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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI GEORGE MATHAN & SHRI INTURI RAMA RAO
आदेश / O R D E R PER BENCH:
Revenue against the Orders of the Commissioner of Income Tax (Appeals)-18, Chennai, in dated 03.10.2017 for the AY 2008-09 and in ITA Nos.220 & 219/15-16 dated 23.10.2017 for the AYs 2012-13 to 2013-14 respectively. ITA Nos.3189 & 3190 to 3191/Chny/2017 are the appeals filed by the Revenue against the Orders of the Commissioner of Income Tax (Appeals)-18, Chennai, in ITA No.223/15-16 dated 27.09.2017 for the AY 2009-10 and in ITA Nos.222 & 221/15-16 dated 27.09.2017 for the AYs 2010-11 to 2011-12 respectively. CO Nos.66 & 67 to 68/Chny/2018 are the Cross-Objections filed by the assessee in ITA Nos.271 & 272 to 273/Chny/2018 for the AYs 2008-09 & 2012-13 to 2013-14 respectively. CO Nos.44 to 46/Chny/2018 are the Cross-Objections filed by the assessee in ITA Nos.3189 to 3191/Chny/2017 for the AYs 2009-10 to 2011-12 respectively.
Shri Sailendra Mamidi, PCIT, represented on behalf of the Revenue and Shri R.Venkatesh, CA, represented on behalf of the assessee.
The Cross-Objections filed by the assessee in CO Nos.44 to 46/Chny/2018 for the AYs 2009-10 to 2011-12 are belated by ‘06’ days, for which, the assessee has not filed any petition nor affidavit for ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 3 -:
condonation of delay. Consequently, the Cross-Objections filed by the assessee in CO Nos.44 to 46/Chny/2018 are dismissed on account of delay. In respect of Cross-Objection Nos.66 to 68/Chny/2018, it was submitted that the Cross-Objections were in support of the order of the Ld.CIT(A).
In respect of Revenue appeals, it was submitted by the Ld.DR that there are two issues involved in these appeals. In respect of AYs 2008-09 & 2009-10 to 2011-12 being in & ITA Nos.3189 to 3191/Chny/2017, the issue was against the action of the Ld.CIT(A) in deleting the additions made on account of the exemption claimed u/s.10A on the ground that there was no incriminating material found in the course of search. It was submitted that the second issue related to the AYs 2010-11, 2011-12, 2012-13 & 2013-14 represented by ITA Nos.3190 & 3191/Chny/2017 & ITA Nos.272 & 273/Chny/2018 respectively. It was a submission that the issue was against the action of the Ld.CIT(A) in restricting the disallowance made by the AO u/s.14A r.w.r.8D to the extent of exempt income earned by the assessee. It was submitted by the Ld.DR that in respect of the first issue being the claim of deduction u/s.10A, it was a submission that there was a search on the premises of the assessee on 11.10.2012, notice u/s.153A was issued on the assessee on 30.01.2015 and the assessment came to be completed u/s.153A & 153C r.w.s.143(3) on 31.03.2015. It was a submission that in the course
ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 4 -: of search, it was noticed that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce and the expenses incurred for the purpose of doing the so called data processing work also suggested that these have not been expended for the purpose of software business activity undertaken by the assessee. It was a submission that consequently, the AO had rejected the assessee’s claim of deduction u/s.10A. In the course of assessment for the AYs 2008-09, 2009-10, 2010-11 & 2011-12, the assessee was asked to produce the specific details of inputs received from M/s.Sindia Software Co., for processing and output produced from the assessee’s side. It was a submission that the assessee did not produce any substantial proof for the processing work and the assessee had claimed that the assessee company was prevented by the confidentiality clause of the agreement entered into with M/s.Sindia Software Co. It was a submission that the AO had also in the course of assessment asked for the evidence in the form of the approval from the competent board for the eligibility u/s.10A which was also not produced. The assessee had also not produced nor disclosed the nature of the software development activity done by the assessee. Consequently, the AO on account of non-production of any details to counter the evidence found in the course of search that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce, denied the benefit of exemption u/s.10A as claimed by the assessee. It was submitted by the ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 5 -:
Ld.DR that the Ld.CIT(A) had held that the assessee was entitled to the deduction u/s.10A on the ground that for all the earlier assessments including the original assessment in respect of the impugned Assessment Year had been completed accepting the claim of the assessee made u/s.10A as also on the ground that no incriminating documents have been unearthed at the time of search. Consequently, the Ld.CIT(A) directed the AO to delete the additions made on account of the exemption claimed u/s.10A. It was a submission that the Ld.CIT(A) failed to appreciate that in the course of search, it had come to light that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce. This was the incriminating material which had lead to the denial of the deduction u/s.10A of the Act. It was a submission that no evidence had been produced before the AO nor before the Ld.CIT(A) to counter the fact that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce, which became evident on account of search conducted on 11.10.2012. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.
In reply, it was submitted by the Ld.AR that there was no seized material, which is incriminating, which has been found in the course of search. It was a submission that the assessee had in fact produced the softext form which showed the export of the software, the annual report
ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 6 -: of the STPI and the balance sheet clearly shows that the assessee had received the foreign exchange on account of the export of the software. It is an admitted fact that there has been a manufacture and export of the software which clearly shows that the assessee was entitled to the deduction u/s.10A as claimed. It was a submission that in the absence of any incriminating material having been found in the course of search, no addition was liable to be made by disallowing the claim of deduction u/s.10A of the Act.
We have considered the rival submissions.
At the outset, it was specifically asked as to whether there was any statements recorded in the course of search, to which, it was submitted by the Ld.AR that the statements had been recorded but it was not relevant and consequently, the same have not been produced. A perusal of the Para No.7.4 of the Assessment Order clearly shows that the AO has categorically recorded that in the course of search proceedings conducted on 11.10.2012, it is revealed that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce. When such specific findings is there in the Assessment Order and when the AO has also categorically asked the assessee to produce the specific details of the inputs received from M/s.Sindia Software Co., the assessee tries to hide behind the protection
ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 7 -: of the confidentiality clause of the agreement entered into with M/s.Sindia Software Co. What is the so called confidentiality that would be violated by production before the tax authorities, the agreements have also not been explained. When the assessee has been asked to produce the approval granted by the Development Commissioner and such approval ratified by the Board of approval for EOU Scheme, such evidences are also not produced. Thus, clearly the assessee has not been able to dislodge the categorical findings given by the AO in his Assessment Order that the search proceedings has revealed that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce. What more is the incriminating material that is required? The incriminating material has been found in the course of search and when further evidences to support the claim of the assessee is called for, the assessee hides behind various smoke screens and tries to raise the issue that there is no incriminating material. When such a finding is categorically there in the Assessment Order and such finding has not been disproved or dislodged, clearly, the findings of the Ld.CIT(A) that there was no incriminating material found/unearthed at the time of search is unsustainable. The production of the softext form only shows the export of the software so also the annual report and the balance sheet shows the receipt of the money but the primary condition for the denial of the claim of deduction u/s.10A is that the data processing was not carried on from the office premises, for which, the approval was granted by the ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 8 -:
Ministry of Commerce. The assessee could very well have got done the job elsewhere and exported the products and obtained the softext form.
That would not entitle the benefit of deduction u/s.10A of the Act. In the absence of any evidence having been produced by the assessee to rebut the findings of the fact as arrived at by the AO in his Assessment Order as also on the account of the fact the assessee has not produced any evidence to support its claim of deduction u/s.10A, especially when the search proceedings had revealed that the data processing was not carried on from the office premises, for which, the approval was granted by the Ministry of Commerce, we are of the view that the order of the Ld.CIT(A) directing the AO to grant the deduction u/s.10A is unsustainable and is liable to be reversed and we do so.
In Para No.9.4 of the order of the Ld.CIT(A), the Ld.CIT(A) has taken a stand that for all the earlier assessments including the original assessment in respect of the impugned Assessment Year had been completed accepting the claim of the assessee made u/s.10A of the Act.
This would be in no way helpful in so far as in respect of all the earlier assessments including the original assessment in the impugned Assessment Year, the paper work would have been perfect but the search conducted on 11.10.2012 has revealed that the primary condition for allowance of the claim of deduction u/s.10A had been violated. In these
ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 9 -: circumstances, the order of the Ld.CIT(A) granting the assessee the benefit of exemption u/s.10A stands reversed and that of the AO restored.
In respect of the addition which has been deleted by the Ld.CIT(A) in respect of the provisions of Sec.14A r.w.r.8D by restricting the disallowance to the quantum of the exempt income received, it was fairly agreed by both the sides that the issue was now squarely covered by the decision of the Hon’ble Delhi High Court in the case of M/s.Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 694 (Delhi), wherein, it has been held that the disallowance u/s.14A r.w.r.8D should be restricted to the extent of exempt income earned. In these circumstances, respectfully following the principles laid down by the Hon’ble Delhi High Court in the case of M/s.Joint Investments Pvt. Ltd. vs. CIT, referred to supra, the findings of the Ld.CIT(A) stands confirmed.
In the result, the appeals filed by the Revenue in for the AY 2008-09 & ITA No.3189/Chny/2017 for the AY 2009-10 are allowed and in ITA Nos.3190 & 3191/Chny/2017 for the AYs 2010-11 & 2011-12 are partly allowed and in ITA Nos.272 & 273/Chny/2018 for the AYs 2012-13 & 2013-14 are dismissed. The Cross- Objections filed by the assessee in CO Nos.44 to 46/Chny/2018 for the AYs 2009-10 to 2011-12 are dismissed on account of delay. The Cross- Objection filed by the assessee in CO No.66/Chny/2018 for the AY 2008-
ITA Nos.271-273/Chny/2018 CO Nos.66-68/Chny/2018 & CO Nos.44-46/Chny/2018 :- 10 -: 09 is in support of the order of the Ld.CIT(A). As we have already reversed the order of the Ld.CIT(A) in the Cross- Objection filed by the assessee in CO No.66/Chny/2018 stands dismissed.
The Cross-Objections filed by the assessee in CO Nos.67 & 68/Chny/2018 for the AYs 2012-13 & 2013-14 are in support of the order of the Ld.CIT(A). As we have already upheld the order of the Ld.CIT(A) in & 273/Chny/2018 for the AYs 2012-13 & 2013-14, the Cross- Objections filed by the assessee in CO Nos.67 & 68/Chny/2018 for the AYs 2012-13 & 2013-14 are dismissed as infructuous.
Order pronounced on the 30th July, 2019 in Chennai.