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2014 (4) TMI 815 - AT - Income TaxDisallowance of deduction u/s 10A of the Act - Whether the Assessee manufactures or produces "Computer Software" – Held that:- The nature of services rendered for which the Assessee receives foreign exchange can be established by the Assessee by tracing back each payment with the purpose for which the payment is received - There is no such correlation established by the Assessee - the nature of work to be performed for British Council, would be in the nature of, if not "manufacture or production of computer software", at least in the nature of "Data Processing" or "Engineering" or "Support Centre" which are all notified services for available the benefit of deduction u/s.10A of the Act - the Assessee has not established correlation between the receipts in foreign exchange and the nature of services rendered for which the payment was received - the Assessee has not made any attempts to demonstrate that it was engaged in production or manufacture of Computer Software or was rendering notified IT-Enabled Services. Whether the Assessee exported computer software/ITES out of India – Held that:- There can be no doubt on the satisfaction of this condition - Sample copies of Software Export Declaration (Softex) forms filed with the STPI (relating to/ corresponding to the invoices raised by the Assessee on overseas SAP entities) have been filed before the Revenue authorities - The Softex forms are certified by the STPI authorities as being exported out of the country - the arguments raised by the assessee are not being considered elaborately for the reason that the nature of services rendered needs to be ascertained first – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Levy of interest u/s 234D of the Act – Held that:- Assessee contended that the interest u/s 234C of the Act, can be levied only when there is a shortfall in payment of advance tax instalment by considering the advance taxes paid on the tax due on the "returned income" and not the "assessed income" - the grievance has probably not been properly projected by the assessee nor appreciated by the CIT(A) in proper perspective - thus, the AO is directed to charge interest accordingly. Disallowance of staff welfare expenses – Held that:- The expenses are essential for the purpose of employee welfare, and clearly allowable as business expenditure - it is an industry-wide practice followed in India by IT companies - Such facilities are extended in the industry to ensure low employee attrition which will progress the growth of the Assessee - With effect from AY 2005-06, value of free food and non-alcoholic beverages provided by the employer to an employee is not even treated as "perquisites" in the hands of - even under the Fringe Benefit Taxes ("FBT") regime, though inapplicable for AY 2005-06, it may be pertinent to note that a specific exemption has been provided in respect of expenditure incurred on food or beverages procured by the employer for providing to his employees in an office or factory - such benefits not to be considered as the expenditure which would provide any benefit of a personal nature for the employees – there was no basis for disallowance of the remaining expenses out of staff welfare expenses also – Decided in favour of Assessee. Disallowance of sales promotion expenses – Held that:- The Assessee claims that it is responsible for advertising and promotion of SAP products in the Indian sub-continent and undertakes advertising for SAP products including designing product brochures, deciding the medium of advertising and developing advertising content for the products – thus, sales promotion expenses, being incurred wholly and exclusively for the purpose of the Assessee's business, are fully allowable as deduction u/s 37(1) of the Act – Decided in favour of Assessee.
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