ASST COMMISSIONER OF INCOME TAX CIRCLE LTU 1 CHENNAI, NUNGAMBAKKAM vs. SIFY TECHNOLOGIES LIMITED, CHENNAI

At the outset, we note that the assessee company filed its return of income declaring income of ₹.98,53,74,050/- and the case of the assessee was selected for complete scrutiny. After examining the details furnished by the assessee against statutory notices, the Assessing Officer noted that the assessee has shown an amount of ₹.6,00,000/- as unearned income and not offered for taxation. The Assessing Officer asked the assessee to explain as to why the said amount should not be treated as income of the assessee for the current assessment year 2020- 21. After considering the submissions of the assessee and relying upon the assessment for AYs 2018-19, 2017-18 & 2016-17, the Assessing Officer added the unearned income of ₹.6,00,000/- to the total income of the assessee for taxation. On appeal, the ld. CIT(A), by following the decision of the ITAT in assessee’s own case for the assessment years 2012-13 to 2015-16 in 1506 & 1507/Chny/2017 & vide order dated 06.09.2022 , deleted the addition made by the Assessing Officer. Not satisfied with the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.

The ld. DR Shri Shivanand K. Kalakeri, CIT relied on the order of the Assessing Officer.

The ld. AR Shri S.P. Chidambaram, Advocate drew our attention to the chart consisting summary of issues and relied on the order of the ld. CIT(A).

Heard both the parties and perused the material available on record. In the assessment order, relying upon the assessment for AYs 2018-19, 2017-18 & 2016-17, the Assessing Officer added the unearned income of ₹.6,00,000/- to the total income of the assessee for taxation. On perusal of page 11 of the impugned order vide para 5.2, the ld. CIT(A), by placing reliance on the decision of the Tribunal in assessee’s own case for AYs 2012-13 to 2015-16, deleted the addition made on account of unearned income. We note that the Revenue preferred an appeal against the order of the ITAT in assessee’s own case for AYs 2012-13 to 2015-16 before the Hon’ble High Court of Madras. On perusal of the order of the Hon’ble High Court vide order dated 08.07.2015 in TCA No. 306 of 2015, we note that the Hon’ble High Court was pleased to admit the substantial question of law and pending adjudication. In view of the same, we do not find any infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 2 (2.1 & 2.2) raised by the Revenue is dismissed.

Ground No. 3 raised by the Appellant Revenue in challenging the action of the ld. CIT(A) in deleting the disallowance of Employees Stock Option ESOP expenses of ₹.4,64,00,000/- in the given facts and circumstances of the case.

We note that the assessee had debited an amount of ₹.4,64,00,000/- in the profit & loss account as ‘Employee Stock Compensation Expenses’ under the head “Employee Benefit Expenses”. During the course of scrutiny proceedings, against the notice under section 142(1) of the Act, the assessee filed detailed explanation, which is reproduced at page 25 of the assessment order. After considering the submissions of the assessee, the Assessing Officer observed that the ESOP expenses represented a notional loss or a contingent liability until and unless the eligible employee exercises the option and therefore, the expenditure claimed by the assessee cannot be allowed as revenue expenditure. Accordingly, the Assessing Officer disallowed the claim of the assessee and added back to the returned income. On appeal, the ld. CIT(A), by following the decision of the ITAT in assessee’s own case for earlier assessment years, deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.

Before us, the ld. DR relied on the order of the Assessing Officer.

The ld. AR relied on the order of the ld. CIT(A) and submits that the ITAT consistently held that the expenditure incurred towards ESOP is of revenue in nature and allowed the claim of the assessee.

Having heard both the parties, we note that the claim of expenditure incurred towards ESOP was disallowed by the Assessing Officer treating the same as capital expenditure. We note that the ld. CIT(A), by following Tribunal’s order for earlier assessment years in assessee’s own case, deleted the addition. We note that while deciding the issue for AYs 2012- 13 to 2015-16, by relying upon the Tribunal’s order in assessee’s own case for AY 2008-09, the Tribunal observed that the earlier orders of the Tribunal still prevail and are not reversed by any judicial authority and dismissed the grounds raised by the Revenue. Thus, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 3 raised by the Revenue is dismissed.

Ground No. 4 (4.1 & 4.2) raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition of ₹.29,22,89,414/- made by the Assessing Officer under section 40(a)(i) of the Act.

We note that the Assessing Officer observed that the assessee has not deducted TDS towards foreign remittance and the provisions of section 40(a)(i) of the Act are liable to be invoked. Accordingly, the Assessing Officer show-caused the assessee along with draft assessment order proposing disallowance under section 40(a)(i) of the Act. Against the show-cause and DAO, the assessee filed detailed explanations, which are reproduced at page 30 to 37 of the assessment order. After considering the submissions of the assessee, the Assessing Officer invoked the provisions of section 40(a)(i) of the Act and disallowed ₹.4,82,00,000/- since TDS was not deducted on the payment made towards legal & professional charges.

Further, the assessee claimed expenses of ₹.23,96,89,414/- towards networking cost made to overseas service providers for transmission of voice data and also for providing bandwidth services. The Assessing Officer noted that the assessee has not deducted TDS and accordingly, by invoking the provisions of section 40(a)(i) of the Act, disallowed and added to the total income of the assessee.

The assessee also claimed expenses of ₹.44,00,000/- towards advertising, selling and marketing. Since the assessee has not deducted TDS, the Assessing Officer disallowed the same under section 40(a)(i) of the Act.

On appeal, the ld. CIT(A), by following the decision of the ITAT in assessee’s own case for earlier assessment years, deleted the additions made by the Assessing Officer under section 40(a)(i) of the Act on account of legal & professional charges, other networking cost and advertising, selling & marketing expenses. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before the Tribunal. We note that the ld. CIT(A), by following Tribunal’s order for earlier assessment years in assessee’s own case, deleted the additions. We note that while deciding the issue for AYs 2012-13 to 2015-16, by relying upon the Tribunal’s order in assessee’s own case for AY 2009-10 to 2011-12 vide order dated 18.12.2018 in & ors, the Tribunal observed that the earlier orders of the Tribunal still prevail and are not reversed by any judicial authority and dismissed the grounds raised by the Revenue. Thus, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 3 raised by the Revenue is dismissed.

Ground No. 5 raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition of ₹.7,66,50,917/- made by the Assessing Officer in respect of lease rental payments. The Assessing Officer discussed the impugned addition in para 8 of the assessment order and the same is reproduced in the impugned order at para 5.16. After considering the submissions of the assessee and by following the decision of the Tribunal in assessee’s own case for AYs 2013-14 to 2015- 16, the ld. CIT(A) deleted the addition made by the Assessing Officer.

We note that while deciding the issue for AYs 2013-14 to 2015-16, the Tribunal followed the decision of the Tribunal in the case of M/s. Sundaram Infotech Solutions Ltd. in to 2517/Chny/2019 dated 06.07.2022 and confirmed the order of the ld. CIT(A) for the above assessment years. Based on the above decisions of the Tribunal for AY 2013-14 to 2015-16, the ld. CIT(A) deleted the addition made towards disallowance of principal amount of lease rental payments and allowed the grounds raise by the assessee. We find that the earlier orders of the Tribunal referred hereinabove are still prevail and are not reversed by any judicial authority. Therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 5 raised by the Revenue is dismissed.

Ground No. 6 raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in directing the Assessing Officer to allow the depreciation as claimed by the assessee on software in the facts and circumstances of the case.

We note that as per depreciation schedule, the assessee has included the software in the block of ‘computers and claimed depreciation @ 40%. The Assessing Officer, observed that the block ‘computers in the fixed asset schedule submitted by the assessee for income tax purpose contains ‘system software’, which are intangible assets, eligible for depreciation @ 25%. Accordingly, the Assessing Officer show-caused the assessee along with draft assessment order (DAO) to explain as to why the excess depreciation claimed as per DAO should not be disallowed. In response to the show-cause notice, the assessee uploaded the detailed explanations vide response dated 17.03.2022 as reflected at page 48 of the assessment order. After considering the explanation of the assessee, the Assessing Officer observed that the depreciation on ‘system software’, being intangible assets, is to be allowed only 25% and accordingly, disallowed the excess depreciation claimed by the assessee of ₹.6,09,41,666/- and added to the total income of the assessee. On appeal, the ld. CIT(A), by following Tribunal’s order in assessee’s own case for AY 2013-14 & 2014-15, deleted the addition of ₹.6,09,41,666/- made by the Assessing Officer on account of restricting the depreciation to 25% on computer software treating it as intangibles as against 40% depreciation claimed by the assessee.

We note that in the impugned order, the ld. CIT(A) observed that as per the New Appendix-1 effective from AY 2006-07, the software is explicitly included in the block of computers for depreciation purposes and therefore, the assessee shall be entitled to a depreciation of 40% including the same as part of computer and not at 25% as part of intangibles. Further, we note that while deciding the issue for AYs 2013- 14 and 2014-15, the Tribunal observed that New Appendix-1 as effective from AY 2006-07 prescribe higher rate of depreciation for computer software and therefore, confirmed the order of the ld. CIT(A) by dismissing the appeals of the Revenue. Based on the above decisions of the Tribunal for AY 2013-14 and 2014-15, the ld. CIT(A) deleted the addition made on account of restricting the depreciation on computer software. We also find that the earlier orders of the Tribunal, referred hereinabove, are still prevail and are not reversed by any judicial authority. Therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 6 raised by the Revenue is dismissed.

We find that this appeal is filed with a delay of 287 days. The Appellant-Revenue filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the Revenue are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.

Ground No. 1 raised by the Appellant-Revenue is general in nature and requires no adjudication.

Ground No. 2 (2.1 & 2.2) raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition of ₹.7,75,00,000/- made on account of unearned income not offered for taxation in the facts and circumstances of the case.

We find the issue in AY 2017-18 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Revenue for AY 2017-18 are dismissed.

Ground No. 3 (3.1 & 3.2) raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition made by the Assessing Officer under section 40(a)(i) of the Act of net-working and communication cost of ₹.71,73,36,266/- and legal & professional charges of ₹.3,43,89,473/-.

We find the issues in AY 2017-18 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) hereinabove at para 20 and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Revenue for AY 2017-18 are dismissed.

Ground No. 4 raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition of ₹.63,88,79,812/- made by the Assessing Officer in respect of lease rental payments.

We find the issue in AY 2017-18 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) hereinabove at para 22 and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Revenue for AY 2017-18 are dismissed.

Ground No. 5 raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in directing the Assessing Officer to allow the depreciation as claimed by the assessee on software in the facts and circumstances of the case.

We find the issue in AY 2017-18 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) hereinabove at para 25 and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Revenue for AY 2017-18 are dismissed.

We find that this appeal is filed with a delay of 378 days. The Appellant-Revenue filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the Revenue are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.

Ground No. 1 raised by the Appellant-Revenue is general in nature and requires no adjudication.

Ground No. 2 (2.1 & 2.2) raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition made by the Assessing Officer under section 40(a)(i) of the Act of net-working and communication cost of ₹.22,87,13,000/-.

We find the issues in AY 2012-13 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) hereinabove at para 20 and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the grounds raised by the Revenue for AY 2012-13 are dismissed.

Ground No. 3 raised by the Appellant-Revenue in challenging the action of the ld. CIT(A) in deleting the addition of ₹.6,83,01,534/- made by the Assessing Officer in respect of lease rental payments.

We find the issue in AY 2012-13 are similar to the facts and circumstances relevant to AY 2020-21 in wherein, we have sustained the order of the ld. CIT(A) hereinabove at para 22 and dismissed the grounds raised by the Revenue, therefore, we hold our findings would be equally applicable to the assessment year under consideration. Thus, the ground raised by the Revenue for AY 2012-13 is dismissed.

In the result, all the appeals filed by the Revenue are dismissed. Order pronounced on 17th April, 2025 at Chennai.