TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 1044
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....Officer. 2) On the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 1,73,985/- on account of disallowance of the Software Development charges, made by the Assessing Officer." 2.1 In ITA No.889/Mum/2009 for A.Y.2000-01, assessee has filed the appeal on the following ground: "Ground No.1: On the facts and in the circumstances of the case and in law, the learned CIT(A), Central VII, erred in restricting the depreciation on car to 50% of the amount claimed of Rs. 1,73,650 by the appellant. The appellant prays that the disallowance of Rs. 86,825 may please be allowed, as the car was used for the purpose of the appellants business." ITA No.1481/Mum/2009 for A.Y.2000-01 (Revenue's appeal) 3. A search and seizure action u/s.132(1) was undertaken on 23.03.2005. Assessee filed the return declaring total income of Rs. 19,60,460/-. The firm was stated to be conducting computer training courses and other related activities under the head Computer Training Division. It has stated during the year under consideration Computer Software Development Division for conducting software development and all other related services. It had two divisions of ....
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....-03. However, against these exports, assessee had credited exports in its books Rs. 10,16,00,000/- in F.Y. 2000-01, Rs. 15,57,46,280/- in F.Y. 2001-02 and for F.Y. 2002-03. Assessing Officer also found other deficiencies with regard to present claim of assessee u/s. 80HHE of the Act. In response to above allegations, assessee made a detailed reply during assessment proceedings which is being narrated as under: "(1) The assessee has dealt with LNSL as a supporting manufacturer for their export to M/s. Apkidukaan.Com/ Merikitab.Com with maintenance contract for the same and was not having any direct relation with M/s. Apkidukaan.Com Corporation. Hence, it was not aware /concerned with the company Apkidukaan. Com Pvt. Ltd. or its office. (2) The job work charges were paid by the assesses to various staff and agencies. Mr. C.L. Deshpande who was Technical Director was looking after operational work and day to day activities has got the work executed by various staff and agencies. He was authorized to make necessary payment to the staff and the expenses incurred in vouchers seized for the same are accounted in the books of accounts towards expenses and has been reflected in the prof....
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....99 as a test and case was completed successfully, which led to the receipt of even a larger contracts dated 28-7-2000 from Lee & Neo Group. For this purpose, the premises were taken on lease at Bhubnneshwar. On gaining more confidence, the assessee decided to apply for setting up of 100% export oriented unit under Software Technology Park of India (STPI), Bhubaneshwar, which was done vide application dated 16-12-2000 and the STPI granted permission on 1/1/2001. It has enclosed copies of 4 agreements with Lee & Nee Group dated 28-7-2000 and also the scope of work carried out. Further, it is reiterated that Shri C.L. Deshpande was the whole and sole person to manage the said division, who is no more. Further, it is staled that the premises were taken on lease, electricity expenses were incurred, new computers were purchased for fulfilling the contract. It has also filed sample copy of SOFTEX .which is a declaration for export of software by LNSL to Aapkidukan.Com Corporation, USA. It is also clarified that LNSL and its group was eligible to issue disclaimer certificate as the only requirement to be fulfilled for claiming 80HHE is that there should be an export of computer software an....
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.... dissolved on March 21, 2005. 2 If so, what business is being carried out by Aapkidukaan.Com Corporation. The Company was set up to sell consumer goods via interne, however, the company was never active and it was finally dissolved. 3 What are the names & complete addresses of the owners /Directors of Aapkidukaan.com Corporation? The following are the owners from April 10,2000 through March, 21, 2005. a) Kishore Bubna 204, McDuff Avenue, Fremont, California 94539. b) Anita Gupta 204, McDuff Avenue, Fremont, California 94539. c) Schwark Satyavolu India. 4 Is Aapkidukaan.Com Corporation a company registered in the USA? Yes. This is a U.S. Company registered in California. 5 Name & complete address of the directors/partners of the company/firm, if the account holders are of any company/firm See item No.3 6 Copies of statements of their bank accounts. The company has two bank accounts, however, the owners of Aapkidukaan. Com were not the owners of these accounts. They do not know the names and addresses of the directors/partners of the company/firm, of these bank accounts. 7 Nature of the business carried out by the holders of the above said two accounts in U.S.A. Copi....
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....how it had explained the source code of the products manufactured by it and sold to LNSL, who in turn had exported and received foreign exchange for claiming exemptions/deductions as it stated that it was not able to explain how the two bank accounts were operated by Aapkidukaan.com Corporation, but receipts of foreign exchange were received by LNSL for export of software to Aapkidukaan.com Corporation. If the assessee had developed the software transmitted to LNSEL, who in turn transmitted to Aapkidukaan.com Corporation, there would have been any instance detected during the course of inquiry by Foreign Tax Division, the assessee would have been able to preserve the source code, employees would have been able to answer positively and there would not have been any ambiguity in the bank accounts held by Aapkidukaan. com Corporation, USA, from which foreign exchange has been received by the principal exporter. 3.8 It was observed by Assessing Officer that assessee had received advance payments of Rs. 10,84,05,000/- from LNSL without having made any sales. All the purchases were quarter ending June, 2002 to March, 2005, but assessee claimed deduction U/S.80HHE on above receipts for AY....
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....s bogus. 3.11 According to Assessing Officer, as per letter dated 07.07.2003 of STP Bhuwaneshwar, assessee had not started any commercial production within the initial validity period of three years. In view of above discussion, the deduction claimed u/s.80HHE of the Act and job work charges pertaining to A.Ys. 2001-02 and 2002-03 were also disallowed on the same reasoning being bogus. 4. Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee. CIT(A) has allowed the claim of assessee by observing as under: "7. I have carefully considered the above facts and find sufficient force in the contentions of the appellant. The disallowance made by the Assessing Officer is based on half baked findings and without appreciating the facts of the case properly. The conclusion is drawn against the appellant mainly on presumptions and surmises and is not substantiated with cogent evidences. The observations and findings of the Assessing Officer have been properly countered by the appellant and after evaluating such replies/arguments, my own findings are narrated in the coming paras below. 7.1 In so far as the lack of requisite ....
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....sed income from the books of account and documents found during search. It was stated that export proceeds received were duly recorded in the regular books of account on accrual basis and as and when the income accrued, deduction was claimed as per the Act and was also allowed in respective assessment orders. No addition could be made on the basis of such statement unless and until, it is corroborated with evidences. In the present case, it appears that the managing partner made such a disclosure more in a confused state of mind, rather than making a conscious declaration, more so, in the light of disclosed facts as per the returns filed much earlier than the search. Therefore, some element of coercion cannot be ruled out completely. The corroborative evidences brought on record are not conclusive and infallible and have been successfully rebutted by the appellant. 7.3 It may be stated here that similar disclosure and subsequent retraction has been a matter of dispute before various courts from time to time. Reference could be made to the case of DCIT vs Samita Marine Kakinada(2007) 10 SOT 335(Mum) where it was held that even though the assessee had made certain declaration durin....
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.... made by the Assessing Officer that LNSEL did not make any export, on careful consideration of the above facts and going through the copies of SOFTEX forms, I do not find any merit in the conclusion drawn by him. Under the provisions of Foreign Exchange Management Regulations, 2000/Exim Policy etc such type of business is required to make a declaration of export of software in Softex form which is necessarily to be submitted to the designated official of the Department of Electronics, Government of India at the Software Technology Parks of India (STPIs) etc. Perusal of such forms submitted by LNSEL and related concerns clearly shows that the competent authority on behalf of Department of Electronics, in the space provided in the said form, has duly certified that the software described above was actually transmitted and the export/royalty value declared by the exporter has been found to be in order and accepted by them. 7.5 The contention of the Assessing Officer regarding duplication in the claim is unfounded. Perusal of the copies of certificate issued by LNSEL and associates in Form no10CCAC in terms of Rule 18BBA(8) clearly shows that they have duly certified that they have n....
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....sed by the Assessing Officer is not relevant at all. Apart from the certificate being irrelevant for the years under consideration, the Assessing Officer cannot ignore the certificate issued by STPI to LNSEL from 30.4.1992. The declarations made in the softex form from time to time makes such an objection all the more irrelevant., having no bearing on the genuineness of the claim of the exporter as well that of the appellant in the capacity of supporting manufacturer. 7.7 Regarding the failure of the appellant to state that source code, re is evident that the Assessing Officer was duly intimated of the reasons for non furnishing of the same. The Assessing Officer has not made any counter comments on such unavoidable circumstances stated by the appellant and went on to link up such non-production to the genuineness of the export itself though the same was a fait accompli. Had in his opinion source code carried such an importance, nothing prevented him to verify the contentions of the appellant which appears to have been completely overlooked. No effort seems to have been made with the Investigation Wing of the department which carried out the search and survey operations. Accordin....
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....ts and relevant vouchers found during the search only corroborate the genuineness of such payments. The Assessing Officer has also overlooked the fact that TDS was duly deducted and paid to the government account. Nothing has been brought on record to show that all such facts borne from the books of account were bogus or incorrect as the books have not been rejected either. Moreover, there is nothing to show that the appellant was allowed the opportunity to cross-examine the said persons as per request made during assessment proceedings though the statement of the said persons were used against the appellant and in a way, they were used as witnesses of the department. The reasons for denial of natural justice is not comprehensible though the facts remains that such statements have been treated as clinching evidence by the Assessing Officer. Thus, the Assessing Officer has violated the principles of natural justice in the matter. It may be stated here in the case of State of Kerala vs K.T.Shaduli Grocery Dealer AIR 1977 SC 1627, the Hon'ble Apex Court held that a Taxing Officer is under obligation to comply with the principles of natural justice in reaching the conclusion. In an....
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....ent that TDS was duly made on job work charges. Likewise, another computer profession Ms. Prajakta Shinde in the affidavit dated 3.12.2007 affirmed similar facts. It is also stated by her that she confirmed job work charges to the department consequent to search operations in March 2005. Besides, It may also be staled here that the appellant could not counter the findings of the Assessing Officer as such persons could not be traced out as the matter was quite old and the appellant had stopped such activity long time back. Thus, it could not be expected to do an impossible task. However, it has to be appreciated that the appellant had to undergo search and seizure operation and the vouchers and bills relating to such job work were found during search. In fact, presence of such evidences at the time of search only strengthens the contentions of the appellant that actual work in this regard was done or else no such evidences could have been found, had the claim been bogus and cooked up. Thus, such reliance on the statements, contrary to overwhelming evidences in favour of the claim of the appellant, cannot be considered enough for sustaining the disallowances made. 7.3 In so far the....
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....of developing software for M/s. Lee & Nee Software (Export) Ltd., which was accepted by assessee firm in consultation with technical Director, Mr. C. L. Deshpande and the first contract was entered into on 28.12.1999 as a test case and was completed successfully. 5.1 On successful completion of the same, one large contract was received by the appellant firm. The details of the contracts are as under: Name of the Party Date of Contract M/s. Lee & Nee Software (Exports) Ltd. (LNSEL) 28.07.2000 M/s. L T Soft & services 28.07.2000 M/s Raj Soft & Services 28.07.2000 M/s. M S Soft & Services 28.07.2000 Out of the above four parties, M/s. L T Soft & Services, M/s. Raj Soft & Services and M/s. M S Soft & Services amalgamated with LNSEL vide Calcutta High Court order dated 18.09.2000 w.e.f. 28.02.2000. Hence virtually all the four contracts were entered with LNSEL. Copy of all the above contracts has been enclosed in Paper book (Refer page 103 to 114) before us, which is not in dispute. 5.2 On gaining even more confidence, the appellant decided to apply for 100% Export Oriented Unit (EOU) under Software Technology Park of India, Bhubaneswar Centre for the devel....
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....marketing of the said portal in India, by procuring clients in India to have their virtue shops on the portal through its offices/associates in Kolkata, Pune, Banglore, Bhubhaneshwar or its franchises. 5.6 LNSEL itself designed the main portal of Aapkidukan.com and decided to outsource designing of various modules and templates for the said software. For said purpose, orders were placed wih various other software developers apart from the appellant firm. Once the work outsourced was completed and received by LNSEL through email, the various parts outsourced to different developers were assembled and linked with the main portal. To this extent, there was a value addition by LNSEL. On the said value addition, exemption u/s. 10B was claimed by LNSEL and same was accepted by the department in ITAT. Copy of said ITAT order in case of L&T Estate is enclosed in paperbook page no. 297-300 to justify chain transaction in this regard. 5.7 Subsequently, assessee claimed deduction u/s.80HHE of the Act on supply of above device to LNSEL as supporting manufacturer. Assessing Officer has disallowed deduction u/s.80HHE of the Act claimed by the appellant firm. The reasons mentioned by Assessing ....
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....f Assessing Officer are being dealt with hereunder: 5.8.1 First objection of Assessing Officer is that Shri R. R. Chaturvedi was not having any knowledge about the development of software and the appellant firm had no previous expertise in development and export of software's. The said business proposition had come to Shri R. R. Chaturvedi,, through luck and not through efforts or knowledge. A person can carry on any business without having any previous knowledge with respect to said business. Shri R. R. Chaturvedi grabbed an opportunity on receipt of proposal since he had at his disposal, Shri C. L. Deshpande who was technically qualified. He undertook a responsibility to get developed software as required by LNSEL. Unfortunately, at the time of search, Shri C. L. Deshpande was no more alive. The main reason for arriving at this conclusion by Assessing Officer was that the technical questions raised by the search party could not be answered by Shri R. R. Chaturvedi. So far as agreements and finance was concerned, Shri R. R. Chaturvedi was very much aware of the same, as decision making and control of the business was entirely in his hands. There is no necessity to have techni....
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....as rightly accepted the justification of assessee in para 7.2 page 27 of his order by stating that "No addition could be made on the basis of such statement unless and until it is corroborated with the evidence. In other words, the retraction can be made on the basis of validity of claim. 5.8.3 Regarding M/s. LNSEL is only engaged in trading of software and they are not manufacturing any software. Further, there was no mention in the return of income of LNSEL that it had given disclaimer certificate to the appellant firm and thus it has violated the provisions of Income Tax Act. LNSEL claimed exemption u/s. 10 A on the same profits on which the assessee firm claimed deduction u/s. 80 HHE. At para 7, page no.8 of the assessment order, Assessing Officer has commented that LNSEL is engaged in only trading of software and not in manufacturing of software. On the same page 8 of the assessment order, in the beginning para, Assessing Officer has stated that the assessee firm has filed sample copy of SOFTEX form, which is a declaration for export of software by M/s. LNSEL. The SOFTEX form has to be submitted to the designated official of department of electronics of Government of India at....
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....n intimated vide letter dated 10.12.2008 that there was no dispute pending with regard to claim of deduction u/s 10B of the Act and no recourse was taken to the provisions of section 147 for AYs 2000-01 to 2002-03. Thus the issue regarding claim of deduction u/s 10B in this case of which the appellant is supporting manufacturer, is settled and accordingly fully allowed. As such, the claim of the appellant cannot be denied on this ground also." Thus, it is clear on the basis of material on record that claim of assessee u/s.80HHE of the Act is in order. 5.8.4 Next issue is that the source code of the softwares developed could not be provided by the assessee firm as well as by Director of M/s. LNSEL, Shri S.M. Gupta. The said statement made by Assessing Officer on page no. 14 para 10 of the assessment order. In this regard, it was submitted that the source code as requested Assessing Officer was very much provided to the search team during the course of investigation on 14.06.05, at Mumbai Income Tax office. The said information was provided to Assessing Officer vide letter dated 14.11.07 and same has also been reproduced in the assessment order on page 11 of the assessment order. D....
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....irm. CIT(A) rightly held that the report of FTD does not falsify the claim of export made by LNSEL and it concerns itself more about the business activities of Aapkidukan and its existence as an entity. On both these counts the report of the FTD confirms the existence and business activities. Accordingly, it was rightly held that the point raised by Assessing Officer does not carry significance vis-à-vis the appellant, so long as the export made by LNSEL have been accepted to be genuine by Assessing Officer in its case. In view of above discussion, this object was rightly noted out by CIT(A) while granting relief to assessee. 5.8.6 Next objection is that assessee firm never developed any software as during the course of search, field enquiries were made with the persons to whom assessee firm had claimed to have paid job work charges denied having worked for them. Further letter received from STPI Bhubaneswar also states that no activity had been carried out. Assessing Officer observed that the assessee could not establish its job work done. Shri R. R. Chaturvedi was also confronted with the statements of 5 persons, who had totally denied having developed any software for as....
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....atement of the said persons were used against the appellant and in a way, they were used as witnesses of the department, which is not justified. 5.8.7 Other objection of Assessing Officer has been that there was some discrepancies with regard to quantum of the export, which was observed by him from the communication of Additional Director, STPI addressed to assessee. Assessing Officer observed that commercial production has not started and quantity of production was also disputed. In this regard, stand of assessee has been that assessee submitted clarification vide letter dated 15.07.2003 inter alia submitted that they had already started commercial production from A.Y. 2002-03 in Bhubaneswar. Copy of same has been placed on page nos. 165-166 of the paperbook filed by assessee and requested that in these circumstances, claim of assessee u/s.80HHE of the Act must be allowed as LNSEL being exporter has been allowed the claim. Claim has become final as observed by CIT(A)'s finding listed at page no.33 of his order. LNSEL is a listed company and its claims were supported by the filing of SOFTEX forms that have never been rejected. Assessing Officer has put the main reliance on stateme....
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..... 23,08,200/- on account of disallowance of the Software Development charges, made by the Assessing Officer." 11. First issue is with regard to addition of Rs. 7,67,33,946/- on account of disallowance of the claim u/s.80HHE of the Act. Similar issue arose in A.Y.2000-01, which has been discussed and decided by us in para 6 of this order in favour of assessee. Facts being similar, so, following same reasoning, we are not inclined to interfere with the order of CIT(A) who has deleted the addition of Rs. 7,67,33,946/- on account of disallowance of claim u/s.80HHE of the Act. Same is upheld. 12. Next issue in Revenue's appeal is with regard to addition of Rs. 23,08,200/- on account of disallowance of software development charges made by Assessing Officer. This issue has been discussed and decided in A.Y. 2000-01 vide para no.5.8.7 of this order, wherein addition on account of disallowance of software development charges of Rs. 1,73,985/- has been upheld by us. Facts being similar, so, following same reasoning, we are not inclined to interfere in the finding of CIT(A). Same is upheld. 13. In the result, Revenue's appeal for A.Y. 2001-02 is dismissed. 14. In ITA No.890/Mum/2009 for A....
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....hough transaction is through banking channel, as assessee could not prove the same with cogent evidence, so, CIT(A) was justified in confirming the same. Same is upheld. 17. In the result, appeal of assessee for A.Y. 2001-02 is dismissed. 18. In ITA No.1528/Mum/2009 for A.Y.2002-03, Revenue has filed the appeal on the following grounds: "1) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 10,33,88,045/- on account of disallowance of the claim u/s.80HHE of the I.T. Act, 1961, made by the Assessing Officer. 2) On the facts and circumstances of the case, the ld. CIT(A) erred in deleting the addition of Rs. 23,50,400/- on account of disallowance of the Software Development charges, made by the Assessing Officer." 19. First issue is with regard to addition of Rs. 10,33,88,045/- on account of disallowance of claim u/s.80HHE of the Act made by Assessing Officer. Similar issue arose in A.Y. 2000-01 which has been discussed and decided by us in favour of assessee vide para no. 6 of this order. The contents of the same are not repeated for the sake of convenience. Facts being similar, so following same reasoning, we are not inclined to i....
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....assessee for A.Y. 2002-03 is dismissed. 26. In ITA No.1402/Mum/2009 for A.Y.2003-04, Revenue has filed the appeal on the following grounds: "1) "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) ought not have allowed the appeal of the assessee in facts and circumstances of the case and on the contrary should have confirmed the order of the Assessing Officer. 2) On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 15,00,000/- made by the Assessing Officer." 27. First issue is general in nature which needs no elaboration. 28. Second issue is with regard to addition of Rs. 15lacs made by Assessing Officer. Assessing Officer made estimated addition of Rs. 15lacs as undisclosed sales. According to the order, search and seizure action u/s.132(1) of the Act was undertaken on 23.3.2005. The firm is claimed to be conducting Computer Training courses and other related activities under the head "Computer Training Division" and it has started during the year a Computer Software Development Division for conducting software development and all other related services. It had two divisions of business i.e. (i) C....
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....pellant was engaged in any such business activity during the relevant year Thus, not much importance can be attributed to such a declaration which also appears to have been made on estimate and ad hoc basis only with a bona fide business expediency. Accordingly, the addition made is deleted." 28.2 Same has been opposed before us on behalf of Revenue inter alia submitted that the order of CIT(A) be set aside and that order of Assessing Officer be restored. Ld. Authorized Representative supported the order of CIT(A). 28.3 After going through rival submissions and material on record, we find that in so far as estimation of business income of Rs. 15lacs is concerned, CIT(A) rightly did not find any merit therein. As regards the letter to STPI, it was found evident that only certain ad hoc figures of exports were stated therein, as actual exports were done in the earlier years and the books of account did reflect the actual sales turnover which were also duly disclosed in the returns of income of the relevant assessment years and the said exports were duly accepted to be genuine in the original assessment orders. No business activity, not to speak of any export has been carried on dur....