2011 (1) TMI 1373 - AT - Income Tax

Summary

Issues involved: Challenge to CIT(A)'s order u/s.143(3) of the Income Tax Act, 1961 for the assessment year 2005-06 regarding bad debt, sundry balances, allocation of expenses for deduction u/s. 10B, and treatment of computer expenses.

Bad Debt and Sundry Balances:
The Assessing Officer challenged the CIT(A)'s decision to allow bad debt of `.1,44,367 and sundry balances written off at `.27,892. The AO contended that the debts were not proven to be bad. However, the CIT(A) disagreed, citing precedents and directed the AO to delete the additions. The ITAT upheld the CIT(A)'s decision, stating that the issue was covered by a Supreme Court judgment and approved the order.

Allocation of Expenses for Deduction u/s. 10B:
The AO disputed the CIT(A)'s ruling on the allocation of interest, finance charges, sales promotion expenses, and license fee for deduction u/s. 10B based on turnover. The AO believed the profits were overstated, leading to excessive deduction. The CIT(A) supported the appellant's argument that allocation should be based on capital employed, not turnover. The ITAT found no reason to interfere with the CIT(A)'s decision and approved the same.

Computer Expenses Treatment:
The AO contested the CIT(A)'s treatment of computer expenses on developing software programmes as revenue expenditure, arguing it brought enduring benefit to the assessee. Citing relevant decisions, the AO sought a re-examination of the matter. The ITAT directed the AO to re-evaluate the issue in line with the legal position established by a Special Bench decision, allowing the ground for statistical purposes.

In conclusion, the ITAT upheld the CIT(A)'s decisions on bad debt, sundry balances, and allocation of expenses for deduction u/s. 10B. The matter of computer expenses treatment was directed for re-examination by the AO. The appeal was partly allowed for statistical purposes.