TaxTMI 
TaxTMI 
2022 (6) TMI 1487
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....r devices. 3. The assessee e-filed its return of income for the AY 2009-10 on 30.9. 2009 declaring a total income of Rs 829,619,519. In computing the above income, it claimed a deduction of Rs 77,851,741 from its gross total income as per the provisions of section 80JJAA of the Income Tax Act, 1961 ["the Act"]. 4. Notices under section 143(2) and section 142(1) of the Act calling for certain information/details was served on the assessee, which were provided by the assessee. During the course of assessment proceedings, the international transactions entered into by the assessee were referred to the Transfer Pricing Officer ["TPO"] for determination of Arm's Length Price ["ALP"] u/s. 92CA of the Act. The TPO passed an order dated 21.1. 2013 u/s. 92CA of the Act making a TP adjustment of Rs 1,209,858,772. Accordingly, the AO passed draft assessment order u/s. 143(3) r.w.s. 144C of the Act dated 19.3.2013 after making certain disallowances on corporate tax listed below and computed the total income at Rs 2,843,922,040:- • Disallowance of deduction u/s. 80JJA - Rs.77,851,741. • Disallowance of expenses on discontinued capital project - Rs.74,19,000. ....
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.... software including, but not limited to the cost of licensing software used by the designers for product design and verification [EDA software]. The EDA expenditure is allocated to the assessee based on number of seconds assessee's personnel are logged on to any of the EDA software packages and hence it is in the nature of revenue expenditure. The AO, however, disallowed the expenditure treating it as capital in nature, relying on the following case laws:- i. CIT v. Arawali Construction Co. (P) Ltd., 259 ITR 30 (Raj) ii. Amway India Enterprises v. DCIT, 111 ITD 112 (Del)(SB). 7. On appeal, the CIT(Appeals) allowed the issue in favour of the assessee based on his order in assessee's own case for AY 2008-09. Aggrieved, the revenue is in appeal before the Tribunal. 8. The ld. DR submitted that EDA software is purchased and charged to the assessee on usage basis, therefore the original software is capital in nature and the usage charges also would be capital in nature. He therefore supported the order of the AO in treating the data automation expenditure as a capital expenditure. 9. The ld. AR drew our attention to the decision of the coordinate Bench of the ....
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.... license is acquired by the Texas Instruments Inc. USA under a global agreement from vendors of such software like Synopsis, Cadence, Mathwork, Magma, Rational etc., and the Assessee is allowed to use such software and billed on the basis of actual hours the Assessee uses the software. The Assessee therefore submitted that the expenditure was a payment for license to use software and the Assessee never acquired any right or interest in the software and therefore the payment made for right to use such software was purely revenue expenditure and should be allowed as deduction. The AO however did not allow the claim of the Assessee by concluding that the expenditure was capital expenditure and therefore only depreciation at 60% would be allowed and not the entire expenditure. The following were the relevant observations of the AO:- "5.3 The assessee's submission is carefully considered. The Data Automation Software is a computer software which is being used by the assessee for designing its products. Electronic design automation (EDA) is a category of software tools for designing electronic systems such as printed circuit boards and integrated circuits. The tools work tog....
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....dition made by the AO holding that the Assessee acquired on purchase by the Assessee and as per the Agreement with the owner of the software the Assessee had only a right to use the software and that the software was an enabling tool in the business of the Assessee and therefore the expenditure question was revenue expenditure. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. 30. We have heard the rival submissions. A copy of the group cost allocation Agreement dated 24.3.2006 is at page - 406 of Assessee's paper book. The agreement is between Texas Instruments Inc., USA and the Assessee. The Agreement refers to the US parent company of the Assessee having acquired license to use EDA tools from the vendors and the right of the Assessee to use the same and the fact that billing will be done on the Assessee on the basis of actual use of the software by the Assessee. It is thus clear that the Assessee had acquired no right or interest whatsoever in the EDA tools and had only a right to use the software. It is not the case of the revenue that the EDA tools was not connected to the business of the Assessee. In such circumstances, we are of the....
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.... all the conditions to be entitled for the deduction under section 80JJAA of the Act. 2.2 The learned CIT(A) and the AO have erred in law and on facts in concluding that the employees employed for a period of less than 300 days in the previous year relevant to the assessment year cannot be considered as regular workmen. 2.3 The learned CIT(A) has erred in law in not adjudicating the other grounds raised by the Appellant and in summarily denying the deduction claimed by holding that the Appellant does got satisfy the eligibility conditions under section 80JJAA of the Act." 13. During the year, the assessee claimed a sum of Rs.7,78,51,741 as deduction u/s. 80JJA towards 30% additional wages paid to new workmen recruited/joined in the year 2006-07. The AO noted that section 2(s) of the Industrial Disputes Act, 1947 applies and the following facts are crucial for eligibility of deduction:- (i) The workman should be newly recruited. (ii) It is evident that only the person employed in any industry to do any manual, unskilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment are express or impli....
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....med the disallowance stating that the ITAT in assessee's own case for AYs 2001-02 to 2002-03 decided the issue against the assessee and also that the assessee does not satisfy the eligibility conditions u/s. 80JJA of the Act during the FY 2008-09. Hence, the assessee is in appeal before the Tribunal. 16. Before us, the ld. AR submitted that deduction u/s. 80JJA during the year under appeal is claimed towards 3rd year deduction of 30% for the employees who joined/were recruited during 2006-07. He drew our attention to the fact that similar deduction claimed during the second year i.e., AY 2008-09 was also denied by the lower authorities and the matter travelled upto the High Court where the issue was decided in favour of the assessee. The ld AR submitted that in the year under consideration, the deduction is claimed for the same number of workmen who joined in 2006-07 and invited our attention to the statement of computation of income at page 52 of PB to substantiate the claim. 17. The ld. DR, on the other hand, vehemently supported the order of the AO and reiterated the observations of the AO in terms of the definition of "new workmen". He also submitted that given the attrit....
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....existing undertaking or amalgamation with another industrial undertaking; (b) unless the assessee furnishes along with the return of income the report of the accountant, as defined in the Explanation below sub-section (2) of section 288 giving such particulars in the report as may be prescribed. Explanation.-For the purposes of this section, the expressions,- (i) "additional wages" means the wages paid to the new regular workmen in excess of one hundred workmen employed during the previous year : Provided that in the case of an existing undertaking, the additional wages shall be nil if the increase in the number of regular workmen employed during the year is less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (ii) "regular workman", does not include- (a) a casual workman; or (b) a workman employed through contract labour; or (c) any other workman employed for a period of less than three hundred days during the previous year; (iii) "workman" shall have the meaning assigned to it in clause (s) of section 2 of the Industrial Dis....
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.... the AO for denying the benefit of deduction u/s.80JJAA of the Act, it is appropriate to recapitulate the conditions that need to be fulfilled for claiming deduction. The conditions that need to be fulfilled by an Assessee to claim benefit of deduction u/s.80JJAA of the Act, are: (1) The Assessee should be an Indian Company and the gross total income of the Assessee should include profits and gains derived from any industrial undertaking engaged in the manufacture or production of article or thing. Admittedly this condition is satisfied in the case of the Assessee. (2) There are certain prohibition laid down in Sec. 80JJAA(2) of the Act and it is not the case of the AO that these prohibitions are applicable in the case of the Assessee. (3) The new workmen employed must be a regular workmen and the number of such new workmen employed should be in excess of one hundred workmen employed during the previous year. (4) The increase in the number of regular workmen employed during the year should not be less than ten per cent of existing number of workmen employed in such undertaking as on the last day of the preceding year; (5) If the above co....
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....006-07 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. There is a reference in the AO's order that only 236 out of the 287 employees were new employees but these observations in the order of assessment is incorrect and contrary to the report of the Chartered Accountant in Form No. 10DA. It is admitted position that in respect of additional wages paid to new employees employed in the previous year relevant to AY 2008-09 was not claimed by the Assessee, as 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. It is also not disputed that these 287 employees worked for 300 days in the previous year relevant to AY 2008-09. The total ....
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.... but if the next two Assessment years, if he works for more than 300 days each, then the deduction u/s.80JJAA of the Act has to be allowed. He also drew our attention to the insertion of a second proviso to Explanation (ii) to Sec.80JJAA of the Act (which defines additional employee) by the Finance Act, 2018, w.e.f. 1-4-2019, which reads as follows : "Provided Further that where an employee is employed during the previous year for a period of less than two hundred and forty days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be deemed to have been employed in the succeeding year and the provisions of this section shall apply accordingly;" 8.3 It was his submission that though the aforesaid amendment is applicable w.e.f 1-4-2019, the aforesaid amendment which is intended to remove hardship to getting benefit of an incentive provision, should be held to be curative in nature in nature and should be held to be retrospective in operation on the principle laid down by the Hon'ble Supreme Court in the case of ....
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....rkmen were employed for a period of less than 300 days in the previous year then no deduction is allowable in respect of payment of wages to such work men in the present year even if such workmen was employed in the preceding year for more than 300 days but in the present year, such workmen was not employed for 300 days or more. By the very same reasoning the fact that in the first year of employment the additional wages paid is not allowed deduction for the reason that the workmen did not work for 300 days or more but if the next two Assessment years, if he works for more than 300 days each, then the deduction u/s.80JJAA of the Act has to be allowed. It is not proper to say that if the deduction is refused in the first year of employment of the new employee then for the next two succeeding Assessment Years also, the benefit of deduction will not be available. Such an approach defeats the very purpose for which deduction u/s.80JJAA of the Act is allowed for three consecutive Assessment years. This aspect has now been clarified in the Finance Act, 2018 by adding a second proviso to the definition of additional employee in Explanation (ii) to Sec.80JJAA of the Act. Even prior to such....
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.... appeal filed by the Assessee, the Commissioner, Income-tax (Appeals) CIT(A) accepted the Assessee's contention and held that the Assessee's employee would come within the purview of Section 2(s) of the ID Act. This aspect was not challenged by the Revenue, although the Revenue had filed an appeal against the order of the CIT(A). Having accepted the said finding of the CIT(A) and not having filed any appeal, the Revenue cannot now seek to challenge the said finding in the present appeal. 16.3 Section 2(s) of the ID Act is reproduced hereunder for easy reference: "workman" means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person- (i) who is subject ....
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.... and is no longer restricted to a blue collared person but even extends to white-collared person. A couple of decades ago, an industry would have meant only a factory, but today industry includes software and hardware industry, popularly known as the Information technology industry. Thus the undertaking of the Assessee being an industrial undertaking, the persons employed by the Assessee on this count also would satisfy the requirement of a workman under section 2(s) of the ID Act. 16.7 Sri. Aravind, learned Senior Panel counsel of the Revenue, has strenuously argued that the period of 300 days in a year would mean 300 days in the financial year alone, not in the calendar year or otherwise. He has submitted that if the period of 300 days is not satisfied, no such deduction could be allowed. 16.8 Admittedly, the provisions concerned, i.e. Section 80JJ-AA, comes under Chapter-VI-A of the IT Act, which deals with deductions in certain income; this deduction is issued and or permitted as an incentive to the Assessee on fulfilling certain criteria as required under the various provisions under ChapterVI-A. The incentive of the deduction provided under section 80JJ-AA i....
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....id order has attained finality on account of the Revenue not having filed an appeal. 16.12 It is sought to be contended by Sri. K.V. Aravind, learned Senior Panel counsel that the fact that such an interpretation could not be given is established by the curative amendment carried out in the year 2018 wherein it is clarified that an assesses whose employee completes 300 days in a second year would also be entitled to a deduction for three years therefrom. Thus he submits that the amendment having been brought into force in the year 2018 the present matter relating to the year 2007-2008, the said curative or clarificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13 We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying section 80JJ-AA of the Act. If the submission of Sri. K.V. Aravind is accepted, then no employer/assessee would be able to fulfil the re....
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....A. It is not required that the workman works for entire 300 days in the previous year. 16.18 Hence, in the facts and circumstances of the case, the software engineer being workman having satisfied the period of 300 days, the assessee is entitled to claim deduction under section 80JJAA." 21. Respectfully following the decision of the jurisdictional High Court in assessee's own case for AY 2008-09, we hold that assessee is entitled for deduction u/s. 80JJA and delete the disallowance made in this regard. 22. The next issue for consideration is disallowance of expenses on discontinued capital project of Rs 7,419,000. Ground Nos. 3.1 to 3.4 in this regard by the assessee are as follows:- "3.1 The learned CIT(A) and the AO have erred in law and on facts in denying a deduction a 7,419,000 claimed by the Appellant in relation to discontinued capital projects holding that expenses incurred towards expansion of business which did not materialize was a capital expenditure and not eligible for deduction under section 37 of the Act. 3.2 The learned CIT(A) and the AO have erred in law and on facts in not appreciating the fact that claim for discontinued project ....
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....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 the services of the contractor in future for other contracts cannot be regarded as having no 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 and cannot be allowed as deduction and were rightly held to be capital expenditure by the revenue authorities. We however find that in Gr.No.3.2.9 the Assessee has submitted that a sum of Rs. 61,04,942/- was disallowed u/s.40(a)(i)/(ia) of the Act and that sum is also part of the sum of Rs. 4,42,14,942 which was disallowed by the AO as capital expenditure and therefore to the extent of Rs. 61,04,942/- there has been a double addition made by the revenue authorities. We are of the view that it would be just and appropriate to direct the AO to look into this aspect while giving effect to the decision of the Tribunal after affor....
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....he assessee is in appeal before the Tribunal. 29. Before us, the ld. AR submitted that the amount incurred towards planning, designing and architecture fees satisfied all the conditions specified in section 37 of the Act viz., (i) the expenditure is not in the nature of expenditure described in sections 30 to 36; (ii) it is not a personal expenditure, (iii) it is incurred wholly & exclusively for the purpose of business; and (iv) it is not a capital expenditure. Reliance was placed on the Supreme Court decision in the case of Empire Jute Co. Ltd. v. CIT, 124 ITR 1 (SC). The ld. AR also submitted that since the project of expansion of Cafeteria and breakout area was closed, the expenditure incurred did not bring any new asset into existence and there is no advantage or enduring benefit accrued to the assessee and therefore the same should be allowed as a deduction u/s. 37 of the Act. 30. The ld. DR supported the orders of the lower authorities. He also contended that had the project not been closed down, the same would have resulted in a capital asset and the same analogy should be applied while deciding the allowability u/s. 37 of the Act. 31. We have considered the rival ....
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....y benefit of enduring nature to the assessee and hence it is allowable as a revenue expenditure u/s. 37 of the Act. This ground of the assessee is allowed. 34. With regard to disallowance of repairs & maintenance expenditure, grounds are as follows:- 5.1 The learned CIT(A) and the AO have erred in law and on facts in disallowing an amount of Rs 9,233,401 in the following manner: - Rs 4,187,113 - disallowed by the AO for non-submission of 100 percent invoices, and by the CIT(A) for non-satisfaction of the conditions as laid out in Rule 46A of the Income-tax Rules, 1962 ("the Rules"); - Rs 5,438,094 - held to be capital expenditure which is disallowed net of depreciation by the AO and CIT(A); - Rs 1,580,977 - held to be prior period expenses by the AO but disallowed by the CIT(A) as capital expenditure. 5.2. The learned CIT(A) has erred in law and on facts in disallowing the amount of Rs 4,187,113 by not considering the reason of "paucity of time" as a relevant criteria to justify the submission of additional evidence. The learned AO has erred in disallowing the same merely because 100 percent of the invoices were not furnished, despite....
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....isallowance. 37. The ld. DR, on the other hand, supported the orders of the lower authorities where the break-up of expenditure is examined to conclude it as capital in nature. 38. We have considered the rival submissions and perused the material on record. The ld. AR submitted a letter dated 20.6.2022 with break-up of expenditure which was before the lower authorities consisting of details of invoice and whether the expenditure was incurred in 'own premises' or 'leased premises'. We notice that these details of invoices have not been looked into by the lower authorities, and in our view, this aspect needs to be examined by the revenue authorities for the purpose of deciding its allowability. We are also the view that the additional evidence filed by the assessee before the CIT(Appeals) goes to the root of the matter for deciding the issue and therefore we admit the additional evidence filed before the CIT(Appeals). Hence, we remit this issue back to the AO to examine the evidence submitted by the assessee vide letter dated 20.6.2022 as well as the documents in the form of additional evidence and decide the allowability of the same in accordance with law, after giving reasona....
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.... Under this agreement also, the assessee took certain vehicles on lease. The assessee paid lease rentals amounting to Rs.2,30,59,332 towards lease rentals for lease of equipment and a sum of Rs.7,75,20,,788 towards lease of motor cars. 41. In view of Accounting Standards AS-19 issued under the Companies (Accounting Standards) Rules, 2006, the assessee in its books of accounts treated itself as the owner of the asset and capitalized the value of the equipment as well as the vehicles in its books of accounts. Depreciation was computed and debited in the P&L A/c. The following accounting treatment was adopted by the assessee as per AS 19, in the case of finance lease, the lessee (to whom significant risks and rewards have been transferred) would for all practical purposes be treated as the owner of the asset and expenditure on the same shall be capitalised in his books, while the lessor would not be considered as the owner, but the lease rentals received by the lessor shall be recorded as revenue in its books of accounts. In summary, the accounting treatment prescribed for finance leases for a lessee is as follows:- - The assets taken on finance lease are capitalised in th....
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....the interest charges) is claimed as deduction from the taxable income; * Any profit / loss arising on account of disposal of the leased asset which is charged to the profit and loss account are to reduced / added back respectively to the taxable income. 43. In light of the above, the Assessee submitted that the Assessee has made the following adjustments (on account of the leased assets) to its net profits to arrive at its taxable profits:- • The depreciation on assets acquired under finance lease is added back to net profits; • The finance charges of Rs 15,250,304 have been added back to the net profits; • The profit of Rs 5,570,701 on account of the foreclosure of the lease has been excluded from the net profits; and • The aggregate amounts of monthly instalments amounting to Rs 77,520,788 towards vehicles and Rs 23,059,332 towards equipment have been claimed as a deduction. 44. The AO however, disallowed the claim of the assessee for deduction on account of lease rentals for the following reasons:- • The Assessee is the owner of the assets acquired under finance lease. Therefore, Assessee is only eli....
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....quoted various clauses of the lease agreement out of context, ignoring the main clause in the agreement which clearly lays down that the assessee is only a lessee and the lessor is the owner of the assets leased. In such a scenario, the conclusion of the Revenue authorities cannot be sustained. The assessee is entitled to claim deduction on account of lease rentals paid as it is a Revenue expenditure. 47. In so far as the applicability of the provisions of section 40(a)(ia) of the Act is concerned, the Hon'ble High Court of Karnataka in assessee's own case on an identical issue for Assessment Year 2008-09 in the decision reported in [2021] 127 taxmann.com 59 (Karnataka) held that neither provisions of 194I nor 194C of the Act are attracted to lease financing of motor vehicles and therefore there could be no disallowance under section 40(a)(ia) of the Act. In so far as the applicability of provisions of section 40(a)(ia) of the Act in respect of lease rentals paid for lease of equipment is concerned, it is seen from the submission made by the Assessee before the CIT(A) at page 672 of the Assessee's PB that the Assessee has duly deducted tax at source on payment of lease rentals. ....
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....essee and the gains, if any, are only as per the accounting system. Under the tax provisions, there is no scope for taxing such accounting income and Assessee has therefore reduced the same from the profit as per the profit and loss account in arriving at the taxable total income. It was therefore submitted that the reduction made from the profit as per profit and loss account should not be denied and the claim made by the Assessee should be accepted. Without prejudice to the above, it was submitted that in case the Assessee's claim for deduction with respect to lease rentals on finance leased assets is not accepted, the amount reduced with respect to profit on foreclosures of leased assets should separately not be disallowed in the tax computation. 50. The AO, however, held that the reply was very vague and there was no proper explanation as to why the profit should not be treated as income of the assessee. Accordingly, the AO added a sum of Rs.55,70,701/- to the total income of the assessee. On appeal by the assessee, the CIT(A) confirmed the order of the AO. The line of reasoning adopted by the AO and CIT(A) is that in respect of lease rentals, it has been treated as capital ....
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.... assessee gave the party wise breakup of software development expenses only to the tune of Rs.143,73,03,338/- as per the following details: Sl.No Name of the party Amount [in Rs.] 1 Wipro technologies 43,38,47,329 2 Saskin technologies 56,46,94,281 3 Karnataka Micro electrical 26,09,29,533 4 Symphony services 1,79,10,371 5 Tessolle services 4,55,28,093 6 Salkulp semi conductor 4,12,88,805 7 Tata Elxsi 3,30,79,840 8 Path partner technology - 4,00,25,086 Total 143,73,03,338 54. The Assessee gave further details of TDS in respect of 4 parties totaling Rs.8,51,41,793/-. The details of which were as follows:- (1) Aricent Technologies Rs.2,37,95,808 (2) Intra Systems Rs.2,98,11,670 (3) Lossen and toubro Rs.1,93,42,367 (4) Poseidon Design Rs.1,21,91,857 Rs.8,51,41,793 55. There was a difference of Rs.7,30,95,490 (Rs.159,55,40,621 - Rs.152,24,45,131) for which the name of the parties to whom payment of Software development charges were paid was not given by the Assessee. 56. The Assessee gave further details of TDS certificates....
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....3,939/- and the basis of this addition was that there was a difference of Rs.7,30,95,490 as per paragraph 15 of this order between the details of persons furnished by the Assessee to whom software development charges were paid and the actual software development expenses claimed by the Assessee. According to the AO in the third list of names of 16 persons to whom software development charges were paid totaled Rs.19,46,79,429. The AO added a sum of Rs.12,15,83,939/- with the following observations: "It is not known whether the 28 vendors total payment includes Rs.7,30,95,490/- gap discussed in the introductory paragraph for which no ledger account was given. Presuming that the 28 vendors details also includes the said gap of RS.7,30,95,490/- the balance amount of Rs.12,15,83,939/- (Rs.19,46,79,429 - Rs.7,30,95,490) is also to be treated as unexplained expenditure u/s.69C only." 60. In all a sum of Rs.21,48,25,509 was added by the AO as follows: (i) Rs.4,80,75,547 u/s.40(a)(ia); (ii) Rs.4,51,66,023 u/s.69C of the Act; and (iii) Rs.12,15,83,939 also u/s.69C of the Act. 61. The aforesaid additions were confirmed by the CIT(A). The CIT(A) however gave relief accepting the....
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....es is a tax resident of Mauritius but that certificate mentions that it is issued under an agreement between a Government of South Africa and a Government of Republic of Mauritius. Hence, this certificate was disregarded by the Revenue authorities. It is the plea of the assessee before the Tribunal that a TRC has been issued even with reference to (Treaty) Agreement between India and the Republic of Mauritius and a copy of that was also furnished before the Tribunal. 64. After hearing the parties, we are of the view that the entire issue of disallowance of Rs.21,48,25,509/- in respect of software development expenses should be set aside for fresh examination by the AO in the light of the several contentions that were raised before the CIT(A), which were not considered in proper perspective by the CIT(A). In our view, the entire issue with regard to various aspects of the additions especially the additions under section 69C of the Act have be looked into afresh. The AO will afford opportunity of being heard to the assessee in the set aside proceedings. 65. Ground No.9 raised by the assessee reads as follows: 9. Disallowance of information technology support services ....
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.... CIT(A), it has been mentioned that as requested by the CIT(A), this evidence of confirmation from the parent company is being produced. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. 67. We have heard the rival submissions. A copy of the invoices raised by the foreign AE is at pages 409, 459 of the PB of the assessee. Perusal of the same clearly shows that the invoices make a reference to the "SOE charged out", which means software expenses charged on the basis of actual usage of licence. It is the case of the assessee that the licence for use of a particular software for which the parent company had license from the owner of the software were allowed to be used by the Assessee and on the basis of actual usage of the software, the assessee made payment to the parent company and therefore the said payment cannot be regarded as capital expenditure but only an expenditure for right to use licence in a software which is purely a revenue expenditure. Our attention was also drawn to the order of the ITAT in assessee's own case for AY 2010-11 dated 17.05.2022 in ITA No.1967/Bang/2019 wherein this Tribunal on an identical issue held as follows:- ....
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....ased per person charge. Any cost incurred by TI not covered by the per person charge will be allocated to Purchaser on a mutually agreed basis. TI will periodically notify Purchaser of the amounts of the per person charge used to determine the allocable charge. 14. The AO took the view that the expenditure was capital in nature and the assessee has purchased software licences and software from the parent company which is factually incorrect. The AO however allowed depreciation at 60%. 15. On appeal by the assessee, the CIT(A) held that the expenditure was Revenue in nature, as follows: "Having considered the submissions, it is evidently clear that the Appellant being charged for the licenses used by its employees from the software licenses purchased and owned by the parent company, i.e., TI Inc. The License Cost Allocation Agreement makes it amply clear. The AO, on the other hand, has relied only on the invoices on stand-alone basis. The cost allocation method provided in the License Cost Allocation Agreement makes it clear that the Appellant is only utilizing the softwares owned by the parent and there is no separate and exclusive purchase of any softwar....
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.... towards Employees Staff Purchase Plan (ESPP) and Employee Staff Option Plan (ESOP). The details of the sum so charged were as follows:- 71. It can be seen from the aforesaid chart that the last two items of payment of USD 27233 and 3113 were charged on the basis of invoice which pertain to May, 2009 which was a date after the end of the Financial Year relevant to Assessment Year 2009-10. The AO therefore made an addition of Rs.24,19,397/- for the following reasons:- "The case was also heard on the date of written submission. It is noticed from the submission that the company was booking the expenditure before getting the invoice. No accounting policy allows the assessee company to debit an expenditure without having any invoice copy raised by the respective creditor. The company's reply that this is the consistent accounting policy as well as in accordance with generally accepted accounting principles is not acceptable. No accounting policy or accounting principle allows an assessee to debit expenditure into the P&L account without having any invoice copies. If the assessee company follows such accounting policy consistently it may be attributed as serious defects ....