Systems Pvt. Ltd. Ward 7(1)(2) No.31, 3rd Floor, Bengaluru. Xavier Board, Primrose Road Bengaluru 560 025. PAN: AAFCS 5024G APPELLANT RESPONDENT Appellant by : Shri S. Parthasarathi, Advocate Respondent by : Shri Manjeet Singh, Addl. CIT(DR)(ITAT), Bengaluru. Date of hearing : 10.02.2020 Date of Pronouncement : 25.02.2020 ORDER Per N.V. Vasudevan, Vice President This appeal by the assessee is against the order dated 22.02.2019 of the CIT(Appeals)7, Bengaluru relating to AY 201415. 2. Grounds 2 to 6 raised by the assessee in the appeal read as follows: 2. The learned Commissioner of Incometax (A) ought to have considered the explanation offered by the appellant with respect to the deduction computed under section 80IC of the Act. ITA No. 821/Bang/2019 Page 2 of 18 3. The learned Commissioner (A) failed to appreciate the fact that the appellant had claimed deduction under section 80IC of the Act only out of profits and gains derived by the business of the undertaking that was set up in the State of Himachal Pradesh wherein a detailed working of such deductions claimed were submitted 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 80IC of the Act. Further the learned Commissioner (A) failed to consider the fact that the scheme of deduction under sec 80IC 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 subsection (3) to Sec.80IC 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 assessee by the aforesaid grounds is against the action of the revenue authorities in denying the benefit of deduction u/s. 80IC of the Incometax Act, 1961 [the Act]. The assessee is a company engaged in telecommunication software development and trading in telecommunication hardware required mainly to run their software that are being supplied to the prospective consumers. For the AY 201415, the assessee filed return of income claiming deduction u/s. 80IC of the Act of a sum of Rs.4,93,84,285. The computation of deduction u/s. 80IC as filed by the assessee is as follows: ITA No. 821/Bang/2019 Page 3 of 18 XALTED INFORMATION SYSTEMS PVT. LTD. PROFIT & LOSS STATEMENT FOR THE YEAR ENDED ON 31ST MARCH 2014 Sr. No Particulars Baddi Baddi Unit II Total Baddi Unit Unit I II HW A CONTINUING OPERATIONS I Revenue from operations 88,25,000 15,26,88,174 6,94,07,529 23,09,20,703 Il Other Income 24,38,727 4,21,94,301 1,91,80,282 6 38 13 310 III Total Revenue (1 +II) 1,12,63,727 19,48,82,475 8,85,87,811 29,47,34,013 IV Expenses: Direct Cost 34,53,905 5,97,58,696 2,71,64,536 9.03,77,137 Employee Benefit Expenses 25.44,974 4,40,32,576 2,00,15.907 6,65.93,457 Depr