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TMI Blog2021 (10) TMI 1248X X X X Extracts X X X X X X X X Extracts X X X X ..... ground raised by the assessee is allowed. Onsite/deputation of technical manpower (DTM) software services not eligible for deduction u/s. 10AA - HELD THAT:- We note that, in assessee‟s own case i.e. IGATE Global Solution Ltd. as it was then in A.Y. 2007-08,[ 2019 (8) TMI 1226 - ITAT BANGALORE] on transfer, Pune Benches of ITAT discussed the issue in great detail and turned down the contention of Revenue that the income from onsite/DTM was not derived from export of computer software and is not qualified for deduction u/s. 10A/10AA of the Act. Further, the Co-ordinate Bench held that Explanation 3 is a deeming provision, which specifically brings profits and gains derived from on site development of computer software and services for development of software outside India within the meaning of the profits and gains derived from the export of computer software outside India which means that not only the profits and gains derived by the eligible undertaking from export of computer software are eligible for deduction but also profits and gains derived from onsite development of computer software and services for development of software outside India. The words derived f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT(A) is incorrect in holding that no evidences showing acquisition in the F.Y. 2003-04. In the facts and circumstances of the case as discussed above, we find force in the arguments of the ld. AR that the assessee is entitled to claim depreciation on goodwill. Depreciation on goodwill only on the written down value of the goodwill starting from F.Y. 2003-04 onwards. The assessee placed on record a chartof the assessment order by which the opening written down value of the F.Y. 2003-04 at ₹ 105,724,413/- and after depreciation allowing @ 25% the closing written down value at ₹ 79,293,310/-. In the same way the written down value has been computed in each of the succeeding year and for F.Y. 2009-10 arrived at ₹ 14,112,506/-. Thus, it is well constitutes the opening written down value of goodwill for the F.Y. 2010-11 relevant to A.Y. 2011-12 i.e. the year under consideration. We, therefore, direct the AO to grant depreciation @ 25% on written down value of the goodwill at ₹ 14,112,506/-. Thus, ground No. 5 raised by the assessee is allowed for statistical purpose. Denial of carry forward of long term capital loss - AO observed that the said amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the additional ground raised by the assessee is allowed. Disallowance u/s. 14A r.w. Rule 8D - Mandation of recording satisfaction - HELD THAT:- the contention of the ld. AR is that there was no satisfaction recorded by the AO as confirmed by the CIT(A) regarding the disallowance made by the assessee on its own is incorrect and we find that the AO categorically held that the disallowance made by the assessee is not accepatable, thereby, the submission of ld. AR is rejected. We find in the present case the AO clearly recorded is non-satisfaction regarding the disallowance made by the assessee on its own relating to exempt income and proceeded to invoke the procedure contemplated under Rule 8D of the Rule. Therefore, the contention of ld. AR that the finding of this Tribunal in assessee‟s own case for A.Y. 2011-12 is applicable to the year under consideration is rejected, therefore, we hold the facts in A.Y. 2011-12 in consolidated order of this Tribunal [ 2019 (3) TMI 1135 - ITAT PUNE] are not identical to the fact of the year under consideration. In view of the same, we hold the order of CIT(A) in this regard in holding that the AO did not record any satisfaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. The Ld. Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in ITA No.342/PUN/2014 for assessment year 2009-10 in assessee s own case wherein vide Para 43 and 44, the Tribunal on the issue has held as follows: 43. Ground No.5 of the assessee‟s appeal is against reducing telecommunication charges and internet usage charges totalling ₹ 9,82,28,337/- from only the Export turnover‟ in computing deduction u/s.10A. Ground No.1 of the Revenue‟s appeal is against the direction of the ld. CIT(A) that link charges and internet usage charges be reduced from Export turnover‟ and also from Total turnover‟. 44. This issue also came up for consideration before the Tribunal in relation to the A.Y 2007-08. Vide its order dated 05-08-2019 in IT(TP)A. No.286/Bang/2013, the Tribunal has held that any amount reduced from Export turnover‟ should also be reduced from the amount of Total turnover‟ in the computation of deduction u/s.10A of the Act. Following the same, we allow the assessee‟s ground and dismiss that of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are services is not eligible for deduction u/s. 10AA of the Act. 11. We note that the assessee computed 100% profits ascribed towards onsite/deputation of technical manpower as deduction u/s. 10A/10AA of the Act. The AO discussed this issue in detail from Page Nos. 10 to 50 and held the said amount is not eligible to claim deduction u/s. 10A/10AA of the Act vide Para No. 10.48 of its order and reduced the same from eligible profits. The CIT(A) observed that the assessee furnished master service agreement and opined that it is of no use as it governs the service conditions, employees benefits and liabilities and it does not deal with the issue as to how particular project for which the employees were deputed to onsite, held that the assessee has not established the direct and intimate nexus with the working of deduction and confirmed the disallowance made by the AO. 12. We note that the similar issue came up before this Tribunal in assessee‟s own case for A.Y. 2010-11 which is at Page No. 179 of the paper book. This Tribunal in A.Y. 2010-11 while granting relief to the assessee considered the order of this Tribunal for A.Y. 2007-08 being IT(TP)A No. 286/BANG/2013 for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the AO reduced profit relatable to Deputation of Technical Manpower (DTM) and Onsite software services allegedly not related to STP undertakings in India at ad hoc 4% and 20% of the eligible software development income u/s 10A of the Act as computed by him. Primarily, no reason has been attributed by the AO as to how 4% and 20% rates were determined for reducing the amount of deduction on account of DTM and onsite activities. 18. The assessee earned income from software development activity in all of its six eligible units. The question which falls for our consideration is as to whether the AO was right in holding that a part of consideration received by the assessee from the Deputation of Technical Manpower (DTM) activities and Onsite activities should be excluded from the eligible revenue? 19. Section 10A is a special provision in respect of newly established undertakings in free trade zones etc. Sub-section (1) of this section provides for a deduction of profits and gains as are derived by an undertaking from the export, inter alia, of computer software for a specified period. It is not disputed that the assessee satisfied all the requisite conditions for b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of modules and coding may be done simultaneously or one after another, depending upon the nature of module and its placement or setting within the overall product. The development stage produces a final software product, which is then tested on stringent standards to ensure that it measures up to the required specifications. Once the computer software or the product passes through the testing stage, it is given to the customer for actual use. Any product so developed may need maintenance and then upgradation with the passage of time. A close scrutiny of the life cycle of a customized software, as discussed above, discerns that a lot of interaction is required between the computer software developer and the customer, which is almost present in most of the stages of software development, starting with conceptualization itself. In developing a computer software of large magnitude, it is quite possible that a Software Developer may have to visit the site of the customer several times for having an on the spot information and properly appreciating the needs so as to make the final product compliant with the requirements. There can be several other reasons necessitating a customer ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersigned is directed to convey that the field authorities are advised to follow the contents of the Circular in letter and spirit. It is also advised that further appeals should not be filed in cases where orders were passed prior to issue of Circular but the issues giving rise to the disputes have been clarified by the Circular . There is hardly any need to accentuate that income-tax authorities are mere implementing agencies of the Parliament intent expressed through the enactment. They cannot suo motu usurp the power to indirectly legislate by not following the mandate of the provisions. Other income-tax authorities are bound to follow the command of the CBDT given through Circulars, even if they are not personally agreeable with the same. 22. On going through the directive of the Explanation 3 and the Circulars issued by the CBDT, which are binding on the authorities under the Act, it is vivid that the benefit of deduction under section 10A caters not only to profits earned from export simplicitor of computer software but also to any profits and gains derived from onsite development of computer software and also services for development of software rendered outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. To fortify the view point of the AO, the ld. DR placed on record a copy of the sample agreement between the assessee and its customers. This Consulting Service Agreement was entered into between the assessee and Royal Bank of Canada on 15-05-2006. Clause 1 of the Agreement gives description of Services and states that the assessee has agreed to perform the services of: `Technical system analysis for Capital Markets Client Authentication Infrastructure Consolitation as well as RBC Express TruePass upgrade projects . Dates of commencement and completion have been given as 15-05-2006 and 31-10-2006 respectively. Charges have been given in Clause 3 of the Agreement as hourly rates below $66 for two Technical System Analysts. Clause 3.2 provides that the assessee may invoice the Bank monthly for work performed during the previous month. Clause 4 states the number of personnel assigned to perform the services, which the assessee may replace with the Bank s approval. Place for service has been given as Toronto, Ontario. 25. A perusal of the above clauses of the Agreement divulges that the assessee undertook to perform Technical systems analysis for Capital Markets Client Authent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure within which the assessee was to develop and deliver computer software or render the eligible service. A total consideration was received by the assessee under such Master Service Agreements. The AO has excluded a part of such total consideration as attributable to DTM and onsite software services by treating the same as unrelated to STP undertakings in India. The two amounts disqualified by the AO at ₹ 2.43 crore and ₹ 12.17 crore are part of the total consideration agreed between the assessee and its overseas customer for development of computer software or rendering of the eligible service, income from which has otherwise been held to be eligible for deduction u/s.10A. We fail to comprehend as to how a part of the total consideration as per Master Service Agreement with several customers can be separated as relatable to Deputation of Technical Manpower business and onsite software development services unrelated to STP undertakings. Such DTM and onsite software services are part and parcel of the overall computer software development projects which the assessee undertook and income from which has been otherwise held to be eligible for deduction u/s.10A. Such disqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. The expression `profits of the business of the undertaking as used in sub-section (4), in fact, gives meaning to the expression `derived from export of computer software as used in sub-section (1) and amplifies the scope of the latter by mitigating the rigor and making the provision liberal and more inclusive. There is no gainsaying that `profits of the business of the undertaking are not only the profits derived from the export of computer software but also those which are attributable to the business of undertaking. So long as there exists a direct link between the eligible undertaking and some income, the same is profit of the business of undertaking, even if may not be derived from the export of computer software etc. Without accepting, even if we presume the contention of the ld. DR as correct that income from DTM and onsite software services rendered abroad cannot be considered as derived from the export of computer software, it, in any case, will have to be regarded as `profits of the business of the undertaking . In view of the foregoing discussion, we uphold the impugned order on this score. 13. We note that, in assessee‟s own case i.e. IGATE Globa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is allowed. 16. Ground No. 4 raised by the assessee challenging the action of CIT(A) in directing the AO to ascertain is as to whether the foreign exchange gain falls on capital account and revenue account in the facts and circumstances of the case. 17. Heard both the parties and perused the material available on record. The AO noticed that the credit balance to an extent of ₹ 3,30,46,000/- in the balance sheet on account of foreign currency monetary difference. According to him, the said amount not credited to the profit and loss account but taken to reserves account. It was explained that the said foreign exchange gain is in respect of foreign branches which was treated as non-integral foreign operation and the said treatment is in accordance with the accounting practices. The AO opined that the foreign operations are part and parcel of the overall company‟s operations and cannot be regarded as separate or independent operations and accordingly an amount of ₹ 1,28,46,335/- being amount credited in the year under consideration as held as taxable. The ld. CIT(A) directed the AO to ascertain the amount of foreign exchange gain on capital account and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25,088,899 6,272,225 18,816,674 2009-10 18,816,674 4,704,169 14,112,506 20. In the light of the above table, we note that the assessee has shown opening Written Down Value (WDV) at ₹ 10,57,24,413/- (₹ 18,88,10,000/- + ₹ 83,085,587/-) for F.Y. 2003-04 and by claiming depreciation @ 25% shown closing WDV at ₹ 7,92,93,310/-. Likewise from F.Ys. 2004-05 to 2009-10 the assessee worked out depreciation @ 25% and for the year under consideration for A.Y. 2010-11 (F.Y. 2009-10) shown closing WDV at ₹ 1,41,12,506/-. The contention of the ld. AR is that the assessee by mistaken belief did not claim the depreciation from F.Y. 2003-04 but by placing reliance in the case of Smifs Securities Ltd. claimed depreciation. He referred to Agreement which is at Page No. 4 of the paper book. On perusal of the said Agreement at Page No. 8 which clearly shows that the IT T Ltd. decided to sell its affiliates to Mascot Systems Ltd. The definition of affiliate is reflected in Article 1 at Page No. 9 of the paper book. Likewise the definit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rry forward of long term capital loss in the facts and circumstances of the case. 22. During the course of draft assessment proceedings, the assessee shown short term capital gains at ₹ 80,78,318/-. The AO observed that the said amount is net of short term capital loss of ₹ 52,86,898/-. According to AO, the said short term capital loss is disallowable u/s. 94(7) of the Act. The assessee sought time for filing working as many of the mutual fund investments were in daily/periodic dividend schemes which are reinvested. According to AO, the assessee did not file such working but given liberty to file the same at the time of final assessment order. The assessee filed such working during the course of final assessment proceedings and the AO found variation in amounts under short term capital gains, short term capital loss and long terms capital loss. The AO held the variation in amounts were held to be chargeable to tax but did not allow the carry forward under long terms capital loss. The CIT(A) confirmed the view of the AO. 23. Heard both the parties and perused the material available on record. We note that the assessee furnished details of workings regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount in difference found by him at ₹ 10,36,89,685/- by holding there was no provision in the Act to carry forward such loss. We note that the AO held in the final assessment order that the assessee neither claim such amount in its original return of income nor by filing a revised return of income. Admittedly, there was no revised return of income filed by the assessee seeking carry forward of loss to an extent of ₹ 10,36,89,685/- which was found during the course of final assessment proceedings but, however, denied carry forward to the subsequent year in the absence of revised return of income. The contention of the ld. AR is that without there being any revised income, the AO held the difference of amount under short term capital gain as chargeable to tax and the difference in short term capital loss disallowable u/s. 94(7) of the Act, but the AO arbitrarily denied carried forward of long term capital loss to the extent difference of amount found during the assessment proceedings is, in our opinion, illegal. 27. We note that the assessee declared positive income of ₹ 2,69,76,05,308/- before deduction u/s. 10A of the Act in the original return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. 29. Heard both the parties and perused the material available on record. The assessee claimed double tax credit of ₹ 11,76,27,728/-. The AO restricted the same at ₹ 7,32,63,047/- at the proportionate rate of tax @ 18% under book profit. It was claimed before the CIT(A) that the AO allowed tax credit only on the double tax and no credit under DTAA was provided. We note that the CIT(A) directed the AO to obtain documents as required under Rule 128(8) of the Income Tax Rules and to give benefit of foreign tax credit. It is seen that the several issues came up for consideration in assessee‟s own case for A.Y. 2009-10. The relevant discussion has been made on Pages 20 onwards going up to Page No. 30 of the order. Since, the facts and circumstances of the instant ground are similar to those of the earlier years as discussed in the aforesaid order for A.Y. 2009-10 in the said impugned order and remit the matter back to the file of AO for re-deciding this issue in conformity with the relevant discussion given by the Tribunal in the said order. Needless to say the assessee shall be offered reasonable opportunity of hearing. Thus, ground No. 7 raised by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profession . Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by an Assessee towards say, education cess or any other cess , then the legislature could have easily included reference to cess in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by the assessee towards the cess , when it comes to computing income chargeable under the head profits and gains of business or profession . The Hon‟ble Bombay High Court observing on the impugned order of the ITAT has reasoned at Para 33 of the said order that the Tribunal has observed that since cess is collected as a part of the income tax and fringe benefit tax, therefore, such cess‟ is to be construed as tax . However, the Hon‟ble Bombay High Court held that there is no scope for such implications when construing a taxing statute. Even though, cess may be collected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as the Act‟) and placing reliance on the decision of the Hon‟ble Bombay High Court (supra.), we allow the additional ground of appeal raised by the assessee. 32. Therefore, in view of the above decision, we direct the AO to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the additional ground raised by the assessee is allowed. 33. In the result, the appeal of assessee is allowed for statistical purpose. 34. Now, we shall take up appeal in ITA No. 2624/PUN/2017 filed by the Revenue. 35. With respect to Ground Nos. 1 and 2 raised by the Revenue, the ld. AR submitted that identical grounds were raised by the Revenue in A.Y. 2010-11 in assessee‟s own case and the Tribunal dismissed the same vide order dated 05-03-2020. The ld. DR did not dispute the same. Accordingly, ground Nos. 1 and 2 raised by the Revenue are dismissed. 36. With respect to Ground Nos. 3 and 4 raised by the Revenue, the ld. AR submitted that identical grounds were raised by the Revenue in A.Y. 2010-11 in assessee‟s own case and the Tribunal dismissed the same vide order dated 05-03-2020. The ld. DR did not di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. AR is that there was no satisfaction recorded by the AO as confirmed by the CIT(A) regarding the disallowance made by the assessee on its own is incorrect and we find that the AO categorically held that the disallowance made by the assessee is not accepatable, thereby, the submission of ld. AR is rejected. 39. Coming to the consolidated order for A.Y. 2011-12, we note that this Tribunal clearly observed The perusal of the assessment order does not reflect the Assessing Officer to have recorded satisfaction as to why suomotu disallowance made by the assessee at ₹ 50 lakhs is not sufficient to cover disallowance of expenditure relatable to exempt income. In view of the provisions of section 14A(2) of the Act , which clearly shows this Tribunal categorically found on an examination of assessment order that there was no satisfaction recorded by the AO in respect of the disallowance made by the assessee on its own relating to exempt income. Therefore, in our opinion, the facts and circumstances reflected in the assessment order relating to A.Y. 2011-12 are not identical to the facts on hand, wherein, we find in the present case the AO clearly recorded is non-satisfacti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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