Tribunal remits matter for verification under Income Tax Act, allows Cross Objection, and makes specific deductions.

The Tribunal remitted the matter back to the Assessing Officer to verify the nature of services for the disallowance under section 40(a)(I) of the Income Tax Act. The Tribunal allowed the assessee's Cross Objection for hearing after condoning the delay in filing. It directed the Assessing Officer to delete the disallowance of deduction towards software purchases, allowed 60% depreciation for UPS attached to computers, and upheld the disallowance of expenses on website development for non-deduction of TDS. The order was pronounced on July 13, 2016, in Chennai.

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Issues Involved:
1. Deletion of disallowance under section 40(a)(I) of the Income Tax Act, 1961.
2. Condonation of delay in filing the Cross Objection by the assessee.
3. Disallowance of the claim of deduction towards software purchases.
4. Disallowance of the claim of depreciation at 60% for UPS attached to computers.
5. Disallowance of expenses incurred on website development for non-deduction of TDS under section 194J of the Act.

Issue-wise Detailed Analysis:

1. Deletion of disallowance under section 40(a)(I) of the Income Tax Act, 1961:
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] deleting the disallowance of Rs. 63.58 lakhs under section 40(a)(I) towards expenditure on subscription paid to non-residents. The Assessing Officer (AO) had disallowed the expenditure on the grounds that TDS was not deducted as per section 195(1). The CIT(A) observed that the recipients were non-residents without a permanent establishment (PE) in India, and payments were made outside India, thus TDS was not required. The Tribunal found that the authorities below did not verify if the services were technical services or pure business transactions. The matter was remitted back to the AO to verify the nature of services and decide afresh.

2. Condonation of delay in filing the Cross Objection by the assessee:
The assessee’s Cross Objection was filed 81 days late. The assessee filed a petition for condonation of delay, citing sufficient cause. The Tribunal, finding sufficient cause and no objection from the Revenue, condoned the delay and admitted the Cross Objection for hearing.

3. Disallowance of the claim of deduction towards software purchases:
The assessee claimed Rs. 28,12,057 as revenue expenditure for software purchases, which the AO treated as capital expenditure, allowing 60% depreciation and making an addition of Rs. 11,24,823. The CIT(A) confirmed the AO's decision. The Tribunal, referencing the Delhi High Court judgment in CIT v. Asahi India Safety Glass Ltd., ruled that the software expenses should be treated as revenue in nature, setting aside the CIT(A)’s order and directing the AO to delete the disallowance.

4. Disallowance of the claim of depreciation at 60% for UPS attached to computers:
The assessee claimed 60% depreciation for UPS, which the AO restricted to 15%, treating it as an electrical device. The CIT(A) upheld the AO's decision. The Tribunal, following the precedent set in the case of DCIT v. Indian Bank, held that UPS attached to computers qualifies for 60% depreciation and directed the AO to allow the same.

5. Disallowance of expenses incurred on website development for non-deduction of TDS under section 194J of the Act:
The assessee incurred Rs. 3,94,000 on website development without deducting TDS, which the AO disallowed under section 40(a)(ia). The CIT(A) confirmed the disallowance. The Tribunal held that website development creates a new asset with enduring benefits, thus the expenditure should be treated as capital in nature, supporting the CIT(A)'s decision.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes and partly allowed the assessee's Cross Objection, providing a detailed analysis and directives on each issue based on legal precedents and the nature of the expenditures involved. The order was pronounced on July 13, 2016, in Chennai.

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