Tribunal grants relief to assessee, directs reconsideration of depreciation and deletion of disallowance

The tribunal allowed the appeal of the assessee, directing the Assessing Officer to grant relief under Section 10A, reconsider the disallowance of depreciation, and delete the disallowance under Section 40(a)(ia). The order was pronounced on 14.09.2012.

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Issues Involved:
1. Legality of the appellate order passed by the Ld. CIT(A) against the principles of natural justice and the provisions of the IT Act, 1961.
2. Disallowance of relief under Section 10A of the Income Tax Act, 1961.
3. Confirmation of the purchase of computer as non-genuine and consequent disallowance of depreciation.
4. Confirmation of disallowance for purchase/hiring of software under Section 40(a)(ia).

Detailed Analysis:

1. Legality of the Appellate Order:
The appellant argued that the appellate order passed by the Ld. CIT(A) was illegal as it violated the principles of natural justice and the provisions of the IT Act, 1961. The tribunal did not specifically address this issue in isolation but considered it within the context of the other grounds raised.

2. Disallowance of Relief Under Section 10A:
The primary issue was whether the assessee was entitled to relief under Section 10A of the IT Act, 1961. The appellant contended that the authorities misinterpreted the facts and the law. The assessee's unit, engaged in the export of engineering-based software services, was converted from a Domestic Tariff Area (DTA) to a Software Technology Parks of India (STPI) unit.

- Arguments by the Assessee:
- The authorities misconstrued the letter issued by STPI and wrongly concluded that the business was reconstructed to claim exemption under Section 10A.
- The appellant had complied with the conditions for registration and commercial production, and the purchase of computers was genuine.
- The conversion from DTA to STPI should not be considered as splitting up or reconstruction of an existing business.
- The CBDT Circular No. 1/2005 and various judicial precedents support the appellant's claim.

- Arguments by the Revenue:
- The authorities argued that the assessee did not fulfill the conditions under Section 10A, including the intimation of commercial production to STPI.
- The purchase of computers was found to be bogus, indicating that commercial production had not started in the STPI unit.

- Tribunal's Findings:
- The tribunal concluded that the assessee's conversion from DTA to STPI did not violate the conditions of Section 10A(2)(ii) & (iii).
- The tribunal found that the requirement to intimate the commencement of commercial production to STPI was not a mandatory condition.
- The tribunal directed the Assessing Officer to allow the claim of the assessee under Section 10A and delete the related addition.

3. Disallowance of Depreciation on Computers:
The issue was whether the purchase of computers from M/s Gaurav Computers was genuine, affecting the claim for depreciation.

- Arguments by the Assessee:
- The appellant provided all necessary details, including invoices, bank statements, and the PAN of the supplier.
- The non-availability of the supplier at the given address during the inquiry in 2009 should not be the sole basis for disallowance, as the purchase was made in 2006.

- Arguments by the Revenue:
- The inquiry revealed that the supplier did not exist at the given address, and the address was a residential house with no firm named M/s Gaurav Computers.

- Tribunal's Findings:
- The tribunal noted that the Assessing Officer did not inquire about the installation of computers at the assessee's office.
- The tribunal remitted the issue back to the Assessing Officer for a fresh decision after giving the assessee an opportunity to rebut the findings of the Inspector.

4. Disallowance Under Section 40(a)(ia):
The issue was whether the disallowance under Section 40(a)(ia) for non-deduction of tax at source was justified.

- Arguments by the Assessee:
- The assessee argued that the payments were made during the year, and no amount was payable at the end of the financial year.
- The appellant relied on the decision of the Special Bench in Merilyn Shipping & Transports vs. ACIT, which held that Section 40(a)(ia) applies only to amounts payable, not to amounts already paid.

- Arguments by the Revenue:
- The revenue relied on the orders of the authorities below.

- Tribunal's Findings:
- The tribunal found that the payments were made during the year and no amount was payable at the end of the financial year.
- Following the decision in Merilyn Shipping & Transports vs. ACIT, the tribunal directed the Assessing Officer to delete the addition made under Section 40(a)(ia).

Conclusion:
The tribunal allowed the appeal of the assessee for statistical purposes, directing the Assessing Officer to grant relief under Section 10A, reconsider the disallowance of depreciation, and delete the disallowance under Section 40(a)(ia). The order was pronounced in the open court on 14.09.2012.

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