DCIT vs. Edelweiss Capital Ltd (ITAT Mumbai)

If not “Bad Debt”, claim for “Business loss” maintainable. Website development expense is not capital expenditure

The assessee, engaged in investment activities, advanced Rs. 27.97 lakhs for development of a website. As the advance was not recoverable, the assessee wrote off the amount and claimed it as a “bad debt” even though the conditions of s. 36(1)(vii) & 36(2) were not satisfied. The AO rejected the claim though the CIT (A) allowed it. On appeal by the department to the Tribunal, HELD:

(i) Though the claim as a ‘bad debt’ is not allowable, the assessee is entitled under Rule 27 to support the CIT (A)’s order on the ground that the amount should be allowed as a ‘business loss’. The subject-matter of an appeal should be understood not in a narrow and unrealistic manner but should be so comprehended as to encompass the entire controversy between the parties which is to be adjudicated upon by the Tribunal. Such a claim can be considered provided no new facts are needed (Edward Keventer 123 ITR 200 (Del) & Gilbert & Barker 111 ITR 529 (Bom) followed);

(ii) On merits, the department’s argument that the amounts paid for development of websites cannot be allowed as business loss because if the websites had been successfully put up, the expenditure would have been capital expenditure is not acceptable. because (a) as the expenditure was abortive, no capital asset has in fact been acquired and (b) even if the website had materialized, it does not result in an advantage of an enduring nature or in the capital field as it is only for the day-to-day running of the business and provision of information.