2014 (11) TMI 1202 - AT - Income Tax

Nature of expenditure - Software Expenses allowability - capital or revenue expenses - admission of additional evidence - HELD THAT - Following this decision of the co-ordinate bench of this Tribunal in the assessee s own case for Assessment Year 2007-08 2013 (9) TMI 189 - ITAT BANGALORE we also deem it proper to restore this issue back to the file of the Assessing Officer to examine and reappraise the additional evidence filed by the assessee in respect of expenditure incurred on purchase of software of 10 lakhs and above and decide the issue in accordance with the decisions of the Hon ble High Court of Karnataka in the case of Toyota Kirloskar Motors P. Ltd. 2013 (2) TMI 108 - KARNATAKA HIGH COURT and Amway India Enterprises 2011 (11) TMI 4 - DELHI HIGH COURT Penalty u/s.271(1)( c) - HELD THAT - This ground of appeal is premature as no order levying penalty u/s.271(1)(c) of the Act has been passed by the Assessing Officer. In this view of the matter as no cause of action / grievance arises to the assessee by mere issue of the said notice this ground is not maintainable and is accordingly dismissed. Deduction claimed u/s.80 JJA - AO disallowed the assessee s claim for deduction under section 80 JJA of the Act as the assessee could not substantiate the claim particularly with respect to the definition of workmen as it appeared in the Industrial Disputes Act 1947 - HELD THAT - Following the above referred decision of the co-ordinate bench of this Tribunal in the assessee s own case for A.Y. 2007-08 (supra) we are of the considered view that it would be just and fair to restore this issue of deduction u/s. 80 JJA of the Act back to the file of the A.O. with the direction to re-examine and re-adjudicate this issue by passing a reasoned and speaking order; only after affording the assessee adequate opportunity of being heard and to file required details. The assessee is also hereby directed to co-operate in the matter by producing / filing the details / explanations called for by the A.O. It is ordered accordingly. Deduction u/s.10A - excluding the expenditure on telecommunication charges and provision of technical services abroad in foreign currency both from export turnover as well as total turnover - HELD THAT - Issue is covered in favour of the assessee by the decision of the Hon ble High Court of Karnataka in the case of Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT as held that for the purposes of computing deduction under section 10A of the Act when the Export Turnover is to be arrived at by excluding expenses incurred on telecommunication charges etc. incurred in foreign currency the same expenses should be excluded from total turnover also. Decision cited supra is applicable to the case on hand and accordingly direct the Assessing Officer to recompute the deduction under section 10A of the Act for Assessment Year 2008-09 by accordingly excluding the expenditure on telecommunication charges and provision of technical services abroad in foreign currency both from export turnover as well as total turnover.

Issues Involved:
1. Disallowance of software expenses on which TDS was withheld.
2. Capitalization of software expenses.
3. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act.
4. Deduction claimed under section 80 JJA of the Income Tax Act.
5. Deduction under section 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Software Expenses on which TDS was withheld:
The assessee challenged the disallowance of payments related to software expenses amounting to Rs. 3,05,16,386 on which TDS was withheld, arguing that no opportunity for a personal hearing or presenting technical/factual arguments was granted. However, this ground was not pursued during the appellate proceedings and was dismissed for non-prosecution.

2. Capitalization of Software Expenses:
The assessee contested the action of the CIT (Appeals) in upholding the Assessing Officer's decision to capitalize software expenses amounting to Rs. 7,73,99,445, claiming that these expenses do not result in any enduring benefit and should be treated as revenue expenditure. The assessee provided additional evidence and cited various judicial decisions to support its claim. The Tribunal admitted the additional evidence and restored the issue back to the Assessing Officer to reappraise the expenditure in accordance with relevant judicial decisions, after giving the assessee an opportunity of hearing. This ground was allowed for statistical purposes.

3. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee challenged the initiation of penalty proceedings under section 271(1)(c) of the Act. The Tribunal held that this ground was premature as no order levying penalty had been passed by the Assessing Officer. Consequently, this ground was dismissed.

4. Deduction Claimed under Section 80 JJA:
The Assessing Officer disallowed the assessee's claim for deduction under section 80 JJA of the Act, as the assessee could not substantiate the claim with reference to the definition of "workmen" under the Industrial Disputes Act, 1947. The CIT (Appeals) allowed the deduction, relying on the decision of the Tribunal in the case of Texas Instruments India (P) Ltd. The Tribunal restored the issue back to the Assessing Officer for re-examination and re-adjudication, directing the Assessing Officer to pass a reasoned and speaking order after affording the assessee an opportunity of being heard and to file the required details. This ground was allowed for statistical purposes.

5. Deduction under Section 10A:
The Assessing Officer recomputed the deduction under section 10A by reducing expenses on telecommunication charges and provision of technical services abroad from export turnover without correspondingly reducing them from total turnover. The CIT (Appeals) directed the Assessing Officer to recompute the deduction by reducing these expenses from both export turnover and total turnover, following the decision of the Karnataka High Court in the case of Tata Elxsi Ltd. The Tribunal upheld the CIT (Appeals)'s decision, directing the Assessing Officer to recompute the deduction under section 10A accordingly. The grounds raised by the Revenue on this issue were dismissed.

Conclusion:
The assessee's appeal was partly allowed for statistical purposes, and the Revenue's appeal was also partly allowed for statistical purposes. The Tribunal directed re-examination and re-adjudication of certain issues by the Assessing Officer, while upholding the CIT (Appeals)'s decisions on others. The order was pronounced in the open court on 14th November 2014.

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