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TMI Blog2015 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... rt software -software purchased by assessee for ultimate export either as embedded software or as part of project undertaken by it cannot be considered as capital expenditure, as assessee is not using the software as an asset of the business but as raw material in its business – thus, the order of the CIT setting aside the order of AO is set aside. The profit of assessee arrived at ₹ 21,20,552 is after claim of purchase of software as an expenditure to an extent of ₹ 37,29,850 - any disallowance would automatically increase the profit from software division - There is no doubt that the profits from software division being STP unit are eligible for deduction u/s 10B - the entire amount gets exempted u/s 10B without any tax eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led belated return, proceedings under section 147 were initiated by A.O. and order under section 143(3) read with section 147 was completed on 30.11.2009 accepting the return of income. 4. Ld. CIT, noticing that assessee has claimed an amount of ₹ 37,76,563 on software purchase as revenue expenditure, on the reason that customized software gives enduring benefit initiated proceedings under section 263 by issuing a show cause notice. Assessee explained that the software purchased was utilized in its export of software and hence, the expenditure was claimed as revenue and referred to P L account, audited report under section 10(B) and also explained the nature of software purchase and the nature of exports undertaken by it. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions by Ld. Counsel. We are unable to appreciate the action of Ld. CIT-IV, Hyderabad in treating the expenditure as capital in nature just because the same is titled as software purchase . There is no dispute to the fact that assessee is a software export, either as part of its manufacturing items or as a separate project undertaken by it. There is also no dispute that assessee has established a STP. unit for the purpose of exports and deduction under section 10B was allowed by Revenue on the above amounts. As seen from the manufacturing expenses in the P L account, schedules in AY 2005-06, assessee has claimed manufacturing expenses as under : Raw material Consumption As at 31.03.2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Software Purchases 3,729,850 Vehicle Maintenance 28,119 Repairs Maintenance 9,076 Membership Subscription 57,575 Rent for Premises 468,000 Staff Welfare 1,806 MD s Remuneration 228,784 Consultancy Charges 150,000 Travelling Conveyance Expenses 12,530 6,927,655 Profit from software division STP 2,120,552 Net profit from STP 2,120,552 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. On this reason, we are not appreciating the action of CIT in setting aside the order of A.O. Therefore, the order u/s 263 in AY 2005-06 cannot be sustained. 8. Not only that, as seen from the above computation extracted, the profit of assessee arrived at ₹ 21,20,552 is after claim of purchase of software as an expenditure to an extent of ₹ 37,29,850. Any disallowance thereon, would automatically increase the profit from software division. There is no doubt that the profits from software division being STP unit are eligible for deduction under section 10B. Ultimately, the entire amount gets exempted under section 10B without any tax effect on the other incomes offered by assessee. There is no prejudice caused to the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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