Kunal Chaturbhuj Nagrani, Ahmedabad V. The ACIT, Circle-12, Ahmedabad

ITA 1068/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6380 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 28-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH MEENA
• Assessee Lawyers: T P HEMANI
• Keywords: Business income; Additional evidence; Initiation of penalty proceedings; Revenue expenditure; Set aside
• Section: 271(1)(c); 145; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1068/AHD/2016 ( / ASSESSMENT YEAR : 2011-12) KUNAL CHATURBHUJ NAGRANI PROP. RYAN INTERNATIONAL 8, RAMESHWAR PARK SOCIETY MANINAGAR, AHMEDABAD-380 008 / VS. THE ASST.COMMISSIONER OF INCOME TAX CIRCLE-12 AHMEDABAD-380 006 # ./ ./ PAN/GIR NO. : ACIPN 5122 G ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #% / APPELLANT BY : SHRI T.P. HEMANI, AR &#%( / RESPONDENT BY : SHRI RAJESH MEENA, SR.DR )*(+ / DATE OF HEARING 27/06/2019 ,-./(+ / DATE OF PRONOUNCEMENT 29/07/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTA NCE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISS IONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [CIT(A) IN SHORT] DATED 24/02/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 2 - ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 31/03/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER:- 1. THE LD. ASSESSING OFFICER HAD PASSED THE ASSESSMEN T ORDER UNDER S.143(3) OF THE I.T. ACT, 1961 DETERMINING THE TOTA L INCOME AT RS.2,26,62,560/- AND ALLOWING EXEMPTION OF RS.1,71, 01,439/- UNDER S.10A FOR ASSESSMENT YEAR 2011-12 AS AGAINST THE RE TURNED INCOME OF RS.24,68,360/- AND CLAIMING EXEMPTION OF RS.4,66,82 ,217/- UNDER S.10A OF THE4 IT ACT, 1961. THE HONBLE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DISMISSING THE APPEAL IN TOTO AND H AS DENIED BALANCE EXEMPTION CLAIMED UNDER S.10A OF THE IT ACT, 1961. 2. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN NOT ALLO WING THE EXEMPTION OF RS.4,66,82,217/- AND MERELY ALLOWED ONLY RS.1,71 ,01,439/- WHICH WAS ALLOWED BY THE LD.ASSESSING OFFICER. 3. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE DE TERMINATION OF THE BUSINESS INCOME AT RS.2,26,77,094/- (TOTAL PROFIT R S.3,97,78,533/- - EXEMPTION UNDER S.10A OF RS.1,71,01439/-) INSTEAD O F RS.24,68,360/- OFFERED BY THE APPELLANT. 4. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE DE DUCTION OF TURNOVER OF RS.93,84,075/- CONSIDERING THE SAME AS PERTAINED TO NEXT FINANCIAL YEAR I.E. FOR FINANCIAL YEAR 2011-12 RELE VANT TO ASSESSMENT YEAR 2012-13 OUT OF TOTAL TURNOVER SHOWN BY THE APP ELLANT OF RS.5,32,40,628/- OF ASSESSMENT YEAR 2011-12 WHICH I S UNDER CONSIDERATION. TWO BILLS HAVE BEEN RAISED IN MARCH , 2011 AND THE CONSIDERATION IS RECEIVED IN APRIL, MAY AND JUNE OF 2011 THOUGH THE APPELLANT IS MAINTAINING THE BOOKS OF ACCOUNT OF ME RCANTILE METHOD. 5. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE MI XED METHOD OF ACCOUNTING (THE LD. ASSESSING OFFICER HAS HELD THAT THE APPELLANT IS MAINTAINING BOOKS OF ACCOUNT ON MIXED METHOD OF ACC OUNT) THOUGH THE APPELLANT IS STRICTLY FOLLOWING MERCANTILE METH OD OF ACCOUNT. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 3 - 6. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE PL ACE OF BUSINESS. THE APPELLANT HAD DONE THE BUSINESS ONLY FROM THE A HMEDABAD UNIT AND NOT FROM THE MUMBAI UNIT DURING THE ENTIRE FINA NCIAL YEAR 2010- 11. THE MUMBAI UNIT WAS TO BE ESTABLISHED AT THE R ELEVANT TIME. THUS, THE LD. ASSESSING OFFICER HAD ERRED IN LAW AN D ON FACTS IN BIFURCATING TURNOVER OF RS.4,38,56,553/- AS RS.2,15 ,43,357/- DONE BY THE AHMEDABAD UNIT WHILE TURNOVER FO RS.2,23,13,196 /- HAVE BEEN DONE BY THE MUMBAI UNIT AND THE SAME IS CONFIRMED B Y THE HONBLE CIT(A) WHICH IS OBJECTIONABLE. 7. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONSIDERING THE AFFIDAVIT OF SHRI MIRESH SHAH AS AN ADDITIONAL EVIDENCE (AS PER PARA 13.7 OF HIS APPELLATE ORDER) THOUGH THE APPELLANT HAS SPECIFICALLY REPLIED IN WRITTEN SUBMI SSION THAT THE AFFIDAVIT IS NOT AN ADDITIONAL EVIDENCE AS PER THE HONBLE PUNJAB & HARYANA HIGH COURTS DECISION IN THE CASE OF CIT VS . CENTRAL MALL: (2011): 332 ITR 320. ACCORDING TO THE HONBLE HIGH COURT THE AFFIDAVIT MERELY REITERATING THE STAND TAKEN BEFORE THE ASSESSING OFFICER CANNOT BE TREATED AS ADDITIONAL EVIDENCE. 3. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE B USINESS OF IT ENABLED SERVICES AND BPO SERVICE PROVIDER IN THE NA ME AND STYLE OF M/S.RYAN INTERNATIONAL, A PROPRIETARY-CONCERN OF SH RI KUNAL NAGRANI. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2011-12 DECLARING TOTAL INCOME AT RS.24,68,360/-. THE RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER INTER ALIA NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPTION UNDER S.10A OF THE ACT OF RS.4,66,82,217/ - @ 100% ON THE PROFITS AND GAINS DERIVED FROM EXPORT PROFIT. THE ASSESSEE HAS OBTAINED PERMISSION FROM SOFTWARE TECHNOLOGY PARK OF INDIA ( STPI) TO SET UP ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 4 - 100% EXPORT ORIENTED UNIT UNDER STPI SCHEME, FOR IT S UNIT LOCATED AT NAVRANGPURA, AHMEDABAD. THE ASSESSING OFFICER ENQU IRED INTO THE EXEMPTION CLAIMED UNDER S.10A OF THE ACT. IT WAS INTER ALIA ALLEGED BY THE ASSESSING OFFICER THAT THE DEBTORS PERTAINING T O SUBSEQUENT FY 2011- 12 RELEVANT TO AY 2012-13 AMOUNTING TO RS.93,84,075 /- WAS CLANDESTINELY INCLUDED IN THE CURRENT FY 2010-11 CO NCERNING AY 2011-12 IN QUESTION AND CONSEQUENTLY THE EXPORT SALES AND E XPORT PROFITS HAVE BEEN INFLATED TO THIS EXTENT TO MAKE WRONGFUL CLAIM OF EXEMPTION UNDER S.10A TO THIS EXTENT. THE ASSESSING OFFICER SECOND LY ALLEGED THAT A PART OF EXPORT TURNOVER DOES NOT RELATE TO STPI UNIT AT AHMEDABAD BUT RELATES TO MUMBAI UNIT WHICH IS NOT REGISTERED UNDER STPI S CHEME AND THUS NOT ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. AS A CONSEQUENCE, THE ASSESSING OFFICER HELD THAT THE EXPORT PROFITS DECL ARED BY THE ASSESSEE TO THE EXTENT OF RS.2,26,77,094/- IS NOT ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. 3.1. AS REGARDS ALLEGATION TOWARDS INFLATED DEBTO RS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT AN AMOUNT OF RS.1,07,48,060/ - REFLECTED AS DEBTOR RECEIVABLE FROM M/S.SUCHITA ENTERPRISE INC. AT THE END OF FY 2010-11. THE ASSESSING OFFICER OBSERVED THAT THE SAID AMOUNT WAS RECEIVED IN THE FY 2011-12. IT WAS ALLEGED THAT IT IS DIFFICULT TO BELIEVE THAT THE INCOME CLAIMED TO HAVE ACCRUED OR ARISEN FROM SUCH DEBT I N FY 2010-11 IS TRUE. ACCORDING TO THE ASSESSING OFFICER, THE TRANSACTION S GIVING RISE TO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 5 - OUTSTANDING DEBT RELATED TO THE SUBSEQUENT FY 2011- 12 WHICH HAS BEEN WRONGLY PREPONED IN THE CURRENT FY 2010-11 TO CLAIM WRONGFUL EXEMPTION UNDER SECTION 10A OF THE ACT. THE CONFIR MATION FROM THE SAID DEBTOR WAS NOT FOUND CLEAR ABOUT THE YEAR TO WHICH THE TRANSACTION RELATES TO. THE PROFITS DECLARED IN THE CURRENT YEAR WAS AL SO FOUND TO BE VERY HIGH AS COMPARED TO THE SUBSEQUENT YEAR OWING TO SUCH DE BTOR. THE ASSESSING OFFICER THUS ALLEGED THAT AY 2011-12 BEING THE LAST YEAR FOR CLAIMING EXEMPTION UNDER S.10A OF THE ACT, THE ASSESSEE HAS INDULGED IN PREDATING THE TRANSACTION TO RELATE THE INVOICE TO THE CURRENT FY 2010-11 RELEVANT TO AY 2011-12 IN QUESTION. TO SUPPORT SUC H ALLEGATION, THE ASSESSING OFFICER OBSERVED THAT THE SERVICES AND PA YMENT WERE WORKED OUT BY THE CUSTOMER M/S.SUCHITA ENTERPRISE INC. ON THE BASIS OF WORK DONE BY THE EMPLOYEES OF THE ASSESSEE-CONCERN ON TH E PORTAL OF M/S.SUCHITA ENTERPRISE INC. AND THE ASSESSEE WAS RE CEIVING INSTANT PAYMENT FROM THE CUSTOMER AGAINST WHATEVER SERVICES WERE RENDERED DURING A PARTICULAR PERIOD. IT WAS THUS ALLEGED TH AT THE ACTUAL TURNOVER PERTAINING TO FY 2010-11 STANDS AT RS.4,24,92,569/- ONLY FOR WHICH ACTUAL PAYMENTS WERE RECEIVED AS AGAINST THE INFLAT ED TURNOVER SHOWN BY THE ASSESSEE AT RS.5,32,40,629/-. THE ASSESSING OF FICER NOTICED THAT IN THE MONTH OF FEBRUARY AND MARCH-2011, BILLS HAVE BE EN RAISED TWICE, WHEREAS IN OTHER MONTHS BILL HAS BEEN RAISED ONLY O NCE. IT WAS NOTED THAT BILL IN FEB-2011 USD 104850 AND ANOTHER BILL OF SAM E AMOUNT I.E. 104850 IN MARCH-2011 REMAINS UNPAID WHEREAS THE FIR ST BILL IN THOSE TWO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 6 - MONTHS HAVE BEEN DULY PAID BY THE CUSTOMER. SIMILA RLY, ALL THE SINGLE BILLS OF OTHER MONTHS HAVE ALSO BEEN PROMPTLY PAID WITH NO OUTSTANDING. THUS, THE ASSESSING OFFICER ALLEGED THAT THESE TWO BILLS OF 104850 USD BOOKED FOR FEB-2011 AND MARCH-2011 DO NOT RELATE TO FY 2010-11 AND HAS BEEN WRONGLY SHOWN AS OUTSTANDING DEBTOR BY BOO KING THE SAME TOWARDS THE EXPORT TURNOVER. AN AMOUNT OF RS.93,84 ,075/- EQUIVALENT TO INDIAN CURRENCY WAS CONSEQUENTLY EXCLUDED FROM THE EXPORT TURNOVER BY THE ASSESSING OFFICER FOR THE PURPOSES OF QUANTIFIC ATION OF DEDUCTION UNDER S.10A OF THE ACT. 3.2. IN CONCLUSION, THE ASSESSING OFFICER ALLEGED T HAT TWO INVOICES OF USD 10485 EACH IN FEB AND MARCH-2011 EQUIVALENT TO RS.93,84,075/- SHOWN AS DEBTOR IN THE HANDS OF M/S.SUCHITA ENTERPR ISE INC. DO NOT RELATE TO AY 2011-12 BUT RELATES TO AY 2012-13. THE TOT AL TURNOVER OF ASSESSEE WAS ACCORDINGLY REDUCED BY THE ASSESSING O FFICER FROM RS.532.40 LAKHS TO RS.438.56 LAKHS FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER S.10A OF THE ACT. THE TOTAL PROFIT S DECLARED BY THE ASSESSEE FOR THE PURPOSES OF CLAIM OF DEDUCTION UND ER S.10A OF THE ACT AMOUNTING TO RS.4,91,62,608/- WAS ACCORDINGLY REVIS ED TO RS.3,97,78,533/- BY DEDUCTING THE PROFITS OF RS.93, 84,075/- FROM THE AFORESAID TURNOVER. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 7 - 3.3 THE ASSESSING OFFICER HAD ALSO ALLEGED DISCREPA NCY IN THE CLAIM OF EXPENSES BUT HOWEVER ULTIMATELY ACCEPTED THE CLAIMS AS SUCH. 3.4. THE ASSESSING OFFICER ALSO NOTED THAT WHEREAS ONLY AHMEDABAD UNIT WAS REGISTERED UNDER STPI BUT HOWEVER THE ASSE SSEE WAS ALSO DOING BUSINESS FROM NEWLY OPENED MUMBAI UNIT WHICH WAS NO T REGISTERED UNDER STPI. IT WAS ALLEGED THAT TURNOVER GENERATED FROM UNREGISTERED UNIT WAS ALSO CLUBBED IN THE TOTAL EXPORT TURNOVER AND ELIGIBLE PROFITS AND GAINS AND THUS EXCESS CLAIM OF DEDUCTION UNDER S.10 A HAS BEEN MADE. FOR COMING TO SUCH CONCLUSION, THE ASSESSING OFFICE R RELIED UPON CERTAIN EMAIL FROM MR.MIRESH SHAH (ASSESSEES EMPLOYEE AT M UMBAI UNIT). BASED ON SUCH EMAIL, THE ASSESSING OFFICER BIFURCAT ED THE TOTAL TURNOVER OF RS.438.56 LAKHS AND ASSIGNED TURNOVER OF MUMBAI UNIT AND AHMEDABAD UNIT AT RS.1,88,54,646 AND RS.2,23,13,196 RESPECTIVELY. THE DEDUCTION UNDER S.10A OF THE ACT WAS ACCORDINGLY RE DUCED DRASTICALLY AND REWORKED TO RS.1,71,01,439/- ON THE BASIS OF RE VISED TURNOVER AS ATTRIBUTABLE TO STPI UNIT. THE ADJUSTED PROFIT OF RS.2,26,77,094/- WAS ACCORDINGLY FOUND ATTRIBUTABLE TO NON-STPI MUMBAI U NIT AND ON WHICH EXEMPTION UNDER S.10A OF THE ACT WAS DENIED TO THE ASSESSEE. 4. AGGRIEVED BY THE DENIAL OF CLAIM ON EXEMPTION/DE DUCTION UNDER S.10A OF THE ACT TO THE EXTENT OF RS.2,26,77,723, T HE ASSESSEE PREFERRED THE APPEAL BEFORE THE CIT(A). THE CIT(A) DID NOT FIND ANY MERIT IN THE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 8 - PLEA OF THE ASSESSEE FOR DEDUCTION OF CLAIM OF EXEM PTION AMOUNTING TO RS.4,66,82,217/- IN WHOLE AND HELD THAT THE ASSESSI NG OFFICER HAS RIGHTLY DISALLOWED THE DEDUCTION TO THE EXTENT OF RS.2,66,7 7,094/-. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPROD UCED HEREUNDER: DECISION: 13. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER, SUBMISSION OF THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. THE BRIEF FACTS ARE THAT THE APPELLANT CLAIMED EXEMPTION U/S. 10A FROM AHMEDABAD UNIT TURNOVER. THE A.O. NOTED THAT THE EXEMPTION U/S 10A WAS NOT AVAIL ABLE TO THE APPELLANT FROM SUBSEQUENT FINANCIAL YEAR I.E. 2011-12 THEREFORE, T HE APPELLANT MANIPULATED THE TURNOVER AND SHOWN MUMBAI UNIT TURNOVER IN AHMEDABA D STPI UNIT. 13.1 THE APPELLANT FIRST TIME FILED RETURN OF INCOM E AND CLAIMED EXEMPTION IN A.Y. 2011-12 AND NO RETURN WAS FILED IN THE PRECEDI NG YEAR IN A.Y. 2010-11. THE AO EXAMINED THE EXPENDITURE AND INVESTMENT OF T HE YEAR UNDER CONSIDERATION AND NOTED THAT IN THE MONTH OF SEPTEM BER, 2010 FOR AHMEDABAD OFFICE, THE APPELLANT PURCHASED COMPUTERS OF RS.2,7 0,000/- BUT OTHER THAN THAT NO OTHER EXPENDITURE WAS INCURRED FOR ESTABLISHING THE OFFICE/BUSINESS PREMISES AND SALARY EXPANSES FOR AHMEDABAD OFFICE. THE A.O. ALSO NOTED THAT THE PAYMENT TO EMPLOYEES WAS MADE IN CASH OF RS. 3,00,0 00/- FOR SALARY OF AHMEDABAD UNIT BUT THERE WAS NO WITHDRAWALS FROM TH E BANK AND CASH BOOK DID NOT SHOW ANY PAYMENT ALSO. THE A.O. FOUND CLEAR CUT DISCREPANCIES IN THE SALARY DETAILS SUBMITTED AND SALARY BOOKED IN THE B OOKS OF ACCOUNTS. THE A.O. FURTHER NOTED THAT TO MAXIMIZE THE EXEMPTION U/S 10 A OF THE ACT, THE APPELLANT HAS NOT BOOKED ANY CAPITAL/REVENUE EXPENDITURE FOR STPI UNIT OF AHMEDABAD UNIT. 13.2 THE A.O. FURTHER NOTED THAT THE APPELLANT HAS INCURRED HUGE CAPITAL AND REVENUE EXPENDITURE INCLUDING HUGE RENT FOR THE MUM BAI UNIT OFFICE FROM NOVEMBER, 2010 ONWARD BUT CLAIMED THAT NO SERVICES WERE RENDERED FROM THE MUMBAI UNIT AND NOT SHOWN ANY TURNOVER FROM MUMBAI UNIT EVEN THOUGH HE INCURRED EXPENSES FOR COMPUTERS, COMPUTER PARTS, H ARDWARE, FURNITURE AND FIXTURES, RENT ETC OF RS.41,97,652/- FOR MUMBAI OFF ICE. THUS THE A.O. CONCLUDED ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 9 - THAT BOOKS OF ACCOUNT OF THE APPELLANT ARE NOT RELI ABLE AND REJECTED U/S 145 OF THE ACT. THE FINDING AND ANALYSIS OF THE A.O. WAS F OUND BASED ON THE FACTS AND JUSTIFIED. 13.3 DURING THE APPELLATE PROCEEDING, THE APPELLANT MERELY SUBMITTED THE REPLY SUBMITTED BEFORE THE A.O, AND FURNISHED AN AFFIDAVI T OF MR. MIRESH SHAH IN SUPPORT OF HIS CLAIM. 13.4 THE CONTENTION OF THE APPELLANT REGARDING AFF IDAVIT OF SHRI MIRESH SHAH DATED 8-6-2015 IS NOT ACCEPTABLE AS THE CONTENT OF THE AFFIDAVIT IS CLEARLY FALL INTO THE CATEGORY OF ADDITIONAL EVIDENCE AS IN THE AFFIDAVIT SHRI MIRESH SHAH MENTIONED CONTRADICTORY FACTS AND SUBMITTED THAT HE WAS WORKING AT AHMEDABAD OFFICE AND NO BUSINESS/OPERATIONAL ACTIVI TIES EFFECTED AT MUMBAI DURING A.Y. 2010-11. 13.5 SINCE THE AFFIDAVIT WAS FILED FIRST TIME DUR ING THE APPELLATE PROCEEDING THEREFORE THE APPELLANT WAS ASKED VIDE THIS OFFICE LETTER DATED 21-12-2015 THAT WHY THE AFFIDAVIT SHOULD NOT BE TREATED AS ADDITION AL EVIDENCE AS IT WAS NOT FILED BEFORE THE A.O. AND WHY THE SAME SHOULD NOT B E REJECTED AS NO REQUEST FOR ACCEPTING THE ADDITION EVIDENCE UNDER RULE 46A HAS BEEN FILED. THE APPELLANT SUBMITTED THAT THE AFFIDAVIT DO NOT CONTAIN ANY NEW MATERIAL HENCE SAME SHOULD NOT BE TREATED AS ADDITIONAL EVIDENCE. HOWEVER THE CONTENTION OF THE APPELLANT IS MISLEADING AND FACTUALLY INCORRECT AS ALL THE IN FORMATION IN THE AFFIDAVIT IS NEW INFORMATION WHICH AMOUNT TO BE ADDITIONAL EVIDE NCE. 13.6 THE ADDITIONAL EVIDENCE IS GOVERNED BY RULE 46 A OF LT. RULES, 1962 WHICH IS AS UNDER:- '(1)THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE ( DEPUTY COMMISSIONER(APPEALS) {OR THE CASE MAY BE, THE COMM ISSIONER OF (APPEALS)} ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN T HE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE (ASSESS ING OFFICER), EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY - A. WHERE THE (ASSESSING OFFICER) HAS REFUSED TO ADMIT EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED; OR B. WHERE THE APPELLANT WAS PREVENTED BY SUFFICIEN T CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE (ASSESSING OFFICER); OR ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 10 - C. WHERE THE APPELLANT WAS PREVENTED BY SUFFICI ENT CAUSE FROM PRODUCING BEFORE THE (ASSESSING OFFICER) ANY EVIDENCE WHICH IS RELEV ANT TO ANY GROUND OF APPEAL OR; D. WHERE THE (ASSESSING OFFICER) HAS MADE THE ORD ER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO A DDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, TH E COMMISSIONER (APPEALS)} RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. (3) THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS)} SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE (ASSESSING OFFICER HAS BEEN ALLOWED A RE ASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS -EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, THE COMMISSIONE R (APPEALS) } TO DIRECT THE PRODUCTION OF ANY DOCUMENT, OR THE EXAMINATION OF A NY WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL, OR FOR ANY OTHER SUBSTANTIAL ' CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETHER ON HIS OWN MO TION OR ON THE REQUEST OF THE (ASSESSING OFFICER) UNDER CLAUSE (A) OF SUB-SECTION 1 OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER S.271).' 13.7 I HAVE GIVEN CAREFUL CONSIDERATION TO THE CONT ENTION OF THE APPELLANT AND I AM OF THE CONSIDERED VIEW THAT THE AFFIDAVIT IS AN ADDITIONAL EVIDENCE AND THE APPELLANT WAS NOT PREVENTED BY ANY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WITHIN THE MEANING OF SUB CLAUSE (B) AND ( C) OF SUB RULE 1 OF RULE 46A OF THE LT. RULES, 1962 HOWEVER IT APPEARS THAT THE APPELLANT DELIBERATELY DID NOT AVAIL THE OPPORTUNITY OF SUBMITTING EVIDENC E BEFORE THE A.O. THE APPELLANT HAS ALSO NOT REQUESTED TO ACCEPT THE SAME AS ADDITIONAL EVIDENCE THEREFORE THE AFFIDAVIT IS NOT TAKEN ON RECORD AND NO COGNIZANCE IS TAKEN. THEREFORE ADDITIONAL EVIDENCE IS NOT ADMITTED AND A PPEAL IS DECIDED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 13.8 IT IS FURTHER SEEN THAT THE AFFIDAVIT OF MR. M IRESH SHAH HAD CONTRADICTORY REFERENCE AND FACTS THEREFORE, THE APPELLANT WAS SP ECIFICALLY ASKED TO PRODUCE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 11 - MR. MIRESH SHAH, IN SUPPORT OF THE AFFIDAVIT SUBMIT TED. HOWEVER THE APPELLANT DID NOT PRODUCE MR. MIRESH SHAH IN SUPPORT OF THE C ONTRADICTORY FACTS MENTIONED IN THE AFFIDAVIT THEREFORE EVEN ON MERIT ALSO, THE AFFIDAVIT CANNOT BE CONSIDERED BONAFIDE. THUS THE FACTS MENTIONED BY TH E A.O. ARE FOUND AUTHENTIC AND GENUINE. IT IS SEEN THAT THE APPELLANT DID NOT PRODUCE ANY DETAILS OF THE EMPLOYEES BEFORE THE A.O. TO EXAMINE WHETHER THE SA ME WERE WORKING AT MUMBAI OR AHMEDABAD UNIT. 13.9 IT IS SEEN THAT THE AO VERIFIED THE GENUINENES S OF THE TURNOVER OF MUMBAI AND AHMEDABAD UNIT AND HELD THAT CIRCUMSTANTIAL EVI DENCES CLEARLY SHOW THAT THE APPELLANT ESTABLISHED MUMBAI UNIT AND EMPLOYEES WERE ENGAGED THERE TO PROVIDE THE SERVICES. THE DETAILS OF THE ACTIVITIES CAN BE SEEN AS UNDER : MONTH ACTIVITIES AT MUMBAI UNIT TOTAL TURNOVER AS PER ABOVE DISCUSSION OBSERVATION TURNOVER ATTRIBUTABLE TO STPI UNIT AHMEDABAD TURNOVER ATTRIBUTABLE TO MUMBAI UNIT AUGUST-2010 - 2688711 - 2688711 - SEPT-2010 - 2409352 - 2409352 OCT-2010 RENT AGREEMENT SIGNED 3086911 3086911 - NOV-2010 MUMBAI UNIT STARTED 2586707 2586707 DEC-2010 5284964 MUMBAI UNIT STARTED. 2692919 (AVERAGE OF 2592045 SHARP AND TURNOVER FROM SUDDEN RISE AUG TO NOV- IN TURNOVER OF 2010) ASSESSEE. JAN-2011 NEW FIXED 5412370 NEW ASSETS 2692919 2719451 ASSETS PURCHASED IN - ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 12 - PURCHASED MID OF THE MONTH. FEB-2011 - 9200865 SHARP AND 2692919 6507946 SUDDEN RISE IN TURNOVER OF ASSESSEE MARCH-2011 - 13186673 2692919 10493754 43856553 21543357 22313196 13.10 IN VIEW OF THE FACTS AND INFORMATION DISCUSSE D BY THE A.O. AND- CIRCUMSTANTIAL EVIDENCE THE STAND OF THE A.O. IS FO UND JUSTIFIABLE THAT THE APPELLANT WAS INVOLVED IN PROVIDING THE SERVICES FR OM MUMBAI UNIT HOWEVER, THE SAME WAS DIVERTED TO THE AHMEDABAD UNIT TO CLAI M THE EXEMPTION UNDER S.10A OF THE ACT. 13.11 IT IS OBVIOUS FROM THE ABOVE CHART AND DISCUS SION THAT UP TO THE MONTH OF NOVEMBER ONLY AHMEDABAD UNIT (STPI) WAS WORKING AND IT TURNOVER OF RS. 26,88,711/-, RS. 24,09,352/-, RS. 30,86,911/- AND R S. 25,86,707. HOWEVER, FROM THE MONTH OF DECEMBER, 2010, AFTER MUMBAI UNIT STARTED, THE APPELLANT'S TURNOVER GOT INCREASED ALMOST TO DOUBLE AND IN THE MONTH OF FEBRUARY AND MARCH, IT WAS FURTHER INCREASED THEREFORE CONSIDERI NG THE AVERAGE TURNOVER OF THE MONTH OF AUGUST TO NOVEMBER, THE MONTHLY TURNOV ER OF AHMEDABAD UNIT IS TAKEN AT RS. 26,92,919/- AND THE REMAINING TURNOVER WAS TREATED AS ATTRIBUTABLE TO MUMBAI UNIT AND ACCORDINGLY, THE AO HAS CALCULATED AHMEDABAD TURNOVER UNDER STPI UNIT IS RS. 1,88,54,6 46/- AND FURTHER CALCULATED ELIGIBLE PROFIT UNDER S. 10A PROPORTIONA TELY AT RS. 1,71,01,439/- AND THE BALANCE TURNOVER WAS TREATED AS BUSINESS I NCOME AND THEREFORE THE SAME IS UPHELD. 14. GROUND NO. 7 RELATES TO NOT APPRECIATING THE IN VOICES FOR RS.1,07,48,080/- RAISED DURING THE F.Y. 2010-11. TH E APPELLANT HAS NOT PRESSED THE GROUND, THEREFORE THE SAME IS DISMISSED. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 13 - 15. LAST GROUND OF APPEAL IS REGARDING INITIATION O F PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I.T. ACT IS DISMISSED AS N O APPEAL LIES AGAINST MERE INITIATION OF PENALTY PROCEEDINGS. 16. IN RESULT THE APPEAL IS DISMISSED. 5. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED THE AP PEAL BEFORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE STRONGLY DEFENDED THE CLAIM OF EXEMPTION MADE UNDER S.10A OF THE ACT AND CONTENDED THAT BOTH THE AUTHORITIES HAVE MISCONCEIVED THE FACTS AND MISDIRE CTED THEMSELVES IN LAW IN ARBITRARILY REDUCING THE EXEMPTION CLAIMED U NDER S.10A FROM RS.4,66,82,217/- TO RS.1,71,01,439/- AND WRONGLY SO UGHT TO FASTEN TAX LIABILITY ON RS.2,26,77,094/-. 6.1. AS REGARDS TWO INVOICES OF USD 104850 EACH IN FEBRUARY AND MARCH-2011 ALLEGED BY THE ASSESSING OFFICER TO BE N OT PERTAINING TO IN THE FY 2010-11 IN QUESTION, IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS PROCEEDED TO DISCARD THE INVOICES MAINLY ON SUS PICION AND CONJECTURES HAVING REGARD TO THE OUTSTANDING REMAIN ING AT THE END OF THE YEAR, WHEREAS THE FACT THAT THE PAYMENT HAS ACTUALL Y BEEN RECEIVED IN THE SUBSEQUENT YEAR HAS NOT BEEN DISPUTED. THE LD.AR P OINTED OUT THAT THE MERE FACT THAT IN THE CASE OF TWO INVOICES, PAYMENT HAS BEEN RECEIVED ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 14 - AFTER 2-3 MONTHS, I.E. IN APRIL & JUNE-2011 CANNOT BE A GROUND TO HOLD THAT SUCH SUM IS INCOME RELATABLE TO THE SUBSEQUENT YEAR. THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER CANNOT STEP IN TO THE SHOES OF A BUSINESS MAN TO DICTATE THE TERMS OF PAYMENT AND IT IS QUITE POSSIBLE TO RECEIVE THE PAYMENT LITTLE LATE WITHIN 2-3 MONTHS. IT IS THE SOLE PREROGATIVE OF A BUSINESS MAN TO DECIDE HOW MANY IN VOICES ARE TO BE RAISED IN A GIVEN MONTH KEEPING IN MIND THE QUANTUM OF SERVICES RENDERED AND ALSO HAVING REGARD TO HOST OF VARIOUS OTHER FACTORS. ASSESSING OFFICER CANNOT HOLD THAT IF MORE THAN ONE INVOICE IS RAISED IN A MONTH, SUCH INVOICES ARE NOT INCLUDIBLE. THE LD.AR POINTED OUT THAT A REFERENCE WAS MADE BEFORE THE LOWER AUTHORITIES TO THE BANK REALIZATION CERTIFICATES (BRCS) WHICH ESTABLISHES THE FACT THAT THE SERVICES HAVE BEEN RENDERED AND PAYMENT IN LIEU OF THE SAME HAS BEEN R ECEIVED AS EVIDENT FROM BRCS. CONFIRMATION OF THE CONCERNED DEBTOR (M /S.SUCHITA ENTERPRISE INC.) WAS ALSO REFERRED TO AS APPEARING AT PAGE NO.63 OF THE PAPER-BOOK. IT WAS POINTED OUT THAT ASSESSEE IS RE GISTERED STPI UNIT AND, THEREFORE, ALSO FILED SOFTEX FORM WITH STPI WHEREIN DISPUTED TURNOVER FOR FEB & MARCH-2011 WAS ALSO SHOWN AND DECLARED. THE LD.AR THUS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BROUGH T ANY COGENT EVIDENCE TO HOLD THAT CONCERNED TWO INVOICES PERTAINED TO SU BSEQUENT YEAR I.E. THE YEAR OF PAYMENT. THE LD.AR CONTENDED THAT IN THE A BSENCE OF ANY EVIDENCE TO THE CONTRARY AND IN THE WAKE OF POSITIV E EVIDENCES IN THE FORM OF BRCS ETC., THE ASSESSING OFFICER WAS NOT JU STIFIED IN HOLDING THAT ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 15 - A PORTION OF TURNOVER/INCOME BELONGS TO SUBSEQUENT YEAR ESPECIALLY WHEN ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. 6.2. ADVERTING TO THE SECOND ASPECT OF DISPUTE TOWA RDS BIFURCATION OF TOTAL EXPORT TURNOVER, THE LD.AR CONTENDED THAT THE ASSESSING OFFICER HAS ERRONEOUSLY HELD THAT PART OF THE BUSINESS WAS CARR IED OUT FROM MUMBAI UNIT (NON-ELIGIBLE UNIT) AND ACCORDINGLY THE ASSESS ING OFFICER HAS ARTIFICIALLY BIFURCATED TOTAL TURNOVER OF THE ASSES SEE CARRIED OUT FROM STPI UNIT INTO TURNOVER OF STPI UNIT (AHMEDABAD) AND NON -STPI UNIT (MUMBAI) ABRUPTLY. IT WAS VEHEMENTLY EXHORTED TH AT ALL THE WORK WAS CARRIED OUT FROM STPI UNIT SITUATED AT AHMEDABAD AN D THE ASSESSEE WAS ONLY LOOKING FORWARD TO ESTABLISH ITS BUSINESS IN M UMBAI. HENCE, CERTAIN EXPENSES WERE INCURRED AT MUMBAI WITHOUT ANY SUCCES S AND THE ASSESSEE DID NOT IN REALITY CONDUCT ANY BUSINESS FROM MUMBAI UNIT IN THE RELEVANT FY. IT WAS POINTED OUT THAT ONE MR. MIRESH SHAH (O NE OF THE EMPLOYEES AT MUMBAI UNIT) HAD ALSO GIVEN AN ADVERTISEMENT IN FEB-2011 FOR RECRUITMENT FOR WHICH THE INVOICE IS PLACED ON RECO RD. THIS WOULD GO TO SHOW THAT ASSESSEE WAS TRYING TO KICKSTART THE MUMB AI UNIT. THE ASSESSEE HAD MERELY GIVEN SECURITY FOR RENTED PREMI SES AT MUMBAI AND INCURRED SOME RENT EXPENSES. THE ONLY EXPENDITURE FOR DAY-TO-DAY BUSINESS WAS OF RS.2,342/- FOR LEASE-LINE CONNECTI ON PAID TO AIRTEL WHICH IS ESSENTIAL FOR BEGINNING THE BUSINESS VENTU RE. IT WAS THUS CONTENDED THAT NO DAY-TO-DAY WORK WAS CARRIED OUT F ROM MUMBAI. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 16 - RATHER, THE ENTIRE WORK WAS CARRIED OUT FROM AHMEDA BAD UNIT WHICH IS ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. WIT H REFERENCE TO THE TELEPHONIC CONVERSATION OF THE ASSESSING OFFICER MR . MIRESH SHAH, THE LD.AR SUBMITTED THAT THE STATEMENT OF THE SAID EMPL OYEE THAT THERE WERE 20 PEOPLE WORKING AT MUMBAI OFFICE WAS THE FACTUAL SCENARIO ON THE DATE OF THAT TELEPHONIC CONVERSATION AT THE TIME OF ASSE SSMENT. NOTWITHSTANDING, NO SUCH STATEMENT WAS PROVIDED TO THE ASSESSEE AND, THEREFORE, SUCH STATEMENT HAS NO PROBATIVE VALUE F OR THE PURPOSES OF EVIDENCE AGAINST THE ASSESSEE. THE EMAIL OF MR.MIR ESH SHAH ALSO DOES NOT EMBODY ANYTHING AGAINST THE ASSESSEE. THE AFFI DAVIT OF MR. MIRESH SHAH ALSO DENIES ANY SUCH STATEMENT TO THE ASSESSIN G OFFICER CONCERNING THE FY 2010-11. IT WAS THUS CONTENDED THAT THE ASS ESSING OFFICER COMMITTED GRAVE ERROR IN HOLDING THAT ASSESSEE HAS DONE MAJOR WORK FROM MUMBAI UNIT SO AS TO EMBARK IN ARTIFICIAL BIFURCATI ON OF TURNOVER BETWEEN MUMBAI AND AHMEDABAD UNITS. 6.3. THE LD.AR THUS CONTENDED THAT BOTH ADJUSTMEN T MADE BY THE ASSESSING OFFICER IN THE QUANTUM OF DEDUCTION NAMEL Y, MAKING ARTIFICIAL REDUCTION IN THE DECLARE TURNOVER AND DECLARED PROF ITS ON ACCOUNT OF INFLATED DEBTOR AND TURNOVER RELATING TO THE NON-ST PI UNIT ARE PATENTLY WRONG AND FACTUALLY UNSUSTAINABLE. THE LD.AR THUS SUBMITTED THAT THE ACTION OF THE REVENUE IN REDUCING THE CLAIM OF EXEM PTION REQUIRES TO BE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 17 - REVERSED AS NOT BEING TENABLE IN THE EYES OF LAW AN D THE EXEMPTION CLAIMED AS MADE BY THE ASSESSEE REQUIRES TO BE REST ORED. 7. THE LD.DR, ON THE OTHER HAND, RELIED ON THE ORDE RS OF LOWER AUTHORITIES AND SUBMITTED IN FURTHERANCE THAT THE A SSESSEE HAS CONCOCTED THE HIGHER EXPORT TURNOVER BELONGING TO SUBSEQUENT YEAR ONLY TO CLAIM DEDUCTION UNDER S.10A OF THE ACT. THE BUSINESS CAR RIED ON FROM NON- ELIGIBLE UNIT AT MUMBAI HAS ALSO BEEN CLUBBED WITH STPI UNIT IN ORDER TO CLAIM HIGHER DEDUCTION THAN WHAT IS ELIGIBLE TO ASS ESSEE. THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER AND CIT(A) HAV E DEALT WITH THE FACTS IN LENGTH. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE QUANTIFICATION OF DEDUCTION UNDER S.10A OF THE ACT CLAIMED BY THE ASSESSEE IS IN DISPUTE. THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.4,66,82,217/- TOWARDS EXEMPTION/DEDUCTION UNDER S.10A OF THE ACT. THE ASSESSING OFFICER HAS DISPUTED THE QUANTUM OF EXPORT TURNOVER DECLARED BY THE ASSESSEE FOR THE PURPOSES OF COMPUT ATION OF DEDUCTION AND REDUCED THE DECLARED TURNOVER BY RS.93,84,075/- AND CONSEQUENT ELIGIBLE PROFIT FROM EXPORT TO THE SAME EXTENT. THIS RESULTED IN REDUCTION OF ELIGIBLE CLAIM FOR THE PURPOSES OF S.10A OF THE ACT. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 18 - 8.1. SECONDLY, THE ASSESSING OFFICER HAS ALSO DISPU TED THE ADJUSTED TOTAL TURNOVER FROM EXPORT TO BE EXCLUSIVELY RELATA BLE TO STPI UNIT LOCATED AT AHMEDABAD AS CLAIMED. IT IS THE CASE OF THE ASSESSING OFFICER THAT A SUBSTANTIAL PART OF THE TURNOVER RELATES TO MUMBAI UNIT WHICH IS NOT REGISTERED AND, THEREFORE, THE ELIGIBLE PROFITS FOR THE PURPOSES OF SECTION 10A REQUIRES TO BE FURTHER ADJUSTED AND REDUCED TO THE EXTENT RELATABLE TO MUMBAI UNIT. THE ASSESSING OFFICER THUS REDUCED TH E ELIGIBLE PROFIT FROM EXPORT BY RS.2,26,77,094/- HOLDING THE SAME T O BE ATTRIBUTABLE TO NON ELIGIBLE UNIT. AS A CONSEQUENCE, THE EXEMPTION CLAIMED UNDER S.10A WAS REDUCED TO THIS EXTENT AND THE AMOUNT OF RS.2,2 6,77,094/- WAS BROUGHT TO TAX AS TAXABLE BUSINESS INCOME. 8.2. WE SHALL FIRST ADDRESS OURSELVES TO THE FIRST OBJECTION OF THE ASSESSING OFFICER TOWARDS CREDIBILITY OF EXPORT TUR NOVER DECLARED AND CONSEQUENT EXPORT PROFIT FLOWING THEREFROM. ON A P ERUSAL OF THE ASSESSMENT ORDER, IT APPEARS THAT THE ASSESSING OFF ICER WAS MAINLY GUIDED BY THE FACT THAT WHILE THE ASSESSEE HAS RECE IVED PAYMENT AGAINST ALL INVOICES RAISED IN OTHER MONTHS AS TO INSTANTLY WITH NO OUTSTANDING, THE ASSESSEE HAS NOT RECEIVED ANY PAYMENT AGAINST TWO ADDITIONAL INVOICES RAISED IN FEB-2011 & MARCH-2011 OF USD 104850 EACH EQUIVALENT TO RS.93,84,075/- IN AGGREGATE. THE ASSESSING OFFICER HAS NARRATED SUSPICIOUS CIRCUMSTANCES FOR NON-ACCRUAL OF INCOME IN THE FY 2010-11. IT IS THE CASE OF THE ASSESSING OFFICER THAT THE IN VOICES, IN FACT, RELATE TO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 19 - SUBSEQUENT ASSESSMENT YEAR AND HAS BEEN MERELY PRED ATED TO CLAIM WRONGFUL EXEMPTION UNDER S.10A BEING THE LAST YEAR OF ELIGIBILITY. THE ASSESSING OFFICER COMPUTED THE GROSS PROFITS RELATI NG TO THIS YEAR AND THE SUBSEQUENT YEAR TO PROP UP ITS CASE AGAINST THE ASSESSEE. IT IS THE CASE OF ASSESSING OFFICER WHILE THE TWO INVOICES ONCE TA KEN INTO ACCOUNT IN SUBSEQUENT YEAR, THE REALIGNED GP WOULD BE SOMEWHAT SIMILAR. 8.3. ON OBJECTIVE CONSIDERATION, WE NOTE THAT WHIL E IT IS FACTUALLY CORRECT THAT PAYMENT FOR TWO INVOICES WERE NOT RECEIVED IN THE SAME MANNER AS WAS RECEIVED FOR OTHER INVOICES RAISED TO ITS CUSTO MER, NAMELY; M/S.SUCHITA ENTERPRISE INC. THIS ABERRATION, IN OUR VIEW, CANNOT BE A GROUND FOR DOUBTING THE INVOICES ITSELF. THE ASSES SEE HAS DEMONSTRATED FROM THE BANK REALIZATION CERTIFICATES (BRCS) ISS UED BY THE BANK THAT THE ASSESSEE HAS RECEIVED CONSIDERATION AGAINST THE SERVICES RENDERED FOR THE PERIOD SPECIFIED THEREIN WHICH FALLS IN THE FY 2010-11. SIMPLY BECAUSE THE PAYMENT HAS BEEN RECEIVED IN THE SUBSEQ UENT YEAR WOULD NOT TANTAMOUNT TO DEFERRAL OF ACCRUAL OF INCOME ALSO TO THE SUBSEQUENT YEAR. MERELY BECAUSE THE DEDUCTION UNDER S.10A COMES TO A N END IN THIS YEAR SHOULD NOT NECESSARILY TRIGGER UNWARRANTED SUSPICIO N AGAINST THE ASSESSEE. THE CASE MADE OUT BY THE ASSESSING OFFICER TOWARDS FALL IN GROSS PROFIT ETC. IS REFUTABLE. IT IS DIFFICULT TO DISLODGE TH E CLAIM OF THE ASSESSEE BASED ON SUCH SHALLOW EVIDENCES. THE ASSESSEE, ON THE OT HER HAND, REQUIRES TO BE BELIEVED ON ACCOUNT OF REPORTING THE TRANSACTION S IN SOFTEX FORM ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 20 - WITH STPI INCLUDING THIS TURNOVER AS WELL AS IN THE LIGHT OF BANK REALIZATION CERTIFICATES PLACED ON RECORD. THE ADJ USTMENT MADE BY THE ASSESSING OFFICER TOWARDS REDUCTION OF EXPORT TURNO VER AND EXPORT PROFITS IS THUS REQUIRES TO BE DISCARDED. 8.4. TURNING TO THE SECOND ADJUSTMENT FOR APPORTIO NMENT OF TURNOVER BETWEEN THE STPI AND NON-STPI UNITS, WE AGAIN SEE N O FIRM BASIS FOR SUCH ACTION. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS MAINLY RELIED UPON THE TELEPHONIC STATEMENT OF MR.MIRESH S HAH (ONE OF THE EMPLOYEES OF THE ASSESSEE) TAKEN AT THE FAG END OF FY 2013-14, I.E. NEARLY AFTER A GAP OF THREE YEARS. IT IS THE CASE OF THE ASSESSEE THAT THE STATEMENT OF THE AFORESAID EMPLOYEE AGAINST THE ASS ESSEE, IF ANY, HAS NOT BEEN OFFERED FOR CROSS-EXAMINATION BY THE ASSESSING OFFICER NOR THE STATEMENT WAS SHARED. THUS, SUCH NON-DESCRIPT INFO RMATION CANNOT BE USED AGAINST THE ASSESSEE. WE FIND MERIT IN SUCH P LEA WHICH IS ALSO SUPPORTED BY THE AFFIDAVIT OF THE EMPLOYEE BEFORE T HE CIT(A). THE EXPORT TURNOVER CANNOT BE BIFURCATED CASUALLY BASED ON SOME FLIMSY EVIDENCES. THE EXPLANATION OF THE ASSESSEE THAT IT WANTED TO EXPAND ITS FOOT-PRINTS TO MUMBAI AND FOR WHICH REASON RENTAL P ROPERTY WAS TAKEN TO EXPLORE THE POSSIBILITY IS QUITE PLAUSIBLE. AN OFF ICE IN NON-ELIGIBLE OFFICE/UNIT IN NON-ELIGIBLE AREA BY ITSELF CANNOT B E HELD AGAINST THE ASSESSEE. THE BASIS OF APPORTIONMENT OF TURNOVER B ETWEEN THE STPI UNIT AND NON-STPI UNIT AS RECORDED IN PARA 7.6 OF THE AS SESSMENT ORDER IS ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 21 - WHOLLY UNJUSTIFIED. THE CASE OF THE ASSESSING OFFI CER THAT SUDDEN RISE IN TURNOVER WITH THE ADVENT OF MUMBAI UNIT COUPLED WIT H PURCHASE OF ASSETS IN MUMBAI CANNOT BE A GROUND FOR BIFURCATION OF TUR NOVER TO NON-ELIGIBLE UNIT THE SUSPICION RAISED IS MOTHER OF ENQUIRY. S OME ENQUIRY IN THIS DIRECTION OUGHT TO HAVE BEEN MADE. IN THE ABSENCE O F ANY FURTHER ENQUIRY TO ESTABLISH THE CARRYING OF EXPORT BUSINESS FROM N ON-ELIGIBLE UNIT, THE ACTION OF THE ASSESSING OFFICER IS FARFETCHED AND N OT SUSTAINABLE. THEREFORE, THE SECOND GROUND FOR REDUCTION OF ELIGI BLE PROFITS AND BENCHMARKING OF A SIGNIFICANT COMPONENT OF PROFIT T O NON-ELIGIBLE UNIT ALSO FAILS. THUS, WE FIND MERIT IN THE CASE OF THE ASSESSEE FOR ALLOWABILITY OF DEDUCTION UNDER S.10A OF THE ACT AS CLAIMED. T HE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DI RECTED TO ALLOW THE DEDUCTION AS CLAIMED UNDER S.10A OF THE ACT. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 29/ 07/2019 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 29/ 07 /2019 3..),.)../ T.C. NAIR, SR. PS ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 22 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-6, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 15.7.2019 (DICTATION-PAD 53- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16.7.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.29.7.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.7.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1068/AHD/2016 ( / ASSESSMENT YEAR : 2011-12) KUNAL CHATURBHUJ NAGRANI PROP. RYAN INTERNATIONAL 8, RAMESHWAR PARK SOCIETY MANINAGAR, AHMEDABAD-380 008 / VS. THE ASST.COMMISSIONER OF INCOME TAX CIRCLE-12 AHMEDABAD-380 006 # ./ ./ PAN/GIR NO. : ACIPN 5122 G ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #% / APPELLANT BY : SHRI T.P. HEMANI, AR &#%( / RESPONDENT BY : SHRI RAJESH MEENA, SR.DR )*(+ / DATE OF HEARING 27/06/2019 ,-./(+ / DATE OF PRONOUNCEMENT 29/07/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTA NCE OF THE ASSESSEE AGAINST THE APPELLATE ORDER OF THE COMMISS IONER OF INCOME TAX(APPEALS)-6, AHMEDABAD [CIT(A) IN SHORT] DATED 24/02/2016 ARISING IN THE ASSESSMENT ORDER PASSED UNDER S.143(3) OF T HE INCOME TAX ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 2 - ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') D ATED 31/03/2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011-12. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER:- 1. THE LD. ASSESSING OFFICER HAD PASSED THE ASSESSMEN T ORDER UNDER S.143(3) OF THE I.T. ACT, 1961 DETERMINING THE TOTA L INCOME AT RS.2,26,62,560/- AND ALLOWING EXEMPTION OF RS.1,71, 01,439/- UNDER S.10A FOR ASSESSMENT YEAR 2011-12 AS AGAINST THE RE TURNED INCOME OF RS.24,68,360/- AND CLAIMING EXEMPTION OF RS.4,66,82 ,217/- UNDER S.10A OF THE4 IT ACT, 1961. THE HONBLE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DISMISSING THE APPEAL IN TOTO AND H AS DENIED BALANCE EXEMPTION CLAIMED UNDER S.10A OF THE IT ACT, 1961. 2. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN NOT ALLO WING THE EXEMPTION OF RS.4,66,82,217/- AND MERELY ALLOWED ONLY RS.1,71 ,01,439/- WHICH WAS ALLOWED BY THE LD.ASSESSING OFFICER. 3. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE DE TERMINATION OF THE BUSINESS INCOME AT RS.2,26,77,094/- (TOTAL PROFIT R S.3,97,78,533/- - EXEMPTION UNDER S.10A OF RS.1,71,01439/-) INSTEAD O F RS.24,68,360/- OFFERED BY THE APPELLANT. 4. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE DE DUCTION OF TURNOVER OF RS.93,84,075/- CONSIDERING THE SAME AS PERTAINED TO NEXT FINANCIAL YEAR I.E. FOR FINANCIAL YEAR 2011-12 RELE VANT TO ASSESSMENT YEAR 2012-13 OUT OF TOTAL TURNOVER SHOWN BY THE APP ELLANT OF RS.5,32,40,628/- OF ASSESSMENT YEAR 2011-12 WHICH I S UNDER CONSIDERATION. TWO BILLS HAVE BEEN RAISED IN MARCH , 2011 AND THE CONSIDERATION IS RECEIVED IN APRIL, MAY AND JUNE OF 2011 THOUGH THE APPELLANT IS MAINTAINING THE BOOKS OF ACCOUNT OF ME RCANTILE METHOD. 5. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE MI XED METHOD OF ACCOUNTING (THE LD. ASSESSING OFFICER HAS HELD THAT THE APPELLANT IS MAINTAINING BOOKS OF ACCOUNT ON MIXED METHOD OF ACC OUNT) THOUGH THE APPELLANT IS STRICTLY FOLLOWING MERCANTILE METH OD OF ACCOUNT. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 3 - 6. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF THE LD.ASSESSING OFFICER ABOUT THE PL ACE OF BUSINESS. THE APPELLANT HAD DONE THE BUSINESS ONLY FROM THE A HMEDABAD UNIT AND NOT FROM THE MUMBAI UNIT DURING THE ENTIRE FINA NCIAL YEAR 2010- 11. THE MUMBAI UNIT WAS TO BE ESTABLISHED AT THE R ELEVANT TIME. THUS, THE LD. ASSESSING OFFICER HAD ERRED IN LAW AN D ON FACTS IN BIFURCATING TURNOVER OF RS.4,38,56,553/- AS RS.2,15 ,43,357/- DONE BY THE AHMEDABAD UNIT WHILE TURNOVER FO RS.2,23,13,196 /- HAVE BEEN DONE BY THE MUMBAI UNIT AND THE SAME IS CONFIRMED B Y THE HONBLE CIT(A) WHICH IS OBJECTIONABLE. 7. THE HONBLE CIT(A) HAS ALSO ERRED IN LAW AND ON FAC TS IN CONSIDERING THE AFFIDAVIT OF SHRI MIRESH SHAH AS AN ADDITIONAL EVIDENCE (AS PER PARA 13.7 OF HIS APPELLATE ORDER) THOUGH THE APPELLANT HAS SPECIFICALLY REPLIED IN WRITTEN SUBMI SSION THAT THE AFFIDAVIT IS NOT AN ADDITIONAL EVIDENCE AS PER THE HONBLE PUNJAB & HARYANA HIGH COURTS DECISION IN THE CASE OF CIT VS . CENTRAL MALL: (2011): 332 ITR 320. ACCORDING TO THE HONBLE HIGH COURT THE AFFIDAVIT MERELY REITERATING THE STAND TAKEN BEFORE THE ASSESSING OFFICER CANNOT BE TREATED AS ADDITIONAL EVIDENCE. 3. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE B USINESS OF IT ENABLED SERVICES AND BPO SERVICE PROVIDER IN THE NA ME AND STYLE OF M/S.RYAN INTERNATIONAL, A PROPRIETARY-CONCERN OF SH RI KUNAL NAGRANI. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2011-12 DECLARING TOTAL INCOME AT RS.24,68,360/-. THE RETURN FILED BY THE ASSESSEE WAS SUBJECTED TO SCRUTINY ASSESSMENT. IN THE COURSE OF SCRUTINY ASSESSMENT, THE ASSESSING OFFICER INTER ALIA NOTICED THAT THE ASSESSEE HAS CLAIMED EXEMPTION UNDER S.10A OF THE ACT OF RS.4,66,82,217/ - @ 100% ON THE PROFITS AND GAINS DERIVED FROM EXPORT PROFIT. THE ASSESSEE HAS OBTAINED PERMISSION FROM SOFTWARE TECHNOLOGY PARK OF INDIA ( STPI) TO SET UP ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 4 - 100% EXPORT ORIENTED UNIT UNDER STPI SCHEME, FOR IT S UNIT LOCATED AT NAVRANGPURA, AHMEDABAD. THE ASSESSING OFFICER ENQU IRED INTO THE EXEMPTION CLAIMED UNDER S.10A OF THE ACT. IT WAS INTER ALIA ALLEGED BY THE ASSESSING OFFICER THAT THE DEBTORS PERTAINING T O SUBSEQUENT FY 2011- 12 RELEVANT TO AY 2012-13 AMOUNTING TO RS.93,84,075 /- WAS CLANDESTINELY INCLUDED IN THE CURRENT FY 2010-11 CO NCERNING AY 2011-12 IN QUESTION AND CONSEQUENTLY THE EXPORT SALES AND E XPORT PROFITS HAVE BEEN INFLATED TO THIS EXTENT TO MAKE WRONGFUL CLAIM OF EXEMPTION UNDER S.10A TO THIS EXTENT. THE ASSESSING OFFICER SECOND LY ALLEGED THAT A PART OF EXPORT TURNOVER DOES NOT RELATE TO STPI UNIT AT AHMEDABAD BUT RELATES TO MUMBAI UNIT WHICH IS NOT REGISTERED UNDER STPI S CHEME AND THUS NOT ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. AS A CONSEQUENCE, THE ASSESSING OFFICER HELD THAT THE EXPORT PROFITS DECL ARED BY THE ASSESSEE TO THE EXTENT OF RS.2,26,77,094/- IS NOT ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. 3.1. AS REGARDS ALLEGATION TOWARDS INFLATED DEBTO RS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT AN AMOUNT OF RS.1,07,48,060/ - REFLECTED AS DEBTOR RECEIVABLE FROM M/S.SUCHITA ENTERPRISE INC. AT THE END OF FY 2010-11. THE ASSESSING OFFICER OBSERVED THAT THE SAID AMOUNT WAS RECEIVED IN THE FY 2011-12. IT WAS ALLEGED THAT IT IS DIFFICULT TO BELIEVE THAT THE INCOME CLAIMED TO HAVE ACCRUED OR ARISEN FROM SUCH DEBT I N FY 2010-11 IS TRUE. ACCORDING TO THE ASSESSING OFFICER, THE TRANSACTION S GIVING RISE TO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 5 - OUTSTANDING DEBT RELATED TO THE SUBSEQUENT FY 2011- 12 WHICH HAS BEEN WRONGLY PREPONED IN THE CURRENT FY 2010-11 TO CLAIM WRONGFUL EXEMPTION UNDER SECTION 10A OF THE ACT. THE CONFIR MATION FROM THE SAID DEBTOR WAS NOT FOUND CLEAR ABOUT THE YEAR TO WHICH THE TRANSACTION RELATES TO. THE PROFITS DECLARED IN THE CURRENT YEAR WAS AL SO FOUND TO BE VERY HIGH AS COMPARED TO THE SUBSEQUENT YEAR OWING TO SUCH DE BTOR. THE ASSESSING OFFICER THUS ALLEGED THAT AY 2011-12 BEING THE LAST YEAR FOR CLAIMING EXEMPTION UNDER S.10A OF THE ACT, THE ASSESSEE HAS INDULGED IN PREDATING THE TRANSACTION TO RELATE THE INVOICE TO THE CURRENT FY 2010-11 RELEVANT TO AY 2011-12 IN QUESTION. TO SUPPORT SUC H ALLEGATION, THE ASSESSING OFFICER OBSERVED THAT THE SERVICES AND PA YMENT WERE WORKED OUT BY THE CUSTOMER M/S.SUCHITA ENTERPRISE INC. ON THE BASIS OF WORK DONE BY THE EMPLOYEES OF THE ASSESSEE-CONCERN ON TH E PORTAL OF M/S.SUCHITA ENTERPRISE INC. AND THE ASSESSEE WAS RE CEIVING INSTANT PAYMENT FROM THE CUSTOMER AGAINST WHATEVER SERVICES WERE RENDERED DURING A PARTICULAR PERIOD. IT WAS THUS ALLEGED TH AT THE ACTUAL TURNOVER PERTAINING TO FY 2010-11 STANDS AT RS.4,24,92,569/- ONLY FOR WHICH ACTUAL PAYMENTS WERE RECEIVED AS AGAINST THE INFLAT ED TURNOVER SHOWN BY THE ASSESSEE AT RS.5,32,40,629/-. THE ASSESSING OF FICER NOTICED THAT IN THE MONTH OF FEBRUARY AND MARCH-2011, BILLS HAVE BE EN RAISED TWICE, WHEREAS IN OTHER MONTHS BILL HAS BEEN RAISED ONLY O NCE. IT WAS NOTED THAT BILL IN FEB-2011 USD 104850 AND ANOTHER BILL OF SAM E AMOUNT I.E. 104850 IN MARCH-2011 REMAINS UNPAID WHEREAS THE FIR ST BILL IN THOSE TWO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 6 - MONTHS HAVE BEEN DULY PAID BY THE CUSTOMER. SIMILA RLY, ALL THE SINGLE BILLS OF OTHER MONTHS HAVE ALSO BEEN PROMPTLY PAID WITH NO OUTSTANDING. THUS, THE ASSESSING OFFICER ALLEGED THAT THESE TWO BILLS OF 104850 USD BOOKED FOR FEB-2011 AND MARCH-2011 DO NOT RELATE TO FY 2010-11 AND HAS BEEN WRONGLY SHOWN AS OUTSTANDING DEBTOR BY BOO KING THE SAME TOWARDS THE EXPORT TURNOVER. AN AMOUNT OF RS.93,84 ,075/- EQUIVALENT TO INDIAN CURRENCY WAS CONSEQUENTLY EXCLUDED FROM THE EXPORT TURNOVER BY THE ASSESSING OFFICER FOR THE PURPOSES OF QUANTIFIC ATION OF DEDUCTION UNDER S.10A OF THE ACT. 3.2. IN CONCLUSION, THE ASSESSING OFFICER ALLEGED T HAT TWO INVOICES OF USD 10485 EACH IN FEB AND MARCH-2011 EQUIVALENT TO RS.93,84,075/- SHOWN AS DEBTOR IN THE HANDS OF M/S.SUCHITA ENTERPR ISE INC. DO NOT RELATE TO AY 2011-12 BUT RELATES TO AY 2012-13. THE TOT AL TURNOVER OF ASSESSEE WAS ACCORDINGLY REDUCED BY THE ASSESSING O FFICER FROM RS.532.40 LAKHS TO RS.438.56 LAKHS FOR THE PURPOSES OF COMPUTATION OF DEDUCTION UNDER S.10A OF THE ACT. THE TOTAL PROFIT S DECLARED BY THE ASSESSEE FOR THE PURPOSES OF CLAIM OF DEDUCTION UND ER S.10A OF THE ACT AMOUNTING TO RS.4,91,62,608/- WAS ACCORDINGLY REVIS ED TO RS.3,97,78,533/- BY DEDUCTING THE PROFITS OF RS.93, 84,075/- FROM THE AFORESAID TURNOVER. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 7 - 3.3 THE ASSESSING OFFICER HAD ALSO ALLEGED DISCREPA NCY IN THE CLAIM OF EXPENSES BUT HOWEVER ULTIMATELY ACCEPTED THE CLAIMS AS SUCH. 3.4. THE ASSESSING OFFICER ALSO NOTED THAT WHEREAS ONLY AHMEDABAD UNIT WAS REGISTERED UNDER STPI BUT HOWEVER THE ASSE SSEE WAS ALSO DOING BUSINESS FROM NEWLY OPENED MUMBAI UNIT WHICH WAS NO T REGISTERED UNDER STPI. IT WAS ALLEGED THAT TURNOVER GENERATED FROM UNREGISTERED UNIT WAS ALSO CLUBBED IN THE TOTAL EXPORT TURNOVER AND ELIGIBLE PROFITS AND GAINS AND THUS EXCESS CLAIM OF DEDUCTION UNDER S.10 A HAS BEEN MADE. FOR COMING TO SUCH CONCLUSION, THE ASSESSING OFFICE R RELIED UPON CERTAIN EMAIL FROM MR.MIRESH SHAH (ASSESSEES EMPLOYEE AT M UMBAI UNIT). BASED ON SUCH EMAIL, THE ASSESSING OFFICER BIFURCAT ED THE TOTAL TURNOVER OF RS.438.56 LAKHS AND ASSIGNED TURNOVER OF MUMBAI UNIT AND AHMEDABAD UNIT AT RS.1,88,54,646 AND RS.2,23,13,196 RESPECTIVELY. THE DEDUCTION UNDER S.10A OF THE ACT WAS ACCORDINGLY RE DUCED DRASTICALLY AND REWORKED TO RS.1,71,01,439/- ON THE BASIS OF RE VISED TURNOVER AS ATTRIBUTABLE TO STPI UNIT. THE ADJUSTED PROFIT OF RS.2,26,77,094/- WAS ACCORDINGLY FOUND ATTRIBUTABLE TO NON-STPI MUMBAI U NIT AND ON WHICH EXEMPTION UNDER S.10A OF THE ACT WAS DENIED TO THE ASSESSEE. 4. AGGRIEVED BY THE DENIAL OF CLAIM ON EXEMPTION/DE DUCTION UNDER S.10A OF THE ACT TO THE EXTENT OF RS.2,26,77,723, T HE ASSESSEE PREFERRED THE APPEAL BEFORE THE CIT(A). THE CIT(A) DID NOT FIND ANY MERIT IN THE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 8 - PLEA OF THE ASSESSEE FOR DEDUCTION OF CLAIM OF EXEM PTION AMOUNTING TO RS.4,66,82,217/- IN WHOLE AND HELD THAT THE ASSESSI NG OFFICER HAS RIGHTLY DISALLOWED THE DEDUCTION TO THE EXTENT OF RS.2,66,7 7,094/-. THE RELEVANT OPERATIVE PARA OF THE ORDER OF THE CIT(A) IS REPROD UCED HEREUNDER: DECISION: 13. I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER, SUBMISSION OF THE APPELLANT AND THE MATERIAL AVAILABLE ON RECORD. THE BRIEF FACTS ARE THAT THE APPELLANT CLAIMED EXEMPTION U/S. 10A FROM AHMEDABAD UNIT TURNOVER. THE A.O. NOTED THAT THE EXEMPTION U/S 10A WAS NOT AVAIL ABLE TO THE APPELLANT FROM SUBSEQUENT FINANCIAL YEAR I.E. 2011-12 THEREFORE, T HE APPELLANT MANIPULATED THE TURNOVER AND SHOWN MUMBAI UNIT TURNOVER IN AHMEDABA D STPI UNIT. 13.1 THE APPELLANT FIRST TIME FILED RETURN OF INCOM E AND CLAIMED EXEMPTION IN A.Y. 2011-12 AND NO RETURN WAS FILED IN THE PRECEDI NG YEAR IN A.Y. 2010-11. THE AO EXAMINED THE EXPENDITURE AND INVESTMENT OF T HE YEAR UNDER CONSIDERATION AND NOTED THAT IN THE MONTH OF SEPTEM BER, 2010 FOR AHMEDABAD OFFICE, THE APPELLANT PURCHASED COMPUTERS OF RS.2,7 0,000/- BUT OTHER THAN THAT NO OTHER EXPENDITURE WAS INCURRED FOR ESTABLISHING THE OFFICE/BUSINESS PREMISES AND SALARY EXPANSES FOR AHMEDABAD OFFICE. THE A.O. ALSO NOTED THAT THE PAYMENT TO EMPLOYEES WAS MADE IN CASH OF RS. 3,00,0 00/- FOR SALARY OF AHMEDABAD UNIT BUT THERE WAS NO WITHDRAWALS FROM TH E BANK AND CASH BOOK DID NOT SHOW ANY PAYMENT ALSO. THE A.O. FOUND CLEAR CUT DISCREPANCIES IN THE SALARY DETAILS SUBMITTED AND SALARY BOOKED IN THE B OOKS OF ACCOUNTS. THE A.O. FURTHER NOTED THAT TO MAXIMIZE THE EXEMPTION U/S 10 A OF THE ACT, THE APPELLANT HAS NOT BOOKED ANY CAPITAL/REVENUE EXPENDITURE FOR STPI UNIT OF AHMEDABAD UNIT. 13.2 THE A.O. FURTHER NOTED THAT THE APPELLANT HAS INCURRED HUGE CAPITAL AND REVENUE EXPENDITURE INCLUDING HUGE RENT FOR THE MUM BAI UNIT OFFICE FROM NOVEMBER, 2010 ONWARD BUT CLAIMED THAT NO SERVICES WERE RENDERED FROM THE MUMBAI UNIT AND NOT SHOWN ANY TURNOVER FROM MUMBAI UNIT EVEN THOUGH HE INCURRED EXPENSES FOR COMPUTERS, COMPUTER PARTS, H ARDWARE, FURNITURE AND FIXTURES, RENT ETC OF RS.41,97,652/- FOR MUMBAI OFF ICE. THUS THE A.O. CONCLUDED ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 9 - THAT BOOKS OF ACCOUNT OF THE APPELLANT ARE NOT RELI ABLE AND REJECTED U/S 145 OF THE ACT. THE FINDING AND ANALYSIS OF THE A.O. WAS F OUND BASED ON THE FACTS AND JUSTIFIED. 13.3 DURING THE APPELLATE PROCEEDING, THE APPELLANT MERELY SUBMITTED THE REPLY SUBMITTED BEFORE THE A.O, AND FURNISHED AN AFFIDAVI T OF MR. MIRESH SHAH IN SUPPORT OF HIS CLAIM. 13.4 THE CONTENTION OF THE APPELLANT REGARDING AFF IDAVIT OF SHRI MIRESH SHAH DATED 8-6-2015 IS NOT ACCEPTABLE AS THE CONTENT OF THE AFFIDAVIT IS CLEARLY FALL INTO THE CATEGORY OF ADDITIONAL EVIDENCE AS IN THE AFFIDAVIT SHRI MIRESH SHAH MENTIONED CONTRADICTORY FACTS AND SUBMITTED THAT HE WAS WORKING AT AHMEDABAD OFFICE AND NO BUSINESS/OPERATIONAL ACTIVI TIES EFFECTED AT MUMBAI DURING A.Y. 2010-11. 13.5 SINCE THE AFFIDAVIT WAS FILED FIRST TIME DUR ING THE APPELLATE PROCEEDING THEREFORE THE APPELLANT WAS ASKED VIDE THIS OFFICE LETTER DATED 21-12-2015 THAT WHY THE AFFIDAVIT SHOULD NOT BE TREATED AS ADDITION AL EVIDENCE AS IT WAS NOT FILED BEFORE THE A.O. AND WHY THE SAME SHOULD NOT B E REJECTED AS NO REQUEST FOR ACCEPTING THE ADDITION EVIDENCE UNDER RULE 46A HAS BEEN FILED. THE APPELLANT SUBMITTED THAT THE AFFIDAVIT DO NOT CONTAIN ANY NEW MATERIAL HENCE SAME SHOULD NOT BE TREATED AS ADDITIONAL EVIDENCE. HOWEVER THE CONTENTION OF THE APPELLANT IS MISLEADING AND FACTUALLY INCORRECT AS ALL THE IN FORMATION IN THE AFFIDAVIT IS NEW INFORMATION WHICH AMOUNT TO BE ADDITIONAL EVIDE NCE. 13.6 THE ADDITIONAL EVIDENCE IS GOVERNED BY RULE 46 A OF LT. RULES, 1962 WHICH IS AS UNDER:- '(1)THE APPELLANT SHALL NOT BE ENTITLED TO PRODUCE BEFORE THE ( DEPUTY COMMISSIONER(APPEALS) {OR THE CASE MAY BE, THE COMM ISSIONER OF (APPEALS)} ANY EVIDENCE, WHETHER ORAL OR DOCUMENTARY, OTHER THAN T HE EVIDENCE PRODUCED BY HIM DURING THE COURSE OF PROCEEDINGS BEFORE THE (ASSESS ING OFFICER), EXCEPT IN THE FOLLOWING CIRCUMSTANCES, NAMELY - A. WHERE THE (ASSESSING OFFICER) HAS REFUSED TO ADMIT EVIDENCE WHICH OUGHT TO HAVE BEEN ADMITTED; OR B. WHERE THE APPELLANT WAS PREVENTED BY SUFFICIEN T CAUSE FROM PRODUCING THE EVIDENCE WHICH HE WAS CALLED UPON TO PRODUCE BY THE (ASSESSING OFFICER); OR ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 10 - C. WHERE THE APPELLANT WAS PREVENTED BY SUFFICI ENT CAUSE FROM PRODUCING BEFORE THE (ASSESSING OFFICER) ANY EVIDENCE WHICH IS RELEV ANT TO ANY GROUND OF APPEAL OR; D. WHERE THE (ASSESSING OFFICER) HAS MADE THE ORD ER APPEALED AGAINST WITHOUT GIVING SUFFICIENT OPPORTUNITY TO THE APPELLANT TO A DDUCE EVIDENCE RELEVANT TO ANY GROUND OF APPEAL. (2) NO EVIDENCE SHALL BE ADMITTED UNDER SUB-RULE (1 ) UNLESS THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, TH E COMMISSIONER (APPEALS)} RECORDS IN WRITING THE REASONS FOR ITS ADMISSION. (3) THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, THE COMMISSIONER (APPEALS)} SHALL NOT TAKE INTO ACCOUNT ANY EVIDENCE PRODUCED UNDER SUB-RULE (1) UNLESS THE (ASSESSING OFFICER HAS BEEN ALLOWED A RE ASONABLE OPPORTUNITY (A) TO EXAMINE THE EVIDENCE OR DOCUMENT OR TO CROSS -EXAMINE THE WITNESS PRODUCED BY THE APPELLANT, OR (B) TO PRODUCE ANY EVIDENCE OR DOCUMENT OR ANY WITN ESS IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT (4) NOTHING CONTAINED IN THIS RULE SHALL AFFECT THE POWER OF THE {DEPUTY COMMISSIONER (APPEALS)} {OR, AS THE CASE MAY BE, THE COMMISSIONE R (APPEALS) } TO DIRECT THE PRODUCTION OF ANY DOCUMENT, OR THE EXAMINATION OF A NY WITNESS, TO ENABLE HIM TO DISPOSE OF THE APPEAL, OR FOR ANY OTHER SUBSTANTIAL ' CAUSE INCLUDING THE ENHANCEMENT OF THE ASSESSMENT OR PENALTY (WHETHER ON HIS OWN MO TION OR ON THE REQUEST OF THE (ASSESSING OFFICER) UNDER CLAUSE (A) OF SUB-SECTION 1 OF SECTION 251 OR THE IMPOSITION OF PENALTY UNDER S.271).' 13.7 I HAVE GIVEN CAREFUL CONSIDERATION TO THE CONT ENTION OF THE APPELLANT AND I AM OF THE CONSIDERED VIEW THAT THE AFFIDAVIT IS AN ADDITIONAL EVIDENCE AND THE APPELLANT WAS NOT PREVENTED BY ANY SUFFICIENT CAUSE FROM PRODUCING THE EVIDENCE WITHIN THE MEANING OF SUB CLAUSE (B) AND ( C) OF SUB RULE 1 OF RULE 46A OF THE LT. RULES, 1962 HOWEVER IT APPEARS THAT THE APPELLANT DELIBERATELY DID NOT AVAIL THE OPPORTUNITY OF SUBMITTING EVIDENC E BEFORE THE A.O. THE APPELLANT HAS ALSO NOT REQUESTED TO ACCEPT THE SAME AS ADDITIONAL EVIDENCE THEREFORE THE AFFIDAVIT IS NOT TAKEN ON RECORD AND NO COGNIZANCE IS TAKEN. THEREFORE ADDITIONAL EVIDENCE IS NOT ADMITTED AND A PPEAL IS DECIDED ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 13.8 IT IS FURTHER SEEN THAT THE AFFIDAVIT OF MR. M IRESH SHAH HAD CONTRADICTORY REFERENCE AND FACTS THEREFORE, THE APPELLANT WAS SP ECIFICALLY ASKED TO PRODUCE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 11 - MR. MIRESH SHAH, IN SUPPORT OF THE AFFIDAVIT SUBMIT TED. HOWEVER THE APPELLANT DID NOT PRODUCE MR. MIRESH SHAH IN SUPPORT OF THE C ONTRADICTORY FACTS MENTIONED IN THE AFFIDAVIT THEREFORE EVEN ON MERIT ALSO, THE AFFIDAVIT CANNOT BE CONSIDERED BONAFIDE. THUS THE FACTS MENTIONED BY TH E A.O. ARE FOUND AUTHENTIC AND GENUINE. IT IS SEEN THAT THE APPELLANT DID NOT PRODUCE ANY DETAILS OF THE EMPLOYEES BEFORE THE A.O. TO EXAMINE WHETHER THE SA ME WERE WORKING AT MUMBAI OR AHMEDABAD UNIT. 13.9 IT IS SEEN THAT THE AO VERIFIED THE GENUINENES S OF THE TURNOVER OF MUMBAI AND AHMEDABAD UNIT AND HELD THAT CIRCUMSTANTIAL EVI DENCES CLEARLY SHOW THAT THE APPELLANT ESTABLISHED MUMBAI UNIT AND EMPLOYEES WERE ENGAGED THERE TO PROVIDE THE SERVICES. THE DETAILS OF THE ACTIVITIES CAN BE SEEN AS UNDER : MONTH ACTIVITIES AT MUMBAI UNIT TOTAL TURNOVER AS PER ABOVE DISCUSSION OBSERVATION TURNOVER ATTRIBUTABLE TO STPI UNIT AHMEDABAD TURNOVER ATTRIBUTABLE TO MUMBAI UNIT AUGUST-2010 - 2688711 - 2688711 - SEPT-2010 - 2409352 - 2409352 OCT-2010 RENT AGREEMENT SIGNED 3086911 3086911 - NOV-2010 MUMBAI UNIT STARTED 2586707 2586707 DEC-2010 5284964 MUMBAI UNIT STARTED. 2692919 (AVERAGE OF 2592045 SHARP AND TURNOVER FROM SUDDEN RISE AUG TO NOV- IN TURNOVER OF 2010) ASSESSEE. JAN-2011 NEW FIXED 5412370 NEW ASSETS 2692919 2719451 ASSETS PURCHASED IN - ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 12 - PURCHASED MID OF THE MONTH. FEB-2011 - 9200865 SHARP AND 2692919 6507946 SUDDEN RISE IN TURNOVER OF ASSESSEE MARCH-2011 - 13186673 2692919 10493754 43856553 21543357 22313196 13.10 IN VIEW OF THE FACTS AND INFORMATION DISCUSSE D BY THE A.O. AND- CIRCUMSTANTIAL EVIDENCE THE STAND OF THE A.O. IS FO UND JUSTIFIABLE THAT THE APPELLANT WAS INVOLVED IN PROVIDING THE SERVICES FR OM MUMBAI UNIT HOWEVER, THE SAME WAS DIVERTED TO THE AHMEDABAD UNIT TO CLAI M THE EXEMPTION UNDER S.10A OF THE ACT. 13.11 IT IS OBVIOUS FROM THE ABOVE CHART AND DISCUS SION THAT UP TO THE MONTH OF NOVEMBER ONLY AHMEDABAD UNIT (STPI) WAS WORKING AND IT TURNOVER OF RS. 26,88,711/-, RS. 24,09,352/-, RS. 30,86,911/- AND R S. 25,86,707. HOWEVER, FROM THE MONTH OF DECEMBER, 2010, AFTER MUMBAI UNIT STARTED, THE APPELLANT'S TURNOVER GOT INCREASED ALMOST TO DOUBLE AND IN THE MONTH OF FEBRUARY AND MARCH, IT WAS FURTHER INCREASED THEREFORE CONSIDERI NG THE AVERAGE TURNOVER OF THE MONTH OF AUGUST TO NOVEMBER, THE MONTHLY TURNOV ER OF AHMEDABAD UNIT IS TAKEN AT RS. 26,92,919/- AND THE REMAINING TURNOVER WAS TREATED AS ATTRIBUTABLE TO MUMBAI UNIT AND ACCORDINGLY, THE AO HAS CALCULATED AHMEDABAD TURNOVER UNDER STPI UNIT IS RS. 1,88,54,6 46/- AND FURTHER CALCULATED ELIGIBLE PROFIT UNDER S. 10A PROPORTIONA TELY AT RS. 1,71,01,439/- AND THE BALANCE TURNOVER WAS TREATED AS BUSINESS I NCOME AND THEREFORE THE SAME IS UPHELD. 14. GROUND NO. 7 RELATES TO NOT APPRECIATING THE IN VOICES FOR RS.1,07,48,080/- RAISED DURING THE F.Y. 2010-11. TH E APPELLANT HAS NOT PRESSED THE GROUND, THEREFORE THE SAME IS DISMISSED. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 13 - 15. LAST GROUND OF APPEAL IS REGARDING INITIATION O F PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I.T. ACT IS DISMISSED AS N O APPEAL LIES AGAINST MERE INITIATION OF PENALTY PROCEEDINGS. 16. IN RESULT THE APPEAL IS DISMISSED. 5. FURTHER AGGRIEVED, THE ASSESSEE PREFERRED THE AP PEAL BEFORE THE TRIBUNAL. 6. THE LD.AR FOR THE ASSESSEE STRONGLY DEFENDED THE CLAIM OF EXEMPTION MADE UNDER S.10A OF THE ACT AND CONTENDED THAT BOTH THE AUTHORITIES HAVE MISCONCEIVED THE FACTS AND MISDIRE CTED THEMSELVES IN LAW IN ARBITRARILY REDUCING THE EXEMPTION CLAIMED U NDER S.10A FROM RS.4,66,82,217/- TO RS.1,71,01,439/- AND WRONGLY SO UGHT TO FASTEN TAX LIABILITY ON RS.2,26,77,094/-. 6.1. AS REGARDS TWO INVOICES OF USD 104850 EACH IN FEBRUARY AND MARCH-2011 ALLEGED BY THE ASSESSING OFFICER TO BE N OT PERTAINING TO IN THE FY 2010-11 IN QUESTION, IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS PROCEEDED TO DISCARD THE INVOICES MAINLY ON SUS PICION AND CONJECTURES HAVING REGARD TO THE OUTSTANDING REMAIN ING AT THE END OF THE YEAR, WHEREAS THE FACT THAT THE PAYMENT HAS ACTUALL Y BEEN RECEIVED IN THE SUBSEQUENT YEAR HAS NOT BEEN DISPUTED. THE LD.AR P OINTED OUT THAT THE MERE FACT THAT IN THE CASE OF TWO INVOICES, PAYMENT HAS BEEN RECEIVED ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 14 - AFTER 2-3 MONTHS, I.E. IN APRIL & JUNE-2011 CANNOT BE A GROUND TO HOLD THAT SUCH SUM IS INCOME RELATABLE TO THE SUBSEQUENT YEAR. THE LD.AR SUBMITTED THAT THE ASSESSING OFFICER CANNOT STEP IN TO THE SHOES OF A BUSINESS MAN TO DICTATE THE TERMS OF PAYMENT AND IT IS QUITE POSSIBLE TO RECEIVE THE PAYMENT LITTLE LATE WITHIN 2-3 MONTHS. IT IS THE SOLE PREROGATIVE OF A BUSINESS MAN TO DECIDE HOW MANY IN VOICES ARE TO BE RAISED IN A GIVEN MONTH KEEPING IN MIND THE QUANTUM OF SERVICES RENDERED AND ALSO HAVING REGARD TO HOST OF VARIOUS OTHER FACTORS. ASSESSING OFFICER CANNOT HOLD THAT IF MORE THAN ONE INVOICE IS RAISED IN A MONTH, SUCH INVOICES ARE NOT INCLUDIBLE. THE LD.AR POINTED OUT THAT A REFERENCE WAS MADE BEFORE THE LOWER AUTHORITIES TO THE BANK REALIZATION CERTIFICATES (BRCS) WHICH ESTABLISHES THE FACT THAT THE SERVICES HAVE BEEN RENDERED AND PAYMENT IN LIEU OF THE SAME HAS BEEN R ECEIVED AS EVIDENT FROM BRCS. CONFIRMATION OF THE CONCERNED DEBTOR (M /S.SUCHITA ENTERPRISE INC.) WAS ALSO REFERRED TO AS APPEARING AT PAGE NO.63 OF THE PAPER-BOOK. IT WAS POINTED OUT THAT ASSESSEE IS RE GISTERED STPI UNIT AND, THEREFORE, ALSO FILED SOFTEX FORM WITH STPI WHEREIN DISPUTED TURNOVER FOR FEB & MARCH-2011 WAS ALSO SHOWN AND DECLARED. THE LD.AR THUS SUBMITTED THAT THE ASSESSING OFFICER HAS NOT BROUGH T ANY COGENT EVIDENCE TO HOLD THAT CONCERNED TWO INVOICES PERTAINED TO SU BSEQUENT YEAR I.E. THE YEAR OF PAYMENT. THE LD.AR CONTENDED THAT IN THE A BSENCE OF ANY EVIDENCE TO THE CONTRARY AND IN THE WAKE OF POSITIV E EVIDENCES IN THE FORM OF BRCS ETC., THE ASSESSING OFFICER WAS NOT JU STIFIED IN HOLDING THAT ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 15 - A PORTION OF TURNOVER/INCOME BELONGS TO SUBSEQUENT YEAR ESPECIALLY WHEN ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG. 6.2. ADVERTING TO THE SECOND ASPECT OF DISPUTE TOWA RDS BIFURCATION OF TOTAL EXPORT TURNOVER, THE LD.AR CONTENDED THAT THE ASSESSING OFFICER HAS ERRONEOUSLY HELD THAT PART OF THE BUSINESS WAS CARR IED OUT FROM MUMBAI UNIT (NON-ELIGIBLE UNIT) AND ACCORDINGLY THE ASSESS ING OFFICER HAS ARTIFICIALLY BIFURCATED TOTAL TURNOVER OF THE ASSES SEE CARRIED OUT FROM STPI UNIT INTO TURNOVER OF STPI UNIT (AHMEDABAD) AND NON -STPI UNIT (MUMBAI) ABRUPTLY. IT WAS VEHEMENTLY EXHORTED TH AT ALL THE WORK WAS CARRIED OUT FROM STPI UNIT SITUATED AT AHMEDABAD AN D THE ASSESSEE WAS ONLY LOOKING FORWARD TO ESTABLISH ITS BUSINESS IN M UMBAI. HENCE, CERTAIN EXPENSES WERE INCURRED AT MUMBAI WITHOUT ANY SUCCES S AND THE ASSESSEE DID NOT IN REALITY CONDUCT ANY BUSINESS FROM MUMBAI UNIT IN THE RELEVANT FY. IT WAS POINTED OUT THAT ONE MR. MIRESH SHAH (O NE OF THE EMPLOYEES AT MUMBAI UNIT) HAD ALSO GIVEN AN ADVERTISEMENT IN FEB-2011 FOR RECRUITMENT FOR WHICH THE INVOICE IS PLACED ON RECO RD. THIS WOULD GO TO SHOW THAT ASSESSEE WAS TRYING TO KICKSTART THE MUMB AI UNIT. THE ASSESSEE HAD MERELY GIVEN SECURITY FOR RENTED PREMI SES AT MUMBAI AND INCURRED SOME RENT EXPENSES. THE ONLY EXPENDITURE FOR DAY-TO-DAY BUSINESS WAS OF RS.2,342/- FOR LEASE-LINE CONNECTI ON PAID TO AIRTEL WHICH IS ESSENTIAL FOR BEGINNING THE BUSINESS VENTU RE. IT WAS THUS CONTENDED THAT NO DAY-TO-DAY WORK WAS CARRIED OUT F ROM MUMBAI. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 16 - RATHER, THE ENTIRE WORK WAS CARRIED OUT FROM AHMEDA BAD UNIT WHICH IS ELIGIBLE FOR EXEMPTION UNDER S.10A OF THE ACT. WIT H REFERENCE TO THE TELEPHONIC CONVERSATION OF THE ASSESSING OFFICER MR . MIRESH SHAH, THE LD.AR SUBMITTED THAT THE STATEMENT OF THE SAID EMPL OYEE THAT THERE WERE 20 PEOPLE WORKING AT MUMBAI OFFICE WAS THE FACTUAL SCENARIO ON THE DATE OF THAT TELEPHONIC CONVERSATION AT THE TIME OF ASSE SSMENT. NOTWITHSTANDING, NO SUCH STATEMENT WAS PROVIDED TO THE ASSESSEE AND, THEREFORE, SUCH STATEMENT HAS NO PROBATIVE VALUE F OR THE PURPOSES OF EVIDENCE AGAINST THE ASSESSEE. THE EMAIL OF MR.MIR ESH SHAH ALSO DOES NOT EMBODY ANYTHING AGAINST THE ASSESSEE. THE AFFI DAVIT OF MR. MIRESH SHAH ALSO DENIES ANY SUCH STATEMENT TO THE ASSESSIN G OFFICER CONCERNING THE FY 2010-11. IT WAS THUS CONTENDED THAT THE ASS ESSING OFFICER COMMITTED GRAVE ERROR IN HOLDING THAT ASSESSEE HAS DONE MAJOR WORK FROM MUMBAI UNIT SO AS TO EMBARK IN ARTIFICIAL BIFURCATI ON OF TURNOVER BETWEEN MUMBAI AND AHMEDABAD UNITS. 6.3. THE LD.AR THUS CONTENDED THAT BOTH ADJUSTMEN T MADE BY THE ASSESSING OFFICER IN THE QUANTUM OF DEDUCTION NAMEL Y, MAKING ARTIFICIAL REDUCTION IN THE DECLARE TURNOVER AND DECLARED PROF ITS ON ACCOUNT OF INFLATED DEBTOR AND TURNOVER RELATING TO THE NON-ST PI UNIT ARE PATENTLY WRONG AND FACTUALLY UNSUSTAINABLE. THE LD.AR THUS SUBMITTED THAT THE ACTION OF THE REVENUE IN REDUCING THE CLAIM OF EXEM PTION REQUIRES TO BE ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 17 - REVERSED AS NOT BEING TENABLE IN THE EYES OF LAW AN D THE EXEMPTION CLAIMED AS MADE BY THE ASSESSEE REQUIRES TO BE REST ORED. 7. THE LD.DR, ON THE OTHER HAND, RELIED ON THE ORDE RS OF LOWER AUTHORITIES AND SUBMITTED IN FURTHERANCE THAT THE A SSESSEE HAS CONCOCTED THE HIGHER EXPORT TURNOVER BELONGING TO SUBSEQUENT YEAR ONLY TO CLAIM DEDUCTION UNDER S.10A OF THE ACT. THE BUSINESS CAR RIED ON FROM NON- ELIGIBLE UNIT AT MUMBAI HAS ALSO BEEN CLUBBED WITH STPI UNIT IN ORDER TO CLAIM HIGHER DEDUCTION THAN WHAT IS ELIGIBLE TO ASS ESSEE. THE LD.DR SUBMITTED THAT THE ASSESSING OFFICER AND CIT(A) HAV E DEALT WITH THE FACTS IN LENGTH. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE QUANTIFICATION OF DEDUCTION UNDER S.10A OF THE ACT CLAIMED BY THE ASSESSEE IS IN DISPUTE. THE ASSESSEE HAS CLAIMED A DEDUCTION OF RS.4,66,82,217/- TOWARDS EXEMPTION/DEDUCTION UNDER S.10A OF THE ACT. THE ASSESSING OFFICER HAS DISPUTED THE QUANTUM OF EXPORT TURNOVER DECLARED BY THE ASSESSEE FOR THE PURPOSES OF COMPUT ATION OF DEDUCTION AND REDUCED THE DECLARED TURNOVER BY RS.93,84,075/- AND CONSEQUENT ELIGIBLE PROFIT FROM EXPORT TO THE SAME EXTENT. THIS RESULTED IN REDUCTION OF ELIGIBLE CLAIM FOR THE PURPOSES OF S.10A OF THE ACT. ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 18 - 8.1. SECONDLY, THE ASSESSING OFFICER HAS ALSO DISPU TED THE ADJUSTED TOTAL TURNOVER FROM EXPORT TO BE EXCLUSIVELY RELATA BLE TO STPI UNIT LOCATED AT AHMEDABAD AS CLAIMED. IT IS THE CASE OF THE ASSESSING OFFICER THAT A SUBSTANTIAL PART OF THE TURNOVER RELATES TO MUMBAI UNIT WHICH IS NOT REGISTERED AND, THEREFORE, THE ELIGIBLE PROFITS FOR THE PURPOSES OF SECTION 10A REQUIRES TO BE FURTHER ADJUSTED AND REDUCED TO THE EXTENT RELATABLE TO MUMBAI UNIT. THE ASSESSING OFFICER THUS REDUCED TH E ELIGIBLE PROFIT FROM EXPORT BY RS.2,26,77,094/- HOLDING THE SAME T O BE ATTRIBUTABLE TO NON ELIGIBLE UNIT. AS A CONSEQUENCE, THE EXEMPTION CLAIMED UNDER S.10A WAS REDUCED TO THIS EXTENT AND THE AMOUNT OF RS.2,2 6,77,094/- WAS BROUGHT TO TAX AS TAXABLE BUSINESS INCOME. 8.2. WE SHALL FIRST ADDRESS OURSELVES TO THE FIRST OBJECTION OF THE ASSESSING OFFICER TOWARDS CREDIBILITY OF EXPORT TUR NOVER DECLARED AND CONSEQUENT EXPORT PROFIT FLOWING THEREFROM. ON A P ERUSAL OF THE ASSESSMENT ORDER, IT APPEARS THAT THE ASSESSING OFF ICER WAS MAINLY GUIDED BY THE FACT THAT WHILE THE ASSESSEE HAS RECE IVED PAYMENT AGAINST ALL INVOICES RAISED IN OTHER MONTHS AS TO INSTANTLY WITH NO OUTSTANDING, THE ASSESSEE HAS NOT RECEIVED ANY PAYMENT AGAINST TWO ADDITIONAL INVOICES RAISED IN FEB-2011 & MARCH-2011 OF USD 104850 EACH EQUIVALENT TO RS.93,84,075/- IN AGGREGATE. THE ASSESSING OFFICER HAS NARRATED SUSPICIOUS CIRCUMSTANCES FOR NON-ACCRUAL OF INCOME IN THE FY 2010-11. IT IS THE CASE OF THE ASSESSING OFFICER THAT THE IN VOICES, IN FACT, RELATE TO ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 19 - SUBSEQUENT ASSESSMENT YEAR AND HAS BEEN MERELY PRED ATED TO CLAIM WRONGFUL EXEMPTION UNDER S.10A BEING THE LAST YEAR OF ELIGIBILITY. THE ASSESSING OFFICER COMPUTED THE GROSS PROFITS RELATI NG TO THIS YEAR AND THE SUBSEQUENT YEAR TO PROP UP ITS CASE AGAINST THE ASSESSEE. IT IS THE CASE OF ASSESSING OFFICER WHILE THE TWO INVOICES ONCE TA KEN INTO ACCOUNT IN SUBSEQUENT YEAR, THE REALIGNED GP WOULD BE SOMEWHAT SIMILAR. 8.3. ON OBJECTIVE CONSIDERATION, WE NOTE THAT WHIL E IT IS FACTUALLY CORRECT THAT PAYMENT FOR TWO INVOICES WERE NOT RECEIVED IN THE SAME MANNER AS WAS RECEIVED FOR OTHER INVOICES RAISED TO ITS CUSTO MER, NAMELY; M/S.SUCHITA ENTERPRISE INC. THIS ABERRATION, IN OUR VIEW, CANNOT BE A GROUND FOR DOUBTING THE INVOICES ITSELF. THE ASSES SEE HAS DEMONSTRATED FROM THE BANK REALIZATION CERTIFICATES (BRCS) ISS UED BY THE BANK THAT THE ASSESSEE HAS RECEIVED CONSIDERATION AGAINST THE SERVICES RENDERED FOR THE PERIOD SPECIFIED THEREIN WHICH FALLS IN THE FY 2010-11. SIMPLY BECAUSE THE PAYMENT HAS BEEN RECEIVED IN THE SUBSEQ UENT YEAR WOULD NOT TANTAMOUNT TO DEFERRAL OF ACCRUAL OF INCOME ALSO TO THE SUBSEQUENT YEAR. MERELY BECAUSE THE DEDUCTION UNDER S.10A COMES TO A N END IN THIS YEAR SHOULD NOT NECESSARILY TRIGGER UNWARRANTED SUSPICIO N AGAINST THE ASSESSEE. THE CASE MADE OUT BY THE ASSESSING OFFICER TOWARDS FALL IN GROSS PROFIT ETC. IS REFUTABLE. IT IS DIFFICULT TO DISLODGE TH E CLAIM OF THE ASSESSEE BASED ON SUCH SHALLOW EVIDENCES. THE ASSESSEE, ON THE OT HER HAND, REQUIRES TO BE BELIEVED ON ACCOUNT OF REPORTING THE TRANSACTION S IN SOFTEX FORM ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 20 - WITH STPI INCLUDING THIS TURNOVER AS WELL AS IN THE LIGHT OF BANK REALIZATION CERTIFICATES PLACED ON RECORD. THE ADJ USTMENT MADE BY THE ASSESSING OFFICER TOWARDS REDUCTION OF EXPORT TURNO VER AND EXPORT PROFITS IS THUS REQUIRES TO BE DISCARDED. 8.4. TURNING TO THE SECOND ADJUSTMENT FOR APPORTIO NMENT OF TURNOVER BETWEEN THE STPI AND NON-STPI UNITS, WE AGAIN SEE N O FIRM BASIS FOR SUCH ACTION. THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAS MAINLY RELIED UPON THE TELEPHONIC STATEMENT OF MR.MIRESH S HAH (ONE OF THE EMPLOYEES OF THE ASSESSEE) TAKEN AT THE FAG END OF FY 2013-14, I.E. NEARLY AFTER A GAP OF THREE YEARS. IT IS THE CASE OF THE ASSESSEE THAT THE STATEMENT OF THE AFORESAID EMPLOYEE AGAINST THE ASS ESSEE, IF ANY, HAS NOT BEEN OFFERED FOR CROSS-EXAMINATION BY THE ASSESSING OFFICER NOR THE STATEMENT WAS SHARED. THUS, SUCH NON-DESCRIPT INFO RMATION CANNOT BE USED AGAINST THE ASSESSEE. WE FIND MERIT IN SUCH P LEA WHICH IS ALSO SUPPORTED BY THE AFFIDAVIT OF THE EMPLOYEE BEFORE T HE CIT(A). THE EXPORT TURNOVER CANNOT BE BIFURCATED CASUALLY BASED ON SOME FLIMSY EVIDENCES. THE EXPLANATION OF THE ASSESSEE THAT IT WANTED TO EXPAND ITS FOOT-PRINTS TO MUMBAI AND FOR WHICH REASON RENTAL P ROPERTY WAS TAKEN TO EXPLORE THE POSSIBILITY IS QUITE PLAUSIBLE. AN OFF ICE IN NON-ELIGIBLE OFFICE/UNIT IN NON-ELIGIBLE AREA BY ITSELF CANNOT B E HELD AGAINST THE ASSESSEE. THE BASIS OF APPORTIONMENT OF TURNOVER B ETWEEN THE STPI UNIT AND NON-STPI UNIT AS RECORDED IN PARA 7.6 OF THE AS SESSMENT ORDER IS ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 21 - WHOLLY UNJUSTIFIED. THE CASE OF THE ASSESSING OFFI CER THAT SUDDEN RISE IN TURNOVER WITH THE ADVENT OF MUMBAI UNIT COUPLED WIT H PURCHASE OF ASSETS IN MUMBAI CANNOT BE A GROUND FOR BIFURCATION OF TUR NOVER TO NON-ELIGIBLE UNIT THE SUSPICION RAISED IS MOTHER OF ENQUIRY. S OME ENQUIRY IN THIS DIRECTION OUGHT TO HAVE BEEN MADE. IN THE ABSENCE O F ANY FURTHER ENQUIRY TO ESTABLISH THE CARRYING OF EXPORT BUSINESS FROM N ON-ELIGIBLE UNIT, THE ACTION OF THE ASSESSING OFFICER IS FARFETCHED AND N OT SUSTAINABLE. THEREFORE, THE SECOND GROUND FOR REDUCTION OF ELIGI BLE PROFITS AND BENCHMARKING OF A SIGNIFICANT COMPONENT OF PROFIT T O NON-ELIGIBLE UNIT ALSO FAILS. THUS, WE FIND MERIT IN THE CASE OF THE ASSESSEE FOR ALLOWABILITY OF DEDUCTION UNDER S.10A OF THE ACT AS CLAIMED. T HE ORDER OF THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DI RECTED TO ALLOW THE DEDUCTION AS CLAIMED UNDER S.10A OF THE ACT. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 29/ 07/2019 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 29/ 07 /2019 3..),.)../ T.C. NAIR, SR. PS ITA NO. 1068/AHD/2016 KUNAL CHATURBHUJ NAGRANI VS. ACIT ASST.YEAR 2011-12 - 22 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-6, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 15.7.2019 (DICTATION-PAD 53- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16.7.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.29.7.19 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29.7.19 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER