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

ITA 5688/MUM/2025

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The case revolves around the classification of software expenses amounting to Rs. 28,24,19,000 incurred by BNP Paribas India Solutions Private Limited during the assessment year 2017-18. The primary legal issue was whether these expenses should be treated as revenue or capital in nature. The Assessing Officer (AO) initially treated these expenses as capital, allowing depreciation but disallowing the expense claim. However, the CIT(A) reversed this decision, treating the expenses as revenue based on the nature of the expenses being annual and recurring, without creating any enduring benefit or asset. The Revenue appealed against this decision to the Tribunal, which upheld the CIT(A)'s decision, citing various judicial precedents and the lack of enduring benefit from the expenses.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 836458 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2026
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 12-09-2025
• Other Referred Cases: ACIT vs Matrix Publicities and Media India Private Limited, ACIT vs. First Advantage Private Limited, ACIT vs. Boots Piramal Health Care Limited, Ratilal Becharlal & Sons vs. JCIT, CGI Information Systems and Management Consultants Private Limited vs. ITO, CIT vs. G.E Capital Services Limited
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VAIBHAV JAIN
• Assessee Lawyers: NIRAJ SHETH; INCURRING THESE
• Keywords: Capital asset; Revenue expenditure; Depreciation; Capital expenditure
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 5688/MUM/2025 (Assessment Year: 2017-18) Asst. Commissioner of Income Tax, Circle 4(1)(1), Mumbai Room No. 642, 6th Floor, Aayakar Bhavan, M.K. Road, Mumbai 400020 vs BNP Paribas India Solutions Private Limited Block B3, 9th Floor, Nirlon Knowledge Park Village Pahadi, Goregaon East, Mumbai 400063 PAN: (AACCB5717E) Appellant Respondent Present for: Assessee by : Shri Niraj Sheth, Advocate Revenue by : Shri Vaibhav Jain, CIT DR Date of Hearing : 13.11.2025 Date of Pronouncement : 09.02.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1079062407(1) dated 30.07.2025 passed against the assessment order u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 28.12.2019 for AY 2017-18. 2. Grounds taken by the Revenue are reproduced as under: “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 ₹28,24,19,000/- incurred by the assessee were revenue in nature, ignoring the fact that such expenditure resulted in enduring benefit to the Printed from counselvise.com 2 ITA No. 5688/Mum/2025 BNP Paribas India Solutions Private Limited AY 2017-18 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 ₹28,24,19,000/- were revenue in nature, without appreciating that such expenditure resulted in acquisition of software tools and licenses of enduring utility and benefit to the 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. The only issue involved in this appeal is in respect of treatment of software expenses amounting to Rs. 28,24,19,000/-, whether revenue or capital in nature. 3. Brief facts of the case are that assessee is registered under the Software Technology Parks of India (STPI) Scheme and operates as a captive service provider for BNP Paribas Group. It filed its return of income on 30.11.2017, reporting total income at Rs.167,95,07,080/- Printed from counselvise.com 3 ITA No. 5688/Mum/2025 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. 4. Contention of the assessee are summarized as under: a. It is in the business of providing support services to its group entities. Software expenses incurred are in the nature of annual maintenance charges, fees for database support, license renewal cost, etc, which are necessary to carry on its regular business and are in furtherance of its business activities. 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 Printed from counselvise.com 4 ITA No. 5688/Mum/2025 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: Printed from counselvise.com 5 ITA No. 5688/Mum/2025 BNP Paribas India Solutions Private Limited AY 2017-18 Printed from counselvise.com 6 ITA No. 5688/Mum/2025 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. We have heard both the parties and perused the material on record. The details of expenditure incurred by the assessee is tabulated above and it is evidently discernible that all these expenses incurred by the assessee are on account of annual maintenance charge, fees for database support, licence renewal cost etc. These are all “period cost” and “recurring” in nature. Assessee incurred these expenses not for acquiring any right in the software, but are towards subscription for a fixed period giving annual benefits only. 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 Printed from counselvise.com 7 ITA No. 5688/Mum/2025 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 ITA No. 560/Mum/2007 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 Printed from counselvise.com 8 ITA No. 5688/Mum/2025 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. 7. In the result, appeal of the Revenue is dismissed. Order pronounced in the open court on 09.02.2026. S Sd/- Sd/- [Amit Shukla] [Girish Agrawal] Judicial Member Accountant Member Dated: 09.02.2026. Divya Ramesh Nandgaonkar Stenographer Copy to: 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "