2021 (1) TMI 321 - AT - Income Tax

Disallowance of deduction of claim u/s 80JJAA - salary paid to new regular workmen - HELD THAT - As decided in own case 2014 (11) TMI 1202 - ITAT BANGALORE submissions of the assessee before CIT(A) that the DVO has not considered the units in County I project and therefore the report of the DVO cannot be said to be final in the matter. In these circumstances, we do not find any merit in the ground No.3 raised by the Revenue. In any event, the physical measurement has to be taken by the AO and the AO is at liberty to take physical measurement in an appropriate manner and therefore there cannot be any grievance to the Revenue. For the reasons given above, we find no merit in the appeal by the Revenue. Remit the issue to the file of Assessing Officer on similar directions. The lower authorities have to take same view on this issue as taken in the A.Y. 2008-09. This ground of appeal is allowed for statistical purposes. Disallowance of Annual Maintenance Contract and software expenses - Addition u/s 40(a)(i)/ 40(a)(ia) on account of non-deduction of tax at source - AR submitted that the learned CIT(A) ought to have appreciated that that the payments made by the assessee towards purchase of software is not covered within the meaning of royalty / royalties under the applicable DTAA and hence, the Appellant was not under the obligation to withhold taxes - HELD THAT - We are of the opinion that the assessee cannot foresee the changes in the Act which was made wherein Expln. 5 to Section 9(1)(vi) of the Act was inserted vide Finance Act, 2012 w.e.f. 1.6.2016 since these payments are made prior to this amendment. Being so, following the Tribunal order in the case of Acer India Pvt. Ltd. 2020 (10) TMI 450 - ITAT BANGALORE we allow the above ground taken by the assessee. Deduction of education cess and secondary higher education cess - assessee submitted that the assessee out of abundant caution had not claimed the said deduction in the return of income for the year under consideration in the absence of clarity in respect of the said issue - HELD THAT - As relying on VOLTAS LIMITED 2020 (7) TMI 125 - ITAT MUMBAI deducation Cess and the Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) .

Summary

Issues Involved:
1. Disallowance of deduction under Section 80JJAA of the Income Tax Act, 1961.
2. Disallowance of Annual Maintenance Contract (AMC) and software expenses.
3. Deduction of education cess and secondary higher education cess.

Issue-wise Analysis:

1. Disallowance of Deduction under Section 80JJAA:

The primary issue in this appeal was the disallowance of the deduction claimed by the assessee under Section 80JJAA of the Income Tax Act, 1961. The assessee claimed a deduction of ?23,25,88,302 for salary paid to new regular workmen. The Assessing Officer (AO) denied the claim, citing that the assessee was not an industrial undertaking, was a service provider, did not pay wages to employees, and did not employ workmen as defined under the Industrial Disputes Act, 1947.

The CIT(A) upheld the AO's decision, noting that the assessee failed to produce appointment letters and hierarchy details of employees. It was observed that many employees had supervisory roles and high salaries, which did not fit the definition of 'workmen' under Section 80JJAA. Additionally, deductions were claimed for employees who had not completed 300 days of employment in the relevant year, violating the conditions of Section 80JJAA.

The Tribunal remitted the issue back to the AO for re-examination, directing a reasoned and speaking order after affording the assessee adequate opportunity to file required details.

2. Disallowance of Annual Maintenance Contract (AMC) and Software Expenses:

The CIT(A) disallowed AMC expenses of ?3,24,89,688 under Section 40(a)(i)/40(a)(ia) for non-deduction of tax at source. The CIT(A) also treated software purchases of ?5,18,62,176 as capital expenses, arguing they provided enduring benefits and were not part of profit-making apparatus.

The Tribunal referred to the case of Acer India Pvt. Ltd. vs. JCIT, where it was held that the liability to deduct tax at source cannot be fastened retrospectively. Thus, the Tribunal allowed the assessee's claim, stating that the assessee could not foresee changes in the Act.

3. Deduction of Education Cess and Secondary Higher Education Cess:

The assessee raised an additional ground for the deduction of education cess and secondary higher education cess under Section 37(1). The Tribunal admitted the additional ground, citing the Bombay High Court's decision in Sesa Goa Limited vs. JCIT, which held that cess is not disallowable under Section 40(a)(ii). The Tribunal followed this precedent and allowed the deduction.

Conclusion:

The Tribunal remitted the issue of deduction under Section 80JJAA back to the AO for re-examination. It allowed the deduction of AMC and software expenses, following the principle that tax deduction liability cannot be applied retrospectively. Additionally, the Tribunal allowed the deduction of education cess and secondary higher education cess based on judicial precedents.