2013 (8) TMI 816 - AT - Income Tax

Accrual of interest - Mercantile system of accounting - Accounting Standard notified u/s145A. - CIT held that since the appellant has been following mercantile system of account the accrued interest has to be included in the total income - Held that - No pleading made on behalf of the assessee specifically averring that the reliance placed by the lower authorities on the order of the CIT(A) - Decided against the assesse. Disallowance of software expense - Held that - in the preceding assessment year the very disallowance had been made treating software expenses as capital in nature - no reason to interfere in the findings of the CIT(A) - Decided against the assesse.

Summary

Issues:
1. Accrual of interest on debts outstanding for more than 90 days.
2. Disallowance of software expenses.

Accrual of Interest on Debts Outstanding for More than 90 Days:
The case involved the assessment year 2004-2005 of an 'NBFC' where the Assessing Officer made additions regarding accrual of interest and software expenses. The AO observed a change in the assessee's practice of not accounting for interest on loans outstanding for more than 90 days, unlike the previous practice of 120 days. The AO held that interest accrual should be considered as income until the loans are written off as bad debts. The CIT(A) confirmed the additions based on past decisions and the mercantile system of accounting. The ITAT Chennai upheld the CIT(A)'s decision, stating that no distinction in facts was presented by the assessee to challenge the reliance on past judgments. The ground was decided against the assessee.

Disallowance of Software Expenses:
Regarding the disallowance of software expenses, the Assessing Officer and CIT(A) considered most expenses to be for acquiring new software systems, thus capital in nature. The AO made additions and allowed depreciation at 60%. The CIT(A) upheld the disallowance, citing detailed examination by the AO and past tribunal decisions. The ITAT Chennai confirmed the CIT(A)'s decision, noting that the issue had been previously decided in favor of the Revenue by the tribunal. The assessee failed to show any reversal of the tribunal's findings, leading to the dismissal of their grounds. The judgment was pronounced on July 5, 2013, in Chennai.

---