INCOME TAX OFFICER 41(3)(1), MUMBAI, MUMBAI vs. AJJAY AGARWAL (HUF), MUMBAI
Facts
The Revenue filed an appeal against the order of the Ld. CIT(A) who deleted the disallowance of exemption claimed under section 10A. The assessee, engaged in software development and export, claimed a deduction under section 10A based on exceptionally high profits (around 97-98%) with minimal expenses, which the Assessing Officer disallowed. The CIT(A) had deleted this disallowance, leading to the present appeal by the Revenue.
Held
The Tribunal noted the 'super abnormal profit' and the lack of patenting or copyright for the software, suggesting it was not genuinely developed. The Tribunal also found that the assessee was not cooperative and the CIT(A) did not consider the factual matrix properly. Relying on the principle of consistency but acknowledging its non-applicability in tax matters, the Tribunal decided to apply benchmarking and remitted the matter to the AO for a thorough investigation.
Key Issues
Whether the assessee is eligible for deduction under Section 10A of the Income Tax Act, 1961, considering the 'super abnormal profits' and lack of substantiation regarding the software development.
Sections Cited
Section 10A, Section 143(3), Section 250, Section 254
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI GAGAN GOYAL
PER ANIKESH BANERJEE, J.M:
Instant appeal of the Revenue was filed against the order of the Ld. National Faceless Appeal Centre, Delhi *in short, ‘Ld.CIT(A)’+, date of order 29/09/2023 for A.Y. 2011-12 order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’;).The impugned order was emanated from the order of the Ld. Income Tax Officer-30(1)(1), Mumbai (in short, ‘the A.O.’) passed under section 143(3) r.w.s. 254 of the Act date of order 30/12/2019.
2 ITA No.4295/Mum/2023 Ajay R. Agrawal 2. The department has taken the following grounds of appeal:-
“1. On the facts and circumstances of the case and in law, the Id. CIT(A) erred in holding that an issue (of allowability of exemption u/s 10A) which is settled in Assessee's favour by the Hon'ble Supreme Court in AY 2012-13 cannot be decided against him in AY 2011-12 and thereby failed to appreciate that facts in A.Y 2011-12 are different inasmuch as that the ITAT set aside the issue of quantum of exemption u/s 10A after accepting the Revenue's ground that 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.
On the facts and circumstances of the case and in law, the Id. CIT(A) erred in holding that the AO was not justified in disallowing the entire exemption of Rs.57.21 crores claimed u/s 10A by the assessee, without appreciating that on the issue of abnormally high net profit / meager expenditure shown by assessee, the ITATs direction setting aside the matter to the file of the AO, to verify nature of exports done by assessee, costs involved therein and extent of profit margins in the line of assessee's business did not place any explicit or implied bar or fetters on the power of the AO for making disallowance of the entire exemption u/s 10A amounting to Rs.57.21 crores in the order passed u/s 143 (3) r.w.s 254 of the Act.
On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of exemption u/s 10A disregarding the fact that despite ample opportunities given to it, the assessee merely explained processes of software development etc, but completely failed to submit relevant details and supporting documentary evidences to justify the abnormally high profit due to non incurring of expenditure in its business of software development and export, thus leaving the AO with no choice but to disallow the entire claim of exemption u/s 10A.
without prejudice to grounds 1 and 2 above and on the facts and circumstances of the case and in law, the ld.CIT (A) erred in deleting the entire disallowance of exemption u/s 10A instead of calling for and directing verification of such details and supporting evidences which the assessee failed to submit to the AO.”
Brief facts of the case are that the assessee is HUF and is engaged in trading business mobile accessories under the trade name of M/s. Jansi Trading Company. The appellant is also running business in development of software under name and style of M/s. E-Mac Technologies which is a 100% EOU registered with STPL (Software Technology of India bracket close, Dehradun. In the impugned assessment year, the assessee filed return of income showing the total income of Rs. 1, 15,563. During the impugned assessment year, the assessee
3 ITA No.4295/Mum/2023 Ajay R. Agrawal credited export-turnover amount to Rs. 58, 81, 01,027/- under M/s E-Mac Technologies and the profit was earned Rs. 57, 21, 87,738/- which is at the rate of 97.8%. The assessee claimed deduction U/s. 10A of the Act. Considering the huge profit in the business the ld. AO initiated the scrutiny proceeding. On request of the ld. AO, the ADIT (Inv) Unit-1, Dehradun had conducted inquiry and submitted the three reports. After considering the report the ld. AO had rejected the deduction claimed U/s. 10A and added back total profit amount of Rs. 57,21,87,738/- with the total income of the assessee. Being aggrieved the assessee filed an appeal before the ld. CIT (A). After considering the submission of assessee, the ld. CIT (A) dismissed the addition and restored the eligibility of deduction U/s. 10A of the Act. Being aggrieved the revenue has filed appeal before us by challenging the appeal order.
The ld. AR vehemently argued and filed a written submission which is kept in the record (in short APB). The ld. AR in argument placed that the assessee was running specialised business and have some professional competency for this software business. Accordingly, very minimum cost the export business was continuing. Only from A.Y. 2009-10 the assessee has been claiming deduction U/s. 10A of the Act. Ld. AR placed that the issue was duly covered by the assessee’s own case ITA No 770/Mum/2015 date of pronouncement 23/01/2019 for A.Y. 2010-11. The relevant paragraph is reproduced as below: -
“As is clear from the findings the Ld. CIT(A) that the Ld. CIT(A) has decided the issue involved in this case by following the decision of the coordinate Bench rendered in the assessee's own case for the A.Y. 2009-10. Further, the Hon'ble Bombay High Court has dismissed the appeal No. 554 of 2015 filed by the revenue against the findings of the Tribunal pertaining to the A.Υ. 2009-10.
4 ITA No.4295/Mum/2023 Ajay R. Agrawal Since, the decision of the Ld.CIT (A) is based on the findings of the coordinate Bench which has been upheld by the Hon'ble Bombay High Court, we do not find any infirmity in the order passed by the Ld. CIT (A). We accordingly upheld the findings of the Ld. CIT (A) and dismiss all the grounds of appeal of the revenue.” 5. The ld. AR further argued that during assessment the number of submissions is filed before the ld. AO which are annexed in APB 62 to 248. The copies of ledger account of exports, invoices of exports, purchase orders from SOFTEX and details of Import Export Certificates are annexed in APB 486-517. The ld. AR mentioned that relevant documents are submitted before the ld. AO. There is no question about rejection of eligibility of deduction U/s. 10A of the Act.
The ld. AR invited our attention in assessee’s own case of ITAT-Mumbai Bench “A” for AY 2009-10, bearing ITA No- 295/Mum/2014 date of pronouncement 25- 07-2014. The relevant paragraphs are reproduced below.
Adverting our attention to the legality of commission under section 131(l)(d). The commission was issued by the AO and as a consequence of which, the Asst. DI and ITIs made on site enquiry and formed/submitted a report. Thereafter another report was submitted and then the DIT (Inv) sent his report with the direction as to how the assessment is to be proceeded with. This part was not only diametrically opposite from the first report but also illegal, because, under the commission, no direction can be given to the AO. The commission has to be read as a report only. Section 131 reads asunder,
131(1) The Assessing Officer, Deputy Commissioner (Appeals), [Joint Commissioner, Commissioner (Appeals), Chief Commissioner or Commissioner and the Dispute Resolution Panel referred to in clause (a) of sub-section (15) of section 144-C shall, for the purposes of this Act, have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely:- (a) Discovery and inspection;
5 ITA No.4295/Mum/2023 Ajay R. Agrawal (b)enforcing the attendance of any person, including any officer of a banking company and examining him on oath; (c) Compelling the production of books of account and other documents; and (D )issuing commissions. xxxxxxxxxxxxxxxxxxxxxxxxxxxx
Issuing commission tails under Order XXVI of Civil Procedure Code, where Rules 1 to 4A are relevant. Nowhere in any Rule, as mentioned above, prescribes that a direction could be given, tis to how to conduct the trial. Even Rules 10 to 14, does not authorizes the person to whom the commission has been made to take any decision.
On the contrary, the decision-making authority, under Order XXVI is the person who has instituted the commission, which, in the instant case is the AO. But we have found that it is the Dl (Inv), Kanpur, who gave instructions as to how the assessment had to be framed. This, in our opinion, is against law.
in such a circumstance, we hold that the final report by the DIT (Inv) on whose direction the assessment order has been framed is illegal. But by holding that the commission report by DI (Inv) on whose basis the assessment was made as illegal, shall not render the assessment to be illegal, because the first two reports are legal and the final report does not say that it is in continuation of the first two reports. The report by DI (Inv), Dehradun, being an independent report, wherein the DI has used his authority, by negating the reports submitted by the officers, to whom the commission was actually issued. It is also seen that the DI (Inv), Lucknow completely ignored all evidences, statement and affidavit sworn by the technical person, Mr. Kate and basing the grounds for disallowances taking up frivolous issues.
we therefore, hold that the report of DI (Inv) has to be ignored as being illegal.
This also become infructuous, because, we have in any case based our decision on the facts emerging from the orders of the revenue authorities and other evidences, had written submissions before the CIT (A) cited case laws.
In the result, the appeal as filed by the assessee is allowed.”
6 ITA No.4295/Mum/2023 Ajay R. Agrawal 6. The ld. DR vehemently argued and placed the financial report of the assessee for impugned assessment year. The same is extracted below: -
Financial Statement F/B M/s. E-Mac Technologies Profit & Loss A/c. for the year ended 31stMarch, 2011 Particulars Amount Particulars Amount To Professional Charges 3,502,000 By Software Export Sales 588,101,027 To Salary & Bonus 2,202,938 To Exchange Gain/Loss 7,640,131 To Audit Fees 100,000 To Bank Charges 51,251 To Staff Welfare Exp. 73,627 To Electricity Charges 689 To Conveyance Exp. 1,951 To Telephone Charges 5,381 To Depreciation 288,288 To Vehicle Exps. 74,272 To Insurance Exp. 30,329 To Printing & Stationery 933 To Internet Charges 74,484 To Repairs & Maintenance 4,917 To Travelling Exp. 293,751 To Postage & Telegram Exp. 1,373 To Miscellaneous Exp. 16,370 To Business Promotion Exp. 1,326,713 To Rent Rates & Taxes 797,388 To Donation 260,000 To Office Exp. 26,503 To Net Profit 571,327,738 Total Rs. 588,101,027 Total Rs. 588,101,027
The ld. DR mentioned in huge transactions the expenses are very low which ‘super abnormal profit’ is. During assessment proceedings, no documents were filed by the assessee properly for verification. The relevant paragraphs of page 16 of assessment order dated 30/03/2014 is reproduced as below: -
7 ITA No.4295/Mum/2023 Ajay R. Agrawal “19………………………………………. “20. Needless to say that income tax proceedings are civil proceedings and the degree of proof required is by preponderance of probabilities, therefore, applying the test of preponderance of probabilities and considering the entire sequence of events, the revenue authorities have rightly concluded that the assessee's claim about the long term capital gains from the sale of shares is not genuine."
Hence, the Hon'ble Supreme Court in the case of Durga Prasad More 82 ITR 540 and in the case of Sumati Dayal 214 ITR 801 has held that test of human probabilities should not be applied to verify whether any transactions is real or an attempt has been made to give it a colour of reality, in the case of the assessee, an attempt has been made to give color of reality to the transactions. In the case of the assessee, It is claimed that turnover of Rs. 58, 81, 01,027/- was obtained with nominal electricity consumption of Rs. 57/- per month. It is also claimed that the software yielding such a massive turnover was developed with the help of 3 software engineers whose total salary was approximately Rs. 80,000/- per month. It defies common logic. If the assessee would have actually developed any software, then electricity bill of air conditioning alone would have exceeded Rs. 1,000 per month and salary expenditure on software engineers would have been very high. If the assessee, is actually in business of software development, which yielded its revenue of Rs.58,81,01.027/. In the Financial Year 2011-12, then it would have incurred substantially much more expenditure in electricity and salary than actually incurred.
Another important aspect is patent and copy rights of the software. The assessee has claimed to have developed software which yielded its revenue of Rs.21.2 crores in the A.Y 2011- 12 F.Y.2008-09, Rs.161.1 crores in financial year 2009-10 and Rs.58.81 crores in F. Y.2010-11
8 ITA No.4295/Mum/2023 Ajay R. Agrawal giving it more than 97% net profit for the Financial Year 2010-11. Even for any big information technology company, this amount is a huge amount and particularly when the software is giving almost 97% of net profit with negligible expenses. What would be the first step that any person who has developed the software will take? Obviously to get the software patented and obtain copy rights. However, no such patenting was done by the assessee nor any copy rights were obtained. It proves that no such software was developed by the assessee which could have given assessee such huge revenue.”
The ld. DR placed our attention in assessment order dated 30/12/2019. The relevant paragraphs are enclosed here with.
“Aggrieved by the decision of Ld CIT(A) revenue filed an appeal before ITAT and Hon'ble ITAT upheld the decision considering that this Tribunal in assesses own case for AY 2009-10 has allowed the claim of the assessee u/s10A and accordingly dismissed the revenue appeal. However, at para 6 of the Hon'ble ITAT order No.TTA No.3358/Mum/2016 dated 11/7/2018 has restored the matter back to the file of AO. The said para 6 are reproduced as under:-
“However, so far as the quantum of deduction u/s10A 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 u$ 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 directed to substantiate the same with requisite documentary evidences & explanation.”
Accordingly, this office issued notice u/s 143(2) dated 15,1.2.019 requiring assessee or his representative to attend office on 25/1/2019.The said notice was
9 ITA No.4295/Mum/2023 Ajay R. Agrawal duly served on the assessee and assesses representative also acknowledge the same. Assesses representative vide his reply Setter dated 28/1/2019 furnished the documents such as audited account, computation of incorrect and acknowledgment of return. In the mean time, notice u/s 133(6) dated 22/1/2019 to the Joint Director of STPI (Software Technology Parks of India), Dehradun, Uttarakhand requiring to provide the following details:-
Inward clearing of goods brought in by M/s E-Mac Technology. Copies of all documents for the purpose of inward & outward goods for the export submitted by M/s E-Mac Technology. Periodical account submitted by M/s E-Mac Technology. Details of performance review done by STPI.”
We heard then rival submission and considered the documents avail in the record. The assessee had yielded its revenue of Rs. 58, 81, 01, 027/- and generated net profit @97%. The assessee had continued the business only for 3-4 years. In fact, the ld. DR has pointed out the abnormality in the financial statement of assessee. The ld. DR mentioned the net profit of the assessee as “super abnormal profit”. The ld. AR respectfully relied on assessee’s own case for AY 2010-11 of ITAT-Mumbai bench which was relied on the order of the ITAT Mumbai Bench for AY 2009-10 (supra). The ITAT-Order for AY 2009-10 is not similar in factual matrix with impugned appeal. For A/Y 2009-10 is related to rejection of reopening on basis of the report of the Investigation Unit. So, the ITAT order of earlier year’s are unable to strengthening the assessee’s own case. The impugned order is not covered with the orders of coordinate bench of ITAT- Mumbai passed in earlier years. The ld. AR has taken our attention in assessee’s own case bearing ITA No 3358/Mum/2016 date of pronouncement 11/07/2018. The relevant paragraphs are reproduced as below: -
10 ITA No.4295/Mum/2023 Ajay R. Agrawal “6. 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 Assessment Year-2011-12 directed to substantiate the same with requisite documentary evidence & explanation. Ground No. 3 stand allowed for statistical purposes. Ground No. 4 is general in nature.”
In our considered view the assessee had generated “super abnormal profit”. The ld. AO in the order of assessment has not verified the export properly. The revenue claimed that the assessee was not cooperative during the assessment proceedings. The ld. CIT (A) has not considered the issue in the light of factual matrix. As far as the legal issue involved in this matter are almost settled by virtue of various orders of Coordinate Benches and Hon’ble High Court and Hon’ble Supreme Court. The basic issue before us or even before any layman would be the unbelievable super abnormal profits earned by the assessee in the export of software. It is observed that this case is fit for benchmarking of the financial results declared by the assessee, which is missing in the order of AO as well as the Ld. CIT (A). The issue involved is of recurring in nature i.e. every year the same issue is being raised by the revenue and is a bone of contentions.
11 ITA No.4295/Mum/2023 Ajay R. Agrawal 8. The principle of consistency is paramount but this is also true that principle of res judicata is not applicable in the matters of income tax. Especially on the facts, we are dealing with. We have thoroughly considered the previous appeal orders of Coordinate Benches and Hon’ble Jurisdictional High Court and Hon’ble Supreme Court; they are primarily on the legality of the matter, but the issue of super abnormal profit was never in consideration or discussed elaborately. The conduct of the assessee became further suspicious as the assessee discontinued the business w.e.f. A.Y. 2012-13. As the A.Y. 2012-13 was the last year to claim deduction u/s. 10A, proviso 4 of the Act. Looking at various conditions provided in section 10A of the Act, we deem it fit to reproduce the relevant provisions of section 10A of the Act as under:-
Section - 10A, Income-tax Act, 1961 - FA, 2023 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: Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years: Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the undertaking began to manufacture
12 ITA No.4295/Mum/2023 Ajay R. Agrawal or produce such articles or things or computer software in such free trade zone or export processing zone : Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software. Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. (1A) Notwithstanding anything contained in sub-section (1), the deduction, in computing the total income of an undertaking, which begins to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,—
(i) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five 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, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter;
(ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the "Special Economic Zone Re-investment Allowance Reserve Account") to be created and utilized for the purposes of the business of the assessee in the manner laid down in sub-section (1B) :
Provided that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139. (1B) the deduction under clause (ii) of sub-section (1A) shall be allowed only if the following conditions are fulfilled, namely:—
(a) the amount credited to the Special Economic Zone Re-investment Allowance Reserve Account is to be utilized—
(i) for the purposes of acquiring new machinery or plant which is first put to use
13 ITA No.4295/Mum/2023 Ajay R. Agrawal before the expiry of a period of three years next following the previous year in which the reserve was created; and
(ii) until the acquisition of new machinery or plant as aforesaid, for the purposes of the business of the undertaking other than for distribution by way of dividends or profits or for remittance outside India as profits or for the creation of any asset outside India;
(b) the particulars, as may be prescribed in this behalf, have been furnished by the assessee in respect of new machinery or plant along with the return of income for the assessment year relevant to the previous year in which such plant or machinery was first put to use.
(1C) Where any amount credited to the Special Economic Zone Re-investment Allowance Reserve Account under clause (ii) of sub-section (1A),—
(a) has been utilized for any purpose other than those referred to in sub-section (1B), the amount so utilized; or
(b) has not been utilized before the expiry of the period specified in sub-clause (i) of clause (a) of sub-section (1B), the amount not so utilized, Shall be deemed to be the profits,—
(i) in a case referred to in clause (a), in the year in which the amount was so utilized; or
(ii) in a case referred to in clause (b), in the year immediately following the period of three years specified in sub-clause (i) of clause (a) of sub-section (1B), and shall be charged to tax accordingly.
(2) This section applies to any undertaking which fulfils all the following conditions, namely:—
(i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year—
(a) commencing on or after the 1st day of April, 1981, in any free trade zone; or
(b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park;
14 ITA No.4295/Mum/2023 Ajay R. Agrawal (c) commencing on or after the 1st day of April, 2001 in any special economic zone;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section;
(iii) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.—the provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80- I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1.—for the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2.—the sale proceeds referred to in this sub-section shall be deemed to have been received in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. (4) For the purposes of sub-sections (1) and (1A), the profits derived from export of articles or things or computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. (5) The deduction under this section shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed form, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.
15 ITA No.4295/Mum/2023 Ajay R. Agrawal (6) Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent assessment year,—
(i) section 32, section 32A, section 33, section 35 and clause (ix) of sub-section (1) of section 36 shall apply as if every allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years ending before the 1st day of April, 2001, in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub- section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction;
(ii) no loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set off where such loss relates to any of the relevant assessment years ending before the 1st day of April, 2001;
(iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80- I or section 80-IA or section 80-IB in relation to the profits and gains of the undertaking; and
(iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment year.
(7) The provisions of sub-section (8) and sub-section (10) of section 80-IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger,—
16 ITA No.4295/Mum/2023 Ajay R. Agrawal (a) no deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or the demerger takes place; and
(b) the provisions of this section shall, as far as may be, apply to the amalgamated or the resulting company as they would have applied to the amalgamating or the demerged company if the amalgamation or demerger had not taken place.]
(7B) The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 2 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years. (9) Omitted by the Finance Act, 2003, w.e.f. 1-4-2004. (9A) Omitted by the Finance Act, 2003, w.e.f. 1-4-2004. Explanation 1. — omitted by the Finance Act, 2003, w.e.f. 1-4-2004. Explanation 2.—for the purposes of this section,— (i) "computer software" means—
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(b) any customized electronic data or any product or service of similar nature, as may be notified by the Board,
which is transmitted or exported from India to any place outside India by any means;
(ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999)], and any rules made
17 ITA No.4295/Mum/2023 Ajay R. Agrawal thereunder or any other corresponding law for the time being in force;
(iii) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in the Ministry of Commerce and Industry;
(iv) "export turnover" means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;
(v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section;
(vi) "relevant assessment year" means any assessment year falling within a period of ten consecutive assessment years referred to in this section;
(vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry;
(viii) "Special economic zone" means a zone which the Central Government may, by notification in the Official Gazette, specify as a special economic zone for the purposes of this section.]
Explanation 3.—For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. Explanation 4.—For the purposes of this section, "manufacture or produce" shall include the cutting and polishing of precious and semi-precious stones.] Proviso-1, Provided also that for the assessment year beginning on the 1st day of April, 2003, the deduction under this sub-section shall be ninety per cent of the profits and gains derived by an undertaking from the export of such articles or things or computer software.
18 ITA No.4295/Mum/2023 Ajay R. Agrawal Proviso-2, Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. (7B) The provisions of this section shall not apply to any undertaking, being a Unit referred to in clause (zc) of section 2 of the Special Economic Zones Act, 2005, which has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. 9. In view of the above two provisos and sub-section 7B of the section 10A of the Act and to apply bench marking method for real picture of profits earned by the assessee as the same are in the category of “Super Abnormal Profits”, we remit back the matter to the file of the ld. AO to examine the issue afresh. This matter requires a thorough investigation to ascertain the true and fair view of Abnormal Profits earned by the assessee and availing deduction u/s. 10A of the Act. Needless to say, the assessee should get proper opportunity in setting aside proceeding. Further, the assessee is direct to be diligent in the proceeding before the ld. AO.
In the result, ITA No.4295/Mum/2023 of revenue is allowed for statistical purposes.
Order pronounced in the open court on 14th day of June, 2024. Sd/- sd/- (GAGAN GOYAL) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, दिन ांक/Dated: 14/06/2024 Pavanan
19 ITA No.4295/Mum/2023 Ajay R. Agrawal Copy of the Order forwarded to: अपील र्थी/The Appellant , 1. प्रदिव िी/ The Respondent. 2. आयकरआयुक्त CIT 3. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, 4. Mumbai ग र्डफ इल/Guard file. 5.
BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai
Details Date Initials Designation 1 Draft dictated on PC on 13.06.2024 Sr.PS/PS 2 Draft Placed before author 13.06.2024 Sr.PS/PS 3 Draft proposed & placed before the JM/AM Second Member 4 Draft discussed/approved by JM/AM Second Member 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS/PS 7. File sent to the Bench Clerk Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date of Dispatch of order
