DCIT, Bangalore V. Sobha REnaissance Information Technology Pvt. Ltd., Bangalore

ITA 301/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0329 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-05-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 28-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P CHANDRASHEKAR
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI A .K. GARODIA , ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO , JUDICIAL MEMBER I.T.A. NO. 301 /BANG/201 4 (ASSESSMENT YEAR : 20 05 - 06 ) DY. COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGA LORE. VS. M/S. SOBHA RENAISSANCE INFORMATION TECHNOLOGY PVT. LTD., SRIT HOUSE, 113/1B, ITPL MAIN ROAD, KUNDALAHALLI, BANGALORE. PAN AAECS 6273N APPELLANT RESPONDENT. APPELLANT BY : SHRI P. CHANDRASHEKAR, CIT (D.R) RESPONDENT BY : SHRI K.R. VASU DEVAN, ADVOCATE. DATE OF H EARING : 2.5.2016. DATE OF P RONOUNCEMENT : 17.6 . 201 6 . O R D E R PER SHRI VIJAY P AL RAO, J. M. : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DT.10.10.2013 OF COMMISSIONER OF INCOME TAX (APPEALS) - V, BANGALORE FOR THE ASSESSMENT YEAR 2005 - 06. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS : 2 ITA NO. 301 /BANG/ 2014 1. THE ORDER OF THE LEARNED C IT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN LAW IN TREATING THE PRODUCT DEVELOPMENT EXPENDITURE OF RS 7,31,81,241 INCURRED BY THE ASS ESSEE AS CAPITAL EXPENDITURE AND DIRECTING THE AO TO ALLOW DEDUCTION U/S 35(1)(IV) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS ITSELF AMMORTISED THE EXPENDITURE OVER A PERIOD OF 4 YEARS IN ITS BOOKS O F ACCOUNT TREATING IT AS CAPITAL EXPENDITURE AND IS AGAIN CLAIMING IT AS REVENUE EXPENDITURE BY WRONGLY INVOKING PROVISIONS OF SECTION 35(1)(IV ). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING. THAT THE SOFTWARE APPLICATIONS PURCHASED BY THE ASSESSEE ARE STOCK IN TRADE OF THE ASSESSEE FOR ITS CLIENT IN JORDAN AND HAS TO BE ALLOWED AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITS ELF CONTENDED BEFORE THE AO THAT THE EXPENSE WERE INCURRED TOWARDS ACQUIRING THE SOFTWARE APPLICATIONS TO CANYON ITS OWN BUSINESS EFFECTIVELY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) ERRED IN HOLDING THAT T HE ASSESSEE WAS ELIGIBLE FOR WITHDRAWING ITS DECLARATION U/S IOA(8) WITHOUT APPRECIATING THE FACT THAT THERE IS NO SUCH PROVISION UNDER THE INCOME - TAX ACT 1961 AND THE RELIANCE PLACED BY THE CIT(A) ON THE ORDER OF HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF INFOSYS TECHNOLOGIES PVT LTD (349 ITR 598) WHEREIN THE ISSUE WAS OF ALLOWANCE OF DEDUCTION U/S LOA FOR THE INCOME ORIGINALLY CLAIMED AS CAPITAL GAINS, IS MISPLACED, AS THE ISSUE IN ASSESSEE'S CASE IS CLEARLY DISTINGUISHABLE. 3 ITA NO. 301 /BANG/ 2014 5. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSE D AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER, AMEND AND 1 OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 4. GROUND NO.2 IS REGARDING ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 35(1)(IV) OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASSESSEE COMPANY IS ENGAGED IN THE DEVELOPMENT OF SOFTWARE AND OFFER PERPETUAL LICENSE OF SOFTWARE WHICH PROVIDE SOFTWARE PRODUCTS COVERING DIGITIZED HEALTHCARE, ENVIRONMENTAL HEALTH & SAFETY SOLUTIONS, END - TO - END SOLUTIONS THAT ADDRESS THEIR BUSINESS AND TECHNOLOGY NEED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT TH E ASSESSEE DURING THE YEAR COMPLETED THE DEVELOPMENT OF THREE SOFTWARE PRODUCTS AND CA PITALISED THE SAME IN THE BOOKS OF ACCOUNTS TO THE TUNE OFRS.7,31,81,240. THUS THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS CAPITALISED THE EXPENDITURE IN THE BOOKS OF ACCOUNT BUT IN THE COMPUTATION STATEMENT ENCLOSED TO THE RETURN THE PRODUCT EXPENSES TO THE TUNE OF RS.7,31,81,240 WAS CLAIMED AS REVENUE EXPENDITURE. THE ASSESSING OFFICER QUESTIONED THE ALLOWABILITY OF EXPENDITURE BEING CAPITAL 4 ITA NO. 301 /BANG/ 2014 IN NATURE AND ACCORDI NGLY DISALLOWED THE CLAIM OF THE ASSESSEE. THE ASSESSING OFFICER HAS ALSO REJECTED THE ALTERNATE PLEA OF THE ASSESSEE THAT EVEN IF THIS EXPENDITURE IS TREATED AS CAPITAL IN NATURE AND THE SAME IS ALLOWABLE UNDER SECTION 35(1)(IV) OF THE ACT. HOWEVER, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CAN AMORTISE ITS EXPENDITURE BY WAY OF DEPRECIATION UNDER THE I.T. ACT @ 60% TO THE EXTENT OF SOFTWARE PRODUCT CAPITALIZED BY THE ASSESSEE AND ON THE BALANCE AMOUNT WHICH WAS SHOWN AS WORK - IN - PROGRESS. THE AS SESSING OFFICER DID NOT ALLOW THE DEPRECIATION. ON APPEAL, THE LEARNED CIT (APPEALS) HAS CONFIRMED THE VIEW OF THE ASSESSING OFFICER THAT THE EXPENDITURE IN QUESTION IS CAPITAL IN NATURE. HOWEVER, THE LEARNED CIT (APPEALS) HAS ALLOWED THE ALTERNATE CLAIM OF THE ASSESSEE UNDER SECTION 35(1)(IV) OF THE ACT. 5. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY ACCEPTING THE SUBMISSIONS OF THE ASSESSEE WITHOUT GIVING THE FINDING OF FACT THAT THE ENTIRE EXPENDITURE IN QUESTION HAS BEEN INCURRED IN RESPECT OF R & D ACTIVITY OF THE ASSESSEE. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS REFERRED TO THE FINDING OF THE LEARNED CIT (APPEALS) AND SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS PRESUMED THE FACT AS SUBMITTED BY THE ASSESSEE WITHOUT PROPER 5 ITA NO. 301 /BANG/ 2014 VERIFICATION AND EXAMINATION OR GIVING THE FINDING ON THE NATU R E OF THE ACTIVITY ON WHICH THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE. THUS THE LEARNED DEPARTMENTAL REPRES ENTATIVE HAS SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS COMMITTED AN ERROR IN ALLOWING THE CLAIM UNDER SECTION 35(1)(IV) OF THE ACT WITHOUT EXAMINATION OF THE ISSUE ON THE POINT WHERE THE SAID EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE ON R & D ACTIV ITY SO AS TO ELIGIBLE FOR CLAIM UNDER SECTION 35(1)(IV) OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS FOLLOWED THE DECISION OF THIS TRIBUNAL ON THIS ISSUE AND FURTHER THE ISSUE IS NOW COVERED BY THE JUDGEMENT OF THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. TALISMA CORPORATION PVT. LTD . 40 TAXMAN.COM 400 (KAR) (2013). HE HAS FURTHER SUBMITTED THAT THE SLP FILED BY THE DEPARTMENT AGAINST THE DECISION OF THE HON'BLE HIGH COURT I N THE CASE OF TALISMA CORPORATION PVT. LTD. (SUPRA) HAS BEEN DISMISSED BY THE HON'BLE SUPREME COURT VIDE ORDER DT.2.7.2014. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSEE FOR DEVELOPMENT OF SOFTWARE. THEREFORE EVEN THE SAID SOFTWARE IS TREATED AS CAPITAL IN NATURE AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER 6 ITA NO. 301 /BANG/ 2014 SECTION 35(1)(IV) OF THE ACT AS THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE R&D ACTIVITY OF THE ASSESSEE. 7 . WE HAVE CO NSIDERED THE RIVAL SUBMISSION AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE LIMITED QUESTION RAISED BY THE REVENUE IN THIS APPEAL IS REGARDING THE ALLOWABILITY OF OF THE CLAIM UNDER SECTION 35(1)(IV) OF THE ACT ON THE EXPENDITURE INCURRED BY THE ASSESSE E FOR DEVELOPMENT OF SOFTWARE PRODUCTS. THE LEARNED CIT (APPEALS) WHILE GIVING THE FINDING IN PARAS 9.7 & 9.8 OF TH E IMPUGNED ORDER HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DC IT VS. T CIL BELLSOUTH LTD. 89 TTJ 851 AS UNDER : - 9.7 THE ALTERNATE CLAIM OF THE ASSESSEE TO ALLOW THE EXPENDITURE INCURRED ON SOFTWARE DEVELOPMENT UNDER SECTION 35(1)(VI) OF THE IT ACT, HAS BEEN EXAMINED. THE CLAUSE (IV) OF SECTION 35(10 HAS TO B E READ WITH SUB - SECTION (2) AND (3) OF SECTION 35 OF THE INCOME TAX ACT. SUB - SECTION (3) SUGGESTS THAT THE ASSET ON WHICH EXPENDITURE IS CLAIMED TO HAVE BEEN INCURRED SHOULD BE CAPITAL ASSET, WHICH WAS OR BEING USED FOR SCIENTIFIC RESEARCH. ASSESSING OFFIC ER S CONTENTION IS THAT IT IS THE ASSET USED FOR SCIENTIFIC RESEARCH, AND NOT EVERY EXPENDITURE ON PROCESS WHICH RESULT IN A CAPITAL ASSET, WHICH IS THE SUBJECT MATTER OF DEDUCTION UNDER SECTION 35. HON'BLE ITAT, BANGALORE IN CASE OF TALLY SOLUTIONS P. LTD. (2010) 130 TTJ (BANG) 234, HAS HELD THAT WHERE ASSESSEE IN THE BUSINESS OF SOFTWARE INCURRED CERTAIN CAPITAL EXPENDITURE ON HARDWARE LIKE COMPUTER PERIPHERALS, COMPUTERS AND COMPUTER NETWORKING, DEDUCTION UNDER SECTION 35(10(IV) ON SUCH CAPITAL EXPEN DITURE INCURRED FOR SCIENTIFIC RESEARCH IS ALLOWABLE. 7 ITA NO. 301 /BANG/ 2014 9.72 LEARNED AUTHORISED REPRESENTATIVE HAS RELIED ON THE HON'BLE DELHI ITAT DECISION IN CASE OF TCIL BELLSOUTH LTD., SINCE REPORTED IN (2004) 89 TTJ 851, TO CONTEND THAT EVEN REVENUE EXPENDITURE INCUR RED FOR DEVELOPMENT OF SOFTWARE PACKAGE AMOUNTS TO EXPENDITURE ON SCIENTIFIC RESEARCH, ELIGIBLE FOR DEDUCTION UNDER SECTION 35(1)(IV). DETAILED DISCUSSION HAS BEEN MADE IN PARAS 13, 16 - 18 AND 21 OF THE TRIBUNAL S ORDER TO COME TO THE CONCLUSION. FACTS OF THAT CASE ARE SIMILAR TO THAT OF THE APPELLANT, BOTH BEING ENGAGED IN THE DEVELOPMENT AND EXPORT OF SOFTWARE PRODUCT / PACKAGE. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE ITAT, IT IS HELD THAT THE EXPENDITURE CLAIMED ON SOFTWARE PRODUCT DEVELOPMEN T WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 35(1)(IV), IRRESPECTIVE OF WHETHER IT ACTUALLY RESULTED IN THE SOFTWARE PRODUCT COMING INTO EXISTENCE AS AN ASSET, DURING THE YEAR OR NOT. 9.8 TO CONCLUDE, THE EXPENDITURE INCURRED BY THE ASSESSEE FOR THE SOFTWARE PRODUCT DEVELOPMENT IS HELD TO BE CAPITAL EXPENDITURE TO BE ALLOWED AS DEDUCTION UNDER SECTION 35(1)(IV) OF THE INCOME TAX ACT. GROUND NO.1 OF THE ASSESSEE IS ALLOWED. IT IS CLEAR FROM THE FINDING OF THE LEARNED CIT (APPEALS) THAT IT HAS NOT G ONE INTO THE FACTUAL ISSUE WHETHER THI S EXPENDITURE PERTAINS TO THE R & D ACTIVITY OF THE ASSESSEE AS PER THE PROVISIONS OF SECTION 35(1)(IV) R.W.S. 43(4)(II)(A) OF THE ACT WHEREIN THE DEFINITION OF SCIENTIFIC RESEARCH HAS BEEN PROVIDED. SINCE THE PROPER RECORD AND OTHER DETAILS ARE NOT AVAILABLE BEFORE US IN RESPECT OF THE ACTUAL NATURE OF THE EXPENDITURE IN QUESTION THEREFORE WE CANNOT GIVE A CONCLUSIVE FINDING REGARDING THE REAL NATURE OF THE EXPENDITURE INCURRED BY THE ASSESSEE WHE THER IT IS INCURRED ON R&D ACTIVITY OF THE ASSESSEE OR NOT. THEREFORE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, AS WELL AS IN THE INTEREST 8 ITA NO. 301 /BANG/ 2014 OF JUSTICE, WE SET ASIDE THIS ISSUE TO THE RECORD OF CIT (APPEALS) FOR LIMITED PURPOSE OF VERIFYING THE REAL NATURE OF THE EXPENDITUR E INCURRED BY THE ASSESSEE WHE THER IT IS FOR THE R & D ACTIVITY OF THE ASSESSEE. THE CIT (APPEALS) HAS TO DECIDE THIS ISSUE AFTER VERIFICATION AND EXAMINATION OF THE RELEVANT RECORD AND IN THE LIGHT OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF TALISMA CORPORATION PVT. LTD. (SUPRA). NEEDLESS TO SAY THE ASSESSEE SHALL BE AFFORDED AN OPPORTUNITY OF HE A RING. 8 . GROUND NO.3 IS REGARDING ALLOWING THE CLAIM OF RS.85,43,242 ON AC COUNT OF SOFTWARE APPLICATION BEING REVENUE IN NATURE. 9 . THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1,27,93,369 IN THE PROFIT AND LOSS ACCOUNT FOR SOFTWARE EXPENSES. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THIS EXPENDITURE SHOULD NOT BE ALLOWED AS CAPITAL IN NATURE. IN RESPONSE THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED IN ACQUIRING APPLICATION SOFTWARE TO ENABLE IT TO CARRYING ON ITS BUSINESS MORE EFFICIENTLY, THEREFORE THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THUS THE AIM OF THE ASSESSEE IS TO CARRY OUT ITS BUSINESS OPERATIONS EFFICIENTLY AND SMOOTHLY. IT WAS ALSO CONTENDED THAT SUCH SOFTWARE ITSELF DOES NOT WORK ON STAND ALONG BASIS BUT THE 9 ITA NO. 301 /BANG/ 2014 SAME HAS TO BE FITTED TO A COMPUTER SYSTEM TO WORK. THEREFORE IT IS AN A ID IN MANUFACTURING PROCESS RATHER THAN THE TOOL ITSELF. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT OUT OF THE SOFTWARE EXPENSES TO THE EXTENT OF RS.42,50,136 WAS SOLD TO THE CUSTOMER DUR ING THE YEAR. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO THE BALANCE AMOUNT OF RS.85,43,232. 10 . ON APPEAL, THE LEARNED CIT (APPEALS) HAS DELETED THIS ADDITION MADE BY THE ASSESSING OFFICER BY HOLDING THAT THE PURCHASE OF SO FTWARE ARE NOT FOR USE IN THE ASSESSEE'S BUSINESS BUT IT WAS MERELY A STOCK - IN - TRADE. 11 . BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS GIVEN A FINDING WHICH IS CONTRARY TO THE STAND TAKEN BY THE ASS ESSEE BEFORE THE ASSESSING OFFICER THAT THE SOFTWARE WAS PURCHASED FOR THE BUSINESS USE OF THE ASSESSEE WHICH HAD ENABLED THE ASSESSEE TO CARRY ON ITS BUSINESS MORE EFFICIENTLY AND SMOOTHLY WHEREAS THE LEARNED CIT (APPEALS) HAS HELD THAT IT IS NOT USED IN THE BUSINESS OF THE ASSESSEE BUT IT IS STOCK - IN - TRADE. 1 2 . ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSESSEE PRODUCED RELEVANT RECORD BEFORE THE LEARNED CIT (APPEALS) IN 10 ITA NO. 301 /BANG/ 2014 SUPPORT OF THE CLAIM THAT IT WAS A STOCK I N TRADE. HE HAS SUPPORTED THE ORDER OF THE LEARNED CIT (APPEALS). 1 3 . WE HAVE HEARD THE RIVAL SUBMISSIONS AS WELL AS CONSIDERED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE CLAIMED THE SAID EXPENDITURE WAS INCURRED FOR ACQ UIRING THE APPLICATION SOFTWARE TO ENABLE CARRYING ON ITS BUSINESS MORE EFFICIENTLY AND SMOOTHLY. THE RELEVANT PART OF THE ASSESSEE'S SUBMISSION BEFORE THE ASSESSING OFFICER HAS BEEN REPRODUCED BY THE ASSESSING OFFICER IN PARA 2 AS UNDER : I. THE EXPENSES INCURRED BY THE ASSESSEE IN ACQUIRING APPLICATION SOFTWARE TO ENABLE IT CARRY ON ITS BUSINESS MORE EFFICIENTLY WERE ALLOWABLE AS BUSINESS EXPENDITURE EVEN IF SOME ENDURING BENEFITS RESULTED BY USE OF SOFTWARE. II. THE APPLICATION SOFTWARE ENABLES THE ASSESSEE TO CARRY OUT ITS BUSINESS OPERATIONS EFFICIENTLY AND SMOOTHLY. III. SUCH SOFTWARE ITSELF DOES NOT WORK ON STAND ALONE BASIS BUT THE SAME HAS TO BE FITTED TO A COMPUTER SYSTEM TO WORK. IV. SUCH SOFTWARE ENHANCES THE EFFICIENCY OF THE OPERATION AND IT IS AN AID IN MA NUFACTURING PROCESS RATHER THAN THE TOOL ITSELF. THE ABOVE SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER MANIFEST THAT ASSESSEE'S CLAIM THAT THE EXPENDITURE IS INCURRED IN ACQUIRING THE 11 ITA NO. 301 /BANG/ 2014 APPLICATION SOFTWARE WHICH HAS BEEN USED IN THE BUSINESS OP ERATIONS OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER FOUND THAT THE APPLICATION SOFTWARE WAS SOLD TO THE CUSTOMERS THEREFORE TO THAT EXTENT THE ASSESSING OFFICER ALLOWED THE CLAIM OF THE ASSESSEE OF RS.42,50,136 . THE LEARNED CIT (APPEALS) HAS ALLOWE D THE ENTIRE CLAIM IN PARA 10.3 AS UNDER : 10.3 THE ASSESSING OFFICER, IN HIS ASSESSMENT ORDER, APPEARS TO BE OF A BELIEF THAT THE AFORESAID EXPENDITURE ON ORACLE SOFTWARE PACKAGE WAS FOR THE COMPUTER SYSTEMS OF THE ASSESSEE, WHICH WOULD ADD AND ENHA NCE THE EFFICIENCY OF ASSESSEE'S BUSINESS OPERATIONS. IN THE REMAND REPORT, THE ASSESSING OFFICER HAS RESTATED THAT THE STAND AND HAS NOT COMMENTED ON THE FACTS STATED IN THE RECTIFICATION APPLICATION AND THE ENCLOSED EVIDENCE. AS SEEN FROM THE EVIDENCES , THE PURCHASE OF SOFTWARE WAS NOT FOR THE USE IN ASSESSEE'S BUSINESS, WHICH COULD EVEN BE CONSIDERED TO BE CAPITAL EXPENDITURE. IT WAS MERELY A STOCK IN TRADE, AND WAS ACTUALLY EXPORTED TO ASSESSEE'S CLIENT IN JORDAN WITH USER LICENSE. IN VIEW OF THE I RREFUTABLE FACTS, EXPENDITURE ON SOFTWARE PURCHASE IS HELD TO BE FULLY ALLOWABLE AS REVENUE EXPENDITURE. THE FINDING OF THE LEARNED CIT (APPEALS) IS CONTRARY TO THE CLAIM OF THE ASSESSEE AND FURTHER THE LEARNED CIT (APPEALS) HAS NOT REFERRED ANY SPECIFI C EVIDENCE OR RECORD ON THE BASIS ON WHICH HE HAS COME TO THE CONCLUSION THAT THE APPLICATION SOFTWARE IN QUESTION IS A STOCK IN TRADE AND WAS ACTUALLY EXPORTED TO THE CLIENTS . IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE LEARNED CIT (APPEALS) FOR PROPER VERIFICATION OF THE RECORD AND 12 ITA NO. 301 /BANG/ 2014 GIVING A SPECIFIC FINDING ON THIS ISSUE. NEEDLESS TO SAY THE ASSESSEE BE AFFORDED AN OPPORTUNITY OF HEARING. 1 4 . GROUND NO.4 IS REGARDING ALLOWING THE DEDUCTION UNDER SECT ION 10A OF THE ACT. THE ASSESSEE FILED THE RETURN DECLARING LOSS AND THEREFORE DID NOT CLAIM DEDUCTION UNDER SECTION 10A BY FILING A DECLARATION UNDER SECTION 10A(8) OF THE ACT. IN THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER PROPOSED TO M AKE CERTAIN ADDITIONS AS WELL AS TO COMPUTE BOOK PROFIT FOR MAT. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE WITHDRAWS THE DECLARATION UNDER SECTION 10A AND CLAIMED THE DEDUCTION UNDER SECTION 10A OF THE ACT. THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE IS A LIMITATION OF FILING THE DECLARATION UNDER SECTION 10A(8) BEING DUE DATE OF FILING OF RETURN UNDER SECTION 139 OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE. 1 5 . ON APPEAL, THE LEARNED CIT (APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES LTD. REPORTED IN 349 ITR 598. 1 6 . BEFORE US, T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT WHEN THE ASSESSEE DID NOT CLAIM THE DEDUCTION UNDER SECTION 10A IN THE RETURN 13 ITA NO. 301 /BANG/ 2014 OF INCOME THEN, AFTER EXPIRY OF THE LIMITATION FOR MAKING SUCH DECLARATION UNDER SECTION 10A(8), THE ASSESSEE IS NOT E LIGIBLE TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT. THEREFORE, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE LEARNED CIT (APPEALS) HAS COMMITTED AN ERROR IN ALLOWING THE CLAIM OF THE ASSESSEE WHEN ORIGINALLY THE ASSESSEE DID NOT CLAIM DEDUCTION UNDER SECTION 10A IN THE RETURN OF INCOME. 1 7 . ON THE OTHER HAND, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THERE ARE PRECEDENTS ON THIS ISSUE WHEREIN IT HAS BEEN HELD THAT THE TIME LIMIT FOR DECLARATION UNDER SECTION 1 0A(8) OF THE ACT IS ONLY DIRECTORY. T HEREFORE MERELY BECAUSE THE ASSESSEE DID NOT CLAIM IN THE RETURN OF INCOME DUE TO NEGATIVE RETURN INCOME, THE CLAIM OF THE ASSESSEE CANNOT BE DENIED ON THE POSITIVE INCOME COMPUTED BY ASSESSING OFFICER BY MAKING CERTA IN ADDITIONS AND THE ASSESSEE SUBSEQUENTLY WITHDRAWN THE DECLARATION MADE UNDER SECTION 10A(8) OF THE ACT. THUS THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THERE IS NO BAR IN MAKING THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT DURIN G THE ASSESSMENT PROCEEDINGS WHEN THE ASSESSING OFFICER HAS PROPOSED TO ASSESS THE INCOME BY MAKING CERTAIN ADDITIONS. HE HAS RELIED UPON 14 ITA NO. 301 /BANG/ 2014 THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF INFOSYS TECHNOLOG IES LTD. (SUPRA). 1 8 . WE HAVE C ONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT INITIALLY THE ASSESSEE DID NOT CLAIM THE DEDUCTION UNDER SECTION 10A AS IT HAS FILED RETURN OF INCOME BY DECLARING LOSS. SUBSEQUENTLY WHEN THE ASSESSIN G OFFICER PROPOSED TO MAKE CERTAIN ADDITION, THE ASSESSEE WITHDREW THE DECLARATION UNDER SECTION 10A(8) AND THE CLAIM OF DEDUCTION UNDER SECTION 10A ON THE POSITIVE INCOME ASSESSED BY THE ASSESSING OFFICER. THE REVENUE IS TAKING A TECHNICAL OBJECTION THAT AFTER THE EXPIRY OF THE TIME PERIOD P ROVIDED UNDER SECTION 10A(8) T HE ASSESSEE CANNOT WITHDRAW THE EARLIER DECLARATION AND MAKE A CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. WE FIND THAT THERE ARE PRECEDENTS ON THIS ISSUE AND THE DELHI BENCH OF T HE TRIBUNAL IN THE CASE OF MOSER BAER INDIA LTD. (2007) 110 TTJ (DEL) 807 HELD THAT THE TIME LIMIT PROVIDED UNDER SECTION 10A (8) IS ONLY DIRECTORY IF THE CLAIM MADE DURING THE ASSESSMENT PROCEEDINGS IS LEGALLY ADMISSIBLE THEN THE SAME CANNOT BE DENIED MER ELY BECAUSE IT WAS NOT MADE IN THE RETURN OF INCOME. THE LEARNED CIT (APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE IN PARA 11.2 AS UNDER : 15 ITA NO. 301 /BANG/ 2014 11.2 IT IS A SETTLED LAW THAT DEDUCTIONS AND EXEMPTIONS ALLOWABLE TO AN ASSESSEE CANNOT BE DENIED ON SUPERFICI AL, TECHNICAL AND VENIAL BREACH. HON'BLE HIGH COURT OF KARNATAKA IN CASE OF INFOSYS TECHNOLOGIES LTD. (2012) 349 ITR 598 (KARN) HAVE HELD THT THE FACT THAT THE ASSESSEE DID NOT CLAIM EXEMPTION UNDER SECTION 10A WHILE FILLING THE RETURN CANNOT COME IN THE WAY OF HOLDING THAT ASSESSEE IS ENTITLED TO BENEFIT OF S. 10A SINCE IT WAS ALTERNATIVELY ARGUED BOTH BEFORE THE ASSESSING OFFICER AND THE APPELLATE AUTHORITY THAT IF THE INCOME IS TREATED AS TRADING RECEIPT, EXEMPTION UNDER SECTION10A MAY BE GRANTED. IN THE INSTANT CASE, THE ASSESSEE'S SOFTWARE EXPORT UNIT IS REGISTERED WITH THE STP, BANGALORE. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT SUCH UNIT OF THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A(8) WOULD NOT COME IN THE WAY OF ALLOWIN G THE DEDUCTION, IF OTHER CONDITIONS ARE FULFILLED. IT IS THEREFORE HELD THAT DEDUCTION UNDER SECTION 10A IS ALLOWABLE TO THE ASSESSEE, SUBJECT TO PROFITS COMPUTED IN RESPECT TOF THE STP UNIT. GROUND NO.3, 4 AND 5 ARE ALLOWED. THUS IT IS CLEAR THAT TH E LEARNED CIT (APPEALS) HAS RELIED UPON THE JUDGMENTS OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF INFOSYS TECHNOLOGY LTD. (SUPRA) WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS CONCURRED WITH THE VIEW THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A WHEN T HE ASSESSING OFFICER TREATED THE CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE ELIGIBILITY OF THE ASSESSEE IN THE CASE ON HAND TO CLAIM EXEMPTION UNDER SECTION 10A OF THE ACT IS NOT DENIED OTHERWISE BEING A SOFTWARE EXPORT UNIT REGISTERED WITH STPI. THEREFORE, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE LEARNED CIT (APPEALS), THE SAME IS UPHELD. 16 ITA NO. 301 /BANG/ 2014 18. IN THE RESULT, THE APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED I N THE OPEN COURT ON 17 TH DAY OF JUNE, 201 6 . SD/ - (A .K. GARODIA ) ACCOUNTANT MEMBER SD/ - (VIJAY PAL RAO) JUDICIAL MEMBER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE