2014 (3) TMI 1186 - AT - Income Tax

Computation of deduction u/s. 10A / 10B - Exclusion of Telecommunication Charges and expenditure in foreign Currency from export turnover - CIT-A directed AO to exclude the telecommunication expenses Chennai unit - II and Bangalore strategic business Unit from the total turnover as well - HELD THAT - Whatever was argued by the assessee in the relevant grounds before the CIT(A stands accepted. In other words there is no justification on assessee s part to raise the grounds in question before the tribunal . The purpose of reproducing the entire relevant portion of the CIT(A) s order is to support our observations that there is no relevant argument which remains to be accepted. The assessee raises no plea before us that the relevant arguments were either not considered or accepted by the CIT(A). In these circumstances we find these grounds to be entirely misconceived. The same are accordingly rejected. Disallowance u/s 14A r.w.r.8D - is if at all section 14A is held applicable; whether or not the impugned disallowance can be computed under rule 8D which was notified on 24.3.2008? - HELD THAT - We draw support from the order of the Chennai tribunal in TVS Investments Ltd. 2013 (1) TMI 786 - ITAT CHENNAI to hold that rule 8D could not have been invoked for computing the disallowance from 1.4.2007 to 23.3.2008 inspite of being applicable with effect from assessment year 2008-09. That being the case we proceed to make disallowance u/s 14A by reasonable computation and deem it fit that lumpsum disallowance of 35 lakhs would meet the ends of justice. Accordingly the assessee s arguments are partly accepted. Disallowance/addition of expenditure incurred towards current repairs - HELD THAT - As in assessment year 2004-05 this issue had arisen in assessee s own case which was remanded back to the AO. On a query being put up by the bench it informs us that the Assessing Officer is yet to pass consequential order. In these circumstances by following the order of the tribunal for assessment year 2004-05 we restore this issue also to the file of AO for decision afresh after giving adequate opportunity of hearing to the assessee. This ground is accepted for statistical purposes. Disallowance of capitalization of software expenses - HELD THAT - As the assessee submits that the authorities below have wrongly capitalized the impugned software expenditure. In support it has neither filed any cogent evidence nor case law against the special bench decision in Amway India Enterprises 2008 (2) TMI 454 - ITAT DELHI-C - the impugned capitalization cannot be interfered with on mere asking. Accordingly we affirm the findings of the CIT(A) in capitalizing the software expenses.

Summary

Issues:
1. Exclusion of expenses incurred in foreign currency and telecommunication expenditure from export turnover.
2. Disallowance under section 14A for expenses incurred towards current repairs.
3. Disallowance of capitalization of software expenses.

Exclusion of expenses incurred in foreign currency and telecommunication expenditure from export turnover:
The cross appeals were filed by the assessee and the Revenue for the assessment year 2008-09, challenging the order of the Commissioner of Income-tax (Appeals). The assessee contested the exclusion of expenses in foreign currency and telecommunication charges from export turnover, while the Revenue argued against the direction to recompute deduction u/s 10A by excluding telecommunication expenses from export and total turnover. The Assessing Officer excluded these expenses from export turnover but not from total turnover. The CIT(A) accepted the assessee's arguments based on a Special Bench decision and directed the exclusion of telecommunication expenses from total turnover as well. The Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal.

Disallowance under section 14A for expenses incurred towards current repairs:
The Assessing Officer disallowed expenses of &8377; 97,78,639 under section 14A as the assessee maintained investments in mutual funds resulting in exempt income. The CIT(A) confirmed this disallowance. The Tribunal held that rule 8D could not have been invoked for the relevant period, and made a lump sum disallowance of &8377; 35 lakhs, partly accepting the assessee's arguments.

Disallowance of capitalization of software expenses:
The Assessing Officer capitalized software expenses of &8377; 78,67,240 based on enduring value beyond two years, following a special bench decision. The CIT(A) upheld this decision, and the Tribunal affirmed it, stating that the assessee failed to provide evidence or case law against the capitalization. The assessee's appeal was partly allowed.

In conclusion, the Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, addressing the issues of exclusion of expenses from export turnover, disallowance under section 14A, and capitalization of software expenses comprehensively in the judgment delivered on March 3, 2014, at Chennai.