M/s. Texas Instruments (India) Private Limited, Bangalore V. Additional Commissioner Of Income Tax, LTU, Bangalore

ITTPA 169/BANG/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3244 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 11 month(s) 16 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 06-03-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PERCY PARDIWALA SR SH RI MUZ
• Keywords: Capital asset; Depreciation; Transfer pricing; Business expenditure; Opportunity of being heard; International transaction; Additional depreciation; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 194C; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT (TP) A NO. 169/BANG/2014 ASSESSMENT YEAR: 2008 - 09 TEXAS INSTRUMENTS (INDIA) PRIVATE LIMITED, BAGMANE TECH PARK, NO.66/3, ADJACENT TO LRDE, BYRASANDRA, C V RAMAN NAGAR, BANGALORE 560 093. PAN: AAACT 5445M VS. THE ADDITIONAL COMMISSIONER OF INCOME TAX, LTU, BANGALORE. APPELLANT RESPONDENT IT (TP)A NO. 149/BANG/2014 ASSESSMENT YEA R: 2008 - 09 THE JOINT COMMISSIONER OF INCOME TAX, LTU, BANGALORE. VS. TEXAS INSTRUMENTS (INDIA) PRIVATE LIMITED, BANGALORE 560 093. PAN: AAACT 5445M APPELLANT RESPONDENT ASSESSEE BY : SHRI PERCY PARDIWALA, SR. COUNSEL RE VENUE BY : SH RI MUZAFAR HUSSAIN, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 08. 01.2020 DATE OF PRONOUNCEMENT : 06 .0 3 .2020 IT(TP)A NO.169 & 149/BANG/2014 PAGE 2 OF 27 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT IT(TP)A NO.169/BANG/2014 IS AN APPEAL BY THE ASSE SSEE WHILE IT(TP)A.NO.149/BANG/2014 IS AN APPEAL BY THE REVENU E. BOTH THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 27.2.2 012 OF CIT(APPEALS), LTU, BANGALORE RELATING TO AY 2008-09. 2. WE SHALL FIRST TAKE UP THE APPEAL OF THE ASSESSE E FOR CONSIDERATION. GROUND NO.1 RAISED BY THE REVENUE IS GENERAL IN NAT URE AND CALLS FOR NO SPECIFIC ADJUDICATION. GR.NO.2 RAISED BY THE REVEN UE IN ITS APPEAL AND GR.NO.4 & 5 RAISED BY THE REVENUE IN ITS APPEAL ARE WITH REFERENCE TO DETERMINATION OF ARMS LENGTH PRICE (ALP) IN RESPEC T OF AN INTERNATIONAL TRANSACTION OF RENDERING OF SOFTWARE DEVELOPMENT SE RVICES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IN ACCORDANCE WITH SEC.92 OF THE INCOME TAX ACT, 1961 (ACT). AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE WITH REGARD TO DETERMINATION OF ALP HAS BEEN SETTLED UNDER MUTUAL AGREEMENT PROCEDURE (MAP) BETWEEN THE ASSESSEE AND THE REVENUE AND THE AO HAS UNDER RULE 44H(4) OF THE INCOME TAX RULES, 1962 HAS GIVEN EFFE CT TO THE MAP RESOLUTION VIDE PROCEEDINGS DATED 22.2.2016. HENCE , THE RELEVANT GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS THE REV ENUE ARE DISMISSED AS NOT REQUIRING ADJUDICATION. 3. THE NEXT ISSUE RAISED BY THE ASSESSEE IN ITS APP EAL IN GR.NO.3.1 (SUB GROUNDS 3.1.1 TO 3.1.4) IS WITH REGARD TO THE ACTION OF THE REVENUE AUTHORITIES IN NOT ALLOWING DEDUCTION U/S.80JJAA OF THE ACT AMOUNTING TO RS.7,57,22,069/-. THE PROVISIONS OF SEC.80JJAA OF THE ACT, AS APPLICABLE FOR AY 2008-09 READS AS FOLLOWS: IT(TP)A NO.169 & 149/BANG/2014 PAGE 3 OF 27 DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN. 80JJAA. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE, BE ING AN INDIAN COMPANY, INCLUDES ANY PROFITS AND GAINS D ERIVED FROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTU RE OR PRODUCTION OF ARTICLE OR THING, THERE SHALL, SUBJEC T TO THE CONDITIONS SPECIFIED IN SUB-SECTION (2), BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO THIRTY PER CENT OF ADDITIONAL WA GES PAID TO THE NEW REGULAR WORKMEN EMPLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESSMENT YEARS INCLUDING THE ASSES SMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH EMPLOYM ENT IS PROVIDED. (2) NO DEDUCTION UNDER SUB-SECTION (1) SHALL BE ALL OWED ( A ) IF THE INDUSTRIAL UNDERTAKING IS FORMED BY SPLI TTING UP OR RECONSTRUCTION OF AN EXISTING UNDERTAKING OR AMALGAMATION WITH ANOTHER INDUSTRIAL UNDERTAKING; ( B ) UNLESS THE ASSESSEE FURNISHES ALONG WITH THE RE TURN 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 EM PLOYED 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 TH AN TEN PER CENT OF EXISTING NUMBER OF WORKMEN EMPLOYED IN SUCH UNDERTAKING AS ON THE LAST DAY OF THE PRECEDING YEA R; ( II ) 'REGULAR WORKMAN', DOES NOT INCLUDE ( A ) A CASUAL WORKMAN; OR ( B ) A WORKMAN EMPLOYED THROUGH CONTRACT LABOUR; OR IT(TP)A NO.169 & 149/BANG/2014 PAGE 4 OF 27 ( 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 DISPUTES ACT, 1947 (14 OF 1947). 4. THE FIRST REASON ASSIGNED BY THE AO FOR DENYING THE CLAIM FOR DEDUCTION U/S.80JJAA OF THE ACT WAS THAT PERSONS W ORKING IN SOFTWARE INDUSTRY CANNOT BE SAID TO BE WORKMEN FOR THE PUR POSE OF SEC.80JJAA OF THE ACT. ACCORDING TO THE AO THE DEFINITION OF WO RKMEN FOR THE PURPOSE OF SEC.80JJAA WAS THE DEFINITION OF THE TERM AS PER SE C.2(S) OF THE INDUSTRIAL DISPUTES ACT, 1947 AND THAT DEFINITION LAYS DOWN TH AT ANY PERSON EMPLOYED IN ANY INDUSTRY TO DO ANY MANUAL, UNSKILLE D, SKILLED, TECHNICAL, OPERATIONAL, CLERICAL AND SUPERVISORY WORK FOR HIRE OR REWARD, BUT DOES NOT INCLUDE EMPLOYEES EMPLOYED MAINLY IN A MANAGERIAL O R ADMINISTRATIVE CAPACITY. ACCORDING TO THE AO SOFTWARE PROFESSIONA LS ARE HIGHLY SKILLED WORKERS AND THE NATURE OF WORK PERFORMED BY THEM WE RE HIGHLY SKILLED WHEREAS THE SKILLED WORK CONTEMPLATED BY THE DEFINI TION OF WORKMEN IN THE INDUSTRIAL DISPUTES ACT, 1947 IS ORDINARY SKILL AND THEREFORE THE WORKMEN OF THE ASSESSEE CANNOT BE CONSIDERED AS WORKMEN FOR THE PURPOSE OF SEC.80JJAA OF THE ACT. THE AO ALSO NOTICED THAT IN ASSESSEES OWN CASE FOR AY 2001-02 AND 2002-03, THE TRIBUNAL HAD NOT AC CEPTED THE STAND OF THE REVENUE IN THIS REGARD BUT STILL CHOSE NOT TO F OLLOW THE DECISION OF THE TRIBUNAL AS THE REVENUE HAS NOT ACCEPTED THE DECISI ON OF TRIBUNAL AND HAD PREFERRED APPEAL TO THE HONBLE HIGH COURT ON THIS ASPECT OF DEDUCTION U/S.80JJAA OF THE ACT. ON THE QUESTION WHETHER THE EMPLOYEES EMPLOYED IN SOFTWARE INDUSTRY CAN BE SAID TO BE WORKMEN, T HE BANGALORE BENCH OF ITAT HAS ALREADY SETTLED THIS ISSUE IN ASSESSEES O WN CASE. THE TRIBUNAL HELD THAT SOFTWARE INDUSTRY HAS ALSO BEEN NOTIFIED AS INDUSTRY FOR THE PURPOSE OF INDUSTRIAL DISPUTES ACT, 1947 BY THE STA TE OF KARNATAKA AND THAT THE EMPLOYEES EMPLOYED IN SOFTWARE DEVELOPMENT INDU STRY RENDER TECHNICAL IT(TP)A NO.169 & 149/BANG/2014 PAGE 5 OF 27 SERVICES AND NOT SERVICES IN THE NATURE OF SUPERVIS ORY OR MANAGEMENT CHARACTER. IN VIEW OF THE AFORESAID DECISION OF TH E TRIBUNAL, WE ARE OF THE VIEW THAT THE ABOVE REASON GIVEN BY THE AO FOR DENY ING THE BENEFIT OF DEDUCTION U/S.80JJAA OF THE ACT CANNOT BE SUSTAINED . IN FACT THE CIT(A) IN THE IMPUGNED ORDER HAS ALSO NOT SUSTAINED THE DISAL LOWANCE OF DEDUCTION U/S.80JJAA OF THE ACT ON THIS GROUND AND HAS FOLLOW ED THE EARLIER ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. 5. BEFORE WE DEAL WITH THE OTHER SURVIVING REASONS ASSIGNED BY 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 FULF ILLED FOR CLAIMING DEDUCTION. THE CONDITIONS THAT NEED TO BE FULFILLED BY AN ASSE SSEE TO CLAIM BENEFIT OF DEDUCTION U/S.80JJAA OF THE ACT, ARE: 1) THE ASSESSEE SHOULD BE AN INDIAN COMPANY AND THE GR OSS TOTAL INCOME OF THE ASSESSEE SHOULD INCLUDE PROFITS AND G AINS DERIVED FROM ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANU FACTURE OR PRODUCTION OF ARTICLE OR THING. ADMITTEDLY THIS CO NDITION IS SATISFIED IN THE CASE OF THE ASSESSEE. 2) THERE ARE CERTAIN PROHIBITION LAID DOWN IN SEC.80JJ AA(2) OF THE ACT AND IT IS NOT THE CASE OF THE AO THAT THESE PROHIBI TIONS 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 EX CESS OF ONE HUNDRED WORKMEN EMPLOYED DURING THE PREVIOUS YEAR. 4) THE INCREASE IN THE NUMBER OF REGULAR WORKMEN EMPLO YED DURING THE YEAR SHOULD NOT BE LESS THAN TEN PER CENT OF EXISTI NG NUMBER OF WORKMEN EMPLOYED IN SUCH UNDERTAKING AS ON THE LAST DAY OF THE PRECEDING YEAR; 5) IF THE ABOVE CONDITIONS ARE SATISFIED THEN 30% OF T HE ADDITIONAL WAGES PAID TO NEW REGULAR WORKMEN EMPLOYED BY THE A SSESSEE IN THE PREVIOUS YEAR, SHALL BE ALLOWED AS DEDUCTION F OR THREE ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR RELE VANT TO THE PREVIOUS YEAR IN WHICH SUCH EMPLOYMENT IS PROVIDED. IT(TP)A NO.169 & 149/BANG/2014 PAGE 6 OF 27 6. THE FOLLOWING ARE THE DETAILS REGARDING THE NUMB ER OF REGULAR WORKMEN AND NEW WORKMEN EMPLOYED BY THE ASSESSEE DU RING THE FY 2002-03 TO 2007-08 RELEVANT TO AY 2003-04 TO 2008-0 9: DETAILS OF NUMBER OF REGULAR WORKMEN : PARTICULARS NUMBER OF REGULAR WORKMEN NUMBER OF NEW WORKMEN ADDED AS ON MARCH, 31, 2003 FY 2002 - 03(AY 2003 - 04) 775 170 AS ON MARCH, 31, 2004 FY 2003 - 04(AY 2004 - 05) 846 186 AS ON MARCH, 31, 2005 FY 2004 - 05(AY 2005 - 06) 1048 351 AS ON MARCH, 31, 2006 FY 2005 - 06(AY 2006 - 07) 1,056 211 AS ON MARCH, 31, 2007 FY 2006 - 07(AY 2007 - 08) 1,187 295 AS ON MARCH, 31, 2008 FY 2007 - 08(AY 2008 - 09 ) 1,105 131 7. THE DETAILS OF THE NEW EMPLOYEES IN RESPECT OF W HOM THE ASSESSEE CLAIMED DEDUCTION U/S.80JJAA OF THE ACT ARE GIVEN A T PAGE 176 TO 182 OF PAPERBOOK. FROM A PERUSAL OF THE SAID LIST AND THE REPORT OF AUDITOR FOR CLAIMING DEDUCTION U/S.80JJA OF THE ACT IN FORM NO. 10DA, A COPY OF WHICH IS AT PAGES 80 TO 85 OF THE ASSESSEES PAPER BOOK, IT CAN BE SEEN THAT THE DEDUCTION WAS CLAIMED BY THE ASSESSEE U/S.80JJAA OF THE ACT ON SALARY PAID TO 287 EMPLOYEES. IT IS ALSO CLEAR FROM THE S AID REPORT THAT THE SALARY PAID TO NEW WORKMEN WERE NIL FOR THE FINANCIAL YEAR ENDING 31.3.2006 AND 31.3.2008. DEDUCTION HAS BEEN CLAIMED ONLY IN RESP ECT OF WAGES PAID TO NEW REGULAR WORKMEN WHO WERE EMPLOYED DURING THE PR EVIOUS YEAR 1.4.2006 TO 31.3.2007. ALL THE 287 EMPLOYEES WERE NEW EMPLOYEES WHO JOINED DURING THE FY 2006-07, ON OR AFTER 12.06.200 6 AND THEREFORE COULD NOT HAVE PUT IN SERVICE OF 300 DAYS OR MORE DURING THE FY 2006-07 RELEVANT TO AY 2007-08. IT IS UNDISPUTED THAT THEY WORKED F OR 300 DAYS DURING THE PREVIOUS YEAR RELEVANT TO AY 2008-09. IT(TP)A NO.169 & 149/BANG/2014 PAGE 7 OF 27 8. THE SECOND REASON GIVEN BY THE AO FOR DENYING THE B ENEFIT OF DEDUCTION U/S.80JJAA OF THE ACT, WHICH IS THE REASO N THAT SURVIVES FOR CONSIDERATION BY THE TRIBUNAL IS ACCORDING TO THE A O SINCE THE ADDITIONAL WAGES PAID TO THESE 287 EMPLOYEES WERE NOT ELIGIBLE TO DEDUCTION U/S.80- JJAA OF THE ACT BECAUSE THESE EMPLOYEES DID NOT WOR K FOR MORE THAN 300 DAYS IN FY 2006-07 RELEVANT TO AY 2007-08, THE WAGE S PAID TO THESE EMPLOYEES IN AY 2008-09 WILL ALSO NOT QUALIFY FOR D EDUCTION 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 WI TH REFERENCE TO ADDITIONAL WAGES PAID TO NEW EMPLOYEES IN THE FIRST YEAR OF TH EIR EMPLOYMENT, THEN THE ADDITIONAL WAGES PAID TO SUCH NEW EMPLOYEES WIL L NOT ALLOWED IN THE SECOND AND THIRD ASSESSMENT YEARS ALSO. THERE IS A REFERENCE IN THE AOS ORDER THAT ONLY 236 OUT OF THE 287 EMPLOYEES WERE N EW EMPLOYEES BUT THESE OBSERVATIONS IN THE ORDER OF ASSESSMENT IS IN CORRECT AND CONTRARY TO THE REPORT OF THE CHARTERED ACCOUNTANT IN FORM NO.1 0DA. IT IS ADMITTED POSITION THAT IN RESPECT OF ADDITIONAL WAGES PAID T O NEW EMPLOYEES EMPLOYED IN THE PREVIOUS YEAR RELEVANT TO AY 2008-0 9 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 E XISTING 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 WO RKED FOR 300 DAYS IN THE PREVIOUS YEAR RELEVANT TO AY 2008-09. THE T OTAL WAGES PAID TO NEW WORKMEN WAS RS.25,24,06,897 AND DEDUCTION U/S.80JJA A OF THE ACT WAS CLAIMED BY THE ASSESSEE AT 30% OF THE ABOVE VIZ., A SUM OF RS.7,57,22,069/-. 8.1. ON APPEAL BY THE ASSESSEE AGAINST THE ORDER O F AO DENYING DEDUCTION U/S.80JJAA OF THE ACT, THE CIT(A) ENDORSE D THE VIEW OF THE AO ON THIS ASPECT OF DEDUCTION UNDER SEC.80JJAA OF THE ACT. HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. IT(TP)A NO.169 & 149/BANG/2014 PAGE 8 OF 27 8.2. THE LEARNED COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THE ORDER OF THE AO FOR AY 2007-08 IN WHICH HE HAS WHILE DISA LLOWING THE CLAIM FOR DEDUCTION U/S.80JJAA OF THE ACT FOR THAT AY HAS ACC EPTED THE POSITION THAT ON ADDITIONAL WAGES PAID TO NEW WORKMEN EMPLOYED DU RING THE PREVIOUS YEAR RELEVANT TO AY 2005-06 WHO HAVE WORKED MORE TH AN 300 DAYS DURING THE PREVIOUS YEAR RELEVANT TO AY 2007-08, THE ASSES SEE IS ENTITLED TO DEDUCTION U/S.80JJAA OF THE ACT. IT WAS POINTED OUT THAT THE ITAT IN THE APPEAL RELATING TO AY 2007-08 IN THE CASE OF THE AS SESSEE IN IT(TP)A.NO.1032/BANG/2011 ORDER DATED 16.6.2017 CON FIRMED THE DISALLOWANCE U/S.80JJAA OF THE ACT ONLY ON THE BASI S 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. HE RELIED ON THE DECISION OF ITAT RENDERED IN THE CASE OF BOSCH LTD. VS. ACIT (2016) 74 TAXMANN.COM 161 (BANGALORE-TRIB.) WHEREIN AT PARAGRAPH 23 OF THE AF ORESAID ORDER THE TRIBUNAL OBSERVED THAT THE DEDUCTION U/S.80JJAA OF THE ACT IS ALLOWED FOR THREE YEARS INCLUDING THE YEAR IN WHICH THE EMPLOYM ENT IS PROVIDED. HENCE, IN EACH YEAR IT HAS TO BE SEEN THAT THE WORK MEN WAS EMPLOYED FOR AT LEAST 300 DAYS DURING THAT PREVIOUS YEAR AND THA T SUCH WORKMEN WAS NOT A CASUAL WORKMEN OR WORKMEN EMPLOYED THROUGH CONTRA CT LABOUR. THEREFORE, IF SOME WORKMEN WERE EMPLOYED FOR A PERI OD OF LESS THAN 300 DAYS IN THE PREVIOUS YEAR THEN NO DEDUCTION IS ALLO WABLE IN RESPECT OF PAYMENT OF WAGES TO SUCH WORK MEN IN THE PRESENT YE AR 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. IT WAS SUBMITTED THAT BY THE VERY SAME REASONING TH E 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 DA YS OR MORE BUT IF THE NEXT TWO ASSESSMENT YEARS, IF HE WORKS FOR MORE THA N 300 DAYS EACH, THEN THE DEDUCTION U/S.80JJAA OF THE ACT HAS TO BE ALLOW ED. HE ALSO DREW OUR IT(TP)A NO.169 & 149/BANG/2014 PAGE 9 OF 27 ATTENTION TO THE INSERTION OF A SECOND PROVISO TO E XPLANATION (II) TO SEC.80JJAA OF THE ACT (WHICH DEFINES ADDITIONAL EMP LOYEE) B Y 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 Y EAR, 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 AFORESA ID 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 HE LD TO BE RETROSPECTIVE IN OPERATION ON THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. CALCUTTA EXPORT COMPANY (2018) 93 T AXMANN.COM 51(SC). THE LEARNED DR RELIED ON THE ORDER OF THE AO. HOWE VER, THE LD. AR SUBMITTED THAT THE ASSESSEE IS CLAIMING BENEFIT OF DEDUCTION FOR SECOND YEAR ONLY, AS IT HAS ACCEPTED THE FACT THAT IT IS N OT ELIGIBLE TO CLAIM DEDUCTION IN THE FIRST YEAR I.E., AY 2007-08 DUE TO NON-FULFI LMENT OF CONDITION OF 300 DAYS. 9. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO TH E RIVAL SUBMISSIONS. THE ONLY REASON GIVEN BY THE AO FOR DENYING THE BEN EFIT OF DEDUCTION U/S.80JJAA OF THE ACT, WHICH IS THE REASON THAT SUR VIVES FOR CONSIDERATION BY THE TRIBUNAL IS ACCORDING TO THE AO SINCE THE AD DITIONAL WAGES PAID TO THESE 287 EMPLOYEES WERE NOT ELIGIBLE TO DEDUCTION U/S.80JJAA OF THE ACT BECAUSE THESE EMPLOYEES DID NOT WORK FOR MORE THAN 300 DAYS IN FY 2006- 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 O F THE ACT. IN OTHER WORDS ACCORDING TO THE AO IF THE CONDITION FOR GRANT OF D EDUCTION U/S.80JJAA OF THE IT(TP)A NO.169 & 149/BANG/2014 PAGE 10 OF 27 ACT IS NOT SATISFIED WITH REFERENCE TO ADDITIONAL W AGES PAID TO NEW EMPLOYEES IN THE FIRST YEAR OF THEIR EMPLOYMENT, TH EN THE ADDITIONAL WAGES PAID TO SUCH NEW EMPLOYEES WILL NOT ALLOWED IN THE SECOND AND THIRD ASSESSMENT YEARS ALSO. AS POINTED OUT BY THE LEARN ED COUNSEL FOR THE ASSESSEE, THIS APPROACH OF THE REVENUE AUTHORITIES IS CONTRARY TO THE AOS STAND ON CLAIM FOR SIMILAR DEDUCTION U/S.80JJAA OF THE ACT IN AY 2007-08. IN THE ORDER OF ASSESSMENT PASSED BY THE AO FOR AY 2007-08, HE HAS WHILE DISALLOWING THE CLAIM FOR DEDUCTION U/S.80JJAA OF T HE ACT FOR THAT AY, ACCEPTED THE POSITION THAT ON ADDITIONAL WAGES PAID TO NEW WORKMEN EMPLOYED DURING THE PREVIOUS YEAR RELEVANT TO AY 20 05-06 WHO HAVE WORKED MORE THAN 300 DAYS DURING THE PREVIOUS YEAR RELEVANT TO AY 2007- 08, THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80JJA A OF THE ACT. IN THE DECISION RENDERED IN THE CASE OF BOSCH LTD. VS. ACI T (2016) 74 TAXMANN.COM 161 (BANGALORE-TRIB.) THE BANGALORE ITA T AT PARAGRAPH 23 OF THE AFORESAID ORDER THE TRIBUNAL OBSERVED THAT T HE DEDUCTION U/S.80JJAA OF THE ACT IS ALLOWED FOR THREE YEARS INCLUDING THE YEAR IN WHICH THE EMPLOYMENT IS PROVIDED. HENCE, IN EACH YEAR IT HAS TO BE SEEN THAT THE WORKMEN WAS EMPLOYED FOR AT LEAST 300 DAYS DURING T HAT PREVIOUS YEAR AND THAT SUCH WORKMEN WAS NOT A CASUAL WORKMEN OR WORKM EN EMPLOYED THROUGH CONTRACT LABOUR. THEREFORE, IF SOME WORKME N WERE EMPLOYED FOR A PERIOD OF LESS THAN 300 DAYS IN THE PREVIOUS YEAR T HEN NO DEDUCTION IS ALLOWABLE IN RESPECT OF PAYMENT OF WAGES TO SUCH WO RK MEN IN THE PRESENT YEAR EVEN IF SUCH WORKMEN WAS EMPLOYED IN THE PRECE DING 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 F ACT THAT IN THE FIRST YEAR OF EMPLOYMENT THE ADDITIONAL WAGES PAID IS NOT ALLO WED DEDUCTION FOR THE REASON THAT THE WORKMEN DID NOT WORK FOR 300 DAYS O R 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 IT(TP)A NO.169 & 149/BANG/2014 PAGE 11 OF 27 EMPLOYEE THEN FOR THE NEXT TWO SUCCEEDING ASSESSMEN T YEARS ALSO, THE BENEFIT OF DEDUCTION WILL NOT BE AVAILABLE. SUCH A N 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 A CT. EVEN PRIOR TO SUCH CURATIVE OR CLARIFICATORY AMENDMENT, WE ARE OF THE VIEW THAT THE CLAIM FOR DEDUCTION U/S.80JJAA OF THE ACT CANNOT BE AND OUGHT NOT TO HAVE BEEN DISALLOWED ON THIS GROUND. WE THEREFORE DIRECT THA T THE DEDUCTION CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED. 10. THE NEXT ISSUE THAT ARISES FOR CONSIDERATION IN THE APPEAL BY THE ASSESSEE IS PROJECTED IN GR.NO.3.2 (SUB-GROUNDS 3.2 .1 TO 3.2.9) AND THE SAME RELATES THE ACTION OF THE REVENUE AUTHORITIES IN DISALLOWING CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.4,42,14,9 42/- IN RELATION TO CAPITAL WORK IN PROGRESS WRITTEN OFF. THE FACTS IN THIS REGARD ARE THAT THE ASSESSEE IN FY 2006-07 RELEVANT TO AY 2007-08 WAS P LANNING EXPANSION OF ITS BUSINESS PREMISES AND IN THAT REGARD EMPLOYE D CONSULTANTS AND CONTRACTORS FOR PLANNING DESIGNING AND CONSTRUCTING THE NEW BUILDING. HOWEVER TOWARD END OF FY 2006-07 RELEVANT TO AY 200 7-08, THE ASSESSEE DECIDED TO ABANDON THE EXPANSION PLAN AND ACCORDING LY THE ENTIRE EXPENDITURE INCURRED TOWARDS THE EXPANSION OF THE B UILDING PREMISES WAS WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT FOR AY 2 007-08. SUBSEQUENTLY, IN THE PREVIOUS YEAR RELEVANT TO AY 2008-09, CERTAIN A DDITIONAL CLAIMS WERE MADE TOWARDS PLANNING, DESIGNING, ARCHITECTURE FEES AMOUNTING TO RS.61,04,942/-. OVER AND ABOVE THIS THE ASSESSEE H AD TO PAY DAMAGES OF RS.3,81,10,000/- TO THE CONTRACTOR IN RESPECT OF A CLAUSE IN THE AGREEMENT BETWEEN THE ASSESSEE AND THE CONTRACTOR, WHO WAS ID ENTIFIED FOR THE PURPOSE OF PUTTING UP THE BUSINESS PREMISES FOR THE PURPOSE OF EXPANSION. IT(TP)A NO.169 & 149/BANG/2014 PAGE 12 OF 27 THE RELEVANT CLAUSE IN THE AGREEMENT BETWEEN THE AS SESSEE AND THE CONTRACTOR IN THIS REGARD READS THUS:- CLAUSE (D): [PAGE-4 OF THE AGREEMENT BETWEEN THE A SSESSEE AND BAGMANE DEVELOPERS PVT. LTD.] IF THE CLIENT DOES NOT CONSTRUCT ONE OR MORE STRUC TURES NOT INCLUDED IN THE SCOPE OF THE PROJECT OR DOES NOT EN GAGE THE SERVICES OF A DEVELOPER (INCLUDING THE CONTRACTOR) TO CONSTRUCT AND DEVELOP ONE OR MORE STRUCTURES AT THE SITE THAT ARE NOT INCLUDED IN THE SCOPE OF THE PROJECT ON OR BEFORE T HE 31 ST OF AUGUST, 2009, THE CLIENT SHALL PAY TO THE CONTRACTO R AN AMOUNT EQUAL TO RS.3,81,10,000/- (RUPEES THREE CRORES EIGH TY ONE LAKHS TEN THOUSAND ONLY) ON THE 31 ST OF AUGUST, 2009. 11. IN SCHEDULE-K NOTE NO.17 TO THE NOTES TO ACCOUN TS THE CLAIM FOR DEDUCTION OF THE AFORESAID TWO SUMS OF RS.61,04,942 AND RS.3,81,10,000/- AS FOLLOWS:- THE COMPANY WAS PLANNING EXPANSION OF BUILDING PRE MISES AND HAD MADE PAYMENTS IN THE NATURE OF PLANNING, DESIGN ING AND ARCHITECTURE FEES, WHICH WAS ACCOUNTED AS CAPITAL W ORK-IN- PROGRESS. THE MANAGEMENT HAD DECIDED TO CALL OFF TH E EXPANSION PLAN AND HENCE, THE EXPENDITURE OF RS.2,82,95,253/- HAD BEEN WRITTEN OFF IN THE PREVIOUS YEAR. FURTHER DURING T HE YEAR, THE MANAGEMENT HAS ACKNOWLEDGED CERTAIN ADDITIONAL CLAI MS TOWARDS SUCH PLANNING, DESIGNING AND ARCHITECTURE FEES AMOU NTING TO RS.61,04,942/-, WHICH HAS BEEN CHARGED OFF IN P & L A/C. THE COMPANY HAD ALSO ENTERED INTO AN AGREEMENT WITH A R EAL ESTATE DEVELOPER (THE DEVELOPER) FOR CONSTRUCTION OF BUI LDING IN PHASES. THE TERMS OF THE AGREEMENT PROVIDED FOR PAYMENT OF COMPENSATION TO THE DEVELOPER IN THE EVENT OF NON-C ONSTRUCTION OF THE SUBSEQUENT PHASES OF THE BUILDING WITHIN THE ST IPULATED TIME. THE MANAGEMENT OF THE COMPANY HAS DECIDED TO CALL O FF THE EXPANSION PLAN AND ACCORDINGLY, PROVIDED FOR RS.3,8 1,10,000/- REPRESENTING COMPENSATION PAYABLE TO THE DEVELOPER FOR NON- CONSTRUCTION OF THE SUBSEQUENT PHASE OF THE BUILDIN G. IT(TP)A NO.169 & 149/BANG/2014 PAGE 13 OF 27 12. THE ASSESSEES CLAIM FOR DEDUCTION WAS NOT ACCE PTED BY THE AO FOR THE REASON THAT THE EXPENDITURE IN QUESTION WAS A C APITAL EXPENDITURE AND THEREFORE CANNOT BE ALLOWED AS DEDUCTION. THE CIT( A) CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE ORDER OF CIT(A), THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 13. BEFORE THE TRIBUNAL, IT IS NOT DISPUTED BY THE PARTIES THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNA L IN ASSESSEES CASE FOR AY 2007-08 AND THIS TRIBUNAL UPHELD THE ORDERS OF R EVENUE AUTHORITIES DENYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION. T HE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL:- 8. GROUND NO. 3 CHALLENGES THE ADDITION OF CAPITA L WORK IN PROGRESS WRITTEN OFF DURING THE YEAR AMOUNTING TO R S. 28,295,253/-. IT WAS SUBMITTED THAT THIS ASSESSEE-C OMPANY WAS PLANNING EXPANSION OF BUILDING PREMISES AND THE PAY MENTS HAVE BEEN MADE TOWARDS PLANNING, DESIGNING AND ARCHITECT URE FEES WHICH ARE ACCOUNTED AND SHOWN AS CAPITAL WORK PROGR ESS AND THE MANAGEMENT HAS DECIDED TO CALL OFF THE EXPANSION PL AN HENCE THE EXPENDITURE INCURRED ON THE EXPANSION OF BUILDING H AD CLAIMED THE REVENUE EXPENDITURE WHICH WAS DISALLOWED BY THE AO. BEING AGGRIEVED, THE APPELLANT IS BEFORE US. THE ID. COUN SEL RELIED UPON THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF INDO RAMA SYNTHETICS (I) LTD. VS CIT (333 ITR 18) AND THE DEC ISION OF HON'BLE CALCUTTA HIGH COURT IN CASE OF BINANI CEMEN T LTD. VS CIT [2015] 60 TAXMANN.COM 384 AND THE DECISION OF T HE COORDINATE BENCH ITAT, MUMBAI IN CASE OF DCIT VS MU KUND LTD. IN ITA NO. 2708/MUM/2009 AND ALSO DECISION OF HIGH COURT OF BOMBAY IN CASE OF CIT VS IDEA CELLULAR LTD. [201 6] 76 TAXMANN.COM 77 IN SUPPORT OF THE PROPOSITION THAT A NY CAPITAL EXPENDITURE INCURRED IN RESPECT OF ABANDONED PROJEC T SHOULD BE ALLOWED AS A DEDUCTION. 9. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE SUBMISSION OF THE LD. COUNSEL CANNOT BE ACCEPTED FOR THE SIMPLE REASON THAT THE DECISION RELIED UPON BY THE LD. COUNSEL RELATES TO THE EXPENDITURE WHICH IS IN THE NATURE OF REVENUE INCURRED WITH THE OBJECT OF ENHANCING THE P ROFITABILITY IT(TP)A NO.169 & 149/BANG/2014 PAGE 14 OF 27 AND THE EFFICIENCY OF THE EXISTING BUSINESS. WHEREA S IN THE PRESENT CASE IT IS AN EXPENDITURE INCURRED TO BRING INTO AN EXISTENCE THE CAPITAL ASSET. THIS CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. INFACT, IN THE CASE RELIED BY THE HON'BLE COUNSEL F OR THE ASSESSEE THE DECISION OF HON'BLE DELHI HIGH COURT IN CASE OF INDO RAMA SYNTHETICS (I) LTD. VS CIT (SUPRA) THE HON'BLE HIGH COURT OBSERVED VIDE PARA 18 AS UNDER. 'ONCE IT IS ACCEPTED AS A FACT THAT THE ASSIGNMENT GIVEN TO THE SAID CONSULTANTS WAS FOR THE PURPOSE OF IMPROVI NG OPERATIONAL EFFICIENCIES AND WAS NOT TO INCUR ANY E NDURING BENEFIT IN CAPITAL FIELD BUT TO CARRY ON THE EXISTI NG BUSINESS MORE EFFICIENTLY AND PROFITABLY, THE IRRESISTIBLE C ONCLUSION WHICH FOLLOWS IS THAT SUCH EXPENDITURE WAS ALLOWABL E AS BUSINESS EXPENDITURE. [SEE CIT V. PRAGA TOOLS LTD. [1986] 157 ITR 282 (AP) AND CIT V. CROMPTON ENGINEERING CO . LTD. [20001 242 ITR 317 (MAD )1.' THEREFORE, IT FOLLOWS THAT THE EXPENDITURE INCURRED IN THE REVENUE FIELD FOR EXPANSION OF AN EXISTING UNIT IS ALLOWABL E, WHEREAS THE EXPENDITURE ON THE CAPITAL ACCOUNT, THE SAME CANNOT BE ALLOWED AS A REVENUE EXPENDITURE. HENCE THE GROUND NO. 3 OF AP PEAL FILED BY THE ASSESSEE IS DISMISSED. 14. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THA T THE EXPENDITURE IN QUESTION CANNOT BE REGARDED AS CAPITAL EXPENDITURE AND WAS INCIDENTAL TO CARRYING ON BUSINESS OF THE ASSESSEE AND WAS REVENU E EXPENDITURE. ACCORDING TO HIM HAD THE PROJECT BEEN COMPLETED THE EXPENDITURE WOULD HAVE BEEN CAPITALIZED AND DEPRECIATION CLAIMED ON T HE CAPITALIZED VALUE OF ASSETS BUT SINCE THE PROJECT WAS ABANDONED, THE EXP ENDITURE HAD TO BE REGARDED AS REVENUE EXPENDITURE. THE FOLLOWING DEC ISIONS WERE CITED IN SUPPORT OF THE CLAIM SO MADE, VIZ., EMPIRE JUTE MILLS LTD. VS. CIT 124 ITR 1 (SC); CIT VS. ACC LTD. 172 ITR 257(SC); ACIT VS. SU TLEJ INDUSTRIES LTD. 94 TTJ 108 (DELHI ITAT); EXCEL INDUSTRIES LTD. VS. DY. CIT 86 TTJ 840 (MUMBAI ITAT); CIT VS. GRAPHITE INDIA LTD. 221 ITR 862(CALCUTTA) . IN PARTICULAR IT WAS ARGUED THAT IN SO FAR AS THE DAMA GES OF RS.3,81,10,000/- IS CONCERNED, THE CLAIM WAS NOT ENGAGING THE SERVICES OF THE CONTRACTOR IN IT(TP)A NO.169 & 149/BANG/2014 PAGE 15 OF 27 FUTURE FOR OTHER CONTRACTS AND THAT CANNOT BE REGAR DED AS HAVING ANY NEXUS WITH THE CAPITAL WORK IN PROGRESS WRITTEN OFF IN TH E BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREFORE TO THAT EXTENT THE CLAIM FOR DEDUCTION OUGHT TO HAVE BEEN ALLOWED BY THE REVENUE AUTHORITIES. THE LEARNE D DR RELIED ON THE ORDER OF THE REVENUE AUTHORITIES AND THE DECISION O F THE TRIBUNAL RENDERED ON IDENTICAL ISSUE IN AY 2007-08. 15. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS AND ARE OF THE VIEW THAT SINCE IDENTICAL CLAIM HAS BEEN CONSIDERED CAPITAL EXPENDITURE BY THE TRIBUNAL IN AY 2007-08, WE FIND NO REASON TO TAKE A CONTRARY VIEW. THE NATURE OF THE CAPITAL WORK IN P ROGRESS WRITTEN OFF BEING IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF T HE TRIBUNAL, WE UPHOLD THE ORDERS OF THE REVENUE AUTHORITIES. WE ALSO FIND AL L 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 T HAT THE DAMAGES OF RS.3,81,10,000/- THOUGH WAS IN CONNECTION WITH A CL AIM FOR NOT ENGAGING THE SERVICES OF THE CONTRACTOR IN FUTURE FOR OTHER CONTRACTS CANNOT BE REGARDED AS HAVING NO NEXUS WITH THE CAPITAL WORK I N 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 DEDUCT ION AND WERE RIGHTLY HELD TO BE CAPITAL EXPENDITURE BY THE REVENUE AUTHO RITIES. 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 DI SALLOWED 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 AUTHORIT IES. WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO DIREC T THE AO TO LOOK INTO THIS ASPECT WHILE GIVING EFFECT TO THE DECISION OF THE T RIBUNAL AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND IF T HE CONTENTION IS FOUND TO BE CORRECT, ALLOW RELIEF TO THE ASSESSEE. THUS THE RELEVANT GROUNDS OF IT(TP)A NO.169 & 149/BANG/2014 PAGE 16 OF 27 APPEAL BEING GR.NO.3.2.1 TO 3.2.8 ARE DISMISSED WHI LE GR.NO.3.2.9 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 16. THE NEXT ISSUE THAT ARISES FOR CONSIDERATION IS DISALLOWANCE OF ADDITIONAL DEPRECIATION CLAIMED BY THE ASSESSEE. T HE GRIEVANCE IN THIS REGARD IS PROJECTED BY THE ASSESSEE IN GR.NO.3.3 (S UB-GROUNDS 3.3.1 TO 3.3.4) OF THE GROUNDS OF APPEAL FILED BEFORE THE TR IBUNAL. THE FACTS WITH REGARD TO THE CLAIM OF ADDITIONAL DEPRECIATION MADE BY THE ASSESSEE ARE THAT THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION O F RS.1,61,35,457/- ON ADDITIONS TO PLANT & MACHINERY DURING THE PREVIOUS YEAR. THE DETAILS OF THE PLANT & MACHINERY ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASSESSEE IS GIVEN AS ANNEXURE-1 TO THIS ORDER . 17. THE AO ON PERUSAL OF THE DETAILS OF PLANT AND M ACHINERY ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASSESSEE WAS OF THE VIEW THAT THE DESCRIPTION OF THE ITEMS OF PLANT AND MACHINERY ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED BY THE ASSESSEE WERE SUCH THAT THOSE ITEMS CANNOT BE REGARDED AS PLANT AND MACHINERY BUT WERE TO BE REGARDED AS OFFICE EQUIPMENT ON WHICH ADDITIONAL DEPRECIATION CANNOT BE CLAIMED U/S.32(1)(IIA) OF THE ACT. BESIDES THE ABOVE, THE AO WAS ALSO OF THE VIEW THAT THE ASSESSEE WAS IN THE BUSINESS OF SOFTWARE D EVELOPMENT AND ONLY COMPUTER SYSTEMS CAN BE CONSIDERED AS PLANT & MACHI NERY IN THE CASE OF THE ASSESSEE. HE WAS ALSO OF THE VIEW THAT THE PLA NT AND MACHINERY ON WHICH ADDITIONAL DEPRECIATION IS CLAIMED SHOULD BE USED IN MANUFACTURE OF ARTICLE OR THING AND SINCE THE ASSESSEE WAS ONLY A MANUFACTURER OF SOFTWARE, THE AFORESAID ITEMS WHICH WERE CLAIMED AS PLANT & MACHINERY, EVEN IF WERE TO BE REGARDED AS PLANT & MACHINERY, A DDITIONAL DEPRECIATION CANNOT BE ALLOWED BECAUSE THESE ITEMS WERE NOT USED BY THE ASSESSEE IN THE MANUFACTURE OF COMPUTER SOFTWARE. IN RESPONSE TO A QUERY BY THE AO AS ABOVE, THE ASSESSEE SUBMITTED THAT ANY APPLIANC E CAPABLE OF BEING INSTALLED AND USED IN ANY PLACE WHERE PEOPLE WORK O R GATHER, AND DESIRE TO IT(TP)A NO.169 & 149/BANG/2014 PAGE 17 OF 27 COMMUNICATE, SUCH ITEMS CANNOT BE CONSTRUED AS OFFI CE APPLIANCE AND IN THIS REGARD PLACED RELIANCE ON THE DECISION OF HON BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. PUNJAB WIRELESS SYSTEMS LTD. 296 ITR 489(P & H) . THE ASSESSEE FURTHER GAVE A LIST OF ASSETS ON WH ICH ADDITIONAL DEPRECIATION HAS BEEN CLAIMED, WHICH WE HAVE ANNEXE D AS ANNEXURE-2 TO THIS ORDER. THE AO HOWEVER PROCEEDED TO HOLD THAT THE DEFINITION OF PLANT AS GIVEN IN SEC.43(3) OF THE ACT IS AN INCLUSIVE DE FINITION AND THE WORD PLANT HAS BEEN DEFINED TO INCLUDE SHIPS, VEHICLES , BOOKS, SCIENTIFIC APPARATUS AND SURGICAL EQUIPMENT USED FOR THE PURPO SES OF THE BUSINESS OR PROFESSION BUT DOES NOT INCLUDE TEA BUSHES OR LIVES TOCK OR BUILDINGS OR FURNITURE AND FITTINGS. THE AO LAID EMPHASIS ON TH E WORDS USED FOR THE PURPOSE OF BUSINESS IN THE DEFINITION OF PLANT AND CONCLUDED THAT THE ASSESSEE FAILED TO SHOW HOW THE ITEMS OF ASSETS ON WHICH ADDITIONAL DEPRECIATION WAS CLAIMED WAS USED FOR THE PURPOSE O F BUSINESS OF MANUFACTURE OF SOFTWARE BY THE ASSESSEE. HE ALSO H ELD THAT THE ASSETS IN QUESTION WERE NOT USED IN MANUFACTURE OF SOFTWARE A ND THE CONDITION LAID DOWN IN SEC.32(1)(IIA) OF THE ACT FOR CLAIMING DEPR ECIATION IS THAT THE ASSETS ON WHICH DEPRECIATION IS CLAIMED SHOULD BE USED FOR THE MANUFACTURE OR PRODUCTION OF AN ARTICLE OR THING. THE AO ACCORDIN GLY DENIED THE CLAIM OF THE ASSESSEE FOR ADDITIONAL DEPRECIATION. THE CIT( A) CONFIRMED THE ORDER OF THE AO AS THERE WAS NO OTHER FACTS BROUGHT TO NO TICE BY THE ASSESSEE BEFORE CIT(A). AGGRIEVED BY THE ORDER OF THE CIT(A ), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 18. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED CO UNSEL FOR THE ASSESSEE AND THE LEARNED DR. THE PROVISIONS OF SEC .32(1)(IIA) OF THE ACT BASED ON WHICH THE ADDITIONAL DEPRECIATION WAS CLAI MED BY THE ASSESSEE READS THUS: IT(TP)A NO.169 & 149/BANG/2014 PAGE 18 OF 27 SEC.32 DEPRECIATION. (1)IN RESPECT OF DEPRECIATION OF (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE, BEING TANGIBLE ASSETS; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMIL AR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION, THE FOLLOWING DEDUCT IONS SHALL BE ALLOWED (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGED IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTAGE ON THE ACTUAL COST THEREOF TO THE ASSESS EE AS MAY BE PRESCRIBED; (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERCE NTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED: (IIA) IN THE CASE OF ANY NEW MACHINERY OR PLANT ( OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED AND IN STALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING, A FURTHER SUM EQUAL TO TWENTY PER CENT. OF THE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDUCTION UN DER CLAUSE (II): 19. A BARE READING OF THE AFORESAID PROVISIONS SHOW S THAT THE NEW MACHINERY OR PLANT SHOULD BE USED BY AN ASSESSEE ENGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING AND THE NEW MACHINERY OR PLANT NEED NOT BE USED IN MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE LEARNED COUNSEL HAS BEFORE U S RELIED ON THE DECISION OF THE HONBLE MADRAS HIGH COURT HIGH COURT IN THE CAS E OF CIT VS. VTM LTD.319 ITR 336 (MADRAS) WHEREIN THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF MANUFACTURE OF TEXTILE GOODS. DURIN G THE RELEVANT ASSESSMENT YEAR, IT HAD SET UP A WIND MILL FOR GENE RATION OF POWER AND CLAIMED ADDITIONAL DEPRECIATION THEREON UNDER SECTI ON 32(1)( IIA ). THE IT(TP)A NO.169 & 149/BANG/2014 PAGE 19 OF 27 ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUN D THAT THE ASSESSEE WAS ENGAGED ONLY IN THE MANUFACTURE OF TEXTILE GOOD S AND THE SETTING UP OF A WIND MILL HAD ABSOLUTELY NO CONNECTION WITH THE M ANUFACTURE OF TEXTILE GOODS. HOWEVER, THE COMMISSIONER (APPEALS) AS WELL AS THE TRIBUNAL ALLOWED THE ASSESSEES CLAIM OF ADDITIONAL DEPRECIA TION. ON APPEAL TO THE HIGH COURT, THE HONBLE HIGH COURT HELD THAT FOR AP PLICATION OF SECTION 32(1)(IIA ) WHAT IS REQUIRED TO BE SATISFIE D IN ORDER TO CLAIM THE ADDITIONAL DEPRECIATION IS THAT A NEW MACHINERY OR PLANT, WHICH HAS BEEN SET UP, SHOULD HAVE BEEN ACQUIRED AND INSTALLED AFT ER 31-3-2002 BY AN ASSESSEE, WHO WAS ALREADY ENGAGED IN THE BUSINESS O F MANUFACTURE OR PRODUCTION OF ANY ARTICLE OR THING. THE SAID PROVIS ION DOES NOT STATE THAT THE SETTING UP OF A NEW MACHINERY OR PLANT, WHICH WAS A CQUIRED AND INSTALLED AFTER 31-3-2002 SHOULD HAVE ANY OPERATIONAL CONNECT IVITY TO THE ARTICLE OR THING THAT WAS ALREADY BEING MANUFACTURED BY THE AS SESSEE. THEREFORE, THE CONTENTION THAT THE SETTING UP OF A WINDMILL HAD NO THING TO DO WITH THE MANUFACTURE OF TEXTILE GOODS WAS TOTALLY NOT GERMAN E TO THE SPECIFIC PROVISION CONTAINED IN SECTION 32(1)(IIA ). IN THE LIGHT OF THE AFORESAID DECISION, WE ARE OF THE VIEW THAT ONE OF THE BASIS ON WHICH THE REVENUE AUTHORITIES DISALLOWED THE CLAIM OF THE ASSESSEE FO R DISALLOWANCE OF ADDITIONAL DEPRECIATION CANNOT BE SUSTAINED. 20. AS FAR AS THE QUESTION WHETHER THE ASSETS ON WH ICH THE ASSESSEE CLAIMED ADDITIONAL DEPRECIATION SHOULD BE REGARDED AS PLANT OR OFFICE EQUIPMENT, WE DO NOT FIND SUFFICIENT MATERIAL BEFO RE THE REVENUE AUTHORITIES TO COME TO A CONCLUSION ONE WAY OR THE OTHER. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED IN THE COURSE OF HIS ARGUMENTS THAT THE ASSETS ON WHICH ADDITIONAL DEPRECIATION IS CLAIMED WERE USED FOR TESTING PROCESS WHILE DESIGNING SEMI-CONDUCTORS WHICH WAS A LSO A BUSINESS WHICH THE ASSESSEE WAS CARRYING ON. THESE DETAILS HAVE N OT BEEN BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES NOR BEFORE US. HE ALSO IT(TP)A NO.169 & 149/BANG/2014 PAGE 20 OF 27 PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS. IBM WORLD TRADE CORPN. (1981) 130 ITR 739 ( BOMBAY) WHEREIN THE HONBLE BOMBAY HIGH COURT HELD THE EXPR ESSION OFFICE EQUIPMENT USED IN SEC.33 SHOULD BE CONSTRUED IN CO NTEXT OF APPLIANCES WHICH ARE GENERALLY USED IN OFFICE AS AN AID FOR PR OPER FUNCTION OF OFFICE AND THAT EA MACHINES, DATA PROCESSING MACHINES INSTALLA TION AND OPERATION OF WHICH IS ON SCIENTIFIC BASIS, AND WHICH HAS THEIR R OLES TO PLAY CANNOT BE EQUATED WITH OFFICE APPLIANCES AND THEREFORE SUCH M ACHINES ARE PLANT AND NOT OFFICE APPLIANCES. AS WE HAVE ALREADY OB SERVED THERE IS COMPLETE LACK OF DETAILS TO DECIDE WHETHER THE ASSE TS IN QUESTION ARE PLANT OR OFFICE EQUIPMENT IN THE ABSENCE OF THE ROLE THESE ASSETS PERFORM AND PURPOSE FOR WHICH THESE ASSETS ARE USED BY THE ASSESSEE. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) ON THIS LIMITED ISSUE OF DETERMINING WHETHER THE ASSETS ON WHICH ADDITIONAL DEPRECIATION IS CLAIMED BY THE ASSESSEE CAN BE REGARDED AS PLANT. THE ASSE SSEE IS DIRECTED TO FURNISH THE DETAILS AND DESCRIPTION TO THE AO IN TH IS REGARD, WHO SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER AFFO RDING ASSESSEE OPPORTUNITY OF BEING HEARD. IN THE EVENT OF THE AO COMING TO THE CONCLUSION THAT THE ASSETS IN QUESTION ARE IN THE N ATURE OF PLANT, THE CLAIM FOR ADDITIONAL DEPRECIATION SHOULD BE ALLOWED. WIT H THESE OBSERVATIONS WE ALLOW THE RELEVANT GROUNDS OF APPEAL FOR STATISTICA L PURPOSE. 21. THE OTHER GROUND OF APPEAL IN THE ASSESSEES AP PEAL WITH REGARD TO LEVY OF INTEREST U/S.234B AND 234D ARE PURELY CONSE QUENTIAL AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF. 22. IN THE RESULT, APPEAL BY THE ASSESSEE IS TREATE D AS PARTLY ALLOWED. 23. NOW WE SHALL TAKE UP THE APPEAL OF THE REVENUE FOR CONSIDERATION. GR.NO.1 AND 6 ARE GENERAL IN NATURE AND CALLS FOR N O SPECIFIC ADJUDICATION. GR.NO.4 & 5 ARE WITH REGARD DETERMINATION OF ALP IN RESPECT OF AN IT(TP)A NO.169 & 149/BANG/2014 PAGE 21 OF 27 INTERNATIONAL TRANSACTION BETWEEN THE ASSESSEE AND ITS AE. THE ISSUE HAS ALREADY BEEN SETTLED BETWEEN THE ASSESSEE AND THE R EVENUE IN MUTUAL AGREEMENT PROCEDURE (MAP) UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND USA. HENCE, THESE GROU NDS ARE DISMISSED AS INFRUCTUOUS. GR.NO.2 & 3 ALONE REMAIN TO BE ADJ UDICATED. 24. AS FAR AS GR.NO.2 RAISED BY THE REVENUE IS CONCERNE D, THE SAME RELATES TO THE ACTION OF THE CIT(A) IN HOLDING THAT PAYMENT OF LEASE RENTAL ON FINANCE LEASE OF CARS WILL NOT ATTRACT TAX DEDUCTIO N AT SOURCE (TDS) PROVISIONS AND THEREBY DELETING THE ADDITION MADE B Y THE AO U/S.40(A)(I) & 40(A)(IA) OF THE ACT. THE FACTS WITH REGARD TO THI S GROUND OF APPEAL ARE THAT THE ASSESSEE OBTAINED CERTAIN VEHICLES ON LEASE ON A FINANCE LEASE ARRANGEMENT. ON PAYMENT OF LEASE RENTS UNDER FINANC E LEASE ARRANGEMENT OF RS.7,87,93,536/-, THE ASSESSEE DID NOT DEDUCT T AX AT SOURCE. IT WAS THE PLEA OF THE ASSESSEE THAT THE PAYMENT IN QUESTION W AS NOT IN THE NATURE OF RENT WITHIN THE MEANING OF THE TERM U/S.194-I OF THE ACT AND THEREFORE NO TAX WAS DEDUCTED AT SOURCE AT THE TIME OF MAKING PA YMENT TO THE FINANCE COMPANY. THE AO HOWEVER HELD THAT THE PAYMENT WAS IN THE NATURE OF A PAYMENT TO A CONTRACTOR FOR EXECUTION OF A WORK AND THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE U/S.194-C OF THE ACT. SINCE NO TAX WAS DEDUCTED AT SOURCE, THE AO DISALLOWED DEDUCTION OF A SUM OF RS.7,87,93,536/- BY INVOKING THE PROVISIONS OF SEC. 40(A)(IA) OF THE ACT. 25. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD THAT PROV ISIONS OF SEC.194-C OF THE ACT WERE NOT APPLICABLE TO PAYMENT OF LEASE RENTALS AS THE PAYMENT CANNOT BE CONSIDERED AS PAYMENT TO A CONTRA CTOR FOR CARRYING OUT ANY WORK. EXPLANATION III.TO SEC.194C OF THE ACT DEFINES WORK FOR THE PURPOSE OF SEC.194C OF THE ACT AS FOLLOWS: FOR THE PURPOSES OF THIS SECTION, THE EXPRESSION ' WORK' SHALL ALSO INCLUDE IT(TP)A NO.169 & 149/BANG/2014 PAGE 22 OF 27 ( A ) ADVERTISING; ( B ) BROADCASTING AND TELECASTING INCLUDING PRODUCTI ON OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; ( C ) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE O F TRANSPORT OTHER THAN BY RAILWAYS; ( D ) CATERING. 26. THE CIT(A) RELIED ON DECISION OF DELHI BENCH OF THE TRIBUNAL IN ACIT VS SANJAY KUMAR (2011) 15 TAXMANN.COM 230 (DELHI) AND MUMBAI BENCH OF ITAT IN THE CASE OF BHAIL BULK CARRIERS VS. ITO (2011) 20 TAXMANN.COM 87 (MUM) IN WHICH IT HAS BEEN HELD THAT THE PAYMENT MADE BY THE ASSESSEE FOR TAKING CRANES AND SHIPS ON LEASE ON TI ME BASIS, DID NOT CONSTITUTE PAYMENT WITH REGARD TO 'WORKS CONTRACT' AS DEFINED IN SEC. 194C AND HENCE THE ASSESSEE WAS NOT REQUIRED TO DEDUCT T AX AT SOURCE UNDER THIS ACTION. 27. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GR.NO.2 BEFORE THE TRIBUNAL. THE LEARNED DR RELIED ON THE O RDER OF THE AO AND FURTHER SUBMITTED THAT THE APPLICABILITY OF PROVISI ONS OF SEC.194-I OF THE ACT HAS NOT BEEN CONSIDERED BY THE CIT(A). WE ARE OF T HE VIEW THAT THE AO MADE THE ADDITION ONLY ON THE BASIS OF PROVISIONS O F SEC.194C OF THE ACT AND HE DID NOT INVOKE THE PROVISIONS OF SEC.194I OF THE ACT. AS FAR AS PROVISIONS OF SEC.194C OF THE ACT IS CONCERNED, WE ARE OF THE VIEW THAT THE CIT(A) HAS RIGHTLY COME TO THE CONCLUSION THAT PAYM ENT OF LEASE RENTALS UNDER A FINANCE LEASE WILL NOT ATTRACT THE PROVISIO NS OF SEC.194C OF THE ACT. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF T HE CIT(A). ACCORDINGLY GR.NO.2 RAISED BY THE REVENUE IS DISMISSED. 28. GR.NO.3 RAISED BY THE REVENUE IS WITH REGARD TO THE GRIEVANCE OF THE REVENUE IN TREATING AMOUNT PAID TOWARDS AUTOMATION SOFTWARE AS REVENUE IT(TP)A NO.169 & 149/BANG/2014 PAGE 23 OF 27 EXPENDITURE. THE FACTS WITH REGARD TO THIS GROUND OF APPEAL ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS.135,52,51 ,594/- WHILE COMPUTING INCOME FROM BUSINESS UNDER THE HEAD DATA AUTOMATION SOFTWARE EXPENSES. THE AO CALLED UPON THE ASSESSE E TO EXPLAIN THE NATURE OF THE AFORESAID EXPENDITURE. THE ASSESSEE VIDE ITS LETTER DATED 28.7.2011 EXPLAINED TO THE AO THAT THE SOFTWARE IN QUESTION WERE ELECTRONIC DESIGN AUTOMATION(EDA) WHICH ARE USED BY THE ASSESSEES DESIGNERS FOR PRODUCT DESIGN AND VERIFICATION. THE ASSESSEE POINTED OUT THAT EDA SOFTWARE LICENSE IS ACQUIRED BY THE TEXAS INSTRUMENTS INC. USA UNDER A GLOBAL AGREEMENT FROM VENDORS OF SUCH SOFTW ARE LIKE SYNOPSIS, CADENCE, MATHWORK, MAGMA, RATIONAL ETC., AND THE A SSESSEE IS ALLOWED TO USE SUCH SOFTWARE AND BILLED ON THE BASIS OF ACT UAL HOURS THE ASSESSEE USES THE SOFTWARE. THE ASSESSEE THEREFORE SUBMITTE D THAT THE EXPENDITURE WAS A PAYMENT FOR LICENSE TO USE SOFTWARE AND THE A SSESSEE NEVER ACQUIRED ANY RIGHT OR INTEREST IN THE SOFTWARE AND THEREFORE THE PAYMENT MADE FOR RIGHT TO USE SUCH SOFTWARE WAS PURELY REVE NUE 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 ALL OWED AND NOT THE ENTIRE EXPENDITURE. THE FOLLOWING WERE THE RELEVANT OBSER VATIONS OF THE AO:- 5.3 THE ASSESSEE'S SUBMISSION IS CAREFULLY CONSI DERED. THE DATA AUTOMATION SOFTWARE IS A COMPUTER SOFTWARE WHI CH IS BEING USED BY THE ASSESSEE FOR DESIGNING ITS PRODUCTS. EL ECTRONIC DESIGN AUTOMATION (EDA) IS A CATEGORY OF SOFTWARE TOOLS FO R DESIGNING ELECTRONIC SYSTEMS SUCH AS PRINTED CIRCUIT BOARDS A ND INTEGRATED CIRCUITS. THE TOOLS WORK TOGETHER IN A DESIGN FLOW THAT CHIP DESIGNERS USE TO DESIGN AND ANALYZE ENTIRE SEMICOND UCTOR CHIPS. THE EXPENDITURE ON COMPUTER SOFTWARE UNDER THE HEAD . 'DATA AUTOMATION SOFTWARE EXPENSES' IS NECESSARILY AN EXP ENDITURE WHICH IS REQUIRED TO BE CAPITALIZED BY THE ASSESSEE . ASSESSEE'S RELIES ON THE HON'BLE SUPREME COURT DECISION IN THE CASE OF EMPIRE JUTE CO LTD VS CIT [124 ITR 1] IS MISPLACED SINCE THE IT(TP)A NO.169 & 149/BANG/2014 PAGE 24 OF 27 DECISION WAS GIVEN BY THE HON'BLE COURT IN A DIFFER ENT SET OF FACTS AND CIRCUMSTANCES. THE ASSESSEE HAS NOT STATED OR C LARIFIED IN ITS SUBMISSION DATED 28.07.2011 AS TO HOW IT HAS APPLIE D THE JUDGMENT IN THE CASE OF EMPIRE JUTE CO LTD IN ITS C ASE. 5.4 THE COMPUTER SOFTWARE EXPENSES HAVE BEEN HELD TO BE CAPITAL IN NATURE BY THE HON'BLE RAJASTHAN HIGH COU RT IN THE CASE OF CIT VS ARAWALI CONSTRUCTION CO. (P) LTD. (259 IT R 30). THE HON'BLE COURT HELD AS UNDER: 'THE FACT ON RECORD IS THAT THE PAYMENT OF RS 1,38, 360/- WAS NOT MADE AS CONSULTANCY FEE TO HINDUSTAN COMPUT ERS LTD_ IN FACT, THE PAYMENT WAS MADE FOR OUTRIGHT SAL E OF 'COMPUTER SOFTWARE' WHICH IS USED AS TECHNIQUE IN M INING OPERATIONS. THE FINDING OF THE COMMISSIONER (APPEAL S) WAS THAT THE ACQUISITION OF SOFTWARE CANNOT BE TREA TED TO BE AN ASSET OF ENDURABLE NATURE. IF THE PROGRAMME I S USED IN ONE MINING TO ANOTHER MINING OPERATION, WHY IT S HOULD NOT BE TREATED AS CAPITAL ASSET AND EXPENDITURE ON THAT, CAPITAL EXPENDITURE. CONSIDERING THESE FACTS AND DE CISION OF THEIR LORDSHIPS AND LATER DECISION OF THE BOMBAY HIGH COURT, IN OUR VIEW, THE ACQUISITION OF TECHNICAL KN OW-HOW IS A CAPITAL EXPENDITURE, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY TREATED THE EXPENDITURE ON ACQUIRING TH E COMPUTER SOFTWARE AS EXPENDITURE OF CAPITAL NATURE AND RIGHTLY ALLOWED DEPRECIATION AS PER RULES.' 5.5 RELIANCE IS ALSO PLACED ON THE DECISION IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT (ITAT, DEL-SPECIAL BENCH) [111 ITD 112]. IN THIS CASE THE HON'BLE ITAT HELD T HAT COMPUTER SOFTWARE WAS TANGIBLE ASSET ELIGIBLE FOR DEPRECIATI ON @ 60%. IN THE RESULT, THE AUTOMATION SOFTWARE EXPENSES O F RS. 135,52,51,594/- ARE HELD TO BE CAPITAL IN NATURE. T HE AMOUNT AS CLAIMED IN P 86 L A/C IS DISALLOWED AND ADDED BACK. INSTEAD, THE ASSESSEE IS ALLOWED DEPRECIATION ON THE AMOUNT @ 60 %. [ADDITION RS. 54,21,00,637/-] 29. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE ADDITION MADE BY THE AO HOLDING THAT THE ASSESSEE ACQUIRED ON PUR CHASE 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 T HAT THE SOFTWARE WAS AN IT(TP)A NO.169 & 149/BANG/2014 PAGE 25 OF 27 ENABLING TOOL IN THE BUSINESS OF THE ASSESSEE AND T HEREFORE 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 -40 6 OF ASSESSEES PAPER BOOK. THE AGREEMENT IS BETWEEN TEXAS INSTRUMENTS I NC., USA AND THE ASSESSEE. THE AGREEMENT REFERS TO THE US PARENT CO MPANY OF THE ASSESSEE HAVING ACQUIRED LICENSE TO USE EDA TOOLS F ROM THE VENDORS AND THE RIGHT OF THE ASSESSEE TO USE THE SAME AND THE F ACT 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 A CQUIRED 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 T HE EDA TOOLS WAS NOT CONNECTED TO THE BUSINESS OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE DEDUCTION WAS RIGHTLY ALLOWED BY THE CIT(A) AS REVENUE EXPENDITURE. WE FIND NO GROUNDS TO INTERFERE WITH THE ORDER OF THE CIT(A) AND DISMISS GR.NO.2 RAISED BY THE REVENUE. 31. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISS ED WHILE THE APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF MARCH, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDE NT BANGALORE, DATED, THE 6 TH MARCH, 2020. / DESAI S MURTHY / IT(TP)A NO.169 & 149/BANG/2014 PAGE 26 OF 27 COPY TO: 1. ASSESSEE 2. REVENUE 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE. IT(TP)A NO.169 & 149/BANG/2014 PAGE 27 OF 27 ANNEXURE-I TO ORDER