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2012 (11) TMI 619 - AT - Income TaxRevenue or capital expenditure – software development expenditure – Assessee had treated the expenditure as a deferred revenue expenditure in the books of account – And claimed it as a revenue expenditure in the computation of income - Held that:- As the expenditure on development of new product in the line of business being carried out by the assessee is an expenditure related to such business and benefit to the assessee is in the revenue field, inasmuch as it seeks to improve the profitability of the assessee and the enduring benefit cannot be regarded to be in the capital field. The entries in the books of account cannot be demonstrative of the true nature of a transaction. The true nature of a transaction is to be assessed not on the basis of the entries in the books of account alone, but having regard to the realities of the transaction. - Therefore, the expenditure incurred on development of various software packages, for being sold in the assessee’s business of software development and selling, is to be regarded as in the nature of revenue expenditure. - Decision in Empire Jute Co Ltd (1980 (5) TMI 1 - SUPREME COURT) followed - Decided in favour of assessee Carry forward of loss/ depreciation u/s 10A – Whether carry forward of loss/ depreciation can be set off against other normal business income - Assessee was eligible to claim benefit of Sec. 10A – AO argued that Sec 10A was contained in Chapter III which dealt with “incomes which do not form part of total income”, therefore, assessee was not eligible to carry forward unabsorbed loss/depreciation – Held that:- As the provisions of Sec. 10A as it stood w.e.f. 1.4.2001 continued to be a provision for exemption. Sec. 10A(6)(ii) provides that no loss which relates to the business of the undertaking shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before 1.4.2001. - Therefore, losses which are sought to be carried forward by the assessee are for the assessment year ending after 1.4.2001 and, therefore, do not fall in the restriction contained in section 10A(6)(ii). - Decided in favour of assessee Deduction u/s 10A- Foreign exchange fluctuation gain - Whether Foreign exchange fluctuation gain is eligible for deduction u/s 10A – AO argued such income could not be said to be profits and gains derived by an undertaking from the export of computer software – Held that:- As long as gain on foreign exchange fluctuation is on account of collection of export proceeds, it has a direct nexus with the exports undertaken by the assessee and, to that extent, it will also form part of an income eligible for claim of deduction u/s 10A. - Decided in favour of assessee
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