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TMI Blog2015 (5) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... ded against revenue Disallowance under section 14A - CIT(A) restricted addition to 2 per cent. instead of 5 per cent. added by the Assessing Officer - Held that:- After considering the totality of facts and circumstances of the case and placing reliance on the co-ordinate Bench in the case of Celebrity Fashions Ltd. [2012 (4) TMI 602 - ITAT CHENNAI], wherein it was held that disallowance of 5 per cent. of the dividend/exempted income is reasonable expenditure. Accordingly, we reverse the order of the Commissioner of Income-tax (Appeals) and restore the order of the Assessing Officer. - Decided against assessee Exclusion of telecommunication charges from the total turnover for the purpose of computation of deduction under section 10A - Held that:- Tribunal in the case of ITO v. Sak Soft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D] wherein it was held that for the purpose of applying formula under sub- section (4) of section 10B, the freight, telecom charges and insurance attributable to the delivery of articles or things, or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded, both f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench was delivered by 1. Chandra Poojari (Accountant Member).-I. T. A. Nos. 617/Mds/2011 and 698/Mds/2011 are cross-appeals for the assessment year 2006-07 and I. T. A. No. 697/Mds/2011 is filed by the Revenue for the assessment year 2004-05. Since, the issues involved in these appeals are common, they are clubbed together, heard together and disposed of by this common order for the sake of convenience. 2. I. T. A. Nos. 697 and 698/Mds/2011 : The first common issue in these appeals is with regard to allowance of depreciation at 100 per cent. on the leasehold improvements. The facts of the case as narrated in I. T. A. No. 697/Mds/2011 is considered for adjudication. 3. The assessee incurred expenditure for the improvement of new leasehold premises which has been taken on lease from Technopark- STPI of Kerala to the tune of ₹ 55,74,348 and claimed as revenue expenditure. The Assessing Officer considered it as capital expenditure and allowed depreciation only at 10 per cent., which worked out to ₹ 55,74,348. On appeal, the Commissioner of Income-tax (Appeals) observed that the expenditure incurred by the assessee is purely temporary erections such as wooden stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in creation of any new capital asset. In our opinion, the expenditure incurred by the assessee on providing wooden partition, paintings, interior works and other repairs to the leasehold premises etc. are to be considered as revenue expenditure. This view is fortified by the judgment of the Delhi High Court in the case of CIT v. Escorts Finance Ltd. [2006] 205 CTR 574 (Delhi), which was followed by the co-ordinate Bench of the Tribunal in I. T. A. No. 1254/Mds/2012 for the assessment year 2008-09 vide order dated November 22, 2012 in the case of Dr. Agarwal's Eye Hospital. Further, the same view was taken by the jurisdictional High Court in the case of the case of CIT v. Armour Consultants P. Ltd. [2013] 355 ITR 418 (Mad), wherein it was held that the expenditure incurred by the assessee for design, layout and material construction, fabrication works in leased premises are deductible as revenue expenditure. It was also clarified by the jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. v. Deputy CIT in Tax Case (Appeal) No. 197 of 2005 dated July 26, 2011 [2013] 350 ITR 324 (Mad), that Explanation 1 to section 32(1) of the Income-tax Act, 1961, which was insert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, we are of the opinion that this issue was considered by the Special Bench of the Tribunal in the case of ITO v. Sak Soft Ltd. [2009] 313 ITR (AT) 353 (Chennai) [SB], wherein it was held that for the purpose of applying formula under sub- section (4) of section 10B, the freight, telecom charges and insurance attributable to the delivery of articles or things, or computer software outside India or the expenses, if any, incurred in foreign exchange in providing technical services outside India are to be excluded, both from the export turnover and from the total turnover, which are the numerator and the denominator, respectively, in the formula. Respectfully following the aforesaid decision of the Tribunal, we are inclined to direct the Assessing Officer to exclude the telecommunication charges both from the export turnover as well as from the total turnover while computing the deduction under section 10B of the Act. This ground is partly allowed. 12. The next common ground taken in the above appeals is with regard to directing the Assessing Officer to verify whether such gain is on account of delay in realisation of export proceeds or on account of EEFC account and allow t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find any infirmity in the order of the Commissioner (Appeals) on this issue. Accordingly, we direct the Assessing Officer to verify the exchange gain, as to whether the fluctuation is on account of delayed realization of export proceeds or not, and if it is on account of delayed realization of export proceeds, it is to be considered as business income eligible for deduction under section 10A of the Act. Accordingly, this ground is dismissed. 16. The next issue in I. T. A. No. 698/Mds/2011 is with regard to allowing depreciation at 60 per cent. on software expenses instead of 25 per cent. allowed by the Assessing Officer. 17. The facts of the case are that the assessee had claimed software expenses of ₹ 6,58,959 holding that these expenditures are primarily licences to use the software based on the terms of purchase. The Assessing Officer held that the assessee gets the right to use the software and has the licence for a long period of time and hence gets an enduring benefit. Thus, this expenditure is not revenue but capital in nature. The Assessing Officer held that the assessee is eligible for depreciation at 25 per cent. as applicable to intangible asset, he disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) following the decision of the hon'ble Supreme Court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn). The co-ordinate Bench while deciding the issue held that unabsorbed depreciation has to be set off before computing exemption allowable under section 10A of the Act observing as under: '7. The third issue in appeal relates to the method of computation of deduction under section 10A of the Act. The assessee has claimed deduction under section 10A before setting off of unabsorbed depreciation and brought forward losses. The learned authorised representative for the assessee in order to fortify the stand of the assessee has placed reliance on the decision of the Tribunal in the assessee's appeal for the assessment years 2005-06 and 2007-08 (supra). The learned authorised representative has also drawn support from the judgment of the hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 (Karn). On the other hand, the learned Departmental representative has relied on the latest decision of the hon'ble apex court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn). The hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative and the observation of the Assessing Officer, dismissed this ground. Aggrieved, the assessee is in appeal before us. 25. We have heard both the parties and perused the material on record. We do not find any merit in the argument of the learned authorised representative. 26. It is seen that the entire unabsorbed depreciation was set off against the business income of the assessee. Therefore, no unabsorbed depreciation was available for the purpose of set off against the income from any other head. Hence, we do not find any merit in the plea of the assessee to set off the unabsorbed depreciation against the short term capital gain. Accordingly, this ground is rejected. 27. The last ground in this appeal is with regard to estimating 2 per cent. of dividend income as expenditure attributable to exempt income under section 14A of the Act, without considering the fact that no expenditure has been actually incurred by the company for earning such exempt income. 28. In view of our finding on the same issue in the assessee's appeal in I. T. A. No. 698/Mds/2011, this issue has become infructuous and the same is dismissed. 29. In the result, the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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