Tribunal affirms assessee's claim for deduction under sections 10A/10B for assessment years 2002-05

The Tribunal upheld the CIT(A)'s decision, allowing the assessee's claim for deduction under sections 10A/10B for the assessment years 2002-03 to 2004-05. The Tribunal found that the company met all conditions for the exemption and that the nature of services provided was in line with the requirements for the deduction. The department's appeals were dismissed, affirming the assessee's eligibility for the deduction.

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Issues Involved:
1. Eligibility for deduction u/s 10A/10B for AY 2002-03 to 2004-05.

Summary:

Issue 1: Eligibility for deduction u/s 10A/10B for AY 2002-03 to 2004-05

Facts and AO's Findings:
- The assessee company claimed deduction u/s 10A/10B for AY 2003-04, which was denied by the AO amounting to Rs. 82.20 lacs.
- The AO, guided by the ACIT's opinion, concluded that the assessee was not eligible for deduction u/s 10A/10B as the company did not have a regular running office in the Software Technology Park (STP) and was merely supplying manpower, not developing software.
- The AO observed that the agreement with M/s Alpharma was for manpower supply, not software development, and the company was referred to as 'the supplier' in the agreement.
- The AO also noted that the negotiations were not recorded, and the consultant was the son of the directors, leading to the denial of the deduction claim.

Assessee's Arguments:
- The assessee argued that it satisfied all conditions for exemption u/s 10A/10B, including being a 100% export-oriented unit (EOU) and exporting computer software onsite.
- The assessee provided bank advices and a report in the prescribed form F-56G signed by a Chartered Accountant to support its claim.
- The assessee relied on Explanation 3 to sec. 10A/10B, which allows onsite software development carried out outside India, and notification no. 11521 dated 26.9.2000, which includes IT-enabled services for deduction u/s 10A/10B.
- The assessee contended that having only one employee does not negate the company's existence or its eligibility for deduction.

CIT(A)'s Findings:
- The CIT(A) found that the assessee complied with all prerequisites stipulated in section 10A/10B and that the main contention of the AO regarding the nature of services was unfounded.
- The CIT(A) noted that the agreement was for IT consulting services, and procuring manpower was incidental to rendering these services.
- The CIT(A) highlighted that the company had possession of the premises approved by the Customs Department and that the projections given to STPI were not relevant for determining eligibility.
- The CIT(A) concluded that the contract was not for manpower supply but for software services, and the assessee was entitled to the benefit of exemption u/s 10A/10B.

Tribunal's Decision:
- The Tribunal upheld the CIT(A)'s order, finding no infirmity in the CIT(A)'s conclusions.
- The Tribunal noted that the CIT(A) had considered each objection raised by the AO and provided detailed reasoning for allowing the deduction.
- The Tribunal referenced a similar case (Information Architects) where the assessee was allowed deduction u/s 80HHE, which is similar to u/s 10A/10B.
- The Tribunal confirmed the CIT(A)'s order for AY 2002-03 and 2004-05 based on the same reasoning.

Conclusion:
- The appeals filed by the department were dismissed, and the assessee was allowed the deduction u/s 10A/10B for the assessment years in question.

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