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TMI Blog2020 (2) TMI 1272X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim made by the assessee for deduction u/s. 80IC of the Act ought to have been allowed by the AO/CIT(A) and they fell into an error in not allowing the said claim. We therefore hold that the assessee is entitled to claim deduction u/s. 80IC of the Act on service charges Deduction u/s 36(1)(viii) on account of bad debts written off - HELD THAT:- Claim of assessee for deduction ought to have been allowed by the revenue authorities. It is clear from the order of AO that AO never doubted that the sum written off as bad debts was already included as income of assessee in the earlier previous years. There is no condition laid down in section 36(1)(vii) that the sum which is written off as bad debts should have suffered tax and if that income is claimed as exempt or deduction is claimed, then deduction on account of bad debts written off should not be allowed. We are also satisfied that the assessee has established that the sum written off as bad debts was in fact offered to tax in the earlier previous years as income and included while computing total income. The requirement of establishing that the debt has become bad and irrecoverable is no longer necessary after the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m manufacturing activities and not considering the profits and gains derived from the business of the undertaking. 3. The grievance of the assessee by the aforesaid grounds is against the action of the revenue authorities in denying the benefit of deduction u/s. 80IC of the Income-tax Act, 1961 [the Act]. The assessee is a company engaged in telecommunication software development and trading in telecommunication hardware required mainly to run their software that are being supplied to the prospective consumers. For the AY 2014-15, the assessee filed return of income claiming deduction u/s. 80IC of the Act of a sum of ₹ 4,93,84,285. The computation of deduction u/s. 80IC as filed by the assessee is as follows:- XALTED INFORMATION SYSTEMS PVT. LTD. PROFIT LOSS STATEMENT FOR THE YEAR ENDED ON 31ST MARCH 2014 Sr. No Particulars Baddi - Unit I Baddi Unit II Baddi - Unit II-HW Total A CONTINUING OPERATIONS I Revenue from operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 4,93,84.285 4. The AO did not allow the claim of assessee as he computed the gross total income at a negative figure and denied the benefit of deduction u/s. 80IC observing as follows:- Deduction U/s 80-IC 1. The assessee has claimed deduction u/s 80IC at ₹ 4,93,84,285/- in the return of Income and as per Form No. 10CCB of the Chartered Accountant. It is seen that the assessee has considered other income amounting to ₹ 6,38,13,310/- in total eligible turnover. The same should have been considered as income from other sources, since it is not related to manufacturing activities. The assessee has not given any reasons for not excluding the same from the Total turnover. Further, it is seen that, income received from service charges is also included in the Total Eligible Turnover. Therefore, considering these discrepancies in claim of deduction u/s 80 IC, the total eligible deduction under section of 801C of the IT Act is reworked as under: i) Profit as per P L Account : ₹ 7,34,14,261 ii) Less ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... integral part of the products supplied by the assessee, therefore have nexus between the products supplied and services provided by the assessee in connection with the said products. The Assessee gave details of the Breakup of services provided by the undertaking along with the Ledger extracts copy of the contract with the parties. The Assessee placed reliance on certain judicial pronouncements for the proposition that where the services rendered are incidental or had nexus with the manufacture of article or thing for which deduction u/s.80IC of the Act is claimed, the income from rendering services should also be regarded as eligible for deduction u/s.80IC of the Act. We shall refer to these decisions in the subsequent paragraphs of this order. 6. The CIT(Appeals), however, held that income derived from rendering services was not eligible for deduction u/s. 80IC of the Act because they are not profits derived from manufacture or production of any article or thing. In this regard the CIT(A) made reference to the nature of services performed by the Assessee as appearing in their virtual domain and first concluded that the Assessee was a Service Provider of a wide range of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of allowing deduction u/s.80IC of the Act was upheld by the CIT(A). 8. Aggrieved by the order of CIT(Appeals), the assessee is in appeal before the Tribunal. The ld. counsel for assessee submitted that BSNL vide their tender dated 14.7.2011 invited tenders for providing various types of telecom services/equipments for their Fraud Management Control Centre (FMCC) and Revenue Assurance systems (RA). ZTE Telecom (India) P. ltd. and their associates ZTE Corporation were the successful bidders of the aforesaid tender. They in turn sub-contracted FMCC and RA to the assessee under agreements dated 7.8.2012. These agreements provide for supply of software and the hardware necessary to support the use of the hardware for the purpose for which the software is supplied. The tender was a turnkey solution and both software for FMCC and RA along with hardware and services required to make the software being supplied ready to use had to be given/performed by the assessee. Our attention was drawn to the fact that the assessee was bound to install and commission the required software and hardware, besides providing services. Our attention was drawn to the Services Agreement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking or an enterprise from any business referred to in sub-section (2), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains, as specified in sub-section (3). (2) This section applies to any undertaking or enterprise,- (a) which has begun or begins to manufacture or produce any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth Schedule and undertakes substantial expansion during the period beginning- (3) The deduction referred to in sub-section (1) shall be- (i) in the case of any undertaking or enterprise referred to in sub-clauses (i) and (iii) of clause (a) or sub-clauses (i) and (iii) of clause (b), of sub-section (2), one hundred per cent of such profits and gains for ten assessment years commencing with the initial assessment year; (ii) in the case of any undertaking or enterprise referred to in sub-clause (ii) of clause (a) or sub-clause (ii) of clause (b), of sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of goods. 14. The break-up of service fee received by the Assessee which is the subject matter of dispute in this appeal is as follows:- Date Description Amount Rs. 16.05.2013 Satyam Computers Towards technical and functional support for SP, mediation and IUC application deployed by Xalted in MTNL, Mumbai Delhi. 13,25,000 16.07.2013 Tech Mahindra Ltd. Towards technical and functional support for SP, mediation and IUC application deployed by Xalted in MTNL, Mumbai Delhi. 15,00,000 12.08.2013 7,50,000 10.09.2013 7,50,000 30.09.2013 7,50,000 31.10.2013 7,50,000 29.11.2013 7,50,000 31.12.2013 7,50,000 31.01.2014 7,50,000 28.02.2014 7,50,000 28.03.2014 7,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome derived from the business itself and therefore, the same is eligible for deduction under section 80-IB of the Income Tax Act. The Hon ble Bombay High Court in the case of CIT v. International Data Management Ltd. (2003) 261 ITR 177 (Bom) had to deal with a case regarding entitlement of deduction under section 80-IC for income, received on account of service and maintenance charge. In the context, the Bombay High Court held that the income received by the assessee which rendered service and maintenance facilities for the clients, has a direct nexus with the main business activity of the assessee. 16. We also find that the AO is not right in observing that in the claim for deduction u/s. 80IC of the Act, the assessee has included other income of ₹ 6,38,13,310. This is a wrong observation in the order of assessment and we have already extracted the computation of deduction u/s. 80IC of the Act in the earlier part of this order. The CIT(Appeals), in our view, has drawn inference by looking into the profile of assessee as contained in the virtual domain (web site), which in our view, may not always be a correct indicator. The facts on record brought out before the AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant had made a provision for bad and doubtful debts during FY: 2012-13 which was already offered for tax during that financial year itself. 8. The learned Commissioner(A) ought to have appreciated that the deduction u/s. 80-IC claimed in relevant year is only out of profits of this year whereas the bad debts claimed was in respect of the debts written off, related to the amount due in the preceding years and accordingly there was no double claim as surmised by the Assessing Authority. 9. The learned Commissioner (A) failed to consider the Apex Court judgment in the case of T.R.F Ltd (2010) 190 Taxman 391 (SC) and CBDT circular No.12/2016 dated 30th May 2016 and proceeded to confirm the disallowance made by the AO. 10. The learned Commissioner (A) erred in confirming the order of the AO in making the additions to the bad debts written off when it had already suffered tax in the earlier year and hence taxing the same amount twice is not called for. 19. The material facts regarding these grounds are that the assessee had claimed deduction on account of bad debts written off of a sum of ₹ 7,47,94,151. The AO was of the view that u/s. 36(1)(vii) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 20. The AO accordingly denied the benefit of deduction to the assessee. On appeal by the assessee, the CIT(Appeals) confirmed by order of AO for the following 3 reasons assigned by the AO that :- (i) the income offered to tax u/s. 36(2) did not suffer tax because of deduction claimed by the assessee u/s. 80IC; (ii) the assessee failed to prove that debt which was written off as bad debt was included as income in the previous years; and (iii) there was nothing to show that the debt written off as bad debt has in fact become bad. 21. Aggrieved by the order of CIT(Appeals), the assessee has filed the present appeal before the Tribunal. 22. The ld. counsel for assessee drew our attention to the following chart and submitted that out of debts written off as bad and doubtful debts, only a sum of ₹ 67,97,554 enjoyed the benefit of deduction u/s. 80IC of the Act as per the chart, which is enclosed as Annexure-I to this order. With regard to the year in which the bad debts was offered as income, the ld. counsel for assessee drew our attention to page 216 of the PB, which gives the required details. The same is given as Annexure-II to this order. Another ..... X X X X Extracts X X X X X X X X Extracts X X X X
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