DATAXCESS INTERGRATED TECHNOLOTY LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 3036/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48439 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALCHAND
• Keywords: Depreciation; Bad and doubtful debts

Judgement Text

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) AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400092 VS. MUMBAI 400020 PAN - AAACH 424 L APPELLANT RESPONDENT APPELLANT BY: NONE RESPONDENT BY: SHRI LAL CHAND O R D E R 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 ISSU E OF SOFTWARE EXPENSES IN TWO GROUNDS. ASSESSEE WAS NOT REPRESENT ED WHEN THE CASE WAS TAKEN UP ON 29.03.2011 AND THE CASE WAS HEARD EXPAR TE 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 BALANC ES 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 DEF ECTS IN WORK CARRIED OUT BY THE ASSESSEE IN THE BUSINESS OF TRADING IN E LECTRONICS GOODS, PROVIDING SOFTWARE AND TECHNICAL SERVICES. THE CIT(A), EVENTH OUGH RECORDS A FINDING THAT THE AMOUNTS WERE IN THE NATURE OF DISCOUNT AND SHORT PAYMENTS, HOWEVER, REJECTED THE CLAIM STATING THAT THE ASSESS EE HAS FAILED TO FULFIL THE ITA NO. 3036/MUM/2010 DATAXCESS INTEGRATED TECHNOLOGY LTD. 2 BASIC CONDITIONS LAID DOWN IN THE PROVISIONS, WITHO UT STATING WHAT CONDITIONS SHOULD BE FULFILLED. 4. AFTER CONSIDERING THE FACTS AND EXAMINING THE RECOR D, WE ARE OF THE OPINION THAT BOTH THE OFFICERS ARE NOT CORRECT IN D ISALLOWING BAD DEBTS CLAIMED, WHICH ARE MERELY ON ACCOUNT OF DISCOUNT AL LOWED AND SHORT PAYMENTS IN THE BILLING PROCEDURE. THE DISCOUNT ARI SES 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 NO T CORRECT AS THE PRIMARY DETAILS ITSELF INDICATES THAT THE ASSESSEE HAS BILL ED X AMOUNT AND RECEIVED Y AMOUNT AND THE DIFFERENCE IS TO BE TREATED AS D ISCOUNT 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. GR OUND IS ALLOWED. 5. GROUND NO. 2 PERTAINS TO THE CLAIM OF SOFTWARE DEVE LOPMENT CHARGES AMOUNTING TO ` 3,70,000/-. THE A.O. ALLOWED 30% DEPRECIATION ON TH E AMOUNT OF ` 2,59,000/- ON THE PRETEXT THAT THE EXPENDITURE IS C APITAL IN NATURE AS IT HAS ENDURING BENEFIT. THE CIT(A) CONFI RMED THE SAME RELYING ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF CIT VS. ARAVALI CONSTRUCTIONS P. LTD. 259 ITR 30. IT WAS ASSESSEES SUBMISSION THAT THEY HAVE UPGRADED THE EXISTING SOFTWARE WHICH WAS INSTA LLED 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 EXPE NDITURE. 6. AFTER CONSIDERING THE NATURE OF THE EXPENDITURE, WE ARE OF THE OPINION THAT UPGRADING EXISTING SOFTWARE IS NOT ACQUIRING O F NEW ASSET. THE FACTS IN THE CASE OF CIT VS. ARAVALI CONSTRUCTIONS P. LTD. 2 59 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-H OW. ON THOSE FACTS, THE HON'BLE RAJASTHAN HIGH COURT HELD THAT THE EXPENDIT URE WAS CAPITAL IN NATURE. HOWEVER, IN THE PRESENT CASE THE ASSESSEE W AS ALREADY USING THE SOFTWARE AND THE SAME WAS UPGRADED BY LATER VERSION . IN OUR VIEW THE EXPENDITURE IS RIGHTLY CONSIDERED AS REVENUE EXPEND ITURE BY THE ASSESSEE. ITA NO. 3036/MUM/2010 DATAXCESS INTEGRATED TECHNOLOGY LTD. 3 WE DIRECT THE A.O. TO ALLOW THE EXPENDITURE AS REVE NUE 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 8 TH APRIL 2011. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 8 TH 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.