2010 (9) TMI 1090 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of lease line charges and transaction charges u/s 40(a)(ia) due to non-deduction of TDS.
2. Disallowance of website development expenses.
3. Disallowance u/s 14A.
4. Depreciation on motor cars.
5. Allowance of claim for bad debt.

Summary:

1. Disallowance of Lease Line Charges and Transaction Charges u/s 40(a)(ia):
The first issue in the assessee's appeal concerns the disallowance of lease line charges and transaction charges totaling Rs. 25,87,191/- u/s 40(a)(ia) due to non-deduction of TDS. The Assessing Officer (AO) treated these charges as fees for technical services under section 194J, leading to disallowance. The CIT(A) upheld the AO's decision. However, the ITAT found that this issue was covered by the decision in the assessee's own case for AY 2005-06, where it was held that such charges do not constitute fees for technical services under section 9(1)(vii) and hence, section 194J does not apply. Consequently, the disallowance was deleted, and the assessee's appeal on this issue was allowed.

2. Disallowance of Website Development Expenses:
The next issue pertains to the disallowance of website development expenses amounting to Rs. 37,32,299/-. The AO treated these expenses as capital expenditure, but the ITAT found that the expenses were for day-to-day business operations and did not result in any enduring benefit. Citing various precedents, the ITAT held that these expenses were of a revenue nature and allowed the deduction.

3. Disallowance u/s 14A:
The assessee's appeal also addressed the disallowance u/s 14A amounting to Rs. 4,14,994/-. The AO applied Rule 8D, but the ITAT noted that the Special Bench decision in Daga Capital Management Pvt. Ltd. was set aside by the jurisdictional High Court in Godrej & Boyce Mfg Co Ltd v DCIT. The matter was remitted back to the AO for reconsideration in line with the High Court's decision.

4. Depreciation on Motor Cars:
In the departmental appeal, the issue of disallowance of depreciation on motor cars was raised. The AO disallowed the depreciation because the cars were not registered in the company's name. The CIT(A) allowed the claim, and the ITAT upheld this decision, citing various precedents that registration under the Motor Vehicles Act is not a prerequisite for claiming depreciation.

5. Allowance of Claim for Bad Debt:
The last issue in the departmental appeal was the allowance of a bad debt claim of Rs. 13,330/-. The AO disallowed the claim, but the CIT(A) allowed it, following the decision in DIT vs. Oman International Bank. The ITAT upheld the CIT(A)'s decision, referencing the Supreme Court's ruling in TRF Ltd, which stated that post-1st April 1989, it is sufficient for the bad debt to be written off as irrecoverable in the assessee's accounts.

Conclusion:
The assessee's appeal was partly allowed, and the revenue's appeal was dismissed. The ITAT's decisions were based on precedents and interpretations of relevant sections of the Income-tax Act.