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VISUAL GRAPHICS COMPUTING SERVICES INDIA P. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX (and vice versa)

2015 (5) TMI 951 - ITAT CHENNAI

Depreciation at 100 per cent. on the leasehold improvements - Held that:- Expenditure incurred by the assessee for design, layout and material construction, fabrication works in leased premises are deductible as revenue expenditure. High Court in the case of Thiru Arooran Sugars Ltd. v. Deputy CIT in Tax Case (2013 (2) TMI 450 - Madras High Court ) held that Explanation 1 to section 32(1) of the Income-tax Act, 1961, which was inserted with effect from April 1, 1988, is an exceptional one which .....

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nt case - Decided against revenue

Disallowance under section 14A - CIT(A) restricted addition to 2 per cent. instead of 5 per cent. added by the Assessing Officer - Held that:- After considering the totality of facts and circumstances of the case and placing reliance on the co-ordinate Bench in the case of Celebrity Fashions Ltd. [2012 (4) TMI 602 - ITAT CHENNAI], wherein it was held that disallowance of 5 per cent. of the dividend/exempted income is reasonable expenditure. Accordingl .....

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s and insurance attributable to the delivery of articles or things, or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded, both from the export turnover and from the total turnover, which are the numerator and the denominator, respectively, in the formula. Respectfully following the aforesaid decision of the Tribunal, we are inclined to direct the Assessing Officer to exclude the telecommunication .....

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iness income eligible for deduction under section 10A of the Act.

Depreciation on software expenses - 60% OR 25% - Held that:- Appendix I, Rule 5 as entry No. (5) from the assessment year 2006-07 onwards, suggests that computers including computer software is entitled for depreciation at 60 per cent. and being so, we do not find any infirmity in granting depreciation at 60 per cent. on software expenses

Set off of the brought forward unabsorbed depreciation of earlier year .....

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Held that:- It is seen that the entire unabsorbed depreciation was set off against the business income of the assessee. Therefore, no unabsorbed depreciation was available for the purpose of set off against the income from any other head. Hence, we do not find any merit in the plea of the assessee to set off the unabsorbed depreciation against the short term capital gain - I. T. A. Nos. 617 /Mds/ 2011, 697 and 698 /Mds/ 2011 - Dated:- 29-5-2015 - CHANDRA POOJARI (Accountant Member) and CHALLA NA .....

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common order for the sake of convenience. 2. I. T. A. Nos. 697 and 698/Mds/2011 : The first common issue in these appeals is with regard to allowance of depreciation at 100 per cent. on the leasehold improvements. The facts of the case as narrated in I. T. A. No. 697/Mds/2011 is considered for adjudication. 3. The assessee incurred expenditure for the improvement of new leasehold premises which has been taken on lease from Technopark- STPI of Kerala to the tune of ₹ 55,74,348 and claimed a .....

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ubmitted that the improvement or extension on leasehold business premises were basically of capital in nature since such improvements were made on "permanent structures". These expenditures are in the nature of capital such as, furniture, electrical fittings, etc., adding value to a building and only 10 per cent. deprecation to be allowed. 5. On the other hand, the learned authorised representative submitted that these expenses were incurred for the purpose of providing partitions, vin .....

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fabrication works in leased premises are deductible as revenue expenditure. He also relied on the judgment of the jurisdictional High Court in the case of CIT v. Ayesha Hospitals P. Ltd. [2007] 292 ITR 266 (Mad), wherein it was held that the expenditure incurred in the leased premises towards repairs and maintenance to be considered as revenue expenditure. 6. We have heard both sides and perused the material on record. The assessee, in this case, incurred expenditure towards improvement to lease .....

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ld premises. The assessee has not extended any construction in the leasehold premises. It incurred the expenditure for beautifying the existing leasehold premises. Being so, it cannot be said that the expenditure had resulted in creation of any new capital asset. In our opinion, the expenditure incurred by the assessee on providing wooden partition, paintings, interior works and other repairs to the leasehold premises etc. are to be considered as revenue expenditure. This view is fortified by th .....

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ure incurred by the assessee for design, layout and material construction, fabrication works in leased premises are deductible as revenue expenditure. It was also clarified by the jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. v. Deputy CIT in Tax Case (Appeal) No. 197 of 2005 dated July 26, 2011 [2013] 350 ITR 324 (Mad), that Explanation 1 to section 32(1) of the Income-tax Act, 1961, which was inserted with effect from April 1, 1988, is an exceptional one which permits depr .....

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ordingly, we are inclined to dismiss this ground taken by the Revenue. 7. The next common ground in the above appeals is with regard to restricting the disallowance under section 14A to 2 per cent. instead of 5 per cent. added by the Assessing Officer. 8. The facts of the case as narrated in I. T. A. No. 697/Mds/2011 are that the assessee credited ₹ 57,65,143 as dividend income for the assessment year 2004-05. The Assessing Officer, relying on the judgment of the Supreme Court in the case .....

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Revenue is in appeal. 9. We have heard both parties and perused the material on record. After considering the totality of facts and circumstances of the case and placing reliance on the co-ordinate Bench in the case of Celebrity Fashions Ltd. in I. T. A. Nos. 1318 and 1319/Mds/2011 dated April 30, 2012, wherein it was held that disallowance of 5 per cent. of the dividend/exempted income is reasonable expenditure. Accordingly, we reverse the order of the Commissioner of Income-tax (Appeals) and .....

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held that for the purpose of applying formula under sub- section (4) of section 10B, the freight, telecom charges and insurance attributable to the delivery of articles or things, or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded, both from the export turnover and from the total turnover, which are the numerator and the denominator, respectively, in the formula. Respectfully following the afor .....

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allow the assessee's claim accordingly. 13. The facts of the issue as narrated in I. T. A. No. 697/Mds/2011 are that the assessee submitted that gain on exchange fluctuation is derived from the undertaking and considered as part of export turnover and fully exempt from tax and that exchange fluctuation arises primarily on account of the export of computer software. The assessee further submitted that as per accounting standards, forex transactions are to be accounted on the exchange rates pr .....

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e observed that the exchange gain shown by the assessee includes both gain on account of EEFC account as well as on account of delayed realisation of export proceeds. The learned authorised representative has also submitted the break-up of the foreign exchange gain before the Commissioner (Appeals). The Bombay High Court in the case of CIT v. Shah Originals [2010] 327 ITR 19 (Bom) has dealt with this issue, wherein it was held that the exchange fluctuation in the EEFC account arises after the co .....

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peal of the assessee was partly allowed by the Commissioner (Appeals). Against this, the Revenue is in appeal before us 15. We have heard both parties and perused the material on record. We find that the Commissioner (Appeals) has given a direction to the Assessing Officer to pass a fresh order in the light of the decision of the Bombay High Court in the case of Shah Originals (supra). Therefore, we do not find any infirmity in the order of the Commissioner (Appeals) on this issue. Accordingly, .....

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ent. allowed by the Assessing Officer. 17. The facts of the case are that the assessee had claimed software expenses of ₹ 6,58,959 holding that these expenditures are primarily licences to use the software based on the terms of purchase. The Assessing Officer held that the assessee gets the right to use the software and has the licence for a long period of time and hence gets an enduring benefit. Thus, this expenditure is not revenue but capital in nature. The Assessing Officer held that t .....

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to claim software expenses as revenue expenditure. Accordingly, he directed the Assessing Officer to allow depreciation at 60 per cent. instead of 25 per cent. allowed him. Against this, the Revenue is in appeal before us. 18. We have heard both sides and perused the material on record. Appendix I, Rule 5 as entry No. (5) from the assessment year 2006-07 onwards, suggests that computers including computer software is entitled for depreciation at 60 per cent. and being so, we do not find any infi .....

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aking before allowing the deduction under section 10A of the Act. 21. After hearing the parties, we are of the opinion that the issue is squarely covered against the assessee by the judgment of the Supreme Court in the case of Himatsingka Seide Ltd. v. CIT [2014] 2 ITR-OL 467 (SC) (Civil Appeal No. 1501 of 2008 dated September 19, 2013, wherein they confirmed the decision of the Karnataka High Court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn) and held that unabsorbed .....

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ems Ltd. (supra) following the decision of the hon'ble Supreme Court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn). The co-ordinate Bench while deciding the issue held that unabsorbed depreciation has to be set off before computing exemption allowable under section 10A of the Act observing as under: '7. The third issue in appeal relates to the method of computation of deduction under section 10A of the Act. The assessee has claimed deduction under section 10A b .....

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the other hand, the learned Departmental representative has relied on the latest decision of the hon'ble apex court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn). The hon'ble Supreme Court of India dismissed the appeal of the assessee and has upheld the judgment of the hon'ble Karnataka High Court. The hon'ble High Court has held that the brought forward depreciation has to be adjusted against the profits of the EOU before computing the exemption allowa .....

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he brought forward losses, the decision of the hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 (Karn) still holds good. Accordingly, the assessee can claim deduction under section 10A before setting off of brought forward losses. In view of the above, this ground of appeal of the assessee is partly allowed.' Respectfully following the above decision of this Tribunal, we allow the grounds raised by the Revenue." 22. In view of this, we are in .....

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the case are that the assessee has offered short term capital gain amounting to ₹ 43,01,296 against which ₹ 13,22,719 has been set off towards unabsorbed depreciation. The Assessing Officer had not considered the set off and subjected the entire short-term capital gains subject to tax. However, the authorised representative for the assessee submitted that such set off of losses is not provided during the assessment and that such unabsorbed depreciation should be allowed to be set off .....

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