Court decision on software expenses, membership card depreciation, unidentified stock, unclaimed dividend, and deemed dividend

The case involved disputes over software expenses, depreciation on a membership card, unidentified stock, unclaimed dividend, and deemed dividend. The court allowed the assessee's appeals in part, restoring the software expenses issue for fresh adjudication and dismissing the claim for depreciation on the membership card. The addition of unidentified stock and unclaimed dividend was upheld, except for certain assessment years where the dividend income was exempt. The revenue's appeal on deemed dividend was dismissed, affirming that it should be assessed in the hands of a shareholder.

---

---

Issues Involved:
1. Software expenses.
2. Depreciation on Membership Card of the Bombay Stock Exchange (BSE).
3. Addition of unidentified stock of the client.
4. Addition on account of unclaimed dividend.
5. Deemed dividend u/s 2(22)(e).

Summary:

1. Software Expenses:
The first issue concerns the disallowance of software expenses by the Assessing Officer (AO), treating them as capital in nature. Both parties agreed to restore this issue to the AO for fresh adjudication in light of the guidelines laid down by the Hon'ble Special Bench of ITAT, New Delhi in the case of *Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112*. The alternate ground regarding the rate of depreciation, if the software expenses are held as capital expenditure, was also restored to the AO for fresh adjudication.

2. Depreciation on Membership Card of the Bombay Stock Exchange (BSE):
The assessee's claim for depreciation on the BSE Membership Card was dismissed. The Hon'ble High Court of Bombay in *CIT v. Techno Shares & Stocks Limited* held that the BSE card does not fall under any categories specified in section 32(1)(ii) of the Act, and thus, depreciation cannot be allowed. The Tribunal followed this decision and dismissed the relevant grounds in all appeals.

3. Addition of Unidentified Stock of the Client:
The AO added Rs. 9,58,608 as unexplained investment u/s 69 of the Act, based on the internal auditor's report indicating unidentified stock of shares. The assessee's alternate plea to allow deduction in the year of handing over shares to the legitimate claimant was rejected. The Tribunal upheld the AO's addition and dismissed the relevant grounds for the assessment year 2003-04.

4. Addition on Account of Unclaimed Dividend:
The AO added unclaimed dividends found during the search operation to the assessee's income. The Tribunal held that for the assessment years 2000-01 to 2002-03 and 2004-05, the dividend income cannot be taxed in the hands of the assessee, as it is exempt u/s 10(33)/(34) of the Act. However, for the assessment year 2003-04, the dividend was taxable, and the addition was upheld.

5. Deemed Dividend u/s 2(22)(e):
The revenue's appeal regarding the addition made u/s 2(22)(e) as deemed dividend was dismissed. The Tribunal followed its earlier decision in the assessee's own case for the assessment year 1999-2000, where it was held that deemed dividend can only be assessed in the hands of a shareholder of the lender company, not in the hands of a person other than a shareholder.

Conclusion:
The appeals filed by the assessee were partly allowed for statistical purposes, and the revenue's appeal for the assessment year 2001-02 was dismissed.

---