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2021 (10) TMI 1108 - AT - Income TaxAddition of deferred revenue income - HELD THAT - We notice that the coordinate bench has upheld the view taken by Ld. CIT(A) on an identical issue in assessment year 2007-08 2020 (1) TMI 1011 - ITAT BANGALORE including the view taken by CIT(A) on alternative contention of the assessee. Following the same, we uphold the view taken by the Ld. CIT(A) on this issue in this year also. The alternative direction given by Ld. CIT(A) to A.O. is also upheld. Disallowance u/s 14A - HELD THAT - We notice that the A.O. has made disallowance out of administrative expenses under Rule 8D(2)(iii). As per the decision rendered in the case of Vireet Investments Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI only those investments which have yielded exempt income should be considered for computing average value of investments for the purpose of Rule 8D of I.T. Rules. Accordingly, we modify the direction given by Ld. CIT(A) and direct the A.O. to exclude all investments which did not yield any exempt income while computing average value of investments for the purpose of Rule 8D of I.T. Rules and compute the disallowance accordingly. Disallowance of software expenses - AO took the view that software purchases are in the nature of capital expenditure - AO disallowed the claim of the assessee and allowed depreciation @ 60%/30% depending upon the date of purchase of software - HELD THAT - We direct the A.O. to examine the issue afresh as per the directions given by the Tribunal in assessment year 2011-12 2020 (12) TMI 470 - ITAT BANGALORE with regard to treating of software purchases as capital in nature. The AO should also examine the issue with regard to other directions issued by Ld CIT(A). Disallowance of brand building expenses - Revenue or capital expenditure - HELD THAT - We hold that the brand building expenditure is allowable as revenue expenditure. We notice that the Ld. CIT(A) has observed that some of the invoices produced by the assessee do not relate to the year under consideration and further some of the expenditure is liable for tax deduction at source. Accordingly, we restore this issue to the file of the A.O. for examining the above said two observations made by CIT(A) and to take appropriate decision in accordance with law. Computation of deduction u/s 10A and 10AA - Reduction of expenses incurred in foreign currency from the export turnover while computing deduction u/s 10A - whether the expenditure incurred by the assessee in foreign currency is towards providing technical service outside India or not? - contention of Ld A.R is that assessee is providing BPO services and not any technical service as contemplated in the definition of export turnover given in sec.10A/10AA - HELD THAT - As relying on M/S MPHASIS LTD 2014 (8) TMI 690 - KARNATAKA HIGH COURT we direct the AO not exclude the expenditure incurred in foreign currency from export turnover.
Issues Involved:
1. Addition of deferred revenue income. 2. Disallowance under Section 14A of the Income-tax Act, 1961. 3. Disallowance of software expenses. 4. Disallowance of brand building expenses. 5. Reduction of expenses incurred in foreign currency from the export turnover while computing deduction under Section 10A of the Act. Issue-wise Detailed Analysis: 1. Addition of Deferred Revenue Income: The assessee did not recognize income amounting to ?10.70 crores as it was treated as deferred revenue income. The A.O. assessed this amount as income for the year under consideration, following the accrual system of accounting. The Ld. CIT(A) upheld this addition but directed the A.O. to verify and exclude this income if it was already offered in the succeeding assessment year. The Tribunal upheld the view of the Ld. CIT(A), including the alternative direction to the A.O. 2. Disallowance under Section 14A of the Income-tax Act, 1961: The A.O. disallowed ?52.97 lakhs under Rule 8D(2)(iii) for administrative expenses related to exempt income. The Ld. CIT(A) directed the exclusion of investments in foreign subsidiaries from the computation. The Tribunal modified the direction, instructing the A.O. to exclude investments that did not yield exempt income while computing the average value of investments under Rule 8D. 3. Disallowance of Software Expenses: The A.O. treated software expenses of ?10.33 crores as capital expenditure and allowed depreciation. The Ld. CIT(A) directed the A.O. to treat software licenses valid for up to two years as revenue expenditure and provided further directions for verification and treatment of other software-related expenses. The Tribunal directed the A.O. to re-examine the issue afresh, following the Tribunal's directions for the assessment year 2011-12. 4. Disallowance of Brand Building Expenses: The A.O. disallowed ?78.32 lakhs claimed as brand building expenses, treating it as capital expenditure, and allowed depreciation. The Ld. CIT(A) upheld this disallowance but noted that some invoices related to prior periods and mentioned potential disallowance under Section 40(a) for non-deduction of tax at source. The Tribunal, following its decision for the assessment year 2007-08, held that brand building expenditure is allowable as revenue expenditure and restored the issue to the A.O. for verification. 5. Reduction of Expenses Incurred in Foreign Currency from Export Turnover: The A.O. recomputed deductions under Section 10A and 10AA by reducing foreign currency expenses from export turnover. The Ld. CIT(A) directed the A.O. to follow the decision of the Hon'ble Karnataka High Court in Tata Elxsi Ltd., reducing expenses from both export and total turnover. The Tribunal noted that the assessee's expenses in foreign currency were not for providing technical services outside India and directed the A.O. not to exclude these expenses from export turnover, following the decision in CIT vs. Mphasis Ltd. Conclusion: The appeal was partly allowed, with directions for re-examination and verification by the A.O. on certain issues, and specific instructions on the treatment of deferred revenue income, software expenses, brand building expenses, and foreign currency expenses in line with relevant judicial precedents.
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