Obsolete software write-offs, genuine donation claims and warranty provisions were upheld; bad debt deduction needed further verification.

Obsolete software licences were treated as allowable revenue write-off where they had lost utility in the business, and the disallowance was deleted. Section 80G deduction could not be refused merely for technical defects in donation receipts when payments were made by cheque or RTGS and the donations were otherwise genuine. Ad hoc disallowance of trade payables was impermissible without specific adverse material. Guarantee charges and royalty or technical service fees were held allowable, with the latter requiring transfer pricing examination rather than unilateral disallowance. A scientifically estimated warranty provision was allowed, while the bad debt claim was remitted for verification of statutory conditions.

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Issues: Whether the write-off of obsolete software licenses was allowable as revenue expenditure; whether deduction under section 80G could be denied on technical defects in donation receipts; whether an ad hoc disallowance of trade payables was sustainable; whether guarantee charges were allowable as business expenditure; whether royalty and technical service fees could be disallowed by the Assessing Officer without transfer pricing reference; whether provision for warranty was allowable; and whether bad debts written off were deductible.

Issue (i): Whether the write-off of obsolete software licenses was allowable as revenue expenditure.

Analysis: The software licenses were treated as intangible assets earlier, but the relevant inquiry was whether the asset had become unusable and no longer served the business. Where an asset is obsolete and is written off in the books because it is no longer required for operations, the mere fact that it was not put to use does not by itself justify disallowance. The capital nature of the original acquisition does not prevent write-off when the asset has lost utility in the business context.

Conclusion: The write-off was held allowable and the disallowance was deleted in favour of the assessee.

Issue (ii): Whether deduction under section 80G could be denied on technical defects in donation receipts.

Analysis: The donations were made through account-payee cheque and RTGS, the recipient institutions were approved, and genuineness of payment was not disputed. Denial of the deduction merely for absence of certain supporting particulars in the receipts was found unsustainable where the substance of the claim was established and no adverse enquiry was made against the donee institutions.

Conclusion: The deduction under section 80G was allowed in favour of the assessee.

Issue (iii): Whether an ad hoc disallowance of trade payables was sustainable.

Analysis: Complete details of sundry creditors, including addresses and ledger accounts, had been furnished and there was no cogent material showing that the liabilities were non-genuine. An arbitrary percentage disallowance without identifying any specific defect or making independent verification was held to be impermissible.

Conclusion: The ad hoc addition was deleted in favour of the assessee.

Issue (iv): Whether guarantee charges were allowable as business expenditure.

Analysis: The charges were paid to banks and, in part, to an associate enterprise for guarantees connected with the assessee's business contracts and procurement needs. Such charges do not create a capital asset or enduring advantage and had also been accepted in earlier years. The payment to the associate enterprise was also of a nature requiring transfer pricing examination, not a unilateral disallowance by the Assessing Officer.

Conclusion: The guarantee charges were held allowable and the disallowance was deleted in favour of the assessee.

Issue (v): Whether royalty and technical service fees could be disallowed by the Assessing Officer without transfer pricing reference.

Analysis: The assessee had furnished the relevant details and prior years had accepted similar payments. Where the payment is to an associated enterprise and transfer pricing issues arise, the Assessing Officer cannot himself determine arm's length allowability in disregard of the statutory transfer pricing mechanism. The disallowance was therefore not sustainable on the grounds recorded.

Conclusion: The disallowance of royalty and technical service fees was deleted in favour of the assessee.

Issue (vi): Whether provision for warranty was allowable.

Analysis: The warranty obligation arose from contractual commitments and was supported by a scientific basis, past experience, and consistent practice. A properly estimated warranty provision is allowable when it reflects a present obligation and is not shown to be arbitrary. The governing principle recognized allowance of such a provision under the business expenditure regime.

Conclusion: The warranty provision was allowed in favour of the assessee.

Issue (vii): Whether bad debts written off were deductible.

Analysis: The write-off related to amounts deducted by Indian Railways from the assessee's bills, but the record did not show whether the conditions under section 36(2) were satisfied. Since the relevant factual verification had not been undertaken, the issue required examination before a final deduction could be granted.

Conclusion: The matter was remitted for verification and was partly allowed in favour of the assessee.

Final Conclusion: The assessee succeeded on the substantive additions, the revenue failed on its objections, and the bad debt issue was sent back only for limited verification before deduction could be finally granted.

Ratio Decidendi: Obsolete business assets may be written off when they lose utility; genuine expenditure cannot be denied on technical defects alone; ad hoc disallowance without adverse material is impermissible; and where a payment to an associated enterprise raises transfer pricing issues, the Assessing Officer cannot unilaterally determine its allowability outside the statutory transfer pricing framework.

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