Reepal Tralshawala,
Chartered Accountant

REPORTED DECISIONS

1. Bad debts – S. 36(1)(vii) – No steps taken for recovery – Debts pending since long – In most cases recovery barred by limitation – Debts written off in books of account – Allowable as deduction – A. Y. 1998-99

Khinvasara Investment (P.) Ltd. vs. JCIT (2008) 110 ITD 198 (Pune); Order dated 9-6-2006

A debt, which is otherwise a proper bad debt and the recovery of which has been pending for quite sometime, does not become a good debt merely on the reasoning that no step has been taken to recover the debt. In some cases, such a legal pursuit may amount to throwing good money in litigation for recovery of an amount whose recovery was doubtful on account of counter claims of the debtors. Even though the assessee had not taken any steps to recover the amount did not lead to conclusion that the debts were not bad. The debts were written off in the books of account and in most of the cases legal proceedings were barred by limitation. The debts were allowable as deduction u/s. 36(1)(vii).

2. Business expenses – S. 37(1) – Capital or Revenue expenses – Expenditure on replacement of manual cone winders by auto cone winders in textile mill – No cost advantage on such replacement and no increase in installed capacity – Expenditure incurred was revenue notwithstanding large amount was spent - A.Y. 2002-03

ACIT vs. Prabhu Spg. Mills (P) Ltd. (2008) 2 DTR 77 (Chennai); Order dated 30-11-2007

Expenditure incurred by assessee in auto cone winders in textile mill in place of manual cone winders, was for survival in the business neither affecting cost factor nor installed capacity and thus was revenue in nature, notwithstanding the fact that a large sum was spent. This decision has distinguished the decision of Supreme Court in CIT vs. Saravana Spinning Mills (P) Ltd. (2007) 293 ITR 201 (SC).

3. Deductions – Sec. 80HHE – Export of computer software – Assessee carrying on software export as well as domestic business – Assessee maintained independent and separate books of account for export and domestic sale – Deduction needs to be computed considering only the export business – A.Y. 1993-94

Datamatics Ltd. vs. ACIT (2008) 110 ITD 24 (Mum); Order dated 14-2-2007

Assessee was exporting computer software manufactured in SEEPZ unit. It was keeping separate accounts and entire activity in this Zone was independent of other business. There was no overlapping and mingling of services or any link between the manufacturing activities. Section 80HHE refers to profits derived from export of computer software and hence, the turnover for the purpose of computation of deduction u/s. 80HHE had to be worked out on the basis of export turnover alone.

4. Penalty – S. 271(1)(c) – Partially set aside proceedings – Original assessment proceedings are relevant to ascertain the recording of satisfaction – No reason in original assessment proceedings for levy of penalty – Penalty imposed liable to be cancelled – A.Ys. 1996-97 to 2001-02

British Airways Plc. vs. DCIT (2008) 2 DTR 1 (Del); Order dated 23-11-2007

In the case of partially set aside assessments, only the original assessment proceedings are relevant to ascertain the recording of satisfaction of the AO. There being no reasons whatsoever given by the AO in the original assessment orders as to why, in his opinion, it was just and proper to initiate penalty proceedings u/s. 271(1)(c) or at least to show as to why he was satisfied that the assessee had concealed the particulars of his income or had furnished inaccurate particulars of such income, the requisite satisfaction for initiating penalty proceedings was not recorded by the AO, hence, penalties imposed and sustained by CIT(A) were liable to be cancelled.