THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, VIJAYAWADA vs. M/S. FIRST TEK PVT.LTD, HYDERABAD

आदेश /O R D E R Per Bench : These appeals are filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)]-3, Visakhapatnam in Appeal No.87-90/2015-16/CIT(A)-3/VSP/2019-20 dated 30.07.2019 for the Assessment Years (A.Ys) 2007-08 to 2010-11 and by the revenue in Appeal No. 89 & 91/2015-16/CIT(A)-3/VSP/2019-20, dated 30.07.2019 for the A.Y.2009-10 and 2011-12. Since the issues involved in these appeals are common, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience. 2. During the pendency of appeal proceedings, the assessee has filed the additional grounds for the A.Y. 2007-08, 2008-09 and 2009-10 which reads as under : A.Y. 2007-08

3 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

Without prejudice to the above, the In the learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.27,82,846 made by the assessing officer towards disallowance of Exemption u/s 10A of the Act. A.Y.2008-09

A.Y.. 2009-10 1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) ought to have held that the addition of Rs.11,71,115 towards disallowance of exemption u/s 10A and addition of Rs1,07,499 u/s 14A are outside the scope of assessment u/s 143(3) rw.s.153A 3. Without prejudice to the above) the learned Commissioner of Income Tax (Appeals) is not justified in sustaining the: a) addition of Rs.11,71,115 made by the assessing officer towards disallowance of exemption u/s 10A of the Act b) addition of Rs.1,07,499 made by the assessing officer u/s 14A of the Act.

2.1. The Ld.AR argued that the additional grounds raised by the assessee are legal grounds and the entire material is available in the records for

4 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

adjudication of the additional grounds and no fresh verification is required to adjudicate the issue. Since the issue goes to the root of the assessment , the Ld.AR requested to admit the additional grounds and adjudicate the issue.

2.2. We have heard both the parties and admit the additional grounds raised by the assessee for the Assessment Years (A.Y.) 2007-08 to 2009-10.

5 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

public are not substantially interested and registered with Software Technology Parks of India (STPI) for providing, development and export of software. For the A.Y.2007-08, the assessee company has claimed the deduction u/s 10A of Rs.27,82,846/-. The Year-wise software exports and deduction u/s 10A claimed by the assessee for the A.Ys 2006-07 to 2010-11 are as under : Assessment Total Software Deduction u/s Profit S.No. Year Exports (Rs.) 10A margin 1. 2006-07 88,08,620 - - 2. 2007-08 2,15,50,525 27,82,846 12.9% 3. 2008-09 2,11,43,740 76,48,516 36.2% 4. 2009-10 91,27,720 11,71,115 12.8% 5. 2010-11 96,92,350 48,60,862 50.2%

4.1. Search u/s 132 was carried out in the assessee’s case on 21.01.2011 and during the course of search, certain documents were found and seized as annexure A/FTPL/PO/15 dt.15.02.2011. The Assessing Officer (AO) in para No.6.3 of the order stated that the seized documents are related to the application made by the assessee for registration with STPI. Vide letter dated 11.10.2015 the assessee submitted the Vendors Services Agreement of First Tek Pvt.Ltd. to STPI and the Vendor Services Agreement refers to Temporary Staff Augmentation services but not Development of software products. The DDIT (Inv.), Guntur has also called for information from STPI

6 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

and the STPI furnished the copy of agreement entered by the First Tek Pvt. Ltd. with other companies. One of such agreements was the Vendor Services Agreement for providing Staff Augmentation Services dated 09.05.2005. On the day of search, the premises of the company was locked and it was found that no employee was working in the premises of the company. Subsequently a statement was recorded from Sri Bhavanasi Anjaneyulu, Managing Director of the Company, who stated that the computers were sold to M/s Tisyne, Jubilee hills, Hyderabad and the furniture and fixtures were sold to M/s KRB Financial service, Hyderabad and the server was available at his residence in Piduguralla, Guntur District and there were no operations at present. The AO found that the assessee has leased out the company to M/s E2S Corporation for the F.Y.2007-08 and the equipment was sold to M/s KRB Financial Services, thus, viewed that the assessee has not carried out any software development and the entire furniture and fixtures were given on lease to Decoders Info Services in the beginning of F.Y.2007-08, thus held that the claim of export of software by the assessee is bogus with an intention to claim bogus deduction u/s 10A of the Act. The AO collected the information with regard to registration, Softex forms and agreement with

7 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

the client and observed that the company got approval for setting up of 100% export oriented unit for manufacture and export of computer software under the head ‘Software Development’. The Vendors Services Agreement was entered in to between the First Tek Private Limited, Hyderabad and First Tek Technologies Inc. USA which was signed by Sri Bhavanasi Satyakumar representing First Tek Private Limited, Hyderabad in the capacity of President of the Company and Ashok Shetty, representing First Tek Technologies Inc., USA. Sri Bhavanasi Satyakumar S/o Sri Bhavanasi Anjaneyulu is holding controlling position in First Tek Technologies Ltd., to control, manage and enjoyment of funds was vested with Bhavanasi Anajaneyulu and his family members. The AO observed from the vendor services agreement that the assessee is engaged in supply of manpower services and listed out certain inconsistencies in the agreement and observed that there was no export of software. The assessee was also unable to explain and substantiate the primary fact as to what kind of software was developed, the specific requirements of First Tek Technologies Inc.USA which led to suspicion and genuineness of the software export claimed by the assessee. The AO further observed during the search proceedings that there was no evidence with regard to

8 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

software development and the assessee was asked to furnish the documentation for software developed, source code, work orders received from the clients and the time sheets etc, for which the assessee could not furnish any of the said details before the AO. The AO also found certain discrepancies in respect of advances received by the assessee from it’s client i.e. Sri Satya Kumar made remittances to the assessee’s account instead of First Tek Technologies Inc. USA. The above mentioned defects and the discrepancies found during the course of search and subsequent to search made the AO to believe that there was no export of software and the software export claim of the assessee was only with an intention to claim the deduction u/s 10A. Hence, disallowed the deduction claimed by the assessee u/s 10A amounting to Rs.27,82,846/- and added back to the income.

9 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

required by STPI such as Softex Forms, details of exports etc.. and raised the invoices for software export for the developed products. The payments were received against development of software and the same was submitted to the STPI which was accepted. The assessee further submitted before the CIT(A) that the assessee has paid the salaries, engaged sufficient staff and infrastructure. In support, the assessee furnished the salary payment details along with payment of EPF and ESI. Therefore, argued that the all the evidences that are required for establishment of software development and export was furnished, hence requested the CLd.IT(A) to allow the appeal of the assessee. The Ld.CIT(A) considered the remand report of the AO, reply of the assessee and found that the assessee has not produced any evidence before the AO to substantiate the export of software and the documents furnished by the assessee were only related to various authorities and viewed that the receipt of funds from banking channels does not establish export of software. Payment of PF, ESI also does not lead to any evidence with regard to engagement of staff without furnishing the details of salary payment etc., therefore, held that the AO has rightly denied the exemption claimed u/s 10A of the Act. Accordingly, confirmed the addition and dismissed the appeal of the assessee on this ground.

10 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

6.1. On merits, the Ld.AR submitted that the assessee has furnished the entire information relating to development of software and export, such as registration with STPI, Softex Forms, agreement entered with the clients, receipt of foreign inward remittances, permission given by the STPI for expansion of the unit, central excise bond etc. The invoices were raised for development of software, which was accepted by the STPI and no adverse remark was made by STPI with regard to software export of the assessee company. No information was found during the course of search or collected by the AO subsequent to the search to establish that either there was no export or the claim made by the assessee was bogus. Therefore,

11 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

argued that the assessee has rightly claimed the deduction u/s 10A, hence requested to allow the deduction claimed u/s 10A of the Act.

7.1. With regard to merits, the Ld.DR argued that the evidence was found during the course of search and enquiries made during the assessment proceedings proves that the assessee had let out the building and receiving the rent from the beginning of the year 2007-08, thus the assessee failed to

12 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

establish that it had carried the export activity. The assessee did not furnish any evidence called for by the AO to prove the software development and the export of the software products. The defects brought out by the AO in the assessment order clearly show that the assessee failed to establish that it was in software development or software export. The inward remittances were only to claim the deduction u/s 10A, therefore submitted that the AO rightly disallowed the deduction claimed by the assessee u/s 10A, hence, argued that on merits also, the assessee’s case deserves to be dismissed.

13 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

as non furnishing of the details of salary payments and non availability of furniture and fixtures and servers in the premises, the difference in total turnover and the remittances, non submission of copies etc and some deficiencies in inward remittances. The agreement between the assessee and the First Tek Private Limited, dated 09.05.2005 was also not submitted to STPI. Therefore, the AO disbelieved the export activity. However, during the assessment proceedings as well as subsequent to appeal proceedings, the assessee furnished the evidence with regard to inward remittances, Softex forms, payment of PF, ESI etc. The assessee also submitted the evidence with regard to bonds executed by the assessee in favour of Central Excise Department. Apart from the above, the assessee was also permitted to establish the computer software unit under STPI scheme. Permission for expansion letter was issued by STPI vide letter dated 16,07.2010. The Ministry of Commerce, Certificate of Importer Exporter Code dated 11.07.2005 giving permission to the assessee for imports and exports, copy of agreement between the assessee and foreign company to provide IT enable services, the invoices claiming the wages of number of persons engaged in development of software and copies of invoices, receipt of foreign exchange, payment of PF, ESI etc was placed

14 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

before the CIT(A). AO in his remand report with regard to additional evidence such as central excise bond, expansion letter, agreement copy for export of software, Ministry of Commerce letter, simply brushed aside stating that the evidence in respect of Central Excise and Ministry of Commerce are only furnishments, but not conclusive proof for export of software. With regard to PF, ESI, vendor service agreement, the AO rejected the contention of the assessee stating that in the absence of complete details, the same cannot be accepted as conclusive evidence. The assessee is in the business of export of software registered under STPI scheme. STPI is single window project, where it provides all services for export in single window scheme. Once the assessee is registered with STPI, the assessee required to submit the information from time to time with regard to software exports, furnish softex forms etc. to the STPI. The Reserve Bank of India also monitors the exports and accord permission for receipt of money in foreign exchange. Though the search was conducted in the instant case, no evidence was gathered by the department to establish that either the exports were bogus or the assessee has not made any exports. As stated by the Ld.AR the company was defunct by the time search was conducted and the entire furniture and fixtures were taken out

15 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

of unit and located at his residence. The AO himself had accepted in the assessment order for the A.Y.2007-08 that the assessee has raised invoices exporting software product to its client, First Tek Technologies Ltd., and submitted softex forms to the STPI, Hyderabad for issuing clearance for foreign inward remittances. The details were also extracted by the AO in the Assessment order. In reply to the remand report, the assessee submitted a rejoinder as under before the CIT(A):

“For the assessment year 2007-08, the issue involved is with regard to exemption u/s.10A of the I.T. Act. According to the Assessing Officer, the appellant is not entitled for exemption u/s 10A of the LT. act as the activity of the appellant is not production or development of computer software. The Assessing Officer mentioned that the work undertaken by the appellant is staff augmentation service. The Assessing officer failed to consider the agreement between the appellant and the foreign company which is meant for software export. This was submitted before the Assessing Officer. The appellant also submitted the details provided by the Central Excise Department which is meant for the development of software. The Assessing Officer also did not consider the fact that the invoices raised are against supply of software and not for provision of staff. The appellant submitted in the explanation that it is entitled for exemption u/s,10A of the L T. Act in view of the fact that the appellant is developing the software and exporting the same; the invoices were raised the against supply of software and the amount received against supply of software. Therefore, the provisions of Sec..10A are applicable to the facts of the case, The Assessing Officer is of the view that EPF and salary payments did "not indicate that they were made for development of software. This is not justified. The appellant submits that there are substantial salary payments made by the appellant. The nature of work referred to by the employee would not be indicated either to PF, EFP or to any other authority. In the circumstances, expecting the appellant to state the nature of the work of the employee in the statement by the Assessing Officer is not justified. The Assessing Officer mentioned that the appellant did not provide any

16 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

evidence about the development of software. This is not correct. The permission was obtained from STPI for development of software, The invoices were raised for development of software. The payments were received against development of software. The Invoices were submitted to the STPI and the STPI also accepted the same. “

8.1. The conjoint reading of the reply of the assessee, the assessment order and the CIT(A) order reveals that the assessee has discharged the burden with regard to software development and export of software services by furnishing necessary information to the STPI and also before the AO. Merely because of some defects, the same cannot be brushed aside and deny the exemption claimed by the assessee u/s 10A of the Act. It is for the department to establish that the assessee has not made software exports or prove that the information furnished by the assessee is false or incorrect. No such exercise was done by the department. No adverse observations were made by the STPI with regard to exports. Though PF, ESI payment does not establish the salary payments, they definitely show that the assessee has engaged the personnel for carrying the work. The AO has not conducted any enquiries either with the clients of the assessee or with the STPI to show that the assessee has neither developed the software nor exported the same to the foreign company. STPI is a Government Agency which monitors the activities of the assessee company and

17 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

collecting timely reports for export of software. The very fact that the STPI has permitted expansion of operations shows that the assessee company was engaged in software development which is proposed for expansion of the existing activity at a broader level. All these facts show that the assessee is carrying on software activity in the STPI and made the exports. Once there is evidence for software export made through STPI and clearance received from STPI by softex forms and the receipt of foreign exchange remittances, it is for the department to bring evidence to deny the exemption u/s 10A of the Act. In the instant case, no such evidence was brought on record by the AO. On the similar facts, the ITAT, ‘B’ Bench, Hyderabad in the case of Annapurna Business Solutions, I.T.A.No.831/H/2015 to 836/H/2015 dt.17.12.2019 held that the assessee is entitled for deduction u/s 10A. For the sake of clarity and convenience, we extract para No.15.2 in page No.57 of the order which reads as under : “15.2. In the instant case, though the department has alleged that the assessee is not exporting the software, but engaged in the body shopping no conclusive evidence was brought on record to support the department's contention. As per the provisions of section 10A of the Act, the assessee engaged in the export of software is entitled for deduction of 100% profits derived from the export of software. In the instant case, by providing various details, information, the assessee has proved that it was in the activity of software export and received foreign exchange on account of software export. No enquiries were made with the importing country, no evidence was brought on record from the STPI to establish that the assessee’s claim is bogus. Therefore, we have no reason to disbelieve the export of software made by the assessee. Thus, we hold that

18 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

the assessee made export of software and entitled for deduction u/s 10A of the Act.”

8.2. Since the facts are similar and the department has not brought any evidence to controvert the submission of the assessee, we are of the considered view that there is no reason to deny the deduction u/s 10A, accordingly, we set aside the orders of the lower authorities and direct the AO to allow the deduction u/s 10A of the Act. In the result, appeals of the assessee for the A.Y. 2007-08 to 2011-12 on this ground are allowed.

19 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

of the staff activities and services also. Vendor agreement does not show any negative evidence to deny the claim of deduction u/s 10A of the Act. Therefore, it is found from the orders of the lower authorities that no evidence was found during the search proceedings to deny the exemption u/s 10A of the Act. The company was closed since the business was defunct. Therefore, closure of the company also does not give any material to the AO to hold adverse inferences. Therefore, it is amply clear from the order of the AO and Ld.CIT(A) that the deduction u/s 10A was denied solely on the material available in the assessment records which was declared by the assessee. It is settled issue that without incriminating material in the search assessments, no additions are permitted to be made by the AO in completed assessments. In the instant case, the assessments years are related to 2007-08, 2008-09, 2009-10. The time limit for issue of notice u/s 143(2) got expired and the assessments became unabated. Hence, incriminating material is required for making the additions. This view is supported by the decision of this Tribunal in the case of Y.V.Anjaneyulu, Guntur in I.T.A. No.513 & 514/Viz/2013 and 534/Viz/2013 dated 09.06.2017. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal in para No.12 which reads as under :

20 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

“12. In this case, search was taken place on 24.7.2008. As on the date of search, the assessments for the assessment years 2004-05 & 2005-06 are already concluded and there is no pending proceeding for those assessment years. The time limit for issue of notice u/s 143(2) of the Act, for the assessment years 2004-05 & 2005-06 has been expired. The A.O. made additions towards deemed dividend u/s 2(22)(e) of the Act without any incriminating materials and also based on the books of accounts and financial statements, which were already part of regular return of income filed by the assessee u/s 139(1) of the Act, for those assessment years. Therefore, considering the facts and circumstances of the case and also respectfully following the decision of coordinate bench of ITAT, Visakhapatnam in the case of Sri Hari Prasad Bhararia Vs. DCIT (supra), we are of the view that the A.O. has no jurisdiction to make additions in respect of concluded assessments in the absence of any incriminating materials found during the course of search. In this case, undoubtedly the A.O. has made additions towards deemed dividend on the basis of financial statements filed by the assessee along with regular return of income without any material found during the course of search. Therefore, we direct the A.O. to delete additions made towards deemed dividend u/s 2(22)(e) of the Act for the assessment years 2004-05 & 2005-06.” 9.1. No other decision was brought on record by the department during the appeal hearing to support the department’s contention. Therefore, respectfully following the view taken by this Tribunal in the case of Y.V.Anjaneyulu (supra), we hold that the additions made by the AO in respect of deduction u/s 10A for the A.Y. 2007-08 to 2009-10 cannot be sustained on technical grounds also. Accordingly, the assessee succeeds in respect of the additions made u/s 10A for the A.Y. 2007-08 to 2009-10 on legal grounds also. Accordingly, appeal of the assessee is allowed for the A.Y. 2007-08 to 2011-12 on the issue of exemption u/s 10A.

21 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

22 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

11.1. Against the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) upheld the addition made by the AO. For the sake of clarity and convenience, we extract relevant part of the order of the Ld.CIT(A) which reads as under : “12.2. I have considered the assessment order and submissions of the appellant. The appellant has made investment in shares on which dividend of Rs.4,35,215/- is received by the appellant. The Assessing Officer computed the disallowance as per Rule 8D at 0.5% of average investment. The action of the Assessing Officer is as per the Rule 8D and the same is confirmed. The ground raised is rejected.”

11.2. In the instant case, there was no dispute that the assessee has earned dividend income and provisions of Rule 8D attracts. Accordingly, the AO made the disallowance applying Rule 8D, hence, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeals of the assessee on this ground is dismissed.

23 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

from the existing place to a new bigger place from the assessee’s client, First Tek Technologies Inc., USA to create the necessary infrastructure. During the search proceedings or post search proceedings, the assessee did not produce any evidence to show that the it has requested the client for advance for shifting. Therefore the AO viewed that the advances received by the assessee was nothing but the income and issued notice u/s 142(1). In response to which the assessee filed the return of income admitting the sum of Rs.4,23,00,000/-, as income in return filed. The AO disbelieved the genuineness of entire advances of Rs.8,93,19,016/-, hence made the addition of balance amount of the opening balance of Rs.4,70,19,016/- as income of the assessee, thus the entire outstanding advances were brought to tax. 12.1. The assessee filed appeal challenging the addition of Rs. 4,70,19,016/- and also raised the additional ground requesting for relief of Rs.4,23,00,000/- also which was admitted as income in the return of income. The assessee submitted before the Ld.CIT(A) that the advance represented the capital receipt, but not revenue receipt. The assessee also submitted that no part of the advance was ceased to exist and the entire advance was payable to the creditors. The assessee further submitted

24 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

before the Ld.CIT(A) that the nature of receipt was a capital receipt and it would get converted as a revenue receipt only when the services are rendered by the assessee to the foreign company. The services were rendered during the financial years 2005-06 to 2009-10 and the foreign company was debited with appropriate amounts. The balance of amount cannot therefore, be considered as a revenue receipt. It still remains as payable to the foreign company. Further, the assessee alone cannot decide whether the amount of Rs.4,23,00,000/- is payable or not It cannot be an unilateral act as the amount was paid because of a business transaction, Such amount cannot be written off by the assessee without the consent of the foreign company. The foreign company is insisting for payments. Therefore, the assessee submitted that even the amount received of Rs.4,23,00,000/- cannot be assessed as the income of the appellant. The same does not accrue as the income of the assessee. With regard to the addition of Rs. 4,70,19,016/- the submitted before the Ld.CIT(A) that the it was the advances received from the customers and the assessee supplied software to First Tek Technologies Inc. USA. The said advance amount of Rs.4,70,19,016/- was credited to their account. Account copies of the First Tek Technologies Inc. USA for the financial

25 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

years-. 2005-06 to 2010-11 were submitted before the CIT(A). The assessee further stated that the assessee is required to spend the said amount for development of software. In case the assessee is not in a position to develop the software and incur any expenditure on such development,, the amount is repayable to the foreign company. The foreign company due to recession ,was not in a position to carry on the software business. The assessee also is not carrying on any further activity. During the year under consideration i.e. financial year 2010-11, the assessee was not supplying any software to the foreign company as it closed its business activity.

12.2. The Ld.CIT(A) sent the submissions made by the assessee to the AO for remand report. The AO submitted the remand report stating that there was inconsistency in the reply submitted by the assessee with regard to the outstanding liability. The AO observed that at one point the assessee was stating that the liability was not ceased and at another point stated that it was repaid. Therefore due to inconsistency the AO suggested for confirming the addition. The Ld.CIT(A) verified the submissions of the assessee and the remand report submitted by the AO and found that there was no evidence to show that the assessee has written off the liability nor

26 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

the foreign company has waived the advance and no material was found during the course of search to hold that the outstanding advance was bogus. In the absence of any material to show that the liability ceased beyond the amount admitted by the assessee, the Ld.CIT(A) viewed that the addition made by the AO in respect of the outstanding advances of Rs.4,70,19,016/- was unsustainable, accordingly, deleted the addition.

27 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

14.1. With regard to addition of Rs.4,70,19,016/-, the Ld.AR submitted that the AO has not invoked any section of the Act for making the addition. The said sum was payable to the creditor and the amount was not written off. No evidence was found during the course of search with regard to Rs.4,70,19,016/. The Ld.AR further argued that the amount is opening balance, but not the amount received during the year under consideration. Therefore, argued that the Ld.CIT(A) rightly deleted the addition, hence, no interference is called for in the order of the Ld.CIT(A).

15.1. The Ld.AR with regard to the addition of Rs.4,70,19,016/- submitted that the assessee has given contradictory statements with regard to existence of liability and has not brought on record any evidence to show that the said sum was repaid subsequently, therefore, argued that the AO rightly made the addition and the Ld.CIT(A) erred in deleting the addition.

28 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

Hence, requested to set aside the order of the Ld.CIT(A) and allow the appeal of the revenue.

29 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

we are of the view that filing additional ground before the CIT(A) seeking relief of Rs.4,23,00,000/- was nothing but an afterthought. The assessee has not established the fact that the admission was made erroneously with supporting evidences regarding the existence of the liability. During the appeal hearing, the Ld.AR pressed for relief of Rs.4.23 crores. No evidence was placed by the Ld.AR to support the claim of outstanding advance. For a query from the bench, the Ld.AR admitted that there is no evidence of payment of Rs.4,23,00,000/- to the foreign company subsequently. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A). Accordingly, we hold that the Ld.CIT(A) rightly confirmed the addition and the same is upheld. The appeal of the assessee on this ground is dismissed.

30 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

brought u/s 41(1) of the Act in respect of allowance or deduction claimed by the assessee in the earlier assessment year relating to trading liability. In the instant case, the AO neither brought any evidence to disprove the genuineness of outstanding liability nor found any material evidencing that the liability was written off by the assessee or the company has waived the advance. No material was brought on record by the AO to show that the liability was not in existence. The AO also failed to establish that the liability outstanding was related to the deduction or loss claimed by the assessee with regard to trading liability in respect of the earlier years. Therefore, the addition made by the AO is unsustainable, accordingly, we hold that the Ld.CIT(A) has rightly deleted the addition. Hence, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue on this ground. I.T.A. No.607/Viz/2019, A.Y. 2009-10 18. For the A.Y.2009-10, the first issue is related to the addition of Rs.85,69,584/- representing the difference of turnover in STPI and the turnover declared in the P&L account. During the assessment proceedings, the AO found that the assessee had declared the turnover of Rs. Rs.91,77,720/-, in the return of Income, whereas the turnover admitted to

31 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

the STPI was Rs.1,77,47,304/- and there was a difference of Rs.85,69,584/.The assessee explained before the AO that the value of turnover declared to the STPI was provisional and no way connected to the turnover of the assessee company and the said turnover was not the actual sales. Therefore, argued that no addition required to be made on account of difference of turnover. Not being convinced with the explanation of the assessee, the AO made the addition of Rs.85,69,584/- to the returned income.

32 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

suppressed the turnover by reconciling the turnover of the assessee with the invoices raised and the turnover declared to the STPI. Unless there is an evidence to show that the assessee has made the sales outside the books of accounts or suppressed the turnover, there is no case for making the addition. In the instant case the books of accounts were audited and the entire sales were export sales and no domestic sales / cash sales by the company. No evidence was brought on record to show that the assessee has received the sums over and above the sales admitted in the return of Income. The turnover is supported by invoices, therefore, there is no reason to suspect the turnover admitted by the assessee in the books of accounts. Hence, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed.

33 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

S.No. Date Name of the person Amount 1 06/10/2007 Radha Realty Corporation 50,00,000 2 29/02/2008 Sri Magadha Land Developers 30,00,000 3 07/01/2008 Venus Developers 1,00,00,000 4 24/03/2008 M. Durga Reddy 1,00,00,000 5 30/05/2008 M. Durga Reddy 40,00,000 6 13/09/2007 M. Venkata Narayana 40,00,000

The AO was of the view that the assessee was indulging in financial transactions with the above persons and accounted the advances as capital expenditure. During the course of search, a promissory note dated 06.04.2007 was found and seized which was issued by M.Venkata Narayana in favour of Shri Bhavanasi Kasiviswanadham for a sum of Rs.40,00,000/- and the amount was paid from the bank account of the assessee company. The rate of interest mentioned in the promissory note was 2%, hence, the AO viewed that all the amounts advanced to the various parties through the family members were, interest bearing advances, hence, calculated the interest @2% per month and brought to tax the sum of Rs.1,07,08,000/- as under : A.Y. 2009-10 Date Loan Rate of No. of Interest interest months Radha Realty Corp. India 0 2% 0 P. Ltd., Saimagadha Land b/f loan 3000000 2% 12 720000 Developers Veenus Developers b/f loan 6000000 2% 5 600000 bal 2000000 2% 1 40000 Vijetha Constructions 23/07/2008 10000000 2% 10 2000000

34 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

Vijetha Foundation & b/f loan 20000000 2% 12 4800000 Constn P. Ltd. M. Durga Reddy b/f loan 10000000 2% 7 1400000 M. Durga Reddy 30/05/2008 4000000 2% 3 240000 M. Venkatanarayana b/f loan 4000000 2% 4 320000 M. Venkatanarayana bal 2000000 2% 9 360000 Kotha Raghu Ramaiah b/f loan 950000 2% 12 228000 10708000

35 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

36 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

search, promissory note was found in favour of Bhavanasi Kasiviswanatham for the amounts advanced to M.Venkata Narayana for interest of 2% per month for an amount of Rs.40 lakhs. On the basis of above promissory note, the AO charged the notional interest on the entire outstanding advances and brought to tax the sum of Rs.1,07,08,000/-. We find from the orders of the lower authorities that there was no evidence found during the course of search, evidencing collecting of interest on the amounts advanced to other parties i.e. Vijetha Constructions, Vijetha Foundation & Construction P.Ltd., M.Durga Reddy, Saimagadha Land Developers etc. All the loans are brought forward loans except Vijetha Constructions. The assessee submitted that the amounts were given as advances for purchase of property and subsequently, the lands were also purchased and registered in respect of some properties. It was also explained that in the case of M.Durga Reddy, due to some problem, the sale deed was cancelled and the amount was received back. In the case of Veenus Developers, due to defective construction, the sale agreement was cancelled. The above explanation of the assessee shows that the amounts were advanced for acquiring the properties and the AO misdirected himself because of the promissory note of M.Venkata Narayana found

37 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

bearing interest. No material was found by the department evidencing the charging of interest on amounts advanced by the assessee or indicating the finance business. The AO did not make any cross verifications with the borrowers of money to support the case of department. No evidence was brought on record to show that the assessee was receiving interest. In the absence of any material to show that the assessee was receiving interest, we have no reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed.

I.T.A. No.608/Viz/2019, A.Y. 2011-12 29. The first issue in the departments appeal in ground No.2 is related to charging of notional interest on outstanding advances. For the A.Y. 2011- 12, the AO has computed notional interest on outstanding advances on the basis of promissory note found in the name of Venkata Narayana and made the addition of Rs.81,48,000/-. On appeal the Ld.CIT(A) deleted the addition. The above issue is identical to the issue discussed in the A.Y.2009- 10 with regard to charging of interest in respect of outstanding advances in the case of Radha Realty Corporation and others. In the immediately

38 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

preceding assessment year, we have upheld the order of the Ld.CIT(A) and deleted the addition. Therefore following the consistent stand, since the facts are identical, we hold that there is no reason to make addition on account of notional interest. Accordingly, we uphold the order of the Ld.CIT(A) and delete the addition made by the AO. Appeal of the revenue is dismissed. 30. The next issue is with regard to H1B Visa fees. During the course of search, material was found indicating that the assessee has been entrusted with the responsibility of processing H1B Visa applications on behalf of First Tek Technology Inc. USA. Subsequently, candidates were taken to USA with H1B Visa by this organization. The candidates who ought to go to USA on H1B Visa are required to deposit certain amount for visa processing. The AO observed that the amounts collected from various candidates are deposited in the bank account of First Tek Private Ltd and the security deposit collected from unsuccessful candidates was given back. For the F.Y.2010-11, relevant to the A.Y. 2011-12, the outstanding closing balance was of Rs.58,83,698/-. Since the operations of the company were closed, the AO viewed that there was no liability on account of H1B Visa on

39 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

unsuccessful candidates, hence, outstanding amount of Rs.58,83,698/- was treated as undisclosed income of the assessee and brought to tax.

40 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

and shown as liability, unless, it is established that the amounts need not be refunded to the unsuccessful candidates or the liability is proved to be bogus, the AO is not permitted to tax the same amount. Since the names of the candidates are available, the AO ought to have made enquiries with the candidates and made the addition in respect of the candidates who surrendered the amounts. Since no such evidence was brought on record, the addition made by the AO is unsustainable, hence, we do not find any reason to interfere with the order of the CIT(A) and the same is upheld. The appeal of the revenue on this ground is dismissed. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. 33. In the result appeals of the revenue for the A.Y.2009-10 and 2011-12 are dismissed. Appeals of the assessee for the A.Y.2007-08 to 2009-10 are allowed and for the A.Y.2010-11 and 2011-12 are partly allowed. Order pronounced in the open court on 24th November 2020.

Sd/- Sd/- (धड.एस. सुन्दर धसंह) (िी.दुगाा राि) (D.S. SUNDER SINGH) (V. DURGA RAO) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER नवशधखधपटणम /Visakhapatnam नििधंक /Dated : 24.11.2020 L.Rama, SPS

41 I.T.A. No.574-577/Viz/2019 & 609/Viz/2019, A.Y. 2007-08 to 2010-11 & 2011-12 I.T.A. No. 607/Viz/2019 & 608/Viz/2019, A.Y.2009-10 & A.Y.2011-12 M/s First Tek Pvt. Ltd., Guntur

आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. निर्धाऩरती/ The Assessee– M/s First Tek Private Limited, Bhavanasi Anjaneyulu, Sri Balaji Chemical Industries, Main Road, Piduguralla, Guntur 2. रधजस्व/The Revenue – Asst.Commissioner of Income Tax, Central Circle Vijayawada 3. The Pr.Commissioner of Income Tax (Central), Visakhapatnam 4. The Commissioner of Income Tax (Appeals)-3, Visakhapatnam 5. तिभागीयप्रतितिति, आयकरअिीिीयअतिकरण, तिशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्डफ़ाईि / Guard file आदेशािुसार / BY ORDER // True Copy //

Sr. Private Secretary ITAT, Visakhapatnam