Tribunal decision: Revenue appeal dismissed, assessee appeal partly allowed with specific directions.

The appeal filed by the revenue was dismissed, and the appeal filed by the assessee was partly allowed. The Tribunal provided specific directions on various issues, including the applicability of tax provisions, treatment of expenses, and verification of claims, ensuring compliance with legal precedents.

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Issues Involved:
1. Applicability of Section 40(a)(i) / 40(a)(ia) on amounts payable at the end of the relevant year.
2. Exclusion of telecommunication charges from total turnover while computing deduction under Section 10A.
3. Deduction under Section 10A before setting off brought forward losses and unabsorbed depreciation.
4. Reduction of foreign currency expenses from export turnover while computing deduction under Section 10A.
5. Taxability of deferred revenue.
6. Disallowance under Section 14A read with Rule 8D.
7. Disallowance of software expenses under Section 40(a)(ia).
8. Treatment of losses from forward and option contracts.
9. Disallowance of brand building expenses as capital in nature.
10. Allowability of foreign tax credit.
11. Levy of interest under Section 234B and 234D.

Issue-wise Detailed Analysis:

1. Applicability of Section 40(a)(i) / 40(a)(ia) on amounts payable at the end of the relevant year:
The Tribunal acknowledged that the issue was covered against the assessee by the Supreme Court's decision in Palam Gas Services vs CIT (2017) 394 ITR 300. Therefore, the Tribunal allowed the grounds raised by the revenue.

2. Exclusion of telecommunication charges from total turnover while computing deduction under Section 10A:
The Tribunal noted that the issue was settled in favor of the assessee by the Supreme Court in CIT vs HCL Technologies Ltd. (2018) 404 ITR 719. The expenses reduced from export turnover should also be reduced from total turnover while computing deduction under Section 10A. Hence, these grounds raised by the revenue were dismissed.

3. Deduction under Section 10A before setting off brought forward losses and unabsorbed depreciation:
The Tribunal referred to the Supreme Court's decisions in CIT vs Yokogawa India Ltd (2017) 391 ITR 274 and CIT vs JP Morgan Services India Pvt. Ltd. (2017) 393 ITR 24, which held that deductions under Section 10A should be allowed before setting off brought forward losses and unabsorbed depreciation. Consequently, these grounds raised by the revenue were dismissed.

4. Reduction of foreign currency expenses from export turnover while computing deduction under Section 10A:
The Tribunal examined the definition of "computer software" and "export turnover" under Section 10A. It concluded that the foreign currency expenses incurred by the assessee did not relate to "computer software" as defined. However, the Tribunal directed the AO to exclude foreign currency expenditure from the total turnover as well, following the Supreme Court's decision in CIT vs HCL Technologies Ltd.

5. Taxability of deferred revenue:
The Tribunal set aside the issue to the AO for verification, directing the AO to consider the claim of the assessee as per law. The assessee's argument that the deferred revenue was revenue-neutral was noted, and the AO was instructed to verify the amount from the income for the subsequent assessment year.

6. Disallowance under Section 14A read with Rule 8D:
The Tribunal observed that Rule 8D was prospectively implemented, and the AO erred in applying it for the year under consideration. The Tribunal directed the AO to restrict the disallowance under Section 14A to Rs. 10,000 only.

7. Disallowance of software expenses under Section 40(a)(ia):
The Tribunal referred to various decisions, including the jurisdictional High Court's decision in CIT vs Samsung Electronics Co. Ltd. (2012) 345 ITR 494, which held that software payments constituted 'royalty' and were liable for TDS. Following the jurisdictional High Court's decision, the Tribunal upheld the disallowance made by the AO.

8. Treatment of losses from forward and option contracts:
The Tribunal held that the forward contract losses were related to the business income and should be treated as such. However, it directed the AO to apportion the loss against the profits of STPI units in the ratio of turnover before computing deduction under Section 10A.

9. Disallowance of brand building expenses as capital in nature:
The Tribunal concluded that the expenses incurred towards advertisements, sales, and marketing were related to the ongoing business and should be considered revenue in nature. The Tribunal directed the AO to delete the disallowance made.

10. Allowability of foreign tax credit:
The Tribunal directed the AO to verify the foreign tax credit claimed by the assessee and allow it as per law.

11. Levy of interest under Section 234B and 234D:
The Tribunal noted that the issue was consequential in nature and did not require adjudication.

Conclusion:
The appeal filed by the revenue was dismissed, and the appeal filed by the assessee was partly allowed as indicated above. The Tribunal provided detailed directions for each issue, ensuring that the AO adheres to the legal precedents and verifies the claims appropriately.

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