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TMI Blog2023 (11) TMI 185X X X X Extracts X X X X X X X X Extracts X X X X ..... Jd(AT)/2020 dated 17.03.2020, held on record, transferred this appeal to ITAT, Indore Bench. This way, this appeal with same number has come up before us for hearing and adjudication. 3. Brief facts leading to present appeal are such that the assessee-company filed return of income on 30.10.2007 declaring a total income of Rs. 19,30,66,350/- for AY 2007-08. The case was selected under scrutiny and statutory notices u/s 143(2)/142(1) were issued by AO and complied by assessee. The AO found that the assessee had entered into international transactions with its Associated Enterprises (AEs) situated outside India. The AO made a reference to Transfer Pricing Officer (TPO) to determine the arm length price (ALP) of those transactions. Vide order dated 26.10.2010 passed u/s 92CA(3), the TPO reported that the transactions undertaken by assessee were not at ALP and an upward adjustment of Rs. 37,69,02,830/- was required. Then, the AO served a draft-assessment order dated 28.12.2010 upon the assessee proposing to make additions/disallowances, namely (i) upward adjustment of transfer-pricing at Rs. 37,69,02,830/- as per TPO's order (ii) re-working of exemption u/s 10A/10B, (iii) capitalizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and not taking into consideration the economic and commercial reasons which were unique to the Bangalore Units. 7. The ld. AO and Hon'ble DRP have erred in law and in facts by not accepting the economic analysis undertaken by the assessee in accordance with the provisions of the Act read with the Rules, and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the assessee's international transaction is not at arm's length. 8. The ld. AO and Hon'ble DRP erred in law and in facts by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes. 9. The ld. AO and Hon'ble DRP erred in law and in facts, by accepting/ rejecting companies based on unreasonable comparability criteria. 10. The ld. AO and Hon'ble DRP erred in law and in facts, by rejecting certain comparable companies identified by the assessee for having different accounting year (i.e. companies having accounting year other than March 31 or companies whose financial statements were for a period other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in treating expenditure in foreign currency as expenditure incurred for providing "technical services" outside India without appreciating the fact that the assessee is engaged in provision of software development services and not technical services. c. Without prejudice to ground (a) and (b) above, the ld. AO has erred in holding that expenses incurred in foreign currency should be excluded from export turnover of units claiming deduction u/s 10A/10B, but not from total turnover of the said Units. 21. In computing the deduction u/s 10A/10B of the Act. a. The ld. AO has erred in excluding telecommunication expenditure incurred in connection with the delivery of computer software outside India from the export turnover of Chennai Unit II, and Bangalore SBU STP Unit (Units claiming deduction u/s 10A/10B), when such items were not, in the first place, included in the export turnover of the said Units. b. Without prejudice to ground (a) above, the ld. AO has erred in excluding telecommunication expenditure incurred in connection with the delivery of computer software outside India from the export turnover of Chennai Unit II and Bangalore SBU STP Unit (Units claiming deduction u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions Amount Benchmarking method adopted Covansys Corpn, USA Purchase of fixed assets, Export of software development and support services 30839420 44520236955 TNMM Covansys (Singapore) Pte Ltd. Export of software development and support services 158456147 Covansys UK Ltd. Export of software development and support services 112804278 Covansys Belgium NV Export of software development and support services 25352418 Covansys Deutschland GMBH, Germany Export of software development and support services 28154191 Covansys SRI, Italy Export of software development and support services 596207 Covansys S L. Spain Export of software development and support services 11083994 Covansys Netherland B.V. Export of software development and support services 1045739 Covansys Canada, Inc Export of software development and support services 4484863 Covansys Netherland B.V. Reimbursement of travel, communication expenses etc. 8174789 On actual basis Covansys Corpn, USA Reimbursement of travel, communication expenses etc. 132223196 Covansys UK Ltd. Reimbursement of travel, communication expenses etc. 11900559 Covansys Belgium NV Reimbursement of travel, communic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted 28 external comparables, the TPO made certain inclusions/exclusions and came to finalize a set of 26 comparables. Ultimately, the TPO accepted 'unit-level' approach; computed mean PLI of 26 external comparables at 25.44%; and thereby recommended upward adjustment of Rs. 37,69,02,830/- for first 2 loss-making units of Bangalore (Rs. 14,32,37,643 for Bangalore Unit-I + Rs. 23,36,65,188/- for Bangalore SBU). Brief details of the working made by TPO, in Para 21 at Page 99, is as under: Bangalore Unit-I: Total Sales 39,48,33,177 Less: Loss(-) 7.95 on cost 7.95 on cost becomes 7.95/92.05 = 8.64 on sales 3,41,13,586 Total cost 42,89,46,763 Add: Arm's Length Profit (25.44 on cost) 10,91,24,056 Arm's Length Sales 53,80,70,820 Actual Sales 39,48,33,177 Upward adjustment to be made to sales 14,32,37,643 Bangalore SBU: Total Sales 90,73,10,775 Less: Loss (-)0.25 on cost 0.25 on cost becomes 0.25/99.75 = 0.25 on sales 22,68,276 Total cost 90,95,79,051 Add: Arm's Length Profit (25.44 on cost) 23,13,96,910 Arm's Length Sales 1,14,09,75,963 Actual Sales 90,73,10,775 Upward adjustment to be made to sales 23,36,65,187 10. The matter went to DRP w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction." [Emphasis supplied] (iii) The term "Enterprise" is defined in section 92F(iii) as under: "92F. In sections 92, 92A, 92B, 92C, 92D and 92E, unless the context otherwise requires,- (i)to (ii) xxx (iii) "enterprise" means a person (including a permanent establishment of such person) who is, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, does not bar or prohibit clubbing of closely connected or intertwined or continuous transactions. This is discernible also from sub-rule (2) to Rule 10B quoted above. The sub-rule refers to 'services provided', 'functions performed', 'contractual terms (whether or not such terms are formal or in writing) of the transactions' which lay down explicitly or impliedly the responsibilities, risks and benefits to be divided between the respective parties to the transactions. Use of plurality by way of necessity and legislative mandate is evident in the said Rule. 81. Similarly, sub-rule (3) to Rule 10B refers to transactions being compared or comparison of the enterprises entering into such transactions likely to affect the price or cost charged etc. A reading of Rule 10C reassures and affirms that the general principle of plurality is not abandoned or discarded. 82. There is considerable tax literature and text that CUP Method, i.e. Comparable Uncontrolled Price Method, RP Method, i.e. Resale Price Method and CP Method, i.e. Cost Plus Method can be applied to a transaction or closely linked, or continuous transactions. Profits Split Method and TNM Method grouped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviders, but on their own level, i.e. assessment records of other parties. 91. In case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNM Method on entity level basis. The focus of this method is on net profit amount in proportion to the appropriate base or the PLI. In fact, when transactions are inter-connected, combined consideration may be the most reliable means of determining the arm's length price. There are often situations where closely linked and connected transactions cannot be evaluated adequately on separate basis. Segmentation may be mandated when controlled bundled transactions cannot be adequately compared on an aggregate basis. Thus, taxpayer can aggregate the controlled transactions if the transactions meet the specified common portfolio or package parameters. For complex entities or where one of the entities is not plain vanilla distributor, it should be applied when necessary and applicable comparables on functional analysis, with or without adjustments are available. Otherwise, the TNM Method should not be adopted or applied on account of being an inappropriate method." (ii) CIT Vs. Birlasoft Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of related parties, (-)14.10% in respect of unrelated parties. The overall operating profit margin of international transaction is 10.91%. This result is within the tolerance band provided in the proviso to sec. 92C(2) of the Act and, therefore, no adjustment is required. Learned TPO has recommended the adjustment by ignoring the result of Noida STP Unit. 2. We have noticed this working in paragraph No.3 extracted supra. 11. Learned First Appellate Authority did not accept the approach of TPO for segregating the margin earned by the assessee in its various STP units. The reasons for not concurring with the TPO are that the assessee had provided software development services, such as, software development services, software maintenance and repair services, quality testing services from its three units. It is an identical services. 12. There is no significant functional difference in the software development and maintenance services to related and unrelated values. The services rendered by the STP Unit were rendered to the same AEs of the assessee, namely, Birla Soft Inc. US and Birla Soft UK on continuing basis. 13. The terms and conditions for rendering such services by each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remains the same for the year under consideration also). It was observed that there was unity of business, administrative control and funds, etc., in each of the STP units of the assessee, and that because of such commonness of management and interlacing of funds, etc., or software development services, it was not practically possible to carry out an independent FAR analysis of each unit with the existing comparables. It remains undisputed that the position, as above, remains the same for the year under consideration also. The Tribunal orders for the earlier years have not been shown to have been upset, or even stayed, on appeal. Therefore, since there continues to be unity of business and administrative control and interlacing of funds amongst the units of the assessee company, for this year also, it is not possible to carry out an independent FAR analysis of each unit with existing comparables. The assessee had provided various kinds of software related services, such as software development services, software maintenance and repair services and quality testing services, etc., from each of its STP units located in Noida and Chennai. These services were rendered to the same two AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ITA No. 4456/Del/2012) - Corning SAS-India Office vs. DDIT (ITA No. 548/Del/2015) - DCIT vs. CLSA India Limited (ITA No. 2362/Mum/2011) - Cadbury India Ltd. Vs. ACIT (ITA No. 7408/Mum/2010) - Rehau Polymers Pvt. Ltd. vs. ACIT (ITA No.378/Pun/2017) - Viavi Solutions India P. Ltd. vs. DCIT (ITA No. 1483/Del/2016) - Yazaki India Limited vs. ACIT (ITA No. 886/Pun/2014) 12.3 Having explained the above provisions of law and judicial rulings in support of 'entity-level' comparison is prescribed, Ld. AR submitted that the following facts relating to present case of assessee justifies application of 'entity-level' approach: (i) It is submitted that the assessee has entered into one single 'Service Agreement (SA)' dated 01.01.2006 with all AEs and pursuant to such single SA, services were provided to all AEs, copy of SA is filed at Page No. 173/180 of Paper-Book. Referring to same, Ld. AR pointed out that the SA provides for charging of 'uniform rate' for service rendered by assessee irrespective of whether the assessee provided/performed service from any of the 5 units. These rates were 15 dollars per manhour (increased to 18 dollars per man-hour from 01.01.2007) for servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'entity-level' benchmarking done by assessee without any objection. Copy of TPO's order F.No. C-107/TPO-I/AY. 2008-09 dated 21.10.2011 is placed at Page No. 904-906 and order F.No. C-107/TPO-I/AY 2009-10 dated 14/11/2012 for AY 2009-10 is placed at Page No. 908-909 of Paper-Book. Ld. AR submitted that the TPO/AO has accepted assessee's claim of 'entity-level' comparison in all other years and the AY 2007-08 under consideration is the solitary year where the TPO/AO has rejected assessee's claim. Relying upon the decision of Hon'ble Supreme Court in Radhasoami Satsang Vs. CIT 193 ITR 321 and Excel Industries Limited 358 ITR 295, it is submitted that the principle of consistency must be adhered to in income-tax proceedings. It is submitted that there is no change in facts or law so as to warrant deviation from the consistent view taken by authorities. Therefore, the TPO/AO is at a serious default in not accepting 'entity-level' benchmarking in current year. 13. Per contra, Ld. DR strongly supported the approach of TPO/AO. He submitted that each unit of assessee is a separate entity and each unit is drawing its own P&L A/c. He submitted that Transfer Pricing Regulations talk of indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red into between assessee and AEs. Same view was again taken in the case of same assessee for AY 2005-06 Birla Soft India Ltd. - ITA No. 4713/Del/2011 (supra). The facts of present appeal before us are identical to these decisions in Birla Soft India. The assessee has established 5 units from time to time at different locations for providing identical services but the agreement with AEs for rending services was a 'single agreement' entered into by assessee at entity-level and not by individual units. Further, in the agreement, the assessee has agreed to provide service at 'uniform rate' to all AEs; thereafter it was assessee's own decision to perform/provide service from any of the 5 units depending upon its capability/capacity/ suitability/availability to perform. The AEs are liable to pay the 'uniform rate'; agreed in SA for the service they got done from assessee irrespective of which of the units had done. The loss or profit earned by individual units was the outcome of their own expenses, own economics of business, scale of operations, etc. of respective units. All units provided identical services on a continuous basis. The management and finance functions of assessee were co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties have accepted entity-level approach of assessee in other years, there is a gross fallacy in not accepting the same approach in current year in absence of any changed circumstance. Therefore, looking into the entire conspectus of the case, we are inclined to accept that the 'entity-level' approach applied by assessee deserves to be accepted. We, therefore, reverse the decision of lower-authorities and direct the AO to apply 'entity-level' approach as claimed by assessee. (B) Internal benchmarking with Mumbai Unit is wrongly denied: 15. Ld. AR submitted that under TNMM, there can be 'internal benchmarking' as well as 'external benchmarking' and it is judicially settled that the former should be preferred over later. Ld. AR supported this proposition with following contentions: 15.1 Firstly, he referred to the following provision of Rule 10B(1)(e) where TNMM is prescribed: "Rule 10B(1) (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterpri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrolled transactions. It is because the delegated Legislature has firstly referred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and thereafter it points towards net profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction Thus where potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have higher degree of comparability vis-a-vis comparables identified amongst the uncontrolled transactions of third parties. The underlying object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case The reason is patent that the various factors having bearing on the quality of output, assets employed input cost etc. continue to remain by and large same in case of an internal comparable. The effect of difference due to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third party, it is always safe and advisable to have recourse to such internal comparable case; that the reason for this I,s that various factors having bearing on the quality of output, assets employed, input cost, etc., continue to remain, by and large the same in the case of an internal comparable; that the effect of difference due to such inherent factors on the comparison made with the third parties gets neutralized when comparison is made with internal comparables; and that therefore, an internally comparable uncontrolled transaction is more noteworthy than an externally comparable uncontrolled transaction. 70. In 'Destination of the World Pvt. Ltd.' (supra), it has been held, inter alia, that the OECD Guidelines mention that net margin of the tax payer from the controlled transactions should be established with reference to the net margin which the same tax payer earns in comparable uncontrolled transactions; that where this is not possible, the net margin that would have been earned in comparable transactions by an independent enterprise, may serve as a guide; that thus, these Guidelines suggest preference for internal comparables and reference has to be made to the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the sake of brevity. Thus, the Ld. AR contended that even in case of 'unit-wise' comparison, if the internal benchmarking is done, the assessee's international transactions are at arm's length. He also submitted that if the "entity-level" approach is accepted, then also the analysis of internal comparison of all units taken together given in "Annexure-I" demonstrates that the PLI of assessee as a whole entity from "related parties" is 17.09% which is better than PLI of 9.15% from "un-related parties". 17. Ld. AR submitted that the TPO/DRP has disregarded assessee's claim of internal comparison on an illegal understanding that external comparables would provide a better comparison than internal comparables whereas the Rule 10B(1)(e), OECD Guidelines and the judicial rulings clearly prefer 'internal comparison' and that is very right also because 'internal comparison' is better, more reliable and accurate than 'external comparison'. Ld. AR has also relied upon the judicial ruling to this effect given in Sony Ericsson Mobile Communications India Pvt. Ltd. Vs. CIT 374 ITR 118 (Para 85 of order). 18. Per contra, Ld. DR drew our attention to Page No. 11-13 of DRP order and emphas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o so. We do not find anything wrong in the findings of DRP which are re-produced in foregoing paragraph. Therefore, we are not inclined to make any interference with the order of DRP. The claim of 'internal benchmarking' is therefore devoid of merit and dismissed. (C) Certain 'external comparables' have been wrongly used; they are liable to be excluded: 20. Ld. AR submitted that the assessee selected 28 comparable with 14.53% PLI in TPSR [Ld. AR pointed out that the TPO/DRP have made some type error at Page No. 3/6 of their orders in mentioning that the assessee selected 36 comparable companies with 12.04% PLI]. However, the TPO made certain exclusions/inclusions and came out with a final list of 26 companies with PLI of 25.44% on Page No. 99 of his order. The list of 26 comparables accepted by TPO is narrated by Ld. AR on Page No. 5 of his Written- Submission, the same is re-produced below for an immediate reference: S.No. Description OP/OC(%) 1. Accel Transmatic Limited (Seg.) 21.11 2. Avani Cimcon Technologies Ltd. 52.59 3. Celestial Labs Ltd. 58.35 4. Datamatics Ltd. 7.27 5. E-Zest Solutions Ltd 36.12 6. Flextronics Software Systems Ltd.(Seg) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of customers like travel, insurance, etc. Therefore, the assessee is not comparable to this company. We, therefore, direct the TPO/AO to exclude this company from comparable list. 21.2 Celestial Bio-Labs Ltd.: (i) Ld. AR submitted that this company is functionally dis-similar to assessee. It is primarily engaged in development of software tools as products for application in specific fields of bio technology, pharmaceuticals and healthcare industry. The software tools developed by company are proprietary in nature and using patent. Thus, this company is a 'product company' owning 'intangible property'. As per annual report, this company has developed a de novo drug design tool called "CELSUITE" and protected its IPR under Copyright/Patent Act. Based on its silico expertise, the company has developed a molecule to treat leucoderma and multiple cancer. The company has outlined its future plans in the field of bio-technology. The company has come out with a public issue of shares wherein it has explained business as clinical research. Ld. AR placed reliance on several decisions where this company has been excluded from comparable due to functional dis-similarity, the most promine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secondly, the revenue model of this company is also unique in as much as the company also earns by way royalty from products. Therefore, the assessee's case cannot be compared with this company. We direct the TPO/AO to exclude this company from list of comparables. 21.4 Infosys Technolgies Ltd.: (i) Ld. AR submitted that this company is big giant having turnover of Rs. 13,149 crore whereas the turnover of assessee is just Rs. 570 crore. Therefore, the scale of operations has day-night difference. Being a giant, this company has all bargaining powers at its command which the assessee does not have. In several assessees, this company has been excluded from list of comparables on this very basis that it is a giant. Even in assessee's own case for AY 2011-12, the ITAT Indore has excluded this company in ITA No. 179/Ind/2016. (ii) Ld. DR could not controvert Ld. AR's submissions though he dutifully supported the orders of lower authorities. (iii) We have given our careful consideration. There can hardly be any dispute that the "Infosys" is a giant in software industry and it cannot be compared with small players like assessee. It is also noteworthy that this company has been excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, CMSS, Docuflo, Shine-ERP, etc. Further, the company is engaged in composite contracts i.e. training and projects. Therefore, if there is loss in one segment, it is offset by other. Ld. AR has given a very long list of rulings in which this company has been excluded from comparable. (ii) Ld. DR supported the order of TPO/AO. (iii) On a careful consideration, we find that this company is also a product company. It has developed various software products as pointed out by Ld. AR and earning revenue therefrom. Further, it is also claimed by assessee that the company is earning from composite contracts. These business activities of assessee are not controverted by Ld. DR. Therefore, we feel appropriate to exclude this company from comparable and directly accordingly to TPO/AO. 21.7 Lucid Software Ltd.: (i) Ld. AR submitted that this company is functionally dis-similar. The company is engaged in development of software products. It has amortized product development expenses of Rs. 18,66,703/- during the year ended 31.03.2007. The company has in-house software development facility. It is a software product company and even the software services are being provided by using in-hou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore of assessee. The company has spent Rs. 954.7 core on marketing and sales promotion whereas the assessee's expenditure is Nil. Ld. AR argues that by no stretch of imagination, this company can be compared with assessee. The AR has filed a long list of rulings in which this company has been considered as non-comparable. This company has been excluded from list of comparables by ITAT, Indore in assessee's own case of AY 2011-12 in ITA No. 179/Ind/2016. (ii) Ld. DR dutifully supported the orders of lower-authorities though he could not controvert the submissions of Ld. AR. (iii) We have considered rival submissions of both sides. On a careful consideration, we find that this company is one of big market players in software sector. The turnover of company is manifold of assessee's turnover. The company is not comparable to assessee and such a view has already been taken by ITAT, Indore in assessee's own case for other year. Therefore, we are inclined to exclude this company from comparable. The TPO/AO is directly accordingly. 22. To sum up, we decide the various issues raised before us, as under: (i) The 'entity-level' comparison claimed by assessee is accepted. (ii) The 'i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover." Ld. AR also submitted that subsequent to aforesaid decision, even the CBDT has also issued following Circular No. 4/2018 dated 14.08.2018 accepting the viewpoint decided by Hon'ble Supreme Court: "5. The issue has been examined by the Board and it is clarified that freight, telecommunication charges and insurance expenses are to be excluded both from "export turnover" and "total turnover", while working out deduction admissible under section 10A of the Act to the extent they are attributable to the delivery of articles or things or computer software outside India. 6. Similarly, expenses incurred in foreign exchange for providing the technical services outside India are to be excluded from both "export turnover- and "total turnover-while computing deduction admissible under section 10A of the Act. Thus, all charges/expenses specified in Explanation 2(iv) to section 10A of the Act, are liable to be excluded from total turnover als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny work in or in relation to, and by way of renovation or extension of, or improvement to, the building, then, the provisions of this clause shall apply as if the said structure or work is a building owned by the assessee." 30. Thus, the Bench pointed out that the decision of Hon'ble Supreme Court in Madras Auto (supra) was rendered for AY 1968-69 but subsequently, the law of section 32(1) has been amended by inserting aforesaid Explanation 1 which clearly prescribes that if any capital expenditure is incurred by the assessee on the construction of any structure or doing of any work in or in relation to, and by way of renovation or extension of, or improvement to, any building not owned by him but taken on lease or other right of occupancy, then, the assessee shall be treated as owner qua such structure or work. The necessary effect of this amendment is such that the assessee shall be entitled to the deduction of depreciation and not as revenue expenditure. After hearing, Ld. AR filed a Written-Note on 04.08.2023 acknowledged by office of ITAT through Inward No. 679 on the non-applicability of Explanation 1 to section 32(1). In the said note, Ld. AR has mentioned that the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded cost of purchase of licensed software amounting to Rs. 78,67,240/-. The AO found the purchase of software to be of enduring value beyond two years. By following the ITAT Delhi Special Bench decision in the case of Amway India Enterprises vs. DCIT 111 ITD 112, he ordered its capitalization. Per Assessing Officer, similar disallowance had also been made in the earlier assessment years, so, the written down value gets enhanced in view thereof. 17. In lower appellate proceedings, the assessee's arguments have met the same fate. 18. Before us, in the course of hearing, the assessee submits that the authorities below have wrongly capitalized the impugned software expenditure. In support, it has neither filed any cogent evidence nor case law against the special bench decision in Amway India Enterprises (supra). So, the impugned capitalization cannot be interfered with on mere asking. Accordingly, we affirm the findings of the CIT(A) in capitalizing the software expenses of Rs. 78,67,240/-." 35. Ld. AR, however, submitted that the aforesaid order of ITAT, Chennai was passed following the decision of Special Bench in Amway India Enterprises Vs. DCIT 111 ITR 112 as mentioned the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not having benefit of the decisions of Madras High Court, is not valid. In fact, the Special Bench has very much considered the decisions of Hon'ble Madras High Court. 37. Ld. AR has not been able to bring on record any change in the nature of expenditure so as to not follow the decision of ITAT, Chennai in assessee's own case for AY 2008-09 re-produced earlier. Therefore, we have no reason to deviate from the view taken therein. Respectfully following the same, we uphold AO's action. The assessee fails in this ground. Ground No. 24: 38. This ground relates to the disallowance u/s 14A on account of expenditure incurred for earning exempt income. 39. The AO has, in Para No. 4 of assessment-order, noted that during the year, the assessee has earned exempted dividend of Rs. 4,39,50,738/- from mutual funds; this fact/figure is also evident from exemption claimed by assessee u/s 10(35) in "Income-tax Computation" sheet filed at Page No. 290 of Paper-Book. Therefore, the AO invoked section 14A for making disallowance and Rule 8D for computing the amount of disallowance. The AO noted that the magnitude of the transactions in mutual funds clearly exhibits that the assessee has to dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to AY 2007-08 involved in present appeal as held by Hon'ble Supreme Court. Therefore, the disallowance computed by AO in terms of part (iii) of Rule 8D cannot stand. But, however, we find that a 'reasonable disallowance' is attracted u/s 14A de hors Rule 8D. It is to be noted that the assessee has earned a very high amount of exempted income and the AO has mentioned, in his words, that the assessee has incurred expenses which are embodied in various indirect expenses debited to P&L A/c. We also find that this issue has also cropped in other years in assessee's case. As mentioned earlier, in the consolidated order for AY 2011- 12 to 2013-14, the ITAT Indore has remanded this issue back to AO. Further, on perusal of Paper-Book filed by assessee, we find that the assessee has filed a copy of order dated 03.03.2014 of ITAT, Chennai in ITA No. 1205/Mds/2013 for AY 2008-09 in assessee's own case wherein the ITAT has upheld disallowance of Rs. 35 lakhs on 'reasonable computation' u/s 14A de hors Rule 8D; the relevant para of ITAT is reproduced below: "11. We have heard both parties and gone through the case file. We make it clear that the impugned assessment year is 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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