TaxTMI 
TaxTMI 
2016 (8) TMI 506
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....rder of the AO allowing the claim of the deduction u/s 80IA is erroneous and prejudicial to the interest of revenue and therefore he held that the income assessed in excess of 5% is to be treated as undisclosed income of the Assessee and the Assessee does not fulfill many of the conditions for deduction u/s 80 IA of the act. Against this order u/s 263 the Assessee preferred an appeal before the coordinate bench who vide order dated 03.06.2008 modified the order of the ld CIT (A) and directed the AO for making proper enquiry for scrutinizing the claim of the Assessee u/s 80IA to consider the genuineness of the claim and fulfillment of other conditions. The coordinate bench further held that the AO shall not review his decision relating to manufacturing of computer software whether falling within the ambit of industrial undertaking eligible for deduction u/s 80IB or not. Pursuant to the order of the coordinate bench the ld AO passed an assessment order u/s 144 of the Act rejecting the books of account stating the reasons about discrepancy in accounting of electricity bills, non availability of complete address of the parties to whom the sales of software is made, absence of any cost ....
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....or production of things employing more than 10 workers and it should furnish a certificate by a chartered accountant quantifying the claim of the Assessee. The assessee is a partnership firm formed by husband and wife. The husband derived income from salary and running business concern in the form of Chopra Gas Agency and the wife of the Assessee is deriving salary from some filling station. Both of them are not qualified as software professionals or having past experience in that business of software development or its marketing. Both of them started the Assessee firm by employing other people. During the year, the firm has executed the sale of Rs. 18.96 lakhs and has earned net profit of Rs. 14.46 lakhs thereon. The total salary/ wages paid by the firm was Rs. 2.41 lakhs only and the next major amount of expenditure was depreciation of Rs. 51000/-. The balance sheet of the company also shows that the investment in plant and machinery was only Rs. 85000/-. The Assessee does not have any furniture and fixtures and is running business from rented premises. The claim of the assessee that it has taken on rent premises which is fitted with all the required furniture and fixture is also....
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....nufacturing of computer software was a matter warranting scrutiny. The Assessing Officer has failed totally to enquire about this aspect of the matter. The Commissioner of Income Tax has also pointed out that the assessee had not even purchased UPS which are necessary for running of computers. The Assessing Officer has failed to make any enquiry about the same. The Commissioner of Income-tax has also pointed out about the non-existence of any furniture for the employees which has also escaped the attention of the Assessing Officer. Whereas the assessee has claimed to have employed 10 or more workers in the manufacturing process, the Assessing Officer has failed to enquire about their qualification, designation and as to whether they were engaged in the manufacturing activities. The Assessing Officer has also overlooked the fact that a meager salary was claimed to have been paid to the employees raising a strong suspicion about their qualifications required for discharging the job of computer software engineers. On going through the order of the Assessing officer u/s 143(1) and the order of the Commissioner of Income Tax u/s 263, it becomes abundantly clear that the Assessing Offi....
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....n 28.07.1999 and the third computer on 20.02.2000. it is noted of first two computers was shown as Rs. 29000/-each, while the third computer was purchased for a cost of Rs. 17300/- only. The A.O. has not conducted any enquiries in respect of the said purchases, but, prima-facie, even the purchase price claimed for the given computers is grossly understated, given the fact that in the year 1999-2000 the computers were quite expensive. The purchase price of Rs. 17,300/- only for a computer system way back in 1999-2000 is apparently understated, as the good computers are not available for this price even today despite the Information Technology and Electronic boom. (b) Sophisticated computers were required, if at all the appellant was to genuinely manufacture good quality computer software. However, going by the appellant's own books of accounts, it owned only one computer during the first 4 months of its working and owned two computers during the next 7 months of its working. (c) With such scanty sub-standard machinery at its disposal, the appellant has claimed to have engaged 14 staff members at various points of time during the year under consideration. (d) A perusal of t....
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....nist with amount of salary 2500/-/per months.......". As against this statement of Ms. Jyoti, the appellant has shown her employed w.e.f. March, 1999 at a salary less than Rs. 2,500/- per month. The appellant has also claimed her to be a "system analyst", although she was working as a "receptionist". (i) As regards the appellant's claim that it had discharged its onus during the course of original assessment proceedings by presenting all the employees with the exception of two employees, the same is not found to be factually correct. A perusal of the relevant assessment records reveals that the statements of only the following employees were recorded on 25.03.2003 by the A.O. during the course of original , assessment proceedings:- (i) Sh.Satish Kumar who stated to be employed with the assessee firm only "for the last Y* year". Thus the said Sh. Satish Kumar did not even admit to be the employee of the assessee firm during the year 1999-2000. Hence the appellant's claim of payment of salary to him in the months of Jan. and Feb., 2000 is false. (ii) Sh. Rohit as per his statement, was again not the assessee's employee during the assessment year under consideratio....
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.... case where the industriaf undertaking manufactures or produces, articles and things, the undertaking has to employ 10 or more workers in a manufacturing process carried on with the aid of power. Thus 10 (r)r more workers should be employed in the manufacturing process alone, and the workers employed for other administrative or misc. jobs cannot be said to be employed in the manufacturing process. Without prejudice to this legal requirement of employment of 10 or more workers in the manufacturing process, in the appellant's case there is no conclusive evidence of the employment of 10 or more workers even as a whole for the entire functioning of the total unit. 7.5 It is also important to note that the development of computer software is a highly specialized task which requires software engineers and persons with a high degree of knowledge of computers and software designing. No details of qualification were submitted by the appellant in respect of the persons claimed to have been employed by it for the so-called development of computer software. The 3 persons claimed to have been employed by the assesses, namely, Jyoti, Suman and Rajeev, who were claimed to be graduates did ....
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.... the assessee. It is common knowledge that every software which is commercially sold in the market does carry some operating manual. Similarly, not even a single chair was purchased by the assessee during the year under consideration although it claimed to have employed 10 or 11 workers. What to talk of the customized tables and chairs which are needed to work on computers, the assessee did not buy even a single piece of furniture. So much so that even the UPS not purchased by the appellant despite its claim that its computers were used for the sophisticated and specialized task of software development. The appellant's submission that the furniture was provided by the landlord is not substantiated by the Rent Deed. The appellant is mistaking the glass panes and electrical fittings, doors and windows for furniture, and is thus taking a totally misleading the plea. Further, the assessee has not spent a penny towards the installation of various operating softwares which were mandatory for the development of new computer software. Like-wise, no expenditure has been incurred towards marketing despite the claim of sales of Rs. 19 lacs in the very first year. A perusal of the so-calle....
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....) As per Explanation to section 33B of the Act , "Industrial undertaking" means any undertaking which is inter-alia engaged in the manufacture or processing of goods. (c) It was made amply clear by the Hon'ble Supreme Court that their judgment is confined strictly to the process impugned in the present case (i.e. the case of Oracle Software India Ltd.) (d) It was also made clear by the Hon'ble Court in Para 10 that "Complex technical nuances are required to be kept in mind while deciding issues of the present nature. The term "manufacture" implies a change, but every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation." (e) In para 11 of the order, it was made further clear by the Hon'ble Court that "what one needs to be examine in each case is the process undertaken by the assessee." (f) In para 8 & 9 of the order, the Hon'ble Court has also detailed the process of commercial duplication in the following words: 8. "........A commercial duplication process involves four steps. For the said process of commercial duplication, one requires master media, fully operational compute....
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....dgment in the case of Oracle Software on its own peculiar facts and after fully appreciating the complex process of commercial duplication carried out by Oracle Software India Ltd. Therefore, the Hon'ble Court took special pains to make it unequivocally clear that their judgment was confined strictly to the process carried out by Oracle Software, meaning thereby that the judgment was not meant to be applied anywhere and everywhere in a casual manner. It was the process carried out by Oracle Software India Ltd. having complex technical nuances and involving sophisticated machinery that led the Hon'ble Court to hold that the processing of goods carried out by M/s. Oracle Software was eligible for deduction u/s 80IA (1) r/w section 80IA(12)(b) r/ws. 33B of the Act. 7.13 The appellant, by contrast, has not been able to explain even the basic process adopted by it even for the duplication of the software purchased by it. The machinery available with the appellant carries a measly worth of about Rs. 60,000/- for a major part of the year. The manpower hired by the appellant appears to be negligible in number and extremely deficient in skills and qualification. The methodology a....