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2016 (1) TMI 1372 - AT - Income TaxTDS u/s 195 - non-deduction of tax at source from the payment of royalty and consultancy fees made to a Japanese Entity - ddition u/s 40a)(i) - DTAA benefit - Held that:- In the case of Millenium Infocom Technologies Limited -vs.- ACIT [2008 (1) TMI 437 - ITAT DELHI-E], it was held that since royalty payments to residents could not be disallowed for non-deduction of taxes, similar payments made to non- residents could not be disallowed in the hands of the assessee under section 40(a)(i) as per Article 26(3) of the Indo-U.S. DTAA. Since the relevant provision of Article 26 of Indo-Japanese DTAA is analogous to the provision of Article 26 of Indo-US DTAA, we respectfully follow the decision delete the disallowance - Decided in favour of assessee Addition on account of provision made by the assessee for warranty - Held that:- As contended that the issue as to whether the assessee in the present case has satisfied the conditions laid down for allowing deduction on account of provision for warranty requires verification and since the same has not been done either by the Assessing Officer or by the ld. CIT(Appeals), the matter may be restored to the file of the Assessing Officer for the limited purpose of such verification. We find merit in this contention of the ld. D.R. and since the ld. Counsel for the assessee has also not raised any objection in this regard, we restore this issue to the file of the Assessing Officer Deduction on account of arrears of electricity charges - Held that:- Assessee has invited our attention to the relevant documentary evidence placed in the paper book to show that the bills for arrears having been raised by the CESC Limited as per the order of the Hon’ble High Court in the year under consideration, the liability on account of electricity charge arrears had arisen in that year, we find that the ld. CIT(Appeals) has already directed the Assessing Officer to verify this aspect from the relevant record after giving the assessee proper and sufficient opportunity of being heard. Addition on account of liquidated damages - Held that:- There was no justification on the part of the authorities below to consider the claim of the assessee for liquidated damages as excessive or unreasonable without bringing any material on record in support. As rightly contended by the ld. Counsel for the assessee, the liquidated damages is a regular feature of any manufacturer like the assessee-Company and the Assessing Officer himself having allowed the claim for liquidated damages not in the earlier years and subsequent years but even partly in the year under consideration, the disallowance made by him for the remaining part without there being anything to support and substantiate the same, in our opinion, is not sustainable. We, therefore, delete the disallowance made by the Assessing Officer Addition on account of payment made by the assessee to Sonata Information Technology and on account of ERP expenses respectively - Held that:- The upgradation of ERP, in our opinion, therefore, cannot be equated with replacement as contended by the ld. D.R. and the advantage being only incremental to the extent of the additional features in the new version, the same cannot be treated as the replacement of the entire ERP package so as to treat the expenditure incurred on upgradation as capital expenditure. Moreover, the use of any ERP package in the case of manufacturer like the assesese-Company is generally for coordinating and rationalizing its functions and business process in order to ensure that the business is carried on more efficiently and effectively and by applying the functional test, the expenditure incurred on ERP package, in our opinion, cannot be treated as capital expenditure as it does not result in creation of any new asset or advantage of enduring nature in the capital field. We, therefore, direct the Assessing Officer to allow the deduction claimed by the assessee on account of expenditure incurred on upgradation of ERP and implementation thereof treating the same as revenue in nature. Addition on account of provision made for leave encashment - Held that:- As decided in case of Dy. CIT -vs.- BLA Industries Pvt. Ltd. [2015 (1) TMI 1286 - ITAT KOLKATA] Deduction on account of provision of leave encashment was made on the basis of the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007 (6) TMI 175 - CALCUTTA High Court ) wherein it was held that insertion of clause (f) in section 43B is unconstitutional. Subsequently, the Hon’ble Apex Court [2008 (9) TMI 921 - SUPREME COURT ] has stayed the operation of this judgment of the Hon’ble Calcutta High Court rendered in the case of Exide Industries Ltd. v. UOI (supra) and therefore, the order of the ld. CIT (Appeals) by following this judgment of the Hon’ble Calcutta High Court cannot be approved. Thus we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee’s cross objection appeal is remitted back to the file of AO and allowed for statistical purposes. Reducing the technical know-how fees from the "profits of the business" for the purpose of computing deduction under section 80HHC - Held that:- We irect the Assessing Officer to include the amount of technical know-how fees in the profits of the business for the purpose of computing deduction under section 80HHC as claimed by the assessee. Deduction towards additional contribution paid to Pension Fund - Held that:- We decide this issue in favour of the assessee in principle and restore the matter to the file of the Assessing Officer for the limited purpose of verifying as to whether the amount paid by the assessee to Pension Fund is within the limits specified in the relevant Rules
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