Tribunal Grants Depreciation & Deductions for Assessee in Bangalore for AY 2010-11 & 2011-12

The Tribunal allowed the assessee's appeal for Assessment Year (A.Y.) 2010-11 in part, directing the grant of depreciation on computer software and deductions under section 10A for both Unit I and Unit II in Bangalore. The Tribunal dismissed the Revenue's appeal for A.Y. 2010-11. Additionally, the Tribunal allowed the assessee's appeal for A.Y. 2011-12 and dismissed the Revenue's appeal for the same year. The assessee's cross-objections were dismissed as academic.

---

---

Issues Involved:
1. Disallowance of depreciation on computer software.
2. Denial of deduction under section 10A of the Act to Unit I, Bangalore.
3. Denial of deduction under section 10A of the Act to Unit II, Bangalore.
4. Levy of interest under Section 234B and Section 234C of the Act.
5. Initiation of penalty proceedings under section 271(1)(c) of the Act.
6. Exclusion of Infosys Ltd. as a comparable.
7. Granting of percentage of risk adjustment.
8. Method of computation of deduction under section 10A of the Act.

Detailed Analysis:

1. Disallowance of Depreciation on Computer Software:
The AO disallowed depreciation on computer software amounting to Rs. 2,253,214 under section 40(a)(ia) due to non-deduction of TDS. The assessee argued that TDS provisions are not applicable to capitalized items. The Tribunal found that the Bangalore Tribunal in the case of Kawasaki Microelectronics Inc. held that disallowance under section 40(a)(ia) arises only when an expenditure is claimed. As the software was capitalized and not claimed as an expenditure, the Tribunal directed the AO to grant the deduction of depreciation.

2. Denial of Deduction under Section 10A to Unit I, Bangalore:
The AO denied the deduction under section 10A for Unit I, Bangalore, as the claim was not made in the return of income. The DRP upheld this view. The Tribunal, however, noted that the assessee had been claiming this deduction since A.Y. 2001-02 and the omission was inadvertent. The Tribunal cited the Bombay High Court's decision in Pruthvi Brokers & Shareholders, which allows claims to be made before appellate authorities even if not made before the AO. The Tribunal directed the AO to grant the deduction subject to compliance with other conditions.

3. Denial of Deduction under Section 10A to Unit II, Bangalore:
The AO denied the deduction under section 10A for Unit II, Bangalore, treating it as an expansion of Unit I. The DRP upheld this view. The Tribunal referred to its decision in the assessee's case for A.Y. 2009-10, where it was held that Unit II was a new and separate unit. The Tribunal directed the AO to grant the deduction under section 10A for Unit II.

4. Levy of Interest under Section 234B and Section 234C:
These grounds were dismissed as they were consequential and premature.

5. Initiation of Penalty Proceedings under Section 271(1)(c):
This ground was dismissed as it was premature.

6. Exclusion of Infosys Ltd. as a Comparable:
The DRP directed the exclusion of Infosys Ltd. as a comparable due to its significantly higher turnover compared to the assessee. The Tribunal upheld this exclusion, noting that the issue was similarly decided in the assessee's favor for A.Y. 2008-09.

7. Granting of Percentage of Risk Adjustment:
The DRP directed the TPO to decide the percentage of risk adjustment, citing the decision in DCIT Vs. Hello Soft Pvt. Ltd., which allowed a 1% risk adjustment. The Tribunal upheld the DRP's direction, noting that no contrary binding decision was presented by the Revenue.

8. Method of Computation of Deduction under Section 10A:
The AO excluded certain expenses only from the export turnover, not the total turnover. The DRP directed the AO to re-compute the deduction following the Karnataka High Court's decision in Tata Elxsi Ltd., which requires such expenses to be excluded from both export and total turnover. The Tribunal upheld the DRP's direction, citing the Supreme Court's decision in CIT Vs. HCL Technologies.

Conclusion:
- The assessee's appeal for A.Y. 2010-11 was partly allowed.
- The Revenue's appeal for A.Y. 2010-11 was dismissed.
- The assessee's appeal for A.Y. 2011-12 was allowed.
- The Revenue's appeal for A.Y. 2011-12 was dismissed.
- The assessee's cross-objections were dismissed as academic.

---