TaxTMI 
TaxTMI 
2014 (2) TMI 24
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....07-08 Return declaring an income of Rs. 1,45,48,453 was filed on October 30, 2007. Assessment, under section 143(3) of the Income-tax Act was made on December 31, 2010, at an income of Rs. 49,74,14,740. During the year the assessee has shown a total income of Rs. 1,45,48,453. It was seen that during the year the profit of the assessee excluding other income was Rs. 49,33,50,421. The same was claimed as exempt under section 10A. The assessee had shown the profit before tax of Rs. 49.14 crores on the total turnover Rs. 56.36 crores (software sales) giving the NP rate of 87.18 per cent. The assessee has claimed exemption under section 10A of Rs. 49.33 crores. In paragraph 10 of schedule 12 of the audit report the assessee has given the following disclosure : Related party disclosure Name of the related party Relationship Dr. Anil Gupta Key management personnel CAE Solution Inc. Enterprise with common key management personnel Transaction with related party Nature of transaction Enterprises with common key management personnel 31-03-2007 31-03-2006 Sale of software 12,86,24,629 30,66,59,178 Arbitration award 43,49,83,092 It was seen that the assessee has show....
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....ely, CAE Solutions Incorporated (USA). The petitioner had shown business profits of Rs. 43.49 crores which were claimed to be exempt under section 10A of the Act. The said claim was subsequently revised to Rs. 50.52 crores on account of foreign exchange fluctuation gain. The Assessing Officer in the original assessment order has recorded as under : "4.11 Looking to the very high NP ratio of 87.18 per cent. the assessee was required to file the profit and loss account and balance sheet of CAE Solutions Inc., US, vide order-sheet entry dated December 3, 2010, December 10, 2010, and December 14, 2010. The assessee did not file the profit and loss account and balance-sheet of CAE Solutions Inc., US. This was called for to ascertain the profits and tax liability of CAE Solutions Inc., US in the USA. Looking to the close connection between the two companies, it appears that the assessee is showing the entire profit in Indian company, i.e., M/s. Nuwave E Solution Pvt. Ltd. and claiming it as exempt. It appears that the assessee is booking all its profits in Indian exempt company and may be showing negligible profits in CAE Solu....
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....ement personnel 31-03-2007 31-03-2006 Sale of Software 12,86,24,629 30,66,59,178 Arbitration award 43,49,83,092 4.15 The above disclosure in the notes to account makes it apparent that if the arbitration award of Rs. 43.49 crores is excluded from the net profit of Rs. 50.59 crores then the profits for the current year would be Rs. 7,09,65,947. The profit of Rs. 7,09,65,947 on a turnover of Rs. 56,36,07,721 will give NP rate of 12.59 per cent. The NP rate of 12.59 per cent. is very well comparable with the NP rate declared by the assessee in earlier years. All this facts clearly illustrates that the assessee's submission dated December 30, 2010, is totally false and absolutely incorrect. 4.16 The arbitration award of Rs. 43,49,83,092 received by the assessee is not part of the software export. The assessee has himself mentioned in notes to account that the sales of software at Rs. 12.86 crores and arbitration award at Rs. 43.49 crores. Thus, it clearly shows that the assessee very well knows that the arbitration award is not sales/export of software and it would not qualify for the exemption under section 10A. Therefore, the assessee concocted a story that the extra....
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....cing Officer's order in which the value of export of software at Rs. 56,36,07,721 to associated enterprises has been accepted. (d) This was typographical error is further evident from the report under section 10A of the Act filed with the original income-tax return and revised income-tax return, in which the auditors have certified the export of software and have nowhere pointed out about any 'arbitration award'. Therefore, all contemporary evidences as examined by me establish the noting in the notes to the account as mere typographical error and nothing adverse can be inferred from this typographical error as is otherwise sought to be made out by the Assessing Officer. Merely relying upon the notes to the accounts would not be sufficient material to come to a conclusion that the impugned sum represents arbitration award. Admittedly, the Assessing Officer himself has mentioned in the submissions dated March 10, 2011, that the arbitration matter was pending uptill the assessment year 2007-08 and after that it was settled in the assessment year 2008-09. Meaning thereby that the assessee cannot be presumed to have received any money on account of arbitration award, as alleged, duri....