Tribunal Partially Allows Appeals for AY 2014-15 & 2015-16

The Tribunal partially allowed the appeals of both the Assessee and the Revenue for AY 2014-15 and 2015-16. Various issues such as disallowance under section 14A, subscription charges, software expenses, brand building expenditure, commission payments, deductions under sections 10AA, 80JJAA, 32AC, 35(2AB), 80G, and payments to overseas subsidiaries and US authorities were remitted back to the AO for fresh consideration or verification based on relevant court decisions. The Tribunal upheld certain deductions while directing further examination on others, leading to a mixed outcome for both parties.

---

---

Issues Involved:
1. Disallowance under section 14A.
2. Disallowance of subscription charges paid to Forester Research and Gartner.
3. Disallowance of software expenses for not deducting TDS.
4. Disallowance of software expenses as capital expenditure.
5. Disallowance of Brand Building expenditure.
6. Disallowance of commission paid to non-residents for not deducting tax at source under section 195.
7. Deduction under section 10AA in respect of onsite activities.
8. Deduction under section 80JJAA.
9. Disallowance of payments made to overseas subsidiaries under section 40(a)(i).
10. Disallowance of payments made to US authorities.
11. Disallowance of deduction claimed under section 32AC.
12. Partial disallowance under section 35(2AB).
13. Deduction for foreign tax credit, state tax paid outside India.
14. Deduction under section 10AA in respect of interest income, sale of scrap, interest income from employee loans, and airline incentives.
15. Deduction under section 80G in respect of CSR expenses.
16. Deduction under section 80G in respect of other donations.

Detailed Analysis:

Disallowance under section 14A:
The Tribunal noted that the AO did not record any satisfaction as to how the voluntary disallowance made by the Assessee under section 14A was incorrect. The Tribunal followed the Supreme Court's ruling in Maxopp Investment Ltd v CIT [2018] 91 taxmann.com 154, which mandates the AO to record satisfaction before invoking Rule 8D. The Tribunal deleted the disallowance made under section 14A read with Rule 8D(2)(iii).

Disallowance of subscription charges paid to Forester Research and Gartner:
The Tribunal remanded the issue back to the AO to verify the claim as per the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471.

Disallowance of software expenses for not deducting TDS:
The Tribunal remitted the issue back to the AO for verification as per the Supreme Court's decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471.

Disallowance of software expenses as capital expenditure:
The Tribunal remitted the issue back to the AO to verify the nature of the software, duration of the license, and allow the deduction if the software is application software or if the duration of the software license is less than 2 years, following the Karnataka High Court's decision in CIT v IBM India Ltd [2013] 357 ITR 88.

Disallowance of Brand Building expenditure:
The Tribunal allowed the Assessee's claim, following the decision in Infosys BPO Ltd v DCIT ITA No. 1367/Bang/2014, which held that brand building expenditure should be allowed as revenue expenditure.

Disallowance of commission paid to non-residents for not deducting tax at source under section 195:
The Tribunal remitted the issue back to the AO to verify the claim in accordance with the principles laid down by the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021) 432 ITR 471.

Deduction under section 10AA in respect of onsite activities:
The Tribunal remitted the issue back to the AO for verification of details and to consider the claim in accordance with the Karnataka High Court's decision in CIT v Mphasis Software and Service India Pvt. Ltd.

Deduction under section 80JJAA:
The Tribunal remitted the issue back to the AO to examine the issue afresh, keeping in mind the ratios laid down by the Tribunal in SAP Labs India Pvt Ltd [IT(TP)A Nos. 623, 566/Bang/2016] and in Assessee's own case for AY 2012-13 and AY 2013-14.

Disallowance of payments made to overseas subsidiaries under section 40(a)(i):
The Tribunal upheld the disallowance of payments made to Infosys China, Infosys BPO S.R.O. Czech Republic, Infosys Technologies S De Rl De Cv, Mexico, and Infosys BPO Poland Sp. The Tribunal remitted the issue of payments made to Infosys Technologia do BrasilLtda, Future Focus Infotech, UAE, and Pt Maya International, Indonesia, back to the AO for fresh consideration.

Disallowance of payments made to US authorities:
The Tribunal allowed the deduction for the settlement amount paid to US authorities, holding that Explanation 1 to section 37(1) applies only to contravention of laws in force in India and not in any foreign country.

Disallowance of deduction claimed under section 32AC:
The Tribunal held that the Assessee is not eligible for deduction under section 32AC as the software development activity does not qualify as "manufacture or production of any article or thing" under section 2(29BA).

Partial disallowance under section 35(2AB):
The Tribunal held that the entire expenditure incurred by the Assessee with respect to R&D facility is eligible for deduction under section 35(2AB) and deleted the disallowance made by the AO.

Deduction for foreign tax credit, state tax paid outside India:
The Tribunal remitted the issue back to the AO with a direction to consider the allowability under sections 90/91 and 37, following the Karnataka High Court's decision in Wipro Limited v DCIT [2016] 382 ITR 179.

Deduction under section 10AA in respect of interest income, sale of scrap, interest income from employee loans, and airline incentives:
The Tribunal upheld the inclusion of interest on GLES deposits, sale of scrap, and interest income from employee loans for the purpose of computing profits eligible for deduction under section 10AA. However, it held that incentives from airlines are not eligible for deduction under section 10AA.

Deduction under section 80G in respect of CSR expenses:
The Tribunal remitted the issue back to the AO for verification of CSR spends in light of the decision in M/s Goldman Sachs Services Pvt. Ltd. v JCIT [IT(TP)A No.2355/Bang/2019].

Deduction under section 80G in respect of other donations:
The Tribunal remitted the issue back to the AO to verify these donations in light of section 80G and decide the allowability of the deduction accordingly.

Conclusion:
The Tribunal allowed the appeals of both the Assessee and the Revenue partly for AY 2014-15 and 2015-16, with directions for fresh consideration and verification on several issues.

---