M/S. ASPIRE SYSTEMS (INDIA) PVT. LTD.,CHENNAI vs. DCIT, CHENNAI

आदेश /O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

The assessee filed this appeal against the order of Commissioner

of Income Tax (Appeals)-1, Chennai in ITA No. 201/15-16 dated 27.06.2016

for assessment year 2009-10.

:-2-: ITA No. 2758/Mds/2016

the business of software development. It filed its return of income for ay

2009-10 on 30.09.2009 claiming deduction u/s 10A . On scrutiny, the original

assessment order was passed u/s 143(3) on 30.12.2011 making disallowances

u/s. 40(a)(i) &u/s 14A. Aggrieved , the assessee filed an appeal before the

CIT(A). The CIT(A) granted relief vide an order dated 11.02.2013. Aggrieved

against that order, the Revenue filed an appeal before the ITAT and the ITAT

vide its order dated 25.02.2015 set aside the order of CIT(A) and remitted the

matter back to the AO to decide the issue after considering the facts.

Subsequently, the AO issued notice u/s 148 dated 29.03. 2014 and

completed the re-assessment u/s 143(3) r.w.s. 147 disallowing thededuction

claimed u/s 10A at Rs.7,33,78,813/- , dated 30.03.2015. The assessee

challenged the reassessment order beforethe CIT(A) pleading that the

reassessment order is based on the change of opinion , hence it is invalid in

law and the deduction claimed u/s 10A should be allowed from the year of

commencement of manufacture and not from the year of incorporation. The

CIT (A) upheld the view taken by the Assessing Officer. Aggrieved, the

assessee filed this appeal with the following grounds:

“1. The order of the Learned Commissioner of Income Tax (Appeals) is contrary to the laws and facts of the case, and is therefore unsustainable. 2. The assessment was concluded without considering all the facts on hand, submissions made during the course of assessment proceedings and therefore the disallowances are not justified in the spirit of law.

:-3-: ITA No. 2758/Mds/2016

engaged in the business of software development and provides complete

lifecycle services, ranging from new product development, product

advancement to product migration, re-engineering, sustenance and support.

He invited our attention to the sequence of events since the date of

incorporation, the relevant portions are extracted as under :

S.No Particulars Date/FY Remarks 1 Date of incorporation 04/08/1998 Falls in AY 1999-2000. 2 Year of commencement of FY 1999- 2000 Falls in AY 2000-2001 development of software 3 Date of filing application 25/02/2000 Falls in AY 2000-2001. before STPI

:-4-: ITA No. 2758/Mds/2016

4 Date of STPI approval 23/03/2000 Falls in AY 2000-2001. 5 Date of issue of Green card 29/03/2000 Falls in AY 2000-2001 from STPI 6 Initial year of claim of FY 1999- 2000 Falls in AY 2000-2001. deduction u/s 10A Return and tax audit report has been filed within the due date. Return was duly processed and Tax audit report was accepted by the department. 10th year of claim of 7 FY 2008- 2009 Falls in AY 2009-2010. deduction u/s 10A

S.No Date Particulars 30th Nov, 2009 1 Return of Income filed after claiming deduction u/s. 10A of Rs. 7,31,70,813/- 25th Aug, 2010 2 Notice u/s. 143(2) was issued 30th Dec, 2011 3 Assessment Order u/s 143(3) was passed making the following disallowance. Particulars Amount in Rs. Disallowance u/s. 40(a)(i) 5,15,04,375/- Disallowance u/s 14A 90,996/- Total 5,15,95,371/- The above order was passed after allowing the claim of deduction of Section 10A to the extent of Rs.7,33,78,813/-.

:-5-: ITA No. 2758/Mds/2016

11th Feb, 2013 4 CIT(A) order was passed deleting the additions made by the Assessing Officer 24th June, 2013 5 Department filed an appeal before Honorable ITAT against the order of CIT(A) 29th March,2014 6 Notice u/s. 148 was issued 08th Oct, 2014 7 Assessing Officer provided reasons for reopening stating that amount of Rs.7,33,78,813/- claimed as deduction u/s 10A has escaped assessment as AY 2009-10 is the 11th year of claim from the year of commencement of business 25th Feb, 2015 8 Hon'ble IT AT through the order, set aside the order of CIT(A) and remitted the matter back to AO to decide the issue after considering the facts involved in the additions made by the Assessing officer. 30th March, 2015 9 Order u/s. 143(3) r.w.s. 147 was passed disallowing the claim of deduction u/s. 10A.

3.1 The AR submitted that the assessee started its undertaking on

04.08.1998 relevant to assessment year 1999-2000, was engaged in the

business of software re-selling and service in web hosting and related

consultancy services up to financial year 1999-2000. During the year 2000

only, it ventured into development of software and related operations and

also got registered with STPI as a 100% EOU for the purpose of export of

software and allied services ie in the assessment year 2000-01. Further, it had obtained import licence on 29th March, 2000 for the purpose of export

:-6-: ITA No. 2758/Mds/2016

and consequently commenced its operations of exports. In other words, the

assessee ventured into the operation of manufacturing software from

assessment year 2000-01only which is also evident from the financials for the

assessment years 1999-2000 and 2000-01, as reflected in the P & L account

for the year ended 31.03.2000, which is extracted as under:

Schedule 31.03.2000 31.03.1999 Income Sales I 554.780 137.250 Service Charges – Domestic J 590.364 123.900 Service Charges – Export K 5,503.575 0 Bank Interest L 21.856 0

Thus , it is pleaded that the deduction u/s. 10A is to be reckoned beginning

with the assessment year in which the undertaking began to manufacture or

produce articles or thing or computer software. Having regard to the above

facts, the assessee claimed deduction u/s. 10A from assessment year 2000-

01only and hence it was eligible for such claim up to this assessment year i.e., 2009-10, being the 10th consecutive year. Relied on the decision of M/s.

North Shore Technologies Pvt. Ltd. vs ITO in ITA No. 5554/Del/2014 dated

07.12.2017 for assessment year 2010-11.Further, the assessee challenged

the validity of reopening the assessment submitting that during regular

assessment , the applicability of the section 10A was raised, analysed and the

assessment was concluded allowing the deduction claimed u/s 10A after

considering the audit report in Form 56F. There is a specific clause for the

:-7-: ITA No. 2758/Mds/2016

number of years for which the deduction is claimed (i.e., clause 8) and the

amount of deduction (i.e., clause 17) in which, the accountant has certified

Rs.7,31,70,813/- as amount of deduction and mentioned the year under

consideration as 10th consecutive year for the claim of deduction. Further, in

Schedule 10A of Income tax Return filed by the assessee, it had claimed

Rs.7,31,70,813/- as deduction u/s 10A. However, the Assessing officer

recomputed the claim available at Rs.7,33,78,813/- in the order u/s 143(3).

In such facts and circumstances, the reopening of the assessment made by

the AO without any fresh material or information is invalid and hence the

assessee pleaded for quashing the re- assessment order. Per contra, the DR

supported the orders of the AO and the CIT(A).

relevant material. It is clear from the above that though the assessee came

into existence on 04.08.1998 and was doing domestic business, during the

year 2000 only it ventured into development of software and related

operations . Further , it got registered with STPI as a 100% EOU for the

purpose of export of software and allied services in the assessment year 2000-01. Further, it had obtained import licence on 29th March, 2000 for the

purpose of export and consequently commenced its operations of exports. In

other words, the assessee ventured into the operation of manufacturing

software from assessment year 2000-01 only. Now , let us examine section

10A which is extracted as under :

:-8-: ITA No. 2758/Mds/2016

“Special provision in respect of newly established undertakings in free trade zone, etc. 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.”

4.1 From the above, it is clear that the benefit of deduction is

available from the profits and gains derived by an undertaking from the

export of articles or things or computer software for a period of ten

consecutive assessment years beginning with the assessment year relevant to

the previous year in which the undertaking begins to manufacture or produce

such articles or things or computer software, as the case may be. In this case,

on the above facts and circumstances, undisputedly, the assessee (the

undertaking) manufactured or produced such articles or things or computer

software, as the case may be, and exported them from assessment year

2000-01 only, as extracted above, and hence it is eligible for such deduction

for a period of ten consecutive ays beginning with ay 2000-01 i.e., up to assessment year 2009-10, ie upto this ay, being the 10th consecutive year.

Therefore, the orders of the lower authorities in this regard are set aside, the

AO is directed to allow the impugned deduction. Corresponding appeal

grounds are allowed.

:-9-: ITA No. 2758/Mds/2016

4.2 On the validity of reopening the assessment, we have considered

the rival submissions. The assessee has taken similar plea before the CIT(A)

and the CIT(A) after examining the submissions and relevant material and the

Explanation u/s 147 , has recorded a finding that on the impugned issue the

AO has not formed any opinion at the time of original assessment, hence

there is no change of opinion and upheld the action of the AO. Since, the

assessee has not laid any material to refute such findings , we do not find

any infirmity in the order of the CIT(A). Corresponding appeal grounds are

dismissed.

Order pronounced on Thursday, the 01st day of February, 2018 at Chennai.

Sd/- Sd/- (धु�वु आर.एलरे"डी) (एसजयरामन) (DUVVURU RL REDDY) (S. JAYARAMAN) $या�यकसद%य/JUDICIAL MEMBER लेखासद%य/Accountant Member

चे�नई/Chennai, 1दनांक/Dated: 01st February, 2018 JPV आदेशक(+�त3ल4पअ5े4षत/Copy to: 1. अपीलाथ'/Appellant 2. +,यथ'/Respondent 3. आयकरआयु6त (अपील)/CIT(A) 4. आयकरआयु6त/CIT 5. 4वभागीय+�त�न�ध/DR 6. गाड9फाईल/GF