9911796707
TMI Blog2021 (10) TMI 1108X X X X Extracts X X X X X X X X Extracts X X X X ..... come of Rs. 9.98 crores under normal provisions and Rs. 155.83 crores u/s 115JB of the Act. The A.O. completed the assessment u/s 143(3) of the Act on 8.12.2010 making various additions to the returned income. The appeal filed by the assessee before Ld. CIT(A) challenging those additions was partly allowed. Still aggrieved, the assessee has filed this appeal before us. 3. The first issue relates to addition of deferred revenue income. The A.O. noticed that the assessee has not recognized income to the tune of Rs. 11.47 crores even though relevant invoices have been raised by the company against its clients to whom services were rendered. The assessee had treated the same as deferred revenue income and hence did not offer it during the year under consideration. According to the assessee, the correct amount of deferred income was Rs. 10.70 crores. However, the A.O. has made disallowance of Rs. 11.47 crores. Hence, the assessee brought to the notice of Ld CIT(A) this difference and accordingly, the Ld CIT(A) directed the A.O. to adopt correct figure of Rs. 10.70 crores. Hence, the disputed amount with regard to this issue is only Rs. 10.70 crores. 3.1 The A.O. asked for explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 2007-08 from the income offered by the assessee in assessment year 2008-09, if it had been offered in AY 2008-09 also, after verification of records. 3.4 The Ld. CIT(A), following his decision rendered for 2007-08, upheld the addition made by the A.O. in the instant year. In this year also, the assessee put up an alternative plea before Ld. CIT(A) that this amount has been offered by it in AY 2009-10. Accordingly, the Ld. CIT(A) directed the A.O. to verify the claim of the assessee and exclude the same in assessment year 2009-10, if the same income has been offered by the assessee in that year, after verification of records. 3.5 At the time of hearing before us, the Ld. A.R. brought to our notice the decision rendered by the coordinate bench in the assessee's own case in assessment year 2007-08. He submitted that this issue has been examined by the coordinate bench in ITA No.1333/Bang/2014 dated 27.9.2019, wherein we notice that the Tribunal has upheld the view taken by the Ld. CIT(A) and also upheld the alternative direction given by Ld. CIT(A) to the A.O. to verify the assessment record of 2008-09 and exclude the income that has been offered by the assessee in that ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to follow the decision rendered by Special bench of Delhi Tribunal in the case of Vireet Investments P Ltd (165 ITD 27). 4.4 We heard the parties on this issue and perused the record. We notice that the A.O. has made disallowance out of administrative expenses under Rule 8D(2)(iii). As per the decision rendered by Special Bench, Delhi Tribunal in the case of Vireet Investments Pvt. Ltd. (165 ITD 27), 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. 5. The next issue relates to disallowance of software expenses. The A.O. noticed that the assessee has incurred a sum of Rs. 10.33 crores on purchase of software and claimed the same as revenue expenditure. The A.O. took the view that software purchases are in the nature of capital expenditure. Accordingly, he disallowed the claim of the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat an identical issue of treating the software purchase as capital in nature, was examined by Bengaluru Bench of Tribunal in the assessee's own case in ITA No.491/Bang/2018 relating to assessment year 2011-12 and the Tribunal has decided the issue as under:- "20. The next issue contested by the assessee relates to disallowance of software expenses treating the same as capital in nature. Since the Ld CIT(A) has remanded this issue to the file of the AO with certain directions, the revenue is questioning the authority of Ld CIT(A) to do so. 21. The facts relating to this issue are discussed in brief. We noticed earlier that the assessee had claimed expenses towards software purchases as deduction to the tune of Rs. 24,97,00,999/-. The AO disallowed following items out of the above said claim:- Provision for software purchases - Rs. 3,89,30,461 Disallowance u/s 40(a)(i)/(ia) - Rs. 1,35,82,093 The balance amount was Rs. 19,71,88,445/-. The AO treated this amount as capital in nature. The observations made by the AO are extracted below:- "6.3 For the balance amount of Rs. 19,71,88,445/- it is seen that the company has treated it as revenue expenditure. It is to be sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure and allowed as such provided tax at source has been deducted on the same. In case of non deduction of tax at source the same needs to be disallowed under Section 40(a) of the Act. * In relation to expenditure incurred for IT consumables e.g. CDs, printer cartridges etc., the same needs to be treated as revenue expenditure. * In case of software where the same can be used perpetually e.g. Operation system software like Windows, Application software like MS Office etc., the same needs to be treated as capital in nature. This is for the reason that in case of such software there is no restriction or limitation on its period of use. New versions of these software keep on becoming available in the market however there is no restriction on the use of the earlier version and a person can always choose not to buy the new version and continue with the version. A high rate of depreciation, which is 60% takes care of obsolescence of such software." 24. The revenue is questioning the authority of Ld. CIT(A) in restoring the matter to the file of A.O. The assessee is contending that the entire amount of Rs. 19.71 crores should be allowed as revenue expenditure. 25. The Ld A.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and hence to be treated as revenue expenditure. Infact, this Court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares, if they are licensed for a particular period, for utilizing the same for the subsequent years fresh licence fee is to be paid. Therefore, when the software is fitted to a computer system to work, it enhances the efficiency of the operation. It is an aid in ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. He also directed the A.O. that if the assessee has not deducted tax at source, then the disallowance is to be sustained u/s 40(a) of the Act. also. 6.1 We heard the parties on this issue. We notice that an identical issue was examined by the coordinate bench in the assessee's own case in assessment year 2007-08 (supra) and same was decided in favour of the assessee as under:- 25. We have perused submissions advanced by both sides in the light of the records placed before us. It is observed that the expenditure incurred towards advertisements sales and marketing, holding various seminars and exhibitions are in relation to ongoing business of assessee. As held by Hon'ble Bombay High Court in case of CIT Vs. Jeoffrey Manners & Co. Ltd. reported in (2009) 180 Taxmann 87 that corrected test to be applied in respect of expenditure incurred for making advertisement films was that when the same was incurred in respect of an ongoing business of assessee, it is revenue. On the other hand, when expenditures incurred in respect of a brand which is to be used in a business which is yet to be commenced, it is capital expenditure. Further, as held by Hon'ble Supreme Court in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee that the expenditure incurred in foreign currency need not be reduced from Export turnover at all has been rejected by the co-ordinate bench in the assessee's own case in AY 2007-08. He submitted that the expenditure incurred in foreign currency is required to be reduced only if these expenses are incurred in "providing technical services outside India." He submitted that the assessee has not provided any technical service outside India as contemplated in the definition of "export turnover" given in sec.10A & 10AA and hence these expenses need not be reduced from Export turnover at all. If it is not reduced from export turnover, then the question of reducing the same from total turnover does not arise. He submitted that the Tribunal, in AY 2007-08, has extracted the nature of expenses incurred by the assessee in foreign currency, which clearly show that they have not been incurred for "Providing technical service". Still the Tribunal has decided this issue against the assessee. He submitted that the contention of the assessee is supported by the decision of jurisdictional Karnataka High Court rendered in the case of CIT vs. Mphasis Ltd (2016) (74 taxmann.com 274 (Kar). 7.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.2014, wherein this Court has held at paras 18 and 19 as under:- 18. From the aforesaid provision it is clear that the consideration in respect of computer software received in or brought into India by the assessee in convertible foreign exchange is deducted from the profits of the said business. In other words the assessee is not liable to pay any income tax on such consideration received from export of computer software. However the said export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any incurred in foreign exchange in providing technical service outside India. In other words out of the said export turnover the following amounts have to be deducted; a. freight b. telecommunication charges c. insurance attributable to the delivery of computer software outside India; d. expenses, if any, incurred in foreign exchange in providing technical services outside India; 19. If the assessee is engaged in the business of providing technical services outside India in connection with the development or production of computer software then expenses if any incurred in for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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