TMI Blog2013 (9) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... ery assessee had to establish, as a matter of fact, that the debt advanced by the assessee had, in fact, become irrecoverable. That position got altered by deletion of the word “established”, which earlier existed in Section 36(1)(vii) of the Income Tax Act, 1961 – held that - in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee – matter remanded for de novo consideration - Following decision of T. R. F. Ltd. v. CIT [2010 (2) TMI 211 - SUPREME COURT] - Decided in favour of assessee. Disallowance u/s 37 - Held that:- Considering the nature of the expenditure as seen from annexure-A to the submissions before the Commissioner of Income-tax (Appeals), even though the expenditure may give an enduring benefit, since no asset has been created by payi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 pertains to the disallowance under section 14A. The assessee has shown dividend income of Rs. 3,53,85,721 which was claimed as exempt under section 10(33). The Assessing Officer estimated 5 per cent. of the dividend income as expenditure attributable to earning such tax free dividend income considering both direct and indirect expenses incurred by the assessee. Accordingly he arrived at the disallowance of Rs. 16,69,286 being 5 per cent. of the dividend income. The same was confirmed by the Commissioner of Income-tax (Appeals) differing from the orders of his predecessor in the assessment year 2001-02. Learned counsel submitted that the Income-tax Appellate Tribunal in the assessment years 2004-05 and 2005-06 has determined the reasonable amount at a lump sum amount of about Rs. 2 lakhs and accordingly he has no objection if proportionate amount was disallowed but not at the ratio adopted by the Assessing Officer. The learned Departmental representative however, submitted that by the order of the Income-tax Appellate Tribunal in 2001-02, amount of 5 per cent. has been confirmed. We have examined the issue and the details placed on record. In the assessment year 2001-02, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to a maximum success fee of USD 6,50,000 which was inclusive of upfront fee and out of pocket and other expenses. The assessee billed a total of Rs. 3,03,70,000 up to March 31, 2002 out of which only an amount of Rs. 70,00,000 were received during the year ended on March 31, 2002. As the balance amount was not received and the client expressed its inability to pay the amount being a sick company, the assessee wrote off the balance amount. There is no dispute with reference to the write off of the amount in the profit and loss account. (B) With reference to the Williamsons Tea Holdings Plc. the assessee was mandated as an exclusive advisor to protect the interest of Williamson Tea Holdings in India in the Williamson Magor group in response to business interest by Khaitan family in India. In consideration for the services assessee was entitled to a monthly retainer fee of USD 50,000 subject to a minimum of USD 2,50,000. All out of pocket expenses are to be reimbursed. In the course of service the assessee paid professional fees to various legal advisors on behalf of the client totalling to Rs. 13,99,689. Further, travel expenses and other miscellaneous expenses were also claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the amounts as bad debts as claimed. The grounds are considered allowed. Ground No. 4 pertains to claim of software expenses. The assessee spent an amount of Rs. 21,59,151 towards various licence fees paid for acquiring software for running its computers. The assessee claimed the same as revenue expenditure. The Assessing Officer was of the view that the software expenses gave an enduring benefit; therefore, they are capital in nature. Accordingly he allowed 25 per cent. depreciation by capitalising the said amount and making addition of difference of Rs. 16,19,363. The Commissioner of Income-tax (Appeals) upheld part of the amount relying on the decision of the hon'ble Rajasthan High Court in the case of CIT v. Arawali Constructions Co. P. Ltd. [2003] 259 ITR 30 (Raj). It was the contention that the assessee has not obtained any enduring benefit and only paid licence fee for utilising the same in existing computers. Accordingly the expenditure is revenue in nature. The assessee relied on the following decisions : (i) CIT v. Varinder Agro Chemicals Ltd. [2009] 309 ITR 272 (P H) ; (ii) CIT v. Asahi India Safety Glass Ltd. [2012] 346 ITR 329 (Delhi) ; (iii) CIT v. Raychem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HSBC Securities (Delhi) Ltd. 3,22,000 HSBC Asset Management (I) Ltd. 8,32,000 Total 14,76,000 On the reason that the amounts were advanced out of the borrowed funds on which the assessee paid 15.8 per cent. interest, the Assessing Officer worked out the disallowance at Rs. 26,77,452 under section 36(1)(iii). The Commissioner of Income-tax (Appeals) deleted the same holding that the assessee has more capital and reserves than what was advanced to the sister concerns and following his order in the assessment year 2001-02 he deleted the said disallowance. The Revenue is aggrieved. It was fairly admitted that in the assessment year 2001-02 the issue was restored to the file of the Assessing Officer for examination afresh as directed in paragraph 17 of the order in I. T. A. No. 6894/Mum/2004: "17. We have heard the rival submissions and perused the material on record. The Assessing Officer has categorically found that interest free advances to the assessee's related concerns are out of interest bearing HSBC overdraft account, on which the assessee had claimed deduction of interest in its profit and loss account. This finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so in mind. The assessee should be given due opportunity to support its contentions. With these directions the issue in Ground No. 1 is restored to the file of the Assessing Officer for fresh consideration. Ground No. 2 is on the issue of penalty levied by the stock exchange. The claim is an amount of Rs. 1,15,663 on account of payment made to the stock exchange for violation of byelaws of the stock exchange. The assessee submitted that the stock exchanges are not statutory authorities and therefore, violation of their bye-laws could not be considered as violation of law and is only a breach of contractual obligation and therefore, claim is allowable as a deduction. The Assessing Officer however, was of the opinion that the penalty paid violates the provisions of section 37(1) and therefore, the same cannot be allowed as business deduction. The Commissioner of Income-tax (Appeals) allowed the amount stating that the stock exchanges are not Government or semi-Government bodies and the payments are only for technical violation of regulations which cannot be considered as payment prohibited by law or in connection with an offence. The Revenue is aggrieved by this. Similar issue wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground is rejected. In the result, the Revenue appeal No. 7135/Mum/2005 is partly allowed for statistical purposes. C. O. No. 186/Mum/2006 (Arising from I. T. A. No. 7135/Mum/2005) The assessee claimed in the cross-objection the issue of depreciation on computer software at 60 per cent. as against 25 per cent. allowed by the Assessing Officer. The assessee claimed an amount of Rs. 40,60,000 as capital expenditure and claimed depreciation at 60 per cent. thereon in the computation of income. The Assessing Officer however, was of the view that assessee has purchased specific software licence for use of Ritechoice Spectrum-2000 which is only a licence and accordingly treating it as "intangible asset" allowed depreciation at 25 per cent. as per depreciation schedule. Further he was of the view that since the assessee did not utilise for the full period to claim deduction at 25 per cent., he allowed 50 percent. thereof as the assessee capitalised with effect from December 31, 2001 and accordingly added back an amount of Rs. 35,62,650 being excess depreciation claim on software purchase. The assessee being aggrieved along with the disallowance of software expenses (ground No. 4 in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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