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2017 (11) TMI 109 - ITAT MUMBAIInterest on Fixed Deposits as well as the interest from staff loans is not income derived from the undertaking for the purpose of allowing deduction u/s 10A/10B of the Act. Disallowance of cost of software - Held that:- It is the contention of the assessee that it is into purchase and sale of software and there is a trading activity. Therefore, the cost of software purchased for sale cannot be treated as capital expenditure, has considerable force. It is the contention of the assessee that the profit and sale of software has been offered to tax and there is a trading activity and in such circumstances such cost of software cannot be treated as capital in nature. For the limited purpose of verification as to whether this cost of software was on account of trade in software or it was used for internal purpose, we restore this matter to the file of the Assessing Officer who shall verify the fact and if it is found that this cost of software was incurred for sale the same shall be allowed as cost of purchase and no disallowance should be made treating it as capital expenditure. The Assessing Officer shall pass orders after verification of this fact and after providing opportunity to the assessee. This ground is allowed for statistical purposes. Setoff of loss while computing the deduction u./s 10A - Held that:- This issue is now decided by the Hon’ble Supreme Court in the case of CIT v. Yokogawa India Ltd. [2016 (12) TMI 881 - SUPREME COURT] as held the deduction under section 10A therefore would be prior to the commencement of the exercise to be undertaken under Chapter VI of the Act for arriving at the total income of the assessee from the gross total income. The somewhat discordant use of the expression “total income of the assessee” in section 10A can be reconciled by understanding the expression “total income of the assessee” in section 10A as “total income of the undertaking”. Therefore, though section 10A, as amended, is a provision for deduction, the stage of deduction would be while computing the gross total income of the eligible undertaking under Chapter IV of the Act and not at the stage of computation of the total income under Chapter VI. Software consumable expenses are revenue in nature Revision u/s 263 - entitled to carry forward unabsorbed depreciation beyond 8 years and set off against the current year profits - Held that:- As perused the Assessment Order and also the appellate order arising out of the original Assessment Order and find that this specific issue as to whether the assessee is entitled to carry forward unabsorbed depreciation beyond 8 years and set off against the current year profits is not the subject matter of assessment order or appellate proceedings. Therefore, we are of the view that since the Assessing Officer has not examined this aspect of the matter the Ld.CIT is justified in directing the Assessing Officer to look into these aspects. In any case the Ld.CIT has set aside the re-assessment and directed to conduct enquiry and take a decision in accordance with the law after giving proper opportunity. There is no prejudice caused to the assessee as there is no specific direction to disallowance unabsorbed depreciation as well as deduction u/s 10A while computing the book profits. Since issues have not been examined by the Assessing Officer in the course of the assessment proceedings, we are of the view that the action of Ld.CIT u/s 263 is in order. However, we make it clear that the Assessing Officer may also examine the contention of the assessee that if the profits are not eligible for deduction u/s 10A the same may be considered for deduction u/s 80HHE while computing the incomes of the assessee under normal provisions as well as while computing book profits u/s 115JB of the Act. Hence the appeal of the assessee preferred against 263 order is dismissed with the above observations.
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