CIT vs. Raychem RPG Ltd (Bombay High Court)
Brief Facts: The assessee, engaged in manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products, incurred expenditure of Rs. 23 lakhs on purchase of Enterprises Resources Planning (ERP) package. The AO treated the expenditure as capital in nature. The Tribunal applied the functional test laid down by the Special Bench (presumably Amway India Enterprise vs. CIT 111 ITD 112 (Del)) and held that the expenditure was allowable as a deduction on the basis that the software facilitated the assessee™s trading operations or enabling the management to conduct the assessee™s business more efficiently or more profitably but it is not in the nature of profit making apparatus. The department filed an appeal before the High Court.
Decision: HELD dismissing the appeal:
In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure.