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Tata Technologies Limited Versus Joint Commissioner of Income Tax, Range-10, Pune

2015 (8) TMI 611 - ITAT PUNE

Disallowance of software expenditure by holding it as capital in nature - Held that:- In view of the ratio laid down by the Hon'ble Bombay High Court in CIT Vs. Raychem RPG Ltd. (2011 (7) TMI 953 - Bombay High Court), where the expenditure has been incurred for facilitating the business and which does not form part of profit making apparatus, then the software expenditure is to be allowed as revenue expenditure. Where the assessee had incurred expenditure on software which has been acquired to f .....

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nds of the assessee. - Decided in favour of assessee.

Disallowance of deduction on amortised lease premium expenditure, landscaping and development charges - Held that:- This issue was decided against the assessee in earlier year [2015 (8) TMI 557 - ITAT PUNE] wherein the Tribunal after considering the plea of the assessee with regard to amortization of lease hold premium has rejected the same by following the decision of Co-ordinate Bench in the case of M/s. Drillbits International P .....

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direction to determine the deduction on account of BKY scheme and medi-claim insurance in the same terms. Decided partly in favour of assessee way of remand.

Disallowance of deduction claimed u/s. 35D in relation to expenditure incurred for increasing authorized share capital - Held that:- Since, the issue in present set of appeals is similar to the one already decided by the Tribunal in earlier year [2015 (8) TMI 557 - ITAT PUNE] wherein held held that undisputedly the expenditure wa .....

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roz Beckert Asia Limited (2013 (2) TMI 375 - PUNJAB & HARYANA HIGH COURT ) wherein held that the Corporate Membership of the club was obtained for running business with a view to produce profit. Such membership did not bring into existence an asset or an advantage for enduring benefit of business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to membership of a club, no capital asset was created, only, a privilege to use facilities of a club, .....

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l in assessee's own case for the assessment year 2001-02. The relevant extract of the order of the Tribunal deciding the issue in favour of the assessee and we direct the Assessing Officer to include the export turnover of the EOU unit while computing the deduction under section 80HHE of the Act - Decided in favour of assessee.

AMC receipts - whether are integral part of the business income of the assessee? - Held that:- It is an undisputed fact that the assessee has been showing AMC .....

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trading products is included whereas under the head other income, interest income, foreign currency gain miscellaneous income is reckoned. It is also not disputed that the assessee has been consistently following similar method of accounting in respect of AMC charges for the past several years, as well as, in the subsequent years. It is also not disputed that the assessee is primarily engaged in providing I.T. related services. Therefore, by no stretch of imagination the AMC charges received by .....

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asis of use of vehicles for the specific unit. Vehicles are allocated to the staff of the STP and Non-STP unit. The vehicles allocated to two different units can be identified. Depreciation on the asset utilized for a particular unit has to be allocated to that unit alone. We do not find any infirmity in the method of depreciation on vehicles adopted by the authorities below. The submissions of the Ld. AR on this issue are rejected.

As regards allocation of travelling assessee and con .....

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fficer to verify the allocation of both expenses on above noted basis. The Assessing Officer after affording opportunity of hearing to the assessee shall allocate expenditure to STP and Non-STP units - Decided partly in favour of assessee by way of remand.

Re-computation of deduction u/s. 10A of the Act - Held that:- he Assessing Officer after reallocation of certain expenditure [depreciation on vehicles, travelling and conveyance and payment to Tata Technology (US)] has restricted th .....

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TMI 65 - BOMBAY HIGH COURT] Decided in favour of assessee by way of remand.

Levy of Interest u/s. 234B and 234C is mandatory and consequential.

Disallowance u/s. 14A. - CIT(A) delted addition - Held that:- . The assessee has claimed interest expenditure in the assessment years 2004-05 and 2005-06. The Assessing Officer held that the expenditure incurred for earning income exempt from tax is not allowable under the provisions of section 14A. The Assessing Officer estimated .....

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eement with the findings of Commissioner of Income Tax (Appeals) - Decided in favour of assessee.

Non deduction of TDS - disallowance of taxes claimed to be payments on account of VAT, Advance tax, Employee Cost etc. paid in Korea - CIT(A) delted disallowance - Held that:- It is an un-rebutted fact that the assessee has not claimed any deduction with respect to payment of tax, rates etc. in Korea. The assessee has created provision for the same. The assessee in Profit & Loss Account f .....

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15 - R. K. Panda, AM And Vikas Awasthy, JM,JJ. For the Petitioner : Shri Rajendra Agiwal For the Respondent : Shri B C Malakar ORDER Per Vikas Awasthy, JM. These are seven set of appeals against the order of Commissioner of Income Tax (Appeals)-V, Pune for the assessment years 2004-05, 2005-06, 2007-08 and 2008-09. Four appeals have been filed by the assessee and three appeals are by the Revenue. The assessee has filed ITA No. 18/PN/2012 assailing the order of Commissioner of Income Tax (Appeals .....

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sailed the order of Commissioner of Income Tax (Appeals)-I, Pune dated 29-08-2013 for the assessment year 2008-09. The Revenue has filed Cross Appeal for the same assessment year in ITA No. 2083/PN/2013. 2. In the appeals filed by the assessee, the issues raised in all the appeals are common. Similarly, in the appeals of the Revenue, the grounds of appeal for all the impugned assessment years are common. Since, the issues raised in the appeals and the facts in all the appeals are similar, the ap .....

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lowance of deduction claimed u/s. 35D in relation to expenditure incurred for increasing authorized share capital. 6. Disallowance of entrance fee paid to Poona Club. 7. Disallowance of deduction u/s. 80HHE of the Act. 8. Reallocation of expenditure between Software Technology Park (STP) and Non-STP Unit. 9. Re-computation of deduction u/s. 10A of the Act. 10. Levy of Interest u/s. 234B and 234C. 3. The gist of grounds raised by the Revenue in appeals for the impugned assessment years is as unde .....

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Implementation, CAD/CAM Consultancy, Trading in Software and Hardware, Networking solutions, I.T. Training etc. In its return of income for the impugned assessment years the assessee has claimed deduction u/s. 80HHE and u/s. 80G. The assessee has also claimed exemption u/s. 10A of the Act. During the course of scrutiny assessment in the impugned assessment years the Assessing Officer made certain disallowances/additions in the income return by the assessee. Aggrieved by the assessment orders, th .....

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with certain documents in support of his submissions. The ld. AR contended that the first issue raised in appeals relate to disallowance of software expenditure. The same has been adjudicated in assessee's own case in ITA No. 1345/PN/2011 for the assessment year 2001-02 decided on 27-02-2015. The Tribunal has decided the issue in favour of the assessee. Shri B.C. Malakar representing the Department placed reliance on the findings of Commissioner of Income Tax (Appeals) on the issues. 5.1 Th .....

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capital in nature. The Commissioner of Income Tax (Appeals) after analyzing various computer software purchased during the relevant period partly accepted the appeal of the assessee. The Commissioner of Income Tax (Appeals) segregated the expenditure incurred on acquiring computer software based on the logic and reasoning given by him in his order for the assessment year 2001- 02. 5.2 We observe that the issue raised in the present set of appeals, is identical to the one adjudicated by the Co-o .....

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tation and maintenance, providing networking solutions, CAD/CAM engineering and design consultancy with a focus on the automotive sector. During the year under consideration, the assessee had incurred expenditure on software amounting to ₹ 37,81,284/-. The assessee had given the break-up of the software expenses before the CIT(A) in tabulated form, which were reproduced at pages 9 to 11 of the appellate order. The first expenditure incurred by the assessee was on account of Annual subscrip .....

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oftware which was also claimed to be for said purpose for implementing at Tata Motors. Both these expenditures were held to be capital by the CIT(A). 13. The Hon'ble Bombay High Court in CIT Vs. Raychem RPG Ltd. (supra) while considering the issue of allowability of expenditure incurred on software, has laid down the proposition that where the impugned software does not form part of fixed profit making apparatus of the assessee, then the same is to be allowed as revenue expenditure. Where th .....

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ch does not form part of profit making apparatus, then the software expenditure is to be allowed as revenue expenditure. The expenditure incurred by the assessee totaling ₹ 2,33,725/- has been incurred in the ordinary course of carrying on the business and does not form part of its profit making apparatus, hence, the said expenditure is duly allowable as revenue expenditure in the hands of the assessee. 15. The next set of expenditure incurred by the assessee was on acquisition of license .....

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ts to run the said software. The Windchill software was upgraded regularly and similarly, the other software Flexible Pro-Engineer software was also upgraded regularly. The functionality test laid down by the Special Bench of Delhi Tribunal in Amway India Enterprises Vs. DCIT (supra) is to be applied for determining the nature of expenditure to be capital or revenue. Where the assessee had incurred expenditure on software which has been acquired to facilitate the smooth functioning of day-to-day .....

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a Flash & Fireworks for Website Design 39,500 4 Upgradation cost of 15 R/3 MySAP Licenses for TTL 3,75,075 17. The aforesaid expenditure incurred by the assessee was the acquisition of software programmes which in turn, were utilized to conduct day-to-day business activities more efficiently. Further, the expenditure incurred on upgradation of the system i.e. conversion from R3 software to MySAP license was required at regular intervals and such upgradation was to gain operational efficiency .....

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esentative has also not been able to controvert the findings of Tribunal. We are of the considered opinion that the issue is squarely covered by the aforesaid decision of the Tribunal. Accordingly, this ground of appeal of the assessee is allowed. 6. The second issue raised in the appeals is disallowance of deduction for amortised lease premium expenditure, landscaping and development charges. The ld. AR of the assessee fairly conceded that this issue was decided against the assessee in ITA No. .....

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llowance of provision for expenditure under Bhavishya Kalyan Yojana (BKY), employees welfare scheme; and, (ii) disallowance of provision for medi-claim insurance. The ld. AR of the assessee submitted that similar issues were considered by the Tribunal in ITA No. 1345/PN/2011 (supra) and the same were decided in favour of the assessee. On the other hand the ld. DR submitted that the issue with respect to both the schemes have been considered by the Co-ordinate Bench of the Tribunal in assessee .....

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(Appeals) upheld the findings of Assessing Officer and dismissed this ground of appeal. 7.2 We observe that both the issues are considered by the Tribunal in ITA No. 1345/PN/2011 (supra). The findings of the Co-ordinate Bench are as under: "87. The learned Authorized Representative for the assessee stressed before us that the liability had been worked out on the basis of actuarial valuation and where the valuation has been made on a scientific basis, then such liability is to be allowed in .....

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consideration, since the said liability would only arise on the happening of certain events which would happen in the future, hence the liability is a contingent liability. The issue of the liability having been worked out on the basis of AS-15 or scientific method is different aspect of the issue, but the first point to be considered is the nature of liability i.e. whether it had arisen in the year under consideration or it would arise on the happening of certain event in future. The finding of .....

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s not entitled to the claim of allowance of provision for expenditure under BKY Scheme of ₹ 54,16,204/- and also the provision made for expenditure in respect of Mediclaim Insurance Coverage Scheme amounting to ₹ 19,53,311/-. However, as held by the Tribunal, the assessee is entitled to claim of expenditure in respect of benefit payable to Ex-employees, who have retired & fulfill the conditions of the Scheme. Reference is made to paras 46 and 51 of the order of the Tribunal (supr .....

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cordingly, both the grounds of appeal are partly allowed. 8. The fifth issue raised in the appeals of the assessee is disallowance of deduction u/s. 35D. The assessee has claimed deduction of expenditure incurred on increasing in authorized share capital. The ld. AR of the assessee fairly admitted that this issue has been decided by the Tribunal against the assessee in ITA No. 1345/PN/2011 (supra). The Co-ordinate Bench of the Tribunal while adjudicating this issue has placed reliance on the dec .....

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an admitted position that the expenditure claimed as deduction under section 35D is with respect to increase in authorized share capital. Respectfully following the same ratio, this ground of the appeal raised by the assessee is dismissed. 9. The sixth issue raised in the appeals by the assessee is disallowance of Corporate Membership entrance fee paid to Poona Club. The contention of the assessee is that the expenditure is allowable since it is incurred for the purpose of its business. The Ass .....

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sessee is providing Corporate Membership to its senior employees in order to assist them with the opportunities to establish better business contacts, thereby enhancing and promoting the business of the company. Since, expenditure incurred is wholly and exclusively for its business the same is claimed as Revenue expenditure u/s. 37 of the Act. The ld. AR in support of his submissions placed reliance on the decision of Pune Bench in ITA Nos. 1812 & 1813/PN/2013 in the case of Intervalve (Indi .....

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of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Groz Beckert Asia Limited (supra). The Hon'ble High Court has held that the Corporate Membership of the club was obtained for running business with a view to produce profit. Such membership did not bring into existence an asset or an advantage for enduring benefit of business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to membership of a club, no capital asset was crea .....

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he business club is Revenue expenditure. In the light of above decisions, we hold that the expenditure incurred by the assessee towards payment of Corporate Membership fee of the club for its employees is Revenue expenditure. Accordingly, this ground of appeal of the assessee is allowed. 10. The seventh issue raised in the appeals of the assessee is disallowance of deduction u/s. 80HHE of the Act. During the relevant period the assessee has claimed deduction u/s. 80HHE of the Act. The Assessing .....

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fits cannot be considered again for computing deduction u/s. 80HHE. By including the export turnover of the unit taking benefit of section 10A, the export turnover computed for the purpose of determining the quantum of deduction u/s. 80HHE the assessee is claiming double benefit of deduction/exemption on the same profits. The Assessing Officer further held that for the purpose of computing business profits as per Explanation (d) to section 80HHE, 90% of receipts on account of Annual Maintenance .....

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gible to claim deduction u/s 80HHE on the export turnover of EOU. 10.2 The second limb of the argument of the assessee is that the authorities below have erred in reducing 90% of AMC income from the turnover while calculating 'business profits' as per Explanation (d) to section 80HHE of the Act. The contention of the assessee is that the AMC activities carried out by the assessee are part of its regular business activity. The AMC includes corrective and preventive maintenance services. T .....

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9 (Kar.) and the judgment of the Hon'ble' High Court of Bombay in the case of CIT Vs. Pfizer Ltd. reported as 330 ITR 62 (Bom.). The ld. AR pointed out that the exclusion of AMC receipts have been done by the Revenue only in the assessment year 2004-05. In the earlier assessment years and the succeeding assessment years the Revenue has not raised any objection on inclusion of AMC receipts. Whereas, the assessee has been consistently showing AMC receipts under the head "Business Inco .....

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missions of both the sides and have examined the findings of the authorities below on this issue. The grievance of the assessee in disallowing deduction u/s 80HHE is two fold. The fist limb of submissions is that for computing deduction u/s 80HHE, the export turnover of the unit on which benefit of section 10A has been claimed has to be included. We find that this issue has been decided by the Tribunal in assessee's own case for the assessment year 2001-02. The relevant extract of the order .....

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. ACIT (supra) and it was held as under:- "47. Inclusion of the export sales of the EOU unit in the 'export turnover', the numerator of the formula devised for computation the allowable deduction u/s 80HHC is the main contention of the revenue. Revenue has taken the argument against such inclusion, while it pleads for inclusion relevant turnover of the EOU unit in the 'total turnover', the denominator in the said formula. Per contra, relying on various decisions, the assesse .....

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"export turnover" means the sale proceeds received in, or brought into, India by the assessee in convertible foreign exchange in accordance with clause (a) of sub-section (2) of any goods or merchandise to which this www.taxguru.in28 ITA No.948/PN/2005 Assessment Year:2001-02 Serum Institute of India Ltd. section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as .....

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Further, by the use of expression 'any' before 'goods and merchandise' all the goods and merchandise is covered. However, the restriction apply to such goods and merchandise, which are listed in clause (b) of Section 80HHC (2) i.e. Mineral oil and minerals and ores (other than processed minerals and ores specified in 12th Schedule to Act." 95. The CIT(A) had placed reliance on the ratio laid down by Mumbai Bench of the Tribunal in Tata BP Solar India Ltd. Vs. ACIT reported i .....

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on'ble Bombay High Court in Hindustan Unilever Ltd. Vs DCIT (2010) 325 ITR 102 (Bom) and it was held that the assessee was entitled for inclusion of export sales in the export turnover. 96. Further, section 80HHE (5) of the Act provides that where a deduction under section 80HHE of the Act is claimed and allowed in respect of eligible profits, no deduction shall be allowed in relation to such profits under any other provisions of the Act. In the case of the assessee, the eligible profits con .....

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one more aspect of the matter section 80HHC does not make any distinction between the export turnover from the Free Trade Zone and from other areas. The revenue may feel that once the entire income of the industrial undertaking is exempt under sec. 10A a further deduction under sec. 80HHC in respect of the same turnover may give an unintended advantage to the assessee. In actual practice however it may not be so. If the undertaking incurs a loss, then the advantage or benefit under sec. 10A may .....

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ion which favours the assessee, must be adopted - CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) " 98. In the above said facts and circumstances, we direct the Assessing Officer to include the export turnover of the EOU unit while computing the deduction under section 80HHE of the Act. The ground of appeal No.5 raised by the assessee is thus, allowed. The Revenue has not been able to controvert the findings of the Tribunal. We, therefore, respectfully follow the same and direct the A .....

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uot;, "Sale of products" and "Other income". Under the head "Income from services" the assessee has included income from various services rendered by it and AMC charges. Under the head "Sale of products" the revenue generated from sale of own products and trading products is included whereas under the head other income, interest income, foreign currency gain miscellaneous income is reckoned. It is also not disputed that the assessee has been consistently f .....

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of the business income of the assessee. Accordingly, this ground in the appeals of the assessee is allowed. 11. The eighth issue raised in the appeals of the assessee is reallocation of expenses between STP unit and Non-STP unit. The assessee claimed exemption u/s. 10A in respect of STP unit at Hinjewadi. The total consultancy offshore income admitted by the assessee is ₹ 8,06,74,660/- and the profit on account of its offshore activities has been admitted by the assessee as ₹ 1,80,2 .....

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P unit. The activities of STP unit mostly constitute engineering design services. The activities of the Non-STP unit mostly constitute ERP implementation. The company claimed deduction u/s. 10A of the Act in respect of STP unit alone. The assessee apportioned the expenses between STP and Non-STP unit on the following basis: Nature of expense Basis of Apportionment Other salary costs (e.g. gratuity, superannuation, etc.) Direct salary cost Expenses like bus transport and canteen Number of employe .....

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altogether. The Assessing Officer rejected the allocation model. The Assessing Officer held that the depreciation should be apportioned on the basis of allocation of vehicles to the employees of STP and Non-STP unit. The vehicles in most of the cases have been assigned to specific employees of the assessee company. Therefore, it would not be difficult to identify the vehicles assigned to the employees of the STP unit and Non-STP unit. The CIT(A) accepted the Assessing Officer's method of all .....

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of depreciation on vehicles adopted by the authorities below. The submissions of the Ld. AR on this issue are rejected. 11.2 As regards allocation of travelling and conveyance expenditure is concerned, the assessee has allocated the same on the basis of directly identifiable expenses directly linked to STP unit and Non-STP unit. The common expenses are allocated on the basis of turnover. The Assessing Officer has allocated the travelling expenses on the basis of foreign offshore activities and f .....

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on-STP unit and common expenses on the basis of turnover. We do not find any error in allocating of travelling and conveyance expenditure on actual directly identifiable basis. Accordingly, the contentions of the assessee are accepted. 11.3 The third expenditure allocation of which has been disputed is payments made to Tata Technology (US). The assessee has allocated selling and administrative cost for both STP and Non-STP units on actual basis whereas the Revenue has reallocated the expenditure .....

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ontention of the assessee is that the selling and administrative costs for both the units were identifiable and are invoiced on the basis of actual cost incurred on both the units. Since, the expenditure are identifiable unit wise, and have been separately invoiced, we accept the contention of the assessee. However, we remit the latter two issues back to the Assessing Officer to verify the allocation of both expenses on above noted basis. The Assessing Officer after affording opportunity of hear .....

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005-06. Since, the ground of appeals of the assessee with regard to reallocation of the expenses has been partly accepted. We remit this issue back to the Assessing Officer for re-computation of exemption u/s. 10A in accordance with the directions of the Tribunal in respect of allocation of expenses and in line with the decision of Hon'ble Bombay High Court in the case of CIT vs. Gem Plus Jewellery India Ltd. reported as 330 ITR 175 (Bom). This ground of appeals of the assessee is allowed fo .....

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ear 2007-08 and ITA No. 2115/PN/2013 for the assessment year 2008-09 are partly allowed. 15. Now, we proceed on to decide the appeals of the Revenue. The first issue raised by the Revenue in its appeal is with respect to expenditure on computer software acquired by assessee. The contention of the Revenue is that the expenditure on computer software has been wrongly held as revenue expenditure. Expenditure on acquiring computer software is capital in nature. The assessee has also raised this issu .....

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logy (US), a 100% subsidiary of the assessee. The assessee has claimed interest expenditure in the assessment years 2004-05 and 2005-06. The Assessing Officer held that the expenditure incurred for earning income exempt from tax is not allowable under the provisions of section 14A. The Assessing Officer estimated the disallowance @ 2.5% and computed interest attributable to long term investment. The Commissioner of Income Tax (Appeals) reversed the findings of the Assessing Officer on the ground .....

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ssue raised by the Revenue in its appeal for assessment years 2005-06 and 2008-09 is that the Commissioner of Income Tax (Appeals) has erred in not considering the fact that the expenditure on travelling and conveyance including foreign offshore activities and expenditure on depreciation is not to be considered for exemption u/s. 10A of the Act. The Revenue has not been able to substantiate the ground raised in the appeal. We do not find any infirmity in the findings of the Commissioner of Incom .....

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ion 40(a)(ii) no deduction is to be allowed for payment made in the nature of any rate or tax levied on profits or gains of any business or profession. In appeal the Commissioner of Income Tax (Appeals) reversed the findings of Assessing Officer with the following observations: 7.2 The submissions made by the appellant are carefully examined with reference to the financial statements of the appellant for the year under consideration and the legal position as applicable to the year. The main cont .....

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the Korean taxes were passed through provision for taxation account, which is below the line item in the P&L account. For ready reference, the relevant portion of the P&L account filed by the appellant for the year is scanned and reproduced hereunder: Profit : (Loss)/Before Tax 23,652.11 22,289.97 Provision for Taxation 4,331.46 1,754.31 Current tax 1,316.84 492.52 Tax for earlier year 79.51 - Deferred Tax Charge/(Credit) 2.77 52.34 Fringe Benefit Tax 91.12 80.46 Profit : (Loss)/After T .....

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f the statement of total income is also scanned and reproduced hereunder for immediate references : Statement of Income Amount (Rs.) Amount (Rs.) INCOME FROM BUSINESS Profit as per Profit and Loss Account (after tax) 284,121,876 Less : Interest Income Considered separately 19,949,994 Add : DISALLOWANCES 139,634.693 Provision for Income Tax 276.979 Provision for Deferred Tax 9,112,239 Provision for Fringe Benefit Tax 471,098 Provision for Wealth Tax 2,849 Foreign Currency loss capitalized for tax .....

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