2013 (5) TMI 913 - AT - Income Tax

Tribunal allows appeal, directs revenue expenditure treatment. Upholds Section 10A claim after set-off. Section 147 proceedings dismissed.

M/s Opus Software Solutions Pvt. Ltd. Versus Asstt. Commissioner of Income Tax Circle – 3, Pune

The assessee's appeal was partly allowed, with the Tribunal directing the Assessing Officer to treat product development expenses as revenue expenditure ... - Issues Involved:1. Validity of initiation of proceedings u/s 147.2. Disallowance of product development expenses.3. Claim of exemption u/s 10A and carry forward of loss.Summary:1. Validity of initiation of proceedings u/s 147:The first issue raised by the assessee regarding the validity of the initiation of proceedings u/s 147 of the Income Tax Act was not pressed at the time of hearing and was accordingly dismissed as not pressed.2. Disallowance of product development expenses:The second issue concerned the disallowance of Rs. 4,02,11,000/- representing product development expenses. The Assessing Officer (AO) disallowed this amount, treating it as capital expenditure and allowed depreciation at 25%. The CIT(A) upheld the AO's decision, relying on the order for the assessment year 2003-04. However, the Tribunal referred to its earlier decision in ITA No. 1179/PN/2009 dated 27.07.2012, where it was held that the product development expenses were revenue in nature. The Tribunal noted that the expenditure did not result in the acquisition of any new asset and was incurred in the course of carrying on the business. Consequently, the Tribunal set aside the order of the CIT(A) and directed the AO to allow the claim of the assessee, treating the expenses as revenue expenditure. The alternative plea of the assessee under Section 35(1)(i) or Section 35(1)(iv) was rendered academic and dismissed as infructuous.3. Claim of exemption u/s 10A and carry forward of loss:The Revenue's cross-appeal raised issues regarding the CIT(A)'s decision to allow the assessee's claim u/s 10A after set-off of unabsorbed carry forward losses/depreciation. The AO had made an addition of Rs. 1,21,57,820/- on account of 'Disallowance of Exemption under Section 10A and carry forward of loss.' The CIT(A) deleted this disallowance, noting that the assessee did not claim any such exemption in the return of income but mentioned it by way of a Footnote. The CIT(A) held that the claim u/s 10A should be allowed if the conditions are fulfilled after set-off of losses. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds of appeal as they were not substantiated.Conclusion:The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The order was pronounced in the open Court on 28th May, 2013.