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2012 (11) TMI 586 - HC - Income TaxExpenditure on improvement of lease hold premises - Revenue v/s Capital - Held that - If the Revenue s request for remitting the matter for examination of the entire expenditure, including what was allowed by the AO himself, were to be acceded to the assessee would be worse off having regard to the fact that the AO himself has allowed its claim and permitted deduction of Rs. 70 odd lakhs. Thus as the Tribunal made a limited remand to the lower authorities to determine the exact nature and quantum of brick work which would entitle the assessee to the deduction claimed u/S 37 limited to Rs. 2.75 crores no substantial question of law arises - in favour of the assessee. Deduction u/s 10A - disallowance as services rendered by the assessee were not computer software - assessee granted the benefit of Section 80HHE - Held that - The AO s order has alluded to the CBDT Circular dated 26.09.2000 which explains the services as including back-office, operations, call centres, content development or animation, data processing engineering and design, geographic information system services, human resource services, insurance claim processing, legal databases, medical transcription, pay roll, remote maintenance, revenue accounting, support centres, web-site services etc. It is apparent that the CBDT itself had interpreted the term computer software occurring in Explanation 2 to Section 10A in an expansive rather than a narrow manner as was done in the present case by the AO. In this case the materials placed by the assessee on record reveal that its program management system was nothing but a development of software which assisted in management services. The assessee s program management services which is a method of providing software to achieve a particular end cannot be said to be excluded from the term computer software . This Court accordingly holds that the findings of the Tribunal are sound and do not require any interference - in favour of assessee. Disallowance of Bad debts - Held that - Once the CIT (Appeals) after satisfying himself about the correctness of the findings by the AO, held that the latter had made additions wrongly by not actually seeing that the amount was written off, a finding that was endorsed by the Tribunal that finding of fact cannot be interfered with by the High Court exercising its jurisdiction under Section 260A. The Revenue s arguments cannot also be accepted as it would amount to accepting their position, plainly not permitted in an appeal to this Court under Section 260A, which his confined in its consideration to substantial question of law - in favour of assessee. Interest u/s 234D - Held that - As decided in IT v. Jacabs Civil Incorporated, Mitsubishi Corpn. 2010 (8) TMI 37 - DELHI HIGH COURT this provision came into force on 01.06.2003 and was applicable only from the assessment year 2004-05. Thus it could not have been applied as it was done by the AO in the present case - in favour of assessee.
Issues Involved:
1. Deletion of addition on account of expenditure incurred towards improvement of leasehold premises. 2. Allowing deduction under Section 10A which was disallowed by the Assessing Officer. 3. Deletion of addition on account of bad debts. 4. Deletion of interest charged under Section 234D of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Expenditure Incurred Towards Improvement of Leasehold Premises: The Tribunal remanded the matter to the Assessing Officer (AO) to determine the nature and quantum of brickwork expenditure, which would qualify for deduction under Section 37 of the Act. The Tribunal noted that the expenditure on repairs of leased premises is deductible under Section 30(a)(ii) and that the fiction created under Explanation-1 to Section 32 deals with depreciation, not repairs. The Revenue contended that the expenditure was capital in nature, providing an enduring benefit, and thus only entitled to depreciation. However, the Tribunal's remand was limited to determining if any new space was created by brickwork, which would classify as capital expenditure. The Court concluded that the Tribunal's remand was appropriate, and no substantial question of law arose, thus ruling in favor of the assessee. 2. Allowing Deduction Under Section 10A: The AO disallowed the deduction under Section 10A, suggesting the assessee should have claimed it from the assessment year 1997-98 when it secured benefits under Section 80HHE. The Court found no legal or factual basis for this assumption. The AO also claimed the Chennai unit was formed by splitting up an existing unit, but provided no substantial findings. The Court highlighted that Section 10A(2)(ii) prohibits deduction for units formed by splitting up an existing business, but the assessee's unit was approved as a Software Technology Park (STP) unit, meeting all conditions under Section 10A. The AO's restrictive interpretation was unfounded, and the Court upheld the Tribunal's decision in favor of the assessee. 3. Deletion of Addition on Account of Bad Debts: The AO disallowed the bad debts claim, stating the debts were not written off in the accounts of the concerned previous year. The CIT (Appeals) and the Tribunal found that the assessee had actually written off the debts in the books of accounts, satisfying the conditions under Section 36(1)(vii). The CIT (Appeals) provided detailed analysis and evidence supporting the write-off. The Court ruled that the findings of the CIT (Appeals) and the Tribunal were factual and could not be interfered with under Section 260A, thus ruling in favor of the assessee. 4. Deletion of Interest Charged Under Section 234D: The Court noted that Section 234D came into force on 01.06.2003 and was applicable only from the assessment year 2004-05. Therefore, it could not be applied retrospectively by the AO. The Court cited the ruling in DIT v. Jacobs Civil Incorporated, Mitsubishi Corpn., supporting this view. Consequently, the Court ruled in favor of the assessee. Conclusion: All questions were answered in favor of the assessee and against the Revenue. The appeal was dismissed.
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