2010 (3) TMI 1142 - AT - Income Tax

Summary

Issues involved:
The judgment involves issues related to disallowance of repair and maintenance expenses of building, modification of existing software, and bad debts claimed.

Disallowed repair and maintenance expenses:
The assessee, a public limited company engaged in manufacturing and sale of felts, claimed expenses under "Building repairs" which the Assessing Officer treated as capital expenditure. The assessee argued that the expenses did not create new capital assets but were for better functioning of existing premises. The Tribunal held that expenses on laying Kota Stone and bricks were revenue expenditure as they facilitated existing business operations without creating new assets. The expenses on water proofing and other modifications were also allowed as revenue expenditure based on the nature of benefits derived.

Disallowed modification expenses of existing software:
The assessee spent on customizing and debugging existing software to align with changes in taxation and procedural requirements. The Assessing Officer treated it as capital expenditure for acquiring software. However, the Tribunal held that the expenses were revenue in nature as they were for modifying existing software, not acquiring new software. The expenses were allowed as revenue expenditure.

Disallowed bad debts claimed:
The assessee claimed bad debts in respect of two parties, which were disallowed by the Assessing Officer and the CIT(A) citing lack of justification. The Tribunal observed that the conditions of section 36(2) were fulfilled as the debts were written off in the accounts due to dishonored cheques. Relying on relevant case laws, the Tribunal allowed the claim of bad debts as the debts pertained to sales made earlier.

Conclusion:
The Tribunal allowed the appeal, deleting the disallowances of repair and maintenance expenses, modification expenses of existing software, and bad debts claimed. The judgment was pronounced on 5th March, 2010.