TMI Blog2015 (8) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction 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. Ltd. Vs. DCIT [2011 (8) TMI 1083 - ITAT PUNE ] - Decided against assesse. Disallowance of provision for expenditure in respect of benefit under Bhavishya Kalyan Yojana (BKY) an employee welfare scheme and Disallowance of provision for Medi-claim insuranc coverage scheme - 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], we remit this issue back to the Assessing Officer with a 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads viz Income from services , 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 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 the assessee can be held to be income of the assessee under the head Other sources . In view of the above undisputed facts, we are of the considered view that the AMC receipts are integral part of the business income of the assessee - Decided in favour of assessee. Reallocation of expenditure between Software Technology Park (STP) and Non-STP Unit - Held that:- Allocation of depreciation on the basis of turnove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 that no dividend was earned by the assessee from the investments made in Tata Technology (US). Even if the assessee would have earned dividend on such investment it is taxable in India being dividend earned from foreign country. Therefore, the provisions of section 14A of the Act are not applicable. We are in agreement 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 for the period relevant to the impugned assessment year has debi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme. 4. Disallowance of provision for Medi-claim insuranc coverage scheme. 5. Disallowance 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 under: 1. Expenditure for obtaining license to use software held as Revenue expenditure whereas it should have been held as capital in nature. 2. Deleting of disallowance u/s. 14A of the Act. 3. Enhanced deduction u/s. 10A with respect to disallowance of expenditure-Travelling and Conveyance, depreciation etc. 4. Disallowance of taxes and employees cost paid in Korea. 4. The brief facts of the case as emanating from records are: The assessee is in the business of Information Technology Support, SAP Implementation, CAD/CAM Consultancy, Trading in Software and Hardware, Net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical to the one adjudicated by the Co-ordinate Bench in ITA No. 1345/PN/2011 (supra). The Tribunal held that the expenditure on acquiring computer software as revenue in nature. The relevant extract of the findings of the Tribunal are reproduced here-in-below: 12. We have heard the rival contentions and perused the record. The assessee was engaged in the business of software development and provisions of software services. As per the assessee, the range of services included IT consultancy, transfer of SAP licenses, SAP implementation 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 subscription charges of ₹ 73,920/- which has been allowed as an expenditure by the CIT(A), against which, the Revenue has not filed any appeal. The second set of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business operations of the assessee and which do not form part of its profit making apparatus, then the expenditure is allowable as revenue expenditure in the hands of the assessee. Accordingly, we direct the Assessing Officer to allow the expenditure of ₹ 12,56,870/- and ₹ 16,86,394/- as revenue expenditure. 16. Further the assessee had incurred the expenditure on the under-mentioned items:- Sr No Description Amount (Rs.) 1 Firewall 4.1 CD 96,000 2 MS Office 2000 19,800 3 Macromedia Flash Fireworks for Website Design 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR submitted that the issue with respect to both the schemes have been considered by the Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2001-02. The Tribunal has remitted the matter back to the Assessing Officer with a direction to determine the deduction on account of BKY scheme and medi-claim insurance. 7.1 We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The Assessing Officer has disallowed the amount on account of both the welfare schemes by holding them to be contingent in nature. The Commissioner of Income Tax (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 the hands of the assessee as held by the Hon'ble Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim insurance in the same terms. Accordingly, 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 decision of Hon'ble Supreme Court of India in the case of Brooke Bond India Ltd. Vs. CIT reported as 225 ITR 798 (SC) and judgement in the case of Punjab State Industrial Development Corporation Ltd. Vs. CIT reported as 225 ITR 792 (SC). The Tribunal held that undisputedly the expenditure was incurred by the assessee for increasing share capital thus it is capital in nature. Thus, the same cannot be considered for computing deduction u/s 35D of the Act. In the present set of appeals also, it is an admitted position that the expenditure claimed as deduction under section 35D is with respect to increase in authorized share capital. Respectfully following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conferred and that too for a limited period. 9.3 The Co-ordinate Bench of the Tribunal in the case of Intervalve (India) Ltd. Vs. ACIT (supra) after analyzing the case laws far and against applied the ratio laid down by the Hon'ble Supreme Court of India in the case of CIT Vs. Vegetable Products Limited., reported as 88 ITR 192 and decided the issue in favour of the assessee. The Tribunal held that the entrance fees of membership for the 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 Officer disallowed the deduction on the ground that assessee has claimed double benefit of deduction/exemption on the same profits. In Form No.10CCAF, the Auditors of the assessee reported that the export turnover for the purpose of the computation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 Income . There has been no change in the business of the assessee or the accounting treatment given by the assessee to the AMC receipts. 10.3 On the other hand, the ld. DR vehemently defended the findings of the CIT(A). The ld. DR submitted that the assessee in claiming double benefit on the export turnover of EOU. After having claimed the benefit of section 10A, the assessee has again claimed deduction u/s 80HHE on same profits. This is against the spirit of the Act. 10.4 We have heard the submissions 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;export turnover' needs to be considered. The expression is wide enough to include the export sales of the 'EOU unit'. 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 in 103 ITD 386 (Mum) (Trib) in holding that the Assessing Officer was correct in excluding the export turnover while computing exemption under section 80HHE of the Act. The Pune Bench of the Tribunal in Serum Institute of India Ltd. Vs. ACIT in ITA No.948/PN/2005, relating to assessment year 2001-02, vide order dated 18.01.2012 had considered the ratio laid down by the Mumbai Bench of the Tribunal in Tata BP Solar India Ltd. Vs. ACIT (supra) and reliance was placed on the ratio laid down by the Hon'ble Bombay High Court in Hindustan Unilever Ltd. Vs DCIT (2010) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully follow the same and direct the Assessing Officer to include the export turnover of EOU while computing deduction 80HHE of the Act. 10.5 Now, we proceed with the second limb of the submissions. It is an undisputed fact that the assessee has been showing AMC charges in the profit and loss account under the head Income from services . A perusal of the profit and loss account for the year ended 31-03-2004 would show that under the head Income , the assessee has three sub heads viz Income from services , 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 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... units as the vehicles were used for the entire business of the assessee 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 allocation of depreciation. We are of the considered view that allocation of depreciation on the basis of turnover is not acceptable. The depreciation on vehicles can be allowed on the basis 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. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee shall allocate expenditure to STP and Non-STP units. This ground raised in the appeals of the assessee is, thus, partly accepted in aforesaid terms. 12. The ninth issue raised in the appeals is re-computation of deduction u/s. 10A of the Act. The Assessing Officer after reallocation of certain expenditure [depreciation on vehicles, travelling and conveyance and payment to Tata Technology (US)] has restricted the claim of exemption u/s. 10A in the assessment year 2004-05 and 2005-06. 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 for statistical purpose. 13. The last and tenth issue raised in the appeals of the assessee is levy of interest u/s. 234B and 234C of the Act. It is a well settled law that levy of interest u/s. 234B and 234C is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner 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 Income Tax (Appeals) on this issue. Accordingly, this ground of appeals of the Revenue is dismissed being devoid of merit. 18. The last issue raised by the Revenue in its appeal for the assessment year 2008-09 relates to deleting of disallowance of taxes claimed to be payments on account of VAT, Advance tax, Employee Cost etc. paid in Korea. The Assessing Officer made disallowance of ₹ 67,68,686/- u/s. 40(a)(ii) r.w. Explanation (1). The Assessing Officer held that as per the provisions of section 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 subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anned 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 purpose 238,248 Unrealised Foreign Currency loss of capital nature debited to P L 110,086 ..... 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