Software development as manufacture or production supports section 80-IB deduction where documentary evidence and worker records substantiate the claim.

Software development supported by registration, sales documents, transport records and accepted books of account was treated as manufacture or production for section 80-IB purposes. The unit was found to be a new industrial undertaking, not formed by splitting up or reconstruction of an existing business, and the absence of separate books did not defeat the claim where composite accounts were accepted and no material defect was shown. The prescribed worker requirement was also held satisfied on the basis of employment records. Survey statements recorded under section 133A, without supporting evidence, were held insufficient to displace the documentary record, and the deduction under section 80-IB was allowed.

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Issues: Whether the assessee was entitled to deduction under section 80-IB of the Income-tax Act, 1961 for its Shoghi unit engaged in software and hardware activities.

Analysis: The assessee established that it was a new industrial undertaking and was not formed by splitting up or reconstruction of an existing business. The materials on record, including the registration certificate issued by the Industries Department, the sales documents, transport documents and the accepted books of account, supported the finding that the unit undertook development and manufacture of software and related hardware products. Development of software was treated as falling within the concept of goods and, in the facts of the case, as manufacture or production for the purposes of section 80-IB. The objection regarding absence of separate books did not defeat the claim, since composite accounts were accepted and no material defect was found in the recorded turnover and expenditure. The requirement of employing the prescribed number of workers was also held to be satisfied on the basis of the employment records for the relevant year, and statements recorded during survey were held not to have evidentiary value for this purpose.

Conclusion: The assessee was entitled to deduction under section 80-IB and the disallowance was deleted.

Ratio Decidendi: Software development, when established by surrounding documentary evidence and business records, can amount to manufacture or production of goods for the purposes of industrial deduction, and survey statements recorded under section 133A without evidentiary support cannot by themselves displace such evidence.

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