2012 (6) TMI 710

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....ous software developers both in India and abroad. The assessee filed return of income relevant to the assessment year 2005-06 on 28.10.2005 declaring its income as Rs. 1,14,517/-. The case of the assessee was selected for scrutiny and notice under section 143(2) dated 31.1.2007 was served on the assessee. On completion of the assessment disallowances on account of bad debts written off to the tune of Rs. 15.00 lakhs, capital subsidy etc. were made by the Assessing Officer. Aggrieved against the assessment order dated 20.12.2007, the assessee preferred an appeal before the CIT(A). The CIT(A) allowed the appeal of the assessee vide order dated 26.10.2010. 3. The revenue, aggrieved against the order of CIT(A) dated 26.10.2010 has impugned t....

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....n claim capital loss. To support his contentions, he relied on the judgement passed by the Hon'ble Delhi High Court in the case of CIT Vs. R.G. Scientific Enterprises Pvt.Ltd., reported as 311 ITR 401 and the order of the Delhi Bench of the Tribunal in the case of Tulip Star Hotels Ltd. Vs. Addl. CIT., reported as 316 ITR (AT) 341. 5. On the other hand, Mr. S.Sridhar, counsel appearing on behalf of the assessee submitted that the amount invested by the assessee is not in the nature of capital investment. He contended that the assessee is not in the business of product development, the assessee is in the business of software testing services. The assessee advanced the amount in pursuance of the agreement in order to enhance its business o....

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....e submissions of both the parties has held as under:-      "3.4 Further the Assistant Commissioner has proceeded to disallow on the sole assumption that the said amount of advance was 'Investment in nature and thereby it partakes the character of 'Çapital', which in the reality is otherwise as under:-      (a) As per the agreement on application development dated 4th April, 2001, the Shankar Applied Tech (P) Ltd., is obligated to carry out the following, pursuant to Annexure-3 of the said agreement.           i) Would be primarily responsible to identify and prioritise the application that needs development.       &nbs....

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....ce over form, the said amount has been paid for furthering the interest of the business of the Appellant company only and will not thus partake the character of investments and thus the aspect of Capital Loss, as concluded by the Assessing Officer is not correct. 3.5 On the basis of above analysis, I hold, that the action of the Assessing Officer in adding a sum of Rs. 15 lakhs being the advance made to M/s. Shankar Applied Tech. (P) Ltd. is not justified. Consequently, I allow the claim of sums totaling Rs. 15 lakhs in the computation of total income for the assessment year 2005-06 in the total acceptance of the Grounds of appeal in Ground No.3,4,5 & 6 forming part of statutory Form 35 filed before you." 8. The D.R. has relied on the....