2004 (2) TMI 650 - AT - Income Tax

Summary

Issues Involved: Disallowance of bad debts and treatment of software expenses as capital expenses.

Bad Debts Issue: The assessee, a sharebroker, claimed bad debts of Rs. 66,225 relating to two defaulting sharebrokers. The claim was disallowed by the CIT(A) for failure to establish the badness of the debt. However, the ITAT held that under section 36(1)(vii), it is not mandatory for the assessee to provide demonstrative proof if the debt was written off as irrecoverable in the previous year. Citing relevant case law, the ITAT allowed the deduction as the assessee had fulfilled the conditions under the section. The ITAT directed the Assessing Officer to delete the disallowance and noted that any subsequent amounts received were disclosed as income.

Software Expenses Issue: The software expenses included payments for an anti-virus program and software upgradation. The ITAT determined that these expenses were revenue in nature, not capital. The anti-virus software was essential for computer efficiency, and the upgradation was necessary for annual updates. As these expenses did not result in enduring benefits or assets, they were treated as revenue expenditure. Consequently, the ITAT directed the Assessing Officer to delete the disallowance of the software expenses.

In conclusion, the ITAT allowed the appeal filed by the assessee, overturning the disallowances of bad debts and software expenses, emphasizing compliance with relevant provisions and the nature of the expenses incurred.