TMI Blog2012 (11) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... formation system services, human resource services, insurance claim processing, legal databases, medical transcription, pay roll, remote maintenance, revenue accounting, support centres, web-site services etc. It is apparent that the CBDT itself had interpreted the term "computer software" occurring in Explanation 2 to Section 10A in an expansive rather than a narrow manner as was done in the present case by the AO. In this case the materials placed by the assessee on record reveal that its "program management system" was nothing but a development of software which assisted in management services. The assessee's "program management services" which is a method of providing software to achieve a particular end cannot be said to be excluded from the term "computer software". This Court accordingly holds that the findings of the Tribunal are sound and do not require any interference - in favour of assessee. Disallowance of Bad debts - Held that:- Once the CIT (Appeals) after satisfying himself about the correctness of the findings by the AO, held that the latter had made additions wrongly by not actually seeing that the amount was written off, a finding that was endorsed by the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated as capital expenditure on which depreciation was claimed. The Assessing Officer disallowed this expenditure to the extent of Rs. 2,05,08,030 and allowed the depreciation claimed on the balance. As regards Section 10A the Assessing Officer was of the opinion that the assessee's claim was impermissible on the ground that the assessee has already secured deduction under Section 80HHE for the assessment year 2000-01 and consequently was not permitted deduction under Section 10A for the subsequent years. The Assessing Officer appears to have taken into consideration the fact that the STP unit was set up in Chennai thus suggesting that it was formed by splitting up an existing unit under Section 80HHE. He held therefore that the unit was not eligible for the deduction by reason of Section 10A(2)(ii) of the Act. The other ground on which the Assessing Officer seems to have disallowed the claim is that by virtue clause (i) of Explanation 2 to Section 10A, the only activity which qualified for the benefit was "computer software development" and that the assessee's activity i.e. programme management services did not fall within the definition so as to be eligible for benefit. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure incurred by the assessee on the leased premises extended the capacity of the building to be utilized in a more useful manner for the business. in the case of T V S Lean Logistics Ltd. (supra), the expenditure was incurred by the assessee on construction of a building on the lease-hold land. The Hon'ble Court pointed out that the assessee had incurred expenditure on land and the building was not taken on lease. Therefore, the fiction created by Explanation-1 to section 32(1). The ratio of this case is not applicable for the reason that the assessee has taken building on lease and thereafter incurred expenditure thereon. Therefore, the fiction created under Explanation-1 will become applicable in this case. In the case of Hotel Diplomat (supra) the jurisdictional High Court held that the expenditure incurred on constructing new bath-rooms in the leased premises was capital expenditure. We have already seen that the issue regarding brick works had not been examined by the lower authorities and it is not known whether any new structure came into existence as a consequence thereof. The ratio of this case will be applicable if new space has been created for any particular purpose by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the case of Ayesha Hospitals (P.) Ltd. (supra). Since it is covered under this provision, there will be no question of invoking the provision contained in Explanation-1 to section 32, as it deals with deduction of depreciation and this conclusion will be in line with the decision of Hon'ble Supreme court in the case of Core Health Care Ltd. (supra). Thus, this ground is treated as allowed for statistical purposes." 6. It was urged that the expenditure in the present case was capital in nature since the assessee derived an enduring benefit. Learned counsel submitted in this regard that by virtue of the Explanation 1 to clause (ii) to Section 32(1) read with Section 30(a)(ii), the amount spent could not be treated as revenue but was capital in nature. Thus the assessee was entitled to only depreciation which was granted by the Assessing Officer. The Tribunal on the other hand by remitting the matter, in fact acted contrary to the enacted provisions. 7. Learned counsel for the assessee relied upon decisions reported as CIT v. Hi Line Pens (P.) Ltd. [2008] 306 ITR 182 and CIT v. Ayesha Hospitals (P.) Ltd. [2007] 292 ITR 266 (Mad.) and contended that the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... splitting up of the unit, the assessee's claim was that it set up a unit in Chennai for the first time in March, 2000. Besides a mere statement that the setting up of the unit in Chennai amounted to splitting up of an already existing unit, the Assessing Officer does not seem to have recorded any other finding. This Court is of the opinion that the Section 10A(2)(ii) states that the provision is applicable to an undertaking which "is not formed by the splitting up, or the reconstruction of, the business already in existence". The expression "splitting up" and "reconstruction" have to be read along with the word "business". What Parliament seems to have intended here is that the setting up of unit should not be a device in order to secure deduction. This Court here notices that there is a certain stringency in the Section 10A; approval is to be given by a prescribed authority in terms of Section 10A (Explanation 2 clause (vii) to Section 10A). In this case it is not disputed that such approval was given and the unit, set up in the special economic zone termed as a Software Technology Park. Having regard to these essential conditions, the assumption of the Assessing Officer that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd report which was given in 16.02.2005. The CIT (Appeals) noticed that in the remand report the Assessing Officer had not taken any objection in respect of the compliance of various conditions or that they have not been fulfilled by the assessee under Section 10A. The relevant discussion is at page 36 of the paper-book: - "Therefore, both the names, i.e. the name of EDS Electronic Data System (India) Private Limited and Electronic Data Systems (India) Private Limited are being used interchangeably and otherwise also are immaterial as far as the claim of exemption u/s 10A is concerned which is in respect of the undertaking of the assessee qualifying the conditions prescribed in the Section. In view of the above facts, the AO is directed to allow the exemption claimed by the appellant. This ground of appeal is allowed." 13. The above reasoning was upheld by the ITAT. This Court is of the opinion that the view taken by the Assessing Officer, that the nature of services rendered or extended by the assessee were not "computer software", is contrary to the record. The Assessing Officer's order has alluded to the CBDT Circular dated 26.09.2000 which extends or explains the services a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. No deduction in respect of bad debt is allowable under section 36(1)(vii) unless it is written off as irrecoverable in the books of the assessee in the previous year in which claim for deduction is made. No evidences have been furnished to establish that the debts have in fact become bad. In view of the same, the claim of the assessee on account of bad debt is hereby disallowed." 15. The order of the CIT (Appeals) analysed the material available on the record and also the explanation provided by a letter dated 23.03.2004 by the assessee. The relevant discussion is as follows: - "(ii) Since the amount of Rs. 3,14,90,305/- was written off in the books of accounts, the same was claimed as bad debts as per provisions of Section 36(1)(vii) of the IT Act. The entries passed as under: - AY Profit Loss a/c Dr. To Provision for doubtful debt a/c 2000-01 Provision for doubtful debt a/c Dr. To Debtors a/c 2001-02 From the above entries, it is clear that the amount written off was debited to P L account and also actually written off in the debtors' accou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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