9911796707
TMI Blog2015 (1) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... e appeals are connected with same issue in different years, the appeals are heard together and decided by this common order. 2. Briefly stated, assessee is a closely held company doing business of manufacturing LCD modules, printer control parts, printers and also exports software which includes indirect software exports and also embedded software in projects undertaken as per the clientele in USA and other countries. 3. For A.Y. 2005-06 assessee filed return belatedly declaring income of Rs. 1,25,50,328 after claiming exemption of income on export of software to an extent of Rs. 21,20,582 under section 10B. Since assessee filed belated return, proceedings under section 147 were initiated by A.O. and order under section 143(3) read with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction. 5. In A.Y. 2006-07, consequent to the above observations of Ld. CIT, A.O. has initiated proceedings under section 147 and treated the purchase of software to an extent of Rs. 55,15,032 as capital expenditure but however, allowed depreciation to an extent of Rs. 33,09,019 thereby making disallowance of Rs. 22,06,013. Ld. CIT(A) after considering the submissions of assessee held the expenditure as revenue in nature. Therefore, Revenue is aggrieved on the same. 6. We have considered the rival contentions and perused the detailed paper book placed on record along with detailed submissions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 7. Thus in the export of software activity, assessee claimed purchase of software as revenue expenditure. We are unable to understand how a software purchase as a raw material in export of software can become capital expenditure. Both Ld. CIT and Ld. CIT(A) wrongly considered software purchase on the concept of enduring benefit in the business of assessee. Ld. CIT(A) even though gave relief, it is on the legal principle that there is no endur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 revenue. However, this is an alternate argument only to consider that the twin conditions required for initiating proceedings under section 263 are not satisfied in this case. Be that as it may, since the raw material purchased by assessee is disallowed as capital expenditure, we are unable to appreciate the stand taken by CIT in disturbing the order of A.O. Accordingly, the order under section 263 by CIT is hereby cancelled and order of A.O. is consequently restored. 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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