TaxTMI 
TaxTMI 
2020 (1) TMI 144
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....rejudicial to the interest of revenue within the meaning of section 263 of the Act. The learned CIT has erred in not appreciating the fact that the conditions as prescribed in section 263 of the Act with respect to the revision of orders which are prejudicial to the interest of the revenue (such as the Assessing Officer had conducted inadequate enquiry or there was a lack of enquiry), has not been satisfied in the instant case The learned CIT has erred in not following the below mentioned judicial pronouncements- * Commissioner of Income-tax vs. Sunbeam Auto Ltd. [(2011) 332 ITR 167 (Delhi High Court)] * Vegesina Kamala vs. Income-tax Officer [(2016) 157 ITD 457 (Visakhapatnam - Trib.)] 5. The learned CIT has erred in not appreciating the fact the AO has allowed the claim of deduction under section 10B with respect to the Bioinformatics division after verifying the necessary documents and eligibility of the Appellant. 6. The learned CIT has erred in not considering the approval obtained by the Appellant from the Office of the Development Commissioner, Cochin Special Economic Zone ('CSEZ') with respect to setting up of 100% Export Oriented Unit (`EOU') for ma....
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....tements evidencing the fact that the earnings of the Appellant in relation to the sale proceeds from the export of the software during the year under consideration are in foreign currency, Foreign Inward Remittance Certificate (TIRO') evidencing the fact that the software developed by the Bioinformatics division of the Appellant during the year under consideration is exported outside India, R& D Agreement) submitted by the Appellant in support of its claim that the software developed in India is actually exported outside India. 14. The learned CIT has failed to appreciate the fact that the deduction under section 10B of the Act includes research and development activities relating to development of software which squarely applies to the research and development activities carried on by the Appellant in the field of Bioinformatics The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided ITA No.869/B/2016 (Assessment ye....
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....n under section 10B of the Act. 9. The learned CIT has failed to appreciate the fact that the Appellant is engaged in research and development activities relating to software development. The said fact is established by Exhibit A to the Research and Development Services Agreement dated January 01, 2005 read with Addendum effective from April 01, 2008 entered into between Invitrogen Corporation and the Appellant (`the R & D Agreement'), which provides that the Appellant is engaged in research and development activities relating to software development. 10.The learned CIT has failed to appreciate that fact that the reply provided by the CSEZ has confirmed that the Appellant is engaged in the business of R & D services in the area of Bioinformatics chemistry. which is further, established by the fact that the Exhibit A to the R & D Agreement provides that the Appellant is engaged in research and development activities relating to software development. 11. The learned CIT has erred in not following. the Circular No. 01/2013 dated January 13, 2013 issued by the Central Board of Direct Taxes, which clarifies that research and development activities relating to software developm....
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....9 and for assessment year 2008-09, total income was assessed at Rs. 4,02,970/-. 2.1 Subsequently, while assessment for assessment year 2009-10 was going on, Ld.AO had sufficient reason to believe that, assessee wrongly claimed deduction under section 10B for assessment years 2007-08 and 2008-09. 2.2 Accordingly, assessments were reopened by issuing notice under section 148 dated 25/03/13 for assessment years 2007-08 and 2008-09. The reasons recorded for reopening of assessments for assessment year 2007-08 and 2008-09 on 11/03/13 and 15/03/13 respectively. It is observed that reasons recorded for assessment year 2007-08 is placed at page 77, and for assessment year 2008-09 the same is placed at page 91 of paper book for relevant assessment years. For sake of convenience, we reproduce reasons recorded for assessment year 2007-08; "11-03-2013 The assessee company had filed its return of income for the A.Y-2007-08 on 31.10.2007 declaring NIL total income after claiming deduction U/s10B of Rs. 92,56,242/-. The original assessment U/s143(3) was made on 22-12-2009 by accepting the NIL income declared by the assessee company. The assessee company is registered with CSEZ as 100% EOU w....
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....to show that as to how the business activity of the company amount to manufacturing and export of computer software or product or service in the nature of notified ITEAS. Hence, the assessee's claim of deduction U/s10B was accepted by the AO. It is only now i.e. in the course of assessment proceedings for the A.Y. 2009-10, the copies of agreement and other relevant information was called for and analyzed. The fresh evidence brought on records, reveal that the R & D activity of the assessee was in fact in the field of biological science and it is not pertaining to any software development and hence, there is no activity of manufacturing or export of any computer software or providing any ITES. In view of the facts mentioned above, there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. Hence, I have reason to believe that the income of the assessee company chargeable to tax for the assessment year 2007-08 has escaped assessment within the meaning of section 147 of the I.T. Act. Proposal for approval of CIT is prepared and submitted to the CIT as required U/s151(1) of the IT Act, 1961". 3. Ld. AO completed ....
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....ssee concluded by observing as under: "5. The discussion above is concluded as follows: a) The terms of the agreement between the assessee company and its parent company clearly specifies that the assessee is carrying on R & D activities. The approval given by the Cochin SEZ indicates that the bioinformatics division is only carrying on R&D in bioinformatics chemistry which does not fall under the realm of Computer software. The assessee's claim to be an exporter of software is unsubstantiated. The export invoices furnished by the company also indicate that what is being exported is not software but only R&D research since the invoice states the consideration to be received in foreign currency is for the purpose of R&D charges". b) The assessee company has sought to correlate the export of its research & results of R&D activity to be computer software. The legislature has not provided for the deduction u/s 10B in respect of R&D related to development of software in bioinformatics. The assessee company has wrongly inferred R&D in bioinformatics to be eligible for deduction u/s 10B, wherein it is not explicitly notified by a creature of the statute. The option lies with the....
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....esearch and development activities carried on by assessee will be in following areas: 1. development of bio informatics tools in analysing gene sequence, protein sequence Insilco cloning, gene expression profiling, pathways development and software customisation. The platforms to be used are C++, Java, Pearl, SQL. Tools will be in the Windows and UNIX. 2. Development of tools to create and manage database. 4.4 Ld.AR, thus emphasised that assessee satisfies all requirements to claim deduction under section 10B, as the software development carried on by assessee is either for its own products or independent projects which relate to development of software tools for application of external customers. It has been submitted that Ld.AO while passing order under section 143(3) read with 147 of the Act, categorically observed that assessee was carrying out software development and is eligible to claim deduction under section 10B of the Act for bio-informatics division. He submitted that on perusal of all the details filed by assessee as called upon, he disallowed the claim of deduction under section 10B under genomics division, as it has been categorically observed by Ld. AO that fun....
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....sessee's claim is acceptable. The assessee company has appointed few software engineers who basically work in this division. Moreover, the classification given by the assessee about activity of bio Informatics division indicate that this division is developing applications for dissemination of R&D results of functional genomics and also this division has been maintaining and updating website facility of the company. Hence deduction under section 10 B is allowed to the profit derived from bio Informatics division." 5.1 Ld.CIT DR submitted that this is the only relevant para observation by Ld.AO in respect of bio-informatics division and further, it does not indicate that Ld.AO has applied his mind to the documents filed by assessee, as he himself mentions that bio-informatics division indicates that this division is developing applications for dissemination of R&D results of functional genomics. 5.2 Ld. CIT DR also placed reliance upon the decision of Hon'ble Supreme Court in case of Malabar industrial Co Ltd vs CIT (supra), wherein Hon'ble Court emphasised as under: 7. There can be no doubt that the provisions cannot be invoked to correct each and every type of mistake or error ....
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....led upon details from SEZ Cochin, which is placed at page 123 of paper book. It has been submitted that all these details have been verified by Ld.AO during reassessment proceedings and it was upon his satisfaction that Ld.AO granted deduction for Bioinformatics division whereas denied deduction under section 10 B for Functional Genomics division. 6.3 On perusal of impugned orders for assessment years under consideration, it is observed that Ld.CIT records assessee developed software i.e Vector NTI advance. However, Ld.CIT observes that there is no mention in export of the software outside India. It appears that because the service agreement does not mention any export of software outside India, Ld.CIT held order passed by Ld.AO to be erroneous and prejudicial to interest of revenue. Ld.CIT at page 4 observes as under: ".....The assessee company developed software viz., Vector NTI Advance which is used in its research activity for analysing gene sequence, protein sequence, Salic on cloning, gene expression profiling etc by using platforms like C++, Java etc. These are and the activities of assessee company itself and software which are developed are for its own research activit....
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....ich is used to analyse gene sequence, protein sequence in Silicon Valley owning, gene expression profiling, pathways development etc, This is what Ld. AO intend from what he mentioned in para 10 of assessment order, specifically referred to by Ld. CIT DR. In our opinion Ld.AO was satisfied upon verification of documents placed by assessee at the time of reassessment proceedings. He called upon various details to verify claim of assessee under both segments. And then allowed deduction under section 10B of the Act, restricting claim only to the extent of Bioinformatics segment. Thus, we are of the opinion, that view taken by Ld.AO is a possible view. It is well settled proposition that merely because, Ld.CIT has taken different view, assessment order cannot be termed as erroneous and prejudicial. 7.2 For section 263 to be initiated both conditions of assessment order being erroneous as well as prejudicial to the interest of revenue must be jointly satisfied. In the facts of the present case, having regards to evidences filed by assessee as analysed by Ld.AO, view adopted by Ld.AO is one of the possible views and therefore cannot be treated as erroneous. As both conditions are not s....