2012 (4) TMI 680 - AT - Income Tax

Summary

Issues Involved:
1. Estimation of Interest Income on Loans and Advances
2. Disallowance of Software Expenses
3. Disallowance of Amounts Paid to LIC, Group Gratuity Scheme
4. Disallowance of Claim under Discount, Rebate, and Allowance

Summary:

1. Estimation of Interest Income on Loans and Advances:
The first issue pertains to the assessing officer's order estimating 14% of the loans and advances as interest income of Rs. 23,90,424/-. The assessee contended that the advances were for business purposes and not for earning interest. The CIT(A) held that certain loans were not for business purposes and directed charging interest on an amount of Rs. 1,34,78,458/-. The Tribunal concluded that since the assessee had sufficient interest-free owned funds and no interest was claimed as a deduction, the addition of Rs. 23,90,424/- towards interest was deleted.

2. Disallowance of Software Expenses:
The next issue is the disallowance of Rs. 3,14,641/- of software expenses. The AO treated the software purchase as capital expenditure. The CIT(A) confirmed this view. The Tribunal held the software expenses as capital expenditure but allowed depreciation at 60%, thus partly allowing this ground of appeal.

3. Disallowance of Amounts Paid to LIC, Group Gratuity Scheme:
The issue relates to the disallowance of amounts paid to the LIC, Group Gratuity Scheme. The Tribunal referred to the judgment of the jurisdictional High Court in the case of Warner Hindustan Ltd., which allowed deductions u/s 37 for payments made to an unapproved gratuity fund. Following this precedent, the Tribunal upheld the order of the CIT(A) allowing the deduction.

4. Disallowance of Claim under Discount, Rebate, and Allowance:
The final issue is the disallowance of Rs. 5,79,350/- claimed under discount and rebate. The AO disallowed this amount as it did not pertain to the sales of the current year. The CIT(A) upheld the disallowance. The Tribunal, however, found that the amounts pertained to balances receivable from various customers and were in the nature of amounts not recovered and charged off. Thus, the Tribunal allowed the deduction of Rs. 5,79,350/-.

Conclusion:
In the result, the appeals of the assessee are partly allowed. Order pronounced in the open court on: 20/04/2012.