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Issues involved: The judgment involves two main issues: (1) Whether expenses on software development are capital or revenue expenditure, and (2) Whether payments made to National Stock Exchange Ltd. are allowable as revenue expenditure.
Issue 1: Software Development Expense The assessee, a Stock/Share Broker, claimed deduction of Rs. 36,000 spent on software development as revenue expenditure. The Assessing Officer and CIT(A) considered it capital expenditure based on a decision of the Rajasthan High Court. The Tribunal analyzed various case laws, including the decision of the Delhi High Court in CIT v. K. & Co., and held that the software development expense is revenue in nature. Therefore, the order of the CIT(A) disallowing the expenditure as capital was set aside, and the appeal on this ground was allowed. Issue 2: Payments to National Stock Exchange Ltd. The assessee paid Rs. 53,389 as penalty for late delivery, short delivery, and short margin in the share brokering business. The Assessing Officer disallowed the expenditure, questioning its nature. The assessee argued that these penalties were common in the business and should be allowed as revenue expenditure. The Tribunal referred to a decision of the ITAT, Chandigarh Bench, in Master Capital Services Ltd. v. Dy. CIT, where it was held that such payments made in the normal course of business, without intentional violations of law, are allowable expenses. The Tribunal found the facts similar to the cited case and ruled in favor of the assessee, allowing the payments as revenue expenditure. Consequently, the order of the CIT(A) disallowing the payments was set aside, and the appeal on this ground was allowed. In conclusion, the appeal filed by the assessee was allowed on both grounds, with the Tribunal determining that the software development expense and the payments to National Stock Exchange Ltd. were revenue expenditures and thus should be allowed as deductions.
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