ITO 9(2)(3), MUMBAI vs. NEURAL TECHNOLOGIES & SOFTWARE P. LTD, MUMBAI

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 31/08/2012 of the ld. First Appellate Authority, Mumbai. The assessee has also preferred Cross objection.

3 M/s Neural Technologies & Software Pvt ltd. C.O. No.276/Mum/2014 order dated 14/08/2012 (copy supplied by the assessee). It was also contended that for A.Y. 2008-09, identical deduction was granted to the assessee.

2.2. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee, a private limited company, is engaged in the business of software development, registered with software technology park of India (STPI), involved in software development with very high analytical mathematical and statistical contents. The assessee company develops computer software broadly in the areas of business financial services and insurance sector in market risk management, credit risk management, operational risk management, software for implementing measuring, controlling, reporting and managing risk and regulatory compliance with the Basel- 2 capital adequacy accord, production and implementation of simulation software for artificial FX market creation for training purposes with an object to teach the hedging strategy and managing FX exposure in real time, development of computer software for risk management of treasury activities and used several artificial intelligent tools and technologies such as neural networks, genetic algorithms, bionomic algorithms and other machine learning techniques. As per the assessee, the Managing Director has Doctoral degree in adaptive estimation and neural learning procedures from Indian Institute of Technology, Mumbai and had been responsible for applying several cutting as 4 M/s Neural Technologies & Software Pvt ltd. C.O. No.276/Mum/2014 technologies in the area of risk management/exposure management. The assessee, during the year had turnover of Rs.3,14,83,809/- and profit of business was Rs.1,52,56,117/-. The ld Assessing Officer disallowed Rs.1,70,59,298/-, claimed as deduction u/s 10B of the Act with a remark that the assessee company is not approved by the prescribed authority, as required for eligibility for deduction u/s 10B of the Act and merely indulge into normal business of export of computer software. The stand of the assessee was that the approval of the unit are registered in STP/ESTP, granted by the designated Officer from the ministry of communication & technology instead of Board of approval.

2.3. On appeal, before the ld. First Appellate Authority, the claimed deduction was granted to the assessee against which, the Revenue is aggrieved and is in appeal before this Tribunal.

2.4. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, under the facts narrated hereinabove, we note that even before the ld. Assessing Officer, necessary details like STP registration, green card, agreement of software export with STPI, quarterly/annual performance report were furnished by the assessee. The 5 M/s Neural Technologies & Software Pvt ltd. C.O. No.276/Mum/2014 Assessing Officer has not disputed the activities of software development of the assessee. Certain additional evidences were filed before the ld. First Appellate Authority in the form of Circulars, notifications, letter with respect to delegation of power to the Director STPI/IMSC with respect to granting permission, which were forwarded for the comments of the AO under Rule 46A of the Rules. The Assessing Officer was of the view that green card is merely a concession, provided by the Government, to set up units in STP zones to avail certain facilities on priority basis and was of the view that for claiming deduction u/s 10B, the assessee is expected to obtain approval of CEO of STPI, as required in CBDT instructions dated 18/10/2010. The assessee filed further communication, pursuant to the report of the Assessing Officer. Again, remand report was sought from the Assessing Officer. Admittedly, there is no dispute with respect to fulfillment of other conditions as provided u/s 10B of the Act for claiming such deduction. The stand of the assessee is that automatic route is available to the units, which are having investment less than 100 millions as is the case of the assessee, therefore, the approval by the Director of STPI is sufficient to claim the deduction u/s 10B of the Act. Even, the green card is issued by the designated officer on behalf of the Secretary, Govt. Of India, Ministry of Information Technology and Chairman Inter Ministerial Standing Committee. It is also noted that for A.Y. 2008-09, the claim of the assessee, identically, was allowed and the claimed deduction amounting to Rs.3,24,70,565/- was granted u/s 6 M/s Neural Technologies & Software Pvt ltd. C.O. No.276/Mum/2014 10B of the Act. This factual matrix was not controverted by the Revenue. In view of this factual position, unless and until, contrary facts are brought to our notice, the department is not expected to deny the claimed deduction. Our view is fortified by the decision dated 14/08/2012 from Hon’ble jurisdictional High Court in the case of Western Outdoor Interacting Pvt. Ltd. (IT Appeal No.1150, 1200 and 1269 of 2010). The Hon’ble High Court in this case held that the relief granted in the first Assessment year in which claim was made and accepted then the Income Tax Officer cannot withdraw the relief for subsequent years, more specifically, so, when the Revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. We find that there is no change in facts and identical facts are existing which were available for A.Y. 2008-09, therefore, it is not open to the department to deny claimed deduction. We further observe that in the absence of rectification from IMSC, no green card can be issued by the designated officer. It is just like a single window system and to avoid constrains to the assessee and further to mitigate the hardship for the development of software, such type of facilities are provided to entrepreneurs, therefore, we find no infirmity in the conclusion drawn in the impugned order. The order of the ld. First Appellate Authority is affirmed, resulting into, dismissal of appeal of the Revenue.

Finally, the appeal of the Revenue and the Cross Objection of the assessee are dismissed.

This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 19/10/2015.