2015 (5) TMI 897 - AT - Income Tax

Claim of deduction u/s.10A - Held that - this matter requires re-examination by the AO. It is stated that assessee was claiming 10A deduction in earlier years and as per the provisions, assessee is eligible for continuation of claim for a period of ten years. Therefore, it is necessary that the eligibility of assessee should be examined. As seen from the assessment order, the AO seems to have been carried away by the amount of claim made against export turnover and no other conditions/details seems to have been examined. Before us, Ld. Counsel filed a copy of form 56F which is stated to have been filed before the authorities but not acknowledged. Therefore, in the interest of justice and noting that assessee s claim was made in earlier years, we are of the opinion that matter requires re-examination by the AO. AO also should examine the eligibility of the claim and the amount claimed towards deduction, keeping in view the eligible unit and its profits as per the provisions of the Act. - Decided in favour of assesse for staitsical purposes. Claim of capital work in progress - held that - First of all, the entire amount of ₹ 6,75,96,165/- was disallowed by the AO, therefore question of enhancing the amount does not arise. The issue whether capital work in progress can be reduced or not was not an issue before the AO and this aspect was not examined at all. Since the AO put it to CIT(A), with reference to claim of ₹ 1,96,28,459/- and capital work in progress reduced in the computation, which the Ld. CIT(A) directed to be enhanced by an amount of ₹ 6,75,96,165/- , that too without giving opportunity to assessee as contended, we are of the opinion that this capital work in progress issue also requires re-examination. - Decided in favour of assesse for staitsical purposes. Investment written-off disallowed - AO noted that investment written-off cannot be treated as an allowable deduction as it is not a revenue expenditure - Held that - This claim also requires re-examination. Assessee s claim that amounts are originally offered as income, subsequently converted to equity of the subsidiary and written-off on the basis of the circulars of RBI requires examination by AO, as none of the figures are comparable on the basis of the annual reports filed before us. In order to examine the issue and to give one more opportunity to assessee to substantiate the claim, matter is restored to the file of AO with a direction to examine the factual aspect of the contentions of assessee and then decide whether the amount can be allowed as revenue expenditure or not as per the provisions of Act.- Decided in favour of assesse for staitsical purposes. Software purchases - revenue v/s capital expenditure - Held that - As seen from the assessment order, the issue raised by AO is only with reference to non-furnishing of vouchers with respect of purchases claimed in the P&L A/c. There is no dispute before the AO as the software purchases are on revenue account. Only for lack of proof of software purchase, AO disallowed the amount. The said proof was furnished before the Ld. CIT(A) which was also sent on Remand Report to the AO. We are surprised to see that Ld. CIT(A) directing the AO to treat as capital purchase which issue not all raised by AO nor by assessee. In view of this, we modify the order of CIT(A) and direct the AO to allow the amount as revenue expenditure..- Decided in favour of assesse. Non deduction of TDS on audit fee - Held that - Invoking the provisions of Section 40(a)(ia) entire amount of ₹ 1 Lakh was disallowed. Before the Ld. CIT(A), assessee submitted that amount of TDS paid of ₹ 87,857/- on 27-08-2008 involves TDS on audit of fee of ₹ 1 Lakh. Ld. CIT(A) directed the AO to verify and allow the amount. Since the CIT(A) s direction is only with reference to direction given to the AO, we reiterate the same direction. - Decided against revenue. Salary paid to overseas employees disallowed - Held that - Before the Ld. CIT(A), assessee made detailed submissions and furnished various details including various contracts and man power employed organization-wise. This information was also sent to AO in the Remand Report. In view of this, CIT(A) was correctly of the opinion that the disallowance made by the AO is not warranted and accordingly deleted. - Decided against revenue.

Summary

Issues Involved:
1. Claim of deduction u/s.10A of the Act
2. Investment written-off Rs. 4,09,46,675/-
3. Software purchases
4. Issue of audit fee Rs. 1 Lakh
5. Salary paid to overseas employees

I. Claim of deduction u/s.10A of the Act:
The appellant filed a belated return for AY 2009-10, resulting in various disallowances by the AO, including a deduction under section 10A. The AO disallowed the entire claimed amount of Rs. 6,75,96,165, stating that the prerequisites for claiming the deduction were not fulfilled. The CIT(A) acknowledged a typographical error and restricted the disallowance to Rs. 1,53,00,444. The ITAT held that the matter required re-examination by the AO, emphasizing the need to assess the eligibility of the claim and the amount claimed for deduction under section 10A. The issue of capital work in progress was also directed for re-examination due to lack of proper assessment by the AO.

II. Investment written-off Rs. 4,09,46,675/-:
The appellant claimed this amount as a write-off in the P&L A/c, which the AO disallowed as not a revenue expenditure. The CIT(A) concluded that the write-off did not meet the prescribed conditions. The ITAT decided that the claim required re-examination by the AO to assess whether the write-off could be allowed as a revenue expenditure, directing a factual examination of the contentions made by the appellant.

III. Software purchases:
The appellant, engaged in software development, claimed software purchases of Rs. 59,97,744, of which the AO accepted only a small portion. The ITAT noted that the vouchers were furnished before the CIT(A) and directed the AO to allow the amount as a revenue expenditure, as the issue was primarily about the lack of proof of software purchase.

IV. Issue of audit fee Rs. 1 Lakh:
The AO disallowed this amount due to non-deduction of TDS. The CIT(A) directed the AO to verify and allow the amount, leading the ITAT to reiterate the same direction, allowing the ground of appeal accordingly.

V. Salary paid to overseas employees:
The AO disallowed Rs. 3,32,00,000 claimed as salaries to overseas employees, citing lack of details and absence of branches in the relevant countries. The CIT(A) deleted the disallowance after detailed submissions and clarification by the appellant. The ITAT, after examining the provided information and clarification, upheld the CIT(A)'s decision, dismissing the Revenue's grounds on this issue.

In conclusion, the ITAT allowed the appellant's appeal for statistical purposes and dismissed the Revenue's appeal, emphasizing the need for re-examination and proper assessment by the AO on various issues raised during the proceedings.