Assessee and Revenue Appeals: Partial Success with Detailed Legal Directions

The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the Revenue were partly allowed. The Tribunal provided detailed directions on each issue, ensuring compliance with relevant legal provisions and judicial precedents.

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Issues Involved:
1. Disallowance of prior period expenses.
2. Directions under section 144A.
3. Disallowance under section 14A read with rule 8D.
4. Allowance of preliminary expenses under section 35D.
5. Depreciation on application software.
6. Depreciation on temporary wooden structures.
7. Apportionment of common expenses towards STPI unit.

Detailed Analysis:

1. Disallowance of Prior Period Expenses:
The assessee claimed Rs. 9,65,903 as prior period expenses for the assessment year 2006-07, which was disallowed by the Assessing Officer (AO) since they did not pertain to that year. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the disallowance, noting that it originated from the original assessment order under section 143(3) dated December 12, 2008, and not from the order passed under section 263. The Tribunal rejected the assessee's ground, stating it could not challenge the addition as it did not emanate from the order passed under section 143(3) read with section 263.

2. Directions under Section 144A:
The assessee's appeal concerning directions given by the Additional Commissioner of Income-tax under section 144A was dismissed as not pressed.

3. Disallowance under Section 14A read with Rule 8D:
For the assessment year 2007-08, the AO disallowed expenses related to earning exempt income by invoking section 14A read with rule 8D. The CIT(A) confirmed the disallowance at 5% of the gross dividend. The Tribunal noted that rule 8D, effective from March 24, 2008, could not be applied retrospectively for the assessment year 2007-08 and directed the AO to disallow 2% of the exempted income. For the assessment years 2008-09 and 2009-10, the Tribunal, following the Mumbai Bench's decision in Daga Global Chemicals P. Ltd., held that disallowance under section 14A read with rule 8D should not exceed the exempt income and directed the AO to reconsider the issue.

4. Allowance of Preliminary Expenses under Section 35D:
The AO disallowed Rs. 1,00,28,477 claimed under section 35D for IPO-related expenses, following the Additional Commissioner's direction. The CIT(A) partially allowed the claim, permitting amortization of advertisement expenses, printing charges, and underwriting commission. The Tribunal, however, held that the expenditure did not qualify for amortization under section 35D as it was not incurred before the commencement of the business or for setting up a new unit, and also rejected the alternative plea to allow the same under section 37.

5. Depreciation on Application Software:
The AO restricted the depreciation claimed on application software, following the Additional Commissioner's directions. The CIT(A) upheld this restriction. The Tribunal agreed with the lower authorities, stating that the actual cost of assets acquired from TGSL should be considered as "nil" under Explanation 3 to section 43(1) and upheld the restriction of depreciation at 25% on IPR and 60% on other software.

6. Depreciation on Temporary Wooden Structures:
The AO granted depreciation at 10% on improvements made to leasehold properties, which the assessee claimed at 100%. The CIT(A) treated the expenditure as capital, allowing depreciation as applicable to furniture and fixtures. The Tribunal remitted the issue back to the AO to determine whether the expenditure was revenue or capital in nature, considering the Tribunal's earlier decision in K. R. Bakes P. Ltd.

7. Apportionment of Common Expenses towards STPI Unit:
The AO reallocated common expenses to the STPI unit based on the Additional Commissioner's directions. The CIT(A) upheld the assessee's method of apportioning expenses based on turnover. The Tribunal confirmed the CIT(A)'s finding, stating the apportionment based on turnover was fair and appropriate.

Conclusion:
The appeals of the assessee were partly allowed for statistical purposes, and the appeals of the Revenue were partly allowed. The Tribunal provided detailed directions on each issue, ensuring compliance with relevant legal provisions and judicial precedents.

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