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TMI Blog2025 (5) TMI 1571X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case and in law, the Ld. AO as well the Hon'ble CIT(A) erred in disallowing the provision for leave encashment of Rs. 1,53,71,919/- by erroneously invoking the provisions of section 43B(f) of the Act. 1.1 That the Ld. AO as well as the Hon'ble CIT(A) erred on facts and in law in not appreciating that the provisions of section 43B(f) of the Act were not applicable in facts of the instant case. 1.2 That the Ld. AO erred in disallowing the provision for leave encashment by invoking provisions of see 43B(f) without appreciating that this amount does not represent sum payable by the company. 2. That the Ld. AO as well as the Hon'ble CIT(A) erred in not allowing the deduction for provision for warranty amounting to Rs. 5,73,56,176/- without appreciating that the provision was created on scientific basis and the same represents liability in praesenti allowable under section 37(1) of the Act. 2.1 The Hon'ble CIT(A) erred in not appreciating the basis adopted by the company for calculating the provision for warranty expenses thereby holding that there is hardly any co-relation between actual warranty expenses and provision made in the books of account for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to law, facts and circumstances of the case. 5.1 That the Hon'ble CIT(Appeals) erred in following the order of the Ld. AO, since the Ld. AO did not exercise his judgment in referring the appellant's case to the Transfer Pricing Officer (TPO). 5.2 That the Ld. CIT(Appeals) erred in law in relying on the order u/s 92CA(3) of the Act passed by the Ld. TPO and Ld. AO's action of confirming the Ld. TPO's order, which in itself is bad in law and liable to be quashed. 5.3 That the Ld. CIT (Appeals) grossly erred both in facts and law by upholding the decision of the Ld. AO/ TPO of disregarding the transfer pricing study (TP Study) and the fresh search conducted by the appellant in determining the arm's length price with respect to the international transactions undertaken by the appellant to provide software development services, to its overseas group companies. 5.4 That the Ld. CIT (Appeals) erred in supporting the use of current year data for comparable companies, i.e., data for IT 2004-05, despite the fact that the same was not available to the appellant at the time of preparing its TP documentation report. 5.5 That the Ld. CIT (Appeals) erred in accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are covered against the assessee in assessee's own case in AYs 2003-04 & 2004-05 vide order dated 24.08.2018 passed by ITAT and filed a copy of order at the Bar. The decision of coordinate Bench is also reported in (2019) 102 taxmann.com 567 (Delhi-Trib) and in this regard, he also brought to our notice para 10 of the aforesaid order. 4. On the other hand, ld. DR of the Revenue also submitted that the issue is covered against the assessee vide aforesaid order of ITAT in assessee's own case. 5. Considered the rival submissions and perused the material on record. We find that this issue is covered against the assessee vide coordinate Bench order dated 24.08.2019 (supra) and the relevant finding given in para 10 is reproduced below for the sake of clarity :- "10. We have carefully considered the rival contentions and found that the assessee has made a provision for leave encashment of Rs. 41633651/-. This sum was not paid during the year and therefore, is outstanding as provision for leave encashment payable. The only issue is whether the provision of section 43B(f) applies to that or not. As per provisions of section 43B (f) of the act any deduction otherwise allowable under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the provision made in an earlier year's is allowed, no deduction is permissible in respect of the same amount once again on payment basis. Therefore, if the assessee has made the provision of leave salary which has not been paid on or before the due date prescribed under the income tax act for filing of the return of income then such provision cannot be allowed as deduction in the year in which the provision is made but the payment has not been made before the due date of filing of the return of income. In view of this, we do not find any infirmity in the order of the lower authorities. Hence ground number 1 of the appeal of the assessee against the disallowance of provision of leave encashment by invoking the provisions of section 43B (F) of the act of Rs. 4163365/- is dismissed." 6. Respectfully following the decision of the coordinate Bench (supra), we dismiss ground nos.1 to 1.2 raised by the assessee. 7. With regard to grounds no.2 to 2.4, it is brought to our notice that the coordinate Bench in the decision (supra) considered the issue raised by the assessee in ground no.2 and remitted the issue back to the file of AO/CIT (A). He brought to our notice para 13 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the details of the software expenditure produced before us by the learned authorized representative, which was also provided to the learned departmental representative. Out of the total expenditure of Rs. 6714164/-, most of the expenditure has been incurred by the assessee towards the software annual maintenance charges. The assessee's major expenditure of Rs. 836030/- was also because of the annual renewal of the software licenses. Assessee has also made the software development expenditure for bringing up the relevant software used for the day-to-day business needs of the assessee. In view of this, it cannot be said that the software has given any benefit of enduring nature to the assessee or are capital expenditure in nature. In view of this is the expenditure incurred by the assessee on software expenditure is day-to-day routine expenditure and annual renewal charges only, we are of the opinion that it is revenue in nature. In view of this, we direct the learned assessing officer to delete the disallowance of Rs. 6714164/- made by the learned AO because of software expenditure holding the same to be capital expenditure. He is also further directed to withdraw the allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility but that does not absolve the assessee from being liable for liquidated damages on occurrence of the event of delay in execution of the contract. " (page 556 of the Corporate tax PB for AY 2006-07) B.5. The ITAT has not restored the matter back to the AO for any further verification and therefore the observation that the ground is allowed for statistical purposes in Para 175 is a typographical error on the face of it. B.6. This is also evident from the order giving effect to the order of Hon'ble Tribunal for AY 2007-08 which is enclosed as Annexure 'C'. In fact, the Hon'ble Members wanted to see the OGE for AY 2007-08 which was not readily available and thus a direction was given to submit the same, B.7. It may kindly be appreciated that the AO passed a fresh order of assessment as the matters relating to TP and Software Expenses were restored to the AO. The AO issued SCN and gave opportunity to the assessee only for TP addition and disallowance of Software expenses. The relief given in respect of liquidated damages was not an item which was either set aside or even considered again by the AO in the fresh assessment. The relief given by the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the decision of earlier assessment year and submitted that the same may be remitted back to the Assessing Officer for verification and prayed that the issue of BSNL may also be remitted back to Assessing Officer for proper verification. 16. Considered the rival submissions and material placed on record. We observed that assessee has claimed liquidated damages claimed by the BSNL and TATA in respective assessment years under consideration. It is brought to our notice that in AY 2007-08, the coordinate Bench in assessee's own case allowed the claim of the assessee by observing as under :- "169.1 We have considered the rival submission and have perused the record of the case. Admittedly the contract entered into by the Assessee with its customer contained a specific clause on liquidated damages which define terms and conditions of liquidated damages including the method of calculation as noted earlier. It is not disputed that assessee has created the provision only in those cases where the delay had actually occurred and on the basis of terms and conditions of contract. The terms of contract contemplated that the moment delay occurs in the execution of contract then assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s covered by the MAP provisions. 20. Ground no.6 is against the initiation of penalty proceedings u/s 271(1)(c) which is premature at this stage and accordingly, the same is dismissed as such. 21. Ground No.7 is general in nature, hence the same is dismissed as such. 22. In the result, the appeal filed by the assessee being ITA No.4789/Del/2014 for AY 2005-06 is partly allowed. 23. The assessee has filed appeal being ITA No.3641/Del/2015 for AY 2006-07 raising following grounds of appeal :- "The following grounds of appeal are independent of, and without prejudice to one another: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO and the Hon'ble CIT(A) is bad in law. 2. That the Ld. AO as well as the Hon'ble CIT(A) erred in not allowing the deduction for provision for liquidated damages amounting to Rs. 32,17,57,928/- without appreciating that the provision was created on scientific basis and the same represents liability in praesenti allowable under section 37(1) of the Act. 2.1 On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in mechanically following the order passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isdictional error as the Ld. AO has not recorded any reasons in the assessment order based on which he reached the conclusion that it was 'expedient and necessary' to refer the matter to the Ld. Transfer Pricing Officer ('Ld. TPO') for computation of the arm's length price, as is required under section 92CA(1) of the Act. 6. That the Ld. CIT erred in upholding the adjustment to the income of the appellant of Rs. 27,52,24,842 by holding that the appellant's international transaction of provision of software development services to the Associated Enterprises ('AEs') does not satisfy the arm's length principle as envisaged under the Act and in doing so have grossly erred in.- 5.1 disregarding the Arm's Length Price (,ALP'), as determined by the appellant in the TP documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 5.2 using current year data i.e., data for FY 2005-06 for comparable companies, despite the fact that the same was not available to the appellant at the time of preparing its TP documentation report; 5.3 arbitrarily disregarding the comparable co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the factual realities of the functional profile of the appellant in respect of its software development activities and wrongly holding that the appellant is involved in research and development activities and product development and consequently including companies involved in the trading of products in the comparable set 5.13 Without prejudice to ground 5.2, the action of Ld. CIT in confirming the action of the TPO in selecting comparable whose data does not correspond to the financial year of the Appellant as thus in conflict with Rule 10B(4) of the Income tax Act, being the data not contemporaneous. 7. That the Ld. CIT grossly erred on facts and in law in denying the benefit of (+/-) %% range mentioned in the proviso to section 92C of the Act to the appellant. That on the facts and circumstances of the case, the Ld. AO has erred in law in initiating penalty proceedings u/s 271(1)(C) of the Act for concealment of particulars of income and for furnishing inaccurate particulars thereof. That the above grounds of appeal are without prejudice to each other." 24. Ground No.1 is general in nature, hence not adjudicated. 25. Ground Nos.2 to 2.3 is covered in favour of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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