Tax Appeals Outcome: Exempt Income Disallowed, Overseas Travel Deductible, Tribunal Upholds CIT (A) Decisions

The Assessee's appeals for A.Y. 2008-09 were partly allowed, and for A.Y. 2009-10 were dismissed. The Revenue's appeals for both years were also dismissed. The Tribunal held that for A.Y. 2008-09, 3% of exempt income should be disallowed under section 14A, while for A.Y. 2009-10, Rule 8D applied. Additionally, deductions for overseas travel and telecommunication expenses were allowed under section 10B for A.Y. 2008-09, and software expenses were treated as revenue expenditure. The Tribunal upheld the decisions of the CIT (A) regarding these matters.

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Issues:
- Disallowance of expenditure under section 14A for A.Ys 2008-09 & 2009-10
- Computing deduction U/s. 10B of the Act for A.Y. 2008-09
- Treatment of software expenses as revenue expenditure for A.Y. 2008-09
- Addition made towards donation while computing book profit U/s. 115JB for A.Y. 2008-09
- Reducing overseas travel and telecommunication expenses from total turnover for A.Y. 2009-10

Disallowance of Expenditure under Section 14A:
- The appeals were filed by the Assessee and the Revenue against the order of the Commissioner of Income Tax (A)-III, Chennai, for A.Ys 2008-09 & 2009-10.
- The Assessee challenged the disallowance of expenditure under section 14A read with Rule 8D of the Act. The Tribunal held that Rule 8D was applicable only from the assessment year 2009-10, and for 2008-09, 3% of the exempt income should be treated as the disallowed expenditure.
- For A.Y. 2009-10, Rule 8D was applied, and the disallowance was reworked by the CIT (A) to `12,31,129/-. The Tribunal confirmed this decision.

Computing Deduction U/s. 10B of the Act:
- The issue for A.Y. 2008-09 was whether overseas travel and telecommunication expenses in foreign currency should be reduced from total turnover. The Tribunal relied on a Special Bench decision, stating that such deductions should be made both from export turnover and total turnover.

Treatment of Software Expenses:
- The Revenue challenged the treatment of software expenses as revenue expenditure for A.Y. 2008-09. The CIT (A) considered the nature of the software purchased and relied on legal precedents to support treating the entire expense as revenue expenditure. The Tribunal upheld this decision.

Addition towards Donation for Book Profit:
- The Revenue disputed the deletion of the addition made for donation while computing book profit under section 115JB for A.Y. 2008-09. The CIT (A) directed that the donation should be treated as an allowable expenditure, aligning with the Companies Act and relevant legal principles. The Tribunal confirmed this decision.

Reducing Overseas Expenses from Total Turnover:
- The Revenue raised an issue regarding reducing overseas travel and telecommunication expenses from total turnover for A.Y. 2009-10. The Tribunal upheld the CIT (A)'s decision, which was based on a Special Bench ruling.

Conclusion:
- The appeals of the Assessee for A.Y. 2008-09 were partly allowed, and for A.Y. 2009-10 were dismissed. The Revenue's appeals for both years were dismissed. The Tribunal's order was pronounced on 2nd June 2015 in Chennai.

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