITO (2023) 153 taxmann.com 527 (Kar) vi. CIT vs. G.E Capital Services Limited in dated 10.07.2007 by Hon’ble High Court of Delhi 6.3. Considering the overall factual matrix as discussed above and the judicial precedents, software expenses claim by the assessee are held to be revenue expenses, deductible under the provisions of Section 37(1). These expenses towards software are period cost and recurring in nature, giving annual benefits only. No enduring benefit is derived by the assessee by incurring these expenses as there is no change in the asset base of the assessee. Accordingly, keeping the above discussion in juxtaposition, we do not find any reason to interfere with the findings

BNP Paribas India Solutions Private Limited AY 2017-18 arrived at by ld. CIT(A), whereby the addition made by the ld. AO is deleted. Accordingly, grounds raised by the Revenue are dismissed.