9911796707
TMI Blog2022 (6) TMI 1487X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income for the AY 2009-10 on 30.9. 2009 declaring a total income of Rs 829,619,519. In computing the above income, it claimed a deduction of Rs 77,851,741 from its gross total income as per the provisions of section 80JJAA of the Income Tax Act, 1961 ["the Act"]. 4. Notices under section 143(2) and section 142(1) of the Act calling for certain information/details was served on the assessee, which were provided by the assessee. During the course of assessment proceedings, the international transactions entered into by the assessee were referred to the Transfer Pricing Officer ["TPO"] for determination of Arm's Length Price ["ALP"] u/s. 92CA of the Act. The TPO passed an order dated 21.1. 2013 u/s. 92CA of the Act making a TP adjustment of Rs 1,209,858,772. Accordingly, the AO passed draft assessment order u/s. 143(3) r.w.s. 144C of the Act dated 19.3.2013 after making certain disallowances on corporate tax listed below and computed the total income at Rs 2,843,922,040:- * Disallowance of deduction u/s. 80JJA - Rs.77,851,741. * Disallowance of expenses on discontinued capital project - Rs.74,19,000. * Disallowance of write off of capital work in progress - Rs.12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... number of seconds assessee's personnel are logged on to any of the EDA software packages and hence it is in the nature of revenue expenditure. The AO, however, disallowed the expenditure treating it as capital in nature, relying on the following case laws:- i. CIT v. Arawali Construction Co. (P) Ltd., 259 ITR 30 (Raj) ii. Amway India Enterprises v. DCIT, 111 ITD 112 (Del)(SB). 7. On appeal, the CIT(Appeals) allowed the issue in favour of the assessee based on his order in assessee's own case for AY 2008-09. Aggrieved, the revenue is in appeal before the Tribunal. 8. The ld. DR submitted that EDA software is purchased and charged to the assessee on usage basis, therefore the original software is capital in nature and the usage charges also would be capital in nature. He therefore supported the order of the AO in treating the data automation expenditure as a capital expenditure. 9. The ld. AR drew our attention to the decision of the coordinate Bench of the Tribunal in assessee's own case for AYs 2010-11 & 2012-13 to 2014-15 wherein following its own order for AY 2008-09 on identical issue, the Tribunal in ITA Nos.1967/Bang/2018 & connected appeals vide order dated 17.05.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of actual hours the Assessee uses the software. The Assessee therefore submitted that the expenditure was a payment for license to use software and the Assessee never acquired any right or interest in the software and therefore the payment made for right to use such software was purely revenue expenditure and should be allowed as deduction. The AO however did not allow the claim of the Assessee by concluding that the expenditure was capital expenditure and therefore only depreciation at 60% would be allowed and not the entire expenditure. The following were the relevant observations of the AO:- "5.3 The assessee's submission is carefully considered. The Data Automation Software is a computer software which is being used by the assessee for designing its products. Electronic design automation (EDA) is a category of software tools for designing electronic systems such as printed circuit boards and integrated circuits. The tools work together in a design flow that chip designers use to design and analyze entire semiconductor chips. The expenditure on computer software under the head. "Data Automation Software expenses" is necessarily an expenditure which is required to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore the expenditure question was revenue expenditure. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. 30. We have heard the rival submissions. A copy of the group cost allocation Agreement dated 24.3.2006 is at page - 406 of Assessee's paper book. The agreement is between Texas Instruments Inc., USA and the Assessee. The Agreement refers to the US parent company of the Assessee having acquired license to use EDA tools from the vendors and the right of the Assessee to use the same and the fact that billing will be done on the Assessee on the basis of actual use of the software by the Assessee. It is thus clear that the Assessee had acquired no right or interest whatsoever in the EDA tools and had only a right to use the software. It is not the case of the revenue that the EDA tools was not connected to the business of the Assessee. In such circumstances, we are of the view that the deduction was rightly allowed by the CIT(A) as revenue expenditure. We find no grounds to interfere with the order of the CIT(A) and dismiss Gr.No.2 raised by the revenue." 10. He also pointed out the clause of the agreement and highlighted the fact that what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as regular workmen. 2.3 The learned CIT(A) has erred in law in not adjudicating the other grounds raised by the Appellant and in summarily denying the deduction claimed by holding that the Appellant does got satisfy the eligibility conditions under section 80JJAA of the Act." 13. During the year, the assessee claimed a sum of Rs.7,78,51,741 as deduction u/s. 80JJA towards 30% additional wages paid to new workmen recruited/joined in the year 2006-07. The AO noted that section 2(s) of the Industrial Disputes Act, 1947 applies and the following facts are crucial for eligibility of deduction:- (i) The workman should be newly recruited. (ii) It is evident that only the person employed in any industry to do any manual, unskilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment are express or implied is eligible workman. (iii) It does not include a person who is mainly employed in a managerial or administrative capacity. (iv) Further as per the provision the salary/wage payable to them shall not exceed Rs.1,600/pm. 14. Against the show cause notice issued by the AO, the assessee filed detailed written submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is claimed towards 3rd year deduction of 30% for the employees who joined/were recruited during 2006-07. He drew our attention to the fact that similar deduction claimed during the second year i.e., AY 2008-09 was also denied by the lower authorities and the matter travelled upto the High Court where the issue was decided in favour of the assessee. The ld AR submitted that in the year under consideration, the deduction is claimed for the same number of workmen who joined in 2006-07 and invited our attention to the statement of computation of income at page 52 of PB to substantiate the claim. 17. The ld. DR, on the other hand, vehemently supported the order of the AO and reiterated the observations of the AO in terms of the definition of "new workmen". He also submitted that given the attrition rate in the software industry, there is very minimum possibility of same set of 'new workmen' who joined in 2006-07 who continued to work with the assessee during the year under consideration so as to enable the assessee to claim the deduction in the third year. He submitted that the assessee has not produced any details to substantiate its claim before the AO. The ld. DR also raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the new regular workmen in excess of one hundred workmen employed during the previous year : Provided that in the case of an existing undertaking, the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (ii) "regular workman", does not include- (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) "workman" shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Disputes Act, 1947 (14 of 1947)." 4. The first reason assigned by the AO for denying the claim for deduction u/s.80JJAA of the Act was that persons working in software industry cannot be said to be "Workmen" for the purpose of Sec.80JJAA of the Act. According to the AO the definition of workmen for the purpose of Sec.80JJAA was the definition of the term as per Sec.2(s) of the Industrial Disputes Act, 1947 and that definition lays down that "Any person employed in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of article or thing. Admittedly this condition is satisfied in the case of the Assessee. (2) There are certain prohibition laid down in Sec. 80JJAA(2) of the Act and it is not the case of the AO that these prohibitions are applicable in the case of the Assessee. (3) The new workmen employed must be a regular workmen and the number of such new workmen employed should be in excess of one hundred workmen employed during the previous year. (4) The increase in the number of regular workmen employed during the year should not be less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (5) If the above conditions are satisfied then 30% of the additional wages paid to new regular workmen employed by the assessee in the previous year, shall be allowed as deduction for three assessment years including the assessment year relevant to the previous year in which such employment is provided. 6. The following are the details regarding the number of regular workmen and new workmen employed by the Assessee during the FY 2002-03 to 2007-08 relevant to AY 2003-04 to 2008-09: Details of Number of regular workmen : P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these observations in the order of assessment is incorrect and contrary to the report of the Chartered Accountant in Form No. 10DA. It is admitted position that in respect of additional wages paid to new employees employed in the previous year relevant to AY 2008-09 was not claimed by the Assessee, as the increase in the number of regular workmen employed during the year was not more than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year. It is also not disputed that these 287 employees worked for 300 days in the previous year relevant to AY 2008-09. The total wages paid to new workmen was Rs. 25,24,06,897 and deduction u/s.80JJAA of the Act was claimed by the Assessee at 30% of the above viz., a sum of Rs. 7,57,22,069/-. 8.1 On appeal by the Assessee against the order of AO denying deduction u/s.80JJAA of the Act, the CIT(A) endorsed the view of the AO on this aspect of deduction under Sec.80JJAA of the Act. Hence this appeal by the Assessee before the Tribunal. 8.2 The learned counsel for the Assessee brought to our notice the order of the AO for AY 2007-08 in which he has while disallowing the claim for deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly;" 8.3 It was his submission that though the aforesaid amendment is applicable w.e.f 1-4-2019, the aforesaid amendment which is intended to remove hardship to getting benefit of an incentive provision, should be held to be curative in nature in nature and should be held to be retrospective in operation on the principle laid down by the Hon'ble Supreme Court in the case of CIT v. Calcutta Export Company [2018] 93 taxmann.com 51/255 Taxman 293/404 ITR 654 (SC). The learned DR relied on the order of the AO. However, the ld. AR submitted that the assessee is claiming benefit of deduction for second year only, as it has accepted the fact that it is not eligible to claim deduction in the first year i.e., AY 2007-08 due to non-fulfilment of condition of 300 days. 9. We have given a very careful consideration to the rival submissions. The only reason given by the AO for denying the benefit of deduction u/s.80JJAA of the Act, which is the reason that survives f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then the deduction u/s.80JJAA of the Act has to be allowed. It is not proper to say that if the deduction is refused in the first year of employment of the new employee then for the next two succeeding Assessment Years also, the benefit of deduction will not be available. Such an approach defeats the very purpose for which deduction u/s.80JJAA of the Act is allowed for three consecutive Assessment years. This aspect has now been clarified in the Finance Act, 2018 by adding a second proviso to the definition of additional employee in Explanation (ii) to Sec.80JJAA of the Act. Even prior to such curative or clarificatory amendment, we are of the view that the claim for deduction u/s.80JJAA of the Act cannot be and ought not to have been disallowed on this ground. We therefore direct that the deduction claimed by the Assessee should be allowed." 19. The revenue carried the matter in appeal to the High Court of Karnataka and the following substantial question of law on the issue was formulated:- "1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of Rs. 7,57,22,069 made under section 80JJAA of the Act by hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person- (i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or (ii) who is employed in the police service or as an officer or other employee of a prison, or (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature. 16.4 In terms of section 2(s) of the ID Act, the definition of a workm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alendar year or otherwise. He has submitted that if the period of 300 days is not satisfied, no such deduction could be allowed. 16.8 Admittedly, the provisions concerned, i.e. Section 80JJ-AA, comes under Chapter-VI-A of the IT Act, which deals with deductions in certain income; this deduction is issued and or permitted as an incentive to the Assessee on fulfilling certain criteria as required under the various provisions under ChapterVI-A. The incentive of the deduction provided under section 80JJ-AA is with an intention to encourage the Assessee to employ more and more people, provide employment and, in lieu thereof, permit the employer/assessee to deduct certain amounts from the income when the returns are filed. It is with this object, purport and intent of section 80JJ-AA of the Act that the present facts and circumstances would have to be considered. It is also required for the Assessing Officer, CITA, Income-tax Appellate Tribunal, as also any other officer to always interpret and or apply the provisions of the Act, taking into consideration the intent and purport of the said provision. 16.9 The meaning or interpretation now sought to be given by Sri. Aravind, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the Tribunal in this regard is required to be set aside. 16.13 We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying section 80JJ-AA of the Act. If the submission of Sri. K.V. Aravind is accepted, then no employer/assessee would be able to fulfil the requirement of employing its labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJ-AA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that section 80JJ-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service Co-operative Bank Ltd.'s case (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if there is an ambiguity in favour of the Assessee. 16.14 The Apex Court in the case Vatika Township (P.) Ltd. (supra) has also held simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in denying a deduction a 7,419,000 claimed by the Appellant in relation to discontinued capital projects holding that expenses incurred towards expansion of business which did not materialize was a capital expenditure and not eligible for deduction under section 37 of the Act. 3.2 The learned CIT(A) and the AO have erred in law and on facts in not appreciating the fact that claim for discontinued project is not in nature of 'capital expenditure' and no new asset of enduring nature was brought into existence. 3.3 The learned CIT(A) and the AO have erred in law and on facts in in treating the expenditure as capital in nature which is contrary to the order of the Transfer Pricing Officer ("TPO") where the same has been considered as part of operating expenditure. 3.4. Without prejudice to the above, the CIT(A) and the AO ought to have allowed depreciation under section 32 of the Act in respect of the claim for discontinued capital projects." 23. The assessee had debited the P&L account for a sum of Rs.74,19,000 towards discontinued projects. It was submitted before the AO that the assessee was planning expansion of its premises and had made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat sum is also part of the sum of Rs. 4,42,14,942 which was disallowed by the AO as capital expenditure and therefore to the extent of Rs. 61,04,942/- there has been a double addition made by the revenue authorities. We are of the view that it would be just and appropriate to direct the AO to look into this aspect while giving effect to the decision of the Tribunal after affording opportunity of being heard to the Assessee and if the contention is found to be correct, allow relief to the Assessee. Thus the relevant grounds of appeal being Gr.NO.3.2.1 to 3.2.8 are dismissed while Gr.No.3.2.9 is treated as allowed for statistical purpose." 27. We notice that the disallowance made during the year under consideration is also part of the same contract under which similar payment was made during AY 2008-09 and the disallowance was upheld by the Tribunal. Respectfully following the decision of the above order of the Tribunal, we uphold the disallowance. The disallowance u/s. 40(a)(ia) of the Act is already allowed by the CIT(Appeals) and the question of double disallowance does not arise for the present year. 28. The next issue that arises for consideration is write-off of capital wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be allowed as a deduction u/s. 37 of the Act. 30. The ld. DR supported the orders of the lower authorities. He also contended that had the project not been closed down, the same would have resulted in a capital asset and the same analogy should be applied while deciding the allowability u/s. 37 of the Act. 31. We have considered the rival submissions and perused the material on record. The assessee engaged M/s. Raj Consultants towards planning, designing and architecture for expansion of Cafetaria and breakout area and incurred the expenses. The invoices raised by the Consultants for upgradation are as under:- * 20% on design submission * 40% on completion of tender document * 25% on commencement and progress at work. 32. From the above, it is clear that the invoices are raised for design & planning and for part completion of the work. We see merit in the submissions of the ld. AR with regard to the key observations of the Hon'ble Supreme Court in the case of Empire Jute Co. (supra) in classification of expenditure as revenue and capital which are extracted below:- * There is no clear-cut test to determine whether an expenditure is revenue or capital - each cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of Rs 4,187,113 by not considering the reason of "paucity of time" as a relevant criteria to justify the submission of additional evidence. The learned AO has erred in disallowing the same merely because 100 percent of the invoices were not furnished, despite the Appellant having furnished substantial invoices/documents. 5.2 The learned CIT(A) and the AO have erred in law and on facts in treating the amount of Rs 5,438,094 (net-off depreciation) and Rs 1,580,977 as capital expenditure without appreciating the Appellant's claim that the expenses were in nature of 'repairs and maintenance' and no new asset with enduring benefit came into existence. 5.4. The learned CIT(A) and the AO have erred in law and on facts in in treating the expenditure as capital in nature which is contrary to the order of the Transfer Pricing Officer ("TPO") where the same has been considered as part of operating expenditure." During the year the assessee claimed a sum of Rs.2,18,82,313 under the head 'repairs & maintenance - Building and Plant & Machinery'. After calling for various details from the assessee, the AO analysed the break-up of expenditure and arrived at a disallowance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted by the assessee vide letter dated 20.6.2022 as well as the documents in the form of additional evidence and decide the allowability of the same in accordance with law, after giving reasonable opportunity of being heard to the assessee. 39. Ground No.6 is regarding disallowance of lease rentals paid on equipment and motor cars. The grounds raised by the assessee in this regard are as follows:- "6.1 The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 25,500,765 and Rs 77,520,788 pertaining to lease rentals paid by the Appellant on account of assets taken on lease being equipment and motor car respectively by treating the same as capital in nature. 6.2. Without prejudice to the above, the learned AO has erred on facts in disallowing an amount of Rs 25,500,765 pertaining to lease rentals on equipment as against the amount of Rs 23,059,332 claimed by the Appellant in the computation of income. 6.3. The learned CIT(A) and the AO have erred in law and on facts in disregarding the reliance placed by the Appellant on the decision of the Honourable Supreme Court in the case of M/s ICDS Limited Vs CIT (350 ITR 527). 6.4. Without pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In summary, the accounting treatment prescribed for finance leases for a lessee is as follows:- - The assets taken on finance lease are capitalised in the books of accounts of the lessee and depreciation is computed in the books of accounts. However, the value at which the purchase is recorded does not contain margin on sale of the lessor; - This margin is accounted by way of interest in the books of the lessee (ie finance lease): - The monthly instalments paid by the lessee are towards principal and interest charges components - - The interest component is booked as finance charges in the books of accounts; and The principal amount is reduced from the lessor's account in the books of the lessee; - Any profit / loss on account of disposal of the leased asset are to be charged to the profit and loss account. 42. As far as Tax treatment of finance lease for income tax purposes is concerned, as per Circular No. 2 dated February 9, 2001 ("the Circular") issued by the Central Board of Direct Taxes ("CBDT"), pertaining to finance lease arrangements, it has been clarified that the provisions of AS 19 shall not be applicable for tax purposes. This Circular seeks to conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder finance lease. Therefore, Assessee is only eligible to claim depreciation on the assets acquired under finance lease and not the lease rental paid towards acquisition of these assets; * If the Assessee claims the lease rentals as revenue expenditure, the Assessee ought to have debited the same to profit and loss account. An expenditure not debited to profit and loss account cannot be claimed as revenue expenditure; * The assessee has not deducted tax on the lease rental paid under section 1941 of the Act. Therefore, lease rentals are disallowed under section 40(a)(ia) of the Act; * The Assessee and the lessor have collided with each other, wherein both the parties have made undue claims with an intention to suppress their profits. 45. On appeal by the assessee, the CIT(A) upheld the order of the AO. Aggrieved by the order of the CIT(A), the assessee has preferred ground No.6 before the Tribunal. 46. We have heard the rival submissions. We have also perused copies of the lease agreement entered into between the assessee and the lessor. It is clear from the terms of the agreement that the assessee was only a lessee and the lessor was the owner of the equipment as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lease rentals. On a perusal of the order of the Revenue authorities, we do not find any specific discussion on this issue. In these circumstances, we deem it fit and proper to remand the question whether the lease rentals were subjected to TDS by the Assessee. The AO will afford due opportunity of being heard being to the Assessee. Thus, ground No.6 is partly allowed. 48. Ground No.7 raised by the assessee reads as follows: 7. Disallowance of profit on foreclosure of leased assets 7.1. The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 5,570,701 pertaining to the profit (as per books) on foreclosure of finance leased assets. 7.2. The learned CIT(A) and the AO have erred in law and on facts in not appreciating the fact that the profits so arrived are only for the purpose of the books of accounts and the gains, if any, are only notional and therefore are not chargeable to tax. 7.3. Without prejudice to the above, the AO and CIT(A) has erred in law and on facts in disallowing lease rentals and also disallowing profit on foreclosure of leased assets which tantamount to double disallowance of the amount of Rs 5,570,701. 49. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore the gain on foreclosure of lease should be taxed as income. 51. We have heard the rival contentions and we are of the view that the profit on foreclosure of leased assets is purely a notional entry in compliance with the requirements of AS-19 and no income can be said to have accrued to the assessee by reason of such accounting treatment. It was made clear by the Assessee that as per tax treatment for the purpose of the Act is concerned, the treatment accorded was that the Assessee was only a lessee of the assets and could neither gain or lose on foreclosure of the lease. Further, on the issue of allowing lease rentals as a deduction, we have already held that the said expenditure is a revenue expenditure and therefore the entire premise on which the impugned addition has been made by the Revenue authorities does not survive. Hence, the addition made as above is directed to be deleted and ground No.7 is allowed. 52. Ground No.8 raised by the assessee read as follows:- 8. Disallowance of software development expenses 8.1. The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 214,825,509 in relation to the software development ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iconductor Technology 49,66,000 2. Couth Infotech Ltd. 10,02,645 3. Cranes Software International Ltd. 17,23,959 4. Dr.Sushil Kumar Sinha 29,98,937 5. E4e Business Solutions India 93,78,398 6. Embwise Technologies Ltd. 11,71,711 7. Mindtree Consulting Ltd. 8,27,43,181 8. Mistral Solutions 13,58,750 9. Processor Systems 45,12,056 10. Qai India Ltd. 89,44,627 11. Aualcore Logic Ltd. 38,12,588 12. Soliton Technologies 71,91,556 13. Symphony Services India Ltd. 3,12,67,883 14. Tes Pvt.Electronic Pvt.Ltd. 1,08,02,661 15. Wipro Infotech 1,70,02,557 16. 3i Infotech Ltd. 58,01,920 Total 19,46,79,429 57. In all there were 27 parties (Symphony Services India Ltd., appears twice in the first and the third chart. The AO made a disallowance of Rs.4,80,75,547/- u/s. 40(a)(ia) of the Act for nondeduction of tax at source as per the following details:- (i) In respect of payment of Rs.2,37,95,808 being payment made to Aircent Technologies no evidence of TDS was filed.\ (ii) In respect of payment made to Karnataka Micro Electronic, Sankulp Semi Conductor, Tata Elxsi and Poseidon design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which we have noticed in the order of the CIT(A) is that despite submissions made with regard to unexplained expenditure under section 69C of the Act of Rs.4,51,66,023/- and another sum of Rs.12,15,83,939/-, the CIT(A) has not rendered any findings on the above submissions. These submissions are at pages 844 to 851 of the Assessee's PB. In so far as the reconciliation with regard to the gross amount as per TDS Certification and as per the ledger of the assessee is concerned, the CIT(A) has held that the assessee was unable to file reconciliation except in respect of 2 parties viz., Processors Systems India Pvt. Ltd., and 3i Infotech Ltd. It is the plea of the assessee that such reconciliation was provided by the assessee before the CIT(A). 63. Another disallowance under section 40(a)(ia) of the Act was a sum of Rs.2,37,95,808/- which was a payment made to Aricent Technologies Ltd., Mauritius. In so far as the payment made to this party is concerned, it was the plea of the assessee that Aricent Technologies is a tax resident of Mauritius and therefore in terms of DTAA between India and Mauritius, the payment made by the assessee has to be regarded as only a business income and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts in concluding that the expenditure incurred was in relation to purchase of software and not in relation to rendering of service. The learned CIT(A) and the AO have erred in not considering the Appellant's contentions that there was neither any enduring benefit nor new capital asset which was acquired by TI India pursuant to incurring of such expense. 9.3 The CIT(A) has erred in law and on facts in not admitting the evidence (in the form of a confirmation letter from the holding company to which payment was made) submitted by the Appellant as the said evidence was produced on the specific direction of the CIT(A) (As per Rule 46A(4) of the Rules). 9.4 The learned CIT(A) and the AO have erred in law and on facts in in treating the expenditure as capital in nature which is contrary to the order of the Transfer Pricing Officer ("TPO") where the same has been considered as part of operating expenditure. 66. The material facts in so far as ground No.9 is concerned are that the assessee claimed deduction of a sum of Rs.53,73,98,714/- under the head IT support services. The AO came to the conclusion that on a perusal of the particulars that the assessee has purchased softwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort services is dated 01.01.2006 and the information technology services were provided by Texas Instruments, USA. The agreement clearly mentions that the assessee desires to avail information technology services from the parent company to better carry on its operations of the business. The nature of services for the following services to be performed by the parent company 1.0 Services to Be Performed By TI 1.1 Purchaser employs TI to provide it with services as to certain phases of its information technology needs, including but not limited to: * Maintenance and on-going support services for various information systems including but not limited to SAP. Oracle, Peoplesoft, UNIX, etc. * System malfunction and software repair. * Manage and coordinate with worldwide third party vendors such as SAP, Oracle, Peoplesoft, Unix, Network Appliance etc for required support for various information systems 13. The mode of payment is on the basis of allocation which is as follows: 2.0 Allocation of Expenses. Invoicing. and Payments 2.1 The IT costs incurred by TI and subject to allocation and reimbursement by Purchaser shall be calculated on a calendar year basis and refl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is deleted. In the result, these grounds of appeal are allowed." 16. At the time of hearing, learned Counsel for the assessee brought to our notice that in Assessment Year 2011-12, on identical expenditure in assessee's own case, the Tribunal in ITA Nos.275, 525/Bang/2019, order dated 11.03.2022, upheld similar order of the CIT(A) deleting the addition made by the AO. The relevant observations of the Tribunal in this regard are contained in paragraph 6.3. It is not disputed before us that the facts and circumstances of the case are identical. In these circumstances, following order of the Tribunal in Assessment Year 2011-12, we uphold the order of the CIT(A) and dismiss ground No.3 raised by the Revenue." 68. We are of the view that in the light of the aforesaid decision, the deduction claimed should be allowed. The expenditure in question was purely a revenue expenditure and cannot be disallowed as capital expenditure. We, therefore, direct that the addition made in this regard should be deleted. 69. Ground No.10 raised by the assessee reads as follows:- 10. Disallowance of employee stock option expenses 10.1 The learned CIT(A) and the AO have erred in law and on fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly the sum of Rs.14,19,397/- is disallowed and added back." 72. On appeal by the assessee, the CIT(A) confirmed the order of the AO. Aggrieved by the order of the CIT(A) the Assessee has raised Grd.No.10 before the Tribunal. We have heard the rival submissions. The two invoices in question based on which the impugned disallowance was made by the Revenue authorities is at pages 418, 419 of the assessee's PB. These invoices are dated 15.05.2009. In a submission filed by the assessee before the AO dated 18.12.2012, the assessee has mentioned the dates of the invoice as 05.10.2012. It is pertinent to mention that the accounts of the assessee had not been finalized as on 15.05.2009 and therefore this sum was claimed as a deduction. It is because of the wrong date given in the submission before the AO dated 18.12.2012 that the AO has taken the view that the invoices are not pertaining to previous year relevant to Assessment Year 2009-10. In the light of the evidence available on record, we are of the view that the disallowance made by the AO and sustained by the CIT(A) has to be deleted and a sum of Rs.14,19,397/- being a revenue expenditure pertaining to Assessment Year 2009-10 h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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