2011 (2) TMI 143 - HC - Income Tax

Disallowance - Revenue or capital expenditure - Expenditure on road repair - the road was existing in the premises and since the same was not conducive to use in a way it was desired certain repairs were required to be carried out - the expenses incurred thereon held to be revenue in nature. Expenditure on customising the software - the same to be revenue in nature as the amount was paid for customising the software according to new requirement whereby only a modification of the existing software was brought about and the amount was not spent for acquisitioning of the new software Claim of bad debts - the cheque which was issued by the party was dishonoured and it was recorded that the amount was not recoverable by the assessee - claim of bad debts allowed. - Appeal of revenue dismissed.

Summary

Issues Involved:
1. Disallowance of building repair expenses
2. Disallowance of software expenses
3. Disallowance of bad debts written off

Issue 1: Disallowance of Building Repair Expenses:
The appellant-Revenue challenged the disallowance of Rs. 21,90,435 for repair expenses in the factory premises. The Tribunal found that the expenses did not result in acquiring a new building or road but only facilitated existing business operations more efficiently. Citing legal precedents, the Tribunal concluded that such expenses did not create a capital asset and were allowable as revenue expenditure. The Court upheld the Tribunal's decision, noting the lack of errors or perversity in the findings.

Issue 2: Disallowance of Software Expenses:
The Revenue contested the deletion of Rs. 2,50,000 software expenses by the Tribunal. The Tribunal determined that the expenses were revenue in nature as they were incurred to modify existing software, not for acquiring new software. The Court found no illegality in the Tribunal's decision and upheld it, emphasizing that the expenses were for customization according to new requirements, allowing them as revenue expenditure.

Issue 3: Disallowance of Bad Debts Written Off:
The Revenue disputed the deletion of Rs. 3,79,802 bad debts claimed by the assessee. The Tribunal held the bad debts allowable as the cheques issued were dishonored, making the amounts irrecoverable. Citing legal precedents and the conditions of Section 36(1)(vii)/36(2) of the Income Tax Act, the Tribunal allowed the bad debts claimed. The Court found no illegality in the Tribunal's decision, as it was based on evidence and material on record, dismissing the appeal.

In summary, the High Court upheld the Tribunal's decision in all three issues, ruling in favor of the respondent-assessee and dismissing the appeal by the Revenue. The Court found no substantial question of law warranting interference, as the Tribunal's findings were based on legal principles and evidence, justifying the allowance of the expenses claimed by the assessee.