Income Tax Appellate Tribunal - Bangalore
Sasken Communication Technologies ... vs Assessee on 7 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCH 'C'
BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND
SHRI JASON P. BOAZ, ACCOUNTANT MEMBER
ITA No. & Appellant Respondent
Assessment Year
1645/Bang/2012 M/s. Sasken Communication Dy. Commissioner of Income Tax,
2006-07 Technologies Ltd., Circle 12(3), Bangalore.
No.139/25, Amarjyothi Layout,
Ring Road, Domlur,
Bangalore-560 071
PAN AAECS 6424R
1646/Bang/2012 M/s. Sasken Communication Dy. Commissioner of Income Tax,
2008-09 Technologies Ltd., Bangalore. Circle 12(3), Bangalore.
176/Bang/2013 Dy. Commissioner of Income Tax, M/s. Sasken Communication
2004-05 Circle 12(3), Bangalore. Technologies Ltd., Bangalore.
C.O. No. M/s. Sasken Communication Dy. Commissioner of Income Tax,
72/Bang/2013 Technologies Ltd., Bangalore. Circle 12(3), Bangalore.
(In ITA No.
176/Bang/2013)
2004-05
177/Bang/2013 Dy. Commissioner of Income Tax, M/s. Sasken Communication
2006-07 Circle 12(3), Bangalore. Technologies Ltd., Bangalore.
178/Bang/2013 Dy. Commissioner of Income Tax, M/s. Sasken Communication
2008-09 Circle 12(3), Bangalore. Technologies Ltd., Bangalore.
Appellant By : Shri H.N. Khincha.
Respondent By : Smt. Priscilla Singsit.
Date of Hearing : 7.8.2013.
Date of Pronouncement : 11.10.2013.
O R D E R
Per Bench :
These are cross appeals and a cross objection preferred by both the assessee and revenue in respect of the orders of the Commissioner of Income Tax (Appeals)-III, Bangalore 2 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
for Assessment Years 2004-05, 2006-07 and 2008-09 all dt.21.9.2012. Since these appeals are connected, they were posted and heard together and are being disposed off by way of this combined order.
Assessment Year 2004-05 Revenue's appeal in ITA No.176/Bang/2013 & Assessee's C.O. No.72/Bang/2013.
2. We will first take up revenue's appeal and the assessee's cross objection for Assessment Year 2004-05.
3. The facts of the case, in brief, for Assessment Year 2004-05 are as under :
3.1 The assessee, is a company engaged in the business of development and export of computers. For Assessment Year 2004-05, the return of income was filed on 31.10.2004 declaring NIL income after claiming deduction under section 10A of the Income Tax Act, 1961 (herein after referred to as 'the Act') and setting of unabsorbed depreciation of earlier years.
During the year under consideration, the assessee operated two STPI units; one at Bangalore, the operations of which resulted in profits and the second unit at Pune whose operations resulted in losses. The assessee claimed deduction under section 10A of the Act in respect of the Bangalore unit without setting off the losses of the Pune unit and the unabsorbed depreciation relating to Assessment Year 2002-03 and 2003-04. The losses of the Pune unit and the unabsorbed depreciation relating to Assessment Year 2002-03 and 2003-04 was set off against the remaining business income of the Bangalore unit after claiming deduction under section 10A of the Act and against income from other sources. The assessment was completed by an order under section 143(3) of the Act dt.26.12.2006, wherein the Assessing Officer 3 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
computed the deduction under section 10A of the Act of the Bangalore unit before setting off the losses of the Pune unit and unabsorbed depreciation. The deduction so computed was, however, allowed from the profits of the Bangalore unit after setting off the losses of the Pune unit and the unabsorbed depreciation of Assessment Year's 2002-03 and 2003-04 and the assessee was not allowed to carry forward the unabsorbed depreciation of Assessment Year 2003-04.
3.2 Aggrieved by the order of assessment for Assessment Year 2004-05 dt.26.12.2006, the assessee filed an appeal before the CIT(Appeals)-III, Bangalore. The learned CIT(Appeals) disposed off the assessee's appeal by order dt.21.9.2012 allowing the assessee partial relief. In this order, the learned CIT(Appeals) following the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Yokogawa India Ltd. (341 ITR 385) held that the unabsorbed depreciation of the Pune unit should not be set off against the profits of the Bangalore unit while allowing deduction under section 10A of the Act. In respect of reduction of travelling expenses from export turnover, the learned CIT(Appeals) upheld the action of the Assessing Officer. He, however, directed the Assessing Officer to reduce the said expenditure from total turnover also, in accordance with the decision of the Hon'ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd. (349 ITR 98). In respect of the disallowance of software expenses, the learned CIT(Appeals) held that for software expenses having a license period of up to one year, such expenses are to be fully allowed as a deduction. The learned CIT(Appeals) held that software payments having a license validity of over 12 months and up to 24 months are capital in nature. 4
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
In respect of disallowance of brokerage charges, the learned CIT(Appeals) held that the said expenditure was fully allowable.
4.0 Aggrieved by the order of the CIT(Appeals)-III, Bangalore dt.21.9.2012 for Assessment Year 2004-05, revenue is in appeal before us (ITA No.176/Bang/2012) raising the following grounds :
" 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to obtain the details of the license fees paid and allow 100% deduction in respect of those license fee payments which have an annual validity and the license having a validity of over 12 months and upto 24 months to capitalize the same and allow appropriate depreciation on it. The learned CIT (Appeals) has erred in giving the above direction in view of the specific provisions in the Act and Rules with regard to treatment of computer software as forming part of computer for the purpose of allowing depreciation.
3. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer that no adjustment can be done from the profits pertaining to section 10A which is an insulated and stand alone deduction, by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Yokogawa India Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.
4. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the A.O. to allow deduction towards purchase of software as revenue expenditure without appreciating the fact that computer software forms part of computers for the purpose of allowing depreciation under section 32 read with IT Rules 1962 and therefore, the expenditure incurred on purchase of computer software / license to use computer software, either for one year or for more than one year cannot be allowed as revenue expenditure.
5. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law holding that reimbursement of expenditure towards travel expenses incurred in foreign currency are to be excluded from total turnover as well whereas such exclusion is permitted to arrive at the export turnover only as per the definition given in section 10A of the IT Act and total turnover has not been defined in section 10A of the Act.
6. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to compute deduction u/s.10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the 5 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
case of M/s. Tata Elxsi Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.
7. For these and other grounds that maybe urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
8. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."
5.0 The assessee has also filed cross objections (C.O. No.72/Bang/2013) against this order of the CIT(Appeals)-III, Bangalore which are as under :
" 1. The learned CIT (Appeals) -III, Bangalore has erred in concluding that software charges having license period of over 12 months and upto 24 months is capital in nature and not eligible for deduction.
2. The learned CIT (Appeals) = III, Bangalore has erred in concluding that travelling expenses amounting to Rs.3,23,31,955 is to be reduced from export turnover in computing deduction under section 10A.
3. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order of the learned CIT (Appeals)-III, Bangalore be quashed in so far it is prejudicial to appellant.
Or in the alternative,
i) software charges having license period of over 12 months and upto 24 months be held as revenue expenditure and deduction be allowed in respect of the same.
b) travelling expenses amounting to Rs.3,23,31,955 be not reduced from export turnover in computing deduction under section 10A."
6.0 Grounds No.1, 7 and 8 of Revenue's appeal are general in nature and not being urged before us, no adjudication is called for thereon.
7.0 Allowability of Software Expenses 7.1 Grounds No.2 and 4 of Revenue's appeal and Ground No.1 of assessee's C.O. deal with the issue of allowability of software expenses. The learned Departmental Representative submitted that software expenses have to be considered as capital expenditure irrespective of the duration of the license period. In respect of the issues decided by the learned CIT(Appeals) in favour of the assessee following the decision of the Hon'ble High Court of Karnataka in the case 6 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
of Yokogawa India Ltd. (supra) and Tata Elxsi Ltd. (supra), the learned Departmental Representative submitted that these issues have not attained finality as the Department's appeal against these decisions are pending before the Hon'ble Apex Court. 7.2.1 Per contra, the learned Authorised Representative contends that the grounds raised by revenue are covered in favour of the assessee in view of the decisions of the Hon'ble High Court of Karnataka in the case of Yokogawa India Ltd. (supra), Tata Elxsi Ltd. (supra) and CIT Vs. Toyota Kirloskar Motor P. Ltd. (2012) 349 ITR 65 (Kar), etc. 7.2.2 In support of the grounds raised in the Cross Objections, the learned Authorised Representative submitted that software expenses with license period up to 2 years is revenue in nature and relied on the following decisions in support of the above contention :
(i) CIT Vs. Toyota Kirloskar Motor P. Ltd. (2012) 349 ITR 65 (Kar), and
(ii) CIT Vs. IBM India Ltd. (unreported decision of Karnataka High Court) dt.10.4.2013.
In support of the assessee's contention that travelling expenses should not be reduced from export turnover in computing deduction under section 10A of the Act the learned Authorised Representative placed reliance on the decisions in the following cases :
(i) Zylog Systems Ltd. Vs. ITO (2010) 7 ITR (AT) 348 (Chennai SB)
(ii) Patai Telecom P. Ltd. Vs. ITO (2008) 308 ITR (AT) 414 (Hyd).
(iii) DCIT Vs. Tech Mahindra Ltd. (2011) 5 Tax Corp 24882 (Bang).
The learned Authorised Representative prayed that revenue's appeal be dismissed and the assessee's cross objections be allowed.
7
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
7.3.1 We have heard both parties and perused and carefully considered the material on record including the judicial decisions cited. This issue, of the allowability of software expenses, have been decided by the Hon'ble High Court of Karnataka in the case of Toyota Kirloskar Motor P. Ltd. (supra) wherein it was held as under :
" As rightly pointed out by the authorities, when the life of a computer or software is less than two years and as such, the right to use it is for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licenced for a particular period, for utilizing the same for the subsequent years fresh licence fee is to be paid. Therefore, without renewing the licence or without paying the fee on such renewal, it is not possible to use those softwares. In those circumstances, the findings recorded by the authorities that the fee paid for obtaining the software and the licence and for renewing the same is to be construed as only revenue expenditure do not call for interference by this court."
7.3.2 In CIT V IBM India Ltd. (ITA No.130/2007 dt.10.4.2013), the substantial question of law before the Hon'ble Jurisdictional High Court on this issue was as under :
"ii) Whether the Tribunal was correct in holding that the purchase of software amounting to Rs.33,14,298 should be allowed as revenue expenditure without recording a finding as to the nature of the purchase, its durability and its application before deciding the issue?"
In respect of the above question of law, the Hon'ble Jurisdictional High Court at para 9 on pages 10 to 13 of its order held as under :
" The Tribunal on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of company's working expenses or is it expenditure laid out as a part of process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of 8 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be lifted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and hence to be treated as revenue expenditure. In fact, this Court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for utilizing the same for the subsequent years fresh license fee is to be paid. Therefore, when the software is fitted to a computer system to work, it enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Though certain application is an enduring benefit, it does not result into acquisition of any capital asset. It merely enhances the productivity or efficiency and therefore, it has to be treated as revenue expenditure. In that view of the matter, the finding recorded by the Tribunal is in accordance with law and do not call for any interference. Accordingly, the second substantial question of law is answered in favour of the assessee and against the Revenue."
7.3.3 In the case on hand, the Assessing Officer disallowed the software expenses for the reason that the said expenditure resulted in an enduring benefit to the assessee. The learned CIT(Appeals) was of the view that software expenses having license validity period of one year alone are allowable as a deduction. He held that software expenses having license period of one to two years are capital in nature, and in this regard directed the Assessing Officer to allow depreciation thereon and to recompute the disallowance accordingly. The Hon'ble Karnataka High Court in CIT V Toyota Kirloskar Motor P. Ltd. (2012) 349 ITR 65 and in CIT V IBM India Ltd. in ITA No.130/2007 dt.10.4.2013 have held that software expenses with license period upto 2 years is revenue in nature and fully allowable as a deduction. In this view of 9 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
the matter, the finding of the learned CIT(Appeals) that software expenses having a license period over 12 months and upto 2 years is capital in nature is not correct and we therefore direct the Assessing Officer to allow the deduction in respect of software expenses having license period upto 2 years after considering and verifying the details furnished by the assessee before the learned CIT(Appeals) in respect of duration of software licenses. Grounds Nos.2 and 4 raised by revenue in ITA No.176/Bang/2013 are therefore dismissed and Ground No.1 of the assessee's C.O. is allowed.
Deduction under section 10A of the Act 8.0 Ground No.3 of Revenue's appeal for Assessment Year 2004-05 challenge the directions of the learned CIT(Appeals) to allow deduction under section 10A of the Act in respect of profit of STPI unit at Bangalore before setting off the losses of the Pune Unit and the unabsorbed depreciation of earlier years following the decision of the Hon'ble Karnataka High Court in the case of CIT V Yokogawa India Ltd. (341 ITR 385). Revenue has challenged the learned CIT(Appeals)'s finding and direction before us for the reason that the impugned issue has not attained finality since the SLP filed by the Department against the above decision in the case of Yokogawa India Ltd. (supra) is pending before the Hon'ble Apex Court. However, the decision of the Jurisdictional High Court is binding on us and we follow the same. In the case of CIT V Yokogawa India Ltd. (supra), the Hon'ble High Court of Karnataka has categorically held that income eligible for deduction under section 10A of the Act is to be allowed as a deduction there under, before setting off losses of other units, brought forward losses and unabsorbed depreciation. Even the Assessing Officer in the case on hand computed the deduction under 10 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
section 10A in respect of the profits of the STPI unit at Bangalore before setting off the losses of the Pune Unit and the unabsorbed depreciation. However, the deduction so computed was allowed only from the income remaining after setting off the losses of the Pune Unit and the unabsorbed depreciation. This is not in accordance with the decision of the Hon'ble High Court in the case of Yokogawa India Ltd. (supra) which provides that the deduction. 10A has to be allowed before arriving at the Gross Total Income of the assessee. In this view of the matter, the learned CIT(Appeals) was justified in directing the Assessing Officer to allow deduction under section 10A of the Act in respect of profits of the STPI unit at Bangalore without setting off losses of Pune Unit and unabsorbed depreciation of earlier years. We, accordingly dismiss the ground raised at S.No.3 raised by revenue for Assessment Year 2004-05. 9.0 Grounds raised by Revenue at S.Nos.5 and 6 for Assessment Year 2004-05 challenge the order of the learned CIT(Appeals) in directing the Assessing Officer to reduce travelling expenses form both export turnover and total turnover in computing the deduction under section 10A of the Act following the decision of the Hon'ble Karnataka High Court in the case of CIT V Tata Elxsi Ltd. reported in 349 ITR 98. We find no fault in the above finding of the learned CIT(Appeals) in view of the aforesaid decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. (supra) in which it was held that expenses reduced form export turnover should also be reduced from total turnover in computing the deduction under section 10A of the Act. Consequently, we dismiss grounds Nos.5 & 6 raised by revenue for Assessment Year 2004-05.
11
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
10. In the result, revenue's appeal in ITA No.176/Bang/2012 for Assessment Year 2004-05 is dismissed.
Assessee's C.O. No.72/Bang/2012 (Assessment Year 2004-05)
11. Ground No.1 of the assessee's cross objections has already been considered and adjudicated upon by us at paras 6.5 to 6.5.3 of this order (supra) wherein this ground has been allowed in favour of the assessee.
12. In the ground No.2 of the assessee's C.O. for Assessment Year 2004-05, it has been contended that travelling expenses amounting to Rs.3,23,31,955 should not be reduced from export turnover at all in computing the deduction under section 10A of the Act. We have heard the rival contentions in this regard. The learned CIT(Appeals) having accepted the alternate plea of the assessee that travelling expenses should be reduced from both export turnover as well as total turnover and since revenue's appeal against the order of the learned CIT(Appeals) having been considered and dismissed by us in ITA No.176/Bang/2013 (supra), we are of the opinion that the assessee's plea raised in this ground need not be adjudicated upon as the assessee's grievance has already been addressed. In the result, Ground No.2 of the assessee's C.O. for Assessment Year 2004-05 is dismissed.
13. Ground No.3 of the assessee's C.O. for Assessment Year 2004-05 is the prayer of the assessee and no separate adjudication is called for thereon.
14. In the result, the assessee's C.O. No.72/Bang/2013 is partly allowed. ITA No.177/Bang/2013 - Revenue's appeal for Assessment Year 2006-07 12
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
15. Revenue is aggrieved by the order of the CIT(A)-III, Bangalore dt.21.9.2012 for Asst. Year 2006-07 and has filed an appeal in which the grounds raised by revenue in this appeal are as under :
" 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to obtain the details of the license fees paid and allow 100% deduction in respect of those license fee payments which have an annual validity and the license having a validity of over 12 months and upto 24 months to capitalize the same and allow appropriate depreciation on it. The learned CIT (Appeals) has erred in giving the above direction in view of the specific provisions in the Act and Rules with regard to treatment of computer software as forming part of computer for the purpose of allowing depreciation.
3. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the A.O. to allow deduction towards purchase of software as revenue expenditure without appreciating the fact that computer software forms part of computers for the purpose of allowing depreciation under section 32 read with IT Rules 1962 and therefore, the expenditure incurred on purchase of computer software / license to use computer software, either for one year or for more than one year cannot be allowed as revenue expenditure.
4. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to allow deduction u/s. 10A in respect profits of Bangalore and Chennai units without adjusting the loss of Pune STPI unit, by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Yokogawa India Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.
5. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law holding that reimbursement of expenditure of Rs.36,57,76,582 towards salary and travel expenses incurred in foreign currency are to be excluded from total turnover as well whereas such exclusion is permitted to arrive at the export turnover only as per the definition given in section 10A of the IT Act and total turnover has not been defined in section 10A of the Act.
6. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to compute deduction u/s.10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Tata Elxsi Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.13
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
6. For these and other grounds that maybe urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.
8. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."ITA No.1645/Bang/2012 - Assessee's appeal for Assessment Year 2006-07
16. The assessee has also filed an appeal against the order of the CIT(A)-III, Bangalore dt.21.9.2012 for A.Y. 2006-07 in which the grounds raised are as under :
" 1.1 The order passed by the learned CIT (Appeals) - III, Bangalore in so far it is prejudicial to the appellant I bad in law and liable to be quashed. 2.1 The learned CIT (Appeals) - III, Bangalore has erred in concluding that expenditure incurred in foreign currency towards (a) payment of salary amounting to Rs.34,07,89,280 and (b) travelling expenses amounting to Rs.2,49,87,302 is to be reduced from export turnover in computing deduction under section 10A. 3.1 The learned CIT (Appeals), Bangalore has erred in concluding that software charges having license period of over 12 months and upto 24 months is capital in nature and not eligible for deduction.
4.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order of the learned CIT (Appeals) - III, Bangalore be quashed in so far it is prejudicial to the appellant.
Or in the alternative
(i) expenditure incurred in foreign currency towards (a0 payment of salary amounting to Rs.34,07,89,280 and (b) travelling expenses amounting o Rs.2,49,87,302 be not reduced from export turnover in computing deduction. 10A.
(ii) software charges having license period of over 12 months and upto 24 months be held as revenue expenditure and deduction be allowed in respect of the same."
17. The grounds raised by revenue at S.Nos.1, 7 & 8 for Asst. Year 2006-07 being general in nature, no adjudication is called for thereon.
18. The Ground Nos.2 & 3 of revenue's appeal for A.Y. 2006-07 are in respect of the allowability of software expenses as a deduction. While considering and adjudicating the identical issue for A.Y. 2004-05 following the decisions of the Hon'ble jurisdictional High Court 14 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
in the case of CIT V Toyota Kirloskar Motor P. Ltd. (2012) 349 ITR 65 (Kar) and CIT V IBM India Ltd. In ITA No.130/2007 dt.10.4.2013, we have held that software expenses having license period of upto 2 years is fully allowable as deduction at para 7.1 to 7.3.3 of this order (supra). Following the same, we direct the A.O. to allow deduction of software expenses having license upto a period of two years after verifying the details submitted by the assessee before the learned CIT(A) on this issue. Consequently, ground Nos.2 and 3 of revenue's appeal for Asst. Year 2006-07 are dismissed whereas Ground No.3.1 of the assessee's appeal for Asst. Year 2006-07 is allowed.
19. Ground No.4 of Revenue's appeal for Asst. Year 2006-07 challenges the finding of the learned CIT(A) that deduction u/s.10A of the Act is to be computed and allowed in respect of profits of STPI units without setting off the losses of the Pune Unit and unabsorbed depreciation. The learned CIT(A) decided the issue in favour of the assessee following the decision of the Hon'ble Karnataka High Court in the case of CIT V Yokogawa India Ltd., reported in 341 ITR 385. We have also respectfully followed the aforesaid decision of the Hon'ble Karnataka High Court while adjudicating the identical issue in favour of the assessee for Asst. Year 2004-05 at para 8 of this order (supra). Following the same, we hold that the deduction u/s.10A of the Act is to be computed and allowed in respect of profits of STPI units before setting off the loss of the Pune Unit and unabsorbed depreciation. Consequently, we dismiss Ground No.4 raised by revenue for A.Y. 2006-07.
20. Ground Nos.5 & 6 of Revenue's appeal for Asst. Year 2006-07 challenge the decision of the learned CIT(A) that expenses reduced from export turnover should also be reduced from 15 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
total turnover while computing the deduction u/s.10A of the Act. This decision of the learned CIT(A) was rendered on the basis of the decision of the Hon'ble Karnataka High Court in the case of Tata Elxsi Ltd. Reported in 349 ITR 98. We have also respectfully followed the aforesaid decision of the Hon'ble High Court of Karnataka while deciding an identical issue in favour of the assessee for Asst. Year 2004-05 at para 9 of this order (supra). Following the same, we hold that expenses reduced from export turnover should also be reduced from total turnover in computing the deduction u/s.10A of the Act. Consequently the grounds raised by revenue at S.Nos.5 & 6 are dismissed.
21. In the result, Revenue's appeal for Assessment Year 2006-07 is dismissed. ITA No.1645/Bang/2012 - Assessee's appeal for Asst. Year 2006-07
22. The grounds raised by the assessee at S.Nos.1.1 & 4.1 being general in nature, no separate adjudication is called for thereon.
23. In the ground raised at S.No.2.1, the assessee contends that expenditure incurred in foreign exchange should not be reduced from export turnover in computing deduction u/s.10A of the Act. In deciding an identical issue for Asst. Year 2004-05, we have held, at para 12 of this order (supra), that since the alternate plea of reduction of expenses from both export turnover is accepted and revenue's appeal against the same is dismissed, the assessee's contention that foreign currency expenses should not be reduced from export turnover while computing the deduction u/s.10A of the Act need not be adjudicated, as the assessee's grievance has already 16 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
been addressed. Following the same, there is no need for adjudication on ground No.2.1 of the assessee's appeal and the same is accordingly dismissed.
24. The ground raised at S.No.3.1 by the assessee for Asst. Year 2006-07 has already been considered and allowed by us at para 18 of this order (supra).
25. In the result, the assessee's appeal for Asst. Year 2006-07in ITA No.1645/Bang/2012is partly allowed.
ITA No.178/Bang/2013 - Revenue's appeal for Assessment Year 2008-09
26. Aggrieved by the order of the CIT(A)-III, Bangalore dt.21.9.2012 for Asst.Year 2008- 09, revenue is before us in appeal raising the following grounds :
" 1. The order of the learned CIT (Appeals) is opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to allow deduction u/s. 10A in respect profits of Bangalore and Chennai units without adjusting the loss of Pune STPI unit, by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Yokogawa India Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.
3. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in law holding that reimbursement of expenditure of Rs.69,72,062 towards freight, telecommunication charges & insurance expenses incurred in foreign currency are to be excluded from total turnover as well whereas such exclusion is permitted to arrive at the export turnover only as per the definition given in section 10A of the IT Act and total turnover has not been defined in section 10A of the Act.
4. On the facts and in the circumstances of the case the learned CIT (Appeals) erred in directing the Assessing Officer to compute deduction u/s.10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s. Tata Elxsi Ltd., which has been contested by the Department by way of filing SLP before the Hon'ble Supreme Court, which is pending for adjudication.
5. For these and other grounds that maybe urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.17
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
6. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above."
27. The Grounds raised by revenue at S.Nos.1, 5 & 6, for Asst. Year 2008-09 being general in nature, no adjudication is called for thereon.
28. The Ground No.2 of revenue's appeal for Asst. Year 2008-09 challenges the decision of the learned CIT(A)that deduction u/s.10A of the Act is to be computed and allowed in respect of profits of STPI units without setting off the losses of Pune Unit and unabsorbed depreciation. The learned CIT(A) decided this issue in favour of the assessee following the decision of the Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra). We have also respectfully followed the above decision of the Hon'ble Karnataka High Court which deciding an identical issue in favour of the assessee for A.Y. 2004-05, (at para 8 of this order). Following the same, we hold that deduction u/s.10A of the Act is to be computed and allowed in respect of STPI units before setting off losses of the Pune Unit. Consequently, Ground No.2 of revenue's appeal for Asst. Year 2008-09 is dismissed.
29. The Grounds raised at S.Nos.3 and 4 of revenue's appeal for Asst. Year 2008-09 challenge the decision of the learned CIT(A) that expenses reduced from export turnover should also be reduced from total turnover in computing the deduction/s.10A of the Act. In doing so, the learned CIT(A) followed the decision of the jurisdictional High Court in the case of Tata Elxsi Ltd. (supra). We have also followed the aforesaid decision while deciding an identical issue in favour of the assessee for A.Y. 2004-05 (at para 8 of this order) and Asst. Year 2006- 07 (at para 19 of this order). Following the same, we hold that expenses reduced from export 18 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
turnover should also be reduced from total turnover while computing the deduction u/s.10A of the Act. Consequently, Ground Nos.3 &4 of revenue's appeal for Asst. Year 2008-09 are dismissed.
30. In the result revenue's appeal for Asst. Year 2008-09 is dismissed. ITA No.1646/Bang/2012 - Assessee's appeal for Asst. Year 2008-09
31. Aggrieved by the order of the CIT(A)-III, Bangalore for A.Y.2008-09 dt.21.9.2012, the assessee is before us in appeal raising the following grounds :
" 1.1 The order passed by the learned CIT (Appeals) -III, Bangalore in so far it is prejudicial to the appellant is bad in law and liable to be quashed. 2.1 The learned CIT (Appeals) = III, Bangalore has erred in concluding that expenditure incurred in foreign currency totally amounting to Rs.69,67,62,000 is to be reduced from export turnover in computing deduction under section 10A. The actual amount of foreign currency expenditure amounts to only Rs.64,6,80,000. 2.2 The learned Assessing Officer has erred in considering the foreign currency expenses at Rs.69,72,62,000 instead of the correct figure ofRs.64,66,80,000. 2.4 On facts and circumstances of the case and law applicable, foreigncurrency expenditure amounting to Rs.64,66,80,000 should not be reduced from export turnover in computing deduction under section 10A.
..............
..............
returned. The learned Assessing Officer has erred in not considering the rectification application filed by the appellant in this connection. 4.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order of the learned CIT (Appeals)-III, Bangalore be quashed in so far it is prejudicial to appellant.
Or in the alternative,
a) expenditure incurred in foreign currency totally amounting to Rs.64,66,80,000 be not reduced from export turnover in computing deduction under section 10A.
b) the Assessing Officer be directed to rectify the errors / mistakes and deduction under section 10A be properly computed and allowed."19
ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
32. The Grounds raised at S.Nos.1 1 and 4.1 of the assessee's appeal for A.Y. 2008-09 are general in nature and therefore no adjudication is called for thereon. 33.1 In the Grounds raised at S.Nos.2.1 to 2.2, the assessee contends that expenditures incurred in foreign currency should not be reduced from export turnover while computing the deduction u/s.10A of the Act. In deciding an identical issue for A.Y. 2004-05 and 2006-07, we have held (supra) that since the alternate plea of reduction of expenses both from export turnover and total turnover is accepted and revenue's appeals against the same being dismissed, no adjudication is called for on the assessee's plea that foreign currency expenditure should not be reduced from export turnover while computing the deduction u/s.10A of the Act. Following the same, Ground Nos.2.1 and 2.3 of the assessee's appeal for A.Y. 2008-09 need not be adjudicated upon and is accordingly dismissed.
33.2 In Ground No.2.2, the assessee contends that the A.O. erred in considering the figure of foreign currency expenses at Rs.69,72,62,000 instead of the correct figure of Rs.64,66,80,000. We accordingly direct the A.O. to verify the correctness of the said claim and adopt the correct quantum of foreign currency expenditure from both export turnover and total turnover while computing the deduction u/s.10A of the Act. It is ordered accordingly.
34. In Ground No.3.1, the assessee contends that the A.O. has erred in considering the deduction claimed u/s. 10A by the assessee at Rs.49,87,73,486 instead of the correct figure of Rs.39,45,04,525 while making an addition of Rs.20,90,67,650 to the income returned. We direct 20 ITA Nos.1645 & 1646/Bang/2012 176/Bang/2013 to 178/Bang/2013 & C.O. No.72/Bang/2013.
the A.O. to examine and verify the above issue and adopt the correct figure of deduction claimed by the assessee u/s.10A of the Act. It is ordered accordingly.
35. In the result, the assessee's appeal for A.Y. 2008-09 is partly allowed for statistical purposes.
36. In the result,
(i) Revenue's appeal in ITA No.176/Bang/2013 for A.Y. 2004-05 is dismissed.
(ii) Assessee's C.O. No.72/Bang/2013 for A.Y. 2004-05 is partly allowed.
(iii) Revenue's appeal in ITA No.177/Bang/2013 for A.Y. 2006-07 is dismissed.
(iv) Assessee's appeal in ITA No.1645/Bang/2012 for A.Y. 2006-07 is partly allowed.
(v) Revenue's appeal in ITA No.178/Bang/2013 for A.Y. 2008-09 is dismissed.
(vi) Assessee's appeal in ITA No.1646/Bang/2012 for A.Y. 2008-09 is partly allowed for statistical purposes.
Order pronounced in the open court on 11th October, 2013.
Sd/- Sd/-
(P. MADHAVI DEVI) (JASON P BOAZ)
Judicial Member Accountant Member
*Reddy gp
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard File.
(True copy) By Order
Asst. Registrar, ITAT, Bangalore