Indian Kanoon - Search engine for Indian Law

12. Ground No. 1 is thus allowed.

13. In ground No. 2, the assessee has raised the following grievance :

"The CIT(A) has erred in confirming the disallowance of deduction of Rs. 1,17,50,722 claimed under Section 80HHE of the IT Act, 1961 ("the Act"), on the ground that the appellant failed to substantiate its claim of providing technical services for development of computer software."

14. So far as this grievance of the assessee is concerned, the material facts are like this. In the course of scrutiny assessment proceedings, the AO noticed that the assessee has claimed deduction of Rs. 1,17,59,722 under Section 80HHE of the Act. The AO requisitioned information and documents in support of the said claim of deduction. In response to this requisition, the assessee submitted a copy of the invoice and foreign inward remittance certificate for the fees earned in respect of technical services rendered outside India in connection with development of computer software. The assessee also submitted the details of fees earned in respect of providing technical services outside India and details of nature of work done for each of the software development job. The details of technical personnel, along with their technical qualification, deployed in connection with development of computer software were also filed. Upon examining these details and upon considering the submissions made by the assessee, however, the AO was not impressed with the merits of the said claim of deduction. The AO took note of the position that the assessee-firm was a member of Arthur Anderson Worldwide (AWSC) to which the assessee-firm also provided management and consultancy services. As per details submitted, according to the AO, the assessee-firm was deputing its personnel to the AWSC who in turn were deputing those employees to various contracts/project undertaken by them. By a single invoice, the assessee billed AWSC for US $ 19,24,888 in respect of the computer service and software. The assessee's deduction under Section 80HHE was in respect of US $ 5,98,579 billed on account of computer services and software. The AO also observed that there was no specific contract between AWSC and the assessee for development of software. The AO took note of the appraisal reports of persons said to be working on the software development projects but did not attach much importance to the same on the ground that the same cannot be treated as evidence of services provided for developing software. The AO also took note of the letter received from Arthur Anderson Consulting confirming that personnel were deputed at their clients for software development but rejected the same as of any (sic-no) evidentiary value on the ground that it does not provide any evidence to show that technical services were actually utilized for development of software. The letters written by AWSC to the assessee-firm on requirement of various personnel for deputations to the clients by observing that 'the assessee is a member firm of AWSC and, therefore, procuring such documents in the guise of consultancy for development of computer software to benefit the interest of its member firm (assessee) cannot be ruled out'. It was also noted that the assessee has given a gist of technical services provided by its personnel at the clients of AWSC, but this was also rejected on the ground that no corroborative evidence was there to support the same. The AO was also of the view that most of the persons sent to these jobs were "B.Coms, M.Coms and MBAs' without any technical qualifications. He thus held that these personnel did not have the requisite qualifications to carry out the job of development of computer software. The AO also concluded that the "assessee was simply supplying technical manpower to AWSC for carrying out various consultancy and management services in assisting them in execution of their contracts". For all these reasons, the AO declined deduction under Section 80HHE to the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A) observed that, as rightly pointed out by the AO, none of the documents conclusively prove that the services were rendered for development of computer software. It was also observed that it is not for the Anderson Consulting to confirm the services rendered, but such a confirmation should come only from the clients concerned. The CIT(A) went on sharing the AO's scepticism that the chances of" claiming what was received as consultancy and management services as amounts received on account of technical services for development of software in order to get the deduction under Section 80HHE cannot be ruled out. The AO's action was thus confirmed in first appeal. The assessee is not satisfied and is in second appeal before us.