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TMI Blog2012 (7) TMI 588X X X X Extracts X X X X X X X X Extracts X X X X ..... of the decision of Hon’ble Supreme Court in case of TRF LIMITED V. CIT (2010 (2) TMI 211 - SUPREME COURT ) - as assessee has filed the additional material before the CIT(A),which has not been properly examined, therefore this issue is remitted back to AO for verification and examination of the record filed by the assessee - in favour of assessee by way of remand. Disallowance of advances written off - Held that:- This issue is also similar to the disallowance of bad debts written off. Since the issue of disallowance of bad debts written off has been set aside to the record of the AO therefore, this issue is also remitted to the record of the AO - in favour of assessee by way of remand. Disallowance of software expenses being capital in nature - Held that:- The expenditure was incurred by the assessee for development of software to be used in the assessee's business of software as evident from the assessee's books of account that the assessee has shown the said expenditure as work-in-progress being capital in nature. Having regard to the facts and circumstances of the case that when the assessee has incurred the expenditure for bringing a new asset into existence to be used fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed along with the return of income and not on receipt of any fresh evidence, subsequent to completion of assessment u/s 143(3) of the Act. It is only a mere change of opinion by ACIT. 3. The assessment order passed u/s 143(3) r.w.s. 147 of the Act may be set aside as being without jurisdiction. 4. The appellant craves leave to add, to alter or amend any of the aforementioned grounds of appeal. It is also requested that the appellant may be granted opportunity for oral hearing also. 3. We have heard the learned AR of the assessee as well as the learned DR and considered the relevant material on record on the point of admitting the additional ground raised by the assessee. The learned A.R. of the assessee has submitted that inadvertently the assessee omitted to raise this ground in the memo of appeals. He has further submitted that since this is purely a legal issue and goes to the root of the matter, therefore, this issue can be decided without any investigation of facts. In support of his contention, the learned A.R. has relied upon the judgment of the Hon ble Supreme Court in the case of National Thermal Power Corporation Ltd. Vs. CIT (229 ITR 383) (SC) . On the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the professional fees received by the assessee during the previous years relevant to the assessment years under consideration. The assessee also produced the TDS certificates issued by the parties against the professional receipts. In the original assessment, these receipts were allowed as a domestic sale under the proviso to section 10A(1) of the Act and, subsequently, the Assessing Officer decided to reopen the assessment on the ground that the professional fee cannot be considered as income from sale of software under the proviso to section 10A(1) of the Income-tax Act. He has further submitted that no new information or material came to the knowledge of the Assessing Officer after completion of the original assessment under section 143(3), therefore, the reopening of the assessment after expiry of four years from the end of the relevant assessment years is not permitted when the assessee has already disclosed all the relevant material facts as well as information necessary for the assessment and, particularly, on the point of professional fee. He has further submitted that the Assessing Officer has reopened the assessment on the basis of material on the record filed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of any computer software. As per the provisions of section, 10A deduction is available to the assessee in respect of the profits and gains derived by an industrial undertaking from the export of an article or thing or computer software that do not exceed 25% of the total sales such profits shall be deemed to be the profits and gains derived from export. However, while completing the scrutiny assessment, the domestic turnover relating to professional services received from domestic parties was included in the export turnover based on the said proviso. However, rendering of professional services does not amount to sale of computer software. As is clear from the TDS certificates, the services provided are professional services. Apparently, there was no sale of computer software. As such, the sum of Rs. 1.92 crores should not have been taken as export turnover. On doing so, the proportion of the income not qualifying for exemption u/s 10A increases and the source of revenue which qualifies for deduction u/s 10A also reduces. 9. As it is clear from the reasons recorded by the AO that the same does not disclose or state that there was a failure on the part of the assessee to full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in confirming the disallowance of bad debts written off during the year of Rs.2,19,23,080/-, Without fully appreciating the facts and circumstances of the case. 1.1 The ld. CIT(A) erred in holding that the appellant had failed to substantiate its claim that the debts allowable u/s 36(1)(vii) of the Act was not any debt but a bad debt to be written off. 1.2 The learned CIT(A) erred in not considering the fact that the debts had actually become bad during the year and were written off as bad debts in its books of account. 2.0 The ld CIT(A) erred in confirming the disallowance of advances of Rs. 14,60,121/-, written off during the year without appreciating the fact that the said amounts were advanced during the course of the business. 2.1 The ld. CIT(A) erred in confirming that the advances for acquisition of business assets of Rs. 1,29,900/- and rental security deposit/advance of Rs. 8,85,734/- were on capital account and erred in not appreciating the fact that such payments were made during the course of the appellant s business and therefore allowable as business expenses. 2.2 The ld. CIT(A) erred in holding that the advances given to employees written of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned AR of the assessee has submitted that the AO has disallowed the claim of the bad debts of the assessee on the ground that the assessee failed to establish that the debts written off by the assessee have actually become bad. He has relied upon the decision of Hon ble Supreme Court in case of TRF LIMITED V. CIT, 323 ITR 397 (SC) and submitted that as held by the Hon ble Supreme Court there is no requirement of establishing that the debts have actually become bad once the assessee has written off the debts as unrecoverable during the year under consideration. He has further pointed out that the CIT(Appeals) failed to consider the relevant material filed by the assessee in support of the claim. On the other hand, the Learned DR has submitted that merely writing off the debt is not sufficient for claiming the deduction but the decision of writing off the debts as bad should be an honest decision of the assessee. He has relied upon the orders of the authorities below. 14. After considering the rival contentions and going through the relevant material on record, we find that the Assessing Officer has disallowed the claim of bad debts on two counts, namely, i) the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k-in-progress. On the other hand the learned DR has admitted that the assessee has incurred the expenditure in question for development of software which has been shown as work-in-progress. Since the software was to be used by the assessee for its business and having an enduring benefit, therefore, the expenditure cannot be allowed as revenue and the assessee itself has shown the same as capital work-in-progress in the books of account. As regards the depreciation on the said expenditure, the learned DR has submitted that since the assets has not come into existence and it has not been used for the business of the assessee the claim of depreciation is not allowable. He has relied upon the orders of the authorities below. 20. We have considered the rival submissions as well as relevant material on record. There is no dispute that the expenditure was incurred by the assessee for development of software to be used in the assessee's business of software. This is evident from the assessee's books of account that the assessee has shown the said expenditure as work-in-progress being capital in nature. Having regard to the facts and circumstances of the case, we are of the considered opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2011-TIOL-684-HC-KAR-IT . A copy of the decision of Hon ble Karnataka High Court has been filed by the Learned AR of the assessee. We note that after considering the decision of Special Bench in case of Sak Soft Ltd., the Hon ble Karnataka High Court has held in the case of CIT Vs Tata ELXSI Ltd and other group cases(supra) as under: From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section 10A is a beneficial section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of Section 80HHC, the export profit is to be derived from the total business income of the assessee, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction u/s 10A, would be as under: Profits of the business of the undertaking export turnover X_________________ (Export turnover + domestic Turnover Total turn over In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of section 80 HHC in interpreting Section 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue. 23. Since the issue is covered by the decision of Special Bench in the case of Sak Soft Ltd. as well as the decision of Hon ble Karnataka High Court CIT Vs Tata ELXSI Ltd and other group cases(supra), therefore, respectfully following the same, this issue is decided against the revenue and in favour of the assessee. The order of CIT(Appeals) on this issue is upheld and the ground raised by the revenue is dismissed. 24. In the result, assessee s appeals being 46/Hyd/09, 863/Hyd/10 for assessment years 2000-01 and 2001-02 are allowed, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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