Posted by : CS K. K. Agrawal Jul 7, 2011

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 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 High Court held the same view.

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