Income Tax Appellate Tribunal - Mumbai
Ajitkumar C. Kamdar vs Dy Cit on 26 February, 2004
Equivalent citations: [2005]1SOT183(MUM)
ORDER
I.P. Bansal, JM.
This appeal, filed by the assessee, is directed against the order dated 24-11-1999 passed by the CIT (A) for the assessment year 1996-97.
2. The grounds of appeal filed with Form No. 36 have been concised. In the concised grounds of appeal, the assessee has not taken ground No. 1, which is regarding disallowance in respect of telephone expenses. At the time of hearing it was pointed out that the disallowance being small amount, the ground may be rejected being not pressed. In the remaining grounds, only two issues are involved. First is regarding disallowance of Rs. 66,225 made in respect of bad-debts. The second grievance is regarding software expenses of Rs. 10,500 which is treated as capital expenses.
3. The assessee, in the preset case is a sharebroker. The assessee debited to his Profit & Loss Account an amount of Rs. 66,225 as bad debts relating to following two persons viz. (1) Shri Anil Mithelal - Rs. 13,775 and (2) Shri H.B. Parekh - Rs. 52,450. Both the above-mentioned persons are also share-brokers who were declared defaulters by Stock Exchange. The claim of the assessee in respect of bad debts is disallowed on the ground that the assessee failed to establish the badness of the debt. The assessee was expected to receive certain amount from Stock Exchange in respect of default made by the above-mentioned two persons.
4. After referring to the above-mentioned facts, the learned counsel of the assessee pointed out that as per amended provisions of section 36(1)(vii), it is not obligatory for the assessee to claim demonstrative proof for establishing a debt as bad and if he has taken steps to write it off as irrecoverable in his accounts in the previous year, it is sufficient compliance of the provisions to claim the deduction under clause (vii) of subsection (1) of section 36 of the Act. For this purpose, we place the following decisions :-
ITO v. Anil H. Rastogi (2003) 86 ITD 193 (Mum.) (TM) Morarka Holdings Ltd. v. Dy. CIT (IT Appeal No. 1026 (Mum.) of 1993 for assessment year 1989-90 dated 21-1-2000) Dy. CITv. V Vrajlal Lalloobhai & Sons (IT Appeal No. 5217/(Bom.) of 1991 dated 11-3-1998).
5. On the other hand the learned Departmental Representative relied on the orders of the assessing officer and CIT (A). After hearing both the parties, we are of the opinion that the claim of the assessee could not be disallowed. According to section 36(1)(vii) as it stood at the relevant time, it is not obligatory for assessee to place demonstrative proof for establishing a debt as bad and if he has taken steps to write it off in previous year, it is sufficient compliance for claiming a debt as a bad debt under section 36(1)(vii). In this case, the assessee has fulfilled the conditions laid down under the above section. Therefore, the assessee is entitled to get the deduction of these debts. Moreover, whatever amount was received in subsequent years has been disclosed by the assessee as his income. In this view of the matter, we direct the assessing officer to delete the disallowance.
6. Now coming to the disallowance made in respect of Software expenses. The Software expenses of the assessee consist of following two payments :
(i) Rs. 5500 towards anti-virus programme.
(ii) Rs. 5000 towards upgradation of the software earlier acquired from M/s. R.P.K. Investment & Consultancy Pvt. Ltd.
7. After hearing both the parties, we find that the expenditure incurred by the assessee on the facts and in the circumstances of the case, is in the nature of revenue. The anti-virus software is for the efficient working of the computer. It is for the production data existing in the computer otherwise also after expiry it loses its validity. Similarly, in respect of payment made to M/s. R.P.K. Investment regarding up-gradation of software, it was pointed out before the CIT (A) that the said Software is required to be updated each year. This submission of the assessee is also not controverted by any material brought on record. In this view of the factual position, the payment made by the assessee was not incurred to acquire enduring benefit or an asset. Therefore, it has to be treated as revenue expenditure. Accordingly, we direct the assessing officer to delete the disallowance.
8. In the result, the appeal filed by the assessee is allowed.