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2015 (6) TMI 984

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..... , 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 fees, the facility would not be available to the assessee.Rental and lease charges also come within the very similar meaning. Anti-virus software was 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 (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 Di .....

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..... e, set aside the orders of the lower authorities on this issue and remit it back to the AO for fresh consideration.Assessee will be free to produce fresh evidence to justify the incurrence of such expenditure and also show that the expenditure was not claimed twice, i.e., both by the assessee as well as by its holding 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. 02. Appeals of the Department are taken up first for disposal. Grounds 1, 8 and 9 for A. Y. 2008-09, ground 1, 9 and 10 for A. Ys. 2009-10 and 2010-11 are general in nature needing no specific adjudication. Vide its grounds 2 and 3 which are common to all the years, Revenue is aggrieved that CIT (A) allowed deduction u/s.10A of the Act. .....

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..... xt 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 South Korea. There is no doubt that the activities carried out by the assessee are falling under the purview of the sec. 10A as specified by the explanation provided under the said sec. 10A and further clarified by the Circular No.694 dated 22.11.94. 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 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 deducti .....

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..... he Hon ble Delhi and Mumbai High Courts (supra) relied on by the CIT (A) were prior to substitution of Appendix 1, w.e.f. 02.04.2005, whereby computer software was included under classification of computers. 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 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 fees, the facility would not be available to the assessee. Rental and lease charges also come within the very similar meaning. Anti-virus .....

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..... term loan nor the overdraft was utilised by the assessee for making investments in tax-free securities. Further as per the CIT (A), to disallow interest, it had to be shown that such interest was not attributable to any particular source of business income or receipt of business income. Here the assessee had demonstrated that the loans on which interest were charged were attributable to its normal business income. Further according to him, the decision of Kolkata Bench of the Tribunal in the case of ACIT v. Champion Commercial Co. Ltd (139 ITR 108) had went in favour of the assessee. However according to him, 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 CIT (A) in so far as the deletion of disallowance under Rule 8D(2)(ii) was concern .....

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..... ion by itself would not 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 which are certain to happen. Once an assessee has made provisioning based on actuarial valuation, it ceases to be a provision for an unascertained liability. This view has been taken by Hon ble Delhi High Court in the case of CIT v. ILPEA Paramount (P) Ltd (supra) and CIT v. Hewlett Packard India (P) Ltd (supra). We are therefore of the opinion that CIT (A) was justified in deleting these additions while computing the tax u/s.115JB of the Act. Accordingly, ground 8 stands dismissed. 21. Now we take 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. 2010-1 .....

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..... f disallowance u/s 14A r.w. Rules 8D will not arise since the company has not made investments out of the loans taken from various banks. All these investments have been made out of its internal generation and the rent deposits from various tenants on which no interest is payable. Major portion of investments were made during the financial year 2005-06 in which year the general reserve was ₹ 5.15 Crores and the deposits received from 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 which yielded the dividend income of ₹ 33,600/- claimed as exempt, came from shares worth ₹ 2,30,400/- held in M/s Indian Overseas Bank, which holding was the same all though, brought forward from earlier year. Under section 14A of the Act, onc .....

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..... /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 for it. According to assessee, all the expenditure incurred by the holding company for such employees were charged on the assessee on a cost-to-cost basis. Employees of L T Ltd, were given the benefit of ESOP framed by M/s. L T Ltd. As per the assessee, such employees who were having ESOP benefit of the parent company when deputed to the assessee, and when they were working for the assessee, having received the benefit of labour of the employees, cost incurred for the employees by the 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 ES .....

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..... ld not be allowed. As per the Ld. DR the debit notes produced were dumb without any details. Claim for revenue expenditure should be based on tangible evidence which support the business need of such expenditure. Assessee had not demonstrated 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 deputation to the holding company i.e. M/s. Larsen Toubro Ltd. From the rpely of the appellant dated 02/11/2011, the AO noted that it was a payment made to the holding company viz. M/s. Larsen Toubro Ltd. For purposes of allotment of shares under Employees Stock Option Scheme (ESOP). According to the AO, no contract evidencing payments on account of contractual obligation was produced ; no proof of actual payment was furnished ; the claim that the .....

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..... eceived by it from such employees were commensurate with the payment. We are, therefore, of the opinion that the claim of the assessee requires a fresh look by the AO. We , therefore, set aside the orders of the lower authorities on this issue and remit it back to the AO for fresh consideration. Assessee will be free to produce fresh evidence to justify the incurrence of such expenditure and also show that the expenditure was not claimed twice, i.e., both by the assessee as well as by its holding company. Grounds 5 6 for A. Y. 2008-09, grounds 6 7 of the assessee for A. Ys. 2009-10 and 2010-11 are allowed for statistical purposes. 35. Vide grounds 8 9 which are there for A. Ys. 2009-10 and 2010-11, grievance raised by the assessee is that exempt dividend income credited to the P L account and dimunition in value of investment were added back by the AO while computing the book profits u/s.11JB of the Act. Ld. Counsel for the assessee admitted that these additions had become academic since the computation of income under the normal provisions of the Act would result in higher figure than the book profit computed u/s.115 JB of the Act. Since these grounds have become academ .....

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