TaxTMI 
TaxTMI 
2020 (3) TMI 1195
X X X X Extracts X X X X
X X X X Extracts X X X X
....he revenue in its appeal are with reference to determination of Arm's Length Price (ALP) in respect of an international transaction of rendering of Software Development Services by the Assessee to its Associated Enterprise in accordance with Sec.92 of the Income Tax Act, 1961 (Act). At the time of hearing it was brought to our notice by the learned counsel for the Assessee that the issue with regard to determination of ALP has been settled under Mutual Agreement Procedure (MAP) between the Assessee and the revenue and the AO has under rule 44H(4) of the Income Tax rules, 1962 has given effect to the MAP resolution vide proceedings dated 22.2.2016. Hence, the relevant grounds of appeal raised by the Assessee as well as the revenue are dismissed as not requiring adjudication. 3. The next issue raised by the Assessee in its appeal in Gr.No.3.1 (sub grounds 3.1.1 to 3.1.4) is with regard to the action of the revenue authorities in not allowing deduction u/s.80JJAA of the Act amounting to Rs. 7,57,22,069/-. The provisions of Sec.80JJAA of the Act, as applicable for AY 2008-09 reads as follows: "Deduction in respect of employment of new workmen. 80JJAA. (1) Where the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....led, skilled, technical, operational, clerical and supervisory work for hire or reward, but does not include employees employed mainly in a managerial or administrative capacity. According to the AO Software professionals are highly skilled workers and the nature of work performed by them were highly skilled whereas the skilled work contemplated by the definition of workmen in the Industrial Disputes Act, 1947 is ordinary skill and therefore the workmen of the Assessee cannot be considered as "Workmen" for the purpose of Sec.80JJAA of the Act. The AO also noticed that in Assessee's own case for AY 2001-02 and 2002-03, the Tribunal had not accepted the stand of the revenue in this regard but still chose not to follow the decision of the Tribunal as the revenue has not accepted the decision of Tribunal and had preferred appeal to the Hon'ble High Court on this aspect of deduction u/s.80JJAA of the Act. On the question whether the employees employed in software industry can be said to be "Workmen", the Bangalore Bench of ITAT has already settled this issue in Assessee's own case. The Tribunal held that Software Industry has also been notified as Industry for the purpose of Industrial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs Number of Regular "Workmen" Number of new workmen added As on March, 31, 2003 FY 2002-03(AY 2003-04) 775 170 As on March, 31, 2004 FY 2003-04(AY 2004-05) 846 186 As on March, 31, 2005 FY 2004-05(AY 2005-06) 1048 351 As on March, 31, 2006 FY 2005-06(AY 2006-07) 1,056 211 As on March, 31, 2007 FY 2006-07(AY 2007-08) 1,187 295 As on March, 31, 2008 FY 2007-08(AY 2008-09) 1,105 131 7. The details of the new employees in respect of whom the Assessee claimed deduction u/s.80JJAA of the Act are given at page 176 to 182 of paperbook. From a perusal of the said list and the report of auditor for claiming deduction u/s.80JJA of the Act in Form No.10DA, a copy of which is at pages 80 to 85 of the Assessee's paper book, it can be seen that the deduction was claimed by the Assessee u/s.80JJAA of the Act on salary paid to 287 employees. It is also clear from the said report that the Salary paid to new workmen were nil for the Financial Year ending 31.3.2006 and 31.3.2008. Deduction has been claimed only in respect of wages paid to new regular workmen who were employed during the previous year 1.4.2006 to 31.3.2007. All the 287 emp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g the claim for deduction u/s.80JJAA of the Act for that AY has accepted the position that on additional wages paid to new workmen employed during the previous year relevant to AY 2005-06 who have worked more than 300 days during the previous year relevant to AY 2007-08, the Assessee is entitled to deduction u/s.80JJAA of the Act. It was pointed out that the ITAT in the appeal relating to AY 2007-08 in the case of the Assessee in IT(TP)A.No.1032/Bang/2011 order dated 16.6.2017 confirmed the disallowance u/s.80JJAA of the Act only on the basis the increase in the number of regular workmen employed during the year was not more than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year. He relied on the decision of ITAT rendered in the case of Bosch Ltd. Vs. ACIT (2016) 74 Taxmann.com 161 (Bangalore-Trib.) wherein at paragraph 23 of the aforesaid order the Tribunal observed that the deduction u/s.80JJAA of the Act is allowed for three years including the year in which the employment is provided. Hence, in each year it has to be seen that the workmen was employed for at least 300 days during that previous year and that such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....survives for consideration by the Tribunal is according to the AO since the additional wages paid to these 287 employees were not eligible to deduction u/s.80JJAA of the Act because these employees did not work for more than 300 days in FY 2006-07 relevant to AY 2007-08, the wages paid to these employees in AY 2008-09 will also not qualify for deduction u/s.80JJAA of the Act. In other words according to the AO if the condition for grant of deduction u/s.80JJAA of the Act is not satisfied with reference to additional wages paid to new employees in the first year of their employment, then the additional wages paid to such new employees will not allowed in the second and third Assessment Years also. As pointed out by the learned counsel for the Assessee, this approach of the revenue authorities is contrary to the AO's stand on claim for similar deduction u/s.80JJAA of the Act in AY 2007-08. In the order of assessment passed by the AO for AY 2007-08, he has while disallowing the claim for deduction u/s.80JJAA of the Act for that AY, accepted the position that on additional wages paid to new workmen employed during the previous year relevant to AY 2005-06 who have worked more than 30....
X X X X Extracts X X X X
X X X X Extracts X X X X
....capital work in progress written off. The facts in this regard are that the Assessee in FY 2006-07 relevant to AY 2007-08 was planning expansion of its business premises and in that regard employed consultants and contractors for planning designing and constructing the new building. However toward end of FY 2006-07 relevant to AY 2007-08, the Assessee decided to abandon the expansion plan and accordingly the entire expenditure incurred towards the expansion of the building premises was written off in the profit and loss account for AY 2007-08. Subsequently, in the previous year relevant to AY 2008-09, certain additional claims were made towards planning, designing, architecture fees amounting to Rs. 61,04,942/-. Over and above this the Assessee had to pay damages of Rs. 3,81,10,000/- to the contractor in respect of a clause in the agreement between the Assessee and the Contractor, who was identified for the purpose of putting up the business premises for the purpose of expansion. The relevant clause in the Agreement between the Assessee and the contractor in this regard reads thus:- Clause (d): [Page-4 of the Agreement between the Assessee and Bagmane Developers Pvt.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....levant observations of the Tribunal:- "8. Ground no. 3 challenges the addition of capital work in progress written off during the year amounting to Rs. 28,295,253/-. It was submitted that this assessee-company was planning expansion of building premises and the payments have been made towards planning, designing and architecture fees which are accounted and shown as capital work progress and the management has decided to call off the expansion plan hence the expenditure incurred on the expansion of building had claimed the revenue expenditure which was disallowed by the AO. Being aggrieved, the appellant is before us. The Id. counsel relied upon the decision of Hon'ble Delhi High Court in case of Indo Rama Synthetics (I) Ltd. Vs CIT (333 ITR 18) and the decision of Hon'ble Calcutta High Court in case of Binani Cement Ltd. Vs CIT [2015] 60 taxmann.com 384 and the decision of the coordinate bench ITAT, Mumbai in case of DCIT Vs Mukund Ltd. in ITA No. 2708/Mum/2009 and also decision of High Court of Bombay in case of CIT Vs Idea Cellular Ltd. [2016] 76 taxmann.com 77 in support of the proposition that any capital expenditure incurred in respect of abandoned project sh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t was argued that in so far as the damages of Rs. 3,81,10,000/- is concerned, the claim was not engaging the services of the contractor in future for other contracts and that cannot be regarded as having any nexus with the capital work in progress written off in the books of accounts of the Assessee and therefore to that extent the claim for deduction ought to have been allowed by the revenue authorities. The learned DR relied on the order of the revenue authorities and the decision of the tribunal rendered on identical issue in AY 2007-08. 15. We have given a careful consideration to the rival submissions and are of the view that since identical claim has been considered capital expenditure by the tribunal in AY 2007-08, we find no reason to take a contrary view. The nature of the capital work in progress written off being identical, respectfully following the decision of the Tribunal, we uphold the orders of the revenue authorities. We also find all the case laws cited by the learned counsel for the Assessee before us were dealt with and distinguished by the AO. We are also of the view that the damages of Rs. 3,81,10,000/- though was in connection with a claim for not engaging....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the Assessee. He was also of the view that the plant and machinery on which additional depreciation is claimed should be used in manufacture of article or thing and since the Assessee was only a manufacturer of software, the aforesaid items which were claimed as Plant & Machinery, even if were to be regarded as Plant & Machinery, additional depreciation cannot be allowed because these items were not used by the Assessee in the manufacture of computer software. In response to a query by the AO as above, the Assessee submitted that any appliance capable of being installed and used in any place where people work or gather, and desire to communicate, such items cannot be construed as office appliance and in this regard placed reliance on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Punjab Wireless Systems Ltd. 296 ITR 489(P & H). The Assessee further gave a list of assets on which additional depreciation has been claimed, which we have annexed as annexure-2 to this order. The AO however proceeded to hold that the definition of Plant as given in Sec.43(3) of the Act is an inclusive definition and the word "Plant" has been defined to include ships, vehi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):" 19. A bare reading of the aforesaid provisions shows that the new machinery or plant should be used by an assessee engaged in the business of manufacture or production of any article or thing and the new machinery or plant need not be used in manufacture or production of any article or thing. The learned counsel has before us relied on the decision of the Hon'ble Madras High Court High Court in the case of CIT Vs. VTM Ltd.319 ITR 336 (Madras) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for generation of power and claimed additional depreciation thereon under section 32(1)( iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the manufacture of textile goods and the setting up of a wind mill had absolutely no connection with the manufacture of textile goods. However, the Commissioner (Appeals) as well as the Tribunal allowed the assessee's claim of additional depreciation. On appeal to the High Court, the Hon'ble H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quipment" in the absence of the role these assets perform and purpose for which these assets are used by the Assessee. We therefore set aside the order of CIT(A) on this limited issue of determining whether the assets on which additional depreciation is claimed by the Assessee can be regarded as Plant. The Assessee is directed to furnish the details and description to the AO in this regard, who shall decide the issue afresh in accordance with law, after affording Assessee opportunity of being heard. In the event of the AO coming to the conclusion that the assets in question are in the nature of plant, the claim for additional depreciation should be allowed. With these observations we allow the relevant grounds of appeal for statistical purpose. 21. The other ground of appeal in the Assessee's appeal with regard to levy of interest u/s.234B and 234D are purely consequential and the AO is directed to give consequential relief. 22. In the result, appeal by the Assessee is treated as partly allowed. 23. Now we shall take up the appeal of the revenue for consideration. Gr.No.1 and 6 are general in nature and calls for no specific adjudication. Gr.No.4 & 5 are with rega....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Taxmann.com 87 (Mum) in which it has been held that the payment made by the assessee for taking cranes and ships on lease on time basis, did not constitute payment with regard to 'works contract' as defined in sec. 194C and hence the assessee was not required to deduct tax at source under this action. 27. Aggrieved by the order of the CIT(A) the revenue has raised Gr.No.2 before the Tribunal. The learned DR relied on the order of the AO and further submitted that the applicability of provisions of Sec.194-I of the Act has not been considered by the CIT(A). We are of the view that the AO made the addition only on the basis of provisions of Sec.194C of the Act and he did not invoke the provisions of Sec.194I of the Act. As far as provisions of Sec.194C of the Act is concerned, we are of the view that the CIT(A) has rightly come to the conclusion that payment of lease rentals under a finance lease will not attract the provisions of Sec.194C of the Act. We find no grounds to interfere with the order of the CIT(A). Accordingly Gr.No.2 raised by the revenue is dismissed. 28. Gr.No.3 raised by the revenue is with regard to the grievance of the revenue in treating amount p....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it has applied the judgment in the case of Empire Jute Co Ltd in its case. 5.4 The computer software expenses have been held to be capital in nature by the Hon'ble Rajasthan High Court in the case of CIT Vs Arawali Construction Co. (P) Ltd. (259 ITR 30). The Hon'ble Court held as under: "The fact on record is that the payment of Rs. 1,38,360/- was not made as consultancy fee to Hindustan Computers Ltd_ in fact, the payment was made for outright sale of 'computer software' which is used as technique in mining operations. The finding of the Commissioner (Appeals) was that the acquisition of software cannot be treated to be an asset of endurable nature. If the programme is used in one mining to another mining operation, why it should not be treated as capital asset and expenditure on that, capital expenditure. Considering these facts and decision of their Lordships and later decision of the Bombay High Court, in our view, the acquisition of technical know-how is a capital expenditure, therefore, the assessing officer has rightly treated the expenditure on acquiring the computer software as expenditure of capital nature and rightly allowed de....