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2022 (8) TMI 512 - ITAT BANGALOREDisallowance of deduction claimed u/s 10A/10AA - AO rejected both the claims on the ground that the assessee has failed to comply with various conditions prescribed in those sections for allowing deduction - HELD THAT:- We restore three issues, viz.,Approval for foreign bank account, Nature of receipt of proceeds and Enquiries made through CBDT on genuineness of transactions to the file of Ld DRP, so that all of them may be examined together. Accordingly, we reject all other objections raised by the AO. After examining the above said three issues, the Ld DRP may issue appropriate directions to the AO on the issue of allowing deduction u/s 10A/10AA of the Act. Disallowance of expenses u/s 37(1) - assessee has voluntarily disallowed the above said expenses u/s 40(a)(i) / 40(a)(ia) of the Act for non-deduction of tax at source - HELD THAT:- As it is imperative for a concern, following mercantile system of accounting, to provide for all known expenses and losses as at the year end, even if the relevant bills have not been received. As per standard accounting practices, not providing for known expenses/losses would, in fact, distort the operating results of the business concern and it would not reflect true and fair profit of the year. It is the case of the assessee that it has provided for expenses for which services have been availed by it, meaning thereby, the liability to pay for those expenses has already accrued to the assessee. Accordingly, there should not be any reason to disallow the expenses u/s 37(1) of the Act. However, as noticed earlier, the AO has disallowed the expenses for non-furnishing of details that were called for by the AO. Accordingly, in the interest of natural justice, we are of the view that the assessee may be provided with one more opportunity to furnish the details that were called for by the AO. Accordingly, we restore this issue to the file of the AO for examining it afresh. We also direct the assessee to furnish the details that were called for by the AO. Royalty payment - payments made for purchase of finished goods, purchase of capital goods – tangible property, payment of royalty and payments for availing services - AO noticed that the assessee did not deduct TDS on payments - HELD THAT:- The Hon’ble Supreme Court in Engineering Analysis Centre of Excellence [2021 (3) TMI 138 - SUPREME COURT] held this kind of payments do not fall under the category of “Royalty” under India- Singapore DTAA - such payments made for purchase of shrink wrapped software are not royalty within the meaning of India – Singapore DTAA. We noticed that the Ld DRP has confirmed the disallowance by following the decision rendered by Hon’ble Karnataka High Court in the case of Samsung Electronics [2011 (10) TMI 195 - KARNATAKA HIGH COURT] which has been overruled by Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence [2021 (3) TMI 138 - SUPREME COURT] Accordingly, we direct the AO to delete the disallowance of Rs.278.68 crores. With regard to the remaining disallowance following the decision rendered by the co-ordinate bench in AY 2013-14, we restore the same to the file of Ld DRP with similar directions. Disallowance relating to non-reconciliation of Professional charges narrated as Audit Journal Vouchers - HELD THAT:- A.R submitted that the AO has not made similar kind of disallowances in other years. However, we notice that the assessee has claimed a sum as Reclassification of expenses, but it could not fully furnished details reconciling the above said amount. We notice that the ld DRP has granted relief to the extent of details furnished and confirmed disallowance for want of details. Before us, the assessee could not furnish the details for the above said amount. Accordingly, we have no other option, but to confirm the disallowance. Disallowance of depreciation claimed on leased assets - HELD THAT:- We notice that this issue has been restored back to the file of AO with the direction to follow the decision rendered by Hon’ble Supreme Court in the case of ICDS Ltd [2013 (1) TMI 344 - SUPREME COURT]. Following the same, we restore this issue to the file of AO with similar directions. Disallowance of foreign exchange loss - assessee has debited above said amount to the Profit and loss account and claimed the same as deduction - HELD THAT:- Unless the assessee submits relevant details before the AO, it will not be possible for the AO to decide about the allowability or otherwise of the claim. We notice that the assessee has submitted the details in a broad manner and further submitted the explanations/legal submissions. As rightly observed by Ld DRP, it is the responsibility of the assessee to furnish the details in support of its claim for deduction of expenses. If the assessee fails in its responsibility, then the tax authorities do not have any other option, but to disallow the claim. In the instant case, admittedly, the assessee has not furnished the required details. Accordingly, in the interest of natural justice, we are of the view that the assessee may be provided with an opportunity to furnish the relevant details before the AO. Accordingly, this issue is restored to the file of AO, who may examine this issue afresh. If the assessee fails to furnish the details to the satisfaction of the AO, then the AO may disallow the claim. Disallowance relating to purchase of shrink wrapped software to be deleted Disallowance of payment made to IBM Corporation - HELD THAT:- Disallowance has been made by the AO on the reasoning that the assessee has not proved that the tax was deducted at source from the above said payment. Before us also, the assessee did not furnish any details in this regard. Accordingly, we confirm the disallowance made by the AO. Disallowance made u/s 14A - HELD THAT:- Identical view has been expressed by Hon’ble Delhi High Court in the case of PCIT vs. IL & FS Energy Development Company Ltd [2017 (8) TMI 732 - DELHI HIGH COURT]. Since the assessee did not earn any exempt income during the year relevant to AY 2011-12, no disallowance u/s 14A can be made. Accordingly, we direct the AO to delete the disallowance made by him u/s 14A of the Act.
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