Financial Software and Systems Private Limited, CHENNAI v. DCIT, CHENNAI

ITA 1070/CHNY/2016 | 2011-2012
Pronouncement Date: 30-09-2016

Appeal Details

RSA Number 107021714 RSA 2016
Assessee PAN AAACP2351C
Bench Chennai
Appeal Number ITA 1070/CHNY/2016
Duration Of Justice 5 month(s) 8 day(s)
Appellant Financial Software and Systems Private Limited, CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Bench Allotted A
Assessment Year 2011-2012
Appeal Filed On 21-04-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . .. ' #$ & '( [ BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH ACCOUNTANT MEMBER] ./ I.T.A.NO.1070/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S FINANCIAL SOFTWARE AND SYSTEMS P LTD G-4 I CROSS STREET SIPCOT IT PARK RAJIV GANDHI SALAI (OMR) SIRUSERI NAVALUR CHENNAI 603 103 VS. THE DY. COMMISSIONER OF INCOME TAX COMPANY CIRCLE II(1) CHENNAI [PAN AAACP 2351 C] ] ( )* / APPELLANT) ( + )* /RESPONDENT) ./ I.T.A.NO.1177/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE DY. COMMISSIONER OF INCOME TAX COMPANY CIRCLE II(1) CHENNAI VS. M/S FINANCIAL SOFTWARE AND SYSTEMS P LTD G-4 I CROSS STREET SIPCOT IT PARK RAJIV GANDHI SALAI (OMR) SIRUSERI NAVALUR CHENNAI 603 103 ( )* / APPELLANT) ( + )* /RESPONDENT) ASSESSEE BY : SHRI SRIRAM SESHADRI SHRI ASHIK SHAH & MS.AMRITA RANGANATHAN CAS DEPARTMENT BY : SHRI SHIVA SRINIVAS JCIT / DATE OF HEARING : 20 - 09 - 2016 / DATE OF PRONOUNCEMENT : 30 - 09 - 2016 :-2-: ITA NOS.1070 & 1177/16 / O R D E R PER D.S. SUNDER SINGH ACCOUNTANT MEMBER THESE CROSS APPEALS OF THE ASSESSEE AND THE RE VENUE ARE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCO ME-TAX (APPEALS)-6 CHENNAI DATED 17.2.2016 FOR ASSESSME NT YEAR 2011- 12. 2. GROUND NO.1 IS GENERAL IN NATURE WHICH DO NOT REQU IRE SPECIFIC ADJUDICATION. 3. GROUND NO. 2 AND 3 ARE RELATED TO THE EXCLUSION OF TRAVEL EXPENSES BY THE ASSESSING OFFICER FROM THE EXPORT TURNOVER. THE ASSESSEE-COMPANY IS ENGAGED IN PROVIDING SOFTWARE S ERVICES IN BANKING AND FINANCIAL SECTOR. THE ASSESSEE IS HAVIN G OFFICES AT MUMBAI AND CHENNAI. WHILE MUMBAI IS A NON STPI UNIT DEALING WITH PURCHASE AND INSTALLATION OF ATM MACHINES THE CHENNAI BRANCH HAS GOT BOTH STPI AND NON STPI UNITS. FOR TH E A.Y.2011- 12 THE ASSESSEE HAS CLAIMED THE AMOUNT OF ` 1 01 53 363/- AS AN EXPENDITURE UNDER TRAVEL EXPENSES RELATING TO 100% STPI UNIT. SINCE THE EXPENDITURE TOWARDS THE TRAVELLING AMOUNT ING TO RS. 1 01 53 363/- INCURRED OUTSIDE INDIA IN FOREIGN CUR RENCY THE ASSESSING OFFICER PRESUMED THAT THE ASSESSEE SHOULD HAVE RENDERED THE SERVICES OUTSIDE INDIA AND EXCLUDED TH E AMOUNT OF :-3-: ITA NOS.1070 & 1177/16 FOREIGN TRAVEL FROM THE EXPORT TURNOVER FOR THE PUR POSE OF COMPUTING THE DEDUCTION U/S 10A. 4. THE ASSESSEE WENT IN APPEAL TO THE CIT(A) A ND THE LD. CIT(A) HELD THAT THE IMPUGNED EXPENDITURE WAS INCUR RED IN FOREIGN EXCHANGE THEREFORE THE ASSESSING OFFICER RIGHTLY EXCLUDED THE EXPENDITURE FROM THE EXPORT TURNOVER. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE FILED APPEA L BEFORE US. 5. THE LD. A.R SUBMITTED THAT THE FOREIGN TRA VEL EXPENDITURE SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER SINCE THE ACT DOES NOT PROVIDE FOR EXCLUSION OF FOR EIGN TRAVEL EXPENDITURE UNLESS IT IS INCURRED IN RENDERING THE SERVICES OUTSIDE INDIA. HE HAS TAKEN OUR ATTENTION TO THE EX PLANATION EXPLN-2(III) OF SECTION 10A WHEREIN THE EXPORT TURN OVER WAS DEFINED. FURTHER THE A.R REFERRED THE DECISIONS OF HON'BLE SPECIAL BENCH DECISION IN THE CASE OF ZYLOG SYSTEMS REPORTED IN 8 TAXMANN.COM 276(CHENNAI) BENCH AND CIRCULAR NO.69 3 DATED 23/11/1994. THE A.R ARGUED THAT PRIMA FACIE THE ASS ESSING OFFICER IS INCORRECT IN EXCLUDING THEFOREIGN TRAVE L EXPENDITURE FROM THE EXPORT TURNOVER AND EVEN IF IS TO BE EXCLU DED IT SHOULD BE EXCLUDED BOTH FROM THE EXPORT TURNOVER AS WELL A S TOTAL TURNOVER. :-4-: ITA NOS.1070 & 1177/16 6. ON THE OTHER HAND THE LEARNED DR ARGUED TH AT THE EXPENDITURE WAS SPENT OUTSIDE INDIA AND THE SAME WA S NOT BROUGHT IN INTO INDIA. THE ACT PROVIDES FOR EXEMPTI ON OF INCOME RELATING TO THE FOREIGN EXCHANGE BROUGHT IN TO THE COUNTRY. THEREFORE HE CONTENDED THAT THE ASSESSING OFFICER H AS RIGHTLY EXCLUDED THE FOREIGN TRAVEL EXPENDITURE FROM THE EX PORT TURNOVER AND THE CIT(A) HAS RIGHTLY CONFIRMED THE O RDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THERE IS NO N EED TO DISTURB THE ORDER OF THE CIT(A). THE DR DEFENDED THE ORDER S OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER E XCLUDED THE FOREIGN TRAVEL EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS FROM THE EXPORT TURNOVER. THE EXPORT TURNOVER IS DE FINED IN EXPLN-2(III) OF SECTION 10A AS UNDER: 'EXPORT TURNOVER' MEANS THE CONSIDERATION IN RESPEC T OF EXPORT 40 [BY THE UNDERTAKING] OF ARTICLES OR THINGS OR COMPUTER SOFT WARE RECEIVED IN OR BROUGHT INTO INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE IN ACCORDANCE WITH SUB-SECTION (3) BUT DOES NOT INCLU DE FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE IND IA OR EXPENSES IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHN ICAL SERVICES OUTSIDE INDIA; 8. FROM THE ABOVE DEFINITION WHAT IS TO BE EXCLUDED FROM THE TOTAL TURNOVER IS THE FREIGHT TELECOMMUNICATION CH ARGES OR :-5-: ITA NOS.1070 & 1177/16 INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTIC LES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR THE EXPENSE IF ANY INCURRED IN FOREIGN EXCHANGE IN PROVIDING THE TECHNICAL SERV ICES OUT SIDE INDIA BUT NOT THE BUSINESS EXPENSES INCURRED OUTSIDE INDI A. FOREIGN TRAVEL EXPENDITURE IS A BUSINESS EXPENDITUR E WHICH SHOULD BE ALLOWED AS DEDUCTION UNLESS IT IS ATTRIBU TABLE TO THE SERVICES RENDERED OUTSIDE INDIA AND THE SAID EXPEND ITURE INCURRED IN FOREIGN CURRENCY. THE ASSESSEES CASE IS NOT A CASE WHERE THE ASSESSEE HAD RENDERED THE SERVICES OUTSI DE INDIA AND INCURRED THE EXPENDITURE IN FOREIGN CURRENCY. T HE ASSESSING OFFICER HAS NOT MADE OUT A CASE THAT THE EXPENDITUR E WAS INCURRED FOR THE SERVICES RENDERED OUTSIDE INDIA AN D DID NOT RELATE TO THE ASSESSEES BUSINESS. THE ASSESSEE REL IED ON THE HONBLE SPECIAL BENCH JUDGMENT IN THE CASE OF ZYLOG SYSTEMS V. INCOME- TAX OFFICER COMPANY WARD- III REPORTED IN [ 2010] 8 TAXMANN.COM 276 (CHENNAI) (SB). THE SPECIAL BENCH HELD THAT THERE WAS NO DISPUTE ABOUT THE FACT THAT THE ASSESS EE WAS A COMPANY ENGAGED IN BUSINESS OF DEVELOPMENT OF SOFTWARE BOTH BY WAY OF ONSITE DEVELOPMENT AND OFFSHORE DEVELOPMENT AND ALSO THAT IT HAD BRANCH IN USA FOR WHICH SEPARATE ACCOUNTS WERE MAINTAINED. THERE WAS ALSO NO DISPUTE ABOUT THE FACT THAT THERE WAS APPROVAL OF THE AUTHORIZED DEALER NAMELY C BA NK FOR OPENING THE OVERSEAS BRANCH IN USA. [PARA 20] NOW IT WAS NECESSARY TO ADJUDICATE WHETHER THE ASSE SSING OFFICER AND THE COMMISSIONER (APPEALS) WERE RIGHT IN EXCLUDING FROM THE EXPORT TURNOVER EXPENSES INCURRED BY THE ASSESSEE OUTSIDE INDIA IN FOREIGN EXCHANGE IN PROVIDING TECHNICAL SERVICES WHILE COMPUTING DEDUC TION UNDER SECTION 10B. FOR ADJUDICATING THIS ISSUE FIRST OF ALL IT WAS ESS ENTIAL TO CONSIDER WHAT IS SOFTWARE AND WHAT IS TECHNICAL SERVICES. THE CO MBINED READING OF THE DEFINITION OF SOFTWARE AS GIVEN IN CLAUSE ( I ) OF EXPLANATION (2) AND EXPORT TURNOVER AS DEFINED IN CLAUSE ( III ) OF SUB-SECTION (9A) OF SECTION 10B WOULD GO TO SHOW THAT EXPORT TURNOVER OF COMPUTER SOF TWARE MEANS CONSIDERATION :-6-: ITA NOS.1070 & 1177/16 RECEIVED IN RESPECT OF EXPORT OF COMPUTER SOFTWARE BUT DOES NOT INCLUDE FREIGHT TELECOMMUNICATION CHARGES OR INSURANCE TO THE DELIV ERY OF COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES INCURRED IN FOREIGN EXCHA NGE IN PROVIDING TECHNICAL SERVICES OUTSIDE INDIA. [PARA 21] IN THE INSTANT CASE THE ASSESSEE PLEADED THAT IT H AD NOT RENDERED ANY TECHNICAL SERVICES OUTSIDE INDIA TO THIRD PARTY. WHATEVER THE SERVICES WERE RENDERED IN FOREIGN COUNTRY AND EXPENSES INCURRED AS PAY ROLL E TC. WERE INCURRED IN CONNECTION WITH STAFF OF THE FOREIGN BRANCH. [PARA 22] THE DEPARTMENT HAD NOT BROUGHT ANYTHING ON RECORD T O SHOW THAT THE ASSESSEE- COMPANY WAS INVOLVED IN RENDERING ANY MANA- GERIAL OR CONSULTANCY SERVICES AT FOREIGN COUNTRY. ALSO IT WAS NOT BROUGHT ON RECORD THAT THE COMPANY WAS INVOLVED IN PROVIDING THE TECHNICAL SERVICES TO OTHER PERSON NEL OR ANY OUTSIDE AGENCY. ALL THE SERVICES RENDERED BY THE COMPANY WERE TO ITS ST AFF LOCATED IN USA FOR THE FULFILMENT OF OBJECTS NAMELY DEVELOPMENT OF SOFTWAR E. THERE WAS FORCE IN THE CONTENTION OF THE ASSESSEE THAT A PERSON CANNOT PRO VIDE SERVICES TO SELF. THERE WAS ALSO FORCE IN THE CONTENTION OF THE ASSESSEE TH AT IN THE CASE OF CALIFORNIA SOFTWARE CO. LTD. V. ASSTT. CIT [2009] 27 SOT 51 (CHENNAI)(URO) THERE WAS PRESUMPTION BY THE BENCH THAT TECHNICAL SERVICES WE RE RENDERED BY THE ASSESSEE TO SELF. THE CIRCULAR NO. 621 DATED 19-12-1991 CI RCULAR NO. 694 DATED 23-11- 1994 ALSO SHOWS THAT THE EXPENDITURE INCURRED ON SI TE ABROAD WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B. [PARA 23] TO SUM UP IN INSTANT CASE THE EXPENDITURE HAD BEEN INCURRED ON FOREIGN SOIL IN CONNECTION WITH DEVELOPMENT OF SOFTWARE BY THE EMPL OYEES OF THE ASSESSEE- COMPANY AT FOREIGN BRANCH AND NOTHING HAD BEEN INCU RRED ON MANAGERIAL OR TECHNICAL SERVICES RENDERED TO ANY OUTSIDERS IN FOR EIGN SOIL. IN VIEW OF THIS DISCUSSION IT WAS TO BE HELD THAT SAID EXPENDITURE COULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR COMPUTING DEDUCTION UNDER SECTI ON 10B. [PARA 24] 9. THE SPECIAL BENCH HELD IN THE CASE LAW CITED SUP RA THAT THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS IN THE FOREIGN SOIL SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVE R FOR THE PURPOSE OF DEDUCTION U/S 10B. IN THE ASSESSEES CAS E THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S AND SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER. THE ASSES SEES CASE IS SQUARELY COVERED BY THE SPECIAL BENCH DECISION. THE REFORE RESPECTFULLY FOLLOWING THE HONBLE SPECIAL BENCH DE CISION CITED WE DELETE THE ADDITION MADE BY THE AO AND SET ASIDE TH E LOWER :-7-: ITA NOS.1070 & 1177/16 AUTHORITIES ORDERS. ACCORDINGLY GROUND NO.2&3 OF TH E ASSESSEES APPEAL ARE ALLOWED. 10. GROUND NO.4 IS RELATED TO THE EXCLUSION OF UNREALIZ ED EXPORT PROCEEDS FROM THE EXPORT TURNOVER. THE AO E XCLUDED THE AMOUNT OF RS. 23 89 578/- REPRESENTING THE UNREALIZED EXPORT PROCEEDS FROM THE EXPORT TURNOVER AND THE CIT(A) C ONFIRMED THE AOS ORDER. THE A.R OF THE ASSESSEE HAS NOT MAD E ANY ARGUMENT ON THIS ISSUE. THEREFORE THIS GROUND IS DI SMISSED. 11. GROUND NO.5 TO 9 ARE RELATED TO THE DEDUCTION U/S 80JJAA. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE AMOUNTING TO ` 3 23 94 721/- MADE U/S 80JJAA. THE ASSESSING OFFICE R WAS OF THE VIEW THAT THE COMPANY WAS ENGAGED IN THE BUSINESS OF SOF TWARE AND ITS EMPLOYEES CANNOT BE CALLED AS WORKMEN. FOR READY RE FERENCE WE REPRODUCE THE RELEVANT PART OF THE ASSESSMENT ORDER WHICH READS AS UNDER: THE COMPANY HAS M ADE A CLA I M OF DEDUCTION U/S 80JJAA AMOUNTING TO RS.3 23 94 721 DURING T H E YEAR. THIS DEDUCTION IS AVAILABLE TO INDUSTRIAL UNDERTAKI NGS EMPLOYING N E W WORKMEN. THE COMPANY BEING E N GAGED IN THE BUSINESS OF SOFTWARE ITS E M P LOYEES C ANNOT BE CALLED AS WORKME N . THE TERM IS PRIMARILY MEANT TO INDIC A T E BLUE COLLARED WORKERS EMPLOYED IN MANUFACTURING INDUSTRIES. WHEN THIS WA S PUT TO TH E AR HE FILED HIS SUBMISSION S STATING THAT - THOUGH THE T ERM ' INDU S TRIAL UNDERTAKING' HAS NOT BEEN DEFINED IN SECTION 80JJAA THE P R OVISIONS O F SECTION 10(15) SPEAK AB O UT INDUSTRIAL UNDERTAKING WHICH INCLUD E S AN UND E RTAKING ENGAGED IN THE M A NUFACTURE OF COMPUTER SO F TWARE; - IN THE ABSE N CE OF A S P ECIFIC TERM DEF I NITION :-8-: ITA NOS.1070 & 1177/16 PROVIDED IN OTHER SECTIONS IN THE SAME L E G ISLATION CAN BE BORROWED TO HAVE A REASONABLE INTERPRETATION; - BENEFICIAL PR O VIS I ONS A RE TO BE CONSTRUED LIBERALLY; THE ASSESSING OFFICER CONSIDERED THE ABOVE EXPLANAT ION BUT NOT CONVINCED WITH THE EXPLANATION OFFERED BY THE A ASEESSEE AND DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSE E U/S 80JJA. 12. THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) BU T NOT SUCCEEDED IN FIRST APPEAL. THE LD. CIT(A) CONFIRMED THE ADDITION HOLDING THAT THE INTENTION OF THE LEGISLATURE IS TO ALLOW THE DEDUCTION TO THE BENEFIT OF INDIAN COMPANIES IN TH E MANUFACTURING SECTOR WHO ARE GENERATING NEW EMPLOYM ENT IN FACTORIES TO THE BLUE COLLARED WORKERS OF A FACTORY . THE CIT(A) ALSO HELD THAT THE FINANCE ACT 2013 HAS BEEN AMENDED B Y SUBSTITUTING THE WORD FACTORY IN PLACE OF UNDERT AKING AND IT IS CLARIFICATORY IN NATURE AND ACCORDINGLY SUSTAINED T HE ADDITION MADE BY THE ASSESSING OFFICER. 13. THE LD A.R ARGUED THAT IN THE SECTION 80JJAA THE WORDS USED ARE INDUSTRIAL UNDERTAKING AND THE WORKMEN AS DEFINED IN INDUSTRIAL DISPUTES ACT. AS PER EXPLN-1 OF SECTION 10(15) THE DEFINITION OF INDUSTRIAL UNDERTAKING INCLUDES COMPU TER SOFTWARE AND AS PER THE DECIDED CASE LAWS THE WORK FORCE OF THE COMPUTER :-9-: ITA NOS.1070 & 1177/16 SOFTWARE ARE ALSO COVERED UNDER THE DEFINITION OF W ORKMEN AS PER THE INDUSTRIAL DISPUTES ACT 1947. THEREFORE HE ARGU ED THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 80JJAA . HE HAS REFERRED THE FOLLOWING DECISIONS: (I)ACIT VS TEXS INSTRUMENTS(INDIA) P. LTD 27 SOT 7 2 (BANG) (II) P.L. GOEL VS ITO 12 ITD 137(DELHI) (III) CIT VS COMP-HELP SERVICES P. LTD 246 ITR 72 2 (IV) ONMOBIOLE GLOBAL LTD. (2014)45 TA XMANN.COM346 THE LD. AR ALSO REFERRED THE TAMILNADU GOVERN MENT LETTER NO.9172/K2/2015-6 DATED 30.5.2016 ADDRESSED TO PUTH IYA JANANAYAGA THOZHILALAR MUNNANI ON THE SUBJECT OF T HE EMPLOYEES OF IT INDUSTRY. 14 . ON THE OTHER HAND THE LD. DR ARGUED THAT SE C. 80JJAA OF THE ACT SPECIFICALLY PROVIDES FOR INDUSTRIAL UNDERT AKING ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. THE WORDS COMPUTER SOFTWARE ARE MISSING IN THE SECTION. I F THE INTENTION OF THE LEGISLATURE IS TO EXTEND THE BENEFIT TO THE COM PANIES ENGAGED IN THE BUSINESS OF SOFTWARE THE LEGISLATURE SHOULD HAVE SPECIFICALLY MENTIONED AND INCLUDED THE WORD COMPU TER SOFTWAREALSO. SINCE THE LEGISLATURE DOES NOT WANT THE BENEFIT TO BE EXTENDED TO THE COMPUTER SOFTWARE BUSINESS IT W AS EXCLUDED :-10-: ITA NOS.1070 & 1177/16 FROM SEC. 80JJAA. THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 15 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AN D PERUSED THE MATERIAL PLACED ON RECORD. FOR READY REFERENCE WE REPRODUCE HEREUNDER SEC. 80JJAA OF THE ACT: DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW WORKMEN (1)WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE BE ING AN INDIAN COMPANY INCLUDES ANY PROFITS AND GAINS DERIVED FRO M ANY INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTURE OR PRODUCTIO N OF ARTICLE OR THING THERE SHALL SUBJECT TO THE CONDITIONS SPECI FIED IN SUB-SECTION (2) BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO T HIRTY PER CENT. OF ADDITIONAL WAGES PAID TO THE NEW REGULAR WORKMEN EM PLOYED BY THE ASSESSEE IN THE PREVIOUS YEAR FOR THREE ASSESSMENT YEARS INCLUDING THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH SUCH EMPLOYMENT 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 AMALGA MATION 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 EXPLANA TION BELOW SUB-SECTION (2) OF SECTION 288 GIVING SUCH PARTICULARS IN THE R EPORT AS MAY BE PRESCRIBED. EXPLANATION FOR THE PURPOSES OF THIS SECTION THE EXPRESSIONS (I) ADDITIONAL WAGES MEANS THE WAGES PAID TO TH E NEW REGULAR WORKMEN IN EXCESS OF ONE HUNDRED WORKMEN EMPLOYED D URING THE PREVIOUS YEAR : PROVIDED THAT IN THE CASE OF AN EXISTING UNDERTAKIN G THE ADDITIONAL WAGES SHALL BE NIL IF THE INCREASE IN THE NUMBER OF REGULAR WORKMAN EMPLOYED DURING THE YEAR IS LESS THAN TEN PER CENT. OF EXISTING NUMBER OF WORKMEN EMPLOYED IN SUCH UNDERTAKING AS ON THE LAST DAY OF THE PRECEDING YEAR ; (II) REGULAR WORKMAN DOES NOT INCLUDE-- (A) A CASUAL WORKMAN ; OR (B) A WORKMAN EMPLOYED THROUGH CONTRACT LABOUR; OR (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 I N CLAUSE (S) OF SECTION 2 OF THE INDUSTRIAL DISPUTES ACT 194 7 (14 OF 1947). :-11-: ITA NOS.1070 & 1177/16 16 . THE EXPRESSION INDUSTRIAL UNDERTAKINGS IS NOT DEFINED IN SEC. 80JJAA. HOWEVER IN EXPLANATION 1 OF SEC. 10( 15) OF THE ACT INDUSTRIAL UNDERTAKING IS DEFINED AS UNDER: EXPLANATION 1. FOR THE PURPOSES OF THIS SUB-CLAUSE THE EXPRESSION 'INDUSTRIAL UNDERTAKING' MEANS ANY UNDER TAKING WHICH IS ENGAGED IN - (A) THE MANUFACTURE OR PROCESSING OF GOODS; OR (AA) THE MANUFACTURE OF COMPUTER SOFTWARE OR RECORDING OF PROGRAMME ON ANY DISC TAPE PERFORATED MEDIA OR OTHER INFORMATION DEVICE ; OR ; 17 . SINCE THE INDUSTRIAL UNDERTAKING IS NOT DEFIN ED IN SEC. 80JJAA OF THE ACT WE HAVE TAKEN THE HELP OF EXPL ANATION 1 OF SEC. 10(15) OF THE ACT. IN THE SAID SECTION THE E XPRESSION INDUSTRIAL UNDERTAKING INCLUDES THE MANUFACTURE O F COMPUTER SOFTWARE OR RECORDING OF PROGRAMME ON ANY DISC TAP E PERFORATED MEDIA OR OTHER INFORMATION DEVICE. 18 . FROM THE ABOVE DEFINITION IT IS CLEAR THAT TH E MANUFACTURING OF COMPUTER SOFTWARE WAS ALSO INCLUDED IN THE DEFIN ITION OF INDUSTRIAL UNDERTAKING AND THE INDUSTRIES CARRYIN G ON THE BUSINESS OF MANUFACTURE OF COMPUTER SOFTWARE ARE E NTITLED FOR DEDUCTION U/S 80JJAA. 19 . THE MEANING OF WORKMEN FOR THE PURPOSE OF DE DUCTION U/S 80JJAA IS ACCORDING TO THE DEFINITION IN INDUSTRIAL DISPUTES ACT :-12-: ITA NOS.1070 & 1177/16 1947. THE WORKMEN IS DEFINED IN THE INDUSTRIAL DISPUTE ACT AS UNDER: WORKMAN' MEANS ANY PERSON (INCLUDING AN APPRENTICE ) EMPLOYED IN ANY INDUSTRY TO DO ANY MANUAL UNSKILLE D SKILLED TECHNICAL OPERATIONAL CLERICAL OR SUPERV ISORY WORK FOR HIRE OR REWARD WHETHER THE TERMS OF EMPLOYMENT BE EXPRESS OR IMPLIED AND FOR THE PURPOSES OF ANY PRO CEEDING UNDER THIS ACT IN RELATION TO AN INDUSTRIAL DISPUTE INCLUDES ANY SUCH PERSON WHO HAS BEEN DISMISSED DISCHARGED OR RETRENCHED IN CONNECTION WITH OR AS A CONSEQUENCE OF THAT DISPUTE OR WHOSE DISMISSAL DISCHARGE OR RETRENCHM ENT HAS LED TO THAT DISPUTE BUT DOES NOT INCLUDE ANY SUCH PERSON- (I) WHO IS SUBJECT TO THE AIR FORCE ACT 1950 (45 O F 1950) OR THE ARMY ACT 1950(46 OF 1950) OR THE NAVY ACT 1957 (62 OF 1957) OR (II) WHO IS EMPLOYED IN THE POLICE SERVICE OR AS AN OFFICER OF OTHER EMPLOYEE OF A PRISON OR (III) WHO IS EMPLOYED MAINLY IN A MANAGERIAL OR ADMINISTRATIVE CAPACITY OR (IV) WHO BEING EMPLOYED IN A SUPERVISORY CAPACITY DRAWS WAGES EXCEEDING ONE THOUSAND SIX HUNDREN RUPEES PER MENSEM OR EXERCISES EITHER BY THE NATUR E OF THE DUTIES ATTACHED TO THE OFFICE OR BY REASON O F THE POWERS VESTED IN HIM FUNCTIONS MAINLY OF A MANAGERIAL NATURE] 20 . THE ASEESSEE RELIED ON THE DECISION OF ITAT BA NGALORE BENCH B IN THE CASE OF TEXAS INSTRUMENTS (INDIA)( P)LTD. REPORTED IN (2009) 27 SOT 72 WHERE IN IT WAS HELD THAT FORM THE ORDER OF THE CIT(A) IT IS SEEN THAT HE HAD TAK EN NOTE OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF KARTNATAKA AND CONCLUDED THAT AS PER THE NOTIFICATION ISSUED. THE ASSESSEE COMPANY ENGAGED IN THE DEVELOPMENT OF SOFTWARE IS C OVERED BY THE INDUSTRAL DISPUTES SACT 1947. 21 . THE BANGALORE BENCH ALSO IN THE CASE OF ONMOBIOL E GLOBAL LTD. (2014)45 TAXMANN.COM346 HAS TAKEN SIMILAR VIEW AND :-13-: ITA NOS.1070 & 1177/16 ALLOWED THE DEDUCTION U/S 80JJAA. IN THE CITED CASE THE ITAT HELD THAT SECTION 80JJAA ALLOWS FOR DEDUCTION OF A DDITIONAL WAGES PAID TO NEW WORKMEN FOR AN INDUSTRIAL UNDERTAKING. WHILE THE TE RM 'INDUSTRIAL UNDERTAKING' HAS NOT BEEN DEFINED IN SECTION 80JJAA IT HAS BEEN DEFINED IN OTHER PROVISIONS; LIKE SECTIONS 10(15) AND 72A SO A S TO INCLUDE UNDERTAKING WHICH IS ENGAGED INTER ALIA IN : - THE MANUFACTURE OF COMPUTER SOFTWARE - THE MANUFACTURE OF COMPUTER SOFTWARE OR RECORDING O F PROGRAMME ON ANY DISC TAPE PERFORATED MEDIA OR OTHER INFORMATION D EVICE. [PARA 6.5.1] THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ASSTT. CIT V. TEXAS INSTRUMENTS INDIA (P.) LTD. [2009] 27 SOT 72 (BANG.)(URO) HAS HELD THAT A COMPANY THAT IS ENGAGED IN DEVELOPMENT DESIGN AND MANUFACTURE OF SOFTWARE SHOULD BE CONSIDERED AS BEING AN INDUSTRIA L UNDERTAKING FOR THE PURPOSES OF SECTION 80JJAA. AS THE ASSESSEE IS ENGA GED IN THE DEVELOPMENT AND MANUFACTURE OF SOFTWAR E THE ASSESSEE IS COVERED WITHIN THE DEFINITION OF INDUSTRIAL UNDERTAKING. [PARA 6.5.2] ANOTHER CONDITION STIPULATED UNDER THE ACT IS THAT THE ASSESSEE SHOULD BE ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. THE DEFINITION OF 'INDUSTRIAL UNDERTAKING' AS STIPULATED IN SECTIO N 10(15) AND SECTION 72A EXTENDS TO UNDERTAKINGS THAT ARE ENGAGED INTER ALIA IN THE MANUFACTURE OF COMPUTER SOFTWARE OR RECORDING OF PROGRAMME ON ANY DISC TAPE PERFORATED MEDIA OR OTHER INFORMATION DEVICES. [PARA 6.5.3] SECTION 80JJAA REFERS TO 'WORKMEN' AS DEFINED IN SE CTION 2(5) OF THE INDUSTRIAL DISPUTES ACT 1947. THE ABOVE DEFINITION INCLUDES EMPLOYMENT OF WORKMEN HAVING TECHNICAL SKILL BUT EXCLUDES ANY WORKMEN IN MANAGERIAL OR ADMINISTR ATIVE OR SUPERVISORY CAPACITY. IN THE CASE ON HAND THE PERSONS IN RESPE CT OF WHICH DEDUCTION UNDER SECT ION 80JJAA IS BEING CLAIMED WOULD FALL WITHIN THE A BOVE DEFINITION OF THE TERM 'WORKMEN' AS DEFINED IN THE INDUSTRIAL DISPUTES ACT 1947. [PARA 6.5.4] :-14-: ITA NOS.1070 & 1177/16 AS THE FACTS OF THE ASSESSEE IN THE CASE ON HAND AR E SIMILAR TO THE FACTS OF THE CITED CASE OF TEXAS INSTRUMENTS INDIA (P.) LTD. ( SUPRA ) THE DEDUCTION UNDER SECTION 80JJAA IS ALLOWED ON THE BASIS OF THE FOLLO WING FACTS :- ( I ) THE BUSINESS OF THE ASSESSEE FALLS WITHIN THE DEFIN ITION OF THE TERM 'INDUSTRIAL UNDERTAKING'; ( II ) THE ASSESSEE IS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES (COMPUTER SOFTWARE); ( III ) THE ASSESSEE HAS CLAIMED DEDUCTION OF ONLY THOSE PA YMENTS MADE TO 'WORKMEN' WHO ARE NOT EMPLOYED IN SUPERVISORY CAPAC ITY. IN VIEW OF THE ABOVE THE DECISION O F THE COMMISSIONER (APPEALS) IN ALLOWING THE ASSESSEE DEDUCTION UNDER SECTION 80JJAA IS ALLO WED. [PARA 6.5.5] 22 . THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF P.L. GOEL(SUPRA) HAS ALSO EXPRESSED SIMILAR VIEW IN RESPECT OF THE D EFINITION OF WORKMEN. IT HAS HELD THAT IT IS TRITE TO SAY THAT THE INDUSTRIAL DISPUTES ACT IS A LEGISLATION INTENDED TO BRING ABOUT AND HARMONY BETWEEN LABOUR AND MANAGEM ENT IN AN INDUSTRY AND FOR THAT PURPOSE IT MAKES PROVISION FOR THE INVEST IGATION AND SETTLEMENT OF INDUSTRIAL DISPUTES AND IT IS THEREFORE NECESSARY TO INTERPRET THE DEFINITIONS OF INDUSTRY WORKMAN INDUSTRIAL DISPUTE ETC. SO AS NOT TO WHITTLE DOWN BUT TO ADVANCE THE OBJECT OF THE ACT. THE WORDS ANY SKILLED OR UNSKILLED MANUAL SUPERV ISORY TECHNICAL OR CLERICAL WORK USED IN THE DEFINITION OF WORKMAN GIVEN IN SE CTION 2 (S) OF THE INDUSTRIAL DISPUTES ACT ARE NOT INTENDED TO LIMIT OR NARROW TH E AMPLITUDE OR THE DEFINITION OF WORKMAN. ON THE OTHER HAND THEY INDICATE AND EM PHASISE THE BROAD SWEEP OF THE DEFINITION WHICH IS DESIGNED TO COVER ALL MANNE R OF PERSONS EMPLOYED IN AN INDUSTRY IRRESPECTIVE OF WHETHER THEY ARE ENGAGED IN SKILLED WORK OR UNSKILLED WORK MANUAL WORK SUPERVISORY WORK TECHNICAL WORK OR CLERICAL WORK. QUITE OBVIOUSLY THE BROAD INTENTION IS TO TAKE IN THE EN TIRE LABOUR FORCE AND EXCLUDE THE MANAGERIAL FORCE. ON GOING THROUGH THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE CORPORATION IN THE INSTANT CASE IT WAS EVIDENT TH AT THE ASSESSEE WAS A SKILLED PERSON AND WAS GIVEN WORK OF A TECHNICAL AND SUPERV ISORY NATURE. HE HAD NO AUTHORITY WHATSOEVER TO BIND THE CORPORATION IN AN Y WAY. IT WAS CLEAR THAT A :-15-: ITA NOS.1070 & 1177/16 CONSULTANT AS THE ASSESSEE WAS COULD NOT BY ANY STRETCH OF IMAGINATION BE SAID TO BE ENGAGED IN ANY ADMINISTRATIVE OR MANAGERIAL W ORK. HENCE THE ASSESSEE WAS A WORKMAN WITHIN THE MEANING OF SECTION 2(S) OF THE INDUSTRIAL DISPUTES ACT AND AS SUCH THE AMOUNT OF RETRENCHMENT COMPENSATI ON RECEIVED BY HIM WAS EXEMPT FROM TAX UNDER SECTION 10 (10B) . 23 . SIMILARLY IN THE CASE OF COMP-HELP SERVICES P. LTD.(SUPRA) HONBLE MADRAS HIGH COURT WHILE ANSWERING THE QUEST ION RELATING TO INVESTMENT ALLOWANCE U/S 32A HELD THAT WHEN DATA IS PROCESSED WITH THE AID OF COMPUTERS A ND THE PROCESSING COMPLICATED STEPS WHICH CAN ONLY BE PERFORMED WITH SPEED IN A COMPUTER AND THE END-PRODUCT IS THE ANALYSIS AND PR ESENTATION OF DATA IN THE DESIRED FORMAT SUCH AS BALANCE SHEET IT CAN BE SAID IN BROAD TERMS THAT THERE IS PRODUCTION. THE WORD 'PRODUCTIO N' IN S. 32A COMPREHENDS PROCESSING ACTIVITY AND THE WORD 'ARTIC LE' IN THAT PROVISION INCLUDES MOVABLES. THE DATA PROCESSING CO MPUTERS INVOLVE PROCESSING AND THEREFORE CAPABLE OF BEING REGARDE D AS PART OF PROCESS OF PRODUCTION. THE BALANCE SHEET SALES ANA LYSIS STATEMENTS ETC. OBTAINED AS A RESULT OF PROCESSING ARE MOVABLE S AND ARE DIFFERENT FROM THE DATA THAT WAS INITIALLY FED INTO THE COMPU TER THOUGH BASED UPON THE DATA SO FED IN. THE USE TO WHICH END-PRODU CT IS PUT IS DIFFERENT FROM THE ONE TO WHICH RAW DATA IS PUT AT THE TIME IT IS FED INTO A COMPUTER. THE END-PRODUCT OBTAINED AS A RESULT OF DATA PROCESSING SUCH AS BALANCE SHEETS ETC. ARE THEREFORE CAPABLE OF BEING REGARDED AS NEW ARTICLES. THE DATA PROCESSING ACTIVITY IS AN ORGANISED ACTIVITY. THE MACHINES HAVE TO BE OPERATED BY EMPLOYING PERSO NS TRAINED FOR THAT PURPOSE. THE EMPLOYEE AND EMPLOYER RELATIONSHI P IN RUNNING A DATA PROCESSING COMPANY INEVITABLY EXISTS AS BETWEE N THOSE WHO OPERATE THE SYSTEM AND THE COMPANY WHICH RUNS THE B USINESS. THE TERM 'INDUSTRY' IS NOT DEFINED IN S. 32A AND IS TH EREFORE REQUIRED TO BE UNDERSTOOD IN THE SENSE IN WHICH THE WORD IS ORD INARILY UNDERSTOOD. THE TERM 'INDUSTRY' IS A TERM OF WIDE AMPLITUDE. 'I NDUSTRY' AS USED IN S. 32A REFERS TO THE INDUSTRIES WHICH ARE ENGAGED I N THE MANUFACTURE OR PRODUCTION OF GOODS OR ARTICLES OR THINGS. THE D ATA PROCESSING COMPANY MUST BE HELD TO BE AN INDUSTRIAL COMPANY EN GAGED IN THE PRODUCTION OF ARTICLES. 24 . THE TAMILNADU GOVERNMENT VIDE LETTER NO.9172/K2 /2015-6 DATED30.5.2016 ADDRESSED TO PUTHIYA JANANAYAGA THOZ HILALAR MUNNANI ON SUBJECT OF THE EMPLOYEES OF IT INDUSTRY CLARIFIED THAT IT INDUSTRY IS NOT EXEMPTED FROM ID ACT 1947. FOR READY REFERENCE WE REPRODUCE BELOW THE CONTENTS OF THE L ETTER DATED 30.5.2016: :-16-: ITA NOS.1070 & 1177/16 2. ON THE ABOVE DEMANDS I AM TO INFORM YOU AS FOLL OWS: (I) ALL THE LABOUR WELFARE L E GISLATION S ARE APP L ICABLE TO ALL THE IT AND ITES COMPANIES AND TH E Y ARE BEI N G MONITORED BY THE ENFORCEMENT OFFICIALS FO R PROPER IM P L E MENTATION OF LABOUR LEGISLATIONS AND THEREBY ENSURES THE W E L F ARE OF THE EMPLOYEES. THE IT COMPANY EMPLOYEES ALSO ARE FREE T O FORM TRADE UNION AND CAN REDRESS T HEIR GRIEVANCES THROUGH EVO K I NG THE P R OVISIONS OF INDUSTRIAL DISP U TES ACT 1947. IT IS ALSO I N FORMED T H AT NO IT INDUSTRY HAS BEEN EXEMPTED FROM THE PROVI S I O NS OF IN D USTRIAL DISPUTES ACT 1947 . T HE AFFECTED EMPLOYEES CA N APPROAC H THE CONCILIATION OFFICERS T O REDRESS THEIR PROBLEMS REGARDING RETRENCHMENT OR TERMINATIO N OR FOR ANY OTHER GRIEVANCE . A N Y TRADE U NION WITH THE I T EMPLOY E E S AS ITS MEMBERS CAN RISE I N D U ST R I AL D I S P UTES UNDER SECTION 2(K) O F T HE ACT AND SEEK REMEDY . (I I) THE INSPECTORS OF LA B O UR ARE INS PECTING IT COMPAN I ES . I N C ASE O F ANY CONTRAVENTION OF T H E PROV I S IO NS OF THE ACT ITEMPLOYEE MAY APP R OACH THE CONCE RNE D C ONC I L I A T I ON OFFICER THROUGH THEIR UNI O N AND FILE AN INDUSTRIAL DISP UT E A GA I NS T THE ERRING EMPLOYER . ( II I) I T I S ALSO INFORMED THA T R O U TIN E INSP ECTIONS ARE BEING C ARRIED OUT BY T HE INSPECTORS . IN CAS E O F E M ERGENT SITUATION A T EAM OF OFFICIALS WILL I NSPECT THE I T FIRM DE P E NDI N G UPON THE MAGNITUDE OF THE P R O B LEM . A S A TRADE UNION T HE UNION WI L L BE INFORMED BY IT S MEMBERS R EGARDING ANY GRIEVA NC E . THE TRA DE UNIO N C A N REPRESENT I T TO L ABOUR DEPARTMENT I GO V ERNM E NT . (IV ) T HE GOVERNMENT CAN NO T OR G ANIZE P UBL I C HEARING S I NCE AL T E R NATE R EMED I ES TH R OUGH DIFF ER E N T F O RUMS A RE STATUTOR I LY AVA IL ABLE . IT IS O PEN FOR THE EMPLOYE E A ND TR A DE UNI ON TO APP R OACH APPROP R IATE FO R U MS AND SEEK REME DY . (V) I T I S PERTINENT TO NOTE TH A T ALREADY 9 I T EMPLOY E ES H AVE S OUGH T RE MEDY FOR THEIR NO N-E M PLOYMENT I SSUE UNDE R TH E IND U STR I A L D I SPUTES AC T 1947 . H E N C E NO FURT HER ACTION IN TH I S REGARD IS REQUIRED AT GOVERNMENT LEVEL. 25 . AS PER THE MEMORANDUM TO FINANCE ACT 1988 SEC. 80JJAA THE GOVERNMENT OF INDIA CONSIDERED IT NECESSARY TO PROVIDE FISCAL INCENTIVES IN INCOME-TAX ACT IN ORDER TO ENCOURAGE THE EMPLOYERS TO :-17-: ITA NOS.1070 & 1177/16 CREATE MORE AND MORE EMPLOYMENT OPPORTUNITIES. WHE N THE ASSESSEE IS CREATING NEW EMPLOYMENT OPPORTUNITIES THE BENEF ICIAL PROVISIONS SHOULD NOT BE SUMMARILY REJECTED. THOUGH THE ASSE SSEE IS ENGAGED IN MANUFACTURE OF COMPUTER SOFTWARE FIRSTLY IT IS COV ERED BY EXPLANATION 1 OF SEC. 10(15) OF THE ACT WITHIN THE MEANING OF INDUSTRIAL UNDERTAKING AND IT IS SUPPORTED BY HONBLE MADRAS HIGH COURT JUDGMENT IN THE CASE OF 246 ITR 722. SECONDLY THE EMPLOYEES WORKING IN THE COMPANIES ENGAGED IN THE COMPUTER SO FTWARE ARE ALSO COVERED AS WORKMEN WITHIN THE MEANING OF INDUSTRI AL DISPUTE ACT AS PER THE DECISIONS OF COORDINATE BENCHES OF BANGALOR E AND DELHI CITED SUPRA. THE GOVERNMENT OF TAMILNADU VIDE LETTER DAT ED 30/05/2016 CLARIFIED THAT THE IT INDUSTRY IS NOT EXEMPTED FR OM THE PROVISIONS OF INDUSTRIAL DISPUTES AC 1947. THE ASSESSING OFFICER S CASE IS NOT THAT THE ASSESSEE IS NOT SATISFYING THE ELIGIBILITY COND ITIONS FOR DEDUCTION U/S 80JJAA. THE LEARNED DR DID NOT PLACE ANY MATERIAL C ONTROVERTING THE ABOVE DECISIONS. THEREFORE WE HOLD THAT ASSESSEE IS ENTITLED FOR THE DEDUCTION U/S 80JJAA AND ACCORDINGLY WE SET ASID E THE ORDERS OF THE LOWER AUTHORITIES AND ALLOW DEDUCTION U/S 80JJAA. THE ASSESSEES GROUNDS ON THIS ISSUE ARE ALLOWED. 26 . GROUND NO.10 RELATES TO GIVING SHORT CREDIT F OR THE TDS. AS PER THE GROUNDS THE ASSESSEE CLAIMED TDS OF RS. 14 82 45 072/- AND THE ASSESSING OFFICER HAS ALLOWED ONLY RS. 14 19 47 495/-. THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE ASSESSEES CLAIM AND GIVE CREDIT FOR THE :-18-: ITA NOS.1070 & 1177/16 SHORTFALL. THE ASSESSEES GROUNGD ON THIS ISSUE IS ALLOWED FOR STASTICAL PURPOSES. 27 . IN THE RESULT APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 28 . NOW COMING TO REVENUES APPEAL I.T.A.NO.1177/ MDS/2016. GROUND NO.1.1 TO 1.5 ARE RELATED TO THE EXCLUSION O F TRAVEL AND COMMUNICATION EXPENDITURE INCURRED IN FOREIGN CURRE NCY FROM TOTAL TURNOVER. 29. THE LD. CIT(A) DIRECTED THE A.O TO EXCLUDE THE TRAVEL AND COMMUNICATION EXPENSES FROM THE EXPORT TURNOVER AS WELL AS THE TOTAL TURNOVER WHILE COMPUTING THE DEDUCTION U/S 10A. AGG RIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. THE LD.D.R RELIED ON THE ORDER OF THE AO AND THE LD.DR RELIED ON THE ORDER OF CIT(A). 30 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE CIT(A) WHILE DELET ING THE ADDITION FOLLOWED THE DECISION OF THE SPECIAL BENCH IN ITO V S SAK SOFT 313 ITR 353. THE LD. DR DURING THE APPEAL DID NOT PLACE AN Y DECISION CONTROVERTING THE DECISION RELIED UP ON BY THE LD.C IT(A). THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD .CIT(A) AND THE GROUND RAISED BY THE REVENUE ON THIS ISSUE IS DISMI SSED. 31 . GROUND NO.2 IS RELATED TO TDS ON SOFTWARE. IN THE COURSE OF ASSESSMENT THE ASSESSING OFFICER FOUND THAT THE AS SESSEE-COMPANY :-19-: ITA NOS.1070 & 1177/16 MADE SOFTWARE PURCHASE TO THE TUNE OF ` 13 99 575/- FOR WHICH TDS WAS NOT MADE. THE ASSESSING OFFICER SOUGHT EXPLAN ATION AND THE ASSESSEE HAS EXPLAINED THAT IT WAS ONLY A PURCHASE AND NO TDS IS APPLICABLE. THE ASSESSING OFFICER DISALLOWED THE E XPENDITURE RELYING ON THE JUDGMENT OF THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ON THE SAME ISSUE. THE CITATION AND THE RATIO OF T HE ABOVE CASE WAS NOT DISCUSSED IN THE ASSESSMENT ORDER. THE ASSESS EE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) DELETED THE AD DITION RELYING ON THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OW N CASE IN I.T.A.NO. 2190-2196 AND 2199/MDS/2013 DATED 5.6.2013 WHEREIN IT WAS HELD THAT TRANSACTION WITH NON-RESIDENT TOWARDS PURCHASE OF SOFTWARE CANNOT BE HELD AS A ROYALTY FOR USE OF COPYRIGHTS U/S 9(1)(VI) R.W. EXPLANATION 2 CLAUSE(V). 32 . DURING THE APPEAL THE LD. DR RELIED ON THE ASSESSMENT ORDER AND THE LD. AR RELIED ON THE CIT(A)S ORDER. HOWEVER THE LD. DR COULD NOT PLACE ANY DECISION CONTROVERTING THE D ECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE. THE LD. DR ALSO DID NOT CITE ANY HIGH COURT JUDGMENT SUPPORTING THE DECISION OF ASSE SSING OFFICER. THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF THE LD.CIT(A) AND THE SAME IS UPHELD. THE GROUND ON THIS ISSUE S TANDS DISMISSED. 33 . GROUND NO.3 IS RELATED TO MARKETING EXPENDITURE T O SUBSIDIARIES. :-20-: ITA NOS.1070 & 1177/16 34 . DURING THE ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER FOUND THAT THE ASSESSEE-COMPANY HAS TWO FOREIGN SUB SIDIARIES IN US AND AUSTRALIA AND THE COMPANY HAS MADE PAYMENT DURI NG THE YEAR TO THESE SUBSIDIARY COMPANIES TO THE EXTENT OF ` 2 80 00 000/-. THE ASSESSEE HAS NOT EARNED ANY REVENUE FROM THESE COUNTRIES. THEREFORE THE ASSESSING OFFICER WAS OF THE OPINION THAT THERE WAS NO BUSINESS EXIGENCY TO INCUR THE SAID EXPENDITURE. ACCORDINGLY HE ADDED THE SUM OF ` 2 80 00 000/- TO THE INCOME OF THE ASSESSEE. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND THE LD CIT(A) ALLOWED THE ASSESSEES APPEAL BY OBSERVING THAT TH E REVENUE HAS BEEN GENERATED WHERE EVER THE SUBSIDIARY MARKETING COMPANIES HAD OPERATED. FURTHER CIT(A) OBSEERVED THAT IT IS N OT NECESSARY THAT REVENUE NEED TO BE GENERATED EVERY YEAR FAILIN G WHICH ALLOWANCE FOR EXPENDITURE WILL BE DENIED AS IT IS T OTALLY THE DISCRETION OF THE ASSESSEE TO RUN ITS BUSINESS AND UTILIZE ITS RESOURCES. AS PER THE CIT(A) IN THE PRESENT CASE T HE AUSTRALIAN SUBSIDIARY HAD BEEN SUCCESSFULLY GENERATING REVENUE S FOR THE ASSESSEE THROUGH ITS ACTIVITIES AND ACCORDINGLY DEL ETED THE ADDITION. 35 . DURING APPEAL THE LD. DR ARGUED THAT THE ASSE SSEE-COMPANY MADE PAYMENT TO AUSTRALIAN COMPANY. SINCE THERE W AS NO INCOME EARNED AND THE EXPENDITURE INCURRED IN AUSTRALIA AND US COMPANIES HAS NO BUSINESS CONNECTION HENCE THERE I S NO BUSINESS EXPEDIENCY. THE LD. DR SUPPORTED THE ORDER OF THE ASSESSING :-21-: ITA NOS.1070 & 1177/16 OFFICER. ON THE OTHER HAND THE LD. AR HAS HEAVILY PLACED RELIANCE ON THE ORDER OF THE CIT(A). 36. FURTHER THE LD. DR HAS OBJECTED FOR ENTERTAINING F RESH EVIDENCE BY THE LD CIT(A) IN THE FORM OF AGREEMENT UNDER RULE 46A. THE LD. AR ARGUED THAT NO FRESH EVIDENCE WAS PLACED BEFORE THE CIT(A). HE FURTHER SUBMITTED THAT THE CIT(A) IS CA PABLE OF CALLING FOR ANY INFORMATION AND EXAMINE THE SAME AS PER SEC . 250(4) OF THE I.T. ACT AND THE ISSUE IS SETTLED BY THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RAJENDRA PRASAD MOODY 115 ITR 519. THEREFORE THE LD. AR WAS OF THE OPINION THAT THE ORDER OF THE CIT(A) SHOULD BE CONFIRMED. 37. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS MADE PAYMENT OF ` 280 LAKHS TO THE SUBSIDIARIES OF THE COMPANY TOWARD S MARKETING EXPENDITURE. THE ASSESSING OFFICER HAS NOT DISPUTE D THE FACT THAT THE EXPENDITURE WAS NOT A BUSINESS EXPENDITURE AND GENUINENESS OF THE PAYMENT WAS ALSO NOT DOUBTED BY HIM. THE MARKE TING EXPENDITURE IS ALWAYS INCURRED IN ADVANCE AND RETUR NS ARE EXPECTED SUBSEQUENTLY IN THE BUSINESS. THEREFORE IT IS NOT CORRECT TO DISALLOW THE EXPENDITURE SINCE THERE WAS NO INCOME. SOMETIM ES EVEN IF THE EXPENDITURE IS INCURRED IT WILL TAKE LOT OF TIME TO MAKE THE SALES AND TO EXPECT THE BUSINESS RECEIPTS. A PRUDENT BUSINES SMAN HAS TO INCUR BUSINESS EXPENDITURE IN THE SHAPE OF MARKETIN G AND PRODUCT :-22-: ITA NOS.1070 & 1177/16 PROMOTION IN ADVANCE. IN THE CASE OF THE ASSESSEE THE CIT(A) FOUND THAT THE PAYMENT WAS MADE FOR THE COMPENSATIO N AT THE INSTANCE OF AUSTRALIAN SUBSIDIARIES AT ARMS LENGTH BASIS AT A MARK UP OF 10% ON THE OPERATING EXPENSES. THE OPERATING EXPENSES ALSO HAD BEEN DEFINED IN CLAUSE 4.3 OF THE MARKETING SUP PORT SERVICE AGREEMENT DATED 1.7.2009 WHICH WAS PRODUCED BEFORE THE CIT(A). THE CIT(A) CALLED FOR THE DETAILS OF THE EXPENSES I NCURRED IN CONNECTION WITH THE TRANSACTIONS BETWEEN THE ASSES SEE AND SUBSIDIARY COMPANIES FOR A PERIOD OF FOUR YEARS AND VERIFIED AND THEN HELD THAT THE DISALLOWANCE HAS BEEN MADE WITHO UT EXAMINING THE TRANSACTIONS PERSE. THE CIT(A) ALSO OBSERVED T HAT THE REVENUES HAVE BEEN GENERATED IN SUBSEQUENT YEARS THEREFORE WE AGREE WITH THE ORDER OF THE LD. CIT(A) AND UPHOLD THE SAME. 38. THE REVENUE HAS RAISED OBJECTION UNDER RULE 46A AND BENCH HAS ASKED THE NATURE OF ADDITIONAL EVIDENCE PRODUCE D BY THE ASSESSEE BEFORE THE LD. CIT(A). THE LD. DR HAS REP LIED THAT THE AGREEMENT AND THE DETAILS OF EXPENSES. THE AGREEME NT WAS PLACED BEFORE THE ASSESSING OFFICER AND THE BOOKS OF ACCOU NT WERE ALSO PRODUCED BY THE ASSESSEE BEFORE THE ASSESSING OFFIC ER. THEREFORE WE DO NOT FIND ANY ADDITIONAL EVIDENCE PRODUCED BY THE ASSESSEE BEFORE THE CIT(A) WHICH REQUIRES A FRESH OPPORTUNIT Y TO THE ASSESSING OFFICER. THEREFORE THERE IS NO MERIT IN THE GROUND RAISED :-23-: ITA NOS.1070 & 1177/16 BY THE REVENUE IN RELATION TO RULE 46A. ACCORDINGL Y WE DISMISS THE GROUND RAISED BY THE REVENUE ON THIS ISSUE. 39. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISS ED. 40. TO SUMMARIZE THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 30 TH SEPTEMBER 2016 AT CHENNAI. SD/- SD/- ( ' . ' / . 0 ) ( N.R.S. GANESAN ) / JUDICIAL MEMBER ( . . ' #$ ) (D.S. SUNDER SINGH) & / ACCOUNTANT MEMBER / CHENNAI / DATED: 30 TH SEPTEMBER 2016 RD ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 4. ( / CIT 2. ')&' / RESPONDENT 5. $*+ ' / DR 3. ( () / CIT(A) 6. +/ 0 / GF