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TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 14
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.... by the appellant. 4. The learned Commissioner (A) erred in upholding the order of the Assessing Officer by wrongly concluding that the income from service are not eligible for deduction under section 80-IC of the Act. Further the learned Commissioner (A) failed to consider the fact that the scheme of deduction under sec 80-IC provides that the benefit of deduction is available to the profits and gains derived by the undertaking from the business carried and to the extent of percentage provided under sub-section (3) to Sec.80-IC of the Act. The deduction shall be 100% of such profits and gains derived from such undertaking. 5. The learned CIT(A) failed to appreciate the profits and gains derived from business included the service charges since the services rendered were part of business and also involved manufacturing activity. 6. The learned Commissioner (A) grossly erred in upholding the observations made by the AO and as such erred in interpreting the provisions by restricting the deductions only to the profits and gains from manufacturing activities and not considering the profits and gains derived from the business of the undertaking. 3. The grievance of the assesse....
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....t related to manufacturing activities. The assessee has not given any reasons for not excluding the same from the Total turnover. Further, it is seen that, income received from service charges is also included in the Total Eligible Turnover. Therefore, considering these discrepancies in claim of deduction u/s 80 IC, the total eligible deduction under section of 801C of the IT Act is reworked as under: i) Profit as per P&L Account : Rs. 7,34,14,261 ii) Less Income which not eligible for deduction u/s 80IC A. Other income a. Interest on FD's : 14,07,962 b. Misc. income : 6,19,55.068 c. Foreign Exchange profit: 1,95,296 d. Profit on sale fixed assets: 2,54,984 ------------------- Rs. 6,38,13,310 B. Net income from services Gross receipts from services :3,89,36,355 Less:- Direct cost related to purchase of services 14,13,654 ---------------- Rs. 3,75,22,701 Rs. 10,13,36,011 ( - ) Rs. 2,79,21,750 5. Aggrieved by the aforesaid order of the AO, the assessee preferred appeal before the CIT(Appeals). The ....
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....ices. Thereafter he referred to the financial statements of the Assessee and found that the description of income in the profit and loss account contained two types of income viz., Income from product sales Rs. 19,19,84,348/- Income from service fees Rs. 3,89,36,355/- From the above, he concluded that the Assessee had two streams of revenue viz., software development and sale of software license and products. Therefore revenue from service fees cannot be considered as integral to manufacturing and sale of products and hence the same cannot be included in the revenue for the purpose of deduction u/s 80IC. 7. The Assessee had filed copies of invoices and agreement with ZTE Telecom India Pvt Ltd. He referred to invoices dated 01-07-2013, 18-06- 2013, 31-10-2012, 09-10-2012 and held that the said invoices were raised for services for software and hardware. According to him Service Tax was also charged in all those invoices indicating that the invoice is only for providing service and no sale of product is involved. He also referred to agreement with ZTE Telecom India Pvt Ltd dated 19-09-2012 and was of the view that the nomenclature of the Agreement was itself 'Service Agreem....
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.... XALTED is inter alia engaged in the business of providing end to end Telecom and Homleand Security solution worldwide. ZTE has offered Customer. FMCC and RA Solution and therefore ZTE would like to subcontract FMCC and RA Services by procuring the Services from Subcontractor. The Subcontractor acknowledges that its performance under this Agreement is intended to support the Contractor and satisfy the obligations and liabilities of the Contractor towards the Customer with reference to the Tender, No.CA/CM/GSM-Ph_VII/T-404A/2011-12 dated 14'1' July 2011 and the clarifications/amendments thereto issued by BSNL The Contractor desires to engage the Subcontractor and the Subcontractor has agreed to execute the Works (defined below) subject to and in accordance with the provisions of this agreement." 9. According to him, the above aspects clearly show that the performing of services was also linked and had nexus with the supply of software and the hardware required to run the software and therefore the entire receipts both for supply of software, hardware and services rendered, all being interlinked should be regarded as profits derived by industrial undertaking from man....
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....its and gains derived from an industrial undertaking from business referred to Sec.80IC(2) of the Act, viz., from manufacture of article or thing other than the article or thing mentioned in Schedule-13 of the Act. It is not in dispute that the Assessee was engaged in the manufacture of an article or thing viz., computer software and was eligible to claim deduction u/s.80IC of the Act on the profits derived therefrom. The dispute is as to whether the service income received by the Assessee can also be regarded as profits derived from manufacture of article or thing. 13. BSNL vide their tender dated 14.7.2011 invited tenders for providing various types of telecom services/equipments for their Fraud Management Control Centre (FMCC) and Revenue Assurance systems (RA). ZTE Telecom (India) P. ltd. and their associates ZTE Corporation were the successful bidders of the aforesaid tender. They in turn sub-contracted FMCC and RA to the assessee under agreements dated 7.8.2012. These agreements provide for supply of software and the hardware necessary to support the use of the hardware for the purpose for which the software is supplied. The tender was a turnkey solution and both software fo....
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....d by, or derived from, the industrial undertakings concerned. The Hon'ble Gauhati High Court in the case of Torsa Machines Ltd. v. CIT (2017) 154 TR (A) 79 (Gau-HC), was concerned with a case wherein the assessee was engaged in business of manufacturing of stone crushing plant and accessories. It claimed deduction under section 80-IC. AO disallowed deduction of claim towards service and erection charges. AO opined that earnings from service and erection charges were not derived from manufacturing business and not eligible for deduction. CIT(A) as well as Tribunal affirmed disallowance. It was held that when the assessee, installed/erected the self-manufactured stone crushing plants and serviced them at the customers site, the amount received from such service was nothing but earnings from the business of manufacturing activity. The Hon'ble Himachal Pradesh High Court in the case of [Spray Engineering Devices Ltd. v. Asstt. CIT & Anr.] IT Appeal No. 39 of 2006 judgment dated 7.11.2009 took the view that when a manufacturer is required by the customer to erect and commission the machinery, the amount received by the manufacturer on this count, is the income derived from the business ....
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.... to be done on a turnkey basis. Though the services agreement is separately entered into by the assessee, it has a direct nexus and connection with the agreement for supply of software. In these circumstances, the decisions cited by the ld. counsel for assessee, clearly supports the case of the assessee. We are therefore of the view that the claim made by the assessee for deduction u/s. 80IC of the Act ought to have been allowed by the AO/CIT(A) and they fell into an error in not allowing the said claim. We therefore hold that the assessee is entitled to claim deduction u/s. 80IC of the Act on service charges of Rs. 3,75,22,701. Ground Nos. 2 to 6 are accordingly allowed. 18. Ground Nos.7 to 10 reads as follows:- "7. The learned Commissioner (A) erred in disallowing the bad debts written off by the appellant, concluding that the appellant had claimed deduction under section 80-IC on such debts without appreciating the fact that the appellant had made a provision for bad and doubtful debts during FY: 2012-13 which was already offered for tax during that financial year itself. 8. The learned Commissioner(A) ought to have appreciated that the deduction u/s. 80-IC claimed in relev....
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....100% of Total Income. It means, this amount was part of deduction claim. Therefore, it can't be said that, such bad debt or part thereof has been taken into account in computing the income of the assessee of the previous year. If such income was not subject to tax in the year in which it was received, the assessee can't take further deduction in the form of bad debt from 'Income which is not eligible income for deduction u/s 80IC of the IT Act." 20. The AO accordingly denied the benefit of deduction to the assessee. On appeal by the assessee, the CIT(Appeals) confirmed by order of AO for the following 3 reasons assigned by the AO that :- (i) the income offered to tax u/s. 36(2) did not suffer tax because of deduction claimed by the assessee u/s. 80IC; (ii) the assessee failed to prove that debt which was written off as bad debt was included as income in the previous years; and (iii) there was nothing to show that the debt written off as bad debt has in fact become bad. 21. Aggrieved by the order of CIT(Appeals), the assessee has filed the present appeal before the Tribunal. 22. The ld. counsel for assessee drew our attention to the following chart and submitte....