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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI PRADIP KUMAR KEDIA
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM:
1. The captioned appeal has been filed at the instance of the Assessee against the appellate order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 24/02/2016 arising in the assessment order passed under s.143(3) of the Income Tax
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 2 - Act, 1961 (hereinafter referred to as "the Act") dated 31/03/2014 relevant to Assessment Year (AY) 2011-12.
2. The grounds of appeal
raised by the Assessee read as under:-
1. The Ld. Assessing Officer had passed the assessment order under s.143(3) of the I.T. Act, 1961 determining the total income at Rs.2,26,62,560/- and allowing Exemption of Rs.1,71,01,439/- under s.10A for assessment year 2011-12 as against the returned income of Rs.24,68,360/- and claiming Exemption of Rs.4,66,82,217/- under s.10A of the4 IT Act, 1961. The Hon’ble CIT(A) has erred in law and on facts in dismissing the appeal in toto and has denied balance Exemption claimed under s.10A of the IT Act, 1961.
2. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld. Assessing Officer in not allowing the Exemption of Rs.4,66,82,217/- and merely allowed only Rs.1,71,01,439/- which was allowed by the Ld.Assessing Officer.
3. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the determination of the business income at Rs.2,26,77,094/- (Total Profit Rs.3,97,78,533/- - Exemption under s.10A of Rs.1,71,01439/-) instead of Rs.24,68,360/- offered by the appellant.
4. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the deduction of turnover of Rs.93,84,075/- considering the same as pertained to next financial year i.e. for financial year 2011-12 relevant to assessment year 2012-13 out of total turnover shown by the appellant of Rs.5,32,40,628/- of assessment year 2011-12 which is under consideration. Two bills have been raised in March, 2011 and the consideration is received in April, May and June of 2011 though the appellant is maintaining the books of account of Mercantile method.
5. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the mixed method of accounting (the Ld. Assessing Officer has held that the appellant is maintaining books of account on mixed method of account) though the appellant is strictly following Mercantile method of account.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 3 - 6. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the place of business. The appellant had done the business only from the Ahmedabad Unit and not from the Mumbai Unit during the entire financial year 2010- 11. The Mumbai unit was to be established at the relevant time. Thus, the Ld. Assessing Officer had erred in law and on facts in bifurcating turnover of Rs.4,38,56,553/- as Rs.2,15,43,357/- done by the Ahmedabad Unit while turnover fo Rs.2,23,13,196/- have been done by the Mumbai unit and the same is confirmed by the Hon’ble CIT(A) which is objectionable.
7. The Hon’ble CIT(A) has also erred in law and on facts in considering the Affidavit of Shri Miresh Shah as an additional evidence (as per Para 13.7 of his appellate order) though the appellant has specifically replied in written submission that the Affidavit is not an additional evidence as per the Hon’ble Punjab & Haryana High Court’s decision in the case of CIT vs. Central Mall: (2011): 332 ITR 320. According to the Hon’ble High Court the Affidavit merely reiterating the stand taken before the Assessing Officer cannot be treated as additional evidence.
3. Briefly stated, the assessee is engaged in the business of IT enabled services and BPO service provider in the name and style of M/s.Ryan International, a proprietary-concern of Shri Kunal Nagrani. The assessee filed its return of income for the AY 2011-12 declaring total income at Rs.24,68,360/-. The return filed by the assessee was subjected to scrutiny assessment. In the course of scrutiny assessment, the Assessing Officer inter alia noticed that the assessee has claimed exemption under s.10A of the Act of Rs.4,66,82,217/- @ 100% on the profits and gains derived from export profit. The assessee has obtained permission from Software Technology Park of India (STPI) to set up
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 4 - 100% Export Oriented Unit under STPI Scheme, for its Unit located at Navrangpura, Ahmedabad. The Assessing Officer enquired into the exemption claimed under s.10A of the Act. It was inter alia alleged by the Assessing Officer that the debtors pertaining to subsequent FY 2011- 12 relevant to AY 2012-13 amounting to Rs.93,84,075/- was clandestinely included in the current FY 2010-11 concerning Ay 2011-12 in question and consequently the export sales and export profits have been inflated to this extent to make wrongful claim of exemption under s.10A to this extent. The Assessing Officer secondly alleged that a part of Export turnover does not relate to STPI Unit at Ahmedabad but relates to Mumbai Unit which is not registered under STPI Scheme and thus not eligible for exemption under s.10A of the Act. As a consequence, the Assessing Officer held that the export profits declared by the assessee to the extent of Rs.2,26,77,094/- is not eligible for exemption under s.10A of the Act.
3.1. As regards allegation towards inflated debtors, it was noticed by the Assessing Officer that an amount of Rs.1,07,48,060/- reflected as debtor receivable from M/s.Suchita Enterprise Inc. at the end of FY 2010-11. The Assessing Officer observed that the said amount was received in the FY 2011-12. It was alleged that it is difficult to believe that the income claimed to have accrued or arisen from such debt in FY 2010-11 is true. According to the Assessing Officer, the transactions giving rise to Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 5 - outstanding debt related to the subsequent FY 2011-12 which has been wrongly preponed in the current FY 2010-11 to claim wrongful exemption under section 10A of the Act. The confirmation from the said debtor was not found clear about the year to which the transaction relates to. The profits declared in the current year was also found to be very high as compared to the subsequent year owing to such debtor. The Assessing Officer thus alleged that AY 2011-12 being the last year for claiming exemption under s.10A of the Act, the assessee has indulged in predating the transaction to relate the invoice to the current FY 2010-11 relevant to AY 2011-12 in question. To support such allegation, the Assessing Officer observed that the services and payment were worked out by the customer M/s.Suchita Enterprise Inc. on the basis of work done by the employees of the assessee-concern on the portal of M/s.Suchita Enterprise Inc. and the assessee was receiving instant payment from the customer against whatever services were rendered during a particular period. It was thus alleged that the actual turnover pertaining to FY 2010-11 stands at Rs.4,24,92,569/- only for which actual payments were received as against the inflated turnover shown by the assessee at Rs.5,32,40,629/-. The Assessing Officer noticed that in the month of February and March-2011, bills have been raised twice, whereas in other months bill has been raised only once. It was noted that bill in Feb-2011 USD 104850 and another bill of same amount i.e. 104850 in March-2011 remains unpaid whereas the first bill in those two
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 6 - months have been duly paid by the customer. Similarly, all the single bills of other months have also been promptly paid with no outstanding. Thus, the Assessing Officer alleged that these two bills of 104850 USD booked for Feb-2011 and March-2011 do not relate to FY 2010-11 and has been wrongly shown as outstanding debtor by booking the same towards the export turnover. An amount of Rs.93,84,075/- equivalent to Indian currency was consequently excluded from the export turnover by the Assessing Officer for the purposes of quantification of deduction under s.10A of the Act.
3.2. In conclusion, the Assessing Officer alleged that two invoices of USD 10485 each in Feb and March-2011 equivalent to Rs.93,84,075/- shown as debtor in the hands of M/s.Suchita Enterprise Inc. do not relate to AY 2011-12 but relates to AY 2012-13. The total turnover of assessee was accordingly reduced by the Assessing Officer from Rs.532.40 lakhs to Rs.438.56 lakhs for the purposes of computation of deduction under s.10A of the Act. The total profits declared by the assessee for the purposes of claim of deduction under s.10A of the Act amounting to Rs.4,91,62,608/- was accordingly revised to Rs.3,97,78,533/- by deducting the profits of Rs.93,84,075/- from the aforesaid turnover.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 7 - 3.3 The Assessing Officer had also alleged discrepancy in the claim of expenses but however ultimately accepted the claims as such.
3.4. The Assessing Officer also noted that whereas only Ahmedabad Unit was registered under STPI but however the assessee was also doing business from newly opened Mumbai Unit which was not registered under STPI. It was alleged that turnover generated from unregistered unit was also clubbed in the total export turnover and eligible profits and gains and thus excess claim of deduction under s.10A has been made. For coming to such conclusion, the Assessing Officer relied upon certain email from Mr.Miresh Shah (assessee’s employee at Mumbai Unit). Based on such email, the Assessing Officer bifurcated the total turnover of Rs.438.56 lakhs and assigned turnover of Mumbai Unit and Ahmedabad Unit at Rs.1,88,54,646 and Rs.2,23,13,196 respectively. The deduction under s.10A of the Act was accordingly reduced drastically and reworked to Rs.1,71,01,439/- on the basis of revised turnover as attributable to STPI unit. The adjusted profit of Rs.2,26,77,094/- was accordingly found attributable to non-STPI Mumbai Unit and on which exemption under s.10A of the Act was denied to the assessee.
4. Aggrieved by the denial of claim on exemption/deduction under s.10A of the Act to the extent of Rs.2,26,77,723, the assessee preferred the appeal before the CIT(A). The CIT(A) did not find any merit in the Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 8 - plea of the assessee for deduction of claim of exemption amounting to Rs.4,66,82,217/- in whole and held that the Assessing Officer has rightly disallowed the deduction to the extent of Rs.2,66,77,094/-. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“Decision: 13. I have carefully considered the assessment order, submission of the appellant and the material available on record. The brief facts are that the appellant claimed exemption u/s. 10A from Ahmedabad unit turnover. The A.O. noted that the exemption u/s 10A was not available to the appellant from subsequent financial year i.e. 2011-12 therefore, the appellant manipulated the turnover and shown Mumbai unit turnover in Ahmedabad STPI unit. 13.1 The appellant first time filed return of income and claimed exemption in A.Y. 2011-12 and no return was filed in the preceding year in A.Y. 2010-11. The AO examined the expenditure and investment of the year under consideration and noted that in the month of September, 2010 for Ahmedabad office, the appellant purchased computers of Rs.2,70,000/- but other than that no other expenditure was incurred for establishing the office/business premises and salary expanses for Ahmedabad office. The A.O. also noted that the payment to employees was made in cash of Rs. 3,00,000/- for salary of Ahmedabad unit but there was no withdrawals from the bank and cash book did not show any payment also. The A.O. found clear cut discrepancies in the salary details submitted and salary booked in the books of accounts. The A.O. further noted that to maximize the exemption u/s 10A of the Act, the appellant has not booked any capital/revenue expenditure for STPI Unit of Ahmedabad Unit. 13.2 The A.O. further noted that the appellant has incurred huge capital and revenue expenditure including huge rent for the Mumbai unit office from November, 2010 onward but claimed that no services were rendered from the Mumbai unit and not shown any turnover from Mumbai unit even though he incurred expenses for computers, computer parts, hardware, furniture and fixtures, rent etc of Rs.41,97,652/- for Mumbai office. Thus the A.O. concluded
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 9 - that books of account of the appellant are not reliable and rejected u/s 145 of the Act. The finding and analysis of the A.O. was found based on the facts and justified.
13.3 During the appellate proceeding, the appellant merely submitted the reply submitted before the A.O, and furnished an affidavit of Mr. Miresh Shah in support of his claim.
13.4 The contention of the appellant regarding affidavit of Shri Miresh Shah dated 8-6-2015 is not acceptable as the content of the affidavit is clearly fall into the category of additional evidence as in the affidavit Shri Miresh Shah mentioned contradictory facts and submitted that he was working at Ahmedabad office and no business/operational activities effected at Mumbai during A.Y. 2010-11.
13.5 Since the affidavit was filed first time during the appellate proceeding therefore the appellant was asked vide this office letter dated 21-12-2015 that why the affidavit should not be treated as additional evidence as it was not filed before the A.O. and why the same should not be rejected as no request for accepting the addition evidence under Rule 46A has been filed. The appellant submitted that the affidavit do not contain any new material hence same should not be treated as additional evidence. However the contention of the appellant is misleading and factually incorrect as all the information in the affidavit is new information which amount to be additional evidence.
13.6 The additional evidence is governed by Rule 46A of LT. Rules, 1962 which is as under:- "(1)The appellant shall not be entitled to produce before the ( Deputy Commissioner(Appeals) {or the case may be, the Commissioner of (Appeals)} any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the (Assessing Officer), except in the following circumstances, namely - a. Where the (Assessing Officer) has refused to admit evidence which ought to have been admitted; or b. Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the (Assessing Officer); or Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 10 - c. Where the appellant was prevented by sufficient cause from producing before the (Assessing Officer) any evidence which is relevant to any ground of appeal or; d. Where the (Assessing Officer) has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals)} records in writing the reasons for its admission. (3) the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals)} shall not take into account any evidence produced under sub-rule (1) unless the (Assessing Officer has been allowed a reasonable opportunity — (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or „ (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant (4) Nothing contained in this rule shall affect the power of the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals) } to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial' cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the (Assessing officer) under clause (a) of sub-section 1 of section 251 or the imposition of penalty under s.271)."
13.7 I have given careful consideration to the contention of the appellant and I am of the considered view that the affidavit is an additional evidence and the appellant was not prevented by any sufficient cause from producing the evidence within the meaning of sub clause (b) and (c) of sub Rule 1 of Rule 46A of the LT. Rules, 1962 however it appears that the appellant deliberately did not avail the opportunity of submitting evidence before the A.O. The appellant has also not requested to accept the same as additional evidence therefore the affidavit is not taken on record and no cognizance is taken. Therefore additional evidence is not admitted and appeal is decided on the basis of material available on record.
13.8 It is further seen that the affidavit of Mr. Miresh shah had contradictory reference and facts therefore, the appellant was specifically asked to produce
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 11 - Mr. Miresh Shah, in support of the affidavit submitted. However the appellant did not produce Mr. Miresh Shah in support of the contradictory facts mentioned in the affidavit therefore even on merit also, the affidavit cannot be considered bonafide. Thus the facts mentioned by the A.O. are found authentic and genuine. It is seen that the appellant did not produce any details of the employees before the A.O. to examine whether the same were working at Mumbai or Ahmedabad unit.
13.9 It is seen that the AO verified the genuineness of the turnover of Mumbai and Ahmedabad unit and held that circumstantial evidences clearly show that the appellant established Mumbai unit and employees were engaged there to provide the services. The details of the activities can be seen as under : Month Activities at Total turnover as Observation Turnover Turnover Mumbai unit per above attributable to attributable to discussion STPI unit Mumbai unit Ahmedabad August-2010 - 2688711 - 2688711 - Sept-2010 - 2409352 - 2409352 — Oct-2010 Rent 3086911 3086911 - agreement signed Nov-2010 Mumbai unit 2586707 2586707 started Dec-2010 5284964 Mumbai unit 2692919 2592045 started. (average of Sharp and turnover from sudden rise Aug to Nov- in turnover of 2010) assessee.
Jan-2011 New fixed 5412370 New assets 2692919 2719451 assets purchased in -
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 12 - purchased mid of the month. Feb-2011 - 9200865 Sharp and 2692919 6507946 sudden rise in turnover of assessee March-2011 - 13186673 2692919 10493754
43856553 21543357 22313196 13.10 In view of the facts and information discussed by the A.O. and- circumstantial evidence the stand of the A.O. is found justifiable that the appellant was involved in providing the services from Mumbai unit however, the same was diverted to the Ahmedabad unit to claim the exemption under s.10A of the Act.
13.11 It is obvious from the above chart and discussion that up to the month of November only Ahmedabad unit (STPI) was working and it turnover of Rs. 26,88,711/-, Rs. 24,09,352/-, Rs. 30,86,911/- and Rs. 25,86,707. However, from the month of December, 2010, after Mumbai unit started, the appellant's turnover got increased almost to double and in the month of February and March, it was further increased therefore considering the average turnover of the month of August to November, the monthly turnover of Ahmedabad unit is taken at Rs. 26,92,919/- and the remaining turnover was treated as attributable to Mumbai unit and accordingly, the AO has calculated Ahmedabad turnover under STPI unit is Rs. 1,88,54,646/- and further calculated eligible profit under s. 10A proportionately at Rs. 1,71,01,439/- and the balance turnover was treated as business income and therefore the same is upheld.
14. Ground no. 7 relates to not appreciating the invoices for Rs.1,07,48,080/- raised during the F.Y. 2010-11. The appellant has not pressed the ground, therefore the same is dismissed.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 13 -
15. Last ground of appeal is regarding initiation of penalty proceedings under section 271(1)(c) of the I.T. Act is dismissed as no appeal lies against mere initiation of penalty proceedings.
16. In result the appeal is dismissed.”
5. Further aggrieved, the assessee preferred the appeal before the Tribunal.
6. The Ld.AR for the assessee strongly defended the claim of exemption made under s.10A of the Act and contended that both the authorities have misconceived the facts and misdirected themselves in law in arbitrarily reducing the exemption claimed under s.10A from Rs.4,66,82,217/- to Rs.1,71,01,439/- and wrongly sought to fasten tax liability on Rs.2,26,77,094/-.
6.1. As regards two invoices of USD 104850 each in February and March-2011 alleged by the Assessing Officer to be not pertaining to in the FY 2010-11 in question, it was contended that the Assessing Officer has proceeded to discard the invoices mainly on suspicion and conjectures having regard to the outstanding remaining at the end of the year, whereas the fact that the payment has actually been received in the subsequent year has not been disputed. The Ld.AR pointed out that the mere fact that in the case of two invoices, payment has been received
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 14 - after 2-3 months, i.e. in April & June-2011 cannot be a ground to hold that such sum is income relatable to the subsequent year. The Ld.AR submitted that the Assessing Officer cannot step into the shoes of a business man to dictate the terms of payment and it is quite possible to receive the payment little late within 2-3 months. It is the sole prerogative of a business man to decide how many invoices are to be raised in a given month keeping in mind the quantum of services rendered and also having regard to host of various other factors. Assessing Officer cannot hold that if more than one invoice is raised in a month, such invoices are not includible. The Ld.AR pointed out that a reference was made before the lower authorities to the Bank Realization Certificates (BRCs) which establishes the fact that the services have been rendered and payment in lieu of the same has been received as evident from BRCs. Confirmation of the concerned debtor (M/s.Suchita Enterprise Inc.) was also referred to as appearing at page no.63 of the paper-book. It was pointed out that assessee is registered STPI Unit and, therefore, also filed SOFTEX form with STPI wherein disputed turnover for Feb & March-2011 was also shown and declared. The Ld.AR thus submitted that the Assessing Officer has not brought any cogent evidence to hold that concerned two invoices pertained to subsequent year i.e. the year of payment. The Ld.AR contended that in the absence of any evidence to the contrary and in the wake of positive evidences in the form of BRCs etc., the Assessing Officer was not justified in holding that Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 15 - a portion of turnover/income belongs to subsequent year especially when assessee is following mercantile system of accounting.
6.2. Adverting to the second aspect of dispute towards bifurcation of total export turnover, the Ld.AR contended that the Assessing Officer has erroneously held that part of the business was carried out from Mumbai Unit (non-eligible Unit) and accordingly the Assessing Officer has artificially bifurcated total turnover of the assessee carried out from STPI Unit into turnover of STPI Unit (Ahmedabad) and non-STPI Unit (Mumbai) abruptly. It was vehemently exhorted that all the work was carried out from STPI Unit situated at Ahmedabad and the assessee was only looking forward to establish its business in Mumbai. Hence, certain expenses were incurred at Mumbai without any success and the assessee did not in reality conduct any business from Mumbai Unit in the relevant FY. It was pointed out that one Mr. Miresh Shah (one of the employees at Mumbai Unit) had also given an advertisement in Feb-2011 for recruitment for which the invoice is placed on record. This would go to show that assessee was trying to kickstart the Mumbai Unit. The assessee had merely given security for rented premises at Mumbai and incurred some rent expenses. The only expenditure for day-to-day business was of Rs.2,342/- for lease-line connection paid to Airtel which is essential for beginning the business venture. It was thus contended that no day-to-day work was carried out from Mumbai.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 16 - Rather, the entire work was carried out from Ahmedabad Unit which is eligible for exemption under s.10A of the Act. With reference to the telephonic conversation of the Assessing Officer Mr. Miresh Shah, the Ld.AR submitted that the statement of the said employee that there were 20 people working at Mumbai office was the factual scenario on the date of that telephonic conversation at the time of assessment. Notwithstanding, no such statement was provided to the assessee and, therefore, such statement has no probative value for the purposes of evidence against the assessee. The email of Mr.Miresh Shah also does not embody anything against the assessee. The affidavit of Mr. Miresh Shah also denies any such statement to the Assessing Officer concerning the FY 2010-11. It was thus contended that the Assessing Officer committed grave error in holding that assessee has done major work from Mumbai Unit so as to embark in artificial bifurcation of turnover between Mumbai and Ahmedabad Units.
6.3. The Ld.AR thus contended that both adjustment made by the Assessing Officer in the quantum of deduction namely, making artificial reduction in the declare turnover and declared profits on account of inflated debtor and turnover relating to the non-STPI Unit are patently wrong and factually unsustainable. The Ld.AR thus submitted that the action of the Revenue in reducing the claim of exemption requires to be Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 17 - reversed as not being tenable in the eyes of law and the exemption claimed as made by the assessee requires to be restored.
7. The Ld.DR, on the other hand, relied on the orders of lower authorities and submitted in furtherance that the assessee has concocted the higher Export turnover belonging to subsequent year only to claim deduction under s.10A of the Act. The business carried on from non- eligible unit at Mumbai has also been clubbed with STPI unit in order to claim higher deduction than what is eligible to assessee. The Ld.DR submitted that the Assessing Officer and CIT(A) have dealt with the facts in length.
8. We have carefully considered the rival submissions. The quantification of deduction under s.10A of the Act claimed by the assessee is in dispute. The assessee has claimed a deduction of Rs.4,66,82,217/- towards exemption/deduction under s.10A of the Act. The Assessing Officer has disputed the quantum of export turnover declared by the assessee for the purposes of computation of deduction and reduced the declared turnover by Rs.93,84,075/- and consequent eligible profit from export to the same extent. This resulted in reduction of eligible claim for the purposes of s.10A of the Act.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 18 - 8.1. Secondly, the Assessing Officer has also disputed the adjusted total turnover from export to be exclusively relatable to STPI Unit located at Ahmedabad as claimed. It is the case of the Assessing Officer that a substantial part of the turnover relates to Mumbai Unit which is not registered and, therefore, the eligible profits for the purposes of section 10A requires to be further adjusted and reduced to the extent relatable to Mumbai Unit. The Assessing Officer thus reduced the eligible profit from export by Rs.2,26,77,094/- holding the same to be attributable to non eligible unit. As a consequence, the exemption claimed under s.10A was reduced to this extent and the amount of Rs.2,26,77,094/- was brought to tax as taxable business income.
8.2. We shall first address ourselves to the first objection of the Assessing Officer towards credibility of export turnover declared and consequent export profit flowing therefrom. On a perusal of the assessment order, it appears that the Assessing Officer was mainly guided by the fact that while the assessee has received payment against all invoices raised in other months as to instantly with no outstanding, the assessee has not received any payment against two additional invoices raised in Feb-2011 & March-2011 of USD 104850 each equivalent to Rs.93,84,075/- in aggregate. The Assessing Officer has narrated suspicious circumstances for non-accrual of income in the FY 2010-11. It is the case of the Assessing Officer that the invoices, in fact, relate to Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 19 - subsequent assessment year and has been merely predated to claim wrongful exemption under s.10A being the last year of eligibility. The Assessing Officer computed the Gross Profits relating to this year and the subsequent year to prop up its case against the assessee. It is the case of Assessing Officer while the two invoices once taken into account in subsequent year, the realigned GP would be somewhat similar.
8.3. On objective consideration, we note that while it is factually correct that payment for two invoices were not received in the same manner as was received for other invoices raised to its customer, namely; M/s.Suchita Enterprise Inc. this aberration, in our view, cannot be a ground for doubting the invoices itself. The assessee has demonstrated from the ‘Bank Realization Certificates’ (BRCs) issued by the Bank that the assessee has received consideration against the services rendered for the period specified therein which falls in the FY 2010-11. Simply because the payment has been received in the subsequent year would not tantamount to deferral of accrual of income also to the subsequent year. Merely because the deduction under s.10A comes to an end in this year should not necessarily trigger unwarranted suspicion against the assessee. The case made out by the Assessing Officer towards fall in Gross Profit etc. is refutable. It is difficult to dislodge the claim of the assessee based on such shallow evidences. The assessee, on the other hand, requires to be believed on account of reporting the transactions in SOFTEX form
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 20 - with STPI including this turnover as well as in the light of Bank Realization Certificates placed on record. The adjustment made by the Assessing Officer towards reduction of export turnover and export profits is thus requires to be discarded.
8.4. Turning to the second adjustment for apportionment of turnover between the STPI and Non-STPI Units, we again see no firm basis for such action. The Assessing Officer as well as the CIT(A) has mainly relied upon the telephonic statement of Mr.Miresh Shah (one of the employees of the assessee) taken at the fag end of FY 2013-14, i.e. nearly after a gap of three years. It is the case of the assessee that the statement of the aforesaid employee against the assessee, if any, has not been offered for cross-examination by the Assessing Officer nor the statement was shared. Thus, such non-descript information cannot be used against the assessee. We find merit in such plea which is also supported by the Affidavit of the employee before the CIT(A). The export turnover cannot be bifurcated casually based on some flimsy evidences. The explanation of the assessee that it wanted to expand its foot-prints to Mumbai and for which reason rental property was taken to explore the possibility is quite plausible. An office in non-eligible office/unit in non-eligible area by itself cannot be held against the assessee. The basis of apportionment of turnover between the STPI Unit and non-STPI unit as recorded in para 7.6 of the assessment order is Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 21 - wholly unjustified. The case of the Assessing Officer that sudden rise in turnover with the advent of Mumbai Unit coupled with purchase of assets in Mumbai cannot be a ground for bifurcation of turnover to non-eligible unit The suspicion raised is mother of enquiry. Some enquiry in this direction ought to have been made. In the absence of any further enquiry to establish the carrying of export business from non-eligible unit, the action of the Assessing Officer is farfetched and not sustainable. Therefore, the second ground for reduction of eligible profits and benchmarking of a significant component of profit to non-eligible unit also fails. Thus, we find merit in the case of the assessee for allowability of deduction under s.10A of the Act as claimed. The order of the CIT(A) is set aside and the Assessing Officer is directed to allow the deduction as claimed under s.10A of the Act.
9. In the result, appeal of the Assessee is allowed.
This Order pronounced in Open Court on 29/ 07/2019 Sd/- Sd/- (�द�प कुमार के�डया) (राजपाल यादव) �या�यक सद�य लेखा सद�य (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 29/ 07 /2019 ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 22 -
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-6, Ahmedabad �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation .. 15.7.2019 (dictation-pad 53-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member …16.7.2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S……………..
5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….29.7.19 7. Date on which the file goes to the Bench Clerk…………………29.7.19 8. Date on which the file goes to the Head Clerk…………………………………...
9. The date on which the file goes to the Assistant Registrar for signature on the order……………………..
Date of Despatch of the Order………………
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ ‘डी’, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD सव�ी राजपाल यादव, �या�यक सद�य एवं �द�प कुमार के�डया, लेखा सद�य के सम�। BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER आयकर अपील सं./ (�नधा�रण वष� / Assessment Year : 2011-12)
Kunal Chaturbhuj Nagrani The Asst.Commissioner बनाम/ Prop. Ryan International of Income Tax Vs. 8, Rameshwar Park Society Circle-12 Maninagar, Ahmedabad-380 006 Ahmedabad-380 008 �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : ACIPN 5122 G .. (अपीलाथ� /Appellant) (��यथ� / Respondent) अपीलाथ� ओर से / Appellant by : Shri T.P. Hemani, AR ��यथ� क� ओर से/Respondent by : Shri Rajesh Meena, Sr.DR
27/06/2019 सुनवाई क� तार�ख / Date of Hearing घोषणा क� तार�ख /Date of Pronouncement 29/07/2019
आदेश / O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed at the instance of the Assessee against the appellate order of the Commissioner of Income Tax(Appeals)-6, Ahmedabad [CIT(A) in short] dated 24/02/2016 arising in the assessment order passed under s.143(3) of the Income Tax
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 2 - Act, 1961 (hereinafter referred to as "the Act") dated 31/03/2014 relevant to Assessment Year (AY) 2011-12.
The grounds of appeal
raised by the Assessee read as under:-
1. The Ld. Assessing Officer had passed the assessment order under s.143(3) of the I.T. Act, 1961 determining the total income at Rs.2,26,62,560/- and allowing Exemption of Rs.1,71,01,439/- under s.10A for assessment year 2011-12 as against the returned income of Rs.24,68,360/- and claiming Exemption of Rs.4,66,82,217/- under s.10A of the4 IT Act, 1961. The Hon’ble CIT(A) has erred in law and on facts in dismissing the appeal in toto and has denied balance Exemption claimed under s.10A of the IT Act, 1961.
2. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld. Assessing Officer in not allowing the Exemption of Rs.4,66,82,217/- and merely allowed only Rs.1,71,01,439/- which was allowed by the Ld.Assessing Officer.
3. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the determination of the business income at Rs.2,26,77,094/- (Total Profit Rs.3,97,78,533/- - Exemption under s.10A of Rs.1,71,01439/-) instead of Rs.24,68,360/- offered by the appellant.
4. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the deduction of turnover of Rs.93,84,075/- considering the same as pertained to next financial year i.e. for financial year 2011-12 relevant to assessment year 2012-13 out of total turnover shown by the appellant of Rs.5,32,40,628/- of assessment year 2011-12 which is under consideration. Two bills have been raised in March, 2011 and the consideration is received in April, May and June of 2011 though the appellant is maintaining the books of account of Mercantile method.
5. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the mixed method of accounting (the Ld. Assessing Officer has held that the appellant is maintaining books of account on mixed method of account) though the appellant is strictly following Mercantile method of account.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 3 - 6. The Hon’ble CIT(A) has also erred in law and on facts in confirming the action of the Ld.Assessing Officer about the place of business. The appellant had done the business only from the Ahmedabad Unit and not from the Mumbai Unit during the entire financial year 2010- 11. The Mumbai unit was to be established at the relevant time. Thus, the Ld. Assessing Officer had erred in law and on facts in bifurcating turnover of Rs.4,38,56,553/- as Rs.2,15,43,357/- done by the Ahmedabad Unit while turnover fo Rs.2,23,13,196/- have been done by the Mumbai unit and the same is confirmed by the Hon’ble CIT(A) which is objectionable.
7. The Hon’ble CIT(A) has also erred in law and on facts in considering the Affidavit of Shri Miresh Shah as an additional evidence (as per Para 13.7 of his appellate order) though the appellant has specifically replied in written submission that the Affidavit is not an additional evidence as per the Hon’ble Punjab & Haryana High Court’s decision in the case of CIT vs. Central Mall: (2011): 332 ITR 320. According to the Hon’ble High Court the Affidavit merely reiterating the stand taken before the Assessing Officer cannot be treated as additional evidence.
Briefly stated, the assessee is engaged in the business of IT enabled services and BPO service provider in the name and style of M/s.Ryan International, a proprietary-concern of Shri Kunal Nagrani. The assessee filed its return of income for the AY 2011-12 declaring total income at Rs.24,68,360/-. The return filed by the assessee was subjected to scrutiny assessment. In the course of scrutiny assessment, the Assessing Officer inter alia noticed that the assessee has claimed exemption under s.10A of the Act of Rs.4,66,82,217/- @ 100% on the profits and gains derived from export profit. The assessee has obtained permission from Software Technology Park of India (STPI) to set up
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 4 - 100% Export Oriented Unit under STPI Scheme, for its Unit located at Navrangpura, Ahmedabad. The Assessing Officer enquired into the exemption claimed under s.10A of the Act. It was inter alia alleged by the Assessing Officer that the debtors pertaining to subsequent FY 2011- 12 relevant to AY 2012-13 amounting to Rs.93,84,075/- was clandestinely included in the current FY 2010-11 concerning Ay 2011-12 in question and consequently the export sales and export profits have been inflated to this extent to make wrongful claim of exemption under s.10A to this extent. The Assessing Officer secondly alleged that a part of Export turnover does not relate to STPI Unit at Ahmedabad but relates to Mumbai Unit which is not registered under STPI Scheme and thus not eligible for exemption under s.10A of the Act. As a consequence, the Assessing Officer held that the export profits declared by the assessee to the extent of Rs.2,26,77,094/- is not eligible for exemption under s.10A of the Act.
3.1. As regards allegation towards inflated debtors, it was noticed by the Assessing Officer that an amount of Rs.1,07,48,060/- reflected as debtor receivable from M/s.Suchita Enterprise Inc. at the end of FY 2010-11. The Assessing Officer observed that the said amount was received in the FY 2011-12. It was alleged that it is difficult to believe that the income claimed to have accrued or arisen from such debt in FY 2010-11 is true. According to the Assessing Officer, the transactions giving rise to Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 5 - outstanding debt related to the subsequent FY 2011-12 which has been wrongly preponed in the current FY 2010-11 to claim wrongful exemption under section 10A of the Act. The confirmation from the said debtor was not found clear about the year to which the transaction relates to. The profits declared in the current year was also found to be very high as compared to the subsequent year owing to such debtor. The Assessing Officer thus alleged that AY 2011-12 being the last year for claiming exemption under s.10A of the Act, the assessee has indulged in predating the transaction to relate the invoice to the current FY 2010-11 relevant to AY 2011-12 in question. To support such allegation, the Assessing Officer observed that the services and payment were worked out by the customer M/s.Suchita Enterprise Inc. on the basis of work done by the employees of the assessee-concern on the portal of M/s.Suchita Enterprise Inc. and the assessee was receiving instant payment from the customer against whatever services were rendered during a particular period. It was thus alleged that the actual turnover pertaining to FY 2010-11 stands at Rs.4,24,92,569/- only for which actual payments were received as against the inflated turnover shown by the assessee at Rs.5,32,40,629/-. The Assessing Officer noticed that in the month of February and March-2011, bills have been raised twice, whereas in other months bill has been raised only once. It was noted that bill in Feb-2011 USD 104850 and another bill of same amount i.e. 104850 in March-2011 remains unpaid whereas the first bill in those two
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 6 - months have been duly paid by the customer. Similarly, all the single bills of other months have also been promptly paid with no outstanding. Thus, the Assessing Officer alleged that these two bills of 104850 USD booked for Feb-2011 and March-2011 do not relate to FY 2010-11 and has been wrongly shown as outstanding debtor by booking the same towards the export turnover. An amount of Rs.93,84,075/- equivalent to Indian currency was consequently excluded from the export turnover by the Assessing Officer for the purposes of quantification of deduction under s.10A of the Act.
3.2. In conclusion, the Assessing Officer alleged that two invoices of USD 10485 each in Feb and March-2011 equivalent to Rs.93,84,075/- shown as debtor in the hands of M/s.Suchita Enterprise Inc. do not relate to AY 2011-12 but relates to AY 2012-13. The total turnover of assessee was accordingly reduced by the Assessing Officer from Rs.532.40 lakhs to Rs.438.56 lakhs for the purposes of computation of deduction under s.10A of the Act. The total profits declared by the assessee for the purposes of claim of deduction under s.10A of the Act amounting to Rs.4,91,62,608/- was accordingly revised to Rs.3,97,78,533/- by deducting the profits of Rs.93,84,075/- from the aforesaid turnover.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 7 - 3.3 The Assessing Officer had also alleged discrepancy in the claim of expenses but however ultimately accepted the claims as such.
3.4. The Assessing Officer also noted that whereas only Ahmedabad Unit was registered under STPI but however the assessee was also doing business from newly opened Mumbai Unit which was not registered under STPI. It was alleged that turnover generated from unregistered unit was also clubbed in the total export turnover and eligible profits and gains and thus excess claim of deduction under s.10A has been made. For coming to such conclusion, the Assessing Officer relied upon certain email from Mr.Miresh Shah (assessee’s employee at Mumbai Unit). Based on such email, the Assessing Officer bifurcated the total turnover of Rs.438.56 lakhs and assigned turnover of Mumbai Unit and Ahmedabad Unit at Rs.1,88,54,646 and Rs.2,23,13,196 respectively. The deduction under s.10A of the Act was accordingly reduced drastically and reworked to Rs.1,71,01,439/- on the basis of revised turnover as attributable to STPI unit. The adjusted profit of Rs.2,26,77,094/- was accordingly found attributable to non-STPI Mumbai Unit and on which exemption under s.10A of the Act was denied to the assessee.
Aggrieved by the denial of claim on exemption/deduction under s.10A of the Act to the extent of Rs.2,26,77,723, the assessee preferred the appeal before the CIT(A). The CIT(A) did not find any merit in the Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 8 - plea of the assessee for deduction of claim of exemption amounting to Rs.4,66,82,217/- in whole and held that the Assessing Officer has rightly disallowed the deduction to the extent of Rs.2,66,77,094/-. The relevant operative para of the order of the CIT(A) is reproduced hereunder:
“Decision: 13. I have carefully considered the assessment order, submission of the appellant and the material available on record. The brief facts are that the appellant claimed exemption u/s. 10A from Ahmedabad unit turnover. The A.O. noted that the exemption u/s 10A was not available to the appellant from subsequent financial year i.e. 2011-12 therefore, the appellant manipulated the turnover and shown Mumbai unit turnover in Ahmedabad STPI unit. 13.1 The appellant first time filed return of income and claimed exemption in A.Y. 2011-12 and no return was filed in the preceding year in A.Y. 2010-11. The AO examined the expenditure and investment of the year under consideration and noted that in the month of September, 2010 for Ahmedabad office, the appellant purchased computers of Rs.2,70,000/- but other than that no other expenditure was incurred for establishing the office/business premises and salary expanses for Ahmedabad office. The A.O. also noted that the payment to employees was made in cash of Rs. 3,00,000/- for salary of Ahmedabad unit but there was no withdrawals from the bank and cash book did not show any payment also. The A.O. found clear cut discrepancies in the salary details submitted and salary booked in the books of accounts. The A.O. further noted that to maximize the exemption u/s 10A of the Act, the appellant has not booked any capital/revenue expenditure for STPI Unit of Ahmedabad Unit. 13.2 The A.O. further noted that the appellant has incurred huge capital and revenue expenditure including huge rent for the Mumbai unit office from November, 2010 onward but claimed that no services were rendered from the Mumbai unit and not shown any turnover from Mumbai unit even though he incurred expenses for computers, computer parts, hardware, furniture and fixtures, rent etc of Rs.41,97,652/- for Mumbai office. Thus the A.O. concluded
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 9 - that books of account of the appellant are not reliable and rejected u/s 145 of the Act. The finding and analysis of the A.O. was found based on the facts and justified.
13.3 During the appellate proceeding, the appellant merely submitted the reply submitted before the A.O, and furnished an affidavit of Mr. Miresh Shah in support of his claim.
13.4 The contention of the appellant regarding affidavit of Shri Miresh Shah dated 8-6-2015 is not acceptable as the content of the affidavit is clearly fall into the category of additional evidence as in the affidavit Shri Miresh Shah mentioned contradictory facts and submitted that he was working at Ahmedabad office and no business/operational activities effected at Mumbai during A.Y. 2010-11.
13.5 Since the affidavit was filed first time during the appellate proceeding therefore the appellant was asked vide this office letter dated 21-12-2015 that why the affidavit should not be treated as additional evidence as it was not filed before the A.O. and why the same should not be rejected as no request for accepting the addition evidence under Rule 46A has been filed. The appellant submitted that the affidavit do not contain any new material hence same should not be treated as additional evidence. However the contention of the appellant is misleading and factually incorrect as all the information in the affidavit is new information which amount to be additional evidence.
13.6 The additional evidence is governed by Rule 46A of LT. Rules, 1962 which is as under:- "(1)The appellant shall not be entitled to produce before the ( Deputy Commissioner(Appeals) {or the case may be, the Commissioner of (Appeals)} any evidence, whether oral or documentary, other than the evidence produced by him during the course of proceedings before the (Assessing Officer), except in the following circumstances, namely - a. Where the (Assessing Officer) has refused to admit evidence which ought to have been admitted; or b. Where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the (Assessing Officer); or Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 10 - c. Where the appellant was prevented by sufficient cause from producing before the (Assessing Officer) any evidence which is relevant to any ground of appeal or; d. Where the (Assessing Officer) has made the order appealed against without giving sufficient opportunity to the appellant to adduce evidence relevant to any ground of appeal. (2) No evidence shall be admitted under sub-rule (1) unless the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals)} records in writing the reasons for its admission. (3) the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals)} shall not take into account any evidence produced under sub-rule (1) unless the (Assessing Officer has been allowed a reasonable opportunity — (a) to examine the evidence or document or to cross-examine the witness produced by the appellant, or „ (b) to produce any evidence or document or any witness in rebuttal of the additional evidence produced by the appellant (4) Nothing contained in this rule shall affect the power of the {Deputy Commissioner (Appeals)} {or, as the case may be, the Commissioner (Appeals) } to direct the production of any document, or the examination of any witness, to enable him to dispose of the appeal, or for any other substantial' cause including the enhancement of the assessment or penalty (whether on his own motion or on the request of the (Assessing officer) under clause (a) of sub-section 1 of section 251 or the imposition of penalty under s.271)."
13.7 I have given careful consideration to the contention of the appellant and I am of the considered view that the affidavit is an additional evidence and the appellant was not prevented by any sufficient cause from producing the evidence within the meaning of sub clause (b) and (c) of sub Rule 1 of Rule 46A of the LT. Rules, 1962 however it appears that the appellant deliberately did not avail the opportunity of submitting evidence before the A.O. The appellant has also not requested to accept the same as additional evidence therefore the affidavit is not taken on record and no cognizance is taken. Therefore additional evidence is not admitted and appeal is decided on the basis of material available on record.
13.8 It is further seen that the affidavit of Mr. Miresh shah had contradictory reference and facts therefore, the appellant was specifically asked to produce
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 11 - Mr. Miresh Shah, in support of the affidavit submitted. However the appellant did not produce Mr. Miresh Shah in support of the contradictory facts mentioned in the affidavit therefore even on merit also, the affidavit cannot be considered bonafide. Thus the facts mentioned by the A.O. are found authentic and genuine. It is seen that the appellant did not produce any details of the employees before the A.O. to examine whether the same were working at Mumbai or Ahmedabad unit.
13.9 It is seen that the AO verified the genuineness of the turnover of Mumbai and Ahmedabad unit and held that circumstantial evidences clearly show that the appellant established Mumbai unit and employees were engaged there to provide the services. The details of the activities can be seen as under : Month Activities at Total turnover as Observation Turnover Turnover Mumbai unit per above attributable to attributable to discussion STPI unit Mumbai unit Ahmedabad August-2010 - 2688711 - 2688711 - Sept-2010 - 2409352 - 2409352 — Oct-2010 Rent 3086911 3086911 - agreement signed Nov-2010 Mumbai unit 2586707 2586707 started Dec-2010 5284964 Mumbai unit 2692919 2592045 started. (average of Sharp and turnover from sudden rise Aug to Nov- in turnover of 2010) assessee.
Jan-2011 New fixed 5412370 New assets 2692919 2719451 assets purchased in -
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 12 - purchased mid of the month. Feb-2011 - 9200865 Sharp and 2692919 6507946 sudden rise in turnover of assessee March-2011 - 13186673 2692919 10493754
43856553 21543357 22313196 13.10 In view of the facts and information discussed by the A.O. and- circumstantial evidence the stand of the A.O. is found justifiable that the appellant was involved in providing the services from Mumbai unit however, the same was diverted to the Ahmedabad unit to claim the exemption under s.10A of the Act.
13.11 It is obvious from the above chart and discussion that up to the month of November only Ahmedabad unit (STPI) was working and it turnover of Rs. 26,88,711/-, Rs. 24,09,352/-, Rs. 30,86,911/- and Rs. 25,86,707. However, from the month of December, 2010, after Mumbai unit started, the appellant's turnover got increased almost to double and in the month of February and March, it was further increased therefore considering the average turnover of the month of August to November, the monthly turnover of Ahmedabad unit is taken at Rs. 26,92,919/- and the remaining turnover was treated as attributable to Mumbai unit and accordingly, the AO has calculated Ahmedabad turnover under STPI unit is Rs. 1,88,54,646/- and further calculated eligible profit under s. 10A proportionately at Rs. 1,71,01,439/- and the balance turnover was treated as business income and therefore the same is upheld.
Ground no. 7 relates to not appreciating the invoices for Rs.1,07,48,080/- raised during the F.Y. 2010-11. The appellant has not pressed the ground, therefore the same is dismissed.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 13 -
Last ground of appeal is regarding initiation of penalty proceedings under section 271(1)(c) of the I.T. Act is dismissed as no appeal lies against mere initiation of penalty proceedings.
In result the appeal is dismissed.”
Further aggrieved, the assessee preferred the appeal before the Tribunal.
The Ld.AR for the assessee strongly defended the claim of exemption made under s.10A of the Act and contended that both the authorities have misconceived the facts and misdirected themselves in law in arbitrarily reducing the exemption claimed under s.10A from Rs.4,66,82,217/- to Rs.1,71,01,439/- and wrongly sought to fasten tax liability on Rs.2,26,77,094/-.
6.1. As regards two invoices of USD 104850 each in February and March-2011 alleged by the Assessing Officer to be not pertaining to in the FY 2010-11 in question, it was contended that the Assessing Officer has proceeded to discard the invoices mainly on suspicion and conjectures having regard to the outstanding remaining at the end of the year, whereas the fact that the payment has actually been received in the subsequent year has not been disputed. The Ld.AR pointed out that the mere fact that in the case of two invoices, payment has been received
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 14 - after 2-3 months, i.e. in April & June-2011 cannot be a ground to hold that such sum is income relatable to the subsequent year. The Ld.AR submitted that the Assessing Officer cannot step into the shoes of a business man to dictate the terms of payment and it is quite possible to receive the payment little late within 2-3 months. It is the sole prerogative of a business man to decide how many invoices are to be raised in a given month keeping in mind the quantum of services rendered and also having regard to host of various other factors. Assessing Officer cannot hold that if more than one invoice is raised in a month, such invoices are not includible. The Ld.AR pointed out that a reference was made before the lower authorities to the Bank Realization Certificates (BRCs) which establishes the fact that the services have been rendered and payment in lieu of the same has been received as evident from BRCs. Confirmation of the concerned debtor (M/s.Suchita Enterprise Inc.) was also referred to as appearing at page no.63 of the paper-book. It was pointed out that assessee is registered STPI Unit and, therefore, also filed SOFTEX form with STPI wherein disputed turnover for Feb & March-2011 was also shown and declared. The Ld.AR thus submitted that the Assessing Officer has not brought any cogent evidence to hold that concerned two invoices pertained to subsequent year i.e. the year of payment. The Ld.AR contended that in the absence of any evidence to the contrary and in the wake of positive evidences in the form of BRCs etc., the Assessing Officer was not justified in holding that Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 15 - a portion of turnover/income belongs to subsequent year especially when assessee is following mercantile system of accounting.
6.2. Adverting to the second aspect of dispute towards bifurcation of total export turnover, the Ld.AR contended that the Assessing Officer has erroneously held that part of the business was carried out from Mumbai Unit (non-eligible Unit) and accordingly the Assessing Officer has artificially bifurcated total turnover of the assessee carried out from STPI Unit into turnover of STPI Unit (Ahmedabad) and non-STPI Unit (Mumbai) abruptly. It was vehemently exhorted that all the work was carried out from STPI Unit situated at Ahmedabad and the assessee was only looking forward to establish its business in Mumbai. Hence, certain expenses were incurred at Mumbai without any success and the assessee did not in reality conduct any business from Mumbai Unit in the relevant FY. It was pointed out that one Mr. Miresh Shah (one of the employees at Mumbai Unit) had also given an advertisement in Feb-2011 for recruitment for which the invoice is placed on record. This would go to show that assessee was trying to kickstart the Mumbai Unit. The assessee had merely given security for rented premises at Mumbai and incurred some rent expenses. The only expenditure for day-to-day business was of Rs.2,342/- for lease-line connection paid to Airtel which is essential for beginning the business venture. It was thus contended that no day-to-day work was carried out from Mumbai.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 16 - Rather, the entire work was carried out from Ahmedabad Unit which is eligible for exemption under s.10A of the Act. With reference to the telephonic conversation of the Assessing Officer Mr. Miresh Shah, the Ld.AR submitted that the statement of the said employee that there were 20 people working at Mumbai office was the factual scenario on the date of that telephonic conversation at the time of assessment. Notwithstanding, no such statement was provided to the assessee and, therefore, such statement has no probative value for the purposes of evidence against the assessee. The email of Mr.Miresh Shah also does not embody anything against the assessee. The affidavit of Mr. Miresh Shah also denies any such statement to the Assessing Officer concerning the FY 2010-11. It was thus contended that the Assessing Officer committed grave error in holding that assessee has done major work from Mumbai Unit so as to embark in artificial bifurcation of turnover between Mumbai and Ahmedabad Units.
6.3. The Ld.AR thus contended that both adjustment made by the Assessing Officer in the quantum of deduction namely, making artificial reduction in the declare turnover and declared profits on account of inflated debtor and turnover relating to the non-STPI Unit are patently wrong and factually unsustainable. The Ld.AR thus submitted that the action of the Revenue in reducing the claim of exemption requires to be Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 17 - reversed as not being tenable in the eyes of law and the exemption claimed as made by the assessee requires to be restored.
The Ld.DR, on the other hand, relied on the orders of lower authorities and submitted in furtherance that the assessee has concocted the higher Export turnover belonging to subsequent year only to claim deduction under s.10A of the Act. The business carried on from non- eligible unit at Mumbai has also been clubbed with STPI unit in order to claim higher deduction than what is eligible to assessee. The Ld.DR submitted that the Assessing Officer and CIT(A) have dealt with the facts in length.
We have carefully considered the rival submissions. The quantification of deduction under s.10A of the Act claimed by the assessee is in dispute. The assessee has claimed a deduction of Rs.4,66,82,217/- towards exemption/deduction under s.10A of the Act. The Assessing Officer has disputed the quantum of export turnover declared by the assessee for the purposes of computation of deduction and reduced the declared turnover by Rs.93,84,075/- and consequent eligible profit from export to the same extent. This resulted in reduction of eligible claim for the purposes of s.10A of the Act.
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 18 - 8.1. Secondly, the Assessing Officer has also disputed the adjusted total turnover from export to be exclusively relatable to STPI Unit located at Ahmedabad as claimed. It is the case of the Assessing Officer that a substantial part of the turnover relates to Mumbai Unit which is not registered and, therefore, the eligible profits for the purposes of section 10A requires to be further adjusted and reduced to the extent relatable to Mumbai Unit. The Assessing Officer thus reduced the eligible profit from export by Rs.2,26,77,094/- holding the same to be attributable to non eligible unit. As a consequence, the exemption claimed under s.10A was reduced to this extent and the amount of Rs.2,26,77,094/- was brought to tax as taxable business income.
8.2. We shall first address ourselves to the first objection of the Assessing Officer towards credibility of export turnover declared and consequent export profit flowing therefrom. On a perusal of the assessment order, it appears that the Assessing Officer was mainly guided by the fact that while the assessee has received payment against all invoices raised in other months as to instantly with no outstanding, the assessee has not received any payment against two additional invoices raised in Feb-2011 & March-2011 of USD 104850 each equivalent to Rs.93,84,075/- in aggregate. The Assessing Officer has narrated suspicious circumstances for non-accrual of income in the FY 2010-11. It is the case of the Assessing Officer that the invoices, in fact, relate to Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 19 - subsequent assessment year and has been merely predated to claim wrongful exemption under s.10A being the last year of eligibility. The Assessing Officer computed the Gross Profits relating to this year and the subsequent year to prop up its case against the assessee. It is the case of Assessing Officer while the two invoices once taken into account in subsequent year, the realigned GP would be somewhat similar.
8.3. On objective consideration, we note that while it is factually correct that payment for two invoices were not received in the same manner as was received for other invoices raised to its customer, namely; M/s.Suchita Enterprise Inc. this aberration, in our view, cannot be a ground for doubting the invoices itself. The assessee has demonstrated from the ‘Bank Realization Certificates’ (BRCs) issued by the Bank that the assessee has received consideration against the services rendered for the period specified therein which falls in the FY 2010-11. Simply because the payment has been received in the subsequent year would not tantamount to deferral of accrual of income also to the subsequent year. Merely because the deduction under s.10A comes to an end in this year should not necessarily trigger unwarranted suspicion against the assessee. The case made out by the Assessing Officer towards fall in Gross Profit etc. is refutable. It is difficult to dislodge the claim of the assessee based on such shallow evidences. The assessee, on the other hand, requires to be believed on account of reporting the transactions in SOFTEX form
Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 20 - with STPI including this turnover as well as in the light of Bank Realization Certificates placed on record. The adjustment made by the Assessing Officer towards reduction of export turnover and export profits is thus requires to be discarded.
8.4. Turning to the second adjustment for apportionment of turnover between the STPI and Non-STPI Units, we again see no firm basis for such action. The Assessing Officer as well as the CIT(A) has mainly relied upon the telephonic statement of Mr.Miresh Shah (one of the employees of the assessee) taken at the fag end of FY 2013-14, i.e. nearly after a gap of three years. It is the case of the assessee that the statement of the aforesaid employee against the assessee, if any, has not been offered for cross-examination by the Assessing Officer nor the statement was shared. Thus, such non-descript information cannot be used against the assessee. We find merit in such plea which is also supported by the Affidavit of the employee before the CIT(A). The export turnover cannot be bifurcated casually based on some flimsy evidences. The explanation of the assessee that it wanted to expand its foot-prints to Mumbai and for which reason rental property was taken to explore the possibility is quite plausible. An office in non-eligible office/unit in non-eligible area by itself cannot be held against the assessee. The basis of apportionment of turnover between the STPI Unit and non-STPI unit as recorded in para 7.6 of the assessment order is Kunal Chaturbhuj Nagrani vs. ACIT Asst.Year – 2011-12 - 21 - wholly unjustified. The case of the Assessing Officer that sudden rise in turnover with the advent of Mumbai Unit coupled with purchase of assets in Mumbai cannot be a ground for bifurcation of turnover to non-eligible unit The suspicion raised is mother of enquiry. Some enquiry in this direction ought to have been made. In the absence of any further enquiry to establish the carrying of export business from non-eligible unit, the action of the Assessing Officer is farfetched and not sustainable. Therefore, the second ground for reduction of eligible profits and benchmarking of a significant component of profit to non-eligible unit also fails. Thus, we find merit in the case of the assessee for allowability of deduction under s.10A of the Act as claimed. The order of the CIT(A) is set aside and the Assessing Officer is directed to allow the deduction as claimed under s.10A of the Act.
In the result, appeal of the Assessee is allowed.