DCIT Cicle 4(1), Chandigarh V. M/S Vertex Infosoft Solutions (P) Ltd, Chandigarh

ITA 1123/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81029 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-11-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 05-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained expenditure; Additional evidence; Question of law; Tax effect; Benefit of exemption
• Section: 43B; 80HHC; 80IB; 10B; 144; 10; 154; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 1123/CHD/2013 ASSESSMENT YEARS : 2010-11 D.C.I.T. CIRCLE 4(1) V VERTEX INFOSOFT SOLUTION(P) LTD CHANDIGARH SCO 273, 2 ND FLOOR, SECTOR 35-B CHANDIGARH AABCV 6727 H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJEEV KUMAR RESPONDENT BY: SHRI SUDHIR S EHGAL DATE OF HEARING 11.11.2014 DATE OF PRONOUNCEMENT 18.11 .2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER OF LD CIT (A), CHANDIGARH DATED 18.9.2013. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSE SSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS WITH OUT APPRECIATING THE FACT THAT ASSESSMENT WHICH RESULTED IN SUBSTANTIAL ADDITIONS ON VARIOUS GROUNDS WAS MADE U/S 144 OF THE ACT AFTER AFFORDING SEVERAL OPPORTUNITIES TO THE ASSESSEE TO FURNISH THE REPLY AND THE INFORMATION CALLED FOR WHICH THE ASSESSEE FAILED TO AVAIL. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIONS MADE U/S 144 BY ACCEPTING ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TA X RULE SPECIALLY WHEN THE AO AT THE TIME OF ASSESSMENT HAS AFFORDED SUFFICIENT OPPORTUNITIES TO THE ASSESSEE TO FURNISH THE REQUIR ED DETAILS WHICH HE FAILED TO COMPLY WITH WHEN COURTS/TRIBUNAL HAVE HEL D THAT CIT(A) SHOULD NOT INVARIABLY ACCEPT ADDITIONAL EVIDENCE WHEN AO H AS AFFORDED SUFFICIENT OPPORTUNITIES TO THE ASSESSEE. 4. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN PASSING THE APPELLATE ORDER BY ACCEPTING THE ADDITIONAL EVIDENC ES SUBMITTED BY THE ASSESSEE WITHOUT PROVIDING SUFFICIENT OPPORTUNITY T O THE ASSESSING OFFICER TO EXAMINE THE SAME. 5. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS. 97,60,72/- MADE BY THE ASSESSING OF FICER WHILE FRAMING 2 ORDER U/S 144 OF THE INCOME TAX ACT ON ACCOUNT OF F AILURE OF THE ASSESSEE TO SUBSTANTIATE ITS CLAIM OF EXEMPTION U/S 10B EVEN AFTER AFFORDING SUFFICIENT OPPORTUNITIES WHICH THE ASSESS EE FAILED TO AVAIL. 6. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS. 44,38,257/- MADE BY THE ASSESSING O FFICER WHILE FRAMING ORDER U/S 144 OF THE INCOME TAX ACT ON ACCOUNT OF F AILURE OF THE ASSESSEE TO RECONCILE THE FIGURES OF THE TURNOVER A FTER AFFORDING SUFFICIENT OPPORTUNITIES WHICH THE ASSESSEE FAILED TO AVAIL. 7. THE LD. CIT(A) HAS ERRED N LAW AND IN FACTS IN D ELETING THE ADDITION OF RS. 6,90,000/- MADE ON ACCOUNT OF DISAL LOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT UN DER THE HEAD INVESTMENT IN SHARES WRITTEN OFF ON THE PLEA THAT THE ADDITIONS WOULD NOT HAVE ANY EFFECT ON THE TOTAL TAXABLE INCOME, SINCE THE APPELLANT HAS BEEN ALLOWED BENEFIT OF EXEMPTION U/S 10B OF THE ACT WHE N THE SECTION 80(5) PROVIDES THAT THE ASSESSEE IS NOT ENTITLED FOR EXEM PTIONS NOT CLAIMED IN THE INCOME TAX RETURN. 8. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS. 3,06,364/- & RS. 2,02,620/- AFTER RECTIFICATION U/S 154 MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES CLAIMED BY THE ASSESSEE IN PROFIT & LOSS ACCOUNT UNDER THE HEADS TRAVELING AND LOCAL CONVEYANCE & SINGAPORE LIVING EXPENSES, RESPECTIV ELY ON THE PLEA THAT THE ADDITIONS WOULD NOT HAVE ANY EFFECT ON THE TOTA L TAXABLE INCOME, SINCE THE APPELLANT HAS BEEN ALLOWED BENEFIT OF EXE MPTION U/S 10B OF THE ACT WHEN THE SECTION 80(5) PROVIDES THAT THE ASSESS EE IS NOT ENTITLED FOR EXEMPTIONS NOT CLAIMED IN THE INCOME TAX RETURN. 9. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS. 6,96,000/- MADE BY THE ASSESSING OF FICER WHILE FRAMING ORDER U/S 144 OF THE INCOME TAX ACT ON ACCOUNT OF F AILURE OF THE ASSESSEE TO SUBSTANTIATE THE GENUINENESS OF THE SAL ARIES PAID TO PERSONS SPECIFIED U/S 40A(2)(B). 10. THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN DELETING THE ADDITION OF RS. 6,98,6003/- MADE BY THE ASSESSING O FFICER WHILE FRAMING ORDER U/S 144 IF THE INCOME TAX ACT ON ACCOUNT OF F AILURE OF THE ASSESSEE TO SUBSTANTIATE THE GENUINENESS OF CLAIM OF EXCHANG E RATE FLUCTUATIONS. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE A SSESSMENT WAS COMPLETED ON EXPARTE BASIS U/S 144. THE MAIN R EASON FOR THE SAME IS THAT EARLIER THE DISPUTE HAS ARISEN REG ARDING GRANT OF EXEMPTION U/S 10B AND THE ASSESSEE REQUESTED THE ASSESSING OFFICER THAT SOMETIME MAY BE GIVEN BECAUS E THE ISSUE REGARDING EXEMPTION U/S 10B WAS PENDING BEFOR E THE TRIBUNAL. SINCE THE ASSESSMENT WAS GETTING TIME BA RRED, THEREFORE ASSESSMENT WAS COMPLETED ON EXPARTE BASIS . IN THE ABSENCE OF RELEVANT MATERIAL WHOLE OF THE TURNOVER WAS HELD TO BE DOMESTIC TURNOVER AND THEREFORE EXEMPTION U/S 10 B WAS NOT GRANTED. FOLLOWING FURTHER ADDITIONS HAVE BEEN MAD E: 3 SL NO PARTICULARS AMOUNT ( RS) 1 DISALLOWANCE ON ACCOUNT OF INVESTMENT SHARE WRITTEN OFF 6,90,000 2 1/10 TH OF EXPENSES ON ACCOUNT OF TRAVELING AND LOCAL CONVEYANCE AT SINGAPORE 6,12,380 3 SINGAPORE LIVING EXPENSES 20,26,197 4 DIFFERENCE IN INTEREST IN TERMS OF FORM NO. 26 AS 33,867 5 DIFFERENCE IN PROVISIONAL FEE FROM M/S ANGLO EASTERN SHIP MANAGEMENT INDIA (P) LTD 8676 6 DISALLOWANCE OF SALARY PAID TO RELATIVES OF DIRECTION U/S 40A(2)(B) 6,96,000 7 LOSS ON ACCOUNT OF EXCHANGE RATE FLUCTUATION 6,9 8,603 EXEMPTION U/S 10B WAS ALSO DENIED BECAUSE TOTAL TUR NOVER WAS TREATED AS DOMESTIC TURNOVER AND ULTIMATELY TOTAL I NCOME ASSESSED AFTER MAKING ABOVE ADDITIONS WAS RS. 1,58,10,130/- AGAINST RETURNED INCOME OF RS. 12,83,680/-. 4 THE ISSUE REGARDING EXEMPTION U/S 10B WAS ADJUDIC ATED BY THE LD. CIT(A) VIDE PARA 4.2.1, 4.3 AND 5.3 WHICH ARE A S UNDER: 4.2.1 THE SUBMISSION OF THE APPELLANT ALONGWITH TH E VARIOUS DOCUMENT FILED IN SUPPORT OF ITS CLAIM OF EXEMPTION U/S 10B OF THE ACT WERE FORWARDED TO THE ASSESSING OFFICER [ITO-WARD-4 (4), CHANDIGARH] VIDE THIS OFFICER LETTER NO. 605 DATED 02.07.2013 F OR HIS COMMENTS IN VIEW OF RULE 46 A(3) OF THE INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS RULES) AND ITO-WARD-4(4), CHANDIGARH FORWAR DED MY LETTER ALONGWITH ANNEXURES TO ACIT, CIRCLE-4(1), CHANDIGAR H VIDE HIS LETTER NO. 2552 DATED 15.07.2013. NO REPORT HAS BEEN RECEIVED TILL THE DATE OF PASSING OF THIS ORDER. 4.3 FROM THE DOCUMENTS SUBMITTED BY THE APPELLANT, IT IS EVIDENT THAT THE APPELLANT IS A 100% EOU DULY REGISTERED WITH ST PI AND HAD EXPORTED COMPUTER SOFTWARE DURING THE YEAR. AS PER THE EXPLA NATION GIVEN BY THE LD. LD. COUNSEL FOR THE ASSESSEE/APPELLANT, AS DISC USSED IN PARA 2.1 ABOVE, THE APPELLANT WAS PREVENTED BY SUFFICIENT CA USE FROM PRODUCING THESE DOCUMENTS BEFORE THE ASSESSING OFFICER AND SO THE SAME ARE ADMITTED UNDER RULE 46A(1) OF THE RULES. THE ENTIRE AMOUNT OF SOFTWARE EXPORT TRANSACTION IS DULY REPORTED TO THE RESERVE BANK OF INDIA BY THE APPELLANT. THE APPELLANT HAD DULY FILED FROM NO. 56 G ALONGWITH DETAILED CALCULATION BEFORE THE ASSESSING OFFICER ALSO. IN F ACT, THE ASSESSING OFFICER HAD SUFFICIENT MATERIAL ON RECORD AND THERE WAS NO REASON FOR NOT ALLOWING THE EXEMPTION U/S 10B OF THE ACT. IN VIEW OF THIS DISCUSSION, IT ISHELD THAT THE APPELLANT IS DULY ELIGIBLE FOR EXEM PTION U/S 10B OF THE ACT AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. GROUND OF APPEAL NO. 2 IS ALLOWED. 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. LD. COUNSEL FOR THE ASSESSEE. THE NET EXPORT TURNOVER WAS CORRECTLY TAK EN BY THE AUDITORS AT RS. 3,89,76,026/- IN FORM NO. 56G AFTER DEDUCTING T HE DOMESTIC TURNOVER FROM TOTAL TURNOVER AND THE ASSESSING OFFICER WAS N OT RIGHT IN TAKING THE EXPORT TURNOVER AT RS. 3,43,58,299/-. IN FACT, THE AMOUNT OF RS. 44,38,257/- DEDUCTED BY THE ASSESSING OFFICER IS TH E AMOUNT OF EXPORT OF SOFTWARE MAINTENANCE AND SOFTWARE TRAINING AND INST ALLATION. THE ASSESSING OFFICER HAS WRONGLY TREATED THIS AMOUNT A S DOMESTIC TURNOVER AND APPLIED THE NET PROFIT RATE ON THIS TURNOVER. I HAVE GONE THROUGH THE COMPUTATION AND CLARIFICATION GIVEN BY THE APPELLAN T ON THE ISSUE AND FIND THAT THE SAME IS CORRECT. THE ADDITION MADE ON THIS ACCOUNT IS ACCORDINGLY DELETED. GROUND OF APPEAL NO. 3 IS ALLO WED. 4 AS FAR AS ADDITIONS ON ACCOUNT OF LOSS ON SHARE INV ESTMENT - RS. 6,90,000, 1/10 TH OF EXPENSES ON ACCOUNT OF TRAVELING AND LOCAL CONVEYANCE AT SINGAPORE- RS. 6,12,380, DISALLOWANCE OF SALARY PAID TO THE RELATIVES OF DIRECTOR U/S 40A(2)(B)- RS. 6,9 6,000 AND LOSS ON ACCOUNT OF EXCHANGE RATE FLUCTUATION - RS. 6,98,603 HAVE BEEN DELETED VIDE PARA 6.1, 7.1, 8.3.2 AND 8.4 WHICH ARE AS UNDER: PARA 6.1 - THE APPELLANT HAD DEBITED AN AMOUNT OF RS. 6,90,000 TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF INVESTMEN T IN SHARES WRITTEN OFF. THE ASSESSING OFFICER HAS ADDED THIS AMOUNT. THE LD. COUNSEL FOR THE ASSESSEE HAS EXPLAINED THAT THE LONG TERM CAPIT AL LOSS WAS NOT TAKING INTO ACCOUNT IN THE RETURN OF INCOME BECAUSE 100% INCOME OF THE APPELLANT COMPANY WAS EXEMPT U/S 10B OF THE ACT SIN CE IF LOSS ON INVESTMENT WAS TAKING INTO ACCOUNT, THE OPERATING P ROFIT WOULD INCREASE BY THE SAME FIGURE AND NET TAX EFFECT WOULD HAVE BE EN NIL. THE SUBMISSIONS OF EH APPELLANT IN THIS REGARD IS CORRE CT AND SINCE EXEMPTION U/S 10B HAS NOW BEEN ALLOWED TO THE APPELLANT WHILE ADJUDICATING GROUND OF APPEAL NO. 2, THE ADDITION MADE ON THIS ACCOUNT IS ALSO DELETED. GROUND OF APPEAL NO, 4 IS ALLOWED. 7.1 THE APPELLANT HAD DEBITED CERTAIN AMOUNTS ON AC COUNT OF TRAVELING AND LOCAL CONVEYANCE AND SINGAPORE LIVING EXPENSES. THE ASSESSING OFFICER HAS DISALLOWED 1/10 TH OF THE TRAVELING AND LOCAL CONVEYANCE EXPENSES AND SINGAPORE LIVING EXPENSES. IN THE COM PUTATION OF INCOME IN THE ASSESSMENT ORDER, THE CORRECT AMOUNTS WERE N OT ADDED, WHICH HAVE BEEN SUBSEQUENTLY RECTIFIED BY THE ASSESSING O FFICER VIDE ORDER U/S 154 DATED 16.1.2013. THE LD. COUNSEL FOR THE APPEL LANT HAS SUBMITTED THAT THE ADDITIONS WILL HAVE NO EFFECT ON THE TAXAB LE INCOME OF THE APPELLANT IF THE CLAIM OF THE APPELLANT REGARDING E XEMPTION U/S 10B IS ACCEPTED. THE CONTENTIONS OF THE APPELLANT IS CORR ECT. THE ADDITIONS WOULD NOT HAVE ANY EFFECT ON THE TOTAL TAXABLE INCO ME, SINCE THE APPELLANT HAS BEEN ALLOWED BENEFIT OF EXEMPTION U/S 10B OF THE ACT. GROUND OF APPEAL NO. 5 IS ALLOWED. 8.3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. LD. COUNSEL. THE ASSESSING OFFICER HAS REDUCED THE CLAIM OF THE SALA RIES PAID TO RELATIVES OF THE COMPANYS DIRECTORS FROM RS. 25,000 P.M. TO RS. 18,000 AND FROM RS. 29,000 TO RS. 20,000 P.M. NO COGENT REASON HAS BEEN GIVEN BY THE ASSESSING OFFICER FOR REDUCING THE AMOUNT OF SALARY PAID TO THE RELATIVES AND NO MATERIAL HAS BEEN BROUGHT ON RECORD, LEAVE A SIDE THE JUSTIFICATION FOR REDUCING CLAIM OF SALARY. MOREOVER, THE SALARI ES PAID ARE NOT EXCESSIVE KEEPING IN VIEW THE FACT THAT PERSONS WOR KING IN I.T. INDUSTRY ARE GETTING HEFTY PACKAGES. THE DISALLOWANCE HAS BE EN MADE BY THE ASSESSING OFFICER IN AN ARBITRARY MANNER AND SO THE SAME IS DELETED. 8.4 REGARDING THE DISALLOWANCE OF CLAIM OF DEDUCTIO N OF RS. 6,98,603/- ON ACCOUNT OF EXCHANGE RATE FLUCTUATION, IT APPEARS THAT THE DISALLOWANCE WAS MADE BECAUSE THE ASSESSING OFFICER COULD NOT VERIFY THE RATE WHICH THE INVOICES WERE ISSUED AND THE RAT E AT WHICH THESE WERE REALIZED. THE CREDIT IS GIVEN BY THE BANKS AS PER THE RATES PREVAILING ON THE DATE OF ACTUAL RECEIPT. THE APPELLANT HAS ALSO PROVIDED COMPLETE DETAILS IN THIS REGARD IN THE ASSESSMENT PROCEEDING S. THESE DOCUMENTS WERE FORWARDED TO THE ASSESSING OFFICER FOR COMMENT S IN VIEW OF THE PROVISIONS OF SECTION 46A(3) OF THE RULES, AS ALRE ADY DISCUSSED HEREINABOVE. NO REPLY WAS RECEIVED FROM THE ASSESS ING OFFICER TILL THE DATE OF PASSING OF THIS ORDER. THE DOCUMENTS FILED BY THE APPELLANT ARE EXTRACTS FROM THE BOOKS OF ACCOUNTS AND COPIES OF B ANK ACCOUNTS IN SUPPORT OF REALIZATION OF THE BILL AMOUNTS. AS PER THE EXPLANATION GIVEN BY THE LD. COUNSEL /APPELLANT, AS DISCUSSED IN PARA 2.1 ABOVE, THE APPELLANT WAS PREVENTED BY SUFFICIENT CAUSE FROM PR ODUCING THESE DOCUMENTS BEFORE THE ASSESSING OFFICER AND SO THE S AME ARE ADMITTED 5 UNDER RULE 46A(1) OF THE RULES. THE EXCHANGE RATE FLUCTUATION GIVEN BY THE APPELLANT IS DULY SUPPORTED BY DOCUMENTS AND TH E ASSESSING OFFICER WAS NOT RIGHT IN NOT ALLOWING THE DEDUCTION OF THIS AMOUNT. THE ADDITION MADE ON THIS ACCOUNT IS ACCORDINGLY DELETED. 5 HOWEVER, ADDITIONS ON ACCOUNT OF DIFFERENCE IN IN TEREST INCOME IN TERMS OF FORM NO. 26AS AMOUNTING TO RS. 33,867/- AND DIFFERENCE IN PROVISIONAL FEE FROM ANGLO EASTERN SHIP MANAGEME NT INDIA (P) LTD AMOUNTING TO RS. 8,676/- WERE CONFIRMED VIDE PA RA 8.1.2 AND 8.2 WHICH ARE AS UNDER: 8.1.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD . COUNSEL FOR THE ASSESSEE. THE ACCRUED INTEREST IS TO BE TAXED I N THE YEAR IN WHICH IT HAS ACCRUED. THE EXPLANATION OF THE LD. COUNSEL THA T ACCRUED INTEREST ON FDRS MUST HAVE BEEN ACCOUNTED FOR IN THE NEXT ACCOU NTING YEAR DOES NOT HOLD WATER. THE LD. COUNSEL IS HIMSELF NOT SURE AS TO WHETHER THE SAID DIFFERENCE OF INTEREST OF RS. 33,867/- WAS ACT UALLY DECLARED IN THE NEXT FINANCIAL YEAR. THE ADDITION MADE OF RS. 33,86 7/- ON THIS ACCOUNT IS ACCORDINGLY UPHELD. 8.2 REGARDING THE DIFFERENCE OF RS. 8,676/- ON ACCO UNT OF RECEIPT FROM M/S ANGLO EASTERN SHIP MANAGEMENT INDIA (P) LTD., T HE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE AMOUNT OF RS. 8 ,676/- IS TAX DEDUCTED BY PAYERS WHICH SHOULD HAVE BEEN TAKEN INT O ACCOUNT. AS THE LD. COUNSEL FOR THE ASSESSEE HAS ACCEPTED THE MISTA KE, THE ADDITION MADE OF RS. 8,676/- IS CONFIRMED. ABOVE CLEARLY SHOW THAT THE LD. CIT(A) HAS MAINLY D ELETED THE ADDITION BY OBSERVING THAT IF THESE EXPENSES ARE DI SALLOWED, THE PROFITS OF THE ASSESSEE WOULD INCREASE WHICH WOULD MEAN THAT THE ASSESSEE WOULD BECOME ENTITLED TO ENHANCED DEDUCTIO N U/S 10B OF IT ACT. 6 BEFORE US. LD. D.R FOR THE REVENUE STRONGLY SUPPO RTED THE ORDER OF THE ASSESSING OFFICER. 7 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT AS FAR AS ISSUE REGARDING GRANT OF E XEMPTION IS CONCERNED, THE TRIBUNAL HAS ALREADY DECIDED THE ISS UE IN CASE OF ASSESSEE IN ITAS NO. 1023/CHD/2008 ETC. AS FAR A S OTHER EXPENSES DELETED BY THE LD. CIT(A), EVEN IF THE ADD ITION IS CONFIRMED, DEDUCTION U/S 10B IS TO BE ALLOWED ON TH E ENHANCED INCOME AND IN THIS REGARD HE RELIED ON THE DECISION OF CIT V. 6 ALLIED INDUSTRIES, 229 CTR 462/31 DTR 323, DCIT V. MAGARPATTA TOWNSHIP DEVELOPMENT & CONSTRUCTION COMP ANY, 141 ITD 682 (PUNE) AND CIT V. GEM PLUS JEWELLERY IN DIA LTD., 330 ITR 175. THEREFORE ADDITION HAS BEEN CORRECTLY DELETED. 8 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULL Y AND FIND THAT THE ISSUE REGARDING ALLOWABILITY OF DEDUC TION U/S 10B IS CONCERNED, SAME WAS DECIDED IN FAVOUR OF THE AS SESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITAS NO. 1023/CHD/2008 ETC. (SUPRA). THIS ISSUE WAS DECIDED VIDE PARA 10 WHICH IS AS UNDER: 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE F IND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. T HE SOFTWARE IS GENERALLY DEVELOPED BY THE SOFTWARE COMPANY AND THE N THE SAME IS SOLD TO VARIOUS CUSTOMERS. THE NORMAL PROCEDURE FOR SUCH SALE IS THROUGH A LICENSE AGREEMENT BY WHICH THE CUSTOMER GET TO USE THE SOFTWARE. BUT THE SOURCE CODE IS NORMALLY NOT PROVIDED BECAUSE TH AT WILL ENABLE THE CUSTOMER TO MAKE ANY NUMBER OF COPIES AND THE DEVEL OPER WOULD LOOSE THE PREMIUM WHICH IT CAN RECEIVE BY SELLING IT TO V ARIOUS CUSTOMERS. WE ARE OF THE OPINION THAT EXAMPLE OF SELLING OF A BOO K WOULD CLARIFY THE SITUATION. WHENEVER A PERSON BUYS A BOOK, HE GETS THE RIGHT TO READ BUT HE DOES NOT GET THE COPYRIGHT TO PRODUCE THE COPIES OR ANY CONTENT OF SUCH BOOKS WHICH DOES NOT MEAN THAT THE BOOKS SELL ER HAS NOT SOLD THE BOOKS OR CUSTOMERS HAS NOT PURCHASED THE BOOKS. SI MILARLY IT CAN BE SAID ABOUT THE USAGE OF LAW JOURNALS WHICH ARE BEIN G SOLD OR PURCHASED ON LICENSE BASIS. THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES V STATE OF ANDHRA PRADESH (SUP RA), WHEREIN THE QUESTION AROSE WHETHER SALE OF INTELLECTUAL PROPERT Y IN CASE OF SOFTWARE THROUGH A LICENSE WOULD AMOUNT TO SALE OF GOODS OR NOT. IN THIS CONNECTION, THE HON'BLE SUPREME COURT OBSERVED AS U NDER:- THE TERM GOODS, FOR THE PURPOSES OF SALES TAX, C ANNOT BE GIVEN A NARROW MEANING. PROPERTIES WHICH ARE CAPABL E OF BEING ABSTRACTED, CONSUMED AND USED AND/OR TRANSMIT TED, TRANSFERRED, DELIVERED, STORED OR POSSESSED, ETC., ARE GOODS FOR THE PURPOSE OF SALES TAX. THE TEST TO A SCERTAIN WHETHER A PROPERTY IS GOODS FOR THE PURPOSES OF S ALES TAX IS NOT WHETHER THE PROPERTY IS TANGIBLE OR INTANGIB LE OR INCORPOREAL. THE TEST IS WHETHER THE CONCERNED ITEM IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHE THER IT CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSESSED, ETC. IN THE CASE OF SOFTWARE, BOTH CANNE D AND UNCANNED, ALL OF THESE ARE POSSIBLE. INTELLECTUAL P ROPERTY WHEN IT IS PUT ON A MEDIA BECOMES GOODS. A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENA BLE THE COMPUTER TO PERFORM A DESIGNATED TASK. THE COPY RIGHT IN THE PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHICH ARE SUSCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERTY, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS(IN THE CASE OF PAINTING) OR COMPUTER DISCS OR CASSETTES, AND MARKE TED WOULD BECOME GOODS. THERE IS NO DIFFERENCE BETWEE N SALE OF A SOFTWARE PROGRAMME ON A CD/FLOPPY DISC AND SAL E OF MUSIC ON A CASSETTE/CD OR SALE OF A FILM ON A VIDEO 7 CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PR OPERTY HAS BEEN INCORPORATED ON A MEDIA FOR PURPOSES OF TRANSF ER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS VERY L ITTLE VALUE. THE SOFTWARE AND THE MEDIA CANNOT BE SPLIT UP. WHAT THE BUYER PURCHASES AND PAYS FOR IS NOT THE DISC OR THE CD. AS IN THE CASE OF PAINTINGS OR BOOKS OR MUSIC OR FILMS THE BUYER IS PURCHASING OR DISC OR CD. A TRANSACTION OF SALE OF COMPUTER SOFTWARE PACKAGE OFF THE SHELF IS CLEARLY A SALE OF GOODS WITHIN THE MEANI NG OF THAT TERM IN SECTION 2(N) OF THE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. THE TERM ALL MATERIALS, ARTICLES AN D COMMODITIES IN SECTION 2(H) OF THE ACT INCLUDES BO TH TANGIBLE AND INTANGIBLE / INCORPOREAL PROPERTY WHIC H IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHI CH CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POS SESSED, ETC. THE SOFTWARE PROGRAMMES HAVE ALL THESE ATTRIBU TES. FROM THE ABOVE IT IS CLEAR THAT TRANSFER OF RIGHT T O USE THE SOFTWARE IN MEDIA FORM I.E. IN THE FORM OF C.D. ETC WAS HELD TO BE SALE OF GOODS. THE HON'BLE SUPREME COURT IN THE CASE OF B. SURESH WHE RE THE ISSUE AROSE WHETHER EXPLOITATION OF A FILM RIGHT WHICH WERE TRA NSFERRED BY THE ASSESSEE IN INDIA TO ABROAD WOULD CONSTITUTE EXPORT FOR THE PURPOSES OF DEDUCTION U/S 80HHC OF THE ACT, IT WAS OBSERVED AS UNDER; HELD, AFFIRMING THE DECISION OF HIGH COURT, THAT T HE TELECASTING RIGHTS FELL IN THE CATEGORY OF ARTICLES OF TRADE AND COMMERCE AND HENCE WITHIN THE CATEGORY OF MERCHANDISE AND THE TRANSFER OF THE SAID RIGHTS B Y WAY OF LEASE FELL WITHIN THE MEANING SALE AND WOULD ATTR ACT SECTION 80HHC. THEREFORE THE ISSUE OF EXEMPTION U/S 10B IS SQUAREL Y COVERED IN FAVOUR OF THE ASSESSEE BY THE ABOVE DECISION. 9 NOW THE QUESTION IS IF SOME ADDITIONS ARE MADE ON ACCOUNT OF DISALLOWANCES OF EXPENSES ETC. WHETHER SUCH INCOME WOULD ALSO CONSTITUTE INCOME ELIGIBLE FOR EXEMPTION. THIS ISSU E CAME UP FOR CONSIDERATION OF HON'BLE HIMACHAL PRADESH HIGH COUR T IN CASE OF CIT V. ALLIED INDUSTRIES (SUPRA). IN THAT CASE IT WAS HELD AS UNDER: DEDUCTION U/S 80IB PROFITS AND GAINS DERIVED FRO M INDUSTRIAL UNDERTAKING INCOME SURRENDERED BY ASSESSEE ASSE SSEE FIRM OFFERED A SUM OF RS. 2,50,000 FOR TAXATION TO COVER UP CERT AIN DISCREPANCIES IT IS NOT THE CASE OF THE REVENUE THAT THIS WAS INCOME DERIVE ED FROM UNDISCLOSED SOURCES ALSO THERE IS NO FINDING OF A NY UNEXPLAINED EXPENDITURE ADDITION OF RS. 2,50,000 WAS MADE TO THE INCOME OF THE BUSINESS ITSELF THEREFORE SAID ADDITION WOULD RES ULT IN ENHANCEMENT OF INCOME OF THE BUSINESS AND IS ENTITLED FOR DEDUCTIO N U/S 80IB KEDAR NATH MODI V. CIT, 109 CTR 112 (DELHI), 200 ITR 685 (DELHI) DISTINGUISHED. SIMILARLY HON'BLE BOMBAY HIGH COURT IN CASE OF CIT V. GEM PLUS JEWELLERY INDIA LTD (SUPRA) ALSO TOOK A SIMILAR V IEW AND HELD AS UNDER: 8 AS A MATTER OF FACT THE QUESTION OF LAW WHICH IS F ORMULATED BY THE REVENUE PROCEEDS ON THE BASIS THAT THE ASSESSEE INC OME WAS ENHANCED DUE TO THE DISALLOWANCE OF THE EMPLOYERS AS ELL AS THE EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC AND THE ONLY QUESTION WHICH IS CANVASSED ON BEHALF OF THE REVENUE IS WHETHER ON THAT BASIS T HE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRA NT THE EXEMPTION U/S 10A. ON THIS POSITION, IN THE PRESENT CASE IT CANN OT BE DISPUTED THAT THE NET CONSEQUENCES OF THE DISALLOWANCE OF THE EMPLOYE RS AND HE EMPLOYEES CONTRIBUTION IS THAT THE BUSINESS PROFIT S HAVE TO THAT EXTENT BEEN ENHANCED. THERE WAS AN ADD BACK BY THE ASSES SING OFFICER TO THE INCOME. ALL PROFITS OF THE UNIT OF THE ASSESSEE HA VE BEEN DERIVED FROM MANUFACTURING ACTIVITY. THE SALARIES PAID BY THE A SSESSEE, IT HAS NOT BEEN DISPUTED RELATE TO THE MANUFACTURING ACTIVITY. THE DISALLOWANCE OF THE PF/ESIC PAYMENTS HAS BEEN MADE BECAUSE OF THE S TATUTORY PROVISIONS S 43B IN THE CASE OF THE EMPLOYERS CO NTRIBUTION AND S 36(V) R.W.S. 2(24)(X) IN THE CASE OF THE EMPLOYEES CONTR IBUTION WHICH HAS BEEN DEEMED TO BE THE INCOME OF THE ASSESSEE. THE PLAIN CONSEQUENCES OF THE DISALLOWANCE AND THE ADD BACK THAT HAS BEEN MAD E BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PROFITS OF T HE ASSESSEE. THE CONTENTIONS OF THE REVENUE THAT IN COMPUTING THE DE DUCTION U/S 10A THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PF/ESIC PAYMENTS OUGHT TO BE IGNORED CANNOT BE ACCEPTED. NO STATUTO RY PROVISION TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF T HE DISALLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. FROM ABOVE IT BECOMES CLEAR THAT WHATEVER DISALLOWA NCES ARE MADE, SUCH INCOME IN TURN BECOMES ELIGIBLE FOR EXEMPTION U/S 10B OF IT ACT. THEREFORE WE AGREE WITH THE FINDINGS OF THE L D. CIT(A) THAT THERE WAS NO PURPOSE OF MAKING SUCH ADDITIONS AND I N OUR OPINION, SUCH ADDITIONS HAVE BEEN RIGHTLY DELETED. ACCORDIN GLY WE UPHOLD HIS ORDER. 10 IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 18.11.2014 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18.11.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 9