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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year [AY] 2011-12 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-41 [CIT(A)], Mumbai, Appeal No.CIT(A)-41[34]/IT-140/14-15 dated 30/03/2016 by raising following grounds of appeal: - Ajay Agarwal (HUF) Assessment Year-2011-12 1. “Whether on the facts and circumstances of the case, and in law the Ld. CIT(A) erred in allowing deduction u/s.10A of the act, 1961 ignoring the fact that the assessee is not entitled to the claim of deduction u/s.10A in respect of production of PC Engine software for the reason that the said unit is neither separate and has a distinct identity but was a mere expansion of the existing business for computing deduction u/s. 10 of the Act?” 2. “Whether on the facts and circumstances of the case, and in law the Ld. CIT(A) erred in allowing deduction u/s.10A of the Act, 1961 and has not given significance importance to the deposition made by the Team Leader, Shri Suhas Kate, who has admitted that the basic engine of the software which forms core of the software was developed at Mumbai and is brought to Dehradun in a hard disc for further development. Further, the assessee himself has admitted that half portion of the software was developed in Mumbai?” 3. “Whether on the facts and circumstances of the case, and in law the Ld. CIT(A) failed to appreciate the fact that the assessee has made super abnormal profit, i.e., more than 97.5% with a meager expenses shown at the STPI Dehradun?”
4. The appellant prays that the order of the CIT(A) be set aside and matter may be decided according to law. The appellant craves leave to amend or alter any ground or add new ground which may be necessary.
The assessment for impugned Assessment Year was framed by Ld. Income Tax Officer-24(1)(3), Mumbai u/s 143(3) of the Income Tax Act,1961 on 30/03/2014 wherein the assessee has been denied deduction u/s 10A for Rs.57.21 Crores, which is subject matter of dispute before us. 2.1 The assessee, being resident HUF, was engaged in trading of mobile accessories under proprietorship concern namely Jansi Trading Co. and development of software under proprietorship concern namely E-mac Technologies. A net loss of Rs.74 Lacs was reflected from Jansi Trading Co. during impugned AY which, after disallowance of VAT penalty of Rs.76.21 Lacs, has been reflected at a profit of Rs.2.23 Lacs. The other proprietorship concern namely M/s E-Mac Technologies was a 100% Export Software EOU registered with Software Technology Parks of India, Dehradun [STPI] wherein a profit of Rs.57.21 Crores has been reflected Ajay Agarwal (HUF) Assessment Year-2011-12 against export turnover of Rs.58.81 Crores, which translates into net profit rate of 97.3%. This export income has been claimed as deduction u/s 10A. 2.2 The Ld. AO, after considering the three reports dated 14/12/2011, 19/12/2011 & 21/12/2011 of the commission u/s 131(d), was not convinced with the claim of the assessee u/s 10A for several reasons, which are extracted at para 5.3 & 5.4 of the quantum assessment order. Finally, the deduction of Rs.57.21 Crores as claimed u/s 10A was denied to the assessee.
Aggrieved, the assessee contested the same with success before Ld. CIT(A) vide impugned order dated 30/03/2016 wherein Ld. CIT(A), relying upon the decision of its predecessor dated 05/12/2014 for AY 2010-11 in assessee’s own case, granted relief to the assessee. The aforesaid decision of Ld. CIT(A) for AY 2010-11, in turn, placed reliance on the decision of this Tribunal in assessee’s own case for AY 2009-10, dated 25/07/2014. Aggrieved, the revenue is in further appeal before us. We have heard the submissions of respective representatives.
So far as the claim of the assessee u/s 10A is concerned, the Ld. Authorized Representative for Assessee [AR], Shri Rahul Hakani, at the outset, drew our attention to the fact that the case of the assessee is squarely covered by the aforesaid decision of this Tribunal for AY 2009-10. It was further submitted that the revenue challenged the aforesaid decision of the Tribunal without any success before Hon’ble Bombay High Court vide Ajay Agarwal (HUF) Assessment Year-2011-12 of 2015, dated 12/12/2017 wherein the revenue’s appeal has dismissed, finding no substantial question of law. The copy of the same has been placed on record. The Ld. DR, Shri Rajesh Kumar Yadav, fairly conceded the aforesaid position.
We have considered the aforesaid decision of this Tribunal in assessee’s own case for AY 2009-10 wherein the claim of the assessee u/s 10A, under identical factual matrix, has been allowed by the Tribunal. The revenue’s appeal against the same has not been admitted by Hon’ble Bombay High Court by observing as under:- 7. We find that the impugned order itself records the fact that it is undisputed position before the Tribunal that there is a unit at Malad which has developed basic engine and there is another unit at Dehradun, STPI, where the PC suit Software Chip was developed and exported. Consequently, in the face of the above accepted position, the submissions of the revenue that there is no unit at Dehradun is unsustainable.
So far as the second contention of the Revenue viz. Dehradun Unit is mere extension of Malad, Mumbai Unit is concerned, we find that the Tribunal has rendered a finding of fact that the basic engine facility was developed at Mumbai. Thereafter this basic engine was taken to the Dehradun Unit and developed into separate, intelligent and superior software known as PC Suit Software. This development of the software was done admittedly at Dehradun as the Tribunal itself records undisputed position that only basic engine was developed at Mumbai and the PC Suit Software which is distinct software was developed at STPI, Dehradun. This software was exported and benefit of Section 10A of the Act is claimed in respect of the Dehradun unit which has developed the software and exported it. Therefore, from the above it is clear that a separate activity was performed at Dehradun Unit at STPI. The Tribunal records the fact that separate activity was performed at Dehradun Unit at STPI and it is a distinct activity from the manufacture of basic engine which was done at Mumbai. This is essentially a finding of fact of the Tribunal and not shown to be perverse warranting our interference.
The last contention on behalf of the Revenue is that as third party tools were employed by the Respondent- Assessee, it would lose the benefit under Section 10A of the Act. No such bar under Section 10A of the Act on user of the third party tools has been shown to us. This is different from outsourcing the entire Ajay Agarwal (HUF) Assessment Year-2011-12 work of developing the software to third parties. This is even not the case of the Revenue. In any event the impugned order records the STPI park itself makes Internet sites available for free and such sites would become a part of the product development. These sites are in nature of digital library where the units in the STPI are permitted to have free access to the Internet, digital libraries and other computer peripherals. These facilities available at the Dehradun STPI were used by the Respondent – Assessee so as to develop the PC Suit Software Chip. Therefore, this finding of the Tribunal is essentially a finding of the fact and not shown to be perverse.
From the above, it is very clear that the finding recorded by the impugned order of the Tribunal is essentially findings of fact which are not shown to be perverse and / or arbitrary. It must be pointed out that it is not the case of the Revenue before us that any particular provision of Section 10A of the Act has been violated and / or breached by the Respondent.
Accordingly, the question as proposed does not give rise to any substantial question of law.
Thus Appeal is dismissed. No order as to costs.
In view of the admitted position, Ground Numbers 1 & 2 of the appeal stand dismissed.
However, so far as the quantum of deduction u/s 10A is concerned, it is evident from the quantum assessment order that the assessee has reflected very high net profit rate of 97.5% against export turnover, which is difficult to comprehend. No convincing / plausible explanation, in this regard, is available on record and this issue has remained un-addressed before us also. The quantum assessment order records a finding that the assessee has claimed very meager expenses as compared to the income which is highly impossible. Therefore, in view of the aforesaid fact, we deem it fit to restore the matter back to the file of Ld. AO to appreciate the nature of exports done by the assessee, costs involved therein and the extent of profit margins in this line of business. The assessee, in turn, is Ajay Agarwal (HUF) Assessment Year-2011-12 directed to substantiate the same with requisite documentary evidences & explanation. Ground No. 3 stand allowed for statistical purposes. Ground No. 4 is general in nature.
Resultantly, the assessee’s appeal stand partly allowed for statistical purposes in terms of our above order. Order pronounced in the open court on 11th July,2018 Sd/- Sd/- (C.N.Prasad) (Manoj Kumar Aggarwal) �ाियक सद� / Judicial Member लेखा सद� / Accountant Member मुंबई Mumbai; �दनांक Dated : 11.07.2018 Sr.PS:-Thirumalesh