Shri. Jugalkishor H . Maniyar, Nagpur V. Assistant Commissioner of Income-tax-Circle-4, Nagpur

ITA 100/NAG/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9612 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 18-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSANI; D P TIWARI JT
• Assessee Lawyers: M MANI
• Keywords: Depreciation; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 10B; 147; 148; 144; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D. T. GARASIA, HONBLE JUDICIAL MEMBER I.T.A. NOS.99, 100 & 101/NAG/11 ASSESSMENT YEARS: 01-02, 02-03 & 03-04 SHRI JUGALKISHOR MANIYAR, VS. A.C.I.T., JAIHARI SOFT TECH, CIRCLE-4, 125, WARDHAMAN NAGAR, NAGPUR. NAGPUR. PAN:AJCPM3176G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. MANI, ADVOCATE RESPONDENT BY : SHRI D. P. TIWARI, JT. C.I.T. & DR. MILIND BHUSANI, C.I.T. (D.R.) DATE OF HEARING :17/10/2012 DATE OF PRONOUNCEMENT :23/11/2012 ORDER PER P. K. BANSAL: ALL THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) DATED 29/03/2011. IN ALL THESE APPEALS, FILED BY THE ASSESSEE, THE FACTS INVOLVED ARE THE SAME EXCEPT THAT ORIGINAL ASSESSMENT SO FAR THE I.T.A. NO. 101/NGP/11 IS CONCERNED, WAS COMPLETED U/S 143(3) OF THE ACT WHILE IN I.T.A. NO. 99/NGP/11 AND 100/NGP/11, THERE WAS MERELY PROCESSING OF THE RETURN U/S 143(1). ALL THESE APPEALS SINCE INVOLVE THE COMMON ISSUE, ARE BEING DISPOSED OF BY THIS COMMON ORDER. THE ASSESSEE HAS TAKEN FOLLOWING COMMON GROUNDS IN ALL THE APPEALS EXCEPT THE CHANGE IN THE FIGURE IN GROUND NO. 6 AND 12. GROUND NO. 1 TO 4 IN THE ASSESSMENT YEAR 2001-2002 AND 2002-2003 ITA NO. 99, 100, 101/NAG/2011 2 HAVE NOT BEEN PRESSED BY THE ASSESSEE. THE COMMON GROUND AS TAKEN BY THE ASSESSEE ARE LAID DOWN AS UNDER: 1. THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT THE NOTICE ISSUED U/S 148 IS WITHOUT JURISDICTION AND THEREFORE PROCEEDINGS FOR ASSESSMENT ARE ILLEGAL AND INVALID AND CONSEQUENTLY THE ORDER OF ASSESSMENT IS VOID, AB INITIO. 2. THE LEARNED CIT(A) ERRED IN HOLDING THAT THERE WAS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. 3. THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT NOTICE U/S 148 WAS ISSUED ONLY FOR PURPOSE ROVING AND FISHING ENQUIRIES. 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT NOTICE ISSUED U/S 148 2WAS VALID WITH PROPER SANCTION. 5. THE LEARNED CIT(A) ERRED IN NOT ADMITTING THE AFFIDAVIT OF MR. RAKESH P. SINDHER. 6. THE LEARNED CIT(A) ERRED CONFIRMING THE ADDITION OF RS.66935376/-. 7. THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE DEDUCTION U/S 10B. 8. THE LEARNED CIT(A) ERRED IN NOT ALLOWING ANY EXPENSES INCURRED. 9. THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE ORDER OF THE I.T.A.T. FOR ASSESSMENT YEAR 2004-2005. ON THE GROUND THAT THE FACTUAL PARAMETERS FOR THIS YEAR ARE DIFFERENT FROM 2004- 2005. 10. THE LEARNED CIT(A) ERRED IN STATING THAT LETTER DATED 04/08/2003 WRITTEN BY THE DIRECTOR AND CHIEF EXECUTIVE OF STPI TO JT. COMMISSIONER OF CUSTOMS AND EXCISE WAS FURNISHED BY THE ASSESSEE. 11. THE LEARNED CIT(A) ERRED RELYING ON THE COPY OF SAID LETTER WITHOUT PROPER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE SAID DOCUMENT. 2 ITA NO. 99, 100, 101/NAG/2011 3 12. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.66935376/- U/S 68 OF THE I.T. ACT. 13. THE LEARNED CIT(A) ERRED HOLDING THAT CERTIFICATE ISSUED BY STPI AUTHORITIES IN SOFTEX FORM IS WITHOUT SPECIFIC VERIFICATION AND ON APPELLANTS OWN VERIFICATION. 2. IN ASSESSMENT YEAR 2002-2003, IN GROUND NO. 6 AND 12, THE FIGURE OF RS.40,71,55,193/- AND IN ASSESSMENT YEAR 2003-2004 THE FIGURE OF RS.12,79,88,524/- BE READ IN PLACE OF FIGURE OF RS.6,69,35,376/-. SINCE GROUND NO. 1 TO 4 HAVE NOT BEEN PRESSED IN ASSESSMENT YEAR 2001-2002 AND 2002- 2003, THEREFORE, THESE GROUNDS STAND DISMISSED AS NOT PRESSED IN BOTH THE YEARS. SO FAR AS THE MERIT OF THE CASE IS CONCERNED, THE ONLY ISSUE INVOLVED IN ALL THE GROUNDS NO. 5 TO 13 IN ALL THE ASSESSMENT YEARS IS THE ALLOWABILITY OF THE DEDUCTION U/S 10B TO THE ASSESSEE. BOTH THE LEARNED A. R. AND LEARNED D. R. AGREED THAT THE BRIEF FACTS FOR THE ASSESSMENT YEAR 2001-2002 BE TAKEN FOR DISPOSAL OF ALL THESE APPEALS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THERE HAD BEEN SURVEY IN THE CASE OF THE ASSESSEE CONDUCTED BY THE INVESTIGATION WING ON 07/03/2007. ACCORDING TO THE FINDING OF THE SURVEY TEAM THE ASSESSEE DID NOT HAVE ANY INFRASTRUCTURE FOR THE DEVELOPMENT OF THE SOFTWARE AND THERE WAS NO EVIDENCE REGARDING TESTING, INTERACTION AND APPROVAL BY THE CLIENT WHO IS SAID TO HAVE PURCHASED THE SOFTWARE. THE ASSESSEE IS A PROPRIETOR CARRYING ON THE BUSINESS UNDER THE NAME AND STYLE OF M/S JAI HARI SOFTECH, NAGPUR FILED THE RETURN AT NIL INCOME CLAIMING DEDUCTION U/S 10B OF THE I.T. ACT. THE DEDUCTION WAS ALLOWED WHILE PROCESSING THE RETURN U/S 143(1) BUT IN THE ASSESSMENT YEAR 2003-2004 THE DEDUCTION WAS ALLOWED AFTER MAKING THE DEEMED QUERY BY PASSING AN ORDER U/S 143(3). SUBSEQUENTLY, THERE HAS BEEN A SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE. THE ASSESSING OFFICER ISSUED THE NOTICE U/S 148 DATED 10/03/2008 BY RECORDING FOLLOWING REASONS IN THE ASSESSMENT YEAR 2001-2002: 3 ITA NO. 99, 100, 101/NAG/2011 4 REASONS FOR REOPENING ASSESSMENT :- THE ASSESSEE HAS FILED A RETURN OF INCOME FOR ASSESSMENT YEAR 2001-02 ON 31- 07-2002 DECLARING NIL INCOME. THE ASSESSEE IS RUNNING A COMPUTER SOFTWARE BUSINESS IN THE NAME OF M/S JAI HARI SOFTECH, NAGPUR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL RECEIPT OF RS 96.4%. THE ENTIRE PROFIT HAS BEEN SHOWN AS EXEMPT UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961. A SURVEY CONDUCTED UNDER THE BUSINESS PREMISES OF THE ABOVE REFERRED ASSESSEE WAS CONDUCTED ON 07-03-2007 BY THE INVESTIGATION WING OF THE DEPARTMENT. DURING THE COURSE OF SURVEY IT WAS REVEALED THAT DURING THE PERIOD FROM 1999-2000 TO 2003-04 THE ASSESSEE HAS SHOWN TO HAVE RECEIVED A TOTAL CONSIDERATION OF 55,94,054 US DOLLARS (APPROX RS 26.66 CRORES) AGAINST THE EXPORT TO M/S ALPHA IMPEX HONGKONG. THE ASSESSEE HAS ALSO CLAIMED EXEMPTION UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 AS AN 100% EXPORT ORIENTED UNIT. THE ASSESSEE HAS STATED THAT IT WAS EXPORTING COMPUTER SOFTWARE TO THE ABOVE REFERRED FIRM DURING THE ABOVE YEARS. THE EXEMPTION CLAIMED UNDER SECTION 10B HAS BEEN ALLOWED EXCEPT FOR THE ASSESSMENT YEAR 2004-05 WHEREIN IT WAS DISALLOWED AS THE ASSESSMENT WAS PASSED AS AN EX-PARTE UNDER SECTION 144 OF THE ACT. THE DISALLOWANCE MADE FOR THE ASSESSMENT YEAR 2004-05 HAS BEEN CONFIRMED BY THE CIT(A) II NAGPUR VIDE HIS ORDER DATED 27/11/2007. FOR DEVELOPMENT AND SALE OF THE COMPUTER SOFTWARES THE ASSESSEE HAS TO FOLLOW CERTAIN GUIDELINES ISSUED BY THE SOFTWARE TECHNOLOGY PARKS OF INDIA, A GOVERNMENT OF INDIA AUTONOMOUS SOCIETY. THEY WERE NOT FOLLOWED BY ASSESSEE AS CAN BE PROVED BY THE STPI VIDE ITS LETTER NO. STP/N.GEN/2006-07/5328 DATED 03.01.2007 TO THE ASSESSEE BY A LETTER THE STPI ASKED SHRI JUGALKISHORE MANIYAR TO FURNISH CERTAIN INFORMATION WITH REFERENCE TO THE EXPORT CERTIFIED BY THE STPI. THE LETTER IS ISSUED CERTAIN INFORMATION WITH REFERENCE TO THE EXPORT CERTIFIED BY THE STPI. THE LETTER IS ISSUED AS LATE AS 03.01.2007 WHEN THE BUSINESS OF THE ASSESSEE OF THE EXPORT OF SOFTWARE HAS DISCONTINUED AS PER THE VERSION OF THE ASSESSEE ASKING FOR THE DETAILS AS 07.03.2007 BY STPI. ITSELF MEANS THAT THERE WAS NO SUCH BUSINESS OF SOFTWARE DONE BY THE ASSESSEE AS IT IS SEEN THAT THE ASSESSEE IS SHOWING NET PROFIT AS 90% AND 4 ITA NO. 99, 100, 101/NAG/2011 5 ABOVE FROM THIS BUSINESS WHICH IS NOT POSSIBLE AT ANY TIME OF BUSINESS. DURING THE COURSE OF SURVEY CONDUCTED, IT IS REVEALED THAT THE ASSESSEE HAS NOT PURCHASED THE COMPUTERS WHICH WERE THE BACK BONE OF SOFTWARE INDUSTRY AS THE FIRM FROM WHICH THE ASSESSEE HAS STATED TO HAVE BEEN PURCHASED THE COMPUTERS IS NOT IN EXISTENCE AT THE TWO ADDRESS IN MUMBAI AND PAYMENT HAS ALSO BEEN MADE IN CASH AFTER ONE YEAR FROM THE DATE OF PURCHASE. ALL THE ABOVE FACTS CLEARLY PROVE THAT THE ASSESSEE HAS ACTUALLY NOT EXPORTED ANYTHING AND THE TRANSACTIONS ELEMENT HAVE BEEN DONE BY THE ASSESSEE ARE NOTHING BUT MONEY LAUNDERING TRANSACTIONS. THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 10B OF THE ACT. MOREOVER, THE ENTIRE RECEIPT SHOWN BY THE ASSESSEE IS TO BE TAXED IN THE HANDS OF THE ASSESSEE AS UNDISCLOSED INCOME OF THE ASSESSEE. IN VIEW OF ABOVE, I HAVE REASONS TO BELIEVE THAT THE INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF RS 5,69,32,783/- HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04. HENCE IT IS CONSIDERED NECESSARY TO ISSUE NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2003- 04. IN VIEW OF ABOVE, I HAVE REASONS TO BELIEVE THAT THE INCOME ASSESSABLE IN THE HANDS OF AN ASSESSEE TO THE EXTENT OF RS 6,69,35,376/- HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2001-02. HENCE IT IS CONSIDERED NECESSARY TO ISSUE NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2001- 02. 3.1 SIMILAR TYPE OF REASONS WERE RECORDED FOR REOPENING THE ASSESSMENT IN THE ASSESSMENT YEAR 2002-2003 AND 2003-2004. IN THE ASSESSMENT PROCEEDINGS INITIATED U/S 147, THE ASSESSING OFFICER SOUGHT TO DISALLOW DEDUCTION U/S 10B OF THE ACT AS ACCORDING TO HIM THE ASSESSEE WAS APPROVED BY INTER MINISTERIAL STANDING COMMITTEE APPOINTED BY THE NOTIFICATION OF THE GOVERNMENT OF INDIA IN 5 ITA NO. 99, 100, 101/NAG/2011 6 THE MINISTRY OF INDUSTRIES VIDE GAZETTE NOTIFICATION NO.S.O.117(E) DATED 22/02/1993 WHILE AS PER SECTION THE UNDERTAKING MUST HAVE BEEN APPROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT AND, ACCORDINGLY THE ASSESSING OFFICER TOOK THE VIEW THAT THE EXEMPTION U/S 10B IS NOT AVAILABLE. THE ASSESSING OFFICER ALSO TOOK NOTE OF THE FINDING OF THE SURVEY TEAM AND OBSERVED THAT THE ASSESSEE HAS DIVERTED ITS SALES TO ITS IN-LAWS AND SISTER CONCERN IN THE FORM OF INTEREST FREE LOANS, THE PROFIT EARNED ARE UNREALISTIC ALMOST 90% WHILE LEADING SOFTWARE COMPANIES ARE SHOWING PROFIT @25%. THE ASSESSEE HAS SHOWN TO HAVE DEVELOPED A PROJECT KNOWN 19-SCRIBE ALIAS X 2 WAS A SOFTWARE DESIGNED TO AUTOMISE THE WORK FLOW OF MEDICAL TRANSCRIPTION COMPANY AND THESE WERE SPECIALIZED DIGITAL RECORDER, WHICH ARE USED BY THE DOCTORS. THESE DEVICES PROVIDE THE RECORD PRESCRIPTION AND OTHER MEDICAL DETAILS IN THE FORM OF INVOICE FILES. THE ASSESSING OFFICER ALSO OBSERVED THAT WHILE THE ASSESSEE WAS REQUIRED TO FURNISH PARTICULARS REGARDING THE SOFTWARE DEVELOPMENT TO STPI. NO SUCH INFORMATION REGARDING THE SOFTWARE DEVELOPMENT HAS BEEN FURNISHED. THE ASSESSEE HAS ONLY PURCHASED SOME COMPUTERS RANDOMLY FROM CERTAIN VENDORS, WHO ARE NOT TRACEABLE. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE HAS ALSO NOT MAINTAINED ANY DETAILS OF THE COMPUTERS AS REQUIRED UNDER STPI GUIDELINES. THE ASSESSEE HAS ALSO NOT FURNISHED THE TECHNICAL DETAILS AS REQUIRED VIZ. SPECIFIC FLOW CHART, THE SYSTEM REQUIREMENT STUDY RELEVANT CORRESPONDENCE. THE ASSESSEE HAS TAKEN A PLEA THAT GENUINENESS OF SOFTWARE DEVELOPMENT IS OVER SEEN BY THE STPI, WHICH IS CONTROLLING AND MONITORING AUTHORITY OF THE SOFTWARE DEVELOPMENT AND ALL THE DETAILS HAVE BEEN CHECKED. THE ASSESSING OFFICER, THEREFORE, HELD THAT THE EXPORT IS NON-GENUINE AND ASSESSED THE FOREIGN INWARD REMITTANCES U/S 68 OF THE I. T. ACT. SIMILAR TYPE OF FINDING HAS BEEN RECORDED IN ALL THE THREE ASSESSMENT YEARS. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY HOLDING AS UNDER: 8.3 TO CONCLUDE, I AM THEREFORE, OF THE CONSIDERED VIEW THAT ASSESSING OFFICER WAS CORRECT IN HOLDING THAT THERE WAS NO GENUINE 6 ITA NO. 99, 100, 101/NAG/2011 7 EXPORT MADE AND THE AMOUNTS ARE TO BE ASSESSED U/S 68. THE REASONS FOR THE SAME ARE HEREBY SUMMARIZED: A) THE NET PROFIT CLAIMS IS UNREALISTICALLY HIGH BEING 96.4%. B) NO SOFTWARE EXPENSES HAVE BEEN DEBITED BY THE ASSESSEE ALTHOUGH SOFTWARE EXPORT OF RS.6.69 CRORES IS STATED TO BE MADE. C) THERE IS NO ENDORSEMENT BY THE BANKER ON THE FIRC AGAINST EXPORT CONTRACT ADVANCE AND MISC. RECEIPTS THAT RELEVANT DOCUMENTS HAVE BEEN PRESENTED TO SHOW THAT EXPORTS HAVE BEEN SUBSEQUENTLY MADE. D) THE CERTIFICATION OF THE STPI AUTHORITIES RELIED UPON BY THE APPELLANT IS BASED ON THE APPELLANTS OWN DECLARATION WITHOUT ANY SPECIFIC VERIFICATION. E) FOR ASSESSMENT YEAR 2001-2002, THERE HAVE BEEN NO EXPENSES ALLOWED BY THE ASSESSING OFFICER AGAINST THE CLAIM OF EXPORT. THE ORDER OF HON'BLE I.T.A.T. FOR ASSESSMENT YEAR 2004-2005 WHEREIN IT HAS BEEN HELD THAT THERE WAS NO GROUND FOR ALLOWING EXPENDITURE ON THE ONE HAND AND DOUBTING EXPORTS ON THE OTHER IS, THEREFORE, DISTINGUISHABLE. 8.4 THE APPELLANT HAS MADE A SUBMISSION THAT THE AMOUNTS OF FOREIGN INWARD REMITTANCE CANNOT BE BROUGHT TO TAX U/S 68. THIS HAS NO MERIT. THE APPELLANT HAS NOT ESTABLISHED THAT THE TRANSACTION PURPORTED TO BE EXPORT IS GENUINE. THERE IS NO TRANSPARENCY IN THE NATURE OF TRANSACTION AS DISCUSSED IN THE FOREGOING PARAGRAPHS. SINCE THE AMOUNTS HAVE BEEN CREDITED TO THE BOOKS OF THE ASSESSEE, PROVISIONS OF SECTION 68 HAVE BEEN RIGHTLY INVOKED BY THE ASSESSING OFFICER. AS REGARDS THE ALTERNATE CONTENTION OF THE APPELLANT THAT EXPENSES MAY BE ALLOWED AGAINST INCOME BROUGHT TO TAX U/S 68. THERE IS NO CASE MADE OUT THAT THE EXPENSES HAVE GENUINELY BEEN INCURRED AS THESE CLAIMS HAVE BEEN MADE AGAINST PURPORTED EXPORTS, WHICH HAVE BEEN HELD TO BE NON GENUINE. THEREFORE, THE FINDINGS IN THE ASSESSMENT ORDER ARE UPHELD. 4. THE LEARNED A.R. BEFORE US VEHEMENTLY CONTENDED THAT DEDUCTION U/S 10B HAS MAINLY BEEN DENIED BY THE ASSESSING OFFICER ON THE BASIS OF THE REPORT OF THE SURVEY TEAM. THE ASSESSEE HAS DULY REPLIED EACH AND EVERY FINDING GIVEN BY THE SURVEY TEAM. ON THE SIMILAR BASIS, THE EXEMPTION U/S 10B WAS NOT ALLOWED TO THE ASSESSEE DURING THE ASSESSMENT YEAR 2004-2005 AGAINST WHICH THE MATTER TRAVELLED TO THE TRIBUNAL AND THE TRIBUNAL HAS ALLOWED THE APPEAL OF THE ASSESSEE 7 ITA NO. 99, 100, 101/NAG/2011 8 DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION U/S 10B OF THE I.T.ACT. THE EXPLANATION GIVEN BY THE ASSESSEE IN RESPECT OF THE SURVEY REPORT IN THAT ASSESSMENT YEAR IS DULY REPRODUCED IN THE ORDER OF THE TRIBUNAL IN I.T.A. NO.159/NAG/08 DATED 06/03/2009. THE TRIBUNAL HAS DULY SATISFIED THAT THE ASSESSEE HAS DULY ESTABLISHED THE GENUINENESS OF THE EXPORT OF THE SOFTWARE. THE FACTS BEING THE SAME, THERE IS NO QUESTION OF THE ASSESSING OFFICER OR THE CIT(A) TAKING A DIFFERENT VIEW. OUR ATTENTION WAS DRAWN TOWARDS THE INSTRUCTION NO. 1/2006 DATED 31/03/2006, WHICH CLEARLY STATES THAT THE INTER MINISTERIAL STANDING COMMITTEE APPROVAL IS THE APPROVAL BY THE BOARD. THE SAID INSTRUCTION READS AS UNDER: INSTANCES HAVE BEEN BROUGHT TO THE NOTICE OF THE BOARD THAT A LARGE NUMBER OF UNITS REGISTERED / APPROVED BY THE DIRECTORS OF THE STPI ARE CLAIMING DEDUCTION UNDER SECTION 10A WHEREAS THE STP SCHEME REQUIRES APPROVAL BY THE INTER- MINISTERIAL STANDING COMMITTEE OF THE DEPARTMENT OF ELECTRONICS. ACCORDINGLY, THE CASES OF SUCH CLAIMANTS HAVE BEEN REOPENED BY THE AUTHORITIES. THE MATTER HAS BEEN EXAMINED IN CONSULTATION WITH THE OFFICERS OF THE DEPARTMENT OF INFORMATION TECHNOLOGY (EARLIER,DEPARTMENT OF ELECTRONICS). IN VIEW OF THE AMBIGUITY IN THE LEGAL STATUS OF THE APPROVAL BY DIRECTOR OF STPS, THE INTER-MINISTERIAL STANDING COMMITTEE WILL MEET TO CONSIDER THE APPROVALS BY DIRECTOR OF STPS ISSUED IN THE PAST. THEREFORE, WITH A VIEW TO AVOID INFRUCTUOUS DEMAND RAISED IN ASSESSMENT AND REASSESSMENT OF ASSESSEE CLAIMING DEDUCTION UNDER SECTION 10A, IT HAS BEEN DECIDED THAT THE CLAIM OF DEDUCTION UNDER SECTION 10A, SHALL NOT BE DENIED TO STP UNITS ONLY ON THE GROUND THAT THE APPROVAL / REGISTRATION TO SUCH UNITS HAS BEEN GRANTED BY THE DIRECTORS OF SOFTWARE TECHNOLOGY PARKS. HOWEVER, IT HAS TO BE ENSURED THAT ALL OTHER CONDITIONS SPECIFIED IN SECTION 10A ARE FULLY SATISFIED BEFORE ALLOWING ANY SUCH CLAIM. IN CASES WHERE ASSESSMENTS / REASSESSMENTS HAVE ALREADY BEEN COMPLETED, AND THE CLAIM UNDER SECTION 10A HAS BEEN DISALLOWED ONLY ON THE GROUND THAT THE APPROVAL TO THE STP HAS NOT BEEN GRANTED BY THE INTER-MINISTERIAL STANDING COMMITTEE IN ACCORDANCE WITH THE SCHEME, THE 8 ITA NO. 99, 100, 101/NAG/2011 9 DEMAND SO ARISING SHOULD BE KEPT IN ABEYANCE UNTIL FURTHER ORDERS INSTRUCTION : NO. 1/2006, DATED 31-3-2006. 4.1 IT WAS POINTED OUT THAT THE MISC. APPLICATION FILED BY THE DEPARTMENT WAS ALSO DISMISSED BY THE TRIBUNAL VIDE ORDER DATED 25/07/2011. THE LEARNED A.R. DRAWN OUR ATTENTION TO PAGE NO. 63 TO 65 OF THE PAPER BOOK POINTING OUT THAT THE ASSESSEE HAS SUBMITTED POINT-WISE REPLY TO THE ASSESSING OFFICER MENTIONING THEREIN THE DETAILS OF APPROVED PLANT & MACHINERY. THE SOFTEX FORM HAS BEEN CERTIFIED BY THE ASSESSEE AS PER THE ADVICE OF THE RBI. NO PERSON EXCEPT THE RBI HAS ANY POWER TO MAKE ANY CHANGE IN THE CONTENTS AND/OR FORM OF SOFTEX AT ANY POINT OF TIME. THE ASSESSEE DOES NOT HAVE ANY RECORD SHOWING FOR REJECTED SOFTEX FORMS ARE CONCERNED EXCEPT THE CORRESPONDENCE AND LETTERS EXCHANGED BETWEEN THE ASSESSEE AND THE IMPORTER. THE COPY THEREOF WAS DULY FILED BY THE ASSESSING OFFICER. THE LETTER DATED 30/01/2007 WAS ISSUED BY ASSESSMENT. DIRECTOR, STPI, MAHARASHTRA JUST TO EXPEDITE THE PROCEEDINGS INITIATED BY THE ACIT, NAGPUR. IT WAS NOT AN INDEPENDENT LETTER SEEKING ANY INFORMATION BY STPI. UNDER PARA 6, ADDL. DIRECTOR, STPI HAS CLEARLY STATED THAT THE LETTER DATED30/01/2007 IS NOTHING BUT OFFSHOOT OF LETTER NO. ITO(INV.)/NGP/JHS/67 DATED 13/12/2006 AND LETTER NO. ITO(INV.)/NGP/JHS/67 DATED 21/12/2006 . IN THE SAID LETTER, IT HAS DULY BEEN MENTIONED THAT AS PER PARA NO. 6.14 OF THE FOREIGN TRADE POLICY AND PARA NO. 6.21.1 OF HAND BOOK OF PROCEDURES, 2004-09, THE ASSESSEE IS REQUIRED TO OBTAIN NOC FROM STPI AND CUSTOM AUTHORITIES FOR NECESSARY CLEARANCE. IN THE SAID LETTER, EVEN THE NUMBER OF QUERIES WERE RAISED BY THE ASSESSING OFFICER FROM THE ADDL. DIRECTOR, STPI BUT STPI NEVER DENIED THAT THE ASSESSEE HAS NOT CARRIED OUT ANY EXPORT. RBI HAS PRESCRIBED A PARTICULAR PROCEDURE AND THE ASSESSEE HAS COMPLIED WITH THE PROCEDURES WHILE EXPORTING THE SOFTWARE. OUR ATTENTION WAS DRAWN TO PAGE NO. 119, WHICH CONSISTS A CERTIFICATE ISSUED BY ONE SONAL C. BHATTAWADEKAR, DY. DIRECTOR (TECHNICAL), STPI. THIS CERTIFICATE READS AS UNDER: 9 ITA NO. 99, 100, 101/NAG/2011 10 CERTIFIED THAT THE SOFTWARE DESCRIBED ABOVE WAS ACTUALLY TRANSMITTED AND THE EXPORT / ROYALTY VALUE DECLARED BY THE EXPORTER HAS BEEN FOUND TO BE IN ORDER AND ACCEPTED BY US. _________________SD/- (SIGNATURE OF DESIGNATED OFFICIAL OF STPI / EPZ ON BEHALF OF DEPARTMENT OF ELECTRONICS) SOFTWARE TECHNOLOGY PARKS OF INDIA PLACE : NAME : SONAL C. BHATAWADEKAR DATE : 16.9.2000 DEPUTY DIRECTOR (TECHNICAL) SOFTWARE TECHNOLOGY PARKS OF INDIA PLOT NO. P-1, PUNE INFOTECH PARK HINJAWADI PUNE 411 027. 4.2 ON THE BASIS OF THIS CERTIFICATE, IT WAS CONTENDED THAT THE CIT(A) IS TOTALLY WRONG THAT STPI AUTHORITIES HAVE NOT TO VERIFY THE EXPORT DECLARED BY THE ASSESSEE. OUR ATTENTION WAS DRAWN TO THE COPY OF THE INVOICES AND IT WAS POINTED OUT THAT ALONG WITH THE EACH INVOICE, CERTIFICATE HAS TO BE TAKEN FROM DY. DIRECTOR (TECH.), STPI. THE CERTIFICATES AND THE COPY OF THE INVOICES ARE AVAILABLE AT PAPER BOOK FROM PAGE NO. 118 TO 150. IT WAS VEHEMENTLY CONTENDED THAT THE CERTIFICATE HAS DULY BEEN ISSUED BY THE OFFICER OF THE STPI AT THE TIME WHEN THE ACTUAL EXPORT WAS MADE AND, THEREFORE, IT CANNOT BE SAID AFTER EXPIRY OF 4 TO 5 YEARS, THAT THE ASSESSEE HAD NOT MADE ANY EXPORT. EARNING OF THE PROFIT IS NOT A CRITERIA FOR TAKING GENUINE EXPORT TO BE NOT GENUINE EXPORT. IT WAS POINTED OUT THAT DURING THE ASSESSMENT YEAR 2001-2002, THE ASSESSEE HAS EARNED THE PROFIT @96.4%, IN ASSESSMENT YEAR 2002-2003 @90.2% AND IN ASSESSMENT YEAR 2003-2004 @90.2%. THE REVENUE DID NOT HAVE ANY EVIDENCE WHICH MAY PROVE THAT THE EXPORTS WERE BOGUS. REFERRING TO PAGE NO. 71 OF THE PAPER BOOK, WHICH CONTAINED A LETTER IN REPLY TO RTI APPLICATION DATED 15/05/2012, IT WAS POINTED OUT THAT THIS LETTER CLEARLY STATES THAT THE CIT(A) UNDER PARA 5.6 OF ITS ORDER HAS WRONGLY MENTIONED THAT THE ASSESSEE HAS FILED A LETTER DATED 04/08/2003 ADDRESSED TO THE JT. COMMISSIONER (CUSTOMS & EXCISE) WHILE THIS LETTER WAS NEVER FILED BY THE ASSESSEE BUT WAS THE PART OF THE REMAND REPORT OF THE 10 ITA NO. 99, 100, 101/NAG/2011 11 ASSESSING OFFICER DATED 02/11/2009. THE TRIBUNAL HAS GIVEN CLEAR CUT FINDING IN THE ASSESSMENT YEAR 2004-2005 THAT THE SALES ARE GENUINE. THUS THERE REMAINS NO SCOPE TO TAKE A VIEW FROM THE DIFFERENT ONE WHICH HAS BEEN TAKEN BY THE TRIBUNAL. THE FACTS REMAIN THE SAME IN ALL THE ASSESSMENT YEARS. APPARENT IS REAL, ONUS IS ON THE PERSON WHO ALLEGES THE APPARENT IS NOT REAL. FOR THIS PROPOSITION OF LAW, RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DURGA DAS RAWAT MAL 87 ITR 369. 5. THE LEARNED D.R., ON THE OTHER HAND, VEHEMENTLY CONTENDED THAT THE FACTS INVOLVED IN THIS YEAR ARE DIFFERENT AS COMPARED TO ASSESSMENT YEAR 2004-2005. ON A QUERY FROM THE BENCH THAT THE ASSESSMENT IN THE YEARS HAVE BEEN REOPENED ONLY ON THE BASIS OF THE FINDINGS GIVEN BY THE SURVEY TEAM AND ALSO THE DEDUCTION WAS DISALLOWED TO THE ASSESSEE U/S 10B ONLY ON THE BASIS OF THE FINDING GIVEN BY THE SURVEY REPORT, THE LEARNED D.R. WAS FAIR ENOUGH TO CONCEDE THAT THE DEDUCTION IN ALL THE YEARS HAS BEEN DISALLOWED BY THE ASSESSING OFFICER MAINLY ON THE BASIS OF THE FINDING GIVEN BY THE SURVEY TEAM. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDERS OF THE AUTHORITIES BELOW. WE NOTICED THAT THE ASSESSING OFFICER AT THE FIRST INSTANCE TOOK A VIEW THAT THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT AS FOR THE PURPOSE OF SECTION 10B OF THE I.T. ACT, 100% EOU IS ONLY THAT WHICH IS SO APPROVED BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED U/S 14 OF THE ITAR ACT, 1951. 100% EOU UNDER THE STP SCHEME CANNOT BE EQUATED WITH 1005 EOU APPROVED BY THE BOARD U/S 14 OF THE ITAR ACT. WE HAVE GONE THROUGH THE INSTRUCTION NO. 1 DATED 11/03/2006 AND INSTRUCTION NO. 2/2009 DATED 09/03/2009. IN VIEW OF THESE INSTRUCTIONS, IN OUR OPINION, APPROVAL BY THE INTER MINISTERIAL STANDING COMMITTEE IS THE SUFFICIENT COMPLIANCE OF THE APPROVAL BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT AS THE CENTRAL GOVERNMENT HAS NOT APPOINTED ANY OTHER SEPARATE AUTHORITY IN THIS REGARD. EVEN NO SUCH AUTHORITY WAS SPECIFICALLY BROUGHT TO OUR KNOWLEDGE BY LEARNED D.R. WHEN A QUERY WAS 11 ITA NO. 99, 100, 101/NAG/2011 12 RAISED IN THE CHAMBER. AS PER INSTRUCTION NO. 2/2009, EVEN AN APPROVAL GRANTED BY DEVELOPMENT COMMISSIONER IN THE CASE OF AN 100% EPU IS CONSIDERED VALID ONCE SUCH APPROVAL IS RATIFIED BY THE BOARD OF APPROVAL FOR EPO SCHEME. IN VIEW OF THIS FACT, WE DO NOT AGREE WITH THE ASSESSING OFFICER THAT ON THIS BASIS THE ASSESSEE IS NOT ELIGIBLE FOR EXEMPTION U/S 10B OF THE ACT. THIS IS A FACT THAT THERE HAS BEEN A SURVEY AT THE BUSINESS PREMISES OF THE ASSESSEE ON 07/03/2007 AND ON THE BASIS OF THE SURVEY FINDING, THE ASSESSING OFFICER RAISED THE QUERY BY REOPENING THE ASSESSMENT U/S 147 FROM TIME TO TIME AND ULTIMATELY TOOK THE VIEW THAT THE ASSESSEE HAS NOT ACTUALLY EXPORTED THE SOFTWARE. THE SURVEY TOOK PLACE IN THE CASE OF THE ASSESSEE ON 07/03/2007 WHILE THE ASSESSEE IN FACT DID NOT MAKE ANY SOFTWARE DEVELOPMENT AND EXPORT AFTER 31/03/2004. THE FINDING GIVEN BY THE SURVEY TEAM HAS DULY BEEN CONSIDERED BY THIS TRIBUNAL WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-2005 AND ULTIMATELY THE TRIBUNAL IN I.T.A. NO.159/NAG/08 VIDE ITS ORDER DATED 06/03/2009 TOOK THE VIEW AFTER LOOKING INTO THE TOTALITY OF THE FACTS THAT THE ASSESSEE HAS DULY ESTABLISHED THE GENUINENESS OF EXPORT OF SOFTWARE BY IT DURING THE YEAR UNDER CONSIDERATION BY HOLDING AS UNDER: WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE CIT(APPEALS) HAS SUSTAINED THE DISALLOWANCE OF EXEMPTION U/S 10B MAINLY ON THE BASIS OF FINDING IN THE SURVEY REPORT AND HAS EXTENSIVELY QUOTED THE SAME FROM PAGE 3 TO 5 OF HIS ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED EACH AND EVERY FINDING IN THE SURVEY REPORT. THE LEARNED D.R HAS NOT CONTROVERTED THE EXPLANATION OF THE LEARNED COUNSEL FOR THE ASSESSEE WITH REFERENCE TO THE ISSUES RAISED IN THE SURVEY REPORT. THE LEARNED CIT(APPEALS) HAS ALSO MENTIONED THE AOS REPORT THAT ON VISIT OF ASSESSEES PREMISES ONLY ONE LADY WAS FOUND SITTING AT THE RECEPTION. IT WAS EXPLAINED BY THE LEARNED COUNSEL THAT THE ASSESSEES BUSINESS OF EXPORT OF SOFTWARE IS ALREADY CLOSED IN MARCH, 2004 AND THERE IS NO FURTHER EXPORT THERE AFTER. THE VISIT BY THE REVENUE AUTHORITIES WAS IN THE YEAR 2007. WHEN THERE WAS NO BUSINESS OF EXPORT OF SOFTWARE IN EXISTENCE IN THE YEAR 2007 THEN NATURALLY ONLY THE OFFICE STAFF WOULD BE AVAILABLE. FROM THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION WE FIND THAT THERE WAS A RECEIPT OF RS 46.55 LAKHS 12 ITA NO. 99, 100, 101/NAG/2011 13 FROM THE EXPORT OF SOFTWARE AGAINST WHICH THE TOTAL EXPENDITURE CLAIMED WAS RS. 31,99,772/- DETAILS OF WHICH ARE AS UNDER : TO DIRECT EXPENSES: SALARY & ALLOWANCES 720,000.00 INTERNET EXPENSES 159,174.00 AMC FOR COMPUTERS 11,959.00 STPI SERVICE CHARGES 100,000.00 991,133.00 TO ADMINISTRATIVE & OTHER EXPENSES: BANK CHARGES 1,493.00 BOOKS & PERIODICALS 6,370.00 CONVEYANCE EXPENSES 24,000.00 ELECTRICITY CHARGES 44,953.00 EXCHANGE CHARGES, HDFC BANK 500.00 LEGAL & AUDIT FEES 2,204.00 MEMBERSHIP SUBSCRIPTION 4,000.00 MISCELLANEOUS EXPENSES 6,777.25 NEWS PAPERS 2,640.00 OFFICE EXPENSES 4,958.00 POSTAGES & COURIER CHARGES 2,511.00 PRINTING & STATIONERY EXPENSES 4,310.00 RENT 118,104.00 REPAIRS & MAINTENANCE 3,244.00 SOFTWARE DEVELOPMENT CHARGES 1,501,699.50 TELEPHONE & FAX 57,134.00 TRAVELLING EXPENSES 210,442.00 DEPRECIATION : AS PER SCHEDULE A ATTACHED 213,300.00 3,199,772.75 THE GENUINENESS OF THE ABOVE EXPENDITURE HAS NOT BEEN DOUBTED BY THE AO OR THE CIT(APPEALS). THE ABOVE EXPENDITURE HAS BEEN DULY ALLOWED. WHEN THE HUGE EXPENDITURE ON SALARY, INTERNET EXPENSES, ANNUAL MAINTENANCE CHARGE FOR COMPUTERS AND THE SERVICE CHARGES TO STPI IS ALLOWED, IT CANNOT BE SAID THAT THERE WAS NO BUSINESS OF SOFTWARE DEVELOPMENT BY THE ASSESSEE DURING THE RELEVANT ACCOUNTING YEAR. THE ASSESSEE IS REGISTERED AS IMPORTER EXPORTER WITH STPI. THE CERTIFICATE OF THE SAME IS PLACED AT PAGE 21 OF THE ASSESSEES PAPER BOOK. THE EXPORT OF SOFTWARE IS DULY EVIDENCED BY THE INVOICE RAISED ON ALFA IMPEX. THE SALE CONSIDERATION OF EXPORT OF SOFTWARE WAS RECEIVED IN CONVERTIBLE 13 ITA NO. 99, 100, 101/NAG/2011 14 VARIATION EXCHANGE THROUGH BANKING CHANNEL. THE ASSESSEE SUBMITTED REQUIRED FORM TO STPI. THE ASSESSEE HAD PURCHASED THE SOFTWARE WHICH WAS FURTHER DEVELOPED AND EXPORTED TO ALPHA INPEX. THE PURCHASE OF SOFTWARE WERE AT RS. 15,01,699/- IS ALLOWED BY THE AO. IN VIEW OF THE TOTALITY OF THE FACTS, WE ARE SATISFIED THAT THE ASSESSEE HAS DULY ESTABLISHED THE GENUINENESS OF THE EXPORT OF THE SOFTWARE BY IT DURING THE YEAR UNDER CONSIDERATION. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE BASIS OF MERE PRESUMPTION AND SUSPICION. WE, THEREFORE, ACCEPT THE ASSESSEES APPEAL AND DIRECT THE AO TO ALLOW DEDUCTION U/S 10B OF THE I.T. ACT AMOUNTING TO RS. 14,55,227/- IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 6.1 AGAINST THIS DECISION OF THE TRIBUNAL, THE REVENUE FILED THE MISC. APPLICATION, WHICH WAS ALSO DISMISSED BY THE TRIBUNAL VIDE ITS ORDER DATED 25/07/2011. THE TRIBUNAL HAS GIVEN A FINDING OF FACT THAT THE ASSESSEE HAS ESTABLISHED THE GENUINENESS OF THE EXPORT OF THE SOFTWARE. THE FACTS INVOLVED IN ALL THESE YEARS ARE ALSO THE SAME. ALL THESE YEARS HAVE BEEN REOPENED BY THE ASSESSING OFFICER ON THE BASIS OF SURVEY CONDUCTED IN THE PREMISES OF THE ASSESSEE ON 07/03/2007 BY INVESTIGATION WING OF THE DEPARTMENT AND ALSO THE FACT THAT THE DISALLOWANCE OF EXEMPTION U/S 10B HAS BEEN MADE IN THE ASSESSMENT YEAR 2004-2005, WHICH WAS CONFIRMED BY THE CIT(A). THUS, IN OUR OPINION, THE BASIS OF THE REOPENING OF ALL THESE ASSESSMENT YEARS IS THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT YEAR 2004-2005 AS WELL AS THEIR FINDINGS GIVEN IN THE SURVEY REPORT. WE ALSO NOTED THAT ALONG WITH EACH AND EVERY INVOICE, THROUGH WHICH THE EXPORT HAS BEEN MADE BY THE ASSESSEE, CERTIFICATE ISSUED BY THE DY. DIRECTOR (TECH.) OF STPI WAS ATTACHED. THIS CERTIFICATE CLEARLY STATES THAT THE SOFTWARE DESCRIBED WERE ACTUALLY TRANSMITTED AND THE EXPORT VALUE DECLARED BY THE EXPORTER HAS BEEN FOUND TO BE IN ORDER AND ACCEPTED BY THAT AUTHORITY. ONCE THE CERTIFICATE IS ISSUED BY THE STPI, THERE REMAINS NO DOUBT THAT THE EXPORT MADE BY THE ASSESSEE STAND DULY VERIFIED BY THE STPI, WHICH IS ONE OF THE GOVERNMENT AGENCY. THIS IS THE SETTLED LAW IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF DURGA DAS 14 ITA NO. 99, 100, 101/NAG/2011 15 RAWAT MAL 87 ITR 369 THAT THE APPARENT IS REAL, ONUS IS ON THE PERSON WHO ALLEGES APPARENT IS NOT REAL. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW BUT WE DO NOT FIND ANY EVIDENCE WHICH MAY PROVE THAT THE EXPORT MADE BY THE ASSESSEE WAS BOGUS. THERE HAD BEEN SURVEY IN THE CASE OF THE ASSESSEE BUT NO SPECIFIC MATERIAL WAS BEING BROUGHT ON RECORD WHICH MAY DISCHARGE THE ONUS OF THE REVENUE THAT THE ASSESSEE HAS NOT MADE THE EXPORT BUT HAS IN FACT BROUGHT HIS OWN FUNDS AT THE PRETEXT OF EXPORT BEING MADE. WHENEVER THE EXPORTS ARE TO BE MADE, THE ASSESSEE IS BOUND TO FOLLOW GUIDELINES ISSUED BY THE STPI AND HAS ALSO TO SUBMIT FIRMS BEFORE THE RBI UNDER THE FEMA ALONG WITH THE CERTIFICATE ISSUED BY THE STPI CERTIFYING THE VALUE DECLARED BY THE EXPORTER TO BE IN ORDER AND ACCEPTED BY THE STPI. THIS FORM HAS BEEN FILED ALONG WITH EACH AND EVERY INVOICE UNDER THE FEMA. IT IS NOT A CASE WHERE THE STPI HAS NOT TO ISSUE ANY CERTIFICATE BEFORE THE EXPORT ABOUT THE DECLARATION OF THE EXPORT CONSIDERATION BY THE ASSESSEE. WE DO NOT FIND EVEN A SINGLE INSTANCE, WHICH MAY PROVE THAT THE ASSESSEE HAD NOT COMPLIED WITH THE GUIDELINES IN THIS REGARD. THE ASSESSING OFFICER HAS MAINLY RELIED ON A LETTER DATED 03/01/2007 ISSUED BY STPI TO THE ASSESSEE ASKING THE ASSESSEE TO FURNISH CERTAIN INFORMATION. THIS LETTER IS ISSUED AFTER THE EXPIRY WHEN ACTUALLY EXPORT HAD ALREADY TAKEN PLACE AND ALSO AT THE INSTANCE OF THE ASSESSING OFFICER AS IS APPARENT FROM PARA 6 OF THE LETTER DATED 22/07/2009 WRITTEN BY THE ASSESSMENT. DIRECTOR, STPI, MAHARASHTRA TO ACIT, CIRCIE-NAGPUR. THIS PARA READS AS UNDER: 6.AS REGARDS CONTENTS OF PARA NO.6 OF YOUR AFORESAID LETTER, ALL THE THEN DEALING OFFICIALS IN OUR OFFICE HAVE CHANGED. YOU WILL APPRECIATE THAT THE SOLE REASON BEHIND SENDING OUR LETTER DATED 3 RD JANUARY 2007 TO THE SAID STP UNIT WAS TO EXPEDITE PROCEEDINGS INITIATED BY YOUR OFFICE AND NOTHING ELSE. IN FACT, IT IS NOTHING BUT AN OFFSHOOT OF LETTER NO. ITO(INV.)/NGP/JHS/2006-07 DATED 13.12.06 & LETTER NO. ITO(INV.)/NGP/JHS/2006-07 DATED 21.12.06 RECEIVED BY US FROM THE INCOME TAX OFFICER (INV.), NAGPUR. AS REGARDS SOFTEX FORMS CERTIFIED BY OUR OFFICE AND THE NATURE OF INFORMATION FURNISHED BY M/S JAI HARI SOFTECH, WE WISH TO STATE THAT CERTIFICATION OF THE SAID FORMS WAS DONE BY THE THEN CONCERNED 15 ITA NO. 99, 100, 101/NAG/2011 16 OFFICIALS IN CONFORMITY WITH THE REQUIREMENTS OF SOFTEX FORMS AS ALREADY EXPLAINED IN PARA NO.2 ABOVE. 6.2 IN VIEW OF THIS FACT, WE DO NOT FIND THAT THERE ARE ANY DIFFERENCE OF FACTS AS COMPARED TO THE ASSESSMENT YEAR 2004-2005 AND IN THE ASSESSMENT YEAR 2004- 2005 THIS TRIBUNAL HAS CATEGORICALLY HELD THAT THE ASSESSEE HAS DULY ESTABLISHED THE GENUINENESS OF THE EXPORT OF THE SOFTWARE BY IT DURING THE YEAR UNDER CONSIDERATION. THE DECISION OF COORDINATE BENCH IS BINDING ON US. RESPECTFULLY FOLLOWING THE SAID DECISION, WE SET ASIDE THE ORDER OF CIT(A) IN ALL THE YEARS AND THUS ALLOW THE GROUND NO. 5 TO 13 OF THE ASSESSEE AND DELETE THE ADDITION MADE BY THE ASSESSING OFFICER U/S 68 OF THE ACT AND DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION TO THE ASSESSEE U/S 10B OF THE ACT. 7. THE GROUNDS WHICH REMAIN FOR DISPOSAL FOR ASSESSMENT YEAR 2003-2004 ARE THE GROUND NOS. 1, 2 AND 4 AS THE GROUND NOS. 5 TO 11 HAVE ALREADY BEEN DISPOSED OF ALONG WITH I.T.A. NO.99/NAG/11 AND 100/AG/11. THE ONLY ISSUE INVOLVED IN ALL THESE GROUNDS RELATE TO THE ASSAILMENT OF THE INITIATION OF THE REASSESSMENT PROCEEDINGS AND THE VALIDITY OF THE ORDER PASSED IN CONSEQUENCE OF REASSESSMENT PROCEEDINGS. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE SUBMITTED THE RETURN ON 29/11/2003 DECLARING AN INCOME OF RS.52,93,204/-. ASSESSMENT WAS FRAMED U/S 143(3) AFTER MAKING CERTAIN DISALLOWANCE. THE TOTAL INCOME WAS DETERMINED AT RS.53,25,270/-. THE ASSESSEE WAS ALLOWED EXEMPTION U/S 10B @90% OF THE TOTAL INCOME. SUBSEQUENTLY, THERE HAS BEEN SEARCH ON 07/03/2007 AT THE BUSINESS PREMISES OF THE ASSESSEE. THE ASSESSING OFFICER INITIATED PROCEEDINGS U/S 143 ISSUING NOTICE U/S 148 DATED 10/03/2008 BY RECORDING THE FOLLOWING REASONS: ASSESSMENT YEAR 2003-04 REASONS FOR REOPENING ASSESSMENT :- THE ASSESSEE HAS FILED A RETURN OF INCOME FOR ASSESSMENT YEAR 2001-02 ON 29-11-2003 DECLARING INCOME OF RS 52,93,205/-. THE ASSESSEE IS RUNNING A COMPUTER SOFTWARE BUSINESS IN THE NAME OF M/S JAI HARI SOFTECH, NAGPUR. DURING THE YEAR 16 ITA NO. 99, 100, 101/NAG/2011 17 UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN TOTAL RECEIPT OF RS 5,69,32,783/- AND NET PROFIT HAS BEEN SHOWN AT RS 4,90,13,560/- GIVING PROFIT RATE OF 90.2%. THE ENTIRE PROFIT HAS BEEN SHOWN AS EXEMPT UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961. A SURVEY CONDUCTED UNDER THE BUSINESS PREMISES OF THE ABOVE REFERRED ASSESSEE WAS CONDUCTED ON 07-03-2007 BY THE INVESTIGATION WING OF THE DEPARTMENT. DURING THE COURSE OF SURVEY IT WAS REVEALED THAT DURING THE PERIOD FROM 1999-2000 TO 2003-04 THE ASSESSEE HAS SHOWN TO HAVE RECEIVED A TOTAL CONSIDERATION OF 55,94,054 US DOLLARS (APPROX RS 26.66 CRORES) AGAINST THE EXPORT TO M/S ALPHA IMPEX HONGKONG. THE ASSESSEE HAS ALSO CLAIMED EXEMPTION UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 AS AN 100% EXPORT ORIENTED UNIT. THE ASSESSEE HAS STATED THAT IT WAS EXPORTING COMPUTER SOFTWARE TO THE ABOVE REFERRED FIRM DURING THE ABOVE YEARS. THE EXEMPTION CLAIMED UNDER SECTION 10B HAS BEEN ALLOWED EXCEPT FOR THE ASSESSMENT YEAR 2004-05 WHEREIN IT WAS DISALLOWED AS THE ASSESSMENT WAS PASSED AS AN EX-PARTE UNDER SECTION 144 OF THE ACT. THE DISALLOWANCE MADE FOR THE ASSESSMENT YEAR 2004-05 HAS BEEN CONFIRMED BY THE CIT(A) II NAGPUR VIDE HIS ORDER DATED 27/11/2007. FOR DEVELOPMENT AND SALE OF THE COMPUTER SOFTWARES THE ASSESSEE HAS TO FOLLOW CERTAIN GUIDELINES ISSUED BY THE SOFTWARE TECHNOLOGY PARKS OF INDIA, A GOVERNMENT OF INDIA AUTONOMOUS SOCIETY. THEY WERE NOT FOLLOWED BY ASSESSEE AS CAN BE PROVED BY THE STPI VIDE ITS LETTER NO. STP/N.GEN/2006-07/5328 DATED 03.01.2007 TO THE ASSESSEE BY A LETTER THE STPI ASKED SHRI JUGALKISHORE MANIYAR TO FURNISH CERTAIN INFORMATION WITH REFERENCE TO THE EXPORT CERTIFIED BY THE STPI. THE LETTER IS ISSUED CERTAIN INFORMATION WITH REFERENCE TO THE EXPORT CERTIFIED BY THE STPI. THE LETTER IS ISSUED AS LATE AS 03.01.2007 WHEN THE BUSINESS OF THE ASSESSEE OF THE EXPORT OF SOFTWARE HAS DISCONTINUED AS PER THE VERSION OF THE ASSESSEE ASKING FOR THE DETAILS AS 07.03.2007 BY STPI. ITSELF MEANS THAT THERE WAS NO SUCH BUSINESS OF SOFTWARE DONE BY THE ASSESSEE AS IT IS SEEN THAT THE ASSESSEE IS SHOWING NET PROFIT AS 90% AND ABOVE FROM THIS BUSINESS WHICH IS NOT POSSIBLE AT ANY TIME OF BUSINESS. DURING THE COURSE OF SURVEY CONDUCTED, IT IS REVEALED THAT THE ASSESSEE HAS NOT PURCHASED THE COMPUTERS WHICH WERE THE BACK BONE OF SOFTWARE INDUSTRY AS THE FIRM FROM WHICH THE ASSESSEE HAS STATED TO HAVE BEEN 17 ITA NO. 99, 100, 101/NAG/2011 18 PURCHASED THE COMPUTERS IS NOT IN EXISTENCE AT THE TWO ADDRESS IN MUMBAI AND PAYMENT HAS ALSO BEEN MADE IN CASH AFTER ONE YEAR FROM THE DATE OF PURCHASE. ALL THE ABOVE FACTS CLEARLY PROVE THAT THE ASSESSEE HAS ACTUALLY NOT EXPORTED ANYTHING AND THE TRANSACTIONS ELEMENT HAVE BEEN DONE BY THE ASSESSEE ARE NOTHING BUT MONEY LAUNDERING TRANSACTIONS. THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER SECTION 10B OF THE ACT. MOREOVER, THE ENTIRE RECEIPT SHOWN BY THE ASSESSEE IS TO BE TAXED IN THE HANDS OF THE ASSESSEE AS UNDISCLOSED INCOME OF THE ASSESSEE. IN VIEW OF ABOVE, I HAVE REASONS TO BELIEVE THAT THE INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE TO THE EXTENT OF RS 5,69,32,783/- HAS ESCAPED ASSESSMENT FOR THE ASSESSMENT YEAR 2003-04. HENCE IT IS CONSIDERED NECESSARY TO ISSUE NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, 1961 IN THE CASE OF ASSESSEE FOR THE ASSESSMENT YEAR 2003- 04. 7.1 THE ASSESSEE, VIDE LETTER DATED 14/02/2008, INFORMED THE ASSESSING OFFICER THAT THE APPEAL FOR THE ASSESSMENT YEAR 2004-2005 AGAINST THE DISALLOWANCE OF EXEMPTION U/S 10B IS PENDING BEFORE THE TRIBUNAL. THE ASSESSEE, VIDE LETTER DATED 23/12/2008, REQUESTED FOR THE COPY OF THE REASONS AS WELL AS THE COPY OF THE REQUISITE MANDATORY SANCTION AS PROVIDED U/S 151(2). THE ASSESSING OFFICER DID NOT SUPPLY THE COPY OF THE REASONS. THE REASONS WERE SUPPLIED TO THE ASSESSEE VIDE LETTER DATED 29/12/2008, WHICH WERE RECEIVED BY THE ASSESSEE ON 30/12/2008. THE ASSESSEE FURNISHED VARIOUS COMMENTS VIDE LETTER DATED 25/12/2008 TO SUBSTANTIATE THE BONAFIDE OF THE EXPORT AND THE CLAIM OF THE EXEMPTION U/S 10B OF THE I.T. ACT. THE ASSESSEE SOUGHT ONE WEEK TIME TO FILE THE OBJECTION ON 31/12/2008 BUT AS THE ASSESSMENT WAS GOING TO BE TIME BARRED ON 31/12/2008, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER DATED 31/12/2008. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BOTH ON LEGALITY AS WELL AS ON MERIT. 18 ITA NO. 99, 100, 101/NAG/2011 19 8. BEFORE US, THE LEARNED A. R., VEHEMENTLY CONTENDED THAT THE REASONS RECORDED ARE NOT BONAFIDE. THE PREDECESSOR ASSESSING OFFICER ALLOWED THE EXEMPTION U/S 10B TO THE ASSESSEE @90% OF THE TOTAL INCOME AFTER SCRUTINIZING THE CASE IN DETAIL. NO NEW FACTS ARE BEING FOUND BUT THE ASSESSMENT HAS BEEN REOPENED DUE TO CHANGE IN OPINION ON THE SAME VERY FACTS. FROM THE REASONS RECORDED, IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS MERELY ACTED UPON A LETTER STATED TO HAVE BEEN ADDRESSED BY STI DATED 03/01/2007, THE CONTENTS OF WHICH HAVE ALSO BEEN QUOTED BY THE ASSESSING OFFICER IN THE REASONS TO BELIEVE. THE ASSESSING OFFICER HIMSELF HAD NOT COME TO A DEFINITE CONCLUSION OF ESCAPEMENT OF INCOME BUT ON THE CONTRARY HAS WENT UPON CERTAIN INFORMATION ALLEGED TO HAVE BEEN RECEIVED FROM A FOREIGN SOURCE. IT WAS SUBMITTED THAT MERELY BECAUSE SOME OTHER AUTHORITY HAD ISSUED A LETTER, IT WOULD NOT CONSTITUTE ANY REASON TO BELIEVE SO FOR AS REASSESSMENT PROCEEDINGS ARE CONCERNED. THE ASSESSING OFFICER HAS TO COME TO A DEFINITE SATISFACTION ABOUT THE ESCAPEMENT OF INCOME ON HIS OWN AND EVEN THE OPINION GIVEN BY HIS OWN SUPERIOR COULD NOT BE SUFFICIENT TO INITIATE REASSESSMENT PROCEEDINGS. RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA 320 ITR 561 (SC). 9. THE LEARNED D. R., ON THE OTHER HAND, RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD ALONG WITH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE GONE THROUGH THE PROVISIONS OF SECTION 147. UNDER SECTION 147, THE ASSESSING OFFICER CAN REOPEN THE ASSESSMENT. IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, THE EXPRESSION REASON TO BELIEVE DOES NOT PURELY SUBJECTIVE SATISFACTION. THE BELIEF MUST BE HELD IN GOOD FAITH. IT CANNOT MERELY BE A PRETENCE. THE 19 ITA NO. 99, 100, 101/NAG/2011 20 SUSPICION, GOSSIP OR RUMOR CANNOT FORM THE BASIS OF RECORDING THE REASONS TO BELIEVE. EVEN THE EXTRANEOUS AND IRRELEVANT MATERIAL CANNOT BE THE BASIS FOR ARRIVING AT THE CONCLUSION OF THE FACT. EVEN THE CHANGE OF OPINION CANNOT BE THE BASIS TO FORM THE REASON TO BELIEVE. THE REASON TO BELIEVE DOES NOT GIVE ARBITRARY POWER TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON THE BASIS OF MERE CHANGE OF OPINION. IN THIS REGARD THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR (SUPRA) HAS HELD AS UNDER: IN THE CASE OF CIT VS KELVINATOR OF INDIA LTD 320 ITR 564 (SC) HAS HELD THAT HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS REASON TO BELIEVE FAILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSMENTS ON THE BASIS OF MERE CHANGE OF OPINION, WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REVIEW AND POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRE-CONDITIONS AND IF THE CONCEPT OF CHANGE OF OPINION IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF CHANGE OF OPINION AS AN IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AFTER 1 ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK WITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SECTION 147 OF THE ACT, AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, PARLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSERTED THE WORD OPINION IN SECTION 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE, PARLIAMENT REINTRODUCED THE SAID EXPRESSION AND DELETED THE WORD OPINION ON THE GROUND THAT IT WOULD VEST ARBITRARY POWERS IN THE ASSESSING OFFICER. 11. RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE ABOVE CASE, WE ARE OF THE VIEW THAT THE REASONS RECORDED IN THIS CASE ARE NOT BONAFIDE 20 ITA NO. 99, 100, 101/NAG/2011 21 AND IT IS MERELY CHANGE OF OPINION. ON THIS BASIS ITSELF THE INITIATION OF THE PROCEEDINGS U/S 147 ARE INVALID AND IN CONSEQUENCE THEREOF THE ASSESSMENT FRAMED IS ALSO INVALID AND ACCORDINGLY WE QUASH THE SAME. 12. IN THE RESULT, THE APPEAL FOR THE ASSESSMENT YEAR 2001-2002 AND 2002- 2003 ARE PARTLY ALLOWED WHILE THE APPEAL FOR THE ASSESSMENT YEAR 2003-2004 IS ALLOWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 23/11/2012) SD/. SD/. ( D. T. GARASIA ) ( P. K. BANSAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:23/11/2012 *CL SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR 21