2010 (11) TMI 1119 - AT - Income Tax

Summary

Issues involved:
The appeal challenges the correctness of the CIT (A)'s order for the assessment year 2003-04 regarding the disallowance of expenses related to developing WAP modules and amortization of one-time service charges.

Issue 1 - Disallowance of expenses for developing WAP modules:
The assessee claimed &8377; 8,44,131 as expenses for developing WAP modules for its web portal, which were later written off due to technological obsolescence. The Assessing officer and CIT (A) treated this as a capital loss, disallowing the deduction. However, the ITAT Mumbai held that when a project is abandoned during business operations, capital expenditure can be allowed as a revenue deduction. Citing legal precedents, the ITAT directed the Assessing officer to delete the disallowance, granting relief to the assessee.

Issue 2 - Disallowance of amortization of one-time service charges:
The assessee had paid a lump sum amount upfront for a business centre agreement, which was amortized over the arrangement period. When the agreement was terminated, the remaining balance of &8377; 8,66,667 was claimed as a deduction. The Assessing officer and CIT (A) disallowed this deduction, stating it did not pertain to the relevant year. However, the ITAT ruled that since the business centre arrangement was terminated during the year, the balance expenditure should be allowed as a deduction. The ITAT directed the Assessing officer to delete the disallowance, providing relief to the assessee.

Conclusion:
The ITAT Mumbai allowed the appeal, overturning the disallowances made by the lower authorities regarding expenses for developing WAP modules and amortization of one-time service charges. The ITAT's decision was based on the principle that when projects are abandoned during business operations, related expenditures can be treated as revenue deductions, providing relief to the assessee.