TMI Blog2021 (7) TMI 1366X X X X Extracts X X X X X X X X Extracts X X X X ..... ELHI HIGH COURT ] for the use of such software, the nature of expenditure otherwise incurred for streamlining its functions i.e. towards fee payable to the consultants for systems and employment of special professionals to carry on the tasks that the software in fact performs, would have fallen undoubtedly in the revenue stream. Taking these into account and the further circumstance that the software itself would have run its course or life span as it were, given that the earlier assessment year in question is 2008-09, we are of the opinion that the question of law framed is to be answered in favour of the assessee Provision for expenses of branch offices' - AO disallowed the same on the ground that the liability is purely contingent and not an ascertained one - HELD THAT:- We have perused the said Circular. It is stated therein that in the Direct Tax Laws (Amendment) Act, 1987, the provisions of Section 36(1)(vii) of the IT act and Section 36(2) of IT Act, 1961, has been amended to rationalize the provisions regarding allowability of bad debt with effect from April 1, 1989. It is further stated that the Legislative intention behind the amendment was to eliminate the litig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o DHFL to give quietus to the dispute between the parties. As per Section 48 of the Act, the expenditure incurred in connection with the transfer is permissible. In view of the facts recorded hereinabove, in our considered opinion, payment has nexus with the transfer of shares as per the terms of Compromise. Accordingly, this question is answered in favour of the assessee and against the Revenue. - I.T.A No. 221 OF 2015 - - - Dated:- 8-7-2022 - HON BLE MR. JUSTICE P.S. DINESH KUMAR AND HON BLE MR. JUSTICE C.M. POONACHA Appellants (By shri. K.V. Aravind, Advocate) Respondent (By Shri. A. Shankar, Senior Advocate For Shri. M. Lava, Advocate) JUDGMENT P.S.DINESH KUMAR J, This appeal by the Revenue is directed against order dated December 30, 2014 in ITA No.1143/Bang/2010. 2. We have heard Shri. K.V. Aravind, learned Senior Standing Counsel for the Revenue and Shri. A. Shankar, learned Senior Advocate for the assessee. 3. Brief facts of the case are, assessee, M/s. ING Vysya Bank Ltd., filed its return of income for A.Y. 2004-05 declaring income of Rs.73,43,38,840/-. On December 29, 2006, the Assessing Officer passed the assessment order under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g expenditure claimed to be incurred in connection with sale of shares without appreciating the fact that the assessee has failed to substantiate that the expenditure on sale of shares is a wholly and exclusively incurred for the purpose of transfer of shares? 5. This appeal has been admitted to consider questions No.3, 5 and 7. Re: Question No.1 6. Shri. Aravind and Shri. Shankar jointly submitted that question No.1 is covered against the Revenue in Commissioner of Income-tax, Hubli Vs. Karnataka Vikas Grameen Bank [2017] 79 taxmann.com 359 (Karnataka). Re: Question No.2 7. Shri. Shankar submitted that question No.2 is covered against the Revenue in ITA No.130/2007 CIT and Another Vs. M/s. IBM India Ltd., decided on 10.04.2013. The same was opposed by Shri. Aravind contending that ITA No.130/2007 is with respect to A.Y. 1998-99. Therefore, on facts, the said ruling is not applicable to the facts of this case. He submitted that the expenditure towards software is a Capital expenditure and the Tribunal has erred in treating the same as Revenue expenditure. He further submitted that the rate of depreciation with effect from 2003-04 for Computers includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranch Offices. The Assessing Officer has held that provision was made towards expenses. Therefore it amounts to contingent liability and not an ascertained liability. In para 42 of its order, the ITAT has considered assessee's plea that the amounts recoverable from the customers had been written-off and recorded a finding that the CIT(Appeals) has not disputed this factual position. It has held that the deductions claimed by the assessee has to be allowed either as bad debt or written-off or as incidental loss to business under Section 28 of the Income Tax Act. Shri. Aravind, assailing Tribunal's decision, submitted that any deduction can be considered only under Section 36 and in this case, deduction for bad debt can be allowed only for the 'money lent' in the ordinary course of business of banking under Section 36(2)(i) of the IT Act. In reply, Shri. Shankar contended that the Ministry of Finance, Department of Revenue in Circular No.12/2016 dated May 30, 2016 has clarified that after 01.04.1989, while claiming deduction of bad debt under Section 36(1)(vii) of the IT Act, it is not necessary for the assessee to establish that the debt, had, in fact become irrecove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Shri. Aravind argued that if an expenditure is deductable, following have to be taken into account (i) whether the system of accounting followed is mercantile; (ii) whether the same system was followed by the assessee from the beginning or whether there is change in the system, whether change was bonafide; (iii) whether assessee has given the same treatment to losses claimed to have accrued and to the gains that may accrue to it; (iv) whether assessee has been consistent and definite in making entries in the account books in respect of losses and gains; (v) whether the method adopted by the assessee for making entries in the books both in respect of losses and gains is as per nationally accepted accounting standards; (vi) whether the system adopted by the assessee is fair and reasonable or is adopted only with a view to reducing the incidence of taxation. He further submitted that though the acquisition was in the year 2000, the valuation is made on April 1, 2003. It is not discernable from record whether loss or profits have been shown every year. 15. In reply, Shri. Shankar, adverting to para 15 of the same judgment contended that Woodward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the same as expenditure. The Assessing Officer disallowed the same and the ITAT has allowed deduction. 19. In support of this case, Shri. Aravind urged two contentions. Firstly, the expenditure has taken place after the sale and therefore, deduction could not be allowed. Secondly, under Section 48(i) of the IT Act, there must be nexus between the transfer and deduction. Shri. Shankar argued that the sale of shares has taken place on February 2, 2003 and the compromise was entered into on July 29, 2004. The Compromise Deed was produced and the same has been recorded by the ITAT. It contains reference to the agreement for assignment of receivables of DHFL. In order to bring quietus to the dispute, assessee agreed to pay and accordingly paid the sum of Rs.2.66 Crores. He placed reliance on Commissioner of Income-tax Vs. P. Rajendran 127 ITR 810 and Commissioner of Income-tax Vs. George Henderson (1967) 66 ITR 622 (SC). 20. In P. Rajendran, Kerala High Court has held that the crucial test to be applied is whether the expenditure had incurred wholly and exclusively in connection with the transfer. In George Henderson, it is held that the expression 'full value of consi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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