2010 (10) TMI 651 - AT - Income Tax

Disallowance - Expenses on the Portal Development - Since, expenditure in question was incurred for developing of website for disseminating information like advertisement expenses - Though the expenditure in question may yield enduring benefit to the assessee but no new capital asset was acquired by the assessee - the assessee relied upon the decision of Hon ble Delhi High Court in the case of CIT vs. Indian Visit.Com (P) Ltd. 2008 -TMI - 30661 - DELHI HIGH COURT wherein it has been held that expenditure on development of website with a view to disseminating the information about assessee s business activities amongst its clients is revenue expenditure even though resulting in enduring benefit - Decided in favour of assessee. Bad Debts written off - inter corporate deposit - the contention of the assessee that inter corporate deposits in question were given during the normal course of financing business in which the assessee was engaged could not be controverted by the Revenue. No material was brought on record by the Revenue to show that interest income earned on deposits in earlier years were not assessed as business income of the assessee and deposits in question were not treated as asset of financing business of the assessee - Decided in favour of assessee. Bad Debts written off - Advance given for purchase of shares for trading purposes - Since, assessee purchased shares of the company in question in earlier year and shown the same as investment in contradistinction to trading shares - In absence of any material brought on record by the assessee we find no error in the finding of the lower authorities to the effect that advance was given to M/s. Ficon Lease and Finance Ltd., for not purchasing shares for trading - Thus, decided against the assessee. Interest charged u/s. 234B - At the time of the hearing the Learned Authorised Representative of the assessee did not make any submission on this ground of appeal - Therefore, it is dismissed for want of prosecution.

Issues Involved:
1. Disallowance of portal development expenses as revenue expenditure.
2. Disallowance of bad debts written off.
3. Interest charged under Section 234B.

Issue-Wise Detailed Analysis:

1. Disallowance of Portal Development Expenses as Revenue Expenditure:

The primary issue was whether the expenses incurred on the development of websites amounting to Rs.5,11,170/- should be classified as capital or revenue expenditure. The Assessing Officer treated these expenses as capital expenditure, arguing that they provided an enduring benefit. The assessee contended, relying on the Supreme Court's decision in Kedarnath Jute Mills Company Ltd. vs. C.I.T., that the nature of expenditure should not be determined solely based on entries in the books of accounts. The assessee also cited decisions from the Ahmedabad and Jaipur Benches of the Tribunal, which treated similar software-related expenses as revenue in nature due to their uncertain and short lifespan.

The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, reasoning that a website functions like a shop or showroom, providing enduring benefits similar to capital assets. Thus, the expenses were capital in nature. Furthermore, the CIT(A) noted that depreciation was not allowable on websites as they do not undergo wear and tear, and there was no specific categorization for websites in the depreciation chart of the Income Tax Rules.

Upon appeal, the Tribunal found merit in the assessee's reliance on the Delhi High Court's decision in CIT vs. Indian Visit.Com (P) Ltd., which held that website development expenses aimed at disseminating information about the business were revenue expenditure despite providing enduring benefits. The Tribunal concluded that the expenditure did not result in the acquisition of a new capital asset and allowed the appeal, deleting the disallowance of Rs.5,11,170/-.

2. Disallowance of Bad Debts Written Off:

The second issue concerned the disallowance of bad debts amounting to Rs.17,88,460/-, comprising Rs.14,48,460/- from Bemco Sleepers Ltd. and Rs.3,40,000/- from Ficon Lease and Finance Ltd. The Assessing Officer disallowed these claims on the grounds that the assessee was not engaged in banking or money lending, and the amounts were not trade debts but deposits, thus constituting capital loss or loss of investment.

The CIT(A) upheld the disallowance, noting the absence of any indication in the assessee's memorandum of association that it was a banking or money lending company. The CIT(A) also observed that the advance to Ficon Lease and Finance Ltd. was not for trading purposes and had not been offered for taxation in any previous year.

The Tribunal found that the assessee was engaged in financing, among other activities, and the inter-corporate deposits were given during the normal course of its financing business. The Tribunal noted that the Revenue did not provide evidence to counter the assessee's claim that the deposits were part of its financing business assets. Consequently, the Tribunal allowed the claim for bad debts of Rs.14,48,460/-.

However, regarding the advance of Rs.3,40,000/- to Ficon Lease and Finance Ltd., the Tribunal upheld the disallowance, agreeing with the lower authorities that the advance was not for trading purposes. The assessee failed to provide evidence to support its claim, and the shares of the company were held as investments, not for trading. Thus, the disallowance of Rs.3,40,000/- was confirmed.

3. Interest Charged Under Section 234B:

The third issue pertained to the interest charged under Section 234B. The assessee did not make any submissions on this ground during the hearing. Consequently, the Tribunal dismissed this ground for want of prosecution.

Conclusion:

The Tribunal's order resulted in a partial allowance of the appeal. The disallowance of portal development expenses was deleted, and the claim for bad debts of Rs.14,48,460/- was allowed. However, the disallowance of Rs.3,40,000/- as bad debt and the interest charged under Section 234B were upheld. The order was signed, dated, and pronounced in the Court on 29.10.2010.

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