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2015 (7) TMI 906 - AT - Income TaxDisallowance of provision made for doubtful advance paid for advancement of existing soft ware - Capital expenditure or revenue expenditure - assessee had made a claim u/s.37 stating that expenditure incurred by it on account of upgradation of ERP software was revenue expenditure, that it had advanced a sum of ₹ 15.91 lakhs to BT but the work was not executed to the satisfaction of the assessee - Held that:- The expenditure incurred by the assessee for up-gradation of system was allowable as revenue expenditure. Here we would like to follow the judgment of Hon’ble Bombay High Court of IVM World Trade Corporation (1988 (12) TMI 23 - BOMBAY High Court ) wherein the assessee had made advance payment for an expenditure that was revenue in nature. As the receiver of the advance payment became insolvent, so, the entire amount inclusive of the interest and the principal amount advanced by the assessee was written off by the assessee. The assessee claimed it as a business loss. The AO disallowed it and the Tribunal held that the loss was not deductible under sections 36 and 37 of the Act. On a reference, the Hon’ble Court held that the amounts were advanced by the assessee was allowable as revenue expenditure, that the amounts advanced were for business purposes,that the advances made proved irrecoverable, that the consequent loss was a business loss and not a capital loss. Respectfully, following the above judgment, we decide ground no.1 in favour of the assessee. Excess remuneration paid to Director - AO found that the auditor in form no.3CB, vide note no.3,had reported that the assesee had paid ₹ 36,40,038/- in excess of limits prescribed under the Companies Act - Held that:- The assessee had made excessive payment of remuneration to the Director, but same was approved by the central government, as required by the Companies Act. In these circumstances, we are of the opinion that there was no contravention of the provisions of the Act. Therefore, reversing the order of the FAA, we decide ground in favour of the assessee. Depreciation on expenditure treated as revenue expenditure by the assessee but held as capital expenditure in earlier years - Held that:- If the AO capitalised certain revenue expenditure and allowed depreciation in that year then there is no justification for not allowing the same in subsequent AY.s. In the interest of justice we are remitting back the issue to the file of the AO for fresh adjudication. We want to clarify that file being sent back to the AO to verify the claim made by the assessee of capitalization of revenue expenses in earlier years. If the AO has already allowed depreciation in those years and denied the benefit to the assessee, then he should allow depreciation to the assessee as per the provisions of the Act. He is directed to afford a reasonable opportunity of hearing to the assessee. Decided in favour of assessee for statistical purposes.
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