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2016 (9) TMI 1565 - AT - Income TaxDeduction u/s 10A computation - exclusion of travel expenses by the AO from the export turnover - HELD THAT:- In instant case the expenditure had been incurred on foreign soil in connection with development of software by the employees of the assessee-company at foreign branch and nothing had been incurred on managerial or technical services rendered to any outsiders in foreign soil. In view of this discussion, it was to be held that said expenditure could not be excluded from the export turnover for computing deduction under section 10B. [Para 24] As decided in M/S ZYLOG SYSTEMS LIMITED VERSUS THE INCOME TAX OFFICER [2010 (11) TMI 76 - ITAT, CHENNAI] that the expenditure incurred for the purpose of business in the Foreign soil should not be excluded from the export turnover for the purpose of deduction u/s 10B. In the assessee’s case the expenditure was incurred for the purpose of business and should not be excluded from the export turnover. The assessee’s case is squarely covered by the special bench decision. Therefore we delete the addition made by the AO and set aside the Lower authorities orders Deduction u/s 80JJAA - AO was of the view that the company was engaged in the business of software and its employees cannot be called as workmen - HELD THAT:- As per the memorandum to Finance Act, 1988, sec. 80JJAA, the Government of India considered it necessary to provide fiscal incentives in Income-tax Act, in order to encourage the employers to create more and more employment opportunities. When the assessee is creating new employment opportunities, the beneficial provisions should not be summarily rejected. Though the assessee is engaged in manufacture of computer software Firstly it is covered by Explanation 1 of sec. 10(15) of the Act within the meaning of ‘industrial undertaking’ and it is supported by COMP-HELP SERVICES P. LTD. [1998 (10) TMI 15 - MADRAS HIGH COURT] . Secondly the employees working in the companies engaged in the computer software are also covered as ‘workmen’ within the meaning of Industrial Dispute act as per the decisions of coordinate benches of Bangalore and Delhi cited supra. The Government of Tamilnadu vide letter dated 30/05/2016 clarified that the IT industry is not exempted from the provisions of Industrial Disputes Ac 1947. AO’s case is not that the assessee is not satisfying the eligibility conditions for deduction u/s 80JJAA. The learned DR did not place any material controverting the above decisions. Therefore, we hold that assessee is entitled for the deduction u/s 80JJAA and accordingly, we set aside the orders of the lower authorities and allow deduction u/s 80JJAA. The assessee’s grounds on this issue are allowed. Short credit for the TDS - assessee claimed TDS of ₹ 14,82,45,072/- and the Assessing Officer has allowed only ₹ 14,19,47,495/- - HELD THAT:- AO is directed to verify the assessee’s claim and give credit for the shortfall. The assessee’s groungd on this issue is allowed for statistical purposes. Computing the deduction u/s 10A - Exclusion of travel and communication expenditure incurred in foreign currency from total turnover - HELD THAT:- CIT(A), while deleting the addition, followed the decision of the Special Bench in ITO vs Sak Soft [2009 (3) TMI 243 - ITAT MADRAS-D] - DR during the appeal did not place any decision controverting the decision relied up on by the ld.CIT(A). Therefore, we do not find any infirmity in the order of the Ld.CIT(A) and the ground raised by the Revenue on this issue is dismissed. TDS u/s 195 on software - whether transaction with non-resident towards purchase of software cannot be held as a royalty for use of copyrights u/s 9(1)(vi) r.w. Explanation 2, clause(v)? - CIT(A) deleted the addition relying on the decision of this Tribunal in the assessee’s own case [2014 (10) TMI 463 - ITAT CHENNAI] - HELD THAT:- DR relied on the assessment order and the ld. AR relied on the CIT(A)’s order. However, the ld. DR could not place any decision controverting the decision of the Tribunal in assessee’s own case. The ld. DR also did not cite any High Court judgment supporting the decision of Assessing Officer. Therefore, we do not find any infirmity in the order of the ld.CIT(A) and the same is upheld. The ground on this issue stands dismissed. Marketing expenditure to subsidiaries - As per the CIT(A) in the present case the Australian subsidiary had been successfully generating revenues for the assessee through its activities and accordingly deleted the addition - HELD THAT:- The marketing expenditure is always incurred in advance and returns are expected subsequently in the business. Therefore, it is not correct to disallow the expenditure since there was no income. Sometimes even if the expenditure is incurred it will take lot of time to make the sales and to expect the business receipts. A prudent businessman has to incur business expenditure in the shape of marketing and product promotion in advance. In the case of the assessee, the CIT(A) found that the payment was made for the compensation at the instance of Australian subsidiaries at Arm’s length basis at a mark up of 10% on the operating expenses. The operating expenses also had been defined in clause 4.3 of the marketing support service agreement dated 1.7.2009 which was produced before the CIT(A). CIT(A) called for the details of the expenses incurred in connection with the transactions between the assessee and subsidiary companies for a period of four years and verified and then held that the disallowance has been made without examining the transactions perse. The CIT(A) also observed that the revenues have been generated in subsequent years, therefore, we agree with the order of the Ld. CIT(A) and uphold the same. Revenue has raised objection under Rule 46A and Bench has asked the nature of additional evidence produced by the assessee before the Ld. CIT(A) - DR has replied that the agreement and the details of expenses. The agreement was placed before the Assessing Officer and the books of account were also produced by the assessee before the Assessing Officer. - We do not find any additional evidence produced by the assessee before the CIT(A) which requires a fresh opportunity to the Assessing Officer. Therefore, there is no merit in the ground raised by the Revenue in relation to Rule 46A. Accordingly, we dismiss the ground raised by the Revenue on this issue.
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