Income Tax Appellate Tribunal - Mumbai
Dataxcess Intergrated Technoloty Ltd, ... vs Assessee on 2 February, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
"D" Bench, Mumbai
Before Shri R.S. Padvekar, Judicial Member
and Shri B. Ramakotaiah, Accountant Member
ITA No. 3036/Mum/2010
(Assessment Year: 2004-05)
Dataxcess Integrated Technology Ltd. DCIT 8(1)
Plot No. 17F, Andheri (E) Vs. Aayakar Bhavan, M.K. Road
Mumbai 400092 Mumbai 400020
PAN - AAACH 424 L
Appellant Respondent
Appellant by: None
Respondent by: Shri Lal Chand
ORDER
Per B. Ramakotaiah, A.M.
This appeal by the assessee is against the order of the CIT(A)- XVI, Mumbai dated 02.02.2010.
2. Assessee has raised the issue of bad debts and issue of software expenses in two grounds. Assessee was not represented when the case was taken up on 29.03.2011 and the case was heard exparte assessee after hearing the learned D.R.
3. Regarding ground No. 1 assessee claimed bad debt to the tune of `7,98,837/- and the A.O. disallowed the claim on the reason that the assessee failed to establish that the sundry balances have become bad and irrecoverable and that the debtors written off were offered as income in any of the previous year. It was the submission of the assessee that most of the amounts were in the nature of discounts allowed to the parties and partly in the nature of short payments made on account of defects in work carried out by the assessee in the business of trading in electronics goods, providing software and technical services. The CIT(A), eventhough records a finding that the amounts were in the nature of discount and short payments, however, rejected the claim stating that the assessee has failed to fulfil the 2 ITA No. 3036/Mum/2010 Dataxcess Integrated Technology Ltd.
basic conditions laid down in the provisions, without stating what conditions should be fulfilled.
4. After considering the facts and examining the record, we are of the opinion that both the officers are not correct in disallowing bad debts claimed, which are merely on account of discount allowed and short payments in the billing procedure. The discount arises mostly when the incomes are billed and offered. Therefore, the CIT(A)'s statement that the provisions of section 36(2) are not fulfilled is not correct as the primary details itself indicates that the assessee has billed "X" amount and received "Y" amount and the difference is to be treated as discount or short payments. Moreover the assessee has written off the amount in the books of account. Respectfully following the Hon'ble Supreme Court judgement in the case of TRF Ltd. vs. CIT 323 ITR 377, we direct the A.O. to allow the amounts as bad debts as claimed by the assessee. Ground is allowed.
5. Ground No. 2 pertains to the claim of software development charges amounting to `3,70,000/-. The A.O. allowed 30% depreciation on the amount of `2,59,000/- on the pretext that the expenditure is capital in nature as it has enduring benefit. The CIT(A) confirmed the same relying on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Aravali Constructions P. Ltd. 259 ITR 30. It was assessee's submission that they have upgraded the existing software which was installed in ZP panel and these expenses did not result in acquisition of any new asset. Therefore the same has been rightly to be treated as revenue expenditure.
6. After considering the nature of the expenditure, we are of the opinion that upgrading existing software is not acquiring of new asset. The facts in the case of CIT vs. Aravali Constructions P. Ltd. 259 ITR 30 were different. There the assessee company acquired a software for the first time to use it in its mining operations alongwith technical know-how. On those facts, the Hon'ble Rajasthan High Court held that the expenditure was capital in nature. However, in the present case the assessee was already using the software and the same was upgraded by later version. In our view the expenditure is rightly considered as revenue expenditure by the assessee.
3 ITA No. 3036/Mum/2010Dataxcess Integrated Technology Ltd.
We direct the A.O. to allow the expenditure as revenue expenditure. The depreciation, if any, allowed on that amount is to be withdrawn. With these directions the ground is considered allowed.
7. In the result, appeal allowed.
Order pronounced in the open court on 8th April 2011.
Sd/- Sd/-
(R.S. Padvekar) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, Dated: 8th April 2011
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A) - XVI, Mumbai
4. The CIT- VIII, Mumbai City
5. The DR, "D" Bench, ITAT, Mumbai
By Order
//True Copy//
Assistant Registrar
ITAT, Mumbai Benches, Mumbai
n.p.