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Deputy Commissioner of Income-tax, Circle -11 (5) , Bangalore Versus M/s. L & T Valdel Engineering P. Ltd,

2015 (6) TMI 984 - ITAT BANGALORE

Eligibility of deduction u/s.10A - CIT(A) allowed the claim - Held that:- There is no dispute that the CIT (A) had followed his own orders for A. Y. 2002-03 to 2004-05 while allowing the claim of the assessee u/s.10A of the Act. The CIT(A) has examined the question of splitting up of an existing business as alleged by the Revenue. As rightly pointed out by him, as the activities were finally culminated at the work site of the clients in Sourth Korea, there was no need for full fledged infrastruc .....

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e outgo, assessee has put it under four categories, viz., annual licence fee, maintenance and upgradation service charges, rental and lease charges and anti virus software, having one year shelf-life. Revenue has not questioned this classification nor the contention of the assessee that software which gave rise to enduring benefit were indeed classified by it as an asset. Annual licence fee, by the very nomenclature implies that assessee had obtained licence to use the software, and but for the .....

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he case of Asahi India Safety Glass Ltd (2011 (11) TMI 2 - DELHI HIGH COURT ) and Raychem RPG Ltd. (2011 (7) TMI 953 - Bombay High Court ) respectively. We do not find any reason to interfere with the order of CIT (A). - Decided in favour of assessee

Disallowance u/s.14A r.w.rule 8D(2)(ii) - CIT(A) allowed the claim - Held that:- There is no dispute that the interest charged by the assessee to its P & L account which was the basis for the disallowance under Rule 8D(2)(ii) made by the .....

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claim could not be accepted with cogent reasons. We are therefore of the opinion that the disallowance was rightly deleted by the CIT (A).- Decided in favour of assessee

MAT computation - adjustment for leave encashment provision and for bonus provision not allowed by the AO while computing the book profit u/s.115JB - Held that:- Actuarial valuation is a scientific method for determining a liability that has crystalised, but quantification of which are dependent on future events which .....

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ot be fatal to the claim of an expenditure especially when such expenditure is based on an understanding between a holding company and a subsidiary company, but nevertheless, it is the duty of the assessee to show that what has been reimbursed as amortised ESOP cost by its holding company were actually charged by such holding company in its P & L account as expenditure and the reimbursements made by the assessee were shown as a part of its income. Assessee has to demonstrate that the services re .....

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company. - Decided in favour of assessee for statistical purposes. - ITA No. 506 to 508, 518 to 520/Bang/2014 - Dated:- 29-6-2015 - SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For the Appellant: Shri. V. Chandra Sekhar, Advocate For the Respondent: Shri.T. S. N. Murthy, CIT -III O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : These are appeals and cross appeals of the Department and assessee respectively for the Assessment Years 2008-09 to 2010-11 .....

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dertaking. AO was of the opinion that the STPI was set up in a portion of the premises of the assessee in which the assessee was already carrying on its business and the assessee had not acquired any land and building during the previous year but had used its existing infrastructure. Thus, as per the AO, it was formed only by splitting up the existing business. Further as per the AO, assessee was engaged in the research and analysis and did not fall in the category of Information Technology serv .....

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the CIT (A) that further appeals of the Revenue for these years were unsuccessful on this issue and reliance was placed on the order dt.10.11.10 in ITA.Nos.616 to 618/Bang/2008, for A. Ys. 2002-03 to 2004-05. CIT (A) noted that the issue stood decided in favour of the assessee by the Tribunal order mentioned supra. He allowed the claim of deduction u/s.10A of the Act, for all the years. 04. Now before us, Ld. DR strongly assailing the orders of CIT (A) submitted that Revenue had not accepted th .....

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he detailed orders passed by the lower authorities, we are of the considered view that the findings arrived at by the CIT(A) are rightful, just and proper. The Circular No.694 dated 22.11.1994 issued by the CBDT in the context of sec. 10A has clarified that development of programme on site is covered by the exemption scheme propounded by the Central Government. The assessee was engaged on site development of software programme. The programmes are delivered at the clients premises at work site in .....

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full fledged infrastructural facilities in India. Such facility is not called for in the line of business ITA Nos.616 to 618/B/08 carried on by the assessee. Therefore, in the facts and circumstances of the case, we find that the assessee is entitled for the deduction u/s 10A and the CIT(A) has rightly held so. Therefore, we agree with the finding of the CIT(A) that the assessee is entitled for claiming deduction u/s 10A. This issue is decided in favour of the assessee. The ground raised by the .....

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ision in the case of CIT v, Asahi India Safety Glass Ltd [(2011) 346 ITR 329] and Hon ble Bombay High Court decision in CIT v. Raychem RPG Ltd. [(2012) 346 ITR 138]. 07. Facts apropos are that assessee had claimed the above amounts as software licence fees for impugned assessment years. AO disallowed it on the ground that software was one of the items mentioned in Appendix-1 as item no.5 in Part - III of the Rules, as eligible for 60% depreciation. In its appeal before CIT (A) argument of the as .....

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tware did not create a new source of income or a new asset. According to the CIT (A), the payment of annual licence fee, maintenance expenditure, anti-virus software and rental charges, did not result in any enduring benefit to the assesse, but had only enabled it to work in a more efficient manner. According to the Ld. CIT (A), assessee had by itself capitalised those software which resulted in an enduring benefit to it or which were not in the nature of application software. CIT (A) noted that .....

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mputers. As per Ld. DR, acquiring software licence resulted in a capital asset and therefore the claim was incorrectly allowed by the CIT (A). 09. Per contra, Ld. AR strongly supported the order of CIT (A). 10. We have perused the materials on record and heard the rival contentions. In the classification of the software expenditure claimed as revenue outgo, assessee has put it under four categories, viz., annual licence fee, maintenance and upgradation service charges, rental and lease charges a .....

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s having a shelf life of only one year. Maintenance and upgradation service charges would not create a new software. At the best this would go only to improve the profit giving apparatus of the assessee and make it more efficient. We are of the opinion that CIT (A) was justified in relying on the decisions of Hon ble Delhi and Bombay High Courts in the case of Asahi India Safety Glass Ltd (supra) and Raychem RPG Ltd. (supra) respectively. We do not find any reason to interfere with the order of .....

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plying sub-rule (2)(ii) of Rule 8D. He also made a disallowance under clause (iii) of Rule 8D(2) for indirect expenditure at the rate of 0.5% of the average of investments. In its appeal before CIT (A), argument of the assessee was that the interest cost charged by it in its profit and loss account were entirely on account of term loan and overdraft. As per the assessee, term-loan was taken from UCO Bank Ltd, for acquisition of fixed assets and these were utilised only for the said purpose. Such .....

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also placed reliance on the decision of Punjab & Haryana High Court in the case of CIT v. Hero Cycles Ltd, [(2010) 323 ITR 518] wherein it was held that unless nexus between the expenditure incurred and taxfree income was shown, a disallowance u/s.14A of the Act could not be claimed. CIT (A) was partly appreciative of the contentions of the assessee. According to him, neither the term loan nor the overdraft was utilised by the assessee for making investments in tax-free securities. Further a .....

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im, disallowance made under Rule 8D(2)(iii), being in relation to indirect expenditure was justified. As per the CIT (A), claim of the assessee that no expenditure was incurred for earning the exempt income could not be accepted because there would be some indirect expenses which might not be visible. Thus while deleting the disallowance made under 8D(2)(ii) of the Rules, he confirmed the disallowance made under 8D(2)(iii) of the Rules. 13. Now before us, Ld. DR strongly assailing the order of C .....

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t which was the basis for the disallowance under Rule 8D(2)(ii) made by the AO, were entirely on account of term loan and overdraft. Assessee has also shown that the term loan was used in an earlier year when there were no investments in non-tax bearing instruments. In so far as OD raised by the assessee is concerned, nothing has been shown by the Revenue to show that any part of such overdraft amount was used for financing the investments. Once assessee state that no expenditure what so ever wa .....

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t allowed by the AO while computing the book profit u/s.115JB of the Act was allowed by the CIT (A). 17. Facts apropos are that AO had considered the provision for leave encashment and provision for bonus as unascertained liabilities debited to the P & L account and added these to the book profits while applying MAT provisions. In its appeal before the CIT (A) argument of the assessee was that such provisions were on ascertained liabilities, having been done based on reports of actuarial val .....

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t show that the provisions created were for ascertained liabilities. 19. Per contra Ld. AR supported the order of CIT (A). 22. We have perused the materials on record and heard the rival contentions. That the provisioning done was based on actuarial valuation for leave encashment as well as bonus, has not been doubted or disputed by the Revenue. Actuarial valuation is a scientific method for determining a liability that has crystalised, but quantification of which are dependent on future events .....

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ake up appeals of the assessee. Grounds 1, 2, 7 and 9 for A. Y. 2008-09; grounds 1, 2, 10, 11 and 12 for A. Y. 2009-10; and grounds 1, 2, 11, 12 & 13 for A. Y. 2010-11 are general in nature, needing no adjudication. Vide its grounds 3 and 4 assessee assails disallowance of expenditure on tax-free income made by the AO under section 14A r.w.rule 8(2)(iii) for A. Ys. 2009-10 and 2010-11. Ground 5 raised for A. Y. 2009-10 and 2010-11 is also related to the very same issue. 22. Facts relating to .....

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expenditure was incorrect, a disallowance under Rule 8D(2)(iii) could not be made. Reliance was placed on the decision of the coordinate bench in the case of M/s. Subramanya Constructions & Development Co. Ltd, [ITA.404/Bang/2013 & CO.89/Bang/2013, dt.20.02.2015]. According to the ld.AR it was clearly held in the above order that if assessee s takes a stand on not incurring any expenditure, without any reasons being recorded the claim could not be brushed aside. 24. Per contra Ld. DR sup .....

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para 9 of order of this coordinate bench in the case of M/s. Subramanya Constructions & Development Co. Ltd, dt.20.02.2015 (supra), it was held as under : 9. Vis-à-vis the disallowance made under Rule 8D(2)(iii), a look at the assessment order clearly show that assessee, though it did not take specific plea it had stated that there was nothing which called for a disallowance under section 14A investment portfolio. Reply of the assessee on the proposed disallowance under section 14A of .....

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m the tenants was ₹ 49.13 Crores. Hence no portion of the loans from banks was used for the purpose of investments. With regard to investment in Drive in Enterprises, the said amount is on account of revaluation of lease hold right and hence no cash has been paid . Though, nothing specific has been mentioned about non-incurring of any indirect expenditure, it is clear that major part of the investments were done in FY: 2005-06. Incremental investment was only 4.80 lakhs. The investment whi .....

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claim. It is essential such non-satisfaction has to be given with cogent reasons before invoking Section 14A. Doctrine of satisfaction no doubt, does not mean that an AO should presume what was in the mind of the assessee and express his approval or disapproval thereon. However, once assessee say that it had incurred no expense covered by section 14A of the Act for its investment portpolio, AO has to make a verification. Especially so, when incremental investments is negligible. In these circum .....

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5 in A. Ys. 2009- 10 and 2010-11 are allowed. 27. Vide its grounds 5 and 6 for A. Y. 2008-09 and grounds 6 and 7 for A. Ys. 2009-10 and 2010-00 assessee assails disallowance of debit notes raised by its parent company for defraying the ESOP charges of employees deputed by it. Amount disallowed was of ₹ 2,70,99,347/- for A. Y. 2008-09 ₹ 5,27,68,682/- for A. Y. 2009-10 and ₹ 2,48,75,779/- for A. Y. 2010-11. 28. Facts apropos are that assessee had debited the above amounts under t .....

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s holding company, for supporting such payments. Though the assessee claimed that payments were effected based on debit notes raised by M/s. L & T Ltd, AO was of the opinion that there was no proof for actual payment and it was not a genuine expenditure supported with necessary calculation. He treated the outgo as capital in nature and disallowed the claim. 29. In its appeal before the CIT (A) argument of the assessee was that employees deputed by its holding company were working full time f .....

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principal, had to be defrayed by it to the holding company. Assessee also filed before the CIT (A) an abstract of the ledger book and debit notes. Assessee also submitted that noting in the tax audit report for the impugned assessment year could not be considered as a basis for concluding that the expenditure by way of reimbursement of ESOP charges of the employees deputed by its holding company was a capital outgo. 30. CIT(A) after going through the submissions of the assessee and after obtain .....

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h regard to the contractual obligation assessee had in relation to those employees who were deputed by the holding company to the assessee. As per the CIT (A), though the liability under ESOP scheme would be deductible in the hands of the holding company in accordance with the decision of the Special Bench in the case of Biocon Ltd, v. DCIT [(2013) 144 ITD 21], this would not entitle a person who was not a direct employer to claim such benefit. He thus upheld the disallowance. 31. Now before us, .....

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mbursement of cost incurred by L & T Ltd. As per the Ld. AR, L & T Ltd, had shown such receipts from the assessee as a part of its income. Discount in the value of shares under an ESOP scheme was held to be allowable by the Special Bench in the case of Biocon Ltd, (supra), over the period of vesting. When the employees were being used by the assessee for its own business, the benefit of the ESOP which would have otherwise been that of the holding company was actually enjoyed by the asses .....

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ed this. Disallowance therefore was rightly made according to the Ld. DR. 33. We have perused the materials on record and heard the rival contentions. Details of the debit notes and the findings of the AO in this regard, as reproduced by the CIT (A), at para 6.1 of his order for A. Y. 2009-10, is once again reproduced by us for brevity : 6.1 The AO noted that the appellant had debited a sum of ₹ 5,27,68,682/- under the head professional charges being payments made to employees sent on depu .....

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penditure is not supported with calculations ; and the intention of allotting equity shares under the ESOP was clear from the nature of payment made. The AO, therefore, treated the same as a capital expenditure and brought the corresponding amount of ₹ 5,27,68,682/- to tax as an inadmissible expenditure. 34. It is an undisputed fact that assessee was not able to produce before the lower authorities any contract it had entered with L & T Ltd, its holding company for reimbursement of emp .....

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see. What the assessee had produced before the lower authorities is only certain debit notes with narrations which did not give any details. No doubt before the CIT (A), it had produced a letter dt 13.12.2012 from L & T Ltd, which stated as under : To whomsoever It may Concern This is to confirm that Larsen & Toubro Limited has deputed its employees to L & T - Valdel Engineering Limited on cost- recovery basis. The amortized ESOP costs of such employees are being recovered on a quart .....

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