SRI K CHANDRASHEKAR PRASKASH vs. THE ASSISTANT COMMISSIONER OF INCOME TAX

Heard Sri Annamalai S, learned Advocate for the assessee and Sri Dilip, learned Standing Counsel for the Revenue.

Brief facts of the case are, assessee is a Consultant in the field of Civil Engineering. He filed his return of income for the assessment year 2012-2013. The Assessing Officer (AO) has disallowed depreciation on software and expenditure towards business development. These two findings have been confirmed by the CIT(A) and ITAT. Hence, this appeal.

Sri Annamalai for the assessee submitted that the AO has disallowed depreciation on the ground that the supplier of software namely, M/s Infinitii - i.t. vide its letter dated March 10, 2015, had informed that the balance payment of Rs.4.70 lakhs was not received by them for the reason of non replacement of software version with the latest version. He submitted that this reason is unsustainable because assessee was using the old version of the software but had not made the

With regard to the expenditure made for business development, Sri Annamalai has placed the vouchers produced before the AO for our perusal. The AO has recorded in paragraph 6 of the order that assessee had not shown any business expediency to spend Rs.3.00 lakhs claimed as expenditure. He submitted that the AO cannot sit in the arm chair of a businessman and decide the expediency of the expenditure. The only aspect which the AO can examine is, the genuineness of the expenditure. AO has not chosen to issue notice to any one of the persons to whom the payment was made. Therefore, disallowance of expenditure by the AO is not sustainable. In support of his contentions, he relied upon S.A.Builders Ltd., v. CIT (Appeals)1.

Sri Dilip for the Revenue argued opposing the appeal contending, inter alia¸ that the letter written by the supplier of the software clearly indicates that the software was not updated and therefore, the assessee could not have used the same. He also made an alternative submission that even if it is construed that the assessee was using the older version, the assessee was not entitled for 60% depreciation because the total use of the software for the relevant period was less than 180 days.

With regard to the expenditure for business development, he submitted that the expenditure is claimed to have been made in cash. The purpose of expenditure is not explained. Therefore, AO has rightly rejected the expenditure.

We have carefully considered the rival contentions and perused the records.

The first contention is with regard to allowing depreciation on software. It is not in dispute that the software was acquired on 23.3.2012 and the period before the expiry of the financial year namely, 31.3.2012 was less than 180 days. It is not in dispute that the assessee is a consulting engineer and has acquired the software for his use. The letter written by the supplier that the payment was withheld for not updating the software, in our view is not sufficient cause to disallow the depreciation because an engineer who purchases a software can continue to use the existing version till its updation.

Sri Dilip is right in his submission that since the period of use is less than 180 days, the assessee shall be entitled for only 30% depreciation. This position of fact and law is not disputed by Sri Annamalai.

So far as the expenditure is concerned, the AO has rejected the same by merely recording that the

In S.A.Builders’s the Apex Court has held as follows: "24. Thus in Atherton vs. British Insulated & Helsby Cables Ltd (1925)10 TC 155, it was held by the House of Lords that in order to claim a deduction, it is enough to show that the money is expended, not of necessity and with a view to direct and immediate benefit, but voluntarily and on grounds of commercial expediency and in order to indirectly to facilitate the carrying on the business. The above test in Atherton's case (supra) has been approved by this Court in several decisions e.g. Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1, CIT vs. Chandulal Keshavlal & Co. (1960) 38 ITR 601 etc.

In our opinion, the High Court as well as the Tribunal and other Income Tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed." (emphasis supplied)

It is trite that the AO cannot sit in the arm chair of a businessman and decide what expenditure is expedient. The genuineness of the vouchers is not in dispute. It is for an assessee to decide from time to time the expenditure that he finds it expedient to make in order to promote his business. Therefore, in our view, on both aspects, the assessee’s case merits consideration.

In view of the above, the following: ORDER