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TMI Blog2012 (9) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... he computers is not acceptable - As for the assessment years 2000-2001 and 2001-2002 also they have shown the turnover of Rs.2,15,41,550/- and Rs.1,82,82,043/-. Hence, it is very difficult to doubt the genuineness of the business activities of the software carried on by the assessee at Silvassa - in favour of assessee Payment made for acquiring the name of ‘VESESH’ and intellectual properties, copy right - capital receipt OR revenue expenditure - Held that:- At any stretch of imagination that amount cannot be treated as revenue expenditure only to get the brand name and restrain M/s.Seshadri Group from doing business with assessee’s customers. The said amount has to be treated as capital expenditure. Hence, the assessee is not entitled for deduction in the litigation expenditure. The order passed by the Appellate Tribunal allowing deduction of Rs.19,00,000/- as revenue expenditure is contrary to law - against assessee. - ITA No.792/2006 C/W ITA No.790/2006 & ITA.No.791/2006 - - - Dated:- 1-8-2012 - K Sreedhar Rao and B Manohar, JJ. For Appellant: Shri M Thirumalesh, Adv. For Respondent: Sri S Parthasarathi, Adv. JUDGEMENT These appeals are filed by the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igation expenses of Rs.19,00,000/-. 5. For the assessment year 2001-02, the assessee filed income tax returns on 30-10-2001 declaring total income of Rs.1,66,15,943/- claiming deduction of Rs.1,25,57,672/- under Section 80-IB. The case was selected for scrutiny under Section 143(3) of the Act and notice under Section 143(2) was issued. The Assessing Authority disallowed the claim under Section 80-IB holding that no document has been produced to show that they have manufactured any materials or things. Being aggrieved by disallowing the deduction under Section 80-IA for the assessment year 1999-2000 and also disallowing the deduction under Section 80-IB for the assessment year 2000-2001 and 2001-2002 and also litigation expenditure of Rs.19,00,000/-, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-III, Bangalore contending that the order passed by the Assessing Authority and also reopening the assessment for the assessment year 1999-2000 is contrary to law. 6. The Appellate Authority after considering the matter in detail, by its order dated 8-11-2004 dismissed the appeals holding that no document has been produced by the assessee regarding the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring 825 Sq.Ft., with a very meager investment of Rs.2.06 lakhs on the computers. Within a span of 18 days, the assessee has achieved the turnover of Rs.63,75,000/- and net profit of Rs.60,43,212/- in development of software and sold to its customers. For the Assessment year 2000-2001, the turnover was shown as Rs.2,15,41,550/- and for the assessment year 2001-2002 turnover was shown at Rs.1,82,82,043/- and claimed deduction under Sections 80- IA and 80-IB. Though the assessee contended that they have employed 20 engineers, no documents have been produced to show that they have engaged 20 employees and the space is not sufficient to keep 20 tables and computers. Further, the electricity meter was installed on 7-9-1999 and 3 phase connection has been given on 14-8-2000. The electricity bill discloses that for a period of 8 months, they have paid only Rs.2,340/-. Further, the assessee does not have regular telephone connection and telephone bill is also very very meager. Inspite of directions to the assesseecompany, it has failed to furnish the local addresses of the employees, appointment letters issued to them, attendance register and HR files. It is impossible to get the profit m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to settle the dispute between the parties amicably. The settlement was arrived between the parties and in terms of settlement, a sum of Rs.19,00,000/- has been paid. It cannot be treated as capital expenditure and sought for dismissal of the appeals. 12. We have carefully considered the arguments addressed by the learned counsel for the parties and perused the orders impugned passed by the authorities below. 13. It is not in dispute that the respondent-assessee has started a new industrial Unit at Silvassa for development of software. The assessee claimed deduction under Sections 80-IA and 80-IB of the Act. However, the said deduction was denied only on the ground that within 18 days of establishment of new industrial Unit, the assessee has shown the profit of 94.8% for the assessment year 1999- 2000 with an investment of Rs.2,06,000/- on the computers. It cannot be disputed that new industrial Unit was set up at Industrial Estate, Silvassa, Union Territory of Dadra and Nagar Haveli in March 1999 and got registration with the Directorate of Small Scale Industries and also obtained permission from the Pollution Control Committee. For the purpose of development of softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82,043/-. Hence, it is very difficult to doubt the genuineness of the business activities of the software carried on by the assessee at Silvassa. The Sales Tax authorities after verifying the entire records have given exemptions. Hence it is clear that the respondent-assessee has done the business in software at Silvassa and entitled for exemptions under Sections 80-IA and 80-IB. 15. Though the revenue has not challenged the order passed by the Tribunal for the assessment year 2000-2001 insofar as granting deducting under Section 80-IB, during the course of arguments, learned counsel appearing for the revenue sought permission to raise a ground insofar as deduction under Section 80-IB of the Act. The assessee has no objection for the same. Accordingly, the following additional question of law has been raised for the assessment year 2000-2001 as 1(b): 1(b) Whether the Tribunal was correct in holding that the assessee would be entitled to claim deduction under Section 80-IB for the assessment year 2000-2001 also. Since the above issue has already been considered for the assessment year 2001-2002 and held against the revenue, the said reasoning is applicable for the assessme ..... 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