2017 (10) TMI 1376 - ITAT BANGALORE

Deduction u/s 10A computation - deduct telecommunication expenses from total turnover and export turnover while computing the eligible deduction u/s l0A - Held that:- Taking into consideration the decision rendered by the Hon’ble High Court of Karnataka in the case of CIT v. Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT], we are of the view that the CIT(A)’s order directing the Assessing Officer to exclude telecommunication charges both from export turnover and total turnover, as was prayed for by the assessee in the alternate was rightly accepted by the CIT(A). The relevant ground of appeal of the Revenue is accordingly dismissed.

Excess provision towards warranty expenses created by the assessee - provision created in unscientific way - Held that:- The basis on which the provision for warranty was made was identical in AYs 2002-03 & 2003-04 as well as in AY 2005-06. The Tribunal has in the appeal for the AYs 2002-03 & 2003- 04 after considering the method of providing for warranty liability by way of a provision, specified that the provision made was based on past history and was on scientific method of estimating liability on account of warranty claims. It is clear from the chart which has been extracted in the order of assessment that as and when the period of warranty expires, the assessee writes back the provision made in the books of account to the extent it relates to the warranty liability which the assessee does not incur and which was already provided by way of a provision and allowed as deduction in the past. It appears to us that the provision made by the assessee is scientific and is based on past history. - Decided against assessee

TPA - determination of ALP of the international transactions entered - Held that:- The assessee is in the business of rendering software development services, thus companies functionally dissimilar need to be deselected from the final list.

Action of the CIT(A) excluding companies with turnover of above ₹ 200 crores from the list of comparable companies is held to correct and such action does not call for any interference.

Nature of software expenditure incurred - revenue v/s capital expenditure - Held that:- At the time of hearing, the Bench expressed the view that there was merit in the contention of the learned DR because in paragraph 10.2 the CIT(A) has not dislodged the factual finding of the AO and has merely proceeded to rely on judicial pronouncements. Though there is a finding that software in question was operating software, there is no reference to the basis on which such a finding was given. Therefore, it would be just and proper to set aside the order of CIT(A) on this issue and remand for fresh consideration of the issue, as to whether the software expenditure which was claimed as deduction was capital or revenue in nature. The Assessee is directed to place all the relevant evidence before the AO to show the expenditure was revenue expenditure. Decision of IBM India Ltd. [2006 (3) TMI 196 - ITAT BANGALORE-B] to be followed - Decided in favour of revenue for statistical purposes.