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TMI Blog2020 (3) TMI 1195X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of an international transaction of rendering of Software Development Services by the Assessee to its Associated Enterprise in accordance with Sec.92 of the Income Tax Act, 1961 (Act). At the time of hearing it was brought to our notice by the learned counsel for the Assessee that the issue with regard to determination of ALP has been settled under Mutual Agreement Procedure (MAP) between the Assessee and the revenue and the AO has under rule 44H(4) of the Income Tax rules, 1962 has given effect to the MAP resolution vide proceedings dated 22.2.2016. Hence, the relevant grounds of appeal raised by the Assessee as well as the revenue are dismissed as not requiring adjudication. 3. The next issue raised by the Assessee in its appeal in Gr.No.3.1 (sub grounds 3.1.1 to 3.1.4) is with regard to the action of the revenue authorities in not allowing deduction u/s.80JJAA of the Act amounting to Rs. 7,57,22,069/-. The provisions of Sec.80JJAA of the Act, as applicable for AY 2008-09 reads as follows: "Deduction in respect of employment of new workmen. 80JJAA. (1) Where the gross total income of an assessee, being an Indian company, includes any profits and gains derived from an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the AO Software professionals are highly skilled workers and the nature of work performed by them were highly skilled whereas the skilled work contemplated by the definition of workmen in the Industrial Disputes Act, 1947 is ordinary skill and therefore the workmen of the Assessee cannot be considered as "Workmen" for the purpose of Sec.80JJAA of the Act. The AO also noticed that in Assessee's own case for AY 2001-02 and 2002-03, the Tribunal had not accepted the stand of the revenue in this regard but still chose not to follow the decision of the Tribunal as the revenue has not accepted the decision of Tribunal and had preferred appeal to the Hon'ble High Court on this aspect of deduction u/s.80JJAA of the Act. On the question whether the employees employed in software industry can be said to be "Workmen", the Bangalore Bench of ITAT has already settled this issue in Assessee's own case. The Tribunal held that Software Industry has also been notified as Industry for the purpose of Industrial Disputes Act, 1947 by the State of Karnataka and that the employees employed in software development industry render technical services and not services in the nature of superviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on March, 31, 2006 FY 2005-06(AY 2006-07) 1,056 211 As on March, 31, 2007 FY 2006-07(AY 2007-08) 1,187 295 As on March, 31, 2008 FY 2007-08(AY 2008-09) 1,105 131 7. The details of the new employees in respect of whom the Assessee claimed deduction u/s.80JJAA of the Act are given at page 176 to 182 of paperbook. From a perusal of the said list and the report of auditor for claiming deduction u/s.80JJA of the Act in Form No.10DA, a copy of which is at pages 80 to 85 of the Assessee's paper book, it can be seen that the deduction was claimed by the Assessee u/s.80JJAA of the Act on salary paid to 287 employees. It is also clear from the said report that the Salary paid to new workmen were nil for the Financial Year ending 31.3.2006 and 31.3.2008. Deduction has been claimed only in respect of wages paid to new regular workmen who were employed during the previous year 1.4.2006 to 31.3.2007. All the 287 employees were new employees who joined during the FY 2006-07, on or after 12.06.2006 and therefore could not have put in service of 300 days or more during the FY 2006-07 relevant to Ay 2007-08. It is undisputed that they worked for 300 days during the previous year relevant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is entitled to deduction u/s.80JJAA of the Act. It was pointed out that the ITAT in the appeal relating to AY 2007-08 in the case of the Assessee in IT(TP)A.No.1032/Bang/2011 order dated 16.6.2017 confirmed the disallowance u/s.80JJAA of the Act only on the basis the increase in the number of regular workmen employed during the year was not more than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year. He relied on the decision of ITAT rendered in the case of Bosch Ltd. Vs. ACIT (2016) 74 Taxmann.com 161 (Bangalore-Trib.) wherein at paragraph 23 of the aforesaid order the Tribunal observed that the deduction u/s.80JJAA of the Act is allowed for three years including the year in which the employment is provided. Hence, in each year it has to be seen that the workmen was employed for at least 300 days during that previous year and that such workmen was not a casual workmen or workmen employed through contract labour. Therefore, if some workmen were employed for a period of less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such work men in the present year even if s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in AY 2008-09 will also not qualify for deduction u/s.80JJAA of the Act. In other words according to the AO if the condition for grant of deduction u/s.80JJAA of the Act is not satisfied with reference to additional wages paid to new employees in the first year of their employment, then the additional wages paid to such new employees will not allowed in the second and third Assessment Years also. As pointed out by the learned counsel for the Assessee, this approach of the revenue authorities is contrary to the AO's stand on claim for similar deduction u/s.80JJAA of the Act in AY 2007-08. In the order of assessment passed by the AO for AY 2007-08, he has while disallowing the claim for deduction u/s.80JJAA of the Act for that AY, accepted the position that on additional wages paid to new workmen employed during the previous year relevant to AY 2005-06 who have worked more than 300 days during the previous year relevant to AY 2007-08, the Assessee is entitled to deduction u/s.80JJAA of the Act. In the decision rendered in the case of Bosch Ltd. Vs. ACIT (2016) 74 Taxmann.com 161 (Bangalore-Trib.) the Bangalore ITAT at paragraph 23 of the aforesaid order the Tribunal observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FY 2006-07 relevant to AY 2007-08, the Assessee decided to abandon the expansion plan and accordingly the entire expenditure incurred towards the expansion of the building premises was written off in the profit and loss account for AY 2007-08. Subsequently, in the previous year relevant to AY 2008-09, certain additional claims were made towards planning, designing, architecture fees amounting to Rs. 61,04,942/-. Over and above this the Assessee had to pay damages of Rs. 3,81,10,000/- to the contractor in respect of a clause in the agreement between the Assessee and the Contractor, who was identified for the purpose of putting up the business premises for the purpose of expansion. The relevant clause in the Agreement between the Assessee and the contractor in this regard reads thus:- Clause (d): [Page-4 of the Agreement between the Assessee and Bagmane Developers Pvt. Ltd.] "If the Client does not construct one or more structures not included in the scope of the project or does not engage the services of a developer (including the Contractor) to construct and develop one or more structures at the Site that are not included in the scope of the Project on or before the 31st of Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd shown as capital work progress and the management has decided to call off the expansion plan hence the expenditure incurred on the expansion of building had claimed the revenue expenditure which was disallowed by the AO. Being aggrieved, the appellant is before us. The Id. counsel relied upon the decision of Hon'ble Delhi High Court in case of Indo Rama Synthetics (I) Ltd. Vs CIT (333 ITR 18) and the decision of Hon'ble Calcutta High Court in case of Binani Cement Ltd. Vs CIT [2015] 60 taxmann.com 384 and the decision of the coordinate bench ITAT, Mumbai in case of DCIT Vs Mukund Ltd. in ITA No. 2708/Mum/2009 and also decision of High Court of Bombay in case of CIT Vs Idea Cellular Ltd. [2016] 76 taxmann.com 77 in support of the proposition that any capital expenditure incurred in respect of abandoned project should be allowed as a deduction. 9. We heard the rival submissions and perused the material on record. The submission of the ld. counsel cannot be accepted for the simple reason that the decision relied upon by the ld. counsel relates to the expenditure which is in the nature of revenue incurred with the object of enhancing the profitability and the efficiency of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities. The learned DR relied on the order of the revenue authorities and the decision of the tribunal rendered on identical issue in AY 2007-08. 15. We have given a careful consideration to the rival submissions and are of the view that since identical claim has been considered capital expenditure by the tribunal in AY 2007-08, we find no reason to take a contrary view. The nature of the capital work in progress written off being identical, respectfully following the decision of the Tribunal, we uphold the orders of the revenue authorities. We also find all the case laws cited by the learned counsel for the Assessee before us were dealt with and distinguished by the AO. We are also of the view that the damages of Rs. 3,81,10,000/- though was in connection with a claim for not engaging the services of the contractor in future for other contracts cannot be regarded as having no nexus with the capital work in progress written off in the books of accounts of the Assessee and therefore to that extent the claim for deduction and cannot be allowed as deduction and were rightly held to be capital expenditure by the revenue authorities. We however find that in Gr.No.3.2.9 the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not used by the Assessee in the manufacture of computer software. In response to a query by the AO as above, the Assessee submitted that any appliance capable of being installed and used in any place where people work or gather, and desire to communicate, such items cannot be construed as office appliance and in this regard placed reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Punjab Wireless Systems Ltd. 296 ITR 489(P & H). The Assessee further gave a list of assets on which additional depreciation has been claimed, which we have annexed as annexure-2 to this order. The AO however proceeded to hold that the definition of Plant as given in Sec.43(3) of the Act is an inclusive definition and the word "Plant" has been defined to include ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock or buildings or furniture and fittings. The AO laid emphasis on the words "used for the purpose of business" in the definition of Plant and concluded that the Assessee failed to show how the items of assets on which additional depreciation was claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon'ble Madras High Court High Court in the case of CIT Vs. VTM Ltd.319 ITR 336 (Madras) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for generation of power and claimed additional depreciation thereon under section 32(1)( iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the manufacture of textile goods and the setting up of a wind mill had absolutely no connection with the manufacture of textile goods. However, the Commissioner (Appeals) as well as the Tribunal allowed the assessee's claim of additional depreciation. On appeal to the High Court, the Hon'ble High Court held that for application of section 32(1)(iia ) what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant, which has been set up, should have been acquired and installed after 31-3-2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Assessee opportunity of being heard. In the event of the AO coming to the conclusion that the assets in question are in the nature of plant, the claim for additional depreciation should be allowed. With these observations we allow the relevant grounds of appeal for statistical purpose. 21. The other ground of appeal in the Assessee's appeal with regard to levy of interest u/s.234B and 234D are purely consequential and the AO is directed to give consequential relief. 22. In the result, appeal by the Assessee is treated as partly allowed. 23. Now we shall take up the appeal of the revenue for consideration. Gr.No.1 and 6 are general in nature and calls for no specific adjudication. Gr.No.4 & 5 are with regard determination of ALP in respect of an international transaction between the Assessee and it's AE. The issue has already been settled between the Assessee and the Revenue in Mutual Agreement Procedure (MAP) under the Double Taxation Avoidance Agreement between India and USA. Hence, these grounds are dismissed as infructuous. Gr.No.2 & 3 alone remain to be adjudicated. 24. As far as Gr.No.2 raised by the revenue is concerned, the same relates to the action of the CIT(A) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.194-I of the Act has not been considered by the CIT(A). We are of the view that the AO made the addition only on the basis of provisions of Sec.194C of the Act and he did not invoke the provisions of Sec.194I of the Act. As far as provisions of Sec.194C of the Act is concerned, we are of the view that the CIT(A) has rightly come to the conclusion that payment of lease rentals under a finance lease will not attract the provisions of Sec.194C of the Act. We find no grounds to interfere with the order of the CIT(A). Accordingly Gr.No.2 raised by the revenue is dismissed. 28. Gr.No.3 raised by the revenue is with regard to the grievance of the revenue in treating amount paid towards automation software as revenue expenditure. The facts with regard to this ground of appeal are that the Assessee claimed deduction of a sum of Rs. 135,52,51,594/- while computing income from business under the head "Data Automation software Expenses". The AO called upon the Assessee to explain the nature of the aforesaid expenditure. The Assessee vide its letter dated 28.7.2011 explained to the AO that the software in question were "Electronic Design Automation"(EDA) which are used by the Assessee's d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning operations. The finding of the Commissioner (Appeals) was that the acquisition of software cannot be treated to be an asset of endurable nature. If the programme is used in one mining to another mining operation, why it should not be treated as capital asset and expenditure on that, capital expenditure. Considering these facts and decision of their Lordships and later decision of the Bombay High Court, in our view, the acquisition of technical know-how is a capital expenditure, therefore, the assessing officer has rightly treated the expenditure on acquiring the computer software as expenditure of capital nature and rightly allowed depreciation as per rules." 5.5 Reliance is also placed on the decision in the case of Amway India Enterprises Vs. DCIT (ITAT, Del-Special Bench) [111 ITD 112]. In this case the Hon'ble ITAT held that computer software was tangible asset eligible for depreciation @ 60%. In the result, the Automation software expenses of Rs. 135,52,51,594/- are held to be capital in nature. The amount as claimed in P 86 L a/c is disallowed and added back. Instead, the assessee is allowed depreciation on the amount @ 60%. [Addition Rs. 54,21,00,637/-]" 29. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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