×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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These are cross appeals filed by the assessee and the revenue against the order of the CIT(A), Bengaluru, passed u/s 143(3) and 250 of the Income-tax Act,1961 , dated 10/03/2015.
2. First, we shall take up the assessee’s appeal viz. ITA No.977/Bang/2015 and the facts narrated therein. The assessee has raised 8 grounds of appeal but at the time of hearing, ld. AR has not pressed grounds of appeal No.4, 5 and 6 and treated as withdrawn and dismissed. Hence the effective grounds of appeal are 1, 2, 3, 7 and 8 which read as under:
1. “The learned CIT(A) erred, in aw and in facts, by disallowing Annual Maintenance Contract ("AMC") expenses and software purchases incurred during th Financial Year 2008-09 under section 40(a)(ia) of the Act amounting to Rs 2,58,64,790 without appreciating the factual and technical submissions made by the Company in this regard.
2. The learned CIT(A) erred, in law and in facts, in capitalising the software expenses amounting to Rs 5,41,11,457 after providing depreciation at the rate of 45% without appreciating the detailed subm ssions made by the Company that such expenses do not result in any enduring benefit to the Company and such expenses are revenue in nature.
3. The learned CIT(A) has erred, in law and in facts, by disallowing Marked to Market ("M2M") loss amounting to Rs 14,40,59,736 on the basis that the said loss is notional and contingent in nature and has not appreciated the factual and technical submissions made by the Appellant.
7. The learned CIT(A) has erred, in law and in facts, in directing the Assessing("AO") to levy interest under section 234B of the Act.
8. The learned AO has erred, in law and in facts, in levying interest under section 234C of the Act on the assessed income of the Company whereas the same has to computed on the returned income of the Company.”
3. Brief facts of the case are that the assessee is engaged in software development and technical services and is a wholly owned subsidiary of Honeywell International USA and the same is primarily engaged in the business of software development for Honeywell group. The assessee has filed the Return of
income on 30/09/2009 disclosing total income of Rs.349,767,254/- after claiming deductions u/ss 10A and 80JJA of the Act. Since there are international transactions with AEs, the mater was referred to the Transfer Pricing Officer (TPO). Whereas the TPO has accepted the ALP without transfer pricing adjustment. The AO dealt on the submissions on the claim u/s 80JJ(AA) at page 2 to 8 of the order and disallowed the claim. Similarly AO disallowed expenditure towards computer license purchase for non-deduction of TDS of Rs.2,58,64,790/- and in respect of software expenses disallowed Rs.6,17,93,171/- and allowed depreciation, disallowed loss on marked to market foreign exchange of Rs.14,40,59,739/- and further restricted the claim of deduction us/ 10A and assessed the total income of Rs.87,79,22,043/- and passed the order u/s 143(3) dated 12/3/2013.
4. Aggrieved by the order, the assessee has filed an appeal with the CIT(A). Whereas the CIT(A), considering the grounds of appeal, submissions and findings of the AO confirmed the claim of disallowance of software purchases as per provisions of 40(a)(ia) of Rs.2,58,64,790/- and also confirmed the capitalization of software expenses and the action of the AO in disallowing loss on Marked-to-Market(M2M) and partly allowed the appeal.
5. Aggrieved by the order, the assessee has filed the appeal with the Tribunal. The ld. AR has argued on the ground of capitalization of software expenses and submitted that similar issue was considered in the assessee’s case for assessment year 2006-07 in ITA No.668/Bang/2013 dated 5/9/2014, and for assessment year 2008-09 in ITA No.862/Bang/2013 dated 14/11/2014.
5.1 On the second disputed issue with respect to disallowance for non-deduction of tax on the annual maintenance contract and so tware purchase, the ld. AR submitted that on purchase of software there is no requirement of deduction of tax at source and AMC charges are revenue in nature and supported with voluminous paper book to substantiate the claim.
5.2 On the third disputed issue the ld. AR submitted that the CIT(A) has erred in confirming disallowance of Marked to Market loss amounting to Rs.14,40,736/- on the ground that the loss is notional and arise on account of re-statement of