TaxTMI 
TaxTMI 
2020 (5) TMI 132
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.... CIT(A) erred in deleting the disallowance on the claim of deduction u/s.1OA of D2,25,36,715/- 2.1. The CIT(A) erred in not considering the findings of the AO that the new Software Technology Parks of India (STPI) unit is only an extension of existing business with the old machinery and also with old employees and hence deduction under section 1OA is not allowable in view of provisions of sub-section (2)(ii) of section 10A. 2.2. Having regard to the decision of Hon'ble High Court of Kerala in the case of Chembra Peak Estates Ltd. v.CIT [1972] 85 ITR 401, the CIT(A) ought to have upheld the action of the AO in disallowing the claim on deduction u/s.1OA as the assessee setup the STPI unit by splitting up and reconstruction of the existing unit. 3. The CIT(A) erred in deleting the disallowance of Rs. 7,44,960/- made by the AD in respect of treating the expenditure on purchase of software as capital expenditure. 3.1. The CIT(A) erred in not appreciating that as per old Appendix I and new Appendix I of IT Rules, computer software along with computer has been treated as capital asset and depreciation at a higher rate of 60 per cent has been allowed con....
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....e of D2,00,00,000/- towards software development capitalized in the books of accounts and allowed depreciation @25% thereon, as against claim of 60%. 6. Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order allowed the claim for exemption of profit u/s.10A of the Act by holding that there is no contravention of Explanation 2 to Sub Section 80I(2) of the Act applicable for the purposes of Explanation u/s.10A(2) of the Act as the value of old machinery used is less than 20% of the total value of the machinery. As regards to other conditions are concerned, the ld. CIT(A) held that mere transfer or re-deployment of man power of existing unit cannot be construed as reconstruction. As regards to the purchase of software, considering the details filed before him, came to conclusion that expenditure was incurred in the form of renewal of subscription for licence to use and accordingly held that it is revenue expenditure placing reliance on the decision of Hon'ble Jurisdictional High Court in the cases of Southern Roadways Ltd, 304 ITR 84 and Karur Vysa Bank (2015) 54 taxmann.com 324. As regards to the capitalization of common expenditure of D2,00,00,000/....
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....ature of expenditure incurred before the Assessing Officer. The ld. CIT(A) considering fresh evidence filed before him came to conclusion that expenditure was incurred wholly towards renewal of subscription for software. Accordingly, allowed the same as revenue expenditure placing reliance on the decisions of Jurisdictional High Court in the cases of Southern Roadways Ltd (supra) and Karur Vysa Bank (supra). From the perusal of para 4.3 of the order of ld. CIT(A), it is clear that ld. CIT(A) had considered additional evidence in violation of provisions of Rule 46A of Income Tax Act, 1962. Therefore, we are of the considered opinion that this issue should be remitted back to the file of the ld. CIT(A) for de novo assessment in accordance with law. Accordingly, the grounds of appeal Nos.3 & 3.1 of the Revenue are partly allowed for statistical purpose. 10. Grounds of appeal No.4 & 4.1, challenges the decision of the ld. CIT(A) in allowing depreciation @60% as against 25% allowed by the Assessing Officer, as the allocated common expenditure of D2,00,00,000/-. The Assessing Officer disallowed a sum of D2,00,00,000/- by allocating common expenditure towards development of software. A....
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....g out that the entry to be interpreted is in a taxing statute; full effect should be given to all words used therein and if a particular article would fall within a description, by the force of words used, it is impermissible to ignore the description, and denote the article under another entry, by a process of reasoning. 10. It was further pointed out that the rule of construction by reference to contemporanea expositio is a well~established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. 11. By applying the rule of interpretation, we find that the relevant entry under old appendix I Clause III (5) states computers including computer software and the Notes under the Appendix defines' 'computer software'' in Clause 7 to mean any computer program recorded on disc, tape, perforated media or other information storage device. Noteworthy to mention that the notes contained in the appendix, the term -computer- has not been defined. Therefore, as pointed out by the Division Bench in Bimetal Bearings Ltd. (su....
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....les, computer software along with computer has been treated as capital asset and depreciation at a higher rate of 60 per cent has been allowed considering the life and durability of the computer software. When the statute specifically provides for treating the computer software as a capital asset and allowing depreciation thereon, the expenditure incurred towards purchase of computer software cannot be treated as revenue expenditure. 4. The CIT(A) erred in allowing 60% depreciation instead of 25% on the development software and thereby ignoring the fact that the assessee after developing the software is selling the same as licenses and the licenses are covered under the head intangible assets. 4.1. It is submitted that the CIT(A)'s relied upon decision of the ITAT in assessee's own case for AY.2007-08 which has not become final and against which the Department's appeal is pending before the Hon'ble High Court of Madras vide TCA No.607 of 2013. 5. The CIT(A) erred in deleting the disallowance on provision for travel expenses of Rs. 31,00,492/-. 5.1. The CIT(A) erred in not appreciating that expenditure which is deductible for income-tax purposes i....
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....ds of appeal are also remitted back to the file of the CIT(A) for fresh adjudication. Thus, the grounds of appeal No.2 to 2.2 of the Revenue for assessment year 2003-2004 are partly allowed for statistical purpose. 20. Grounds of appeal No.3 & 3.1, challenges the decision of ld. CIT(A) in allowing the cost of software as revenue expenditure considering the nature of expenditure. 21. Identical issue was raised by the Revenue for the assessment year 2002-2003 in ITA No.1346/CHNY/2016, wherein, we remitted the issue back to the file of the ld. CIT(A) for de novo adjudication for the reasons stated therein. On parity of reasoning, the issue in present grounds of appeal are also remitted back to the file of the CIT(A) for fresh adjudication. Thus, the grounds of appeal No.3 & 3.1 of the Revenue for assessment year 2003-2004 are partly allowed for statistical purpose. 22. Grounds of appeal No.4 & 4.1, challenges the decision of the ld. CIT(A) in allowing depreciation @60% as against 25% allowed by the Assessing Officer. 23. Identical issue was raised by the Revenue for the assessment year 2002-2003 in ITA No.1346/CHNY/2016, wherein, we remitted the issue back to the file of t....
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....ware cannot be treated as revenue expenditure. 3. The CIT(A) erred in deleting the disallowance on the claim of deduction u/s.35 of Rs. 4,29,84,248/-. 3.1. The CIT(A) erred in not appreciating the fact that deduction under section 35 is not intended for an assessee, who does not develop the in-house scientific research activities. 3.2 The CIT(A) erred in not appreciating the fact that during survey, there was no evidence found supporting the claim of stated scientific research activities. During the scrutiny proceedings also the assessee company has not given any details and hence the impugned expenditure had nothing to do with scientific research. Thus provisions of section 35(1)(i) has no application to the present assessee's case. 3.3. The CIT(A) erred in holding that the assessee company has undertaken research activities merely based on DSIR Approval dated 23.03.2003 and in the absence of any supporting documents. 4. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the CIT(A) may be set aside and that of the Assessing Officer restored''. 29. The brief facts of the case are as ....