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Dy. Commissioner of Income Tax 7(2),R.No. 670, 6th Floor,Aayakar Bhavan,M.K. Road,Mumbai-400 020. Vs. M/s. Siemens Information Systems Limited, Worli Works, 3rd Floor, 130,Pandurang Budhkar Marg, Worli, Mumbai -18.
December, 14th 2012
                              , 
              IN THE INCOME TAX APPELLATE TRIBUNAL
                   MUMBAI BENCHES "J" MUMBAI

                          [^ .., Û.      / 
        BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER                      /AND
                                   ^ Û], ..
                SHRI RAJENDRA, ACCOUNTANT MEMBER


                      . /               ITA No. 6822/M/2007
                       [ [ /Assessment Year 2004-05

           Dy. Commissioner        of       M/s. Siemens Information
           Income Tax 7(2),                 Systems Limited,
           R.No. 670, 6th Floor,            Worli Works, 3rd Floor, 130,
           Aayakar Bhavan,              Vs. Pandurang Budhkar Marg,
           M.K. Road,                       Worli, Mumbai -18.
           Mumbai-400 020.
                                             PAN: AAACS 9788 E


                      . /               ITA No. 6963/M/2007
                       [ [ /Assessment Year 2004-05

             Siemens      Information     Addl. Commissioner
             Systems Limited,             of Income Tax 7(2),
             130, Pandurang Budhkar       Aayakar Bhavan,
             Marg, Worli,             Vs. M.K. Road,
             Mumbai-400 018.              Mumbai-400 020.

             PAN: AAACS 9788 E
              ( /Appellant)                      (× / Respondent)

              Revenue by                    : Shri A.C. Tejpal (DR)
              Assessee by                   : S/Shri Sunil M. Lala & Sheetal Jain

              / Date of Hearing                    : 03-12-2012
          / Date of Pronouncement                  : 12-12-2012


                                      / O R D E R
PER RAJENDRA, AM

   Challenging the order of the CIT(A)-VII, Mumbai dt. 14-08-2007, the Assessing
Officer (AO) as well as the assessee filed these appeals on the following Grounds:
                                               2                                   ITA No. 6822/M/2007
                                                                                   ITA No. 6963/M/2007
                                                                   M/s. Siemens Information Systems Ltd.




Grounds of Appeal - ITA No. 6822/M/2007 AY. 2004-05
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in
allowing the Software Consumable Expenses of Rs.4,32,48,000/- relying on the CIT(A)'s
decision in the assessee's own case for the A.Y 2001-02 to 2003-04 with appreciating the fact
that the CIT(A)'s decision in the assessee's case for AYs 2001-02 to 2003-04 have not been
accepted and the Revenue is in appeal for the Hon'ble ITAT;

2.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in
allowing the Software Expenses of Rs. 10,55,44,000/- and Hardware Expenses of
Rs.4,83,89,000/- without appreciating that the Rajasthan High Court's decision in the case of
CIT vs Aravali Construction Co. Pvt. Ltd. (259 ITR 30) is applicable in this case;

3.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in
directing not to charge interest u/s.234B ignoring the Board's Circular No.13/2001 dated
09.11.2004 which states that all companies are liable for payment of advance tax having
regard to the provisions contained in new section 115JB;

4.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in
directing not to charge interest u/s.234B ignoring the fact that the provisions of sections 234B
and 234C do not make any reference to section 115J (now 115JB) nor do they mention that in
case covered, both the sections will not become applicable;

5.On the facts and in the circumstances of the case and in law, the learned ClT(A) erred in
directing not to charge interest u/s.234B ignoring the MP High Court's decision in Itarsi Oils
and Flours Pvt. (250 ITR 686); Madras High Court's decision in CIT V/s Holiday Travls Pvt.
Ltd in 27 Taxman 258 and Punjab & Haryana High Court's decision in CIT V/s. Upper India
Steel Mfg & Engg Co.Ltd. (141 Taxman 692);

6.On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in
directing not to charge interest u/s.234B ignoring that there has been amendment to the
provisions of section 234B and 234C but the same are effective from 01.04.2007 and not
retrospective in operation.

7. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of
the AO be restored. The appellant craves leave to amend or alter any ground or add a new
ground which may be necessary.



Grounds of Appeal - ITA No. 6963/M/2007 AY. 2004-05
The appellant objects to the order dated 14 August 2007 passed by the Commissioner of
Income tax (Appeals) VII, on the following among other grounds of appeal:

Deduction under section 80HHE for the purpose of section 115JB

1.The learned Commissioner (Appeals) erred in confirming the action of the Assessing Officer
in computing the deduction under section 8OHHE at Rs. Nil as against Rs. 14,94,97,191/-
claimed by the appellant for the purpose of computing book profits under section 115JB of the
Income tax Act.

2.The learned Commissioner (Appeals) erred in holding that the deduction under section
8OHHE shall be computed on the basis of profits computed under the head "Profits and
                                              3                                   ITA No. 6822/M/2007
                                                                                  ITA No. 6963/M/2007
                                                                  M/s. Siemens Information Systems Ltd.

gains of business or profession" and not on the basis of book profits as claimed by the
appellant.

3.The learned Commissioner (Appeals) erred in not considering the decision of Mumbai
Income Tax Appellate Tribunal Special Bench in the case of Syncome Formulations (I)
Limited 13 SOT 414 relied upon by the appellant.

Carry forward of losses
4.The learned Commissioner (Appeals) erred in not specifically directing the Assessing
Officer to quantify and specifically allow the unabsorbed depreciation and unabsorbed
business losses of earlier years to be carried forward for set off in the subsequent assessment
years.

Relief under section 90
5.The learned Commissioner (Appeals) erred in not specifically allowing relief under section
90 of Rs. 1,69,232/- as claimed by the appellant.

Issue of refund order
6.The learned Commissioner (Appeals) erred in not directing the Assessing Officer to grant
refund of Rs. 86,92,617/- determined in the assessment order.

7.Each one of the above grounds of appeal is without prejudice to the other.
8.The appellant reserves the right to add, alter or amend each one of the above grounds of
appeal.
        Assessee company engaged in the business of Software development &
Consultancy filed its Return of Income on 30-10-2004 declaring total loss of Rs. NIL.
Assessment was finalised on 29-12-2006 by the Assessing Officer (AO) determining
the income at Rs. NIL where as Book Profit u/s. 115JB was computed at Rs. 62.71
Crores.

ITA No. 6822/M/2007
2.      The First Ground of Appeal is about Software Consumable Expenses
amounting to Rs. 4.32 Crores. During the assessment proceedings, Assessing Officer
(AO) found that assessee had claimed an expenditure of Rs. 4.32 Crores under the
head `Software Consumable Expenses'. Following the order for the AY 2003-04 and
of earlier years, AO considered the same as `Capital Expenditure. Assessee preferred
an appeal before the First Appellate Authority (FAA). Relying on the earlier years
order passed by his predecessors, he allowed the appeal filed by the assessee.

3.      Before us, Departmental Representative (DR) supported the order of the AO
and submitted that the expenditure in question was not revenue in nature, that
Tribunal had set aside the matter for earlier years to the file of the AO. Authorised
Representative (AR) submitted that expenditure incurred by the assessee was for
application software and not for system software, that expenditure incurred for
application software was allowable as per the provisions of Section 37 of the Income
Tax Act, 1961 (Act), that Tribunal had set aside the matter for the AY 2001-02 and
2002-03 in view of the principles laid down by the Special Bench of Delhi Tribunal in
the case of "Amway India Enterprises", that Hon'ble High Court of Delhi had held in
the case of "Amway India", that expenditure of application software was to be
allowed as revenue expenditure ( 346 ITR 341). He further submitted that the
expenditure was recurring in nature, that it constituted a small percentage of turn-
                                              4                                  ITA No. 6822/M/2007
                                                                                 ITA No. 6963/M/2007
                                                                 M/s. Siemens Information Systems Ltd.




over, that there was nothing to show that the software was of enduring nature and
would not become obsolete. He relied upon the cases of Varinder Agro Chemicals
Ltd (309 ITR 272); Asahi India Safety Glass Ltd., [245 CTR 529 (Del)]; O.K. Play
India Ltd., (346 ITR 57).

4.       We have heard the rival submissions and perused the material available on
file. It is a fact that in the earlier years, Tribunal has set aside the matter to the file of
the AO. After perusing the order of the `Amway India' delivered by the Hon'ble
High Court of Delhi (supra), we are of the opinion that expenditure incurred by the
assessee was revenue in nature and it was incurred for application software and not
for system software.

       Respectfully following the order relied upon by the AR, we decide Ground
No.1 in favour of the assessee.

5.     Ground No.2 is about Software Expenses of Rs. 10.55 Crores and Hardware
Expenses of Rs. 4.83 Crores. During the assessment proceedings, AO found that
assessee had claimed Rs. 15.38 Crores (10.55 + 4.83) as Software Consumable
Expenses/cost of Hardware, AO held that the amount in question was capital
expenditure and hence was not allowable as revenue expenditure.

         Against the decision made by the AO, assessee preferred an appeal before the
FAA. After considering the submission of the assessee-company, FAA held that the
appellant had purchased Software/Hardware amounting to Rs. 15.38 Crores as part of
its trading operations, that these purchases did not form part of asset of the appellant,
that the purchase of Software and the Hardware had been exclusively made for the
customers, that the sale of Software/Hardware had been credited in the P&L A/c and
was offered for taxation, that dis-allowance made on this account could not be
sustained. Allowing the appeal of the assessee-company, he deleted the addition
made by the AO.

6.      Before us, DR submitted that expenses incurred for Hardware/Software were
capital in nature. He relied upon the order of the Aravali Construction Co. Pvt. Ltd.,
(259 ITR 30) delivered by the Hon'ble Rajasthan High Court. AR submitted that
Hardware and Software were purchased for trading purposes, that they were never
claimed as assets of the appellant-company, profit arising out of transaction was
offered for taxation during the AY under consideration.

7.      We have heard the rival submissions and perused the material before us. It is
found from the record that before the AO, assessee did not make a claim that
Hardware/Software was part of its trading activities, while filing the appeal before the
FAA this issue was raised. FAA without calling for Remand Report from the AO
decided the issue in favour of the assessee. We are of the opinion that in the interest
of justice, matter should be restored back to the file of the AO to decide the issue on
merits after giving a reasonable opportunity of hearing to the assessee.

        Ground No.2 is Partly Allowed in favour of the AO.

8.     Ground Nos. 3 to 6 pertain to interest leviable u/s. 234B/234C of the Act.
Before us, DR fairly accepted that interest u/s. 234B of the Act was not levied by the
                                             5                                   ITA No. 6822/M/2007
                                                                                 ITA No. 6963/M/2007
                                                                 M/s. Siemens Information Systems Ltd.

AO nor the same was agitated before the FAA by the appellant-company. He further
submitted that issue of levy of interest u/s. 234C of the Act was decided against the
assessee. AR conceded that issue of 234C ­ interest was decided by the Hon'ble
Supreme Court in favour of the Revenue.

        As both the parties have agreed about non-applicability of interest u/s. 234B
and applicability of interest u/s. 234C, Ground Nos. 3 to 6 are disposed accordingly.
As the issue of levying of interest u/s. 234 is not arising out of the order of the FAA,
ground filed by the AO with regard to 234B was decided against him where as ground
pertaining to 234C interest is decided in favour of the Revenue.

        As a result, appeal filed by the Revenue is Partly Allowed.

ITA No. 6963/M/2007
9.     Six Grounds of Appeal have been filed by the assessee. During the hearing
before us, AR submitted that assessee was not interested in pressing Ground Nos. 4
to 6. As the three grounds are not pressed, same stand Dismissed.

10.     Ground Nos. 1 to 3 are about deduction u/s. 80HHE for the purpose of Section
115JB. During the course of assessment proceedings, AO found that appellant had
computed book profit of Rs. 47.67 Crores, that while computing the profit it had
claimed adjustment as per explanation 5 in respect of deduction u/s. 80HHC at Rs.
14.94 Crores, that as per the provisions of explanation or to the Section 80HHE profit
of business would be applicable when the deduction was to be claimed for normal
total income computed under the normal provisions of the Act, that when book profits
u/s. 115JB were to be computed after allowing the deduction of export profits
computation had to be based on the profits as per the provisions of Part-II and Part-III
of the Schedule VI of the Companies Act. Finally, he dismissed the appeal filed by
the assessee.

11.    Before us, AR submitted that issue was decided in favour of the assessee by
various judgments, for allowing 80HHE deduction was to be calculated as per the
provisions of 115JB of the Act, that normal provisions of the Act for determining the
taxable income were not applicable in the case under consideration. He relied upon
the cases of Bhari Information Technology systems P. Ltd., [340 ITR 593 (SC)];
Alkabeer Exports Ltd., (TIOL-09-SC-IT-LB); and Syncome Formulation (I) Ltd (106
ITD 193).

12.     We have heard the rival submissions and perused the material placed before
us. We find that issue is decided in favour of the assessee by the order of the Hon'ble
Supreme Court delivered in the case of Bhari Information Technology systems P.
Ltd., (supra), Hon'ble Supreme Court has held in Part 4 & 5 as under:

        "4.In the present case we are concerned with s. 80HHE which is referred to in the
Explanation to s. 115JA, cl. (ix). In our view, the judgment of the Special Bench of the
Tribunal in Syncome Formulations (supra) squarely applies to the present case. Following
the view taken by the Special Bench in Syncome Formulations (supra), the Tribunal in the
present case came to the conclusion that deduction claimed by the assessee under s. 80HHE
has to be worked out on the basis of adjusted book profit under s. 115JA and not on the basis
                                             6                                  ITA No. 6822/M/2007
                                                                                ITA No. 6963/M/2007
                                                                M/s. Siemens Information Systems Ltd.

of the profits computed under regular provisions of law applicable to computation of profits
and gains of business. The judgment of the Tribunal has been upheld by the High Court.

        5.We see no reason to interfere with the impugned judgment. We agree with the view
taken by the Special Bench of the Tribunal in the case of Syncome Formulations (supra) vide
para 61 of the judgment. Accordingly, the special leave petition filed by the Department
stands dismissed with no order as to costs."

        Respectfully following the order of the Hon'ble Supreme Court, we decide the
issue in favour of the assessee. Ground Nos.1 to 3 are allowed.

       As a result, appeal filed by the assessee stands Partly Allowed.


       Order pronounced in the open court on 12th December, 2012.
            Û   12th December, 2012    


               Sd/-                                                   Sd/-
 (.. /           B.R. MITTAL )                            (Û] /     RAJENDRA)
Û  / JUDICIAL MEMBER                                / ACCOUNTANT MEMBER


 Mumbai,
 Date: 12th December, 2012

TNMM




Copy to:

       1. Appellant
       2. Respondent
       3. The concerned CIT (A)
       4. The concerned CIT
       5. DR "J" Bench, ITAT, Mumbai
       6. Guard File
         ×  //True Copy//

                                                            / BY ORDER,



                                                 /  Dy./Asst.             Registrar
                                              ,  /                     ITAT, Mumbai
 
 
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