SPECTRUM BUSINESS SUPPORT LTD, MUMBAI V. ITO WD 7(2)(4), MUMBAI

ITA 4876/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55716 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 24-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

1 M/S SPECTRUM BUSINESS SUPPORT LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI B RAMAKOTAIAH, AM & SHRI VIJAY PAL RAO , JM ITA NO. 4876/MUM/2010 (ASST YEAR 2007-08 ) M/S SPECTRUM BUSINESS SUPPORT LTD 309 SHAH & NAHAR INDUL ESTATE DR E MOSES ROAD, WORLI NAKA MUMBAI 400 018 VS THE INCOME TAX OFFICER WARD 7(2)(4), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACS6557M ASSESSEE BY SHRI ANIL SATHE REVENUE BY SHRI P C MAURYA DT.OF HEARING 24.10.2011 DT OF PRONOUNCEMENT 31ST, OCT 2011 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31.3.2010 OF THE CIT(A) FOR THE AY 2007-08. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS IN THIS APPEAL: I) THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF T HE ASSESSING OFFICER AND DISALLOWED THE CLAIM OF BAD DEBTS AMOUNTING TO RS. 33,09,029/- II) THE LD CIT(A) ERRED IN REMANDING THE ISSUE OF D ISALLOWANCE OF MARKET DEVELOPMENT EXPENSES OF RS.25,50,940/- TO THE ASSES SING OFFICER FOR PASSING A SPEAKING ORDER, WHEN THE FACT THAT THE EXPENDITURE WAS REVENUE IN NATURE AND CONSEQUENTLY ALLOWABLE WAS APPARENT FROM THE ASSE SSMENT ORDER ITSELF. 3 GROUND NO.1 IS REGARDING DISALLOWANCE ON ACCOUNT OF BAD DEBTS. 3.1 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOFT WARE DEVELOPMENT AND PROVIDING OF LEGAL DATABASES FROM VARIOUS STATUES A ND CASE LAWS AND CONVERTING THE SAME DATABASE AND PROVIDED IN THE CD FORMAT AS PE R THE REQUIREMENT OF ITS CLIENTS. THE ASSESSEE HAS ALSO PROVIDED UPDATION SERVICES TH ROUGH CD AND INTERNET. THE 2 M/S SPECTRUM BUSINESS SUPPORT LTD VARIOUS PRODUCTS INCLUDE GRAND JURIX AND BANKMANN++ ETC., AS WELL AS DATA MINING SOFTWARE PROVIDED TO BANKS. 3.2 DURING THE YEAR, THE ASSESSEE WRITTEN OFF BAD D EBTS AMOUNTING TO RS. 33,09,029/- ON ACCOUNT OF DEFAULT BY ITS CUSTOM ERS IN RELATION TO RENEWAL /UPDATION OF SERVICES/PRODUCTS. THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT PR OVIDED THE DETAILS IN RESPECT OF THE ADDRESSES OF THE CUSTOMERS; THEREFORE, NO JUSTI FICATION OF WRITING OFF OF SUCH BAD DEBTS. 3.3 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER. 4 BEFORE US, THE LD AR HAS SUBMITTED THAT THE PRODU CTS WHICH THE ASSESSEE SELLS REQUIRES UPDATION ON YEAR TO YEAR BASIS. THE ASSESS EE COMPANY RAISES THE BILL FOR SUCH UPDATION ON ALL ITS CUSTOMERS ONE MONTH BEFORE THE LICENSEE EXPIRES. THE ASSESSEE HAS ALREADY CONSIDERED THE UPDATION CHARGES AS INCO ME IN THE EARLIER YEARS AND AFTER THE EXPIRY OF THREE YEARS, AS PER THE POLICY OF THE ASSESSEE, THOSE OUTSTANDING WERE WRITTEN OFF AS BAD DEBTS. THE ASSESSEE DOES N OT WAIT FOR THE PAYMENT FROM THE CUSTOMERS TO EXPRESS THEIR DESIRE FOR RENEWAL/UPDAT ION AND SENT THE UPDATED VERSION TO ALL ITS CUSTOMERS BY DEFAULT. THUS, THE LD AR HA S SUBMITTED ALL THE INGREDIENTS, AS REQUIRED U/S 36(1)(III) AS WELL AS SEC. 36(2) WERE FULFILLED. HE HAS RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. V. COMMISSIONER OF INCOME-TAX REPORTED IN 323 ITR 397. HE HAS ALSO SUB MITTED THAT THE TRIBUNAL IN ASSESSES OWN CASE FOR AY 1997-98 TO 2002-03 VIDE OR DER DATED 2.2.2007 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN THE SUBSEQUENT YEAR FOR THE AY 2005-06 VIDE ORDER DATED 30.12.2009. 3 M/S SPECTRUM BUSINESS SUPPORT LTD 4.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THAT WHEN THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE DEBTORS, WHO WERE TREA TED AS BAD DEBTS AND WRITTEN OFF BY THE ASSESSEE, THEN THE ASSESSEE FAILED TO SATISF Y THE REQUIREMENT FOR THE CLAIM OF BAD DEBTS. HE HAS RELIED UPON THE ORDERS OF THE LO WER AUTHORITIES. 5 AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUS AL OF THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THERE IS NO DISPUTE THAT ALL THESE AMOUNTS WRITTEN OFF BY THE ASSESSEE DURING THE YEAR HAVE BEEN TAKEN INTO ACCOU NT AS INCOME OF THE ASSESSEE IN THE EARLIER YEARS. THE ASSESSEE HAS FURNISHED T HE NAMES OF THE CLIENTS AND THE OUTSTANDING AMOUNT, WHICH HAS BEEN WRITTEN OFF AS W ELL AS THE ORDER AND THE INVOICE NUMBERS PERTAINING TO EACH AND EVERY BAD DEBTS. ON CE THE AMOUNT WAS ALREADY OFFERED AS INCOME OF THE ASSESSEE AND SUBSEQUENTLY AFTER THE EXPIRY OF THREE YEARS, THE ASSESSEE WRITTEN OFF THE SAME BY TREATING THE S AME AS BAD DEBTS BY TAKING A COMMERCIAL/BUSINESS DECISION THEN, IN VIEW OF THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD (SUPRA), THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT THE DEBTS IN FACT BECOME BAD. THE HONBLE SUPREME COURT HAS HELD AS UNDER:: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCT ION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABL ISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD DE BT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 5.1 WE FURTHER NOTE THAT THIS ISSUE HAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE AY 2001-02 VIDE ORDER DATED 30.12. 2009 IN PARA 44 AS UNDER: 44. GROUND NO.6 IS AGAINST THE DEDUCTION ON ACCOUNT OF BAD DEBTS. THE A.O DID NOT ALLOW ASSESSEES CLAIM WHICH WAS WRITTEN OF F IN THE BOOKS OF ACCOUNTS. ACCORDINGLY A SUM OF RS.91,70,930/- WAS ADDED. THE ID.CIT(A) DID NOT CONCUR WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSE SSEE. HERE AGAIN WE FIND THAT THE QUESTION OF DEDUCTIBILITY OF BAD DEBT IS S QUARELY COVERED IN FAVOUR OF THE ASSESSEE BY VIRTUE OF SPECIAL BENCH DECISION IN ASSESSEES OWN CASE 4 M/S SPECTRUM BUSINESS SUPPORT LTD REFERRED TO ABOVE. SINCE THE AMOUNT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS, WE ARE OF THE CONSIDERED OPINION THAT THER E IS NO JUSTIFICATION FOR THE SUSTENANCE OF DISALLOWANCE. THIS GROUND IS ALLOW ED. 6 IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF T HE CASE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE 7 GROUND NO.2 IS REGARDING THE DISALLOWANCE OF MARK ETING AND ADVERTISEMENT EXPENSES. 8 AT THE TIME OF HEARING, THE LD AR HAS SUBMITTED T HAT THE ASSESSEE DOES NOT PRESS THIS GROUND AND THE SAME MAY BE DISMISSED AS NOT PRESSED. THE LD DR HAS NO OBJECTION, IF THE SAID GROUND IS DISMISSED AS NOT P RESSED. ACCORDINGLY, WE DISMISS THIS GROUND BEING NOT PRESSED. 9 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THE 31 ST , DAY OF OCT 2011. SD/- SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 31 ST ,OCT2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI