Appeals granted in part, specific directions given for fresh determination. Education cess, depreciation allowed.

The Tribunal partly allowed both appeals for statistical purposes, directing the AO/TPO to follow specific directions for fresh determination of certain issues. The claims for education cess, depreciation on premises and software expenditures were allowed based on precedents. The adjustment to international transactions was remitted back for reconsideration. The ad-hoc disallowance of miscellaneous expenses was dismissed, and the disallowance under Section 14A was partly sustained. The Tribunal applied the same decisions for AY 2011-12 as in AY 2010-11, allowing the appeals partly for statistical purposes.

---

---

Issues Involved:
1. Claim of Education Cess
2. Claim of Depreciation on Expenditure of Premises
3. Claim of Depreciation on Expenditure of Software
4. Adjustment to International Transaction of Export of Finished Goods
5. Ad-hoc Disallowance of Miscellaneous Expenses
6. Disallowance under Section 14A of the Income Tax Act

Issue-wise Detailed Analysis:

1. Claim of Education Cess:
The assessee argued that the liability for education cess on income tax paid should be allowed as a tax-deductible expense. The Tribunal referenced its own previous decision in the assessee's case for AY 2005-06 and the Hon'ble Rajasthan High Court's decision in Chambal Fertilisers and Chemicals Ltd., which held that education cess is not disallowable under section 40(a)(ii) of the Income Tax Act. The Tribunal allowed this additional ground, following the precedent and judicial pronouncements.

2. Claim of Depreciation on Expenditure of Premises:
The assessee sought depreciation on expenditures previously held as capital in nature. The Tribunal referenced its decision for AY 2005-06, where it directed the AO to allow depreciation on capitalized expenditures. The Tribunal directed the AO to follow similar directions for AY 2010-11, allowing this additional ground.

3. Claim of Depreciation on Expenditure of Software:
The assessee requested depreciation on software development expenses disallowed as capital expenditure in AY 2007-08. The Tribunal noted that the assessee's assessments for AY 2008-09 and 2009-10 were quashed, and directed the AO to compute the opening WDV by reducing depreciation granted for AY 2007-08 and deemed depreciation for the next two years. This additional ground was allowed to this extent.

4. Adjustment to International Transaction of Export of Finished Goods:
The AO/TPO applied the CUP method instead of the TNMM for certain sales, leading to an addition of Rs. 47,00,000/-. The Tribunal referenced its own decisions for AY 2005-06 and 2006-07, where it found significant differences in sales to AEs and non-AEs, such as geographical location, quantity, and customization, which were not adjusted by the TPO. The Tribunal held that the CUP method was inappropriate and remitted the matter back to the AO/TPO for fresh determination, following the same directions as in previous years. This ground was allowed for statistical purposes.

5. Ad-hoc Disallowance of Miscellaneous Expenses:
The AO disallowed Rs. 2.59 lakhs for lack of evidence, which the CIT(A) reduced to Rs. 1 lakh. The assessee did not press this ground due to its pettiness, and the Tribunal dismissed it as not pressed.

6. Disallowance under Section 14A of the Income Tax Act:
The AO disallowed Rs. 40,80,379/- under section 14A, which the CIT(A) reduced to Rs. 36,30,760/-. The Tribunal noted that the assessee had sufficient own funds exceeding the investments, following the Bombay High Court's decisions in Reliance Utilities and Power Ltd. and HDFC Bank. The Tribunal deleted the disallowance of interest expenses and directed the AO to sustain 0.5% of the disallowance on administrative expenses attributable to exempt income. This ground was partly allowed.

For AY 2011-12:
The Tribunal noted that the issues and facts were identical to those in AY 2010-11. It applied the same decisions for additional grounds and grounds in the appeal memo, allowing the appeal partly for statistical purposes.

Conclusion:
Both appeals were partly allowed for statistical purposes. The Tribunal directed the AO/TPO to follow specific directions for fresh determination of certain issues and allowed certain claims based on precedents and judicial pronouncements.

---