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Issues Involved:
1. Disallowance of computer software expenses. 2. Disallowance of bad debts. Summary: Issue 1: Disallowance of Computer Software Expenses The assessee, a company engaged in share and stock broking, claimed a deduction of Rs. 2,09,290/- for computer software expenses, arguing that these were revenue expenses as they did not result in enduring benefits and required regular updates. The DCIT treated the expenses as capital in nature, allowing depreciation of Rs. 1,25,574/- and disallowing Rs. 83,716/- as revenue expenditure, following the decision in CIT vs. Aravali Construction Pvt. Ltd. The CIT(A) upheld the DCIT's decision, referencing the Income-tax (Twenty-fourth Amendment) Rules, 2002, which allowed 60% depreciation on computer software. The Tribunal, however, concluded that the software expenses were revenue in nature as they helped the assessee carry on its business more efficiently without providing enduring benefits. The Tribunal directed that the entire sum of Rs. 2,09,290/- be allowed as a deduction. Issue 2: Disallowance of Bad DebtsThe assessee wrote off Rs. 2,25,422/- as bad debts, which included brokerage not accounted by clients, brokerage slab changes, security system issues, and other reasons. The DCIT disallowed the claim, stating that the bad debts were not established as such. The CIT(A) partially upheld the DCIT's decision, allowing the claim except for Rs. 41,750/- due from Orient Bank of Commerce and UCO Bank, which did not meet the conditions of section 36(2) of the Act. The Tribunal referred to the Special Bench decision in DCIT vs. Shreyas S. Morakhia, which held that brokerage income forms part of the debt receivable by a share broker and satisfies section 36(2)(i) conditions. The Tribunal remanded the issue to the AO to verify the quantification of the bad debts, considering aspects like margin money and sale proceeds adjustments. The Tribunal allowed the ground for statistical purposes. For ITA No.4516/Mum/08, the Tribunal followed the same reasoning as in ITA No.4515/Mum/08 and allowed the deduction of Rs. 1,11,720/- written off as bad debts. In conclusion, both appeals were partly allowed. Order pronounced in the open court on the 25th day of February 2011.
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