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TMI Blog2015 (8) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) dated 29-08-2013 for the assessment year 2007-08. In ITA No.2115/PN/2013 the assessee has assailed the order of Commissioner of Income Tax (Appeals)-I, Pune dated 29-08-2013 for the assessment year 2008-09. The Revenue has filed Cross Appeal for the same assessment year in ITA No. 2083/PN/2013. 2. In the appeals filed by the assessee, the issues raised in all the appeals are common. Similarly, in the appeals of the Revenue, the grounds of appeal for all the impugned assessment years are common. Since, the issues raised in the appeals and the facts in all the appeals are similar, the appeals are taken up together for adjudication. The issues raised by the assessee in its appeals are as under: 1. Disallowance of software expenditure by holding it as capital in nature. 2. Disallowance of deduction on amortised lease premium expenditure, landscaping and development charges. 3. Disallowance of provision for expenditure in respect of benefit under Bhavishya Kalyan Yojana (BKY) an employee welfare scheme. 4. Disallowance of provision for Medi-claim insuranc coverage scheme. 5. Disallowance of deduction claimed u/s. 35D in relation to expenditure incurred for increasing authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues. 5.1 The assessee has purchased computer software for its daily operation. The assessee has claimed the expenditure incurred on acquiring license to use computer software as Revenue expenditure. The Assessing Officer held that the expenditure incurred on obtaining licence to use computer software has resulted in an enduring benefit. The assessee has made payment in lump sum and expenditure has been incurred to increase the profit earning capacity. The Assessing Officer concluded that the expenditure is capital in nature. The Commissioner of Income Tax (Appeals) after analyzing various computer software purchased during the relevant period partly accepted the appeal of the assessee. The Commissioner of Income Tax (Appeals) segregated the expenditure incurred on acquiring computer software based on the logic and reasoning given by him in his order for the assessment year 2001- 02. 5.2 We observe that the issue raised in the present set of appeals, is identical to the one adjudicated by the Co-ordinate Bench in ITA No. 1345/PN/2011 (supra). The Tribunal held that the expenditure on acquiring computer software as revenue in nature. The relevant extract of the findings of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s revenue expenditure. The expenditure incurred by the assessee totaling Rs. 2,33,725/- has been incurred in the ordinary course of carrying on the business and does not form part of its profit making apparatus, hence, the said expenditure is duly allowable as revenue expenditure in the hands of the assessee. 15. The next set of expenditure incurred by the assessee was on acquisition of license to use the software, but there is no acquisition of ownership rights of the software. The assessee had incurred expenditure of Rs. 12,56,870/- on the acquisition of Windchill Software which is a PDM software purchased for developing resources and providing customization and implementation services to customers. Another expenditure of Rs. 16,86,394/- was incurred for the acquisition of Flexible Pro-Engineer software, which was admittedly, first time acquisition and was acquisition of rights to run the said software. The Windchill software was upgraded regularly and similarly, the other software Flexible Pro-Engineer software was also upgraded regularly. The functionality test laid down by the Special Bench of Delhi Tribunal in Amway India Enterprises Vs. DCIT (supra) is to be applied for det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinate Bench in the case of M/s. Drillbits International P. Ltd. Vs. DCIT in ITA No. 1361/PN/2010 for assessment year 2006-07 decided on 23-08-2011. Respectfully following the same this ground of appeal of the assessee is dismissed. 7. The third and fourth issues raised in the appeals are : (i) disallowance of provision for expenditure under Bhavishya Kalyan Yojana (BKY), employees welfare scheme; and, (ii) disallowance of provision for medi-claim insurance. The ld. AR of the assessee submitted that similar issues were considered by the Tribunal in ITA No. 1345/PN/2011 (supra) and the same were decided in favour of the assessee. On the other hand the ld. DR submitted that the issue with respect to both the schemes have been considered by the Co-ordinate Bench of the Tribunal in assessee's own case for the assessment year 2001-02. The Tribunal has remitted the matter back to the Assessing Officer with a direction to determine the deduction on account of BKY scheme and medi-claim insurance. 7.1 We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The Assessing Officer has disallowed the amount on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f expenditure in respect of benefit payable to Ex-employees, who have retired & fulfill the conditions of the Scheme. Reference is made to paras 46 and 51 of the order of the Tribunal (supra). Accordingly, we direct the Assessing Officer to determine the deduction on account of BKY Scheme and Medical Insurance Scheme, in view thereof, the grounds of appeal Nos.3 and 4 raised by the assessee are thus, partly allowed." Since, the issue in present set of appeals is similar to the one already decided by the Tribunal, we remit this issue back to the Assessing Officer with a direction to determine the deduction on account of BKY scheme and medi-claim insurance in the same terms. Accordingly, both the grounds of appeal are partly allowed. 8. The fifth issue raised in the appeals of the assessee is disallowance of deduction u/s. 35D. The assessee has claimed deduction of expenditure incurred on increasing in authorized share capital. The ld. AR of the assessee fairly admitted that this issue has been decided by the Tribunal against the assessee in ITA No. 1345/PN/2011 (supra). The Co-ordinate Bench of the Tribunal while adjudicating this issue has placed reliance on the decision of Hon&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are of the view that the this issue is squarely covered by the Full Bench decision of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Groz Beckert Asia Limited (supra). The Hon'ble High Court has held that the Corporate Membership of the club was obtained for running business with a view to produce profit. Such membership did not bring into existence an asset or an advantage for enduring benefit of business. It is an expenditure incurred for the period of membership and is not long lasting. By subscribing to membership of a club, no capital asset was created, only, a privilege to use facilities of a club, were conferred and that too for a limited period. 9.3 The Co-ordinate Bench of the Tribunal in the case of Intervalve (India) Ltd. Vs. ACIT (supra) after analyzing the case laws far and against applied the ratio laid down by the Hon'ble Supreme Court of India in the case of CIT Vs. Vegetable Products Limited., reported as 88 ITR 192 and decided the issue in favour of the assessee. The Tribunal held that the entrance fees of membership for the business club is Revenue expenditure. In the light of above decisions, we hold that the expenditure incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices are carried out for proper performance of software. The business activity of the assessee includes CAD/CAM consultancy, information technology support etc. to its customers. The AMC receipts are integral part of business income and does not fall under the head "Income from other sources". In support of his submissions the ld. AR has placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT Vs. Motor Industries Co. Ltd. reported as 331 ITR 79 (Kar.) and the judgment of the Hon'ble' High Court of Bombay in the case of CIT Vs. Pfizer Ltd. reported as 330 ITR 62 (Bom.). The ld. AR pointed out that the exclusion of AMC receipts have been done by the Revenue only in the assessment year 2004-05. In the earlier assessment years and the succeeding assessment years the Revenue has not raised any objection on inclusion of AMC receipts. Whereas, the assessee has been consistently showing AMC receipts under the head "Business Income". There has been no change in the business of the assessee or the accounting treatment given by the assessee to the AMC receipts. 10.3 On the other hand, the ld. DR vehemently defended the findings of the CIT(A). The ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce with clause (a) of sub-section (2) of any goods or merchandise to which this section applies and which are exported out of India, but does not include freight or insurance attributable to the transport of the goods or merchandise beyond the customs station as defined in the Customs Act, 1962" 48. From the above, the legislature has used the expressions 'the sale proceeds received in, or brought into, India by the assessee' and the expressions 'by the assessee' deserves emphasis as it connotes that the 'export turnover' should be of assessee level. Meaning thereby, the assessee's level 'export turnover' needs to be considered. The expression is wide enough to include the export sales of the 'EOU unit'. Further, by the use of expression 'any' before 'goods and merchandise' all the goods and merchandise is covered. However, the restriction apply to such goods and merchandise, which are listed in clause (b) of Section 80HHC (2) i.e. Mineral oil and minerals and ores (other than processed minerals and ores specified in 12th Schedule to Act." 95. The CIT(A) had placed reliance on the ratio laid down by Mumbai Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the industrial undertaking is exempt under sec. 10A. But even if two reasonable constructions of the relevant provisions are possible, that construction which favours the assessee, must be adopted - CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC) " 98. In the above said facts and circumstances, we direct the Assessing Officer to include the export turnover of the EOU unit while computing the deduction under section 80HHE of the Act. The ground of appeal No.5 raised by the assessee is thus, allowed. The Revenue has not been able to controvert the findings of the Tribunal. We, therefore, respectfully follow the same and direct the Assessing Officer to include the export turnover of EOU while computing deduction 80HHE of the Act. 10.5 Now, we proceed with the second limb of the submissions. It is an undisputed fact that the assessee has been showing AMC charges in the profit and loss account under the head "Income from services". A perusal of the profit and loss account for the year ended 31-03-2004 would show that under the head "Income", the assessee has three sub heads viz "Income from services", "Sale of products" and "Other income". Under the head "Income from serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, power, water, security and conservancy charges Area occupied by STP premises Other common expenses Turnover from respective activities 11.1 The depreciation on vehicles has been allocated by the assessee on the basis of turnover. The reasons for adopting this method of allocation by the assessee is that the depreciation on vehicles could not be directly identified to either of the units as the vehicles were used for the entire business of the assessee altogether. The Assessing Officer rejected the allocation model. The Assessing Officer held that the depreciation should be apportioned on the basis of allocation of vehicles to the employees of STP and Non-STP unit. The vehicles in most of the cases have been assigned to specific employees of the assessee company. Therefore, it would not be difficult to identify the vehicles assigned to the employees of the STP unit and Non-STP unit. The CIT(A) accepted the Assessing Officer's method of allocation of depreciation. We are of the considered view that allocation of depreciation on the basis of turnover is not acceptable. The depreciation on vehicles can be allowed on the basis of use of vehicles for the specific un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of actual cost incurred on both the units. Since, the expenditure are identifiable unit wise, and have been separately invoiced, we accept the contention of the assessee. However, we remit the latter two issues back to the Assessing Officer to verify the allocation of both expenses on above noted basis. The Assessing Officer after affording opportunity of hearing to the assessee shall allocate expenditure to STP and Non-STP units. This ground raised in the appeals of the assessee is, thus, partly accepted in aforesaid terms. 12. The ninth issue raised in the appeals is re-computation of deduction u/s. 10A of the Act. The Assessing Officer after reallocation of certain expenditure [depreciation on vehicles, travelling and conveyance and payment to Tata Technology (US)] has restricted the claim of exemption u/s. 10A in the assessment year 2004-05 and 2005-06. Since, the ground of appeals of the assessee with regard to reallocation of the expenses has been partly accepted. We remit this issue back to the Assessing Officer for re-computation of exemption u/s. 10A in accordance with the directions of the Tribunal in respect of allocation of expenses and in line with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn country. Therefore, the provisions of section 14A of the Act are not applicable. We are in agreement with the findings of Commissioner of Income Tax (Appeals) on this issue. Accordingly, this ground in the appeals of Revenue is dismissed being devoid of any merit. 17. The next issue raised by the Revenue in its appeal for assessment years 2005-06 and 2008-09 is that the Commissioner of Income Tax (Appeals) has erred in not considering the fact that the expenditure on travelling and conveyance including foreign offshore activities and expenditure on depreciation is not to be considered for exemption u/s. 10A of the Act. The Revenue has not been able to substantiate the ground raised in the appeal. We do not find any infirmity in the findings of the Commissioner of Income Tax (Appeals) on this issue. Accordingly, this ground of appeals of the Revenue is dismissed being devoid of merit. 18. The last issue raised by the Revenue in its appeal for the assessment year 2008-09 relates to deleting of disallowance of taxes claimed to be payments on account of VAT, Advance tax, Employee Cost etc. paid in Korea. The Assessing Officer made disallowance of Rs. 67,68,686/- u/s. 40(a)(ii) r.w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Interest Income Considered separately 19,949,994 Add : DISALLOWANCES 139,634.693 Provision for Income Tax 276.979 Provision for Deferred Tax 9,112,239 Provision for Fringe Benefit Tax 471,098 Provision for Wealth Tax 2,849 Foreign Currency loss capitalized for tax purpose 238,248 Unrealised Foreign Currency loss of capital nature debited to P&L 110,086 Loss on Sale/Scrap of Fixed Assets 70,814,303 Depreciation as per Companies Act 121,260 Donations (14,719,000) U/s.43B for leave encashment liability (2,138,692) u/s.43B for Performance Bonus 10,825,797 Unpaid Superannuation 1,931,877 Provision for doubtful debts 216,681,738 216,681,738 480,853,619 As could be seen from the above scanned impression, the provision for taxes paid in Korea, which form part of 'provision for income-tax' of Rs. 13.96 crores was not claimed as deduction in the computation of income. When the amount paid towards Korean taxes was not claimed as deduction either on provision basis or on payment basis, the AO is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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