TaxTMI 
TaxTMI 
2024 (12) TMI 1561
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....sions of law, the Appellant pleads the Hon'ble ITAT to direct the AO to grant relief by way of restricting the levy of the dividend distribution tax, on the dividend distributed/paid to Robert Bosch GmbH, Germany, to 10% in terms of Article 10 of the DTAA between India and Germany, instead of 16.2225% charged in terms of section 115-0 of the Act. 2. The Appellant pleads the Hon'ble ITAT to direct the AO to refund the excess Dividend Distribution Tax paid by the Appellant as per section 237 of the Act. 3. Whether on the facts and in the circumstances of the case and in law, the Education Cess and Higher and Secondary Education Cess, being cess on tax payable on Total Income under the provisions of the Act other than section 115JB of the Act is allowable as a deduction? 4. The Appellant craves leave to add to, amend or alter the ground herein. 5. For these and other grounds that may be urged at the time of hearing, the appellant prays for appropriate relief." 4. In the application filed for the admission of the additional ground, the assessee pleaded that the issues raised in the additional grounds of appeal are legal in nature and go to....
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.... industrial undertaking engaged in the manufacture or production of articles or things. According to clause (i) of the Explanation to Section 80JJAA(2) of the Act, "additional wages" refers to wages paid to new regular workmen employed during the previous year, provided the number of such workmen is not less than 10% of the existing employees as on the last day of the preceding year. Furthermore, clause (ii)(c) of the Explanation specifies that "regular workmen" are those who have completed at least 300 days of employment in the previous year. Based on this legal framework, the AO found that the number of new regular workmen employed by the assessee during the year who completed 300 days stood at 320 only, whereas the total number of existing workmen on 1st April 2011 was 3,582 only. Therefore, the condition of a 10% increase in the number of employees was not fulfilled. Similarly, in the immediate previous assessment year (A.Y. 2011-12), the assessee employed 160 new workmen who completed 300 days, which was also less than 10% of the existing workmen as on 1st April 2010. Consequently, the AO concluded that the conditions for claiming a deduction under Section 80JJAA were not met.....
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....o SEZ units, namely Coimbatore CHIL and Coimbatore TIDEL Park. Referring to Section 80A(4) of the Act, the ld. CIT(A) opined that no further deduction under Section 80JJAA could be allowed for units whose profits were already claimed as exempt under Sections 10A or 10AA of the Act. Consequently, the ld. CIT(A) disallowed the claim for these units. 8.5 The ld. CIT(A) further disallowed the deduction under Section 80JJAA of the Act on the grounds that the provision applies only to assessee deriving profits from industrial undertakings engaged in the manufacture or production of articles or things. The ld. CIT(A) held that the appellant assessee, engaged in software development and IT enabled services, did not meet this requirement. 9. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 10. The learned AR before us filed a paper book running from pages 1 to 750, written submission having 13 pages, a chart explaining the transfer pricing issues having 11 pages, various case laws along with its compilation and contended that the number of employees employed in the year in dispute is far exceeding 10% of the employees as on the last day of th....
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....ed for the purposes of section 80JJAA of the Act. However, the same has been defined for the purpose of provision of section 10(15) of the Act which reads as under: Explanation 1.-For the purposes of this sub-clause, the expression "industrial undertaking" means any undertaking which is engaged in- (a) the manufacture or processing of goods; or (aa) the manufacture of computer software or recording of programme on any disc, tape, perforated media or other information device; or (b) the business of generation or distribution of electricity or any other form of power; or (ba) the business of providing telecommunication services; or (c) mining; or (d) the construction of ships; or (da) the business of ship-breaking; or (e) the operation of ships or aircrafts or construction or operation of rail systems. 12.2 The above definition includes the manufacture of computer software as an industrial undertaking. Since the term "industrial undertaking" is not specifically defined for the purposes of Section 80JJAA of the Act or any other relevant provisions of the Act, we are inclined to rely on the definition p....
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....ction, process, or effort; a product of human activity or effort." 14.3 The Hon'ble Supreme Court, in the case of CIT vs. N.C. Budharaja & Co. (204 ITR 412), observed that the term "production" is broader than the term "manufacture." The relevant observations of the Hon'ble Supreme Court are as follows: The word 'production' or 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the byproducts, intermediate products and residual products which emerge in the course of manufacture of goods. 14.4 The development of computer software involves intellectual and technical efforts to create a product or service with economic value, thereby fulfilling the criteria for production. Inputs such as human expertise, technology, and tools (e.g., coding platforms) are combined to produce software, aligning with the general definition of production. The output, typically intangible (a software application or code), is a hallmark of production in knowledge-based or service-oriented industries. Therefore, in our considered opinion....
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....for exemptions under Sections 10A and 10AA of the Act. 15.3 Coming to the third question, regarding the requirement of 300 days of employment, we note that this issue has already been adjudicated by the Tribunal in the assessee's own case for the immediately preceding assessment year, i.e., A.Y. 2011-12, in IT(TP)A No. 608/Bang/2016. In its order dated 02-02-2022, the Tribunal held as under: We have perused the submissions advanced by both sides in light of records placed before us. On bare reading of section 80JJ AA of the Act, following requirements emerges to be fulfilled in order to claim deduction under the section: 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 Ld.AO that these prohibitions are applicable in the case of the Assessee. 3. The new workmen employed must be a regular workmen and the ....
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....nt to the assessment year under consideration, then the wages paid in respect of such an employee will not be eligible for deduction. However, if the employee completes 300 days of employment in the subsequent assessment year, the wages paid to such an employee in the subsequent two years will become eligible for deduction. With these directions, the Tribunal set aside the issue to the file of the Assessing Officer (AO). 15.5 At the time of the hearing before us in the matter of the current assessment year, the learned AR of the assessee referred to a recent judgment of the Hon'ble Karnataka High Court in the case of Aquarelle India Ltd. vs. DCIT (157 taxmann.com 244). In this judgment, the Hon'ble High Court observed that the requirement of 300 days of employment should be considered cumulatively across both the previous year and the succeeding year. As such, for availing the benefit under Section 80JJAA of the Act, it is not mandatory for the workmen to have worked for 300 days in a single previous year. The relevant observation of the Hon'ble High Court reads as under: 12. After considering the aspect of working for 300 days in the previous year, this Court in Texas ....
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....d additional depreciation is allowable only on plant and machinery installed by an assessee engaged in the manufacture or production of articles or things. Further, the AO observed that computers and computer software are depreciated at higher rates than plant and machinery, which suggests that computers are not considered plant and machinery. Consequently, the AO disallowed the claim and made an addition of Rs. 13,73,17,444 only. 18. Aggrieved, the assessee, preferred an appeal before the learned CIT(A), reiterating that it was engaged in the business of developing embedded software for automobile components and accessories. The production/development of such software requires significant effort, processes, and human involvement, and therefore, should be considered as the business of "manufacture or production of articles or things." The assessee placed reliance on the order of the Tribunal in the case of Manhattan Associates (India) Development Centre (112 taxmann.com 200) and the judgment of the Hon'ble Supreme Court in the case of Chrestien Mica Industries Ltd. vs. State of Bihar [1961] 12 STC 150. 18.1 The assessee also cited the judgment of the Hon'ble Karnataka....
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....article/thing. The scope of operations of the assessee can not be expanded artificially expanded to include services. Supreme court constitutional bench) in the case of Dilip Kumar &Co (95 Taxman.com 327) held that tax exemptions/clauses/provisions have to be read strictly and in case of ambiguity it must be interpreted in favour of revenue. Considering the above the contentions of the assessee with regard to production of product is rejected. The legislative intent is very clear to provide the incentive for specified industries producing article or thing in factory/business premises using plant/machinery. That is the reason why plant/machinery installed office/residential premises are not made eligible. In sections like 10A/10AA/10B etc, specific mention is made for computer services so as to allow deduction for assesses engaged in IT sector. Non-inclusion of computer services or other services clearly shows the legislative intent not to include them in the amobit of Sec. 32. The case laws mentioned by the assessee do not cover the facts of the case. In the case of CIT vs. Oracle software India (2010T1OL-04-SC-IT), The Court in the context of Sec. 801A stated that produci....
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....ates to investment allowance and Statronics case relates to the location of Plant/machinery whether in office premises or not.ln all these cases, the decisions of the courts are based on a concurrent finding that there was processing of goods in as much as the inputs and amounts to manufacturing or production of article or thing as envisaged in provisions relating to investment allowance. Probably, in the backdrop of these decision, a definition of 'manufacture' came to be inserted in the Act in section 2(29BA) through Finance Act, 2009. These decisions cannot be applied to the appellant's case, as there are no inputs nor there was any processing of goods. In fact the appellant offered software development as a service and had shown revenue there from in the account. In so far as section 32(1)(iia) is concerned, it covers the assesses who are engaged in manufacture or production of article or thing only. Provision of services for development of software has been kept out of purview of section 32(1)(iia). Therefore, assessee providing software development services is not eligible for additional depreciation. For the detailed discussion above, it is held that sof....
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....gument that computers used in the development of software are part of plant and machinery is substantiated by the fact that the Income Tax Rules categorize computers and computer software within the block of plant and machinery, eligible for depreciation at a higher rate. This indicates that computers software, despite being intangible in terms of output, play a crucial role as plant and machinery in the production process. 21.4 Given that the assessee is engaged in the production of an article or thing (software), the computers used in the production of such software can be treated as plant and machinery under the provisions of Section 32(1)(iia) of the Act. Therefore, the claim for additional depreciation on the computers used in the production of software is in line with the provisions of the Act. 21.5 In light of the above, we hereby reverse the findings of the learned CIT(A) and allow the assessee's claim for additional depreciation under Section 32(1)(iia) of the Act. 22. The next issue raised by the assessee vide ground No. 15 is that the learned CIT(A) erred in confirming the disallowances of maintenance charges for Rs. 27,71,000/- by treating prior period item....
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....ar's business, and are often found when errors are discovered or when payments are made after the relevant accounting period. The provisions of Section 37(1) of the Income Tax Act allow the deductions for any expenditure (not being capital expenditure or personal expenditure) that is incurred wholly and exclusively for the purposes of business or profession. Prior period expenses are generally deductible under this provision, provided they meet the following conditions: * The Expense Must Relate to the Business: It must be a legitimate business expense incurred in the prior period that is subsequently recognized in the current period. * Accrual Basis of Accounting: The expense should have been incurred in the prior period under the accrual accounting method but recognized and paid in the current period. * Adjustment in Books: The accounting treatment of prior period expenses should be appropriately reflected in the books of account for the current period. For instance, adjustments for such expenses should be made through prior period adjustments in the financial statements. * Disclosure Requirements: The prior period expenses should be separately....
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....facts and granted relief to the assessee and more importantly that for the earlier assessment years i.e. 2005-06, 2009-10, the revenue has accepted the orders passed by the Commissioner (Appeals). Though the appeal was filed before the Tribunal for the assessment years 2010-11 and 2011-12, the same were dismissed. Thus, a consistent view is required to be adopted in the absence of any material placed by the revenue before the required Tribunal to show that there was any distinguishing feature in the assessment year under consideration to make a departure from the earlier view. [Para 4] 28.2 Now turning to the facts of the present case, we note that the debit note was raised by the party dated 12 September 2011 for the impugned expenses pertaining to the period from 1st April 2010 to 31 March 2011 which is placed on page 587 of the paper book. Thus, it is transpired that the liability to expenses in dispute were crystalised in the year under consideration and therefore the same was claimed as deduction in the current year. 28.3 The 2nd controversy arises whether such expenses were incurred for the purpose of the business and the same were not capital in nature. In this regard,....
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....n case of the assessee for A.Y. 2010-11 bearing IT(TP)A No. 608/Bang/2016 dated 02-12-2022. The relevant finding of the Tribunal is extracted as under: The Ld.Counsel submitted that assessee had disallowed Rs.2,23,20,919/- against exempt income earned being Rs.3,63,96,471/- u/s. 14A of the Act. He submitted that during the year under consideration, the investments made by assessee were only fixed. He submitted that assessee is not into buying and selling of shares / investments but is carrying on software development businesses. The Ld.Counsel submitted that assessee has computed disallowance at Rs. 36,01,783/- as under: *********** 12. The Ld.Counsel submitted that the entire investments cannot be taken into consideration for disallowance under Rule 8D(2)(iii) at 0.5%. The Ld.DR on the contrary relied on the orders passed by the authorities below. We note that on identical issue, the Coordinate Bench of this Tribunal in assessee's own case observed for Assessment Year 2008-09(supra) as under: "9.1 We heard the parties on this issue. The Ld A.R invited our attention to page 521 of the paper book, wherein the details of investments are given. He s....
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....ing out any distinguishing feature in the facts of the case of earlier AY and the year under consideration. Thus, respectfully following the order of the Tribunal in the own case of the assessee as discussed above, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the disallowance made by him. Hence, the ground of appeal of the assessee is hereby allowed. 36. The next issue raised by the assessee is that the learned CIT-A erred in considering certain comparables while calculating the ALP of the international transaction carried out by the assessee with its associated enterprise. 37. The necessary facts are that the assessee company, during the year, is engaged in various types of international transactions with associated enterprises. For transfer pricing purposes, the assessee categorized these transactions into two distinct segments: the Software Development Segment and the ITES Segment. 37.1 Under the Software Development Segment, the assessee reported operating revenue of Rs. 1,600,47,03,775/- and operating costs of Rs. 1,374,06,84,618/-, resulting in an Operating Profit to Operating Cost (OP/OC) ratio of 16.48% only. 37.2 Similarly, ....
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....(BPO) 6,17,67,000 3,87,49,000 52.46 3 Informed Technologies India Ltd. 1,96,36,431 1,82,45,770 6.08 4 Infosys B P O Ltd. 1316,75,11,974 962,91,06,964 36.30 5 Jindal Intellicom Ltd. 30,27,51,875 30,29,02,990 -0.05 6 Microgenetic Systems Ltd. 1,29,93,217 1,08,63,390 19.61 7 TCS E-Serve Ltd. 15,78,44,000 9,64,28,000 63.69 8 B N R Udyog Ltd.(Seg)(Medical Transcription) 1,47,04,000 97,87,000 50.61 9 Excel Infoways Ltd.(Seg)(IT/BVPO) 790,96,95,000 559,06,04,000 29.79 10 e4e Healthcare Services Pvt Limited 89,50,04,209 74,59,23,078 19.85 Average PLI 28.11% 38.7 The TPO further made an adjustment on account of working capital and recalculated the arm's length margin for OP/OC at 28.48%, as compared to the margin declared by the assessee at 12.94%. Consequently, the TPO determined an upward adjustment of Rs. 18,19,55,070/- only. 39. The aggrieved assessee filed an appeal before the CIT(A), and among other contentions, objected to the comparability of the new set of comparable companies selected by the TPO. 40. The l....
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....he authorities below. 43. Both the ld. AR and the DR before us vehemently supported the order of the authorities below as favourable to them. 44. We have heard the rival contentions of both parties and perused the materials available on record. It is an admitted fact that the assessee's TP study for the ITES Segment was rejected by the TPO, who conducted fresh benchmarking after selecting a new set of comparable companies. On subsequent appeal, the learned CIT(A) partly allowed the appeal of the assessee by excluding certain companies selected by the TPO on the grounds of failing comparability criteria. 44.1 The first issue for our consideration is whether companies with a turnover exceeding Rs. 200 crores should be excluded when calculating the ALP for the assessee, given the fact that the assessee's turnover under the ITES Segment is only Rs. 132.28 crores. In this context, it is relevant to refer to the order of the Tribunal in the case of Autodesk India Private Limited, reported in 96 taxmann.com 263, wherein it was held as follows: 17.7 We have considered the rival submissions. The substantial question of law (Question No. 1 to 3) which was framed by ....
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.... in the case of Willis Processing Services (supra) and Capegemini India (P.) Ltd. (supra) are to be regarded as per incurium as these decisions ignore a binding co-ordinate bench decision. In this regard the decisions referred to by the learned counsel for the Assessee supports the plea of the learned counsel for the Assessee. The decisions rendered in the case of NTT Data (supra), Societe Generale Global Solutions (supra) and LSI Technologies (supra) were rendered later in point of time. Those decisions follow the ratio laid down in Willis Processing Services (supra) and have to be regarded as per incurium. These three decisions also place reliance on the decision of the Hon'ble Delhi High Court in the case of Chriscapital Investment (supra). We have already held that the decision rendered in the case of Chriscapital Investment (supra) is obiter dicta and that the ratio decidendi laid down by the Hon'ble Bombay High Court in the case of Pentair (supra) which is favourable to the Assessee has to be followed. Therefore, the decisions cited by the learned DR before us cannot be the basis to hold that high turnover is not relevant criteria for deciding on comparability of comp....
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....the purpose of determining the ALP. 46.7 The next contention raised by the learned AR pertains to the inclusion of Cameo Corporate Services Ltd. as a comparable. According to the learned AR, the company was excluded from the set of comparables by the TPO on the ground that its current year data was not available in the public domain at the time of assessment. However, we find that the current year data was available before the ld. CIT-A as evident from the finding of the ld. CIT-A in his order but the same was not accepted. The learned AR has submitted that the current year data is available and has further argued that the functions performed by the impugned company are identical to those of the assessee. 46.8 In light of the above submission, we find merit in the argument of the learned AR that exclusion on account of non-availability of data is no longer valid if the requisite data is now accessible. However, since the functional similarity and other comparability criteria require verification, we remand the matter to the AO/TPO for necessary verification. If, upon examination, the functions of Cameo Corporate Services Ltd. are found to be similar to those of the assessee, ....
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....itional ground of appeal is that it has paid the corporate dividend tax at a rate higher than the rate specified under DTAA. Accordingly, the learned AR before us contended that the assessee should be granted the refund of excess corporate dividend tax paid by it. The learned AR further submitted that in this regard, a direction can be issued to the AO for necessary adjudication as per the provisions of law. On the other hand, the ld. DR did not raise any serious objection if the issue is set aside to the file of the AO for necessary verification and fresh adjudication as per the provisions of law. After hearing both the parties, in the interest of justice and fair play, we direct the AO to charge the tax on the dividend declared by the assessee in pursuance to the provisions of the Act. Accordingly, we set aside the issue to the file of the AO for fresh adjudication as per the provisions of law. Hence the additional ground raised by the assessee is allowed for statistical purposes. 47.2 The assessee in the 2nd additional ground of appeal requested to allow the deduction for the education cess, and higher and secondary education cess while computing the income under normal compu....