TaxTMI 
TaxTMI 
2023 (11) TMI 185
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....Hon'ble President, vide Order No. F.28-Cent.Jd(AT)/2020 dated 17.03.2020, held on record, transferred this appeal to ITAT, Indore Bench. This way, this appeal with same number has come up before us for hearing and adjudication. 3. Brief facts leading to present appeal are such that the assessee-company filed return of income on 30.10.2007 declaring a total income of Rs. 19,30,66,350/- for AY 2007-08. The case was selected under scrutiny and statutory notices u/s 143(2)/142(1) were issued by AO and complied by assessee. The AO found that the assessee had entered into international transactions with its Associated Enterprises (AEs) situated outside India. The AO made a reference to Transfer Pricing Officer (TPO) to determine the arm length price (ALP) of those transactions. Vide order dated 26.10.2010 passed u/s 92CA(3), the TPO reported that the transactions undertaken by assessee were not at ALP and an upward adjustment of Rs. 37,69,02,830/- was required. Then, the AO served a draft-assessment order dated 28.12.2010 upon the assessee proposing to make additions/disallowances, namely (i) upward adjustment of transfer-pricing at Rs. 37,69,02,830/- as per TPO's order (ii) re-workin....
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....ts, by attributing the reasons for loss incurred by Bangalore Units to the international transactions and not taking into consideration the economic and commercial reasons which were unique to the Bangalore Units. 7. The ld. AO and Hon'ble DRP have erred in law and in facts by not accepting the economic analysis undertaken by the assessee in accordance with the provisions of the Act read with the Rules, and conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the assessee's international transaction is not at arm's length. 8. The ld. AO and Hon'ble DRP erred in law and in facts by exercising his powers under section 133(6) of the Act to obtain information which was not available in public domain and relying on the same for comparability purposes. 9. The ld. AO and Hon'ble DRP erred in law and in facts, by accepting/ rejecting companies based on unreasonable comparability criteria. 10. The ld. AO and Hon'ble DRP erred in law and in facts, by rejecting certain comparable companies identified by the assessee for having different accounting yea....
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....TP Unit (Units claiming deduction u/s 10A/10B), when such items were not, in the first place, included in the export turnover of the said Units. b. Without prejudice to ground (a) above, the ld. AO has erred in treating expenditure in foreign currency as expenditure incurred for providing "technical services" outside India without appreciating the fact that the assessee is engaged in provision of software development services and not technical services. c. Without prejudice to ground (a) and (b) above, the ld. AO has erred in holding that expenses incurred in foreign currency should be excluded from export turnover of units claiming deduction u/s 10A/10B, but not from total turnover of the said Units. 21. In computing the deduction u/s 10A/10B of the Act. a. The ld. AO has erred in excluding telecommunication expenditure incurred in connection with the delivery of computer software outside India from the export turnover of Chennai Unit II, and Bangalore SBU STP Unit (Units claiming deduction u/s 10A/10B), when such items were not, in the first place, included in the export turnover of the said Units. b. Without prejudice to ground (a) ab....
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.... although it also provided similar services to unrelated parties located in domestic territory as well as foreign countries. During the year, the assessee undertook following 'international transactions' with AEs as detailed by TPO in Para No. 4 of his order: Name of the Associate Transactions Amount Benchmarking method adopted Covansys Corpn, USA Purchase of fixed assets, Export of software development and support services 30839420 44520236955 TNMM Covansys (Singapore) Pte Ltd. Export of software development and support services 158456147 Covansys UK Ltd. Export of software development and support services 112804278 Covansys Belgium NV Export of software development and support services 25352418 Covansys Deutschland GMBH, Germany Export of software development and support services 28154191 Covansys SRI, Italy Export of software development and support services 596207 Covansys S L. Spain Export of software development and support services 11083994 Covansys Netherland B.V. Export of software development and support services 1045739 Covansys Canada, Inc Export of software development and supp....
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.... (-)4.97% The TPO rejected the 'entity-level' benchmarking done by assessee. Instead he made 'unit-level' comparison i.e. PLI of each unit was compared with the PLI of external comparables. Secondly, the assessee claimed that 'internal comparables' of assessee must be preferred over 'external comparables' but the TPO rejected. Thirdly, the TPO modified the list of 'external comparables'. While the assessee adopted 28 external comparables, the TPO made certain inclusions/exclusions and came to finalize a set of 26 comparables. Ultimately, the TPO accepted 'unit-level' approach; computed mean PLI of 26 external comparables at 25.44%; and thereby recommended upward adjustment of Rs. 37,69,02,830/- for first 2 loss-making units of Bangalore (Rs. 14,32,37,643 for Bangalore Unit-I + Rs. 23,36,65,188/- for Bangalore SBU). Brief details of the working made by TPO, in Para 21 at Page 99, is as under: Bangalore Unit-I: Total Sales 39,48,33,177 Less: Loss(-) 7.95 on cost 7.95 on cost becomes 7.95/92.05 = 8.64 on sales 3,41,13,586 Total cost 42,89,46,763 Add: Arm's Length Profit (25.44 on cost) 10,91,24,056 Arm's Length Sales 53,80,70,820 Actual ....
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....saction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d) XXX (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred ....
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....rison has been upheld: (i) Sony Ericsson Mobile Communication India Pvt. Ltd. Vs. CIT 374 ITR 118 (Delhi HC): Relevant Paras of decision are extracted below: "80..... Rule 10A in clause (d) states that "for the purpose of this Rule and Rules 10AB and 10E, the term 'transaction' would include a number of 'closely linked transactions'. This Rule in positive terms declares that the legislative intent is not to deviate from the generic rule that singular includes plural. The meaning or definition of the expression 'transaction' in clause (d) to Rule 10A read with sub-section (1) to Section 92C, therefore, does not bar or prohibit clubbing of closely connected or intertwined or continuous transactions. This is discernible also from sub-rule (2) to Rule 10B quoted above. The sub-rule refers to 'services provided', 'functions performed', 'contractual terms (whether or not such terms are formal or in writing) of the transactions' which lay down explicitly or impliedly the responsibilities, risks and benefits to be divided between the respective parties to the transactions. Use of plurality by way of necessity and legislative mandate is evident....
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.... Method preference should be given to internal or in-house comparables. In absence of internal comparables, the taxpayer can and would need to rely upon external comparables, i.e. comparable transactions by independent enterprises. For several reasons, database providers, it is apparent, have the requisite information and data of external comparables to enable comparability analysis of the controlled and uncontrolled transactions with necessary adjustment to obtain reliable results under TNM Method. This method also works to the benefit and advantage of the tax authorities in view of convenience and easier availability of data not only from third party providers, but on their own level, i.e. assessment records of other parties. 91. In case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNM Method on entity level basis. The focus of this method is on net profit amount in proportion to the appropriate base or the PLI. In fact, when transactions are inter-connected, combined consideration may be the most reliable means of determining the arm's length price. There are often situations where closely linked and connec....
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....h unit with related parties and unrelated parties. The first STP unit is Noida Unit. It has shown OP over TC with respect to related parties at 8.42%. In the case of unrelated parties, it has shown OP over TC at (-) 30.57%. The total result is 2.11%. Similarly at Noida-2, the operating profit is 26.17% in the case of related parties, it (-)25.82% in the case of unrelated parties and 17.11% is the overall result. At Chennai, it is (-)20.12% for related parties, (-)26.97% for unrelated parties and overall result is (-)21.98%. With respect to non STP Unit, the operating profit is 11.97% in respect of related parties and 14.79% in respect of unrelated parties. The overall result of the company is 14.33% in the case of related parties, (-)14.10% in respect of unrelated parties. The overall operating profit margin of international transaction is 10.91%. This result is within the tolerance band provided in the proviso to sec. 92C(2) of the Act and, therefore, no adjustment is required. Learned TPO has recommended the adjustment by ignoring the result of Noida STP Unit. 2. We have noticed this working in paragraph No.3 extracted supra. 11. Learned First Appellate Authority did not....
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....arned First Appellate Authority has taken into consideration all these aspects elaborately and we do not see any reason to interfere in his findings. In view of the above, ground No.1 is rejected." (iii) DCIT Vs. Birla Soft India Ltd. - ITA No. 4713/Del/2011 for AY 2005-06: Relevant Paras of decision are extracted below: "68. For AY 2004-05, while deciding in favour of the assessee, the Tribunal found that there was no significant functional difference in the software development and maintenance services rendered by the assessee to its related and unrelated parties. The services rendered by the STP units of the assessee were rendered to the same AEs of the assessee, i.e., Birla Soft Inc. and Birla Soft UK, on a continuing basis (the position remains the same for the year under consideration also). It was observed that there was unity of business, administrative control and funds, etc., in each of the STP units of the assessee, and that because of such commonness of management and interlacing of funds, etc., or software development services, it was not practically possible to carry out an independent FAR analysis of each unit with the existing comparables. It remains ....
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....s. ACIT ITA No.1315/Bang/2011- Upheld by Hon'ble Karnataka High Court in 172/2013. - McCann Erickson India Pvt. Ltd. vs. Addl. CIT (ITA No.5871/Del/2011) - Avery Dennison India Pvt Ltd vs. ACIT (ITA No. 4868/Del/2014) - Demag Cranes & Components (India) P. Ltd. vs. DCIT - Cummins India Ltd. Vs. Addl CIT (ITA No.1616/PN/2011) - Skechers USA Canada Inc. (Appeal No. AP-2012-073) -Canadian International Trade Tribunal - Atul Ltd. V. ACIT (ITA No. 3118/Ahd/2010) - Thyssen Krupp Industries India Pvt. Ltd. vs. ACIT (ITA No. 7032/Mum/2011). - Panasonic India P. Ltd. vs. ITO (ITA No.1417/Del/2008) - Hindustan Unilever Ltd. V. ACIT (ITA No. 7868/Mum/2010) - Amphenol Interconnect India Pvt. Ltd. vs. DCIT (ITA No.1486/PN/2010). - Lumax Industries Ltd vs. ACIT (ITA No. 4456/Del/2012) - Corning SAS-India Office vs. DDIT (ITA No. 548/Del/2015) - DCIT vs. CLSA India Limited (ITA No. 2362/Mum/2011) - Cadbury India Ltd. Vs. ACIT (ITA No. 7408/Mum/2010) - Rehau Polymers Pvt. Ltd. vs. ACIT (ITA No.378/Pun/2017) - Viavi Solutions India P. Ltd. vs. DCIT (ITA....
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....books of account and compute separate profit of each unit. Only because of maintenance of separate books of account, the lower authorities have gained a misunderstanding that some of the units have not generated sufficient profitability/PLI and prompted to make adjustment under transfer pricing for those units, which is not correct. (vi) It is submitted that the TPO/AO has matched 'unit-level' profitability of assessee with 'entity-level' profitability of external comparables; this in itself is apparently wrong. In fact, the 'unit-wise' comparison done by TPO/AO proceeds on an invalid assumption that the Functions performed, Assets utilised and Risks assumed (FAR) by each unit are distinct from other units but still are similar or comparable with entity-level FAR of external comparables. 12.4 Lastly, Ld. AR raised an important contention that the TPO in assessee's own case of subsequent AY 2008-09 and 2009-10 has accepted 'entity-level' benchmarking done by assessee without any objection. Copy of TPO's order F.No. C-107/TPO-I/AY. 2008-09 dated 21.10.2011 is placed at Page No. 904-906 and order F.No. C-107/TPO-I/AY 2009-10 dated 14/11/2012 for AY 2009-10 is placed at Pag....
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....ions done by assessee are not "closely-related" but they are identical. In Sony Ericsson Mobile Communication India Pvt. Ltd. (supra) relied upon by Ld. AR, it is accepted that in case the tested party is engaged in single line of business, there is no bar or prohibition from applying the TNMM on 'entity-level' basis. Then, in CIT Vs. Birlasoft India Limited ITA No. 4001/Del/2009 for AY 2004-05 (supra), in Para No. 11 to 14 of order of ITAT re-produced earlier, both of the first-appellate authority as well as ITAT rejected "unit-level" comparison done by department and accepted assessee's claim of "entity-level" comparison on the grounds that the assessee had provided 'identical services' from all units; there were no significant functional difference in the services; the services were rendered by various units to the same AEs; and the terms and conditions for rendering such services by all units were governed by one single agreement entered into between assessee and AEs. Same view was again taken in the case of same assessee for AY 2005-06 Birla Soft India Ltd. - ITA No. 4713/Del/2011 (supra). The facts of present appeal before us are identical to these decisions in Birla Soft Ind....
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.... making unit-wise comparison, he must have collected unit-wise comparable external data and then made comparison, which is not so in present case. The matter does not stop here. We also find a strong merit in assessee's submission qua the revenue's approach in dealing assessee's case from year to year. Ld. AR has filed copies of TPO orders for subsequent assessment-years, namely AY 2008-09 and 2009-10, wherein the TPO has accepted "entity-level" approach adopted by assessee without any objection. It is true that the 'principle of res judicata' is not applicable to tax proceedings but it is also true that the 'principle of consistency' is applicable. In several judicial rulings including the decisions of Hon'ble Supreme Court in Radhasoami Satsang Vs. CIT 193 ITR 321 and Excel Industries Limited 358 ITR 295, the assessee's claims have been accepted on the basis of 'principle of consistency'. Therefore, in the present case, when the authorities have accepted entity-level approach of assessee in other years, there is a gross fallacy in not accepting the same approach in current year in absence of any changed circumstance. Therefore, looking into the entire conspectus of the case, we a....
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.... effected or assets employed or to be employed. On splitting clause (ii) into two parts, it divulges that the reference is made to internal and external comparables. One part of clause (ii) refers to the 'net profit margin realised by the enterprise... from a comparable uncontrolled transaction' and the other part talks of 'the net profit margin realised by an uncontrolled enterprise from a comparable uncontrolled transaction'. It transpires that whereas the first part refers to the profit margin from internal comparable uncontrolled transactions, the second part refers to profit margin front an external comparable uncontrolled transaction Thus it is discernible that what is to be compared under the method is profit from a comparable uncontrolled transaction The word 'comparable may encompass internal comparable or external comparable There is cue in the rule itself as to preference to be given to internal comparable uncontrolled transactions vis-a-vis externally comparable uncontrolled transactions. It is because the delegated Legislature has firstly referred to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and thereafte....
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....is to be given to internally comparable uncontrolled transactions vis-à-vis externally comparable uncontrolled transactions; that this is so, because the Rule refers first to the net profit margin realized by the enterprise (internal) from a comparable uncontrolled transaction and thereafter, it talks of new profit margin realized by an unrelated enterprise (external) from a comparable uncontrolled transaction; that thus, where a potential comparable is available in the shape of an uncontrolled transaction of the same assessee, it is likely to have a higher degree of comparability visà- vis comparables identified amongst the uncontrolled transactions of third parties; that the underlying object behind computing the ALP of an international transaction is to find out the profits which such enterprise would have earned, if the transaction had been with some third party, instead of the related party; that when data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case; that the reason for this I,s that various factors having bearing on the quality of output, assets....
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....ak-up of transactions with "related parties" and "unrelated parties". Drawing our attention to the working provided therein, Ld. AR pointed out that the Mumbai Unit has done 94% business with "unrelated parties" and a miniscule business of just 6% with "related parties". Ld. AR submitted that Mumbai Unit is assessee's internal comparable, hence it would be the best yardstick for benchmarking. Then, he submitted that the PLI of Bangalore Unit-I at (-)7.95% and Bangalore SBU at (-)0.25% is within safe harbour range of (-)/(+)5% of (-)4.97% PLI of Mumbai Unit. Therefore, the transactions undertaken by Bangalore Unit-I and Bangalore SBU must be considered at arm's length. For the sake of completeness, Ld. AR also submitted that the Mumbai Unit of assessee satisfies all filters applied by TPO for selection as comparable, hence there is no problem on that count. Ld. AR has given a chart on Page No. 22/23 of his Written-Submission to demonstrate how all filters are satisfied; we are not re-producing the same for the sake of brevity. Thus, the Ld. AR contended that even in case of 'unit-wise' comparison, if the internal benchmarking is done, the assessee's international transactions are at....
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....ic circumstance in Mumbai Unit that resulted in loss is also not clear from the facts submitted by the assessee. As the assessee did not provide complete functional comparability for internal TNMM, it is the considered opinion of the DRP that internal TNMM cannot be applied and no interference is required in the action of the AO/TRP in applying external TNMM based on sound comparability analysis." 19. We have considered rival submissions. From analysis of Rule 10B as interpreted in the judicial rulings cited above, it is clear that 'internal comparison' is allowed by law and the same is preferrable also. But, as contended by Ld. DR for revenue, the DRP has given a clear-cut basis for rejecting the claim of 'internal comparison'. Needless to mention that the claim of 'internal comparison' cannot be allowed merely because the law permits or merely on the basis of mathematical analysis; the assessee has to prove the functional and economic comparability. The DRP has clearly noted that the assessee has failed to do so. We do not find anything wrong in the findings of DRP which are re-produced in foregoing paragraph. Therefore, we are not inclined to make any interference with the or....
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....bmitted that this company is functionally dis-similar. The assessee is in the business of providing outsourcing services of maintenance, development, etc. whereas this company is mainly into 'software products' for travel industry. Further, this company owns producs like Dxchange, Travel solution, Insurance solution, Customer application and relationship management (CARA), Content management system, etc. The company derives revenue mainly from software products. Ld. AR relied upon several decisions where this company has been directed to be excluded from comparable on account of functional dissimilarity, most prominent being Sumtotal Systems (India) P. Ltd. Vs. ACIT, ITA No. 1710/Hyd/2011 upheld by Hon'ble High Court in ITA No. 660/2014. (ii) Ld. DR relied upon the orders of lower-authorities and submitted that this company has been rightly included as comparable company. (iii) On a careful consideration, we find that there is a substantial difference in the business of assessee and this company. While the assessee is engaged in providing software/outsourcing services, this company is a product company and catering to specific segments of customers like travel, in....
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....er the heading "Revenue Recognition", it can be found that the company earns revenue from a hybrid model i.e. on sale of software development services as well as by way of royalty receivable on successful sale of products by customers of company. This model of revenue is not a regular model adopted by assessee or even by other service providers. The revenue model of company is unique and not at all comparable. Further, the company is also a software product company and derives revenue from products as well which is evident from "Business Review" reporting in annual report for the financial year 2006-07. The company's products called CAS (Converged Access Solution), ASN Lite and Diameter Stack have been major success. Thus, the company is a product-cum-service company and the revenue model is also unique. (ii) Ld. DR argued that even if the company is into product line, it is also a service company. He submitted that the TPO has relied upon information obtained u/s 133(6), hence his action must be upheld. (iii) On a careful consideration of submissions of both sides, we find that this company is firstly a product-cum-service company whereas the assessee is a servic....
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....T also observed that while applying 25% employee cost filter, the TPO has also included the professional fees paid to third parties which is wrong. Ld. AR has placed a heavy reliance on this decision of ITAT besides several other decisions. (ii) Per contra, Ld. DR strongly supported the order of TPO/AO. (iii) We have given a careful consideration to rival submissions of both sides. We find merit in the submission of Ld. AR that the payments made to outside professional cannot be included in employee cost for the reason that the test of "employee cost filter" is applied to judge the nature of business. If a company is paying lesser amount of salary to its own staff but paying higher amount to outside professionals, it goes out of service company and does not remain comparable with assessee. The claims of assessee is also fortified by the decision of ITAT, Bangalore. Therefore, we direct the TPO/AO to exclude this company from list of comparables. 21.6 Kals Information: (i) Ld. AR submitted that this company is functionally dis-similar. It is engaged in sale of software products in addition to provision of software research and development services. The ....
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....re services" but according to Ld. AR, within the "software services" segment itself, the company is engaged in product design services (including design of hardware), innovative design engineering, etc. whereas the assessee is engaged in business of low-end software services. Therefore, this company is not comparable to assessee. Ld. AR has provided a long list of rulings where this company has been excluded from comparables. (ii) Ld. DR relied upon the order of TPO, Page No. 97-98. (iii) We have considered rival submissions of both sides. We find that prima facie there appears a functional dis-similarity in the business of this company and assessee. Even the TPO has also accepted this by mentioning in his report "TNMM does not call for strict product comparability and it also allows some diversity in functional comparability." Being a functionally dis-similar, this company cannot be considered as comparable to assessee. Therefore, we direct the TPO/AO to exclude this company from list of comparables. 21.9 Wipro Ltd.: (i) Ld. AR submitted that this company is also one of the giants. It operates as full-fledged risk entrepreneur. It is a leading provide....
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....n denominator, relying upon the provision of section 10A/10B and judicial interpretation taken in some of the decisions. The approach of AO has resulted in lowering down the quantum of deduction to assessee; hence the assessee is aggrieved. 25. Ld. AR for assessee submitted that the issue is finally settled by Hon'ble Supreme Court in CIT Vs. HCL Technologies (2018) 404 ITR 719 holding thus: "19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature. 20. Even in the common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the tota....
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....nd tiling on improvement of structures and renovation in the leasehold premises. Although the assessee capitalized said expenditure in books of account but claimed as revenue expenditure for income-tax purposes. Ld. AR defended assessee's claim in Income-tax by harping on the point that the assessee has incurred expenditure in a lease-hold premise which is not owned by assessee and the work done by assessee would eventually be passed on to the lessor alongwith premises upon termination of lease, therefore the expenditure cannot be treated as incurred in capital field. Ld. AR sought to support this contention from the decision of Hon'ble Supreme Court in CIT Vs. Madras Auto Services (P) Ltd. 233 ITR 468. Ld. AR also submitted that the ITAT, Madras Bench has, in assessee's own case of AY 2008-09 in ITA No. 1205/MDS/2013, remitted this issue to the file of AO following earlier order of AY 2004-05. 29. At that stage, the Bench invited attention of Ld. AR towards Explanation 1 to section 32(1) inserted by the Taxation Laws (Amendment and Misc. Provisions) Act, 1986, which prescribes thus: "Explanation 1.-Where the business or profession of the assessee is carried on in a bui....
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....on is in the nature of repair and maintenance. We are not persuaded to take into account such changed stand taken on nature of expenditure by Ld. AR after conclusion of hearing. It is also noteworthy here that the assessee has himself capitalized expenses in books of account which itself shows that the expenditure cannot be in the nature of repair or maintenance. We find that the AO has carefully invoked the provision of Explanation 1 to section 32(1) by making a sufficient note in assessment-order. Consequently, we uphold AO's action. The assessee fails in this ground. Ground No. 23: 32. This ground relates to the cost of Rs. 73,10,920/- incurred by assessee towards licensed software treated by AO as capital expenditure. 33. The assessee has incurred cost towards purchase of licensed software and claimed the same as revenue expenditure. The AO has, however, treated the same as capital expenditure and disallowed the claim of assessee while allowing depreciation u/s 32. 34. Ld. AR for assessee agreed that this issue stands covered against assessee by the decision of ITAT, Chennai in ITA No. 1205/Mds/2013 for AY 2008-09, copy at Page No. 823-833 of Paper-Book. We re-produ....
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....ia Enterprises (supra), in Para No. 26 it is clearly mentioned: "26....He also brought to our notice the judicial pronouncements of the Hon'ble Madras High Court the case of CIT v. Southern Roadways Ltd. 282 ITR 379 (Mad) wherein the Hon'ble Madras High Court has held that expenditure incurred on software packages was revenue expenditure and that such software enhances the efficiency of the operation and was not an aid in the manufacturing process and therefore there is no enduring benefit or acquisition of any capital asset by an assessee reference was made to the decision of the Madras High Court in the clauses of CIT v. Southern Roadways Ltd. 288 ITR 15 (Mad) laying down identical proposition." Further, in Para No. 22 of CIT Vs. Southern Roadways Ltd. 304 ITR 84, the Hon'ble Madras High Court has followed its earlier decision in 282 ITR 379 and 288 ITR 15: "22. That apart, this court in CIT Vs. Southern Roadys Ltd. (2006) 282 ITR 379, applying the ratio laid down by the Apex Court in the case of Alembic Chemical Works Co. Ltd. (supra), held that upgradation of computers by changing certain parts, thereby enhancing the configuration of the computers f....
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....e to be prospectively applicable from AY 2008-09 in CIT Vs. Essar Teleholdings Ltd. 30 CTR (SC) 561. Additionally, he submitted that the assessee has earned exempted income only from mutual funds (and not shares) for which no expenditure is incurred; the directors of assessee-company only took decisions to make investment. He also pointed out that recently in a consolidated order dated 10.04.2023 in ITA No. 179/Ind/2016 and others passed by ITAT, Indore in assessee's case for AY 2011-12 to 2013-14, vide Para No. 22 to 24, similar disallowance was dealt. In that case, the assessee himself made suo motu disallowance of Rs. 20,37,506/- representing salary of two employees but the AO enhanced disallowance. The ITAT has remanded the issue to back to AO for re-adjudication but that decision cannot govern present year where the assessee has not made any suo motu disallowance claiming that no expenditure was incurred at all for earning exempt income. 41. Ld. DR for revenue supported the disallowance made by AO. He submitted that the assessee has earned very high magnitude of exempted income and has utilized resources for earning the same but has not made disallowance of a single penny. ....