M/S. SYNERGY LOG-IN SYSTEMS LTD, MUMBAI V. THE ITO 7(2)(4),

ITA 6065/MUM/2007

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6689 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 23-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 27-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: J PRABHAKAR
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts; Revenue expenditure
• Section: 142(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 6065/MUM/2007 (ASSESSMENT YEAR: 2003-04) M/S. SYNERGY LOG-IN SYSTEMS LTD. INCOME TAX OFFICER - 7(2)(1) MITTAL COURT, 102/112, C WING MUMBAI 10TH FLOOR, 224, NARIMAN POINT VS. MUMBAI 400021 PAN - AAGCS 2008 H APPELLANT RESPONDENT APPELLANT BY: SHRI J. PRABHAKAR RESPONDENT BY: SHRI SATBIR SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-VII, MUMBAI DATED 10.07.2007. 2. ASSESSEE HAS RAISED SIX GROUNDS OUT OF WHICH GROUND NOS. 5 & 6 ARE GENERAL IN NATURE. IN THE COURSE OF APPELLATE PROCE EDINGS ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF APPEAL, COPY OF WHICH WAS FUR NISHED TO THE REVENUE WITH A PRAYER TO ADMIT THE GROUNDS. THESE WERE ADMI TTED. THEREFORE THE CONSOLIDATED GROUNDS FOR CONSIDERATION ARE AS UNDER : - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.5.21 LAKHS ON THE ALLEGED GROUND THAT IT IS SIMILAR TO DISALLOWANCE T HEREOF IN ASSESSMENT YEAR 2002-2003; THE COMMISSIONER OF INCO ME TAX (APPEALS) IGNORED THE SPECIFIC ITEMS OF EXPENDITURE SUBMITTED TO PROVE THE CLAIM OF THE ASSESSEE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.23,09,415/- CLAIM ED AS BAD DEBTS WITHOUT CONSIDERING THE ALTERNATE CLAIM THAT IF IT IS NOT INCOME IN THE FIRST PLACE THEN IT SHOULD BE ALLOWED AS AN EXPENSE INCIDENTAL TO THE CARRYING ON OF THE BUSINESS UNDER SECTION 28 OF THE ACT. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.28,3 8,898 UNDER ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 2 PRODUCT DISTRIBUTION EXPENSE PAID TO PARTIES ABOA RD FOR SOFTWARE PRODUCT DISTRIBUTION OUTSIDE INDIA, INCOME WHEREOF WAS ADMITTED AND SHOWN IN THE BOOKS OF ACCOUNT. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.1,87 ,65,154 ON THE ALLEGED GROUND THAT CRYSTALLISATION OF LIABILITY DI D NOT OCCUR DURING THIS YEAR. ADDITIONAL GROUNDS : A) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF PRE-OPE RATIVE EXPENSES OF UK BRANCH, CONSISTING OF SEVERAL HEADS OF REVENUE EXPENDITURE INCURRED THEREAT WITHOUT DUE REGARD TO THE GROUNDS RAISED IN THIS REGARD (REFER PARA 6 OF STATEMENT OF FACTS FILED BEFORE COMMISSIONER OF INCOME TAX (APPEALS). B) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN SUSTAINING THE DISALLOWANCE OF RS.30 L ACS WITHOUT SUFFICIENT REASON, BEING PROVISION FOR IMPLEMENTATI ON EXPENSES ON PROJECTS IN THE PIPE LINE, MADE WITH A VIEW TO C OMPLY WITH SEBI GUIDELINES. 3. IN THE COURSE OF ARGUMENT THE LEARNED D.R. OBJECTED TO THE ADDITIONAL GROUND A STATING THAT THE ISSUE OF PRE-OPERATIVE EX PENSES DISALLOWED AMOUNTING TO ` 7,92 LAKHS WAS NOT CONTESTED BEFORE THE CIT(A), THE REFORE THE GROUND CANNOT BE RAISED FOR WHICH THE LEARNED A.R. ACCEPTED THAT GROUND A RAISED IN THE ADDITIONAL GROUNDS BE TREATED AS WITH DRAWN. THE ADDITIONAL GROUND A IS ACCORDINGLY REJECTED. 4. BRIEFLY STATED THAT ASSESSEE, IN THE BUSINESS SOFTW ARE DEVELOPMENT, FILED RETURN OF INCOME DECLARING TOTAL INCOME OF ` 59,96,350/-. VARIOUS NOTICES WERE ISSUED TO THE ASSESSEE FOR FURNISHING DETAILS AND SOME OF THE DETAILS WERE FURNISHED. HOWEVER, THE A.O. GAVE NOTI CE UNDER SECTION 142(1) DATED 24.02.2006 ASKING DETAILS OF SPECIFIC CLAIMS WHICH WAS NOT COMPLIED WITH. THEREFORE THE A.O. DISALLOWED VARIOUS EXPENSE S OUT OF THE TOTAL CLAIMS MADE BY THE ASSESSEE IN THE P & L ACCOUNT. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A) WHO FOR THE SAME REASONS AS MENTI ONED BY THE A.O., DISMISSED THE GROUNDS. IT WAS THE CONTENTION OF THE ASSESSEE THAT THE DETAILS WERE FURNISHED BEFORE THE CIT(A) AS THEY WERE NOT F URNISHED BEFORE THE A.O. DUE TO CERTAIN ADMINISTRATIVE PROBLEMS AND LACK OF MANPOWER AT THAT POINT OF TIME IN MUMBAI OFFICE. IN THAT BACK GROUND, THE SE GROUNDS ARE CONSIDERED. ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 3 5. REGARDING GROUND NO. 1 IT WAS SUBMITTED THAT IN THE COST OF OUTSOURCING, SUM OF ` 5,20,679/- PERTAIN TO PURCHASE OF SOFTWARE AND HARDWARE ON BEHALF OF CLIENTS FOR WHICH REVENUE REC EIVED WAS ACCOUNTED FOR AND PRO-TANTO DEDUCTION CLAIMED FOR DIRECT EXPENSES CONNECTED THEREWITH. THE AMOUNTS DEBITED UNDER THIS HEAD ARE AS UNDER: - COST OF OUTSOURCING AMOUNT DATE V. REF. NO. RCP CONSULTANTS TICKET BASE SOFTWARE TO PEOPLES BANK GNP 3000 @77.24 231720 3-JAN-02 IDBI P 384 PURCHAES OF V 24 CABLE FOR SWIFT INTERFACE 3000 8-APR-02 CP 561 (BBY) PURCHASE OF 2 EICON CARD FOR HDFC & UNITED BANK OF INDIA 187408 2-MAY-02 BP 308 (BBY) PURCHASE OF 1 EICON CARD FOR BANK OF RAJASTHAN 98551 3-MAY-02 BP 309 (BBY) 520679 IT WAS SUBMITTED THAT THE ABOVE EXPENDITURES WERE S PECIFICALLY IDENTIFIABLE TO PROJECTS/IMPLEMENTATION WHOSE EXPENDITURE WAS OUTSO URCED BY PURCHASE FROM 3 RD PARTY SOFTWARE SELLERS/IMPLEMENTERS AND HENCE THE TERM COST OF OUTSOURCING WAS COINED. IT WAS FURTHER SUBMITTED T HAT THE REVENUES RECEIVED FROM CLIENTS HAS DIRECTLY MATCHED WITH THE SE THIRD PARTY PURCHASES AND HENCE THE A.O., HAVING ASSESSED THE RECEIPTS AS INCOME CANNOT IGNORE THE CORRESPONDING EXPENDITURE ON THE SPECIOUS GROUN D THAT NO DETAILS ARE AVAILABLE; IN FACT, THERE WAS A CONFUSION IN THE MI ND OF THE A.O. TO COMPARE THE EXPENDITURE OF OVERSEAS SUBSIDIARIES AS AN OUTS OURCING EXPENSE WHICH HAS NOTHING TO DO WITH THIS CLAIM OF EXPENDITURE. 6. THE LEARNED D.R., HOWEVER, SUBMITTED THAT ASSESSEE HAS NOT FURNISHED ANY VOUCHERS AND THE SAME ISSUE WAS PENDING FOR A.Y . 2002-03 ALSO BEFORE THE F BENCH OF ITAT. 7. AFTER HEARING THE SUBMISSIONS OF THE RIVAL PARTIES, WE ARE OF THE OPINION THAT THIS GROUND REQUIRES RE-EXAMINATION BY THE A.O. AS SEEN FROM THE ASSESSMENT ORDER ASSESSEE HAS NOT FURNISHED ANY DETAILS BEFORE THE A.O. AND THE CIT(A) ALSO CONSIDERED THAT ASSESSEE HAD NO T GIVEN ANY DETAILS REGARDING THIS EXPENDITURE. THE LEARNED COUNSEL, HO WEVER, IN THE COURSE OF ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 4 ARGUMENTS SUBMITTED THAT ALL THE DETAILS WERE PLACE D BEFORE THE LEARNED CIT(A) WHO FAILED TO CONSIDER THEM AND REFERRED TO THE OTHER APPEAL IN AY 2004-05 WHEREIN THE CIT(A) HAS GIVEN RELIEF AFTER C ONSIDERING THE DETAILS FURNISHED. IT WAS THE CONTENTION THAT THE EXPENDITU RE IS GENUINE. SINCE THE DETAILS WERE NOT PLACED BEFORE THE A.O. WE ARE OF T HE OPINION THAT THE ISSUE CAN BE RE-EXAMINED BY THE A.O. AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. ACCORDINGLY THE ISSUE OF DISALLOWANCE OF ` 5.21 LAKHS IS RESTORED TO THE FILE OF THE A.O. GROUND IS CONSIDERED ALLOWED F OR STATISTICAL PURPOSES. 8. GROUND NO. 2 IS REGARDING BAD AND DOUBTFUL DEBTS WR ITTEN OFF OF ` 23,09,415/-. IT WAS SUBMITTED THAT THE DETAILS OF B AD AND DOUBTFUL DEBTS AND THE YEAR TO WHICH THE INCOME THEREUNDER WERE FL ED BEFORE THE CIT(A). THE VARIOUS PARTIES TO WHICH THE AFORESAID WRITE OF F PERTAINS TO ARE AS UNDER:- 1. CORPORATION BANK (AMC ON SOFTWARE) ` 1,78,260.00 2. INFOSYS STANDARD TRUST BANK ` 17,08 200.00 3. VKC CREDIT AND FOREX SERVICES ` 29,852.55 4. CHEMICALS & PLASTICS INDIA LTD. ` 30,095.52 5. GMMCO LTD. ` 2,11,068.32 6. OMEGA STEELS ` 45,898.00 7. SARBATI STEELS ` 58,431.43 8. REDIFFUSSION DYE & R. PVT. LTD. ` 17.801.92 TOTAL ` `` ` 23,09,415.74 IT WAS FURTHER SUBMITTED THAT THE DETAILS REASONS F OR WRITE OFF OF THE ABOVE AMOUNTS WERE ALSO FURNISHED TO THE CIT(A) AS UNDER: - A) CORPORATION BANK: THE AMOUNTS DUE REPRESENT ANNUAL MAINTENANCE CONTRACTS DUE FOR THE RESPECTIVE PERIOD S FOR WHICH INVOICES WERE RAISED AND ACCOUNTED FOR; DUE TO BUGS IN THE SOFTWARE AND EMPLOYEE TURNOVER THE PROBLEM AT THE CLIENTS EN D WERE NOT FULLY SERVICES, FOR WHICH THE CUSTOMER REFUSED TO P AY. THE AMOUNTS CAN NOT BE RECOVERED CONTRACTUALLY SINCE SERVICE WA S INCHOATE AND HENCE HAD TO BE WRITTEN OFF. B) INFOSYS STANDARD TRUST BANK: ON IMPLEMENTATION OF THE SOFTWARE, THE CLIENT HAD NOT MADE FULL USE OF THE SOFTWARE AN D HENCE AFTER EXPIRY OF WARRANTY HE EXPRESSED A RESERVATION TO PA Y FOR ANNUAL MAINTENANCE CONTRACT ON NON-USAGE; AFTER SUCCESSFUL INTEGRATION OF THE SOFTWARE AT THE CLIENTS END THE SERVICE CONTRAC T WAS RENEWED FOR SUBSEQUENT YEARS. HENCE THE PAYMENT FOR THE ABOVE C ANNOT BE ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 5 INSISTED UPON. THE INCOME HOWEVER WAS OFFERED TO TA X AND HENCE WRITE OFF IS JUSTIFIED. C) VKC CREDIT AND FOREX SERVICES & OTHERS: THESE ARE F INANCE DEBTORS AND DUE TO DIVERSION OF THE ASSESSEES BUSINESS INT O SOFTWARE THE EFFORTS TAKEN TO RECOVER OLD DUES COULD NOT FRUCTIF Y DUE TO LACK OF RESOURCES AND MAN POWER AND THE COST OF RECOVERY BY SUIT OR TRIAL IN A COURT OF LAW IS MORE THAN THE AMOUNTS DUE AND HENCE HAD TO BE WRITTEN OFF. IT WAS FURTHER SUBMITTED THAT THE CIT(A) FAILED TO NOTICE THAT IN TERMS OF SECTION 36(2) THE CONDITIONS LAID OUT VIZ., THE AMO UNTS WRITTEN OFF WAS ADMITTED AS INCOME IN EARLIER ASSESSMENT YEAR AND W RITTEN OFF IN THE RELEVANT YEAR AS A BONAFIDE BAD DEBT IS ENOUGH TO JUSTIFY TH E CLAIM OF BAD DEBT UNDER THE SAID SECTION. IT WAS THE CONTENTION THAT THE AS SESSEE EXPLAINED THE METHOD OF RECOGNISING INCOMES BY SOFTWARE COMPANIE S WHO ACCOUNT INCOME ON MERELY SIGNING THE CONTRACTS WITHOUT ACTUAL RECE IPTS AND WHEN THE AMOUNTS WERE NOT RECEIVED EITHER AS NOT BILLED OR A S DISCOUNTS, THE UNRECOVERED AMOUNTS WERE TREATED AS BAD DEBTS. THIS CAN BE A CHARGE UNDER SECTION 28 ITSELF, WHICH WAS MISUNDERSTOOD BY THE C IT(A). IT WAS FURTHER SUBMITTED THAT AS REGARDS THE DATA RELATING TO FINA NCE DIVISION THE CIT(A) DISALLOWED THE CLAIM ON THE BASIS THAT FINANCE DIVI SION WAS CLOSED AND ASSESSEE DID NOT CARRY ON THE SAID BUSINESS IGNORIN G THE FACT THAT ASSESSEE IS CONTINUING THE BUSINESS AND THERE IS NO NEED TO DIS ALLOW THE AMOUNTS. 9. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDERS OF THE A.O. AND THE CIT(A). 10. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE DETA ILS FURNISHED, PART OF THE CLAIM PERTAINS TO UNBILLED RECEIPTS ACCOUNTE D FOR AS INCOME OR NON- RECEIVABLES DUE TO SERVICE PROBLEMS. THE FINANCE DE BTORS PERTAIN TO THE ERSTWHILE BUSINESS OF MERCHANT BANKING AND FINANCE COMPANY. SINCE THE ASSESSEE, EVENTHOUGH HAS WRITTEN OFF THE AMOUNTS IN THE BOOKS OF ACCOUNT, HAS NOT FURNISHED THE DETAILS BEFORE THE A.O. AND T HE CIT(A), WE ARE OF THE OPINION THAT THE ISSUE CAN BE RE-EXAMINED BY THE A. O. AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. ASSESSEE IS DIRECTED T O JUSTIFY THE CLAIMS BY FILING NECESSARY DETAILS. MATTER IS RESTORED TO THE FILE OF THE A.O. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 6 11. GROUND NO. 3 PERTAINS TO THE PRODUCT DISTRIBUTION E XPENSES OF ` 28,38,898/-. IT WAS SUBMITTED THAT THESE EXPENSES R EPRESENT PRODUCT DISTRIBUTION CHARGES PAID TO MILLENNIUM TECHNOLOGIE S OF SRI LANKA OF ` 11,44,800/- AND COMPUTER WAREHOUSE NIGERIA OF ` 16,94,098/- AS PER CONTRACTUAL TERMS FOR IMPLEMENTATION OF SOFTWARE IN SRI LANKA AND NIGERIA RESPECTIVELY. THE SOFTWARE INCOME RECEIVED WAS DULY ACCOUNTED FOR AND THE PAYMENT TO THE DISTRIBUTOR THEREFORE WAS CONSEQUENT IALLY ALLOWABLE BUSINESS EXPENDITURE. THE BRIEF PARTICULARS OF THE INCOME RE CEIVED FROM CLIENTS ABROAD AND THE CORRESPONDING PRODUCT DISTRIBUTION CHARGES PAYABLE TO BUSINESS ALLIANCE PARTNERS WHICH WERE PLACED ON RECORD AS U NDER: - PARTICULARS DATE V. REC. NO. 25% TO MIT FOR PEOPLES BANK ON CONTRACT OF $152500 & 15% ON CONTRACT OF $6500 OF THIRD PARTY SOFTWARE @48 28-AUG-02 JV AUG 14 30% COMMISSION TO COMPUTER WAREHOUSE, LAGOS ON FBN CONTRACT $25717.50 @ 48 24-DEC.02 GTBP 74 30% COMMISSION TO COMPUTER WAREHOUSE, LAGOS ON FBN CONTRACT $9504 @ 48 29-JAN-03 IT WAS THE SUBMISSION THAT THE INCOMES WERE OFFERED SO THE CORRESPONDING EXPENDITURE NEED NOT BE DISALLOWED. 12. WE HAVE CONSIDERED THE ISSUE. AS BOTH THE AO AND CI T(A) DISALLOWED THE AMOUNTS ON THE REASON THAT DETAILS WERE NOT FUR NISHED, WE ARE OF THE OPINION THAT THE ISSUE CAN BE RE-EXAMINED BY THE A. O. AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. ASSESSEE IS DIRECTED T O JUSTIFY THE CLAIM BY FURNISHING NECESSARY DETAILS BEFORE THE AO. FOR THE SE REASONS THE MATTER IS RESTORED TO THE FILE OF THE A.O TO CONSIDER IT AFRE SH. THE GROUND IS CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 13. GROUND NO. 4 PERTAINS TO THE PRIOR PERIOD EXPENSES WRITTEN OFF OF ` 1,87,65,154/-. THE BREAK UP OF THE EXPENSES WRITTEN OFF FURNISHED BEFORE THE A.O. WERE AS UNDER: - ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 7 1. ARVIND CHATURVEDI 19800.00 2. S.R. SHUKLA LEGAL CONSULTANT 69625.00 3. EXPENSES OF EMPLOYEES 193208.18 4. TRAVEL EXPENSES OF EMPLOYEES 644685.12 5. OTHERS 1082748.16 6. KOLSHET ISPAT UDYOG LTD. 2000000.00 7. STOCK IN HAND SOFTWARE 2000000.00 8. OTHER SOFTWARE RECEIVABLES 3500000.00 9. OL 99-2000 108965.32 10. EXP OF CHANDRESH PATHAK 6490.00 11. ESIC 2154.00 12. SETTLEMENT OF SUNDARESAN 15858.67 13. DEPOSIT OFFICE PREMISES BURKIT ROAD 98620.0 0 14. SETTLEMENT OF DUES S. SUBRAMANIAM 23000.00 15. DEPRECIATION 921594.00 16. SALARIES 6612536.80 17. RECRUITMENT EXPENSES 152548.00 18. TELEPHONE EXPENSES 135117.20 19. RENT OFFICE PREMISES 826204.00 20 ELECTRICITY 350000.00 TOTAL 18765154 .00 IT WAS SUBMITTED THAT OUT OF THE ABOVE, ITEM NO. 1, PAYMENT TO ARVIND CHATURVEDI REPRESENTS RENT OF GUEST HOUSE AT MUMBAI WHICH WAS ACCOUNTED ON THE BASIS OF REMINDER LETTER DATED 15 TH APRIL 2002 AND HENCE THE LIABILITY CRYSTALLISED FOR PAYMENT ONLY DURING THIS ASSESSMEN T YEAR. SIMILARLY, ITEM NO. 2 REPRESENTS LEGAL FEES PAYABLE TO M/S. SRS LEG AL, WHICH WAS ACCOUNTED ON THE BASIS OF REMINDER LETTER DATED 10.04.2002. I TEM NOS. 3 & 4 REPRESENTS PAYMENT TO EMPLOYEES WHO DID NOT SUBMIT BILLS FOR E XPENSES INCURRED BY THEM SINCE ASSESSEE COMPANY DEFAULTED IN PAYMENT OU TSTANDING EXPENSES DUE TO THEM SINCE THE PAST 3 YEARS DUE TO FINANCIAL CRUNCH AND COULD NOT SUBMIT FOR FURTHER PERIODS FOR FEAR OF LOSING TRACK OF VOUCHERS SUBMITTED OR GETTING THE PAYMENTS CLEARED IN TIME, IN VIEW OF PA ST CONDUCT OF THE ASSESSEE COMPANY IN THIS REGARD. ITEM NO. 5 REPRESENTS PAYME NT MADE ON THE BASIS OF BILLS SUBMITTED BY VARIOUS PARTIES WHOSE PAYMENTS W ERE ALSO DELAYED IN THE PAST FOR THE REASONS STATED ABOVE. ITEM NO. 6 REPRE SENTS WRITE OFF OF ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 8 INVESTMENT IN KOLSHETH ISPAT LTD. WHOSE PUBLIC ISSU E WAS UNDERWRITTEN WHILE THE ASSESSEE COMPANY WAS ENGAGED IN MERCHANT BANKING ACTIVITIES THIS ISSUE IS ALREADY DECIDED IN FAVOUR OF THE ASSE SSEE BY THE CIT(A) VIDE ITA NO. 135/2003-04 DATED 29.03.2005 IN PARA NO. 5 AT P AGE 5 OF THE APPELLATE ORDER. ITEM NO. 7 REPRESENTS WRITE OFF OF STOCK OF SYNERGY SOFTWARE, OUT OF ` 1,09,49,190/- CAPITALISED IN THE BOOKS THE SUM WR ITTEN OFF IS THE VALUE OF SOFTWARE LOCKS CONSUMED IN THE SOFTWARE WHICH IS PR OVIDED TO CLIENTS TO OPERATE THE SOFTWARE THE SOFTWARE IS NO LONGER SUP PORTED BY THE ASSESSEE COMPANY AND HENCE THE LOCK SUPPLIED HAVE LOST ITS C OMMERCIAL EXPEDIENCY. THIS IS LEGITIMATE BUSINESS EXPENDITURE WRITTEN OFF AFTER EROSION OF COMMERCIAL VALUE. ITEM NO. 8 REPRESENTS SOFTWARE RE CEIVABLES DUE FROM PUNJAB & SIND BANK, BANK OF PUNJAB, CORPORATION BAN K AND BANK OF RAJASTHAN. ITEM NOS. 9 TO 14 REPRESENTS BOOKING OF EXPENDITURE ON THE BASIS OF CRYSTALLISATION OF LIABILITY DURING THE COURSE O F THE YEAR UNDER APPEAL. ITEM NOS. 15 TO 20 REPRESENTS WRITE OFF TOWARDS SOFTWARE DESIGNS, WHICH REPRESENTS REVENUE EXPENDITURE, DEFERRED IN THE BOO KS OF ACCOUNTS ON THE BASIS OF THE ACCOUNTING POLICY OF THE COMPANY THAT MATURITY OF DIFFERENT VERSION OF SOFTWARE IN THE MARKET IS DEFERRED OVER A PERIOD OF 4 TO 5 YEARS. THUS, THESE REPRESENTS DEFERRED REVENUE EXPENDITURE WRITTEN OFF AS NO LONGER VALID SINCE, IT HAS OUT LIVED ITS UTILITY AND PURPO SE. 14. WE HAVE CONSIDERED THE ISSUE AND SUBMISSIONS OF THE RIVAL PARTIES. AS SEEN FROM THE DETAILS FURNISHED SOME OF THE EXPENDI TURES PERTAIN TO EARLIER YEARS BUT CRYSTALLISED DURING THE YEAR. AS SEEN FRO M THE EXPLANATION GIVEN THE EXPENSES SEEMS TO BE ALLOWABLE IN THE YEAR OF C RYSTALLISATION OF LIABILITY. HOWEVER, AS RIGHTLY POINTED OUT BY THE A.O. AND THE CIT(A), NO DETAILS WERE FURNISHED BEFORE THEM. IT WAS THE SUBMISSION THAT A SSESSEE HAS FILED THE DETAILS JUSTIFYING THE CLAIMS, BUT WERE NOT CONSIDE RED. THEREFORE, IN ORDER TO EXAMINE THE ISSUE AND CONSIDERING THE CLAIMS OF ` 1,87,65,154/- THE ISSUE IS RESTORED TO THE FILE OF THE A.O. TO EXAMINE THE CLA IMS AND ALLOW ACCORDING TO LAW. THIS GROUND IS ALSO CONSIDERED ALLOWED FOR STA TISTICAL PURPOSES. 15. ADDITIONAL GROUND B IS REGARDING DISALLOWANCE OF AN AMOUNT OF ` 30,00,000/- AS PROVISION MADE IN THE BOOKS OF ACCOU NT WITHOUT JUSTIFICATION. IT WAS THE SUBMISSION THAT THE PROVI SION WAS MADE IN THE ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 9 BOOKS TO REPRESENT FAIR VALUE OF IMPLEMENTATION EXP ENSES IN THE P & L ACCOUNT ALONE WITH A VIEW TO DISCLOSE THE SAME IN T HE QUARTERLY ACCOUNTS PUBLISHED IN ACCORDANCE WITH SEBI GUIDELINES. IT IS ALSO SUBMITTED THAT THE ACTUAL EXPENSES HAVE CRYSTALLISED IN THE SUBSEQUENT ASSESSMENT YEAR WHEN THE PROVISION WAS DULY REVERSED BUT SUCH REVERSAL W AS NOT MADE IN THE COMPUTATION OF INCOME WHILE CONSOLIDATING THE PERIO D ACCOUNTS. 16. THE LEARNED D.R., HOWEVER, SUBMITTED THAT NO DETAIL S WERE FURNISHED, SO THE EXPENDITURE CANNOT BE ALLOWED. 17. WE HAVE CONSIDERED THE ISSUE. THERE SEEMS TO BE SOM E ACCOUNTING MISTAKE IN NOT WRITING BACK THE PROVISION AND CLAIM ING THE ACTUAL EXPENSES. WE ARE UNABLE TO EXAMINE WHETHER THE ACTUAL EXPENSE S WERE ALLOWED IN THE NEXT ASSESSMENT YEAR AND THE PROVISION WAS REVERSED . IN CASE THE PROVISION WAS REVERSED IN THE NEXT YEAR THE A.O. IS RIGHT IN DISALLOWING THE PROVISION IN THIS YEAR AS NO SUCH LIABILITY AROSE IN THIS YEAR. HOWEVER, SINCE THESE DETAILS REQUIRE EXAMINATION VIS--VIS RECORD, THE ISSUE IS ALSO RESTORED TO THE FILE OF THE A.O. TO EXAMINE IT AFRESH AND DECIDE. THIS ADDI TIONAL GROUND IS ALSO ALLOWED FOR STATISTICAL PURPOSES. 18. ASSESSEE IS DIRECTED TO FURNISH THE NECESSARY DETAI LS BEFORE THE A.O. AND SHOULD NOT SEEK ANY ADJOURNMENT AS SUFFICIENT O PPORTUNITY WAS ALREADY GIVEN BY THE A.O. AND CIT(A) BEFORE MAKING THE ADDI TIONS/DISALLOWANCES. HOWEVER, SINCE MANY OF THE ISSUES REQUIRE VERIFICAT ION, WE ARE OF THE OPINION THAT ONE MORE OPPORTUNITY CAN BE GIVEN TO THE ASSES SEE TO JUSTIFY THE CLAIMS. THEREFORE, THE MATTER IS RESTORED TO THE FILE OF TH E A.O. BY SETTING ASIDE THE ORDERS ON THESE ISSUES. THE A.O. IS DIRECTED TO GIV E DUE OPPORTUNITY TO THE ASSESSEE AND DECIDE THE ISSUE AFRESH ACCORDING TO T HE FACTS AND LAW. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JULY 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 22 ND JULY 2011 ITA NO. 6065/MUM/2007 M/S. SYNERGY LOG-IN SYSTEMS LTD. 10 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT VII, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.