9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (4) TMI 300 - AT - Income TaxDisallowance of depreciation on computer software u/s 40(a)(ia) - assessee had purchased software but had not deducted TDS u/s 194J of the Act on the payment for its purchase - HELD THAT - As during the year assessee had purchased the software and it was capitalized and the purchase of software has not been claimed as an expenditure. It is also a fact that no TDS was deducted by the assessee on the purchase price paid by it. We find that the Bangalore Tribunal in the case of Kawasaki Microelectronics Inc. 2015 (9) TMI 9 - ITAT BANGALORE has held that the question of disallowance of expenses u/s 40(a)(ia) of the Act arises only when an expenditure is claimed by the assessee and on which the tax at source as per the provisions of Chapter XVII-B of the Act has not been deducted. It held that when assessee has not claimed payment as an expenditure, then the question of disallowance u/s 40(a)(ia) does not arise - when the assessee has once capitalized the payment and had not deducted TDS on such payments, Sec.40(a)(ia) of the Act cannot be invoked for disallowance of depreciation. Before us, Revenue has not pointed out any contrary binding decision in its support nor has placed any material to demonstrate that the aforesaid decision of Bangalore ITAT has been set aside / over ruled / stayed by higher judicial authorities. We are therefore of the view that the AO had erred in disallowing the claim of depreciation by invoking the provisions of Sec.40(a)(ia) of the Act. We therefore direct the AO to grant deduction of depreciation. Thus, the ground of the assessee is allowed. Denial of deduction u/s 10A with respect to Unit No.I, Bangalore - AO denied the claim of deduction as the claim of deduction was not made in the return of income - HELD THAT - The fact that the claim and detail of working of deduction of 10A has been made in the computation of income is evident from the computation filed by the assessee in the Paper Book. In such a situation, the claim of the assessee that the assessee had through oversight missed to claim the deduction cannot be brushed aside without there being any material to demonstrate to the contrary. We also find that the Hon ble Bombay High Court in the case of Pruthvi Brokers 2012 (7) TMI 158 - BOMBAY HIGH COURT has held that the jurisdiction of the appellate authorities to entertain the claim which has not been made before the AO but before the appellate authorities has not been rejected by the Hon ble Apex Court in the case of Goetze India Pvt. Ltd. 2006 (3) TMI 75 - SUPREME COURT - AO was not justified in denying the claim of deduction u/s 10A of the Act with respect to Unit No.1 of Bangalore. We therefore direct the AO to grant deduction subject to the assessee complying with other conditions of deduction. Thus, the ground No.2 of the assessee is allowed. TP Adjustment - international transactions with it s Associated Enterprises (AEs) - comparable selection - HELD THAT - Infosys Ltd. - since the turnover of the assessee was ₹ 342.21 crore, it would fall in the category of a medium seized firm as per Dun Brad Street categorization compared to Infosys Ltd., which would fall in large company with turnover greater than ₹ 2000 crore. It therefore directed its exclusion. Functional dissmilaity - ICRA Techno Analytics Ltd., and Infosys Ltd., are not comparables and Akshay Software Technologies to be the comparable company with the assessee. Risk adjustment - granting of percentage of risk adjustment by DRP - TPO denied the risk adjustments as he was of the view that assessee facing single customer risk which brings the assessee almost at par to the uncontrolled comparables and risk levels and therefore no adjustment was necessary - HELD THAT - We find that DRP after considering various decisions cited in his order has directed the TPO to decide the percentage of risk adjustment. Before us, Revenue has not pointed any contrary binding decision in its support nor has pointed out any fallacy in the findings of DRP. Before us, Ld.A.R. has further submitted that if Infosys Ltd., is excluded from the list of comparables then the assessee would be within the arms length as compared to that of comparables and no adjustment to ALP would be required. Since we have hereinabove upheld the order of DRP in excluding the Infosys Ltd. from the list of comparables and for the reasons cited herein above, we are of the view that no interference to the order of DRP is called for. Method of computation of deduction u/s 10A - HELD THAT - We find that identical issue arose before the Tribunal in assessee s own case for A.Y. 2009-10 wherein the Co-ordinate Bench of the Tribunal by following the decision of CIT Vs. HCL Technologies 2018 (5) TMI 357 - SUPREME COURT held that to calculate deduction u/s 10A of the Act, the expenses should be reduced from the export turnover and total turnover also. Before us, Revenue has not pointed out any contrary binding decision in its support. We therefore find no reason to interfere with the order of DRP. Thus, the grounds of Revenue are dismissed.
Issues Involved:
1. Disallowance of depreciation on computer software. 2. Denial of deduction under section 10A of the Act to Unit I, Bangalore. 3. Denial of deduction under section 10A of the Act to Unit II, Bangalore. 4. Levy of interest under Section 234B and Section 234C of the Act. 5. Initiation of penalty proceedings under section 271(1)(c) of the Act. 6. Exclusion of Infosys Ltd. as a comparable. 7. Granting of percentage of risk adjustment. 8. Method of computation of deduction under section 10A of the Act. Detailed Analysis: 1. Disallowance of Depreciation on Computer Software: The AO disallowed depreciation on computer software amounting to ?2,253,214 under section 40(a)(ia) due to non-deduction of TDS. The assessee argued that TDS provisions are not applicable to capitalized items. The Tribunal found that the Bangalore Tribunal in the case of Kawasaki Microelectronics Inc. held that disallowance under section 40(a)(ia) arises only when an expenditure is claimed. As the software was capitalized and not claimed as an expenditure, the Tribunal directed the AO to grant the deduction of depreciation. 2. Denial of Deduction under Section 10A to Unit I, Bangalore: The AO denied the deduction under section 10A for Unit I, Bangalore, as the claim was not made in the return of income. The DRP upheld this view. The Tribunal, however, noted that the assessee had been claiming this deduction since A.Y. 2001-02 and the omission was inadvertent. The Tribunal cited the Bombay High Court's decision in Pruthvi Brokers & Shareholders, which allows claims to be made before appellate authorities even if not made before the AO. The Tribunal directed the AO to grant the deduction subject to compliance with other conditions. 3. Denial of Deduction under Section 10A to Unit II, Bangalore: The AO denied the deduction under section 10A for Unit II, Bangalore, treating it as an expansion of Unit I. The DRP upheld this view. The Tribunal referred to its decision in the assessee's case for A.Y. 2009-10, where it was held that Unit II was a new and separate unit. The Tribunal directed the AO to grant the deduction under section 10A for Unit II. 4. Levy of Interest under Section 234B and Section 234C: These grounds were dismissed as they were consequential and premature. 5. Initiation of Penalty Proceedings under Section 271(1)(c): This ground was dismissed as it was premature. 6. Exclusion of Infosys Ltd. as a Comparable: The DRP directed the exclusion of Infosys Ltd. as a comparable due to its significantly higher turnover compared to the assessee. The Tribunal upheld this exclusion, noting that the issue was similarly decided in the assessee's favor for A.Y. 2008-09. 7. Granting of Percentage of Risk Adjustment: The DRP directed the TPO to decide the percentage of risk adjustment, citing the decision in DCIT Vs. Hello Soft Pvt. Ltd., which allowed a 1% risk adjustment. The Tribunal upheld the DRP's direction, noting that no contrary binding decision was presented by the Revenue. 8. Method of Computation of Deduction under Section 10A: The AO excluded certain expenses only from the export turnover, not the total turnover. The DRP directed the AO to re-compute the deduction following the Karnataka High Court's decision in Tata Elxsi Ltd., which requires such expenses to be excluded from both export and total turnover. The Tribunal upheld the DRP's direction, citing the Supreme Court's decision in CIT Vs. HCL Technologies. Conclusion: - The assessee's appeal for A.Y. 2010-11 was partly allowed. - The Revenue's appeal for A.Y. 2010-11 was dismissed. - The assessee's appeal for A.Y. 2011-12 was allowed. - The Revenue's appeal for A.Y. 2011-12 was dismissed. - The assessee's cross-objections were dismissed as academic.
|
