M/s. Infineon Technologies India Pvt. Ltd, Bangalore V. ACIT, Bangalore

ITA 1445/BANG/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9289 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-10-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 15-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Depreciation; Transfer pricing; Opportunity of being heard; Principle of natural justice; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.1445 (BANG) 2010 (ASSESSMENT YEAR : 2006-07) M/S INFINEON TECHNOLOGIES INDIA PVT. LTD. 10 TH FLOOR, DISCOVER BUILDING, INTERNATIONAL TECHNOLOGY PARK, WHITEFIELD ROAD, BANGALORE - 560066 PAN NO.AABCS6967N APPELLANT VS THE ACIT, CIRCLE-11(4), BANGALORE RESPONDENT ASSESSEE BY : SHRI K.R.VASUDEVAN, ADVOCATE REVENUE BY : MISS NEERA MALHOTRA, CIT DR DATE OF HEARING : 17-10-2016 DATE OF PRONOUNCEMENT: : 03-11-201 6 O R D E R PER SHRI A.K.GARODIA, AM THIS APPEAL IS FILED BY THE ASSESSEE WHICH IS DIREC TED AGAINST THE ASSESSMENT ORDER PASSED ON 11.10.2010 U/S 143 (3) R .W.S. 144 C OF THE IT ACT, 1961 FOR A. Y. 2006-07 AS PER THE DIRECTIONS O F THE DRP. 2. THE CONCISE GROUNDS RAISED BY THE ASSESSEE ARE A S UNDER:- I . TRANSFER PRICING THE LEARNED MEMBERS OF THE D I SPUTE RESOLUT I ON PANEL (HEREINAFTER REFERRED T O AS DRP ) AND THE LEARNED ASSESSING OFF I CER (HEREINAFTER REFERRED TO AS AO ' ) ERRED IN UPH O L D ING THE INCOME ADJUSTMENT PROPOSED BY THE LEARNED TRANSFER PRICING OFFICER ITA NOS.1445(BANG)2010 2 (HEREINA F TE R RE F E R RED TO AS ' TPO ' ) AMOUNT I NG TO RS . 13 , 52 , 29 , 699/ - . 1.1 THE LEARNED MEMBERS OF THE DRP AND THE L EARNED AO O U G H T T O HA V E APP R E CI A T ED T H E FACT THAT THE MARGIN EARNED BY THE APPELLANT IS REFLECT I VE OF SERV I CES R E N DE R E D B Y A CONTRACT SERV I CE PROVIDER. 1 . 2 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO HAVE ERRONEOUSLY U PHE L D THE TPO ' S CONTENTION OF REJECTING COST PLUS METHOD AS THE MOST APPROPRIATE METHOD AND ACCEPTING TRANSACTIONAL NET MARGIN METHOD AS THE MOST APPROPRIATE METHOD . 1 . 3 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO HAVE ERRONEOUSLY UPHELD THE TPO ' S CONTENTION THAT AN UPPER LIMIT TO THE TURNOVER SHOULD NOT BE APPLIED WHILE SELECTING THE COMPARABLE COMPANIES . 1 . 4 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO ERRED IN ACCEPTING THE FILTERS APPLIED BY THE TPO I NCONSISTENTLY NAMELY : A) REJECTION OF COMPANIES WITH DIFFERENT YEAR ENDIN G FILTER ; AND B) REJECTION OF COMPANIES HAVING SOFTWARE DEVELOPMENT REVENUE LESS THAN 75% OF TOTAL OPERATING REVENUE FILTER 1. 5 THE LEARNED MEMB E RS OF THE DRP AND THE LEARNED AO HAVE ERRONEOUSLY UPHELD THE LEARNED TPO ' S CONTENTION THAT THE COMPANIES HAVING ONSITE REVENUES GREATER THAN 75% O F THE OPERATING REV E NUE SHOU L D BE REJECTED. 1. 6 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO HAVE ERR E D IN UPHOLDING THE TPO ' S COMPARABLE COMPANIES WHICH ARE NOT FUNCTIONALLY COMPARABLE TO THE APPELLANT NAMELY TATA ELXSI LIMITED, FLEXTRONICS SYSTEMS LIMITED , R SYSTEMS INTERNATIONAL LIMITED AND KALS INFORMATION SYSTEM. 1. 7 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO HAVE ERRED IN ACCEPTING COMPARABLE COMPANIES WHICH ARE NOT ITA NOS.1445(BANG)2010 3 COMPARABLE TO THE APPELLANT NAMELY INFOSYS TECHNOLO GIES LIMITED, ACCEL TRANSM A TICS LIMITED , MEGASOFT LIMITED, FLEXTRONICS SOFTWARE SYSTEMS LIMITED KALS INFORMATION SYSTEMS LIMITED AN D R SYSTEMS INTERN A TIONA L LIMITED. 1.8 . THE LD. MEMBERS OF THE DRP AND THE LEARNED AO HAV E ERRED BY NOT ACCEPTING THE FOLLOWING COMPARABLE COMPANIES NA MELY MAARS SOFTWARE INTERNATIONAL LTD. QUITEGRA SOLUTIONS LTD, MELSTAR INFORMATION TECHNOLOGIES AND NETWORK PROGRAMS LTD. 1. 9 MARKET RISK ADJUSTMENT A. THE LEARNED MEMBERS OF THE DRP AND THE LEARNED A O HAVE GROSSLY ERRED IN ACCEPTING THE LEARNED TPO'S RE JECTION OF MARKET RISK ADJUSTMENT SUBMITTED BY THE APPELLANT BASE D ON THE CAPITAL ASSET PRICING MODEL (CAPM) MODEL . B. THE LEARNED MEMBERS OF THE DRP AND THE LEARN ED AO HAVE ERRED IN NOT APPRECIATING THE DIFFERENCE IN THE FUNCTIONAL PROFILE THAT EXISTS BETWEEN THE APPELLANT WHO FUNCTIONS I N THE ROLE OF A CAPTIVE SERVICE PROVIDER VIS-A-VIS THE INDEPENDENT UNREL ATED COMPARABLE COMPANIES WHO OPERATE IN THE CAPACITY OF ENTREP RENEURIAL ENTITIES C. THE LEARNED MEMBERS OF THE DRP AND THE LEARNED A O ERRED IN CONCLUDING THAT THE MARKET RISK ADJUSTMENT W ILL BE NULLIFIED AGAINST THE EXISTENCE OF SINGLE CUSTOMER AND PO LITICAL RISKS. 1 . 10 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO HAVE ERRED IN DENYING THE BE NEFIT OF +/-5% WHILE ARRIVING AT THE ARM'S LENGTH PRICE. 1 . 11 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO ERRED IN CONCLUDING THAT THE APPELLANT OUGHT TO HAVE EMPLOYED CONTEMPORANEOUS DATA IN THE PREPARATION OF THE TRANSFER PRICING REPORT . ITA NOS.1445(BANG)2010 4 1 . 12 THE LEARNED MEMBERS OF THE DRP AND THE LEARNED AO ERRED IN UPHOLDING THE RPT THRESHOLD LIMIT OF 25% A S ARRIVED AT BY THE LEARNED TPO FOR THE PURPOSES OF ACCEPTING/ELIMINATI NG COMPANIES AS COMPARABLE COMPANIES. 1.13 THE LEARNED MEMBERS OF THE DRP AND THE LEARNE D AO OUGHT TO HAVE APPRECIATED THAT THE POWERS CONFERRED UNDER SECTION 133 (6) OF THE INCOME TAX ACT , 1961, OUGHT TO BE EMPLOYED IN SUCH A MANNER SO AS TO COMPLY WITH THE PROVISIONS OF JUDIC IOUSNESS AS WELL AS WITH THE PRINCIPLES OF NATURAL JUSTICE. 1.14 THE LEARNED MEMBERS OF THE DRP AND THE LEARNE D AO OUGHT TO HAVE APPRECIATED THAT IN THE ABSENCE OF FR AUDULENT MANIPULATION OF TRANSFER PRICES OR AN INTENTION ON THE PART OF THE APPELLANT TO SHIFTING OF PROFITS FROM THE JURISDICT ION OF INDIA, THE TRANSFER PRICING PROVISIONS OUGHT NOT TO BE APPLIED . II. CORPORATE TAX 2.1 DISALLOWANCE OF PROJECT SPECIFIC COSTS AMOUNTI NG TO RS.15,78,96,116 UNDER SECTION 40(A)(IA} OF THE INCO ME TAX ACT, 1961 ('ACT'). A. THE LEARNED AO ERRED IN DISALLOWING THE EXPENDIT URE OF RS.15,78,96,116/-, INCURRED BY THE APPELLANT TOWARD S THE USAGE OF EDA (ELECTRONIC DESIGN AUTOMATION) SOFTWARE TOOLS I N SOFTWARE DEVELOPMENT, UNDER SECTION 40(A) OF THE AC T . B. THE LEARNED AO ERRED IN DISALLOWING THE EXPENSE S BY PLACING RELIANCE ON THE JUDGMENT OF HON ' BLE KARNATAKA HIGH COURT IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2000- 01 AND 2001-02 (ITA NOS. 1264 AND 1265 OF 2006) WHI CH HAS BEEN DULY SET ASIDE BY THE HONORABLE SUPREME COURT IN TH E ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 V IDE JUDGMENT DATED 9THSEPTEMERB, 2010(SLP (CIVIL) NO.7821-7822 O F 2010). C) THE LD.AO ERRED IN NOT PLACING RELIANCE ON THE D ECISION OF THE HONBLE ITAT, BANGALORE IN ASSESSEES OWN CASE FOR THE ASSE SSMENT YEARS ITA NOS.1445(BANG)2010 5 2000-01 AND 2001-02 (ITA NO.467 & 468/BANG/2002), H EREIN IT HAS BEEN HELD THAT THE AMOUNT PAID BY THE APPELLANT TO ITS PARENT COMPANY WAS NOT IN THE NATURE OF ROYALTY AND NO TAX WAS REQ UIRED TO BE DEDUCTED AT SOURCE. 2.2 DISALLOWANCE OF SOFTWARE RENTALS AMOUNTING TO R S.48,650,623/-. A. THE LD. AO ERRED IN DISALLOWING THE SUM OF RS.4, 86,50623/- INCURRED BY THE APPELLANT TOWARDS SOFTWARE EXPENSES ON THE G ROUND THAT THESE EXPENSES RE CAPITAL IN NATURE. B.NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE CONT ENTION ABOVE, THE LD. AO ERRED IN NOT ALLOWING DEPRECIATION ON THE DE PRECIATION ON H APPLICATION SOFTWARE PURCHASE OF RS.89,19,603/- WHI LE CONSIDERING THE SAME AS CAPITAL IN NATURE. 2.3 ADJUSTMENTS MADE TO THE TOTAL TURNOVER IN COMPU TING THE DEDUCTION U/S 10A OF THE ACT. A) THE LD. AO ERRED IN REDUCING TELECOMMUNICATION E XPENSES (BANDWIDTH CHARGES) MOUNTING TO RS.33,00,581/- FROM THE EXPORT TURNOVER WHILE COMPUTING TAX HOLIDAY BENEFIT U/S10A ON THE CONTENTION THAT THESE EXPENSES ARE ATTRIBUTABLE TO THE DELIVER Y OF COMPUTER SOFTWARE OUTSIDE INDIA. B) NOTWITHSTANDING AND WITHOUT PREJUDICE TO THE ABO VE, THE LEARNED AO ERRED IN NOT OBSERVING THAT SHOULD A PORTION OF THE TELECOMMUNICATION EXPENSES (BANDWIDTH CHARGES) BE REDUCED FROM THE EX PORT TURNOVER, THE EXPENSES SHOULD ALSO BE REDUCED FROM THE TOTAL TURN OVER IN ARRIVING AT TH3E DEDUCTION U/S 10A OF THE ACT. C) THE LD. AO ERRED IN COMPUTING DEDUCTION U/S10A B Y ERRONEOUSLY CONSIDERING THE PROFITS OF THE SOFTWARE (STP) UNIT AS RS.33,59,65,815/-) INSTEAD OF RS.36,51,56,189/-S THEREBY RESULTING IN A LOWER DEDUCTION U/S10A. 2.4 THE LD. AO HAS ERRED IN LEVYING INTEREST U/S 23 4B OF THE ACT AMOUNTING TO RS.3,06,54,625/- RESPECTIVELY. ITA NOS.1445(BANG)2010 6 2.5 THE APPELLANT RAVES LEAVE TO ADD, ALTER AND MOD IFY THE ABOVE GROUNDS DURING THE COURSE OF THE APPEAL. 2.6 FOR THE ABOVE AND ANY OTHER GROUNDS WHICH MAY B E RAISED AT THE TIME OF HEARING, IT S PRAYED THAT THE ORDER OF THE AO BE SET ASIDE. 3. THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS WHICH ARE AS UNDER; GR OU N D I - T RANSFER P RIC I N G IT IS MOST HUMBLY PRAYED TO THE HON ' BLE TRIBUNAL TO PERMIT THE APPELLANT TO RAISE THE FOLLOWING ADDITIONAL GROUND OF APPEAL IN CONTINUATION OF THE EXISTING GROUNDS OF APPEAL AND BE READ AS GROUND N O . I . 1 5 IMMEDIATELY AFTER GROUND NO. 1 . 14. ' GROUND NO . 1 . 15 DEPRECIATION ADJUSTMENT THE APPELLANT SUBMITS T H AT IT SHOULD BE GRANTED DEPRECIATION ADJUSTMENT. THE DEPRECIATION COST AS A PERCENTAGE OF THE COST O F THE APPELLANT DURING THE FMANCIAL YEAR 2005 - 06 IS SIGNIFICANTLY DIFFERENT FROM THAT OF THE COMPARABLE COMPANIES . THE DIFFERENCE IN THE DEPRECIATION COST ARISES DUE TO DIFFERENCES IN THE ACCOUNTING TREATMENT ACROSS THE COMPA R ABLE COMPANIES AND THE APPELLANT. CONSIDERING THE ABOVE FACT, TO ACHIEVE RELIABLE COM PARABILITY , THE MARGINS OF THE COMPARABLE COMPANIES SHOULD BE ADJUS TED FOR DIFFERENCES IN DEPRECIATION COST OF COMPARABLE COMP ANIES AND TESTED PARTY . REA SO N F O R F IL I N G A DDI T ION A L GR OUN D O F A PPEA L I) WHEN APPLYING THE ARM ' S LENGTH PRINCIPLE, THE CONDITIONS OF A CONTROLLED TRANSACTION ( I. E . A TRANSACTION BETWEEN A TAXPAYER AND AN ASSOCIATED ENTERPRISE) ARE COMPARED TO THE CONDITIO NS OF COMPARABLE UNCONTROLLED TRA N S A CTIONS . IN THIS CONTEXT , TO BE ITA NOS.1445(BANG)2010 7 COMPARABLE MEANS THAT : NONE OF THE DIFFERENCES (IF ANY) BETWEEN THE SITUATIONS BEING COMPARED COULD MATERIALLY AFFECT T HE CONDITION BEING EXAMINED IN THE METHODOLOGY (E . G . PRICE OR MARGIN). IN CASE , THERE ARE ANY SUCH DIFFERENCE S, REASONABLY ACCURATE ADJUSTMENTS NEED TO BE MADE TO ELIMINATE THE EFFECT OF ANY SUCH DIFFERENCES. II) THERE ARE DIFFERENCES IN THE TREATMENT ACROSS E NTERPRISES OF OPERATING EXPENSES AND NON-OPERATING EXPENSES PARTI CULARLY OF DEPRECIATION AFFECTING THE NET PROFIT. SUCH DIFFER ENCES SHOULD BE RECKONED IN ORDER TO ACHIEVE RELIABLE COMPARABILITY BETWEEN THE TAXPAYER AND THE THIRD PARTY COMPARABLE COMPANIES. HENCE, IT IS ESSENTIAL TO PERFORM A DEPRECIATION ADJUSTMENT O BR IDGE THE DISPARITIES BETWEEN APPELLANT AND THE COMPARABLE CO MPANIES SELECTED BY THE TPO. THEREFORE, IT IS NECESSARY TO MAKE APPROPRIATE ADJUSTMENTS FOR DEPRECIATION WHILE BENCHMARKING THE APPELLANT WITH COMPARABLE COMPANIES. THE APPELLANT CRAVES LEAVE TO ADD, ALTER AMEND OR D ELETE ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 4. IT IS SUBMITTED BY THE LD. AR OF THE ASSESSEE T HAT THE ISSUE INVOLVED IN THIS APPEAL IS REGARDING EXCLUSION OF M/S BODHTR EE CONSULTING LTD., AND GRANTING OF DEPRECIATION ADJUSTMENT AS PER THE ADDI TIONAL GROUNDS IN ADDITION TO ORIGINAL GROUNDS OF APPEAL AS PER WHICH THE ASSESSEE IS SEEKING EXCLUSION OF M/S TATA ELXSI LTD., AND M/S FLEXTRONI CS SOFTWARE SYSTEMS LTD.(SEG.), M/S R SYSTEMS INTERNATIONAL LTD. (SEG.) AND M/S KALS INFORMATION SYSTEMS LTD.(SEG.)AND ALSO FOR EXCLUSION OF M/S IN FOSYS LTD., M/S ACCEL TRANSMATICS, M/S MEGASOFT, M/S FLEXTRONICS SOFTWARE SYSTEMS LTD. M/S KALS INFORMATION SYSTEMS LTD AND R.SYSTEMS INTERNAT IONAL LTD. (SEG.). THE ASSESSEE IS ALSO SEEKING MARKET RISK ADJUSTMENT AND SOME GROUNDS ARE REGARDING CORPORATE TAX ISSUES I.E. DISALLOWANCE OF PROJECT SPECIFIC COST ITA NOS.1445(BANG)2010 8 AMOUNTING TO RS.15,78,96,116/- U/S 40 A(IA) OF IT A CT,1961 AND DISALLOWANCE OF SOFTWARE RENTALS AMOUNTING TO RS.48 ,650,623/- AND THERE IS ONE ISSUE REGARDING GRANTING OF DEDUCTION U/S10A OF THE ACT, WHICH IS REDUCED BY THE AO BY REDUCING THE EXPORT TURNOVER B UT NOT REDUCING THE TOTAL TURNOVER. HE SUBMITTED THAT THIS LAST ISSUE I S COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF THE HONBLE KARNATAKA H IGH COURT RENDERED IN THE CASE OF M/S TATA ELXSI LTD., 349 ITR 98. HE SU BMITTED THAT ALL THESE ISSUES WERE BEFORE THE TRIBUNAL IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2008-09 AND IN THAT YEAR IN IT(TP)A NO.1670(B) /2012 DATED 06-11- 2015, THESE ISSUES WERE REMANDED BY THE TRIBUNAL TO THE AO FOR A FRESH DECISION AND THEREFORE, IN THE PRESENT YEAR ALSO, T HESE ISSUES SHOULD BE RESTORED BACK TO THE FILE OF AO FOR FRESH DECISION. THE LD. DR OF THE REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT AS PER THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSES SMENT YEAR 2008-09, ON TP ISSUES, THE MATTER WAS REMANDED BY THE TRIBUNAL TO THE FILE OF AO/TPO FOR FRESH DECISION. ACCORDINGLY, ON THE TP ISSUE, IN THE PRESENT YEAR ALSO, WE RESTORE THE ENTIRE MATTER TO THE FILE OF THE AO/TPO FOR FRESH DECISION AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6. REGARDING CORPORATE TAX ISSUES, WE DECIDE THE MATTER AS UNDER: 7. REGARDING THE DISALLOWANCE OF PROJECT SPECIFIC COSTS OF RS.15,78,96,116/- IN THE PRESENT YEAR U/S 40A(IA) O F THE IT ACT, 1961, WE FIND THAT IN THE ASSESSMENT YEAR 2008-09, SIMILAR I SSUE WAS THERE BEFORE THE TRIBUNAL AND THE TRIBUNAL FOLLOWED THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF M/S SAMSUNG ELEC TRONICS CO. LTD & ITA NOS.1445(BANG)2010 9 OTHERS IN ITA NO.2808 OF 2005 DATED 15-10-2011 AND IT IS NOTED IN THE TRIBUNAL ORDER IN PARA-10.2 IN THAT CASE THAT THE A SSESSEE WAS ALSO A PARTY (ITA NO.1264&1265/(B)/06) AND RESPECTFULLY FOLLOWIN G THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT, THE ASSESSMENT ORDER WAS UPHELD ON THIS ISSUE. ACCORDINGLY, IN THE PRESENT YEAR ALSO, BY R ESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER AND THE JUDGMENT OF THE HONBLE KARN ATAKA HIGH COURT RENDERED IN THE CASE OF M/S SAMSUNG ELECTRONICS CO. LTD & OTHERS (SUPRA), WE DECIDE THE ISSUE AGAINST THE ASSESSEE. 8. THE SECOND CORPORATE TAX ISSUE IS REGARDING DED UCTION U/S10A OF THE IT ACT, 1961. WE HOLD BY RESPECTFULLY FOLLOWIN G THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT RENDERED IN THE CASE O F M/S TATA ELXSI LTD. (SUPRA) THAT AO SHOULD REDUCE THE TELECOMMUNICATION EXPENSES OF RS.33,00,581/- FROM TOTAL TURNOVER ALSO AND THEN CO MPUTE THE DEDUCTION ALLOWABLE TO THE ASSESSEE U/S10A OF THE IT ACT, 196 1 BECAUSE IT WAS HELD BY THE HONBLE KARNATAKA HIGH COURT THAT TOTAL TURNOVE R IS SUM TOTAL OF DOMESTIC TURNOVER AND EXPORT TURNOVER AND THEREFORE , IF AN AMOUNT IS REDUCED FROM THE EXPORT TURNOVER, THE TOTAL TURNOVE R ALSO GOES DOWN BY SAME AMOUNT. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVO UR OF THE ASSESSEE. 9. REGARDING THE THIRD ISSUE IN RESPECT OF CORPORA TE TAX ISSUES I.E. DISALLOWANCE OF SOFTWARE RENTALS AMOUNTING TO RS.48 ,650,623/-, WE FIND FORCE IN THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT HAVING HELD THAT SOFTWARE EXPENDITURE OF RS.4,86,50,623/- IS CAPITAL EXPENDITURE, THE AO SHOULD HAVE ALLOWED DEPRECIATION ON THE SAME BUT FO R THAT THE ASSESSEE HAS TO ESTABLISH THAT THE SOFTWARE IN QUESTION WERE PUT INTO USE IN THE PRESENT YEAR AND IT IS ALSO TO BE SEEN THAT THE SAME WERE U SED IN THE PRESENT YEAR FOR ITA NOS.1445(BANG)2010 10 HOW MANY DAYS I.E. FOR 180 DAYS OR MORE AND HENCE, ON THIS ISSUE, WE SET ASIDE THE ORDER OF THE AO AND RESTORE BACK THE FILE TO AO/TPO WITH THE DIRECTION THAT THE ASSESSEE SHOULD ESTABLISH BEFORE THE AO THAT THE SOFTWARE IN QUESTION WERE USED IN THE PRESENT YEAR AND FOR H OW MANY DAYS, SOFTWARE WERE USED AND THEREAFTER, THE AO SHOULD DETERMINE T HE QUANTUM OF DEPRECIATION ON SOFTWARE ALLOWABLE IN THE PRESENT Y EAR AS PER LAW. 10. THE ISSUE REGARDING INTEREST IS HELD TO BE CON SEQUENTIAL. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (SMT ASHA VIJAYARAGHAVAN SD/- (A.K. GARODIA) JUDICAL MEMBER ACCOUNTANT MEMBER PLACE: BANGALORE: D A T E D : 03.11.2016 AM * COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE ITA NOS.1445(BANG)2010 11 1. DATE OF DICTATION .. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P. S. .. 4 DATE ON WHICH THE ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT .. 5. DATE ON WHICH THE ORDER COMES BACK TO THE SR. P.S. .. 6. DATE OF UPLOADING THE ORDER ON WEBSITE .. 7. IF NOT UPLOADED, FURNISH THE REASON FOR DOING SO . 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 9. DATE ON WHICH ORDER DOES FOR XEROX & ENDORSEMENT . 10. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK. 11 TH E DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGI STRAR FOR SIGNATURE ON THE ORDER. 12 THE DATE ON WHICH THE FILE GOES TO THE DISPATCH SEC TION FOR DISPATCH OF THE TRIBUNAL ORDER 13 DATE OF DISPATCH OF ORDER