TMI Blog2019 (8) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... fees for registration of company and essentially dealing with provision of section 35D(2)(c)(iii) of the Act. There is substantial difference between registration of a company and action taken for increase in authorized share capital. In the case of the assessee because of amalgamation proceedings, there was need to increase in authorized share capital and therefore, such expenses cannot be segregated from the main amalgamation proceedings and therefore, these expenses are part of amalgamation expenses. Additions deleted - Decided in favour of assessee. Nature of expenses - software development expenses - revenue or capital expenditure - HELD THAT:- One of the parties could submit through evidence regarding endurability of these software, whether it is in the category of general purpose of software or specialized software which can be utilized directly for manufacturing or production. Therefore, this issue needs detailed verification. Hon‟ble Bombay High Court in the case of CIT Vs. Geoffrey Manners Co. Ltd. 2014 (6) TMI 958 - BOMBAY HIGH COURT] wherein the decision of the Tribunal has been upheld by observing that in the changing trend development of technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation in this assessment year. If the assessee really offered the amount of ₹ 77,53,766/- for taxation, then the view taken by the Ld. CIT(Appeals) in deleting the addition has to be upheld. On the other hand, if it is found that the amount of ₹ 77,53,766/- was credited to Provision for warranty account, but was not offered for taxation, in that case, provision will have to be restricted @ 0.40% of total sales, which is ₹ 1.17 crore as against the claim of deduction for provision at ₹ 1,76,75,590/-. Excess amount of provision in that case will have to be disallowed. We therefore, set aside the impugned order on this score and remit the matter to the file of Assessing Officer for deciding the issue afresh in accordance with the above directions. Needless to say, the assessee will be allowed a reasonable opportunity of hearing. Thus, ground No.6 raised in appeal by the Revenue is allowed for statistical purposes. Disallowance of miscellaneous expenses - CIT-A restricted this disallowance to 20% - HELD THAT:- As seen that a sum of ₹ 41,33,283/- has been included under this head, which is on account of Software development account. We have separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mandated under rule 10B of the Income-tax Rules, 1962. Nothing of the sort has been done in the instant case. The TPO got influenced with extraneous reasons, which have no bearing on the determination of the ALP of an international transaction. It is further observed that similar issue came up for consideration before the Tribunal in assessee s own case for the immediately preceding assessment year. The transfer pricing addition made in similar circumstances has been deleted. Relevant discussion has been made on page 39 onwards of the order. Considering the entire conspectus of the case, including the fact that the payment of Royalty to AEs was as per RBI norms, we are satisfied that the view taken by the ld. CIT(A) is unassailable. This ground, therefore, fails - ITA No.1302/PUN/2010 AND ITA No.1303/PUN/2010 - - - Dated:- 22-7-2019 - SHRI R.S. SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM For the Appellant : Shri R Murlidhar Shri Prashant Gandhi For the Respondent : Ms. Kesang Y Sherpa, CIT ORDER PER PARTHA SARATHI CHAUDHURY, JM : These cross appeals preferred by the Revenue and assesee emanates from the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company and action taken for increase in authorized share capital. In the case of the assessee because of amalgamation proceedings, there was need to increase in authorized share capital and therefore, such expenses cannot be segregated from the main amalgamation proceedings and therefore, these expenses are part of amalgamation expenses. 23. In view of the matter, we set aside the order of the Ld. CIT(Appeals) on this issue and direct the Assessing Officer to delete the addition from the hands of the assessee. Thus, ground No.4 raised in appeal by the assessee is allowed and ground No.3 of the Revenue s appeal is dismissed. Respectfully, following our aforesaid decision, we allow the ground No.1 raised in appeal by the assessee. 5. Ground No.2 relates to software development expenses being treated as capital in nature. 6. The Assessing Officer had observed that the software expenses incurred by the company was towards purchase of specialized software and hence, has benefit of enduring nature, therefore, depreciation was allowed. The Assessing Officer further observed that expenditure debited to Software Development account mainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oftware such as Windows and MS office etc. but when it came to this relevant year, the type of technological advancement through software development as installed by the assessee definitely ensures durability of longer period of time and therefore, this should have been capitalized and should not have been debited to the profit and loss account. 10. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncements placed before us. The records demonstrates that there is sharp difference in up-gradation of software and expenses incurred by the assessee as compared to the assessment year 2001-02 with that of the relevant assessment year. In this year, various software have been installed such as Computer Software-ICEM- CFD- Hexa Mesh Software by the assessee. However, none of the parties could submit through evidence regarding endurability of these software, whether it is in the category of general purpose of software or specialized software which can be utilized directly for manufacturing or production. Therefore, this issue needs detailed verification. Further, we observe the decision of the Hon‟ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be capitalized and depreciation of ₹ 1,41,853/- @ 5% ( As MD‟s Residence was acquired after 30.09.2003) was allowed and the net addition on this account therefore, was ₹ 26,95,198/-. 13. That before the Ld. CIT(Appeals), the assessee submitted that the assessee company purchased a second hand bungalow for the MD and the expenditure debited under this head were incurred on items of work like repairs to staircase, painting, architect‟s fees and repairs to swimming pool. The Ld. AR stated that apart from this, expenditures debited under this head also included minor repairs at the company owned as well as leased premises at various locations. The Ld. AR stated that the entire expenditure was in the nature of current repairs and no civil work/new construction or capital investment was included under this head. The Ld. CIT(Appeals) after considering the submissions of the assessee, facts of the case and assessment order agreed on the action of the Assessing Officer. However, considering detailed facts of the case and nature of expenditure, he was of the view that major part of the expenditure under this head could be construed to be of the nature of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction of provision. Consequently, the Assessing Officer disallowed net amount of ₹ 98,71,825/- The Ld. CIT(Appeals) deleted the disallowance by relying on his order for an earlier year. The Revenue is aggrieved by the deletion of addition. 19. We have heard both the sides and gone through the relevant material available on record. It is observed that similar issue came up for consideration before the Tribunal for the immediately preceding assessment year and the Tribunal, following its own order for the earlier years, has held that the provision for warranty should be allowed @ 0.4% of net sales unless the amount of actual expenditure is more than the amount of provision, in which eventuality the entire amount of expenditure claimed as deduction, should be allowed. 20. The assessee‟s turnover for the instant year is ₹ 293 crore. Amount of provision for warranty at the rate of 0.40% of such turnover, comes to ₹ 1.17 crore, against which the assessee created gross provisions of ₹ 1.76 crore. The Assessing Officer took note of the fact that assessee credited a sum of ₹ 77.53 lakh on account of free of cost replaceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal had restricted the disallowance to 15% of the expenses by observing as under: 17. Having heard both the sides and gone through the relevant material on record, we find that the first sum of ₹ 33,76,762/- is in the nature of actual expenses incurred during warranty period. Since a deduction has been separately allowed to the assessee on creation of provision for warranty, there can be no question of allowing any separate deduction for actual expenses incurred in accepting the claims under warranty. We, therefore, uphold the impugned order to the extent of disallowance of ₹ 33,76,762/-. 18. Second item is expenditure on Gifts at ₹ 14,99,816/-. The assessee could not produce any evidence to show whether the Gifts were given for the business purpose or were hit by Explanation 1 to section 37(1) of the Act. In the absence of furnishing any such details, we uphold the view taken by the ld.CIT(A) in sustaining this disallowance. 19. Similar is the position regarding donations of ₹ 6,26,628/-, for which the assessee could not adduce any evidence. The impugned order is, therefore, upheld to this extent. 20. As re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the submissions of the Ld. AR, ground No.5 raised in appeal by the assessee is dismissed as not pressed‟. 27. With regard to ground No.6 and 7, the Ld. AR submitted that these grounds are covered by the decision of assessee‟s own case in ITA No.1311/PUN/2011 ITA No.1414/PUN/2011 for assessment year 2002-03 and in ITA No.1676/PUN/2011 and ITA No.54/PUN/2011 for assessment year 2003-04 wherein the issue before the Tribunal was as follows: 22. Ground no.6 of the assessee s appeal is against the confirmation of inclusion of commission income of ₹ 7,87,32,730/- as part of total turnover in the computation of deduction u/s.80HHC. The later part of the ground is towards confirmation of exclusion of 90% of Service charges and Miscellaneous income from profits of business for deduction u/s.80HHC. The Tribunal on this issue has held as under: 23. It is seen that similar issue came up for consideration before the Tribunal in assessee s own case for the immediately preceding assessment year. Following the view taken by the Tribunal in assessee s own case for still another year, the matter has been remitted to the AO for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er direction has been given to ensure that the assessee is not allowed deduction on actual payment basis. The AO is directed to examine this aspect and allow deduction only towards incurring of liability, i.e. on accrual of liability towards VRS u/s.35DDA and no amount should be allowed as deduction on payment basis. This ground is, therefore, allowed for statistical purposes. Respectfully, following our decision in assessee‟s own case for assessment year 2003-04, this issue is restored to the file of Assessing Officer with similar directions. Therefore, grounds No. 1, 2 and 3 in the appeal Memo and additional ground raised in appeal by the Revenue are allowed for statistical purposes. 32. Ground No.4 of the Revenue‟s appeal is with regard to the fact that whether the Ld. CIT(Appeals) was justified in holding that expenditure incurred by the assessee on stamp duty for transfer of immovable assets would qualify as amalgamation expenses and is an allowable expenditure u/s.35DD of the Act. 33. We find that similar issue had come up for consideration before us in ITA No.1311/PUN/2011 ITA No.1414/PUN/2011 for assessment year 2002-03 and in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RBI. The TPO determined NIL ALP simply on the ground that the AEs to whom the assessee paid Royalty had discontinued production of such products. In our considered opinion, this is no ground to determine NIL ALP of an international transaction. The TPO is required to determine the ALP of an international transaction under one of the methods mandated under rule 10B of the Income-tax Rules, 1962. Nothing of the sort has been done in the instant case. The TPO got influenced with extraneous reasons, which have no bearing on the determination of the ALP of an international transaction. It is further observed that similar issue came up for consideration before the Tribunal in assessee s own case for the immediately preceding assessment year. The transfer pricing addition made in similar circumstances has been deleted. Relevant discussion has been made on page 39 onwards of the order. Considering the entire conspectus of the case, including the fact that the payment of Royalty to AEs was as per RBI norms, we are satisfied that the view taken by the ld. CIT(A) is unassailable. This ground, therefore, fails. Respectfully following the view taken in assessment year 2002-03 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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