Income Tax Appellate Tribunal - Pune
Rahul Ratilal Mutha,, Pune vs Deputy Commissioner Of Income-Tax,, on 13 April, 2018
आयकर अपील
य अ धकरण "बी" यायपीठ पण
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IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, PUNE
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BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.1154/PUN/2015
#नधा'रण वष' / Assessment Year : 2010-11
Rahul Ratilal Mutha,
Plot No. 322, Sector No. 26,
Sarthe Bunglow,
Pradhikaran, Nigdi,
Pune-411 044.
PAN : AFGPM0273C
.......अपीलाथ / Appellant
बनाम / V/s.
The Deputy Commissioner of Income Tax,
Circle-9,
Pune.
......
यथ / Respondent
Assessee by : Shri Sunil Pathak & Suhas Bora
Revenue by : Shri Mukesh Jha
सन
ु वाई क तार ख / Date of Hearing : 27.03.2018
घोषणा क तार ख / Date of Pronouncement : 13.04.2018
आदे श / ORDER
PER D. KARUNAKARA RAO, AM :
This appeal filed by assessee is directed against the order of Commissioner of Income Tax (Appeals), Pune-6 dated 06.05.2015 for assessment year 2010-11.
2ITA No.1154/PUN/2015
A.Y. 2010-11
2. The assessee has raised following grounds in appeal:
"On facts and in law,
1. The learned CIT (Appeals) has erred in confirming the disallowance u/s.10A of Rs.10389931.00 made by the AO on the ground that the appellant is not engaged in the export of software and therefore not eligible to claim the exemption disregarding the submission given and evidences produced.
2. The learned CIT (Appeals) on confirming the disallowance u/s.10A erred in not appreciating the following important factors:
a. The appellant has derived income through development of software and providing software services to Talent Beat Inc.,USA and hence, he is eligible to claim the deduction u/s.10A in respect of the said Income.
b. The major revenue has been derived by the assessee from development of whizpay software for the clients of Talent Beat lnc.,USA .
c. The said software is highly customized and the same is not available off the shelf.
d. Apart from the sale of whizpay software, the assessee has also received revenue on account of software development for Smart SCM LLC.
e. The appellant rendered the services III pursuance of the Master Software Development Agreement dated 20.03.2009 entered by the appellant with Talent Beat Inc., USA.
f. The services rendered by the appellant fall within the definition of computer software enumerated in the CBDT Notification No.SO 890(E), dated 26.09.2000 issued in terms of sub clause (i) of Explanation 2 to section 10A.
g. Software maintenance services clearly fall within the category of remote maintenance services.
h. Talent Beat Inc., USA is a separate entity registered in USA and it has employee strength of about 10 employees.
3. Without prejudice to above the learned CIT (A) has erred in not appreciating the alternate contention of the appellant and the reliance placed on BEBO TECHNOLOGIES (P) LTD. vs. JOINT COMMISSIONER OF INCOME TAX, 57 DTR 402.
4. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal."
3. Briefly stated in the facts of the case, the assessee is an individual and engaged in the business of developing and exporting of computer software in the 3 ITA No.1154/PUN/2015 A.Y. 2010-11 name of a proprietary concern namely 'Talent Beat'. The assessee filed his return of income for assessment year 2010-11 on 28.09.2010 declaring total income of Rs.69,38,090/-. The assessee claimed exemption u/s.10A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") amounting to Rs.1,03,89,931/-. The Assessing Officer passed an order u/s.143(3) of the Act on 28.03.2013 determining the total income at Rs.1,73,28,020/-. The Assessing Officer examined the claim of exemption u/s. 10A of the Act amounting to Rs.1,03,89,931/- and disallowed the said claim.
4. Aggrieved with the order of Assessing Officer, the assessee filed an appeal before CIT(A). In the First Appellate proceedings, the Commissioner of Income Tax (Appeals) confirmed the order of AO in denying exemption u/s.10A of the Act and dismissed the appeal of assessee. Now, the assessee is in appeal before the Tribunal.
5. Bringing our attention to the grounds raised in appeal, the Ld. Counsel for the assessee submitted that the core issue for adjudication relates to the allowability of deduction u/s.10A of the Act with respect to profit earned by the assessee-company. The assessee is duly registered with STPI as per requirement of the scheme of the year 2010-11 and the claim of deduction u/s. 10A of the Act has been allowed after due verification for the past 10 assessment years. But in the assessment year under appeal i.e. 2010-11, the claim of deduction was disallowed by Assessing Officer despite the similarity of facts over all these years. Ld. Counsel for the assessee relied heavily on the decision of Jurisdictional High Court in the case of CIT Vs. Paul Brothers reported as 216 ITR 548 as well as decision of Pune Bench of the Tribunal in the case of M/s. Ygyan Consulting Pvt. Ltd. Vs. DCIT, in ITA No.65/PUN/2015 decided on 13.10.2017. The Ld. Counsel for the assessee filed written submissions 4 ITA No.1154/PUN/2015 A.Y. 2010-11 narrating all the facts. For the sake of completeness, said notings is extracted as under:
"1] The assessee is in the business of developing and exporting the computer software and the name of his prop. concern is 'Talent Beat'. His concern is duly registered with STPI and he grant the relief ofRs.1,03,89,9311- u/s.10A on account of export of software. The A.O. and the CIT(A) denied the relief on four grounds which are mentioned by the CIT(A) in para 11, page 13 of his order and they are -
a. Development and export of software has not been proved.
b. The bills raised do not substantiate software development.
c. The agreement between both the parties are collusive in nature as it is between assessee as a prop. and assessee as a CEO of Talent Beat Inc. USA.
d. Claim of software export has not been proved with evidence.
2] The assessee has an unit which manufactures software in India. It is registered with STPI. It exports various kinds of software which has mentioned on page 37 of the Paper Book. The assessee is the CEO of Talent Beat Inc. USA which procures the orders for software from the customers and in turn, places such orders on the assessee's unit in India. The sample statement of work are given from page 44 to 77 of the Paper Book. Apart from that, the assessee also supplies software to third parties and sample bills given on page 80 to 82. The assessee's main software is 'whizpay' and a note regarding the same is given on page 118.
3] On page 17, the assessee has given a P & L Account which shows expenses on salaries of engineers and staff to the tune of Rs.2.46 Crs. and the details of the employees are given on page 122. The P & L Account also shows depreciation of Rs.27.88 lakhs, internet charges of Rs.3.47 lakhs, electricity charges and various other expenses which clearly prove that the assessee is having an activity of manufacturing software. Thus, the A.O. and the CIT are not justified in holding that the assessee is not manufacturing software.
4] The various statement of work and the bills from page 50 to 97 indicate the nature of work done by the assessee and the receipts are lump sum receipts. Just because, the assessee has received lump sum amounts for the work done, it does not mean that the assessee has not done any work. There is no rule that the assessee must give details of the software produced in the bills. Hence, the A.O. and the CIT(A) are not justified in holding that simply because, the bills mention a lump sum amount, they are bogus.
5] On page 118, the assessee has given a note about the main software produced i.e. Whizpay. Now, this software also varies from customer to customer and hence, the assessee has to make such software for every customer separately. Accordingly, the statement of work is also entered into for the software supplied separately. The contention of the CIT(A) that it is a common software is not correct and Without Prejudice, on page 98 the assessee has given a Board Circular which even considers 5 ITA No.1154/PUN/2015 A.Y. 2010-11 remote maintenance as eligible for deduction u/s. 10A. If software maintenance could qualify for deduction u/s.10A, the appellant submits that software manufactured by him definitely qualifies for the deduction. Thus, on this account also, it cannot be held that the assessee does not produce software in India.
6] The A.O. and the CIT(A) have not proved that the assessee has not produced the software in India. In fact, the above evidences clearly indicate that the assessee has produced software in India and exported the same. On page 124, the assessee has given the chart for various years and it is to be stated that the deduction u/s 10A is allowed for all the 10 years except this year. For two years i.e. A.Ys. 2003-04 and 2008-09, in the assts. u/s. 143(3) this deduction has been allowed after verification (page 133 and 149). Accordingly, the assessee submits that there is no reason to disallow the deduction in this year. Assessee relies on ITAT, Pune decision in the case of Ygyan Consulting P. Ltd wherein on similar facts it is held that if the deduction is allowed in the first year of claim then it cannot be disallowed in the later year. In this context, it has relied upon Bombay H.C decision in the case of Paul Brothers [216 ITR 548].
7] Accordingly, the assessee submits that the A.O. and the CIT(A) are not justified in denying the claim of deduction u/s 10A."
6. On the other hand, the Ld. DR for the Revenue filed brief summary of the assessee-Company providing the details of the activities of the assessee. He also enclosed certain downloaded documents relating to the issue under consideration. Drawing our attention to Page 43 of the paper book, the Ld. DR for the Revenue mentioned that Shri Vishal Chavan has not signed on the agreement dated 20.03.2009. Further, he submitted that the said person was not an employee of the Company as he was an employee of the other organization at the relevant point of time. However, the fact that the person received salary from the company is evident from the list of employees (at page 122-123 of the paper book) and payment received by him towards services rendered by the said person and the same are undisputed. Further, relying on certain correspondences by assessee, Ld. DR submitted that there are certain conditions with regard to working of a company in India and earning of profits in foreign exchange earned by company in India.
6ITA No.1154/PUN/2015
A.Y. 2010-11
7. In response to the submissions made by the Ld. DR, Ld. Counsel for assessee strongly objected to the allegation of Ld. DR and brought our attention to the Profit & Loss account placed at page 17 of the paper book and demonstrated the fact of earning of foreign exchange, installation of fixed asset worth of Rs.1.5 Crore in India and current assets worth Rs. 7.57 crores (rounded off). He also brought our attention to the huge manufacturing expenditure incurred by the assessee during the year under consideration. He also highlighted Page 17 of the paper book that shows the incurring of expenses of salary on employees at Rs.2.4 Crores (rounded off), depreciation at Rs.2.7 Crores (rounded off), Internet charges at Rs. 3.47 Lakhs (rounded off). He also noted about payment of Rs. 2.5 Lakhs towards Software Technical services fees. When all these transactions are undisputed, the allegation of Assessing Officer that the assessee has not produced goods in India for earning reasonable profits, is not sustainable in law. Further, he mentioned that when exemption u/s. 10A in the previous ten years have been allowed by Assessing Officer is not justified in denying the benefit for the first time in the assessment year under appeal. Further, the Ld. Counsel of assessee brought our attention to Para 6 of the order of Tribunal in the case of M/s. Ygyan Consulting Pvt. Ltd. (supra.) to make out a case against the order of the Assessing Officer.
8. On hearing both the sides on the legal aspects on the issue of claim of exemption u/s.10A of the Act for the assessment year 2010-11, we find the decision of Assessing Officer is unsustainable in view of the decision of Hon'ble Jurisdictional High Court in the case of Paul Brothers (supra.) as well as the order of Tribunal in the case M/s.Ygyan Consulting Pvt. Ltd. (supra). Relevant portion of the decision of the Tribunal in the case of M/s.Ygyan Consulting Pvt. Ltd. (supra) is extracted as under:
7ITA No.1154/PUN/2015
A.Y. 2010-11 "6.We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below.
The first ground raised in appeal by assessee is with respect to assessee's eligibility for claiming deduction u/s. 10A of the Act. It is an undisputed fact that the assessee company was incorporated in the year 1991. The documents on record show that the assessee was granted STPI approval on 30-03-2000. Before grant of approval the assessee could not have claimed deduction u/s. 10A of the Act. The ld. AR has stated at the Bar that first year for claiming deduction u/s. 10A was assessment year 2001-02. Though the ld. AR could not place on record assessee's return of income in assessment year 2001-02 and the assessment order for the said assessment year, however, the assessee has furnished a copy of assessment order for assessment year 2004-05. A perusal of the said assessment order at pages 30 to 40 of the paper book clearly indicate that the assessee has claimed deduction u/s. 10A in respect of profits from STPI unit and the same has been allowed by the Assessing Officer in scrutiny assessment. Once having accepted the claim of assessee, the Revenue cannot question assessee's eligibility for claiming such deduction in subsequent assessment years. The Hon'ble Jurisdictional High Court in the case of Commissioner of Income Tax Vs. Paul Brothers (supra) has observed that there is no provision for withdrawal of special deduction for the subsequent years for breach of certain conditions. Unless the relief granted for the initial assessment year is withdrawn, the ITO could not have withheld the relief for the subsequent years. Thus, in view of the fact that the assessee's claim of deduction u/s. 10A was never questioned by the Revenue in initial assessment year, the Assessing Officer cannot raise question over assessee's eligibility for claiming deduction in any of the subsequent assessment years. The ld. DR has also accepted the fact that in assessment year 2004-05, assessee's claim of deduction u/s.10A was allowed by Assessing Officer in scrutiny assessment proceedings. Thus, in view of the facts of the case and the law laid down by the Hon'ble Jurisdictional High Court, ground No. 1 raised in appeal by the assessee is allowed."
9. On facts, it is undisputed fact that the assessee has been consistently claiming deduction and the Revenue allowed the same without any disturbance. The Assessing Officer disturbed the same for the first time for the A.Y 2011-11. Considering the above ratio laid down by the Hon'ble Jurisdictional High Court in the case of Paul Brothers (supra.), we cannot appreciate the decisions of Assessing Officer and CIT(A). The decision of Pune Bench of Tribunal has already adopted the similar proposition as extracted above. Considering the above, we are of opinion that this legal aspect stands covered in favour of the assessee. Thus, we find merit on the grounds raised by assessee and argument 8 ITA No.1154/PUN/2015 A.Y. 2010-11 made by Ld. DR on this context becomes academic exercise. Hence, the grounds raised by the assessee are allowed.
10. In the result, appeal of the assessee is allowed.
Order pronounced on Friday, the 13th day of April, 2018.
Sd/- Sd/- (!वकास अव थी /Vikas Awasthy) (डी. क णाकरा राव/D. KARUNAKARA RAO) या यक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER पण ु े / Pune; !दनांक / Dated : 13th April, 2018. SB
आदे श क* +#त-ल!प अ.े!षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals), Pune-6.
4. The Pr. CIT-5, Pune.
5. %वभागीय त न(ध, आयकर अपील य अ(धकरण, "बी" ब,च, पण ु े / DR, ITAT, "B" Bench, Pune.
6. गाड/ फ़ाइल / Guard File.
// True Copy // आदे शानुसार / BY ORDER, नजी स(चव /Private Secretary आयकर अपील य अ(धकरण, पण ु े / ITAT, Pune.