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2020 (5) TMI 132 - AT - Income TaxClaim of deduction u/s.10A - Used machinery employed in the new business is 28% and transfer of employees of the existing unit to the new unit holding it to be reconstruction of already existing business. - findings of the AO that the new Software Technology Parks of India (STPI) unit is only an extension of existing business with the old machinery and also with old employees and hence deduction is not allowable in view of provisions of sub-section (2)(ii) of section 10A - HELD THAT:- CIT(A) considering the value of plant and machinery purchased prior to the setting up of new unit had came to conclusion that value of old machinery is less than 20% and transfer of the employees from the existing unit to new unit cannot be construed as reconstruction of existing business. This finding of the CIT(A) is contrary to the finding of the AO that the total value of old machinery employed by the assessee and new machinery. This variation in the value of the old machinery and new machinery has bearing on the issue on hand. CIT(A) had not addressed the reason, given by the AO nor was it the case of the assessee company that the total value of asset adopted by the AO is incorrect. In view of the discrepancies in the total value of fixed assets adopted by ld. CIT(A) and AO, we are of the considered opinion that the matter should be remitted back to the file of ld. CIT(A) for fresh adjudication on the merits of the appeal after affording due opportunity of hearing to the appellant in accordance with law. Grounds of appeal Nos. 2 to 2.2 filed by the Revenue are partly allowed for statistical purposes. Cost of software as revenue expenditure - HELD THAT:- CIT(A) considering fresh evidence filed before him came to conclusion that expenditure was incurred wholly towards renewal of subscription for software. Accordingly, allowed the same as revenue expenditure placing reliance on the decisions of Jurisdictional High Court in the cases of Southern Roadways Ltd [2007 (6) TMI 193 - MADRAS HIGH COURT] and Karur Vysa Bank [2014 (10) TMI 2 - MADRAS HIGH COURT]. From the perusal of para 4.3 of the order of ld. CIT(A), it is clear that ld. CIT(A) had considered additional evidence in violation of provisions of Rule 46A of Income Tax Act, 1962. We are of the considered opinion that this issue should be remitted back to the file of the ld. CIT(A) for de novo assessment in accordance with law. Depreciation @60% as against 25% allowed by the Assessing Officer, as the allocated common expenditure - HELD THAT:- Admittedly, assessee derives income in the form of licence fees for software so developed. But from the material on record, it is not clear whether it is application software embedded recorded on CD or disc, tape, perforated media or other information storage devices or in the nature of an intangible asset. Other issues are also remanded back to the file of the ld. CIT(A), we remit this issue also back to the file of the ld. CIT(A) with a direction that issue shall be adjudicated afresh keeping in view of the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Computer Age Management Services P. Ltd [2019 (7) TMI 1153 - MADRAS HIGH COURT] Claim of deduction u/s. 35 - HELD THAT:- CIT(A) allowed the claim considering the approval granted by DSIR. However, ld. CIT(A) had not addressed reasons of the Assessing Officer that no research activities was carried on. Further very fact that expenditure was incurred in the form of salary and overheads only goes to suggest that there is no research activities carried out. In the absence of any capital assets employed for the purpose of research activities, this issue requires to be adjudicated with reference to the evidence of research activities if any carried on by the assessee. Thus, in our considered opinion, the ld. CIT(A) has clearly fell in error in allowing the claim of the assessee.
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