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2008 (5) TMI 294 - ITAT BOMBAY-IDisallowed Sustained software expenses - Nature of expenses Capital or Revenue ? - w/off bad debt - allowed as Expenses or Business Loss ? Sustained disallowance of software expenses - HELD THAT:- The emerging scenario is that the payments are all for access to certain software used by share brokers for accessing NSE and controlling their trading functions. Assessee being into the business of share broking, no doubt, such expenditure was for business purpose only. Now, to ascertain whether the expenditure was of capital nature if we apply the tests laid down by the Special Bench of this Tribunal in the case of Amway India Enterprises & Ors. vs. Dy. CIT, [2008 (2) TMI 454 - ITAT DELHI-C], it can be seen that the assessee did not get any enduring benefit. If it had to continue to have the access, it was required to pay the amount periodically. The software ownership was not transferred to the assessee since the invoice of the party clearly mentions 'Client Access Licence'. Though it did help the assessee to be competitive in its line of business and for the efficient conduct of its day-to-day business, this alone would not be sufficient to hold the outgoes to be expenditure of capital nature. Thus, we find that the disallowance of the impugned amount was not called for. Hence, we set aside the order of the AO and the learned CIT(A) in this regard and delete the disallowance. Assessee succeeds in ground No. 1. Sustained a disallowance of w/off - business loss or bad debts - HELD THAT:- It is undisputed fact that the dues to the assessee arose on account of its business dealings with the clients and brokerage on such deals had been considered for computing its income. For that matter, the AO himself has admitted that such clients were debtors of the assessee and so accounted as well. Therefore, in the light of the decision of the Special Bench of this Tribunal in Dy. CIT vs. Oman International Bank SAOG [2006 (5) TMI 117 - ITAT BOMBAY-H], assessee having written off such amount, it had satisfied the stipulation as per s. 36(1)(vii). If we consider it from the angle of business loss, such deals having been done in the course of its business, they were nothing but business loss, since the write offs were effected due to recoveries having become difficult. Assessee has also shown as income in later years whatever was recovered. We are also supported in this behalf by the decision of this Tribunal in the case of CIT vs. B.D. Shroff, where in similar circumstances, write off of dues from clients was allowed. Therefore, we are of the opinion that the AO was not correct in not allowing this claim. Resultantly, we set aside the orders of both the learned CIT(A) and the AO in this regard, and delete the disallowance. Ground No. two of the assessee is allowed. In the result, appeal of the assessee stands allowed.
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