Somnath Kundu, Kolkata V. ITO, Ward - 7(2), Kolkata, Kolkata

ITA 1209/KOL/2011

• Counselvise Citation: 120923514 RSA 2011
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-09-2011
• Court: TRIBUNAL
• Department Lawyers: APURBA KR DASJCIT
• Assessee Lawyers: S OUMITRA CHOUDHUURY LD
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 1 IN THE INCME TAX APPELLATE TRIBUNAL, A BENCH, KOLKATA BEFORE : SHRI MAHAVIR SINGH ,JUDICIAL MEMBER, AND SHRI M. BALAGANESH , ACCOUNTANT MEMBER I.T.A NO. 1209 /KOL/201 1 A.Y 200 7 - 08 SOMNATH KUNDU VS. I.T.O WARD 7(2), KOLKATA PAN: A F RPK4718F ( APPELLANT ) ( RESPONDENT ) FOR THE APPELLANT/ASSESSEE: SHRI S OUMITRA CHOUDHUURY , ADVOCATE, LD.AR FOR THE RESPONDENT/DEPARTMENT : SHRI APURBA KR. DAS,JCIT, SR.DR DATE OF HEARING: 0 1 - 09 - 2015 DATE OF PRONOUNCEMENT: 15 - 09 - 2015 ORDER SHRI M.BAL A GANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDER OF LD. CIT(A), KOLKATA IN APPEAL NO. 315 I/ CIT(A) - VIII/ KOL /09 - 10 DATED 22 - 07 - 2011 AGAINST THE ORDER OF A SSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) VIDE HIS ORDER DATED 24 - 12 - 2009 FOR THE ASSESSMENT YEAR 200 7 - 08 . 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSEE IS ENTITLED TO CLAIM THE DEDUCTION U/S. 10A OF THE ACT. 2.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SOFTWARE ENGINEER AND RUNNING A PROPRIETARY CONCERN UNDER THE NAME AND STYLE M/S. TECHSOFT . D URING THE ASSESSMENT YEAR UNDER APPEAL T HE SAID CONCERN IS ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE DEVELOPMENT AT 8/1, KRISHNA DAS PAL LANE, ROOM NO.1, GROUND FLOOR, KOLKATA - 700 006. THE ASSESSEE GOT HIS SOFTWARE DEVELOPMENT UNIT REGISTERED WITH SOFTWARE TECHNOLOGY P ARK AND AGREEMENT TO THIS EFFECT WAS EXECUTED ON 14 - 10 - 2006 W ITH SOFTWARE TECHNOLOGY PARK(STP KOLKATA). THE ASSESSEE IS ALSO 100% EXPORT ORIENTED UNIT. ALL THESE DOCUMENTS WERE DULY FILED BEFORE THE LD.AO BY THE ASSESSEE. THE ASSESSEE WAS A DIRECTOR O F A COMPANY ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 2 STYLED AS M/S.TECH SOFT PVT. LTD , WHICH WAS ALSO ENGAGED IN THE SAME LINE OF BUSINESS OF ACTIVITY AS THAT OF THE ASSESSEE. ADMITTEDLY, THE SAID UNIT STOPPED ITS BUSINESS ACTIVITY OF EXPORT OF COMPUTER SOFTWARE. THE LD.AO HELD THAT THE ASS ESSEE HAD REPORTED HIS TURNOVER OF RS.1 , 05 , 64 , 350/ - AFTER CLAIMING BUSINESS EXPENSES THEREON TO THE TUNE OF RS. 75,816, HE DECLARED N ET PROFIT AT R S.1 , 04 , 88 , 534/ - A ND CLAIMED DEDUCTION U/S 10A OF THE ACT. THE LD. AO ALSO FOUND THAT SINCE SAME BUSINESS W AS CARRIED ON BY SAID M/S. TECHNO SOFT PVT. LTD, THE ASSETS AND THE ENTIRE INFRASTRUCTURE THEREON COULD HAVE BEEN USED BY THE ASSESSEE FOR THE NEW UNIT STARTED BY HIM AND HENCE I T AMOUNTS TO SETTING UP OF A UNIT BY WAY OF SPLITTING UP OR RECONSTRU CTION O F EXISTING UNIT. THE AO ALSO STATED THAT ASSESEEE HAD NOT INVESTED ANY AMOUNT TOWARDS PURCHASE OF COMPUTER, MOUSE, ELECTRICAL FITTINGS , FURNITURE AND FIXTURES, MONITOR, UPS, PRINTER ETC IN HIS PROPRIETARY BUSINESS. ACCORDINGLY, HE DISALLOWED THE CLAIM OF DEDUCTION U/S. 10A OF THE ACT. ON 1 ST APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWANCE MADE BY LD.AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS : - 1. THAT THE LD. ASSESSING OFFICER AS WELL AS LD. CIT(APPEALS) GROSSL Y ERRED IN NOT ALLOWING DEDUCTION U/S. 10A OF RS.1,04,88,534/ - ON ACCOUNT OF PROFIT IN BUSINESS OF EXPORT OF SOFTWARE MANUFACTURED/PRODUCED BY THE APPELLANT. 2. THAT THE LD.ASSESSING OFFICER AS WELL AS LD.CIT(APPEALS) GROSSLY ERRED IN HOLDING THAT BUSIN ESS OF M/S. TECHSOFT WAS FORMED BY SPLITTING UP OR RECONSTRUCTION OF BUSINESS OF M/S. TECHSOFT PVT. LTD. 3) THAT THE CONCLUSION ARRIVED AT BY LD. AO AS WELL AS LD. CIT(APPEALS) IS ARBITRARY, UNJUSTIFIED AND/OR MISAPPLICATION OF THE FACTS OF THE FACTS, AND THUS LIABLE TO BE REVERSED. 4) THAT APPELLANT BE ALLOWED TO BE ENTITLED TO DEDUCTION U/S. 10A IN RESPECT OF EXPORT MADE IN ITS STP REGISTERED PROPRIETARY UNIT TECHSOFT, SINCE ALL ACTIVITY OF EXPORT, RECEIPT OF REMITTANCES IN FOREIGN CURRENCY WERE EFFECTED IN SAID UNIT ONLY. 3. SHRI SOUMITRA CHOUDHURY, ADVOCATE, LD.AR ARGUED ON BEHALF OF THE ASSESSEE AND SHRI APURBA KR. DAS, JCIT , THE LD. DR ARGUED ON BEHALF OF THE REVENUE. 4. THE LD.AR ARGUED THAT THE ASSESSEE HIMSELF IS A SOFTWARE ENGINEER AND AN E XPERT IN ASSEMBLING COMPUTERS AND ITS PARTS SINCE 1989 WHEN HE WAS STUDYING B.TECH AT CALCUTTA UNIVERSITY . HE ARGUED THAT THE ENTIRE CONDITIONS FOR PAYMENT OF DEDUCTION U/S. 10A OF THE ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 3 ACT HAVE BEEN DULY SATISFIED BY THE ASSESSEE HEREIN AND THE DENIAL MADE THEREON BY THE LD.AO IS TOTALLY BASELESS, ARBITRARY AND ONLY DUE TO SURMISES AND SUSPICION. IN RESPONSE TO THIS , THE LD. J CIT / DR VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL AVAILABLE ON RECORD. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAD DULY FURNISHED THE FOREIGN INWARD REMITTANCE CERTIFICATE(FIRC) AMONG OTHERS PROV ING THE FACT OF RECEIPT OF EXPORT PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE OUT OF EXPORT OF COMPUTER SOFTWARE. HENCE IT IS PROVED BEYOND DOUBT THAT THE FOLLOWING FACTS ARE NOT DISPUTED BY THE REVENUE: - A. THE FACT OF THAT ASSESSEE ASSESSEE HAVING SET UP A UNIT AND GETTING ITSELF INDEPENDENTLY REGISTERED WITH STP KOLKATA FOLLOWING UNDER T HE MINISTRY OF COMMUNICATION & INFORMATION TECHNOLOGY, GOVT. OF INDIA. B. THE FACT OF THAT THE ASSESSEE ENGAGING IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE. C. THE F IRST EXPORT OF COMPUTER SOFTWARE BY THE ASSESSEE WAS DONE ON 15/11/2006 RELEVANT TO T HE ASSESSMENT YEAR 2007 - 08 . D. EXPORT PROCEEDS BEING RECEIVED IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE PRESCRIBED TIME. 5.1 . THE ONLY POINT DISPUTED BY THE REVENUE IS THAT THE COMPANY I.E. M/S. TECHNO SOFT PVT. LTD, WHICH WAS PREVIOUSLY REGISTERED WITH STP KOLKATA HAD WOUND UP ITS BUSINESS AND NEW UNIT OF ASSESSEE HAD BEEN SET UP ONLY BY WAY OF SPLITTING OF WAY OF SPLITTING UP OR RECONSTRUCTION OF OLD UNIT. 5.2 WE FIND THAT ONCE AN UNIT GETS REGISTERED WITH STP , THE SAID UNIT BE COMES A BONDED PREMISES SO FAR AS THE CUSTOM DEPARTMENT IS CONCERN ED. W E FIND THAT M/S. TECH SOFT PVT. LTD WAS ALSO DULY REGISTERED WITH STP INDEPENDENTLY W.E.F 20 - 03 - 2001 AND THE SAME EXPIRED ON 20 - 03 - 2006. WE ALSO FIND FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT THE STP KOLKATA HAD ADDRESSED TO ASSTT. COMMISSIONER OF CUSTOMS, VIDE LETTER DATED 11 - 09 - 06 THAT M/S. TECHSOFT PVT. LTD HAD CANCELLED THEIR REGISTRATION WITH STP VIDE THEIR LETTER DATED 29 - 08 - 2006. VIDE THIS LETTER DATED 11 - 09 - 06, WE FI ND THAT STP KOLKATA HAD GIVEN NO OBJECTION FOR DE - BONDING THE UNIT OF M/S. TECHSOFT P.LTD DUE TO CANCELLATION OF ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 4 STP REGISTRATION. WE HOLD THAT NOTHING PREVENTED TH E LD.AO TO HAVE VERIFIED THE AFORESAID FACTS WITH STP KOLKATA OR WITH THE AO ASSESSING M/S. TECHSOFT PVT. LTD. 5. 3 WE FIND THAT THE ACCOUNTS OF THE UNDERTAKING HAVE BEEN DULY AUDITED BY AN INDEPENDENT CHARTERED ACCOUNTANT AND A CERTIFICATE IN FORM NO. 56 F HAS BEEN ISSUED BY CHARTERED ACCOUNTANT CERTIFYING THE PROFIT FIGURES AS WELL AS THE AMOUNT OF DEDUCTION ELIGIBLE TO BE CLAIMED U/S. 10A. THESE FACTS ARE NOT DISPUTED BY THE LD. AO . WE HOLD THAT WHEN THE STP KOLKATA HAD GRANTED REGISTRATION OF A N UNIT TO THE ASSESSEE ONLY AFTER THROUGH VERIFICATION AND INSPECTION OF THE SAID U NIT AND PROVISIONS OF THE I.T ACT STIPULATES THAT THE UNIT IN ORDER TO CLAIM DEDUCTION U/S. 10A OF THE ACT SHOULD BE REGISTERED WITH STP AND ENGAGE ITSELF IN THE EXPORT OF ARTICLES MENTIONED THEREON. WE FIND THAT ALL THE SE CONDITIONS ARE DULY SATIS FIED BY THE ASSESSEE AND A CCORDINGLY, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S. 10A OF THE ACT. 5. 4 W E ALSO FIND THAT THE REVENUE HAD NOT DISPUTED THE TECHNICAL QUALIFICATION AND EXPERTISE OF THE ASSESSEE WITH REGARD TO HIS CAPABILIT Y O F ASSEMBLING OF COMPUTER AND ITS PARTS ON HIS OWN. IT IS NOT THE CASE OF THE REVENUE THAT THE ENTIRE FIXED ASSETS AND REVENUE EXPENSES THAT WERE REQUIRED FOR RUNNING THE SOFTWARE DEVELOPMENT BUSINESS WERE MADE BY THE ASSESSEE OUT OF HIS UNDISCLOSED SOURC ES. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS NOT FILED HIS PERSONAL BALANCE SHEET BEFORE THE LOWER AUTHORITIES AND EXTENT OF DRAWINGS MADE BY THE ASSESSEE IS NOT DISPUTED ALSO BY THE REVENUE. HENCE, WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LD.A R THAT THE DRAWINGS MADE BY THE ASSESSEE COVER S THE AMOUNT OF MINIMUM INFRASTRUCTURE THAT IS REQUIRED FOR RUNNING THE SOFTWARE DEVELOPMENT BUSINESS. WE ALSO FIND THAT M/S. TECH SOFT P.LTD HAD CANCELLED REGISTRATION WITH STP KOLKATA W.E.F 20 - 03 - 06 AND M/S. TECHSOFT ( I . E PROPRIETARY CONCERN OF THE ASSESSEE ) GOT ITS REGISTRATION W.E.F 14 - 10 - 06 . HENCE, IT CAN SAFELY BE CONCLUDED THAT THERE WAS NO STP ON REGISTRATION WITH EITHER OF THE CONCERNS FROM 21 - 03 - 06 TO 13 - 10 - 06. 5. 5 WE FIND THAT THE ERSTW HILE COMPANY, M/S TECHSOFT P.LTD HAD STOPPED ITS BUSINESS OF EXPORT OF COMPUTER SOFTWARE IN THE YEAR ITSELF AND THE ASSESSEE HEREIN HAD SET ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 5 UP A FRESH UNIT AND GOT REGISTERED WITH STP KOLKATA AND IS AN ALSO 100% EX PORT ORIENTED UNIT AND ENGAGED IN THE BUSINESS OF EXPORT OF COMPUTER SOFTWARE AND H ENCE WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE REVENUE TO DENY THE DEDUCTION U/S. 10A OF THE ACT THAT THE REQUIRED INFRASTRUCTURE WAS CREATED BY THE ASSESSEE OUT OF SPLITTING OR RE - C O NSTRUCTION OF SOFTWARE UNIT RUN BY M/S. TECH SOFT PVT. LTD IN WHICH THE ASSESSEE WAS A DIRECTOR. 5. 6 WITH REGARDS TO COMMENTS MADE BY THE LD.AO THAT TELEPHONE CHARGES WERE INCURRED BY THE ASSESSEE FROM APRIL 06 WHEREAS REGISTRATION WITH STP KOLKATA HAPPENED ONLY W.E.F 14 - 10 - 06 AND THIS ITSELF GOES TO PROVE THAT THE ASSESSEE HAD ONLY USED THE OLD INFRASTRUCTURE THAT W ERE OTHERWISE AVAILABLE WITH M/S.TECHSOFT P.LTD FOR THE PURPOSE OF SETTING UP OF THE NEW PROPRIETARY CONCERN M/S. M/S. TECHSOFT AND HENCE IT IS BY WAY SPLITTING OF OR RECONSTRUCTION OF EXISTING ACTIVITIES OF THE UNIT. IN THIS REGARD, WE FIND THAT THE TELEPHONE CONNECTION IS IN THE NAME OF PERSONAL NAME OF SHRI SOMNATH KUNDU(THE ASSESSEE HEREIN). IT WAS NEITHER IN THE NAME OF M/S.TECHSOFT P .LTD OR M/S. TECH SOFT. HENCE, DENIAL OF DEDUCTION U/S. 10A ON THIS GROUND BY THE LD.AO IS NOT APPRECIATED. 5. 7 WE FIND THAT THE CONCLUSION OF THE LEARNED AO THAT THE TRANSACTION IS A COLOURABLE DEVICE TO EVADE THE PAYMENT OF TAXES AS THE ASSESSEE HAD RECEIVED INTEREST FREE LOAN FROM M/S. TECHSOFT P.LTD AND INVESTED THE SAME IN TAX FREE BONDS. THE ASSESSEE HAD NOT INCURRED ANY COST FOR ITS BORROWING FROM M/S. TECHSOFT P.LTD. HENCE, THE ASSESSEE COULD NOT BE FAULTED FOR MAKING INVESTMENT OF THE SAID BORROWING IN THE TAX FREE BONDS. THE LOAN BORROWED BY THE ASSESSEE WAS REPAID TO M/S. TECH P.LTD OUT OF THE PROFITS DERIVED BY THE ASSESSEE FROM ITS EXPORT OF SOFTWARE BUSINESS. WE HOLD THAT IT IS FOR THE ASSESSEE TO DECIDE HOW HE SHOULD RUN HIS BUSINESS AND THE DEPARTMENT SHOULD NOT SERMONIZE HOW A BUSINESSMAN SHOULD CONDUCT HIS BUSINESS . THE B USINESSMAN KNOWS HIS INTEREST BEST . 5 8 WE FIND THAT SECTION 10A OF THE ACT IS A SPECIAL INCENTIVE INTRODUCED BY LEGISLAT URE IN ORDER TO PROMOT E EXPORTS OF COMPUTER SOFTWARE, IT ENABLE D SERVICES AND THEREFORE, THE SAME HAS TO BE CONSTRUED LIBERALLY. IT HAS BEEN HELD BY HON BLE SC IN THE CASE OF BAJAJ TEMPO LTD VS. CIT REPORTED IN ( 1992) 196 ITR 188(SC) A PROVISION IN ITA NO . 1209/KOL/2011 - A - AM SOMNATH KUNDU 6 A TAX ING STATUTE GRAN TING INCENTIVES FOR PROMOTING GROWTH AND DEVELOPMENT S H OULD BE CONSTRUED LIBERALLY ; AND SINCE A PROVISION FOR PROMOTING ECONOMIC GROWTH HAS TO BE INTERPRETED LIBERALLY, THE RESTRICTION ON IT TOO HAS TO BE CONSTRUED SO AS TO ADVANCE THE OBJECTIVE OF THE PROVISION AND NOT TO FRUSTRATE IT. 5. 9 IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE WE HOLD THAT ALL THE CONDITIONS STIPULATED IN SECTION 10A OF THE ACT HAS BEEN SATISFIED BY THE ASSESSEE AND A CCORDINGLY , H E IS ENTITLED FOR CLAIM ING DEDUCTION U/S. 10A OF THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 15 /09/2015 COPY OF THE ORDER FORWARDED TO: 1. . THE APPELLANT : SOMNATH KUNDU 44/A MADHU ROY LANE, KOL - 6 2 THE RESPONDENT - ITO W 7(2), AAYKAR BHAWAN 5 TH FL., KOL . 3 4. . / THE CIT, / THE CIT(A) 5 . DR, KOLKATA BENCH 6 . GUARD FILE . TRUE COPY, BY ORDER, ASSTT REGISTRAR ** PRADIP SPS - SD/ - ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/ - ( M. BAL A GANESH, ACCOUNTANT MEMBER) DATE 15 /09/2015