2017 (5) TMI 164 - AT - Income Tax

Repair and maintenance of premises taken on lease - to be treated as revenue expenditure or capital expenditure? - Held that - the premises in which the repairs and maintenance were carried out by the assessee were taken on rent and it would be against the basic principle of accountancy and provision of law to treat the said expenditures incurred on repairing and maintenance as capital nature - appeal allowed. Addition on account of unclaimed credit balances - Held that - The ld. AR submitted before us that the said amounts were to be adjusted in the subsequent years and were actually adjusted and therefore should not be added to the total income of the assessee. In our opinion, this matter requires fresh verification at the end of the AO and therefore the same is being remanded to the file of the AO - matter on remand. Advances written off under the head computer expenses - disallowance - Held that - the assessee has given advances for purchase of computer software which was to be used by the assessee for the purpose of carrying is business smoothly and more efficiently. We find that now it is settled legal position of law that any advances or any expenditure incurred on computer software to be used for the purpose of business were to be in the nature of business expenditure and has to be written of in the year of purchases - amount allowed. Appeal partly allowed and part matter on remand.

Summary

Issues Involved:
1. Disallowance of expenditure on repair and maintenance.
2. Addition of unclaimed credit balances.
3. Disallowance of advances written off for computer software development.

Issue 1: Disallowance of Expenditure on Repair and Maintenance:
The appeal was against the disallowance of ?14,15,836 by the ld.CIT(A) regarding repairs and maintenance expenses. The AO disallowed the amount, claiming it as capital expenditure. The ITAT found that the repairs were done on rented premises, making it revenue expenditure. The order of the ld.CIT(A) was set aside, directing the AO to delete the addition as the repairs did not create new assets. Ground no.1 was allowed.

Issue 2: Addition of Unclaimed Credit Balances:
The appeal challenged the addition of ?44,72,579 as unclaimed credit balances. The AO added these amounts, considering them slow-moving accounts. The ITAT agreed with the assessee that these advances were of revenue nature, appearing in the balance sheet. The matter was remanded to the AO for fresh verification. If the balances were adjusted in subsequent years, no addition should be made. Ground no.2 was allowed for statistical purposes.

Issue 3: Disallowance of Advances for Computer Software Development:
The dispute involved the disallowance of ?23,14,000 for advances written off under computer expenses. The AO treated it as a capital loss, stating the lack of recovery efforts. The ld.CIT(A) upheld the disallowance, questioning the justification for the deduction. However, the ITAT found that advances for software were revenue expenditure and had to be written off in the year of purchase. Citing relevant case law, the ITAT set aside the ld.CIT(A)'s order and allowed the ground taken by the assessee. The appeal was partly allowed for statistical purposes.

In conclusion, the ITAT ruled in favor of the assessee on all three issues, directing the AO to delete the disallowances and additions made. The judgment provided detailed reasoning based on the nature of the expenses and legal precedents, ensuring a fair assessment of the disputed amounts.