M/s Xalted Information Systems Private Limited , Bangalore V. The Income Tax Officer Ward-7(1)(2), Bangalore

ITA 821/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4342 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-02-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 22-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH BENGALURU
• Keywords: Depreciation; Bad and doubtful debts
• Section: 80IA; 201; 80IC; 80IC; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER IT A NO S . 821/BANG/2019 ASSESSMENT YEAR: 2014 - 15 M/S XALTED INFORMATION SYSTEMS PVT. LTD. NO.31, 3 RD FLOOR, XAVIER BOARD, PRIMROSE ROAD BENGALURU 560 025. PAN: AAFCS 5024G VS. THE INCOME TAX OFFICER, WARD 7(1)(2) BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI, ADVOCATE RESPONDENT BY : SHRI MANJEET SINGH , ADDL. CIT(DR)(ITAT ), B ENGALURU. DATE OF HEARING : 10.02 .2020 DATE OF PRONOUNCEMENT : 25 .0 2 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER D ATED 22.02.2019 OF THE CIT(APPEALS)-7, BENGALURU RELATING TO AY 201 4-15. 2. GROUNDS 2 TO 6 RAISED BY THE ASSESSEE IN THE A PPEAL READ AS FOLLOWS:- 2. THE LEARNED COMMISSIONER OF INCOME-TAX (A) OUGHT TO HAVE CONSIDERED THE EXPLANATION OFFERED BY THE APPELLANT WITH RESPECT TO THE DEDUCTION COMPUTED UNDER SECTION 80-IC OF THE A CT. ITA NO. 821/BANG/2019 PAGE 2 OF 18 3. THE LEARNED COMMISSIONER (A) FAILED TO APPRECIA TE THE FACT THAT THE APPELLANT HAD CLAIMED DEDUCTION UNDER SECTION 8 0-IC OF THE ACT ONLY OUT OF PROFITS AND GAINS DERIVED BY THE BUSINE SS OF THE UNDERTAKING THAT WAS SET UP IN THE STATE OF HIMACHA L PRADESH WHEREIN A DETAILED WORKING OF SUCH DEDUCTIONS CLAIM ED WERE SUBMITTED BY THE APPELLANT. 4. THE LEARNED COMMISSIONER (A) ERRED IN UPHOLDIN G THE ORDER OF THE ASSESSING OFFICER BY WRONGLY CONCLUDING THAT TH E INCOME FROM SERVICE ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTIO N 80-IC OF THE ACT. FURTHER THE LEARNED COMMISSIONER (A) FAILED TO CONS IDER THE FACT THAT THE SCHEME OF DEDUCTION UNDER SEC 80-IC PROVIDES TH AT THE BENEFIT OF DEDUCTION IS AVAILABLE TO THE PROFITS AND GAINS DER IVED BY THE UNDERTAKING FROM THE BUSINESS CARRIED AND TO THE EX TENT OF PERCENTAGE PROVIDED UNDER SUB-SECTION (3) TO SEC.80 -IC OF THE ACT. THE DEDUCTION SHALL BE 100% OF SUCH PROFITS AND GAI NS DERIVED FROM SUCH UNDERTAKING. 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THE PRO FITS AND GAINS DERIVED FROM BUSINESS INCLUDED THE SERVICE CHARGES SINCE THE SERVICES RENDERED WERE PART OF BUSINESS AND ALSO IN VOLVED MANUFACTURING ACTIVITY. 6. THE LEARNED COMMISSIONER (A) GROSSLY ERRED IN U PHOLDING THE OBSERVATIONS MADE BY THE AO AND AS SUCH ERRED IN INTERPRETING THE PROVISIONS BY RESTRICTING THE DEDU CTIONS ONLY TO THE PROFITS AND GAINS FROM MANUFACTURING ACTIVITIES AND NOT CONSIDERING THE PROFITS AND GAINS DERIVED FROM THE BUSINESS OF THE UNDERTAKING. 3. THE GRIEVANCE OF THE ASSESSEE BY THE AFORESAID GROUNDS IS AGAINST THE ACTION OF THE REVENUE AUTHORITIES IN DENYING TH E BENEFIT OF DEDUCTION U/S. 80IC OF THE INCOME-TAX ACT, 1961 [THE ACT]. THE AS SESSEE IS A COMPANY ENGAGED IN TELECOMMUNICATION SOFTWARE DEVELOPMENT A ND TRADING IN TELECOMMUNICATION HARDWARE REQUIRED MAINLY TO RUN T HEIR SOFTWARE THAT ARE BEING SUPPLIED TO THE PROSPECTIVE CONSUMERS. FOR T HE AY 2014-15, THE ASSESSEE FILED RETURN OF INCOME CLAIMING DEDUCTION U/S. 80IC OF THE ACT OF A SUM OF RS.4,93,84,285. THE COMPUTATION OF DEDUCTIO N U/S. 80IC AS FILED BY THE ASSESSEE IS AS FOLLOWS:- ITA NO. 821/BANG/2019 PAGE 3 OF 18 XALTED INFORMATION SYSTEMS PVT. LTD. PROFIT & LOSS STATEMENT FOR THE YEAR ENDED ON 31ST MARCH 201 4 SR. NO PARTICULARS BADDI - UNIT I BADDI - UNIT II BADDI - UNIT II- HW TOTAL A CONTINUING OPERATIONS I REVENUE FROM OPERATIONS 88,25,000 15,26,88,174 6,94,07,529 23,09,20,703 IL OTHER INCOME 24,38,727 4,21,94,301 1,91,80,282 6 38 13 310 III TOTAL REVENUE (1 +II) 1,12,63,727 19,48,82,475 8,85,87,811 29,47,34,013 IV EXPENSES: DIRECT COST 34,53,905 5,97,58,696 2,71,64,536 9.03,77,137 EMPLOYEE BENEFIT EXPENSES 25.44,974 4,40,32,576 2,00,15.907 6,65.93,457 DEPRECIATION AND AMORTIZATION EXPENSE 1,39.088 24,06,465 10,93,908 36,39,461 O THERS 23,20,117 4,01,42,147 1,82,47,433 6,07,09,697 TOTAL EXPENSES (IV) 84,58,084 14,63,39,883 6,65,21,784 22,13,19,751 V PROFIT BEFORE EXCEPTIONAL AND EXTRAORDINARY ITEMS AND TAX 28,05,642 4,85,42,592 2,20,66,027 7,34,14,261 VI EXCEPTIONAL ITEMS VII PROFIT BEFORE EXTRAORDINARY ITE MS AND TAX (V - VI) 28,05,642 4,85,42,592 2,20,66,027 7,34,14,261 VIII TAX DEDUCTION RATE 30% 100% 0% - T OT AL DEDUCTION U/S 80IC 8,41,692.60 4,85,42,592 - 4,93,84.285 4. THE AO DID NOT ALLOW THE CLAIM OF ASSESSEE AS HE COMPUTED THE GROSS TOTAL INCOME AT A NEGATIVE FIGURE AND DENIED THE BENEFIT OF DEDUCTION U/S. 80IC OBSERVING AS FOLLOWS:- DEDUCTION U/S 80-IC 1. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80IC AT R S. 4,93,84,285/- IN THE RETURN OF INCOME AND AS PER FO RM NO. 10CCB OF THE CHARTERED ACCOUNTANT. IT IS SEEN THAT THE ASSESSEE HAS CONSIDERED OTHER INCOME AMOUNTING TO RS. 6,38,1 3,310/- IN TOTAL ELIGIBLE TURNOVER. THE SAME SHOULD HAVE BEEN CONSIDERED AS INCOME FROM OTHER SOURCES, SINCE IT IS NOT RELATED TO MANUFACTURING ACTIVITIES. THE ASSESSEE HAS NOT GIVE N ANY REASONS FOR NOT EXCLUDING THE SAME FROM THE TOTAL TURNOVER. FURTHER, IT IS ITA NO. 821/BANG/2019 PAGE 4 OF 18 SEEN THAT, INCOME RECEIVED FROM SERVICE CHARGES IS ALSO INCLUDED IN THE TOTAL ELIGIBLE TURNOVER. THEREFORE, CONSIDER ING THESE DISCREPANCIES IN CLAIM OF DEDUCTION U/S 80 IC, THE TOTAL ELIGIBLE DEDUCTION UNDER SECTION OF 801C OF THE IT ACT IS RE WORKED AS UNDER: I) PROFIT AS PER P&L ACCOUNT : RS. 7,34,14,261 II) LESS INCOME WHICH NOT ELIGIBLE FOR DEDUCTION U/S 80IC A. OTHER INCOME A. INTEREST ON FD'S : 14,07,962 B. MISC. INCOME : 6,19,55.068 C. FOREIGN EXCHANGE PROFIT: 1,95,296 D. PROFIT ON SALE FIXED ASSETS: 2,54,984 ------------------- RS. 6,38,13,310 B. NET INCOME FROM SERVICES GROSS RECEIPTS FROM SERVICES :3,89,36,355 LESS:- DIRECT COST RELATED TO PURCHASE OF SERVICES 14,13,654 ---------------- RS.3,75,22,701 RS.10,13,36,011 --------------------- ( - ) RS. 2,79,21,750 -------------------- -- 5. AGGRIEVED BY THE AFORESAID ORDER OF THE AO, T HE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(APPEALS). THE FIRST ASPECT W HICH THE ASSESSEE POINTED OUT WAS THAT IT HAD NOT CLAIMED DEDUCTION U /S. 80IC OF THE ACT ON A SUM OF RS.6,38,13,310, WHICH IS OTHER INCOME AS G IVEN BY THE AO IN THE COMPUTATION REFERRED TO IN THE EARLIER PARA. THE SE COND ASPECT THAT WAS POINTED OUT BY THE ASSESSEE WAS THAT THE NET INCOME FROM SERVICES OF RS.3,75,22,701 WAS ALSO ENTITLED TO THE BENEFIT OF DEDUCTION U/S. 80IA OF THE ACT. THE ASSESSEE IN THIS REGARD POINTED OUT THE N ATURE OF SERVICE FEES IS SUCH THAT THE ASSESSEE NEEDS TO RENDER THE SERVICES EVEN AFTER THE SALE OF ITA NO. 821/BANG/2019 PAGE 5 OF 18 PRODUCT, TO MEET THE COMPLETE SCOPE OF WORK WHICH I NCLUDES SERVICES LIKE INTEGRATION TESTING, VALIDATION/SYSTEM TESTING AND ACCEPTANCE TESTING, CHANGES REQUIREMENTS, ETC. HENCE IT BECOMES PART AN D PARCEL OF THE SOFTWARE BEING DEVELOPED AND SUPPLIED BY THE ASSESS EE. HENCE, THE SAME SHOULD BE CONSIDERED WHILE CALCULATION DEDUCTION U/ S 80-IC OF THE ACT. IN OTHER WORDS IT WAS SUBMITTED THAT SERVICE FEE RECEI VED LIKE INSTALLATION, TRAINING, SUPPORT SERVICES ETC FORM INTEGRAL PART O F THE PRODUCTS SUPPLIED BY THE ASSESSEE, THEREFORE HAVE NEXUS BETWEEN THE PROD UCTS SUPPLIED AND SERVICES PROVIDED BY THE ASSESSEE IN CONNECTION WIT H THE SAID PRODUCTS. THE ASSESSEE GAVE DETAILS OF THE BREAKUP OF SERVICE S PROVIDED BY THE UNDERTAKING ALONG WITH THE LEDGER EXTRACTS & COPY O F THE CONTRACT WITH THE PARTIES. THE ASSESSEE PLACED RELIANCE ON CERTAIN J UDICIAL PRONOUNCEMENTS FOR THE PROPOSITION THAT WHERE THE SERVICES RENDERE D ARE INCIDENTAL OR HAD NEXUS WITH THE MANUFACTURE OF ARTICLE OR THING FOR WHICH DEDUCTION U/S.80IC OF THE ACT IS CLAIMED, THE INCOME FROM RENDERING SE RVICES SHOULD ALSO BE REGARDED AS ELIGIBLE FOR DEDUCTION U/S.80IC OF THE ACT. WE SHALL REFER TO THESE DECISIONS IN THE SUBSEQUENT PARAGRAPHS OF THI S ORDER. 6. THE CIT(APPEALS), HOWEVER, HELD THAT INCOME D ERIVED FROM RENDERING SERVICES WAS NOT ELIGIBLE FOR DEDUCTION U /S. 80IC OF THE ACT BECAUSE THEY ARE NOT PROFITS DERIVED FROM MANUFACTU RE OR PRODUCTION OF ANY ARTICLE OR THING. IN THIS REGARD THE CIT(A) MADE R EFERENCE TO THE NATURE OF SERVICES PERFORMED BY THE ASSESSEE AS APPEARING IN THEIR VIRTUAL DOMAIN AND FIRST CONCLUDED THAT THE ASSESSEE WAS A SERVICE PROVIDER OF A WIDE RANGE OF SERVICES WHICH INCLUDE PROACTIVE INTELLIGE NCE ANALYSIS SOLUTION, IT CONSULTING SERVICES, MANAGEMENT SERVICES, DELIVERY SERVICES, OSS & BSS SOLUTION AND PROACTIVE INTELLIGENCE ANALYSIS SERVIC ES. THEREAFTER HE REFERRED TO THE FINANCIAL STATEMENTS OF THE ASSESSE E AND FOUND THAT THE DESCRIPTION OF INCOME IN THE PROFIT AND LOSS ACCOUN T CONTAINED TWO TYPES OF INCOME VIZ., ITA NO. 821/BANG/2019 PAGE 6 OF 18 INCOME FROM PRODUCT SALES RS.19,19,84,348/ - INCOME FROM SERVICE FEE S RS. 3,89,3 6,355/ - FROM THE ABOVE, HE CONCLUDED THAT THE ASSESSEE HAD TWO STREAMS OF REVENUE VIZ., SOFTWARE DEVELOPMENT AND SALE OF SOFT WARE LICENSE AND PRODUCTS. THEREFORE REVENUE FROM SERVICE FEES CANNO T BE CONSIDERED AS INTEGRAL TO MANUFACTURING AND SALE OF PRODUCTS AND HENCE THE SAME CANNOT BE INCLUDED IN THE REVENUE FOR THE PURPOSE OF DEDUC TION U/S 80IC. 7. THE ASSESSEE HAD FILED COPIES OF INVOICES AND AGREEMENT WITH ZTE TELECOM INDIA PVT LTD. HE REFERRED TO INVOICES DATE D 01-07-2013, 18-06- 2013, 31-10-2012, 09-10-2012 AND HELD THAT THE SAID INVOICES WERE RAISED FOR SERVICES FOR SOFTWARE AND HARDWARE. ACCORDING T O HIM SERVICE TAX WAS ALSO CHARGED IN ALL THOSE INVOICES INDICATING THAT THE INVOICE IS ONLY FOR PROVIDING SERVICE AND NO SALE OF PRODUCT IS INVOLVE D. HE ALSO REFERRED TO AGREEMENT WITH ZTE TELECOM INDIA PVT LTD DATED 19-0 9-2012 AND WAS OF THE VIEW THAT THE NOMENCLATURE OF THE AGREEMENT WAS ITSELF 'SERVICE AGREEMENT AND NOT AGREEMENT FOR SUPPLY OF PRODUCT. THE APPELLANT COMPANY IS THE SUB-CONTRACTOR TO THE MAIN CONTRACTO R ZIE TELECOM INDIA NIGAM LTD W HO HAS TAKEN THE CONTRACT FROM BSNL. HE REFERRED TO THE SCOPE OF WORK AS CONTAINED IN THE SAID AGREEMENT AND CONC LUDED THAT THE SCOPE OF THE AGREEMENT WAS ENTIRELY FOR SUPPLY OF SERVICE BY THE ASSESSEE AS SUBCONTRACTOR OF ZTE TO THE CUSTOMER BSNL. THE CIT (A) THEREFORE HELD THAT THE SERVICE SEGMENT OF THE ASSESSEE WAS DISTIN CT AND SEPARATE DIFFERENT FROM ITS PRODUCT SEGMENT AND THAT THE REV ENUE FROM SERVICE FEES/CHARGES IS NOT DEPENDENT OR CONNECTED ON THE R EVENUE FROM SALES OF PRODUCTS. THEREFORE, THE REVENUE FROM SERVICE FEES /CHARGES CANNOT BE CONSIDERED AS REVENUE FROM SALE OF PRODUCTS AND ACC ORDINGLY CANNOT BE ITA NO. 821/BANG/2019 PAGE 7 OF 18 INCLUDED IN THE INCOME FOR THE PURPOSE OF CLAIMING DEDUCTION U/S. 80-IC OF THE ACT. CONSEQUENTLY, THE DECISION OF THE AO TO EX CLUDE THE SERVICE CHARGES FOR THE PURPOSE OF ALLOWING DEDUCTION U/S.8 0IC OF THE ACT WAS UPHELD BY THE CIT(A). 8. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASS ESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR ASSESSEE S UBMITTED THAT BSNL VIDE THEIR TENDER DATED 14.7.2011 INVITED TENDERS FOR PR OVIDING VARIOUS TYPES OF TELECOM SERVICES/EQUIPMENTS FOR THEIR FRAUD MANAGEM ENT CONTROL CENTRE (FMCC) AND REVENUE ASSURANCE SYSTEMS (RA). ZTE TEL ECOM (INDIA) P. LTD. AND THEIR ASSOCIATES ZTE CORPORATION WERE THE SUCCESSFUL BIDDERS OF THE AFORESAID TENDER. THEY IN TURN SUB-CONTRACTED FMCC AND RA TO THE ASSESSEE UNDER AGREEMENTS DATED 7.8.2012. THESE AG REEMENTS PROVIDE FOR SUPPLY OF SOFTWARE AND THE HARDWARE NECESSARY T O SUPPORT THE USE OF THE HARDWARE FOR THE PURPOSE FOR WHICH THE SOFTWARE IS SUPPLIED. THE TENDER WAS A TURNKEY SOLUTION AND BOTH SOFTWARE FOR FMCC AND RA ALONG WITH HARDWARE AND SERVICES REQUIRED TO MAKE THE SOF TWARE BEING SUPPLIED READY TO USE HAD TO BE GIVEN/PERFORMED BY THE ASSES SEE. OUR ATTENTION WAS DRAWN TO THE FACT THAT THE ASSESSEE WAS BOUND T O INSTALL AND COMMISSION THE REQUIRED SOFTWARE AND HARDWARE, BESI DES PROVIDING SERVICES. OUR ATTENTION WAS DRAWN TO THE SERVICES AGREEMENT DATED 19.9.2012 AT PAGE 294 OF THE ASSESSEES PB, WHICH I S CAPTIONED SERVICES AGREEMENT. THIS AGREEMENT VERY CLEARLY SPECIFIES THAT THE SAME IS RELATED TO THE EARLIER AGREEMENT DATED 7.8.2012 FOR SUPPLY OF SOFTWARE AND HARDWARE. THE PREAMBLE OF THE AGREEMENT READS AS F OLLOWS:- WHEREAS: XALTED IS INTER ALIA ENGAGED IN THE BUSINESS OF PRO VIDING END TO END TELECOM AND HOMLEAND SECURITY SOLUTION WORLDWID E. ITA NO. 821/BANG/2019 PAGE 8 OF 18 ZTE HAS OFFERED CUSTOMER. FMCC AND RA SOLUTION AND THEREFORE ZTE WOULD LIKE TO SUBCONTRACT FMCC AND RA SERVICES BY PROCURING THE SERVICES FROM SUBCONTRACTOR. THE SUBCONTRACTOR ACKNOWLEDGES THAT ITS PERFORMANCE UND ER THIS AGREEMENT IS INTENDED TO SUPPORT THE CONTRACTO R AND SATISFY THE OBLIGATIONS AND LIABILITIES OF THE CONT RACTOR TOWARDS THE CUSTOMER WITH REFERENCE TO THE TENDER, NO.CA/CM/GSM-PH_VII/T-404A/2011-12 DATED 14' 1 ' JULY 2011 AND THE CLARIFICATIONS/AMENDMENTS THERETO ISSU ED BY BSNL THE CONTRACTOR DESIRES TO ENGAGE THE SUBCONTRACTOR AND THE SUBCONTRACTOR HAS AGREED TO EXECUTE THE WORKS (DEFI NED BELOW) SUBJECT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. 9. ACCORDING TO HIM, THE ABOVE ASPECTS CLEARLY SH OW THAT THE PERFORMING OF SERVICES WAS ALSO LINKED AND HAD NEXU S WITH THE SUPPLY OF SOFTWARE AND THE HARDWARE REQUIRED TO RUN THE SOFTW ARE AND THEREFORE THE ENTIRE RECEIPTS BOTH FOR SUPPLY OF SOFTWARE, HARDWA RE AND SERVICES RENDERED, ALL BEING INTERLINKED SHOULD BE REGARDED AS PROFITS DERIVED BY INDUSTRIAL UNDERTAKING FROM MANUFACTURE OF GOODS. THE LD. COUNSEL FOR ASSESSEE IN THIS REGARD DREW OUR ATTENTION TO THE V ARIOUS DECISIONS WHICH WERE CITED BY HIM BEFORE THE CIT(A). OUR ATTENTION WAS ALSO DRAWN TO THE SERVICE FEES LEDGER, THE DESCRIPTION IN WHICH DEMON STRATES THAT ALL THE SERVICES FEES RECEIVED WERE IN CONNECTION WITH BSNL PROJECT. 10. THE LD. DR PLACED RELIANCE ON THE OBSERVATION S OF THE CIT(APPEALS) IN THE IMPUGNED ORDER THAT THE SERVICE FEES RECEIVE D WAS DISTINCT AND NOT LINKED TO THE SUPPLY OF SOFTWARE. 11. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE RELEVANT PART OF THE PROVISIONS OF SEC.80IC OF THE ACT UNDER WHICH THE ASSESSEE CLAIMED DEDUCTION READS THUS: ITA NO. 821/BANG/2019 PAGE 9 OF 18 SPECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKIN GS OR ENTERPRISES IN CERTAIN SPECIAL CATEGORY STATES. 80-IC. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED BY AN UNDERTAKING OR AN E NTERPRISE FROM ANY BUSINESS REFERRED TO IN SUB-SECTION (2), THERE SHALL, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, BE ALLOW ED, IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, A DEDUCTION FROM SUCH PROFI TS AND GAINS, AS SPECIFIED IN SUB-SECTION (3). (2) THIS SECTION APPLIES TO ANY UNDERTAKING OR ENTERPRI SE, (A) WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRO DUCE ANY ARTICLE OR THING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEENTH SCHEDULE, OR WHICH MANUFACTURES OR PRODUCES ANY ARTICLE OR TH ING, NOT BEING ANY ARTICLE OR THING SPECIFIED IN THE THIRTEE NTH SCHEDULE AND UNDERTAKES SUBSTANTIAL EXPANSION DURING THE PERIOD BEGINNING (3) THE DEDUCTION REFERRED TO IN SUB-SECTION (1) S HALL BE (I) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE RE FERRED TO IN SUB-CLAUSES (I) AND (III) OF CLAUSE (A) OR SUB-CLAUSES (I) AND (III) OF CLAUSE (B), OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR TEN ASSESSMENT YEARS COMMENCING WITH THE INITIAL AS SESSMENT YEAR; (II) IN THE CASE OF ANY UNDERTAKING OR ENTERPRISE R EFERRED TO IN SUB-CLAUSE (II) OF CLAUSE (A) OR SUB-CLAUSE (II) OF CLAUSE (B) , OF SUB-SECTION (2), ONE HUNDRED PER CENT OF SUCH PROFITS AND GAINS FOR FIVE ASSESSMENT YEARS COMMENCING WITH THE INITIAL ASSESS MENT YEAR AND THEREAFTER, TWENTY-FIVE PER CENT (OR THIRTY PER CENT WHERE THE ASSESSEE IS A COMPANY) OF THE PROFITS AND GAINS. 12. UNDER SECTION 80IC OF THE ACT, A DEDUCTION IS ALLOWED ON THE PROFITS AND GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING FR OM BUSINESS REFERRED TO SEC.80IC(2) OF THE ACT, VIZ., FROM MANUFACTURE OF A RTICLE OR THING OTHER THAN THE ARTICLE OR THING MENTIONED IN SCHEDULE-13 OF TH E ACT. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF AN ARTICLE OR THING VIZ., COMPUTER SOFTWARE AND WAS ELIGIBLE TO CLAIM D EDUCTION U/S.80IC OF THE ACT ON THE PROFITS DERIVED THEREFROM. THE DISPUTE IS AS TO WHETHER THE ITA NO. 821/BANG/2019 PAGE 10 OF 18 SERVICE INCOME RECEIVED BY THE ASSESSEE CAN ALSO BE REGARDED AS PROFITS DERIVED FROM MANUFACTURE OF ARTICLE OR THING. 13. BSNL VIDE THEIR TENDER DATED 14.7.2011 INVITE D TENDERS FOR PROVIDING VARIOUS TYPES OF TELECOM SERVICES/EQUIPMENTS FOR TH EIR FRAUD MANAGEMENT CONTROL CENTRE (FMCC) AND REVENUE ASSURANCE SYSTEMS (RA). ZTE TELECOM (INDIA) P. LTD. AND THEIR ASSOCIATES ZTE CO RPORATION WERE THE SUCCESSFUL BIDDERS OF THE AFORESAID TENDER. THEY I N TURN SUB-CONTRACTED FMCC AND RA TO THE ASSESSEE UNDER AGREEMENTS DATED 7.8.2012. THESE AGREEMENTS PROVIDE FOR SUPPLY OF SOFTWARE AND THE H ARDWARE NECESSARY TO SUPPORT THE USE OF THE HARDWARE FOR THE PURPOSE FOR WHICH THE SOFTWARE IS SUPPLIED. THE TENDER WAS A TURNKEY SOLUTION AND BO TH SOFTWARE FOR FMCC AND RA ALONG WITH HARDWARE AND SERVICES REQUIRED TO MAKE THE SOFTWARE BEING SUPPLIED READY TO USE HAD TO BE GIVEN/PERFORM ED BY THE ASSESSEE. AS PER THE AGREEMENT, THE ASSESSEE WAS BOUND TO INS TALL AND COMMISSION THE REQUIRED SOFTWARE AND HARDWARE, BESIDES PROVIDI NG SERVICES. THE SERVICES AGREEMENT DATED 19.9.2012 CLEARLY SPECIFIE S THAT THE SAME IS RELATED TO THE EARLIER AGREEMENT DATED 7.8.2012 FOR SUPPLY OF SOFTWARE AND HARDWARE. WE HAVE ALREADY EXTRACTED THE PREAMBLE P ORTION OF THE AGREEMENT AND IT IS CLEAR FROM THE READING OF THE A GREEMENT THAT PERFORMING OF SERVICES WAS ALSO LINKED AND HAD NEXU S WITH THE SUPPLY OF SOFTWARE AND THE HARDWARE REQUIRED TO RUN THE SOFTW ARE AND THEREFORE THE ENTIRE RECEIPTS BOTH FOR SUPPLY OF SOFTWARE, HARDWA RE AND SERVICES RENDERED, ALL BEING INTERLINKED SHOULD BE REGARDED AS PROFITS DERIVED BY INDUSTRIAL UNDERTAKING FROM MANUFACTURE OF GOODS. 14. THE BREAK-UP OF SERVICE FEE RECEIVED BY THE A SSESSEE WHICH IS THE SUBJECT MATTER OF DISPUTE IN THIS APPEAL IS AS FOLL OWS:- ITA NO. 821/BANG/2019 PAGE 11 OF 18 DATE DESCRIPTION AMOUNT RS. 16.05.2013 SATYAM COMPUTERS TOWARDS TECHNICAL AND FUNCTIONAL SUPPORT FOR SP, MEDIATION AND IUC APPLICATION DEPLOYED BY XALTED IN MTNL, MUMBAI & DELHI. 13,25,000 16.07.2013 TECH MAHINDRA LTD. TOWARDS TECHNICAL AND FUNCTIONAL SUPPORT FOR SP, MEDIATION AND IUC APPLICATION DEPLOYED BY XALTED IN MTNL, MUMBAI & DELHI. 15,00,000 12.08.2013 7,50,000 10.09.2013 7,50,000 30.09.2013 7,50,000 31.10.2013 7,50,000 29.11.2013 7,50,000 31.12.2013 7,50,000 31.01.2014 7,50,000 28.02.2014 7,50,000 28.03.20 14 7,50,000 82,50,000 18.06.2013 ZTE TOWARDS FMCC & RA IC SERVICES 13,69,934.50 01.07.2013 47,34,450.00 01.07.2013 57,48,975.00 28.03.2014 10,95,947.60 28.03.2014 13,67,340.00 28.03.2014 45,99,180.00 28.03.2014 28,06,993.80 28.03.2014 26 ,37,765.00 28.03.20 14 37,897,560 .00 15. IT IS CLEAR FROM THE BREAK-UP OF SERVICE FE E RECEIVED THAT THEY WERE ALL RELATED TO THE FMCC & RA PROJECT OF BSNL WHICH THE ASSESSEE HAD TO PERFORM AS SUB-CONTRACTOR. IN THE CASE OF CIT V. MEGHALAYA STEELS LTD. & PRIDE COKE PVT. LTD. (2013) 356 ITR 235 (GAU) IT WAS HELD THAT ASSESSEE WAS ENTITLED TO DEDUCTION U/S 80-IB OR 80-IC ON TRA NSPORT SUBSIDY, INTEREST SUBSIDY, POWER SUBSIDY AND INSURANCE SUBSIDY AS IT WAS HELD THAT THERE IS A NEXUS BETWEEN THE SUBSIDIES, ON ONE HAND, AND THE P ROFITS AND GAINS DERIVED BY, OR DERIVED FROM, THE INDUSTRIAL UNDERTA KINGS CONCERNED. THE HONBLE GAUHATI HIGH COURT IN THE CASE OF TORSA MACHINES LTD. V. CIT (2017) 154 TR (A) 79 (GAU-HC), WAS CONCERNED WITH A CASE WHEREIN THE ASSESSEE WAS ENGAGED IN BUSINESS OF MANUFACTURING O F STONE CRUSHING ITA NO. 821/BANG/2019 PAGE 12 OF 18 PLANT AND ACCESSORIES. IT CLAIMED DEDUCTION UNDER S ECTION 80-IC. AO DISALLOWED DEDUCTION OF CLAIM TOWARDS SERVICE AND E RECTION CHARGES. AO OPINED THAT EARNINGS FROM SERVICE AND ERECTION CHAR GES WERE NOT DERIVED FROM MANUFACTURING BUSINESS AND NOT ELIGIBLE FOR DE DUCTION. CIT(A) AS WELL AS TRIBUNAL AFFIRMED DISALLOWANCE. IT WAS HELD THAT WHEN THE ASSESSEE, INSTALLED/ERECTED THE SELF-MANUFACTURED STONE CRUSH ING PLANTS AND SERVICED THEM AT THE CUSTOMERS SITE, THE AMOUNT RECEIVED FRO M SUCH SERVICE WAS NOTHING BUT EARNINGS FROM THE BUSINESS OF MANUFACTU RING ACTIVITY. THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF [SPRAY ENGINEERING DEVICES LTD. V. ASSTT. CIT & ANR.] IT APPEAL NO. 39 OF 2006 JUDGMENT DATED 7.11.2009 TOOK THE VIEW THAT WHEN A MANUFACTURER IS REQUIRED BY THE CUSTOMER TO ERECT AND COMMISSION THE MACHINERY, THE AMOUNT RECEIVED BY THE MANUFACTURER ON THIS COUNT, IS THE INCOME DERIV ED FROM THE BUSINESS ITSELF AND THEREFORE, THE SAME IS ELIGIBLE FOR DEDU CTION UNDER SECTION 80-IB OF THE INCOME TAX ACT. THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF CIT V. INTERNATIONAL DATA MANAGEMENT LTD. (2003) 261 IT R 177 (BOM) HAD TO DEAL WITH A CASE REGARDING ENTITLEMENT OF DEDUCTION UNDER SECTION 80-IC FOR INCOME, RECEIVED ON ACCOUNT OF SERVICE AND MAINTENA NCE CHARGE. IN THE CONTEXT, THE BOMBAY HIGH COURT HELD THAT THE INCOME RECEIVED BY THE ASSESSEE WHICH RENDERED SERVICE AND MAINTENANCE FAC ILITIES FOR THE CLIENTS, HAS A DIRECT NEXUS WITH THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE. 16. WE ALSO FIND THAT THE AO IS NOT RIGHT IN OBSE RVING THAT IN THE CLAIM FOR DEDUCTION U/S. 80IC OF THE ACT, THE ASSESSEE HAS IN CLUDED OTHER INCOME OF RS.6,38,13,310. THIS IS A WRONG OBSERVATION IN THE ORDER OF ASSESSMENT AND WE HAVE ALREADY EXTRACTED THE COMPUTATION OF DE DUCTION U/S. 80IC OF THE ACT IN THE EARLIER PART OF THIS ORDER. THE CIT (APPEALS), IN OUR VIEW, HAS DRAWN INFERENCE BY LOOKING INTO THE PROFILE OF ASSE SSEE AS CONTAINED IN THE VIRTUAL DOMAIN (WEB SITE), WHICH IN OUR VIEW, MAY N OT ALWAYS BE A CORRECT INDICATOR. THE FACTS ON RECORD BROUGHT OUT BEFORE THE AO SHOULD BE THE ITA NO. 821/BANG/2019 PAGE 13 OF 18 BASIS ON WHICH THE CLAIM OF ASSESSEE SHOULD BE EXAM INED. THERE IS NO BASIS FOR THE AO TO CONCLUDE THAT THERE WERE TWO ST REAMS OF REVENUE TO THE ASSESSEE VIZ, SOFTWARE PRODUCTS AND LICENCE & SOFTW ARE SERVICES. IN THIS REGARD, IT IS RELEVANT TO NOTICE THAT IN THE P&L AC COUNT OF THE ASSESSEE FOR THE YEAR ENDING 31.3.2014, THE REVENUE FROM OPERATI ONS IS SHOWN AT RS.23,09,20,703 AND NOTE 16 GIVES THE FOLLOWING BRE AK-UP:- 16. REVENUE FROM OPERATIONS SR. NO. PARTICULARS FOR THE YEAR ENDED 31 ST MARCH 2014 FOR THE YEAR ENDED 31 ST MARCH 2013 1. 2. SALES: INCOME FROM PRODUCT SALES INCOME FROM SERVICE FEES 191,984,348 38,936,355 230,412,937 6,213,596 TOTAL 230,920,703 236,626,533 17. IN OUR OPINION, THIS WILL NOT BE CONCLUSIVE T O HOLD THAT THERE WERE TWO SEGMENTS OR VERTICALS AND IS CONTRARY TO THE AGREEM ENTS UNDER WHICH THE ASSESSEE HAD TO PERFORM CERTAIN OBLIGATIONS TO BSNL IN THE FORM OF SUPPLY OF SOFTWARE, HARDWARE, INSTALLATION AND MAINTENANCE THEREOF. AS WE HAVE ALREADY SEEN, THE AGREEMENT WITH ZTE IS VERY CLEAR THAT THE SUPPLY OF SOFTWARE AND HARDWARE NECESSARY TO SUPPORT THE SOFT WARE SUPPLY, INSTALLATION & COMMISSIONING AS WELL AS RENDERING S UPPORT SERVICES WERE TO BE DONE ON A TURNKEY BASIS. THOUGH THE SERVICES AG REEMENT IS SEPARATELY ENTERED INTO BY THE ASSESSEE, IT HAS A DIRECT NEXUS AND CONNECTION WITH THE AGREEMENT FOR SUPPLY OF SOFTWARE. IN THESE CIRCUMS TANCES, THE DECISIONS CITED BY THE LD. COUNSEL FOR ASSESSEE, CLEARLY SUPP ORTS THE CASE OF THE ASSESSEE. WE ARE THEREFORE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE FOR DEDUCTION U/S. 80IC OF THE ACT OUGHT T O HAVE BEEN ALLOWED BY THE AO/CIT(A) AND THEY FELL INTO AN ERROR IN NOT AL LOWING THE SAID CLAIM. WE THEREFORE HOLD THAT THE ASSESSEE IS ENTITLED TO CLA IM DEDUCTION U/S. 80IC OF ITA NO. 821/BANG/2019 PAGE 14 OF 18 THE ACT ON SERVICE CHARGES OF RS.3,75,22,701. GROU ND NOS. 2 TO 6 ARE ACCORDINGLY ALLOWED. 18. GROUND NOS.7 TO 10 READS AS FOLLOWS:- 7. THE LEARNED COMMISSIONER (A) ERRED IN DISALLOW ING THE BAD DEBTS WRITTEN OFF BY THE APPELLANT, CONCLUDING THAT THE APPELLANT HAD CLAIMED DEDUCTION UNDER SECTION 80-IC ON SUCH DEBTS WITHOUT APPRECIATING THE FACT THAT THE APPELLANT HAD MADE A PROVISION FOR BAD AND DOUBTFUL DEBTS DURING FY: 2012-13 WHICH WAS ALREADY OFFERED FOR TAX DURING THAT FINANCIAL YEAR ITSELF. 8. THE LEARNED COMMISSIONER(A) OUGHT TO HAVE APPRE CIATED THAT THE DEDUCTION U/S. 80-IC CLAIMED IN RELEVANT YEAR IS ONLY OUT OF PROFITS OF THIS YEAR WHEREAS THE BAD DEBTS C LAIMED WAS IN RESPECT OF THE DEBTS WRITTEN OFF, RELATED TO THE AM OUNT DUE IN THE PRECEDING YEARS AND ACCORDINGLY THERE WAS NO DOUBLE CLAIM AS SURMISED BY THE ASSESSING AUTHORITY. 9. THE LEARNED COMMISSIONER (A) FAILED TO CONSIDER THE APEX COURT JUDGMENT IN THE CASE OF T.R.F LTD (2010) 190 TAXMAN 391 (SC) AND CBDT CIRCULAR NO.12/2016 DATED 30TH MAY 2016 AND PR OCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE AO. 10. THE LEARNED COMMISSIONER (A) ERRED IN CONFIRMI NG THE ORDER OF THE AO IN MAKING THE ADDITIONS TO THE BAD DEBTS WRI TTEN OFF WHEN IT HAD ALREADY SUFFERED TAX IN THE EARLIER YEAR AND HE NCE TAXING THE SAME AMOUNT TWICE IS NOT CALLED FOR. 19. THE MATERIAL FACTS REGARDING THESE GROUNDS AR E THAT THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS WRITT EN OFF OF A SUM OF RS.7,47,94,151. THE AO WAS OF THE VIEW THAT U/S. 3 6(1)(VII) OF THE ACT, DEBTS WHICH ARE WRITTEN OFF AS BAD AND DOUBTFUL CAN BE ALLOWED AS A DEDUCTION, BUT THE ASSESSEE HAS TO SATISFY THE COND ITION LAID DOWN IN SECTION 36(2) OF THE ACT WHICH LAYS DOWN THAT SUCH DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS BAD AND DOUBTFUL SHOULD HAV E BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR AN EARLIER PREVIOUS YEAR. ACCORDING TO THE AO, THE AMOUNT WRITTEN OFF AS BAD DEBT WAS SHOWN ITA NO. 821/BANG/2019 PAGE 15 OF 18 IN THE BOOKS OF ACCOUNT OF ASSESSEE, BUT ON SUCH IN COME THE ASSESSEE AVAILED THE BENEFIT OF DEDUCTION U/S. 80IC OF THE A CT AND THEREFORE IT CANNOT BE SAID THAT THE INCOME WAS TAKEN INTO ACCOUNT IN C OMPUTING INCOME OF THE ASSESSEE. IN THIS REGARD, THE AO OBSERVED AS FOLLO WS:- 2.4 THE ASSESSEE COMPANY HAS CLAIMED BAD DEBTS OF RS.7,47,94,151/- FROM THE FOLLOWING PARTIES: S.NO NAM E OF THE COMPANY AMOUNT 1 M/S HCL INFOSYSTEMS LTD. 16,46,000 2 M/S CENTRE FOR DEVELOPMENT OF TELEMATICS 2,45,00,000 3 M/S EMAIL INFOTECH PVT. LTD. 52,492 4 M/S K S SOFTNET SOLUTIONS PVT. LTD. 57,929 5 M/S SAHASTRA TECHNOLOGIES PVT. LTD. 19,066 6 M/S MT NL CONVEGENT PROJECT 40,94,367 7 M/S CENTRE FOR DEVELOPMENT OF TELEMATICS 4,44,24,297 TOTAL 7,47,94,151 AS PER THE LEDGER A/C COPIES OF THOSE PARTIES, THE RECEIPT WAS FIRST RECORDED IN FINANCIAL YEAR 2011-12. FOR F.Y. 2011-12 ASSESSE E HAS CLAIMED TOTAL DEDUCTION U/S 80IC OF THE IT ACT OF 100% OF TOTAL I NCOME. IT MEANS, THIS AMOUNT WAS PART OF DEDUCTION CLAIM. THEREFORE, IT C AN'T BE SAID THAT, SUCH BAD DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUN T IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR. IF SUC H INCOME WAS NOT SUBJECT TO TAX IN THE YEAR IN WHICH IT WAS RECEIVED, THE AS SESSEE CAN'T TAKE FURTHER DEDUCTION IN THE FORM OF BAD DEBT FROM 'INCOME WHIC H IS NOT ELIGIBLE INCOME FOR DEDUCTION U/S 80IC OF THE IT ACT. 20. THE AO ACCORDINGLY DENIED THE BENEFIT OF DEDU CTION TO THE ASSESSEE. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONFIRM ED BY ORDER OF AO FOR THE FOLLOWING 3 REASONS ASSIGNED BY THE AO THAT :- (I) THE INCOME OFFERED TO TAX U/S. 36(2) DID NOT SUFFER TAX BECAUSE OF DEDUCTION CLAIMED BY THE ASSESSEE U/S. 8 0IC; ITA NO. 821/BANG/2019 PAGE 16 OF 18 (II) THE ASSESSEE FAILED TO PROVE THAT DEBT WHICH WAS WRITTEN OFF AS BAD DEBT WAS INCLUDED AS INCOME IN T HE PREVIOUS YEARS; AND (III) THERE WAS NOTHING TO SHOW THAT THE DEBT WRIT TEN OFF AS BAD DEBT HAS IN FACT BECOME BAD. 21. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE A SSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 22. THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTI ON TO THE FOLLOWING CHART AND SUBMITTED THAT OUT OF DEBTS WRITTEN OFF A S BAD AND DOUBTFUL DEBTS, ONLY A SUM OF RS.67,97,554 ENJOYED THE BENEFIT OF D EDUCTION U/S. 80IC OF THE ACT AS PER THE CHART, WHICH IS ENCLOSED AS ANNE XURE-I TO THIS ORDER. WITH REGARD TO THE YEAR IN WHICH THE BAD DEBTS WAS OFFERED AS INCOME, THE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO PAGE 216 OF THE PB, WHICH GIVES THE REQUIRED DETAILS. THE SAME IS GIVEN AS A NNEXURE-II TO THIS ORDER. ANOTHER CHART PROVIDING THE DETAILS AT PAGE 218 OF THE PB IS ENCLOSED AS ANNEXURE-III TO THIS ORDER. 23. IT WAS SUBMITTED THAT THE AO DID NOT DOUBT T HE FACT THAT THE DEBT WHICH WAS WRITTEN OFF AS BAD AND DOUBTFUL HAD IN FA CT BEEN OFFERED TO TAX IN THE EARLIER PREVIOUS YEAR. IT WAS SUBMITTED THAT T HERE WAS NO CONDITION U/S. 36(1)(VII) THAT THE DEBT WHICH WAS WRITTEN OFF AS B AD AND DOUBTFUL SHOULD HAVE SUFFERED TAX AND THAT WHAT IS REQUIRED IS THAT THE DEBT SHOULD HAVE BEEN SHOWN AS INCOME IN THE EARLIER PREVIOUS YEAR. WITH REGARD TO THE CONDITION THAT THE ASSESSEE HAS NOT SHOWN THE DEBT TO HAVE BECOME BAD, THE LD. COUNSEL FOR ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS CIT 323 ITR 397 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT IT IS N OT NECESSARY FOR THE ASSESSEE TO PROVE THAT THE DEBT HAS BECOME BAD TO C LAIM DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF. A MERE WRITING OF F OF THE DEBT AS BAD IN THE BOOKS OF ACCOUNT WAS SUFFICIENT TO CLAIM DEDUCTION U/S 36(1)(VIII) OF THE ACT. ITA NO. 821/BANG/2019 PAGE 17 OF 18 THE CBDT CIRCULAR NO.12 OF 2016 DATED 30.05.2016 AL SO EXPRESSES THE SAME VIEW ON THE ISSUE OF DEDUCTION ACCOUNT OF BAD DEBTS. THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 24. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND ARE OF THE VIEW THAT THE CLAIM OF ASSESSEE FOR DEDU CTION OUGHT TO HAVE BEEN ALLOWED BY THE REVENUE AUTHORITIES. IT IS CLEAR FR OM THE ORDER OF AO THAT AO NEVER DOUBTED THAT THE SUM WRITTEN OFF AS BAD DEBTS WAS ALREADY INCLUDED AS INCOME OF ASSESSEE IN THE EARLIER PREVIOUS YEARS . THERE IS NO CONDITION LAID DOWN IN SECTION 36(1)(VII) THAT THE SUM WHICH IS WRITTEN OFF AS BAD DEBTS SHOULD HAVE SUFFERED TAX AND IF THAT INCOME IS CLAI MED AS EXEMPT OR DEDUCTION IS CLAIMED, THEN DEDUCTION ON ACCOUNT OF BAD DEBTS WRITTEN OFF SHOULD NOT BE ALLOWED. WE ARE ALSO SATISFIED THAT THE ASSESSEE HAS ESTABLISHED THAT THE SUM WRITTEN OFF AS BAD DEBTS W AS IN FACT OFFERED TO TAX IN THE EARLIER PREVIOUS YEARS AS INCOME AND INCLUDE D WHILE COMPUTING TOTAL INCOME. THE REQUIREMENT OF ESTABLISHING THAT THE D EBT HAS BECOME BAD AND IRRECOVERABLE IS NO LONGER NECESSARY AFTER THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) . WE ARE THEREFORE OF THE VIEW THAT NONE OF THE REASONS ASSIGNED BY THE REVEN UE AUTHORITIES TO DENY THE BENEFIT OF DEDUCTION ON ACCOUNT OF BAD DEBTS WR ITTEN OFF ARE SUSTAINABLE. THE CLAIM IS DIRECTED TO BE ALLOWED. 25. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF FEBRUARY, 2020. SD/- SD/- ( A.K.GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESI DE NT BANGALORE, DATED, THE 26 TH FEBRUARY, 2020. / DESAI S MURTHY / ITA NO. 821/BANG/2019 PAGE 18 OF 18 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.