2010 (8) TMI 1070 - AT - Income Tax

Tribunal partially allows revenue's appeal, remands interest expenditure for fresh adjudication. Bad debt and software expenses dismissed.

Income-tax Officer, Wd-6 (2), Kolkata. Versus Jubilee Investments & Industries Ltd.

Income-tax Officer, Wd-6 (2), Kolkata. Versus Jubilee Investments & Industries Ltd. - TMI Issues Involved:1. Deletion of addition of interest expenditure of Rs. 1,77,33,476.2. Deletion of addition of Rs. 33,45,882 claimed as bad debt.3. Deletion of addition of Rs. 10,00,000 claimed as software development expenses.Issue-wise Detailed Analysis:1. Deletion of Addition of Interest Expenditure of Rs. 1,77,33,476:The issue pertains to the deletion of interest expenditure addition by the Ld. CIT(A). The AO disallowed Rs. 1,77,33,476 as it was considered prior period expenditure. The assessee had initially claimed this interest for the earlier financial year 2002-03 but later withdrew the claim through a letter dated 27th November 2006, instead of filing a revised return under section 139(5). The AO rejected the books of account on this basis. The Ld. CIT(A) allowed the claim without obtaining a remand report from the AO, which was contested by the revenue. The Tribunal found that the Ld. CIT(A) should have obtained a remand report due to significant developments between assessment and appellate proceedings. Therefore, the Tribunal restored the matter back to the Ld. CIT(A) for fresh adjudication after obtaining the AO's comments.2. Deletion of Addition of Rs. 33,45,882 Claimed as Bad Debt:The AO disallowed the bad debt claim of Rs. 33,45,882, which included loans and advances written off. The AO's disallowance was based on the failure to establish that these debts were recognized as income in the Profit & Loss Account or squared up in the accounts. The Ld. CIT(A) deleted the addition, accepting the assessee's contention that the loans were advanced in the ordinary course of its NBFC business and were written off due to non-recoverability. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the AO's remand report acknowledged the allowability of the loan to Spentex Industries but contested other amounts due to lack of evidence that the erstwhile company was in money lending business. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground.3. Deletion of Addition of Rs. 10,00,000 Claimed as Software Development Expenses:The AO disallowed Rs. 10,00,000 as capital expenditure but allowed depreciation. The assessee contended that the expenditure was for application software necessary for business operations and should be treated as revenue expenditure. The Ld. CIT(A) agreed, noting that the software was for enhancing operational efficiency and required frequent upgradation, thus qualifying as revenue expenditure. The Tribunal upheld the Ld. CIT(A)'s decision, referencing the ITAT Special Bench's criteria in the Amway India Enterprises case, which supports treating software with a short useful life as revenue expenditure. The Tribunal found no infirmity in the Ld. CIT(A)'s order and dismissed the revenue's appeal on this ground.Conclusion:The Tribunal allowed the revenue's appeal on the interest expenditure issue for statistical purposes by restoring it to the Ld. CIT(A) for fresh adjudication. However, it dismissed the appeals concerning bad debt and software development expenses, upholding the Ld. CIT(A)'s decisions. The revenue's appeal was thus partly allowed for statistical purposes.