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2015 (1) TMI 53 - AT - Income TaxValidity of order of CIT u/s 263 – nature of purchase of software - deduction u/s 10B - STPI unit - software export - Held that:- it could not be understood as to how a software purchase as a raw material in export of software can become capital expenditure - Both CIT and Ld. CIT(A) wrongly considered software purchase on the concept of enduring benefit in the business of assessee - since assessee purchased software as a raw material in its business of exports, it cannot be considered as capital in nature, as this is not asset in its business but as a component in the process of manufacturing/ export 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 effect on the other incomes offered by assessee - since the raw material purchased by assessee is disallowed as capital expenditure, the stand taken by CIT in disturbing the order of AO cannot be appreciated - the order u/s 263 by CIT is set aside – Decided in favour of assessee.
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