The ITO, Ward-4(3), Ahmedabad V. ICUBIX INFOTECH LTD., Ahmedabad

ITA 133/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0449 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 13-01-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHELLY JINDAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Competent authority; Capital receipt; Revised return; Capital expenditure; TDS
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 4.11.2009 DRAFTED ON: 1 1.11.2009 ITA NO.133/AHD/2005 ASSESSMENT YEAR : 2001-2002 I.T.O., WARD-4(3), AHMEDABAD VS. ICUBIX INFOTECH LTD. NOBLES, 4 TH FLOOR, A-WING, NEHRUBRIDGE, AHMEDABAD. PAN/GIR NO. : AAACR 7478 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SHELLY JINDAL CIT D.R. RESPONDENT BY: SHRI S.N.SOPARKAR O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST TH E ORDER OF CIT(APPEALS)- III, AHMEDABAD DATED 05.11.2004 IN APPEAL NO.CIT(A) -VIII/ITO/4(3)/296/03-04. 2. THE SOLE GROUND OF APPEAL TAKEN BY THE REVENUE IS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN HAS AND ON FACTS IN DIRECTING TO ALLOW DEDUCTION U/S.10A OF THE I.T.ACT. IN THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR I.E. A.Y. 2000-01 THE HON'BLE CIT(A) WAS ALSO OF THE VIEW THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S.10A. TH ERE IS NO MAJOR MATERIAL CHANGE IN THE SITUATION PREVAILING THEN AND THAT DU RING A.Y.2001-02. MOREOVER, THE DEDUCTION UNDER SECTION 10A IS ALLOW ABLE FOR A PERIOD OF 10 CONSECUTIVE A.YRS. BEGINNING WITH THE ASSESSMENT YE AR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MA NUFACTURE OR PRODUCE SUCH ARTICLES, THINGS OR COMPUTER SOFTWARE. AS SUCH , THE CONDITION LAID DOWN U/S.10A SHOULD HAVE BEEN FULFILLED RIGHT FROM THE FIRST YEAR OF MANUFACTURING SUCH ARTICLES, THINGS OR COMPUTER SOF TWARE WHICH IS NOT SO IN THIS CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM FOR DEDUCTION UNDER SECTION 10 A OF RS. 2,39,15,437/-. DURING THE COURSE OF ASSESSMENT, THE LEARNED ASSESSING OFF ICER HAS STATED AT PAGE 2 OF ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 2 - THE ORDER THAT THERE ARE FOLLOWING DEFICIENCIES AND DRAWBACKS. FOR THE SAKE OF CONVENIENCE THE SAME ARE REPRODUCED AS UNDER: (1) THE MANUFACTURING DOES NOT APPEAR TO HAVE BEEN UND ERTAKEN IN CUSTOM BONDED AREA FOR THE RELEVANT FINANCIAL YEAR SINCE T HE CUSTOM BONDED PREMISES IS HELD BY ONE AARADHYA FINANCE PVT. LTD. AND NOT BY THE ASSESSEE COMPANY. (2) ON VERIFICATION OF RECORDS AND AS PER THE EVIDENCES GATHERED, IT APPEAR THAT THE COMPANY WAS NOT IN POSSESSION OF ADEQUATE ASSETS AND MANPOWER REQUIRED FOR CARRYING OUT THE SAID MANUFACTURING AC TIVITY. (3) ON VERIFICATION OF RECORDS AND ON BASIS OF EVIDENCE S GATHERED IT APPEARS THAT THE MANUFACTURING HAS NOT BEEN ENTIRELY CONDUC TED BY THE COMPANY BUT HAS BEEN DEVELOPED BY PAYING DEVELOPMENT CHARGE S TO OUTSIDE PARTIES/AGENCIES. THIS IS IN VIOLATION OF PROVISION S OF SECTION 10A. (4) IT IS SEEN THAT THE SALES AFFECTED DURING THE RELEV ANT FINANCIAL YEAR ALSO INCLUDE RECEIPTS OF CAPITAL NATURE IN THE FORM OF S ALE OF CORPORATE LICENCE. (5) THE REQUIRED CUSTOMS AND CENTRAL EXCISE APPROVAL WA S NOT GRANTED TO THE COMPANY FOR MANUFACTURING UPTO THE END OF THE RELEV ANT FINANCIAL YEAR. (6) THE CLAIM U/S.10A OF IT ACT VIOLATES THE PROVISIONS OF SECTION 10A(6)(I). THEREFORE, THE AO HAS ELABORATED THE SAME FROM PAGE 3 TO 11 OF THE ORDER AND THEREAFTER CONCLUDED THAT THE CLAIM U/S.10A IS NOT ADMISSIBLE FOR THE SAID REASONS. 4. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(AP PEALS), THE ASSESSEE HAS STRONGLY CHALLENGED THE CORRECTNESS OF THE FIND ING AND OBSERVATIONS BY THE AO. THE SAME ARE BRIEFLY DISCUSSED AS UNDER: (1) THIS RELATES TO THE OBSERVATION AT SR.NO.1 PAGE 2 OF THE ORDER RELATING TO CUSTOM BONDED PREMISES HELD BY ARADHYA FINANCE PVT. IN THIS RESPECT THE APPELLANTS REPRESENTATIVE HAS POINTED OUT THAT THE SAID PREMISES WERE OCCUPIED BY THE APPELLANT, ALTHOUGH OWNERSHIP OF TH E SAID COMPANY WHICH BELONGS TO GROUP COMPANIES OF THE APPELLANT. THE LE ARNED ASSESSING OFFICER ON THE OTHER HAS REFERRED TO THE FINDINGS A T THE TIME OF SURVEY UNDER SECTION 133A AND DISCUSSED THE SAME AT PAGE 5 AND 6 OF THE ORDER. IT IS THE CLAIM OF THE APPELLANT THAT PRODUCTION OF SOFTWARE WORK UNDERTAKEN BY THE APPELLANT COMPANY AT THE SAID PREMISES AND THE INFE RENCE DRAWN BY THE LEARNED ASSESSING OFFICER IS NOT CORRECT. ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 3 - (2) THIS RELATES TO THE OBSERVATION BY THE LEARNED ASSESSING OFFICER THAT THE APPELLANT COMPANY DID NOT POSSESS ADEQUATE ASSETS A ND MANPOWER. IN THIS RESPECT, THE APPELLANTS REPRESENTATIVE HAS PRODUCE D BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE COMPANY TO SUPPORT T HAT THE APPELLANT COMPANY HAS SUFFICIENT ASSETS WHICH INCLUDED COMPUT ERS, ETC. OF RS.12,16,652/-, WHICH APPEAR IN SCHEDULE 3 OF FIXED ASSETS OF THE BALANCE SHEET AS ON 31 ST MARCH, 2001. IT IS FURTHER POINTED OUT THAT THE AP PELLANT HAD INCURRED EXPENDITURE ON SALARY AND ALLOWANCE OF RS. 31,71,464/- WHICH ARE DEBITED IN THE PROFIT AND LOSS ACCOUNT AND DETAILS GIVEN AT SCHEDULE-7 OF THE SAME. LEGAL AND PROFESSIONAL CHARGES OF RS.2,21,093 /- HAVE ALSO BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT WHICH IS REL ATED TO THE PERSONS WHO HAVE BEEN EMPLOYED FOR DEVELOPMENT OF SOFTWARE. IT IS THEREFORE, STATED THAT THE OBSERVATIONS OF LEARNED ASSESSING OFFICER IS CONTRARY TO THE FACTS ON RECORD DISCUSSED AS ABOVE. DETAILS OF THE LEGAL AND PROFESSIONAL CHARGES HAVE ALSO BEEN FURNISHED WHICH INCLUDES CONSULTANCY CHARGES PAID TO SHRI CHITRAKSH BATRA RS.60,500/-, SHRI VIKRAM BHANDARI RS.47,010/- AND OTHER SIMILAR CONSULTANCY CHARGES FOR PROCESSING AND DEVE LOPMENT OF SOFTWARE. THIS EXPENDITURE HAS BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT AND HAS NOT BEEN CHALLENGED BY THE LEARNED ASSESSING OFFICE R. (3) THIS RELATES TO THE OBSERVATION OF THE LEARNED ASSESSING OFFICER THAT IT APPEARS THAT MANUFACTURING HAS NOT BEEN CONDUCTED B Y THE COMPANY AND HAS BEEN PAYING DEVELOPMENT CHARGES TO OUTSIDE PART IES. THE APPELLANTS REPRESENTATIVE HAS STATED THAT THE SAME HAS BEEN DE VELOPED BY THE APPELLANT ON ITS OWN AND THE OBSERVATION BY THE LEARNED ASSES SING OFFICER AT PAGE 7 AND 8 ARE NOT INCONFORMITY WITH THE FACT ON RECORD. IT IS STATED THAT THE COMPUTERS HAS BEEN PURCHASED IN OCTOBER, 2000 AND M AJOR SALES HAS BEEN MADE BY THE APPELLANT AFTER THE SAID PERIOD. FOR TH E SAKE OF CONVENIENCE DETAILS OF EXPORT SALES FURNISHED ARE REPRODUCED AS UNDER: SR.NO. NAME OF PARTY DATE AMOUNT IN RS. 1 DR. ANANTHA KRISHANAN, C/O.M/S.BIOTEC ASSESSORS E SERVICES 20.11.2000 37,440 ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 4 - LTDS, BRASIL. 2 DR. ANANTHA KRISHANAN, C/O.M/S.BIOTEC ASSESSORS E SERVICES LTDS, BRASIL. 20.11.2000 1404 3 ZEUS LIFESCIENCES LTD. BRAZIL 28.11.2000 2,34,00 0 4 CLERIS LIFESCIENCES LTD. KAZAK 22.03.2001 52,88,4 00 5 ZEUS LIFESCIENCES LTD. BRAZIL 22.03.2001 68,79,60 0 6 CORE PHARMASANOAT UZBEKISTAN 22.03.2001 81,43,200 7 CORE PHARMASANOAT UZBEKISTAN 22.03.2001 2,03,58,0 00 2,26,19,844 FOREX RATE DIFFERENCE 62,714 2,25,57,130 TOTAL OF THE SAME COMES TO RS.2,25,57,130/- AND THE SAME HAS BEEN CREDITED IN THE PROFIT AND LOSS ACCOUNT AND ACCEPTE D BY THE LEARNED ASSESSING OFFICER. SAID SALES RELATE TO DEVELOPMENT OF COMPUTER SOFTWARE ON THE BASIS OF THE APPELLANTS OWN INFRASTRUCTURE AND ALSO BY TAKING SPECIALIZED SERVICES FROM OUTSIDERS REFERRED ABOVE. (4) THIS RELATES TO THE OBSERVATION OF THE LEARNED ASSESSING OFFICER THAT SALES IN THE FINANCIAL YEAR INCLUDE CAPITAL EXPENDITURE R ELATING TO SALE OF CORPORATE LICENSE. THIS HAS BEEN DISCUSSED BY THE L EARNED ASSESSING OFFICER AT PAGE 11 OF THE ORDER. THE APPELLANTS RE PRESENTATIVE HAS POINTED OUT THAT THE SALE OF CORPORATE LICENCE REFERRED BY THE LEARNED ASSESSING OFFICER AT PAGE 10OF THE ORDER OF RS.81,43,200/- IS NOT CORRECT SINCE THE SAME PERTAINS TO EXPORT SALES AND IT IS INVARIABLY MENTIONED THAT IT IS LICENSED SOFTWARE. THIS HAS BEEN WRONGLY INCORPORAT ED BY THE LEARNED ASSESSING OFFICER TREATING, IT IS CAPITAL EXPENDITU RE. (5) THIS RELATES TO THE OBSERVATIONS OF THE LEARNED ASSESSING OFFICER THAT THE CUSTOM AND CENTRAL EXCISE APPROVAL WAS NOT GRANTED TO THE COMPANY. IN THIS RESPECT, THE APPELLANTS REPRESENTATIVE HAS POINTED OUT THAT APPROVAL WAS GRANTED ON 7.6.2000 AND COPY OF THE SAME AS PER LET TER DATED 7.06.2000 FROM DEPUTY COMMISSIONER, CENTRAL EXCISE, DIVISION- VI, AHMEDABAD HAS BEEN SUBMITTED AND THE SAME WAS ALSO FURNISHED TO T HE LEARNED ASSESSING ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 5 - OFFICER INTIMATING APPROVAL OF PRIVATE BOUNDED WARE HOUSE AT THE APPELLANTS PREMISES. (6) THIS LAST OBSERVATION OF THE LEARNED ASSESSING OFFICER RELATES TO NON- FULFILLMENT OF CONDITION LAID DOWN UNDER SECTION 10 A(6)(I). THIS IS DISCUSSED IN PARA 5 OF THE ORDER. IT IS STATED THAT THE CLAIM OF RS.4,09,920/- IS NORMAL DEPRECIATION ON THE COMPUTERS OF THE APPE LLANT AND IS RIGHTLY ADMISSIBLE AND DOES NOT VIOLATE ANY OF THE SAID PRO VISIONS. 5. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE , THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALLOWED THE CLA IM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 BY OBSERVING AS UNDER:- I HAVE GONE THROUGH THE REASONS STATED BY THE LEAR NED ASSESSING OFFICER IN THE ORDER AND ALSO THE SUBMISSIONS OF THE APPELL ANT AS ABOVE. BEFORE PROCEEDING FURTHER, IT WOULD BE RELEVANT TO READ SE CTION 10A OF THE INCOME TAX ACT, WHICH IS AS UNDER: 10A. SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNDERTAKINGS IN FREE TRADE ZONE, ETC. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A D EDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PE RIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME O F THE UNDERTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AN D GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISI ONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUB STITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENT ITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALL Y LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPORT PRO CESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TE N CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SU B-SECTION ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 6 - SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE 308 [UNDERTAKING BEGAN T O MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE] IN SUCH FREE TRADE ZONE OR EXPORT PROCESS ING ZONE : PROVIDED ALSO THAT FOR THE ASSESSMENT YEAR BEGINNIN G ON THE 1ST DAY OF APRIL, 2003, THE DEDUCTION UNDER THIS SU B-SECTION SHALL BE NINETY PER CENT OF THE PROFITS AND GAINS D ERIVED BY AN UNDERTAKING FROM THE EXPORT OF SUCH ARTICLE OR T HINGS OR COMPUTER SOFTWARE; PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 309B [2011] AND SUBSEQUENT YEARS. (1B) THE DEDUCTION UNDER CLAUSE (II) OF SUB-SECTION (1A) SHALL BE ALLOWED ONLY IF THE FOLLOWING CONDITIONS ARE FULFIL LED, NAMELY : (A) THE AMOUNT CREDITED TO THE SPECIAL ECONOMIC ZON E RE- INVESTMENT ALLOWANCE RESERVE ACCOUNT IS TO BE UTILI SED : (I) FOR THE PURPOSES OF ACQUIRING NEW MACHINERY OR PLANT WHICH IS FIRST PUT TO USE BEFORE THE EXPIRY O F A PERIOD OF THREE YEARS NEXT FOLLOWING THE PREVIOUS Y EAR IN WHICH THE RESERVE WAS CREATED; AND (II) UNTIL THE ACQUISITION OF THE NEW MACHINERY OR PLANT AS AFORESAID, FOR THE PURPOSES OF THE BUSINES S OF THE UNDERTAKING OTHER THAN FOR DISTRIBUTION BY WAY OF DIVIDENDS OR PROFITS OR FOR REMITTANCE OUTSIDE INDI A AS PROFITS OR FOR THE CREATION OF ANY ASSET OUTSIDE INDIA; (B) THE PARTICULARS, AS MAY BE PRESCRIBED IN THIS B EHALF, HAVE BEEN FURNISHING BY THE ASSESSEE IN RESPECT OF NEW M ACHINERY OR PLANT ALONG WITH THE RETURN OF INCOME FOR THE AS SESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH SUCH PL ANT OR MACHINERY WAS FIRST PUT TO USE. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUC E ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR- ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 7 - (A) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1981, IN ANY FREE TRADE ZONE; OR (B) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1994, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK OR , AS THE CASE MAY BE, SOFTWARE TECHNOLOGY PARK; (C) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2001, IN ANY SPECIAL ECONOMIC ZONE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE- ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASS ESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PE RIOD SPECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION : THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SH ALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THIS SUB- SECTION AS THEY APPLY FOR THE PURPOSES OF CLAUSE (I I) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS TO ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITHIN A PERIOD OF SIX MONTHS FRO M THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. 6. THE APPELLANTS REPRESENTATIVES HAS STRONGLY SUB MITTED THAT ALL REQUISITE CONDITIONS HAVE BEEN SATISFIED AND HAS AL SO REFERRED TO THE DECISION OF ITAT, MUMBAI C BENCH IN THE CASE OF I SBC CONSULTANCY SERVICES LTD. VS. DCIT IN ITA NO.319/MUM/2002 DATED 29.08.2002 AND DECISION OF ITAT DELHI C BENCH IN THE CASE OF ITO VS. AMD EXPORT CORPORATION (KANDLA) IN ITA NO.8877/DEL/1992, 368/D EL/1993 AND 999/DEL/1994 TO SUPPORT HIS CLAIM. 7. AFTER PERUSING THE ABOVE SUBMISSIONS, AND ALSO THE FACTUAL POSITION WITH REFERENCE TO RETURNED INCOME AND BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, I FIND THAT THE APPELLANT COMPANY HAS COMP LIED WITH SUBSTANTIVE ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 8 - PART OF THE CONDITIONS LAID DOWN UNDER SECTION 10A OF THE INCOME TAX ACT AND THE LEARNED ASSESSING OFFICER HAS INCORRECTLY M ADE OBSERVATIONS WHICH WAS MOSTLY RELEVANT FOR A.Y.2000-01 IN WHICH THE AO HAS MADE SIMILAR ADDITIONS. THE SAME INFERENCE HAS BEEN APPL IED FOR THIS YEAR ALSO, ALTHOUGH THE FACT ARE DIFFERENT, PARTICULARLY WITH REFERENCE TO THE COMPUTERS PURCHASES DURING THE YEAR AND ALSO THE FA CT THAT NO AMOUNT HAS BEEN PAID BY THE APPELLANT DURING THE YEAR TO M/S. GENESIS CONSULTANTS LTD. WHERE AMOUNT HAD BEEN PAID IN THE LAST YEAR FO R WHICH THE LEARNED ASSESSING OFFICER HAD GIVEN FINDING THAT THIS WAS F OR GETTING JOB WORK DONE BY THE SAID CONCERNS ON BEHALF OF THE APPELLANT. TH US, THERE IS QUALITATIVE CHANGE IN THE FACTUAL POSITION IN THIS YEAR AND THE SAID FINDINGS ARE NOT APPLICABLE FOR THIS YEAR. IN VIEW OF THE ABOVE REAS ONING, IT IS HELD THAT THE APPELLANT COMPANY IS ENTITLED TO CLAIM UNDER SECTIO N 10A OF THE INCOME TAX ACT, WHICH IS DIRECTED TO BE ALLOWED AFTER VERI FICATION. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENT LY ARGUED AND SUPPORTED THE ORDER OF LEARNED ASSESSING OFFICER. 7. IN SUPPORT OF THE ORDER OF THE LEARNED COMMISSIO NER OF INCOME TAX(APPEALS), THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ITA VS. AMD EXPORT CORPORATION (DANDLA) (2002) 75TTJ (DEL) 594, WHEREI N IT WAS HELD AS UNDER:- THE AO STARTED ON A WRONG FOOTING BY ASSUMING THAT THE ASSESSEE PURCHASED READYMADE TERRY TOWEL AND BED-SHEETING WH ICH JUST HAD TO BE PRESSED, PACKED AND SOLD. HE HAS FAILED TO APPRECIA TE THAT WHAT THE ASSESSEE ACTUALLY PURCHASED WAS FABRIC OF TERRY TOW EL AND SHEETINGS WHICH HAD TO BE CUT TO APPROPRIATE SIZES, ALL SIDES HAD T O BE FOLDED AND OVERLOCKED ON THE INDUSTRIAL SEWING MACHINES. THE S TITCHED PIECES WERE THUS REQUIRED TO BE TRIMMED, CHECKED AND LABELLED. THEREAFTER, IT WAS SENT FOR FINISHING AND PACKING. APART FROM THIS, HE WAS SWAYED BY THE FACT THAT THE ASSESSEE HAD INCURRED ONLY AN EXPENDITURE OF RS . 4,284 ON NEEDLES. A PERUSAL OF THE DETAILED RECORD CLEARLY SHOWS THAT A PART FROM THIS THE ASSESSEE HAD ALSO INCURRED VARIOUS OTHER EXPENDITUR E THE DETAILS OF WHICH ARE CONTAINED IN THE PAPER BOOK. A PERUSAL OF IT SH OWS THAT EXPENDITURE TO THE TUNE OF RS. 84,604 WAS INCURRED FOR 'THREAD'. F ABRICATION EXPENSES WERE TO THE TUNE OF RS. 34,998.82. A PERUSAL OF THE PROVISIONS OF THE ACT AND THE CIRCULARS OF THE CBDT CLEARLY SHOW THAT IN ORDER TO AVAIL THE BENEFITS OF S. 10A IT IS NOT NECESSARY TO EXPORT TH E GOODS MANUFACTURED/PRODUCED. THE RELEVANT CIRCULARS MEREL Y ELABORATE THAT THE EXEMPTION UNDER CERTAIN CONDITIONS WERE MADE IN ORD ER TO PROMOTE INDUSTRIAL ACTIVITY IN CERTAIN UNDERDEVELOPED AREAS . THE PROVISIONS OF THE ACT AS WELL AS THE CIRCULARS OF THE BOARD WOULD CLE ARLY SHOW THAT THE ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 9 - PURPOSE OF INCORPORATING THIS SECTION IS TO PROVIDE DEVELOPMENT AND GROWTH TO CERTAIN IDENTIFIED/IDENTIFIABLE BACKWARD AREAS OF THE STATE. THE PURPOSE IS TO ENCOURAGE ECONOMIC DEVELOPMENT AND IN DUSTRIALISATION OF THOSE AREAS. THE OBJECT OF S. 10A IS TO GIVE FILLIP TO A NEW INDUSTRIAL UNDERTAKING IN THE INITIAL STAGE, THE BENEFIT CANNO T BE TAKEN AWAY BY IMPOSING ANY RESTRICTIONS WHICH DO NOT FIND MENTION IN THE ACT. THIS WOULD BE IN CONSONANCE WITH THE RECOGNISED PRINCIPLES OF INTERPRETATION. THE ADMINISTRATIVE AUTHORITY OR THE COURT SHOULD NOT WH ITTLE DOWN THE PLENITUDE OF THE EXEMPTION OR RELIEF GRANTED BY THE LEGISLATI ON BY LAYING STRESS ON SOMETHING WHICH IS NOT CONSIDERED IN THAT PROVISION . THE CONDITIONS/ REQUIREMENTS TO BE MET IN ORDER TO GET CERTIFICATE- CUM REGISTRATION AS PER STANDING ORDERS OF THE GOVERNMENT OF INDIA AND CLAI M BENEFITS THEREUNDER WERE FOR A DIFFERENT SET OF BENEFITS AND NOT THE BE NEFITS UNDER THE IT ACT. THESE BENEFITS MAY HAVE BEEN THE IMPORT FACILITIES, THE DUTY DRAWBACK ASSETS, ETC. THE CONDITIONS OF S. 10A HAVING BEEN M ET, THERE IS NO BASIS FOR READING ANY MORE REQUIREMENTS TO BE MET WHICH HAVE NOT BEEN APPLICABLE IN THE SECTION BY THE LEGISLATURE. IT MAY BE PERTIN ENT TO STATE HERE THAT PROVISIONS GRANTING INCENTIVES FOR PROMOTING ECONOM IC GROWTH HAVE TO BE INTERPRETED LIBERALLY SO AS TO ADVANCE THE OBJECT A ND NOT TO FRUSTRATE THE PURPOSE FOR WHICH THEY ARE MADE. IN THE ALTERNATIVE, IT WAS SUBMITTED BY THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE THAT IF DEDUCTION UNDER SECTION 10A WA S DENIED TO THE ASSESSEE THEN DEDUCTION UNDER SECTION 80HHE SHOULD BE ALLOWED IN RESPECT OF THE EXPORT PROFIT. IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE ON THE DECISION OF AHMEDABAD BENCH O F THE TRIBUNAL IN ASSESSEES OWN CASE FOR A SSESSMENT YEAR 2000-01 DATED 05.12.2008 PASSED IN ITA NO.3736/AHD/2004 WIT H CO NO.26/AHD/2005 WHEREIN IT WAS HELD AS UNDER: 4.1. IT WAS IN VIEW OF THE ABOVE FACTS AND CIRCUMS TANCES OF THE CASE THAT THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED T HE ORDER OF LEARNED ASSESSING OFFICER BY SUBMITTING THAT THE ASSESSEE H AVING NOT MADE THE CLAIM OF DEDUCTION UNDER SECTION 80HHE OF THE ACT, BY FILING REVISED RETURN, THE CLAIM MADE BY WAY OF LETTER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAS RIGHTLY REJECTED AND THEREF ORE THE CIT(A) WAS NOT JUSTIFIED IN ALLOWING THE ASSESSEES CLAIM. 5. LEARNED AR ON THE OTHER HAND, SUPPORTED THE ORDE R OF THE CIT(A) AND RELIED ON UNREPORTED THE DECISION OF HON'BLE DE LHI HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD. IN ITA N O.798/2007 DATED 7-4- 2008 (COPY OF WHICH WAS PLACED ON RECORD), WHEREIN THE HON'BLE COURT HAS AFTER CONSIDERING DECISION OF HON'BLE SUPREME C OURT IN THE CASE OF GOETZ INDIA VS. CIT 284 ITR 323 (SC) AS WELL AS IN THE CASE OF JUTE ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 10 - CORPORATION OF INDIA LTD. VS. CIT, 187 ITR 688 CAME INTO THE CONCLUSION THAT THE CLAIM OF DEDUCTION NOT MADE IN THE RETURN OF INCOME BUT RAISED AT THE APPELLANT STAGE IS ADMISSIBLE AND THE ITAT HAS THE JURISDICTION TO ADMIT AND ADJUDICATE UPON THE SAME. 6. AFTER CAREFUL CONSIDERATION OF RIVAL SUBMISSIONS , FACTS AND CIRCUMSTANCES AND LATER DECISION OF DELHI HIGH COUR T, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN ALLOWING THE CLAIM OF THE DEDUCTION UNDER SECTION 80HHE OF THE ACT, WHICH WAS MADE BEFORE THE AO BY WAY OF A LETTER. ACCORDINGLY, THESE TWO GROUNDS OF THE REVENUE ARE DISMISSED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE WAS ENGAGED IN THE DEVELOPMENT AND PRODUCTION OF CO MPUTER SOFTWARE AND EXPORT THEREOF. THE ASSESSEE CLAIMED EXEMPTION UNDER SECTI ON 10A IN RESPECT OF THE INCOME DERIVED FROM SUCH BUSINESS WHICH WAS DISALLO WED BY THE LEARNED ASSESSING OFFICER. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OBSERVED THAT THE DISALLOWANCE IN THE YEAR UNDER CO NSIDERATION WAS MADE BY THE LEARNED ASSESSING OFFICER ON THE BASIS OF SUCH DISA LLOWANCE MADE IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2000-01 WITHOU T TAKING INTO CONSIDERATION CHANGE IN FACTS OF THE YEAR WITH THE FACTS PREVAILI NG IN THAT YEAR. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOUND THAT THE ASSESSEE HAS SATISFIED THE CONDITIONS ENUMERATED IN SECTION 10A OF THE ACT AND THEREFORE, HELD THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTION UNDER SECTION 1 0A AND DIRECTED THE LEARNED ASSESSING OFFICER TO ALLOW THE CLAIM UNDER SECTION 10A AFTER DUE VERIFICATION. WE FIND THAT THE CONTENTION OF THE REVENUE IS THAT AS PER THE CONDITION IMPOSED BY SOFTWARE TECHNOLOGY PARK, GANDHINAGAR, THE ASSESSEE IS TO COMMENCE PRODUCTION SUBJECT TO CLEARANCE OF THE CONCERNED COLLECTOR OF CUSTOMS. IN THIS REGARD, THE EVIDENCES COLLECTED FROM CUSTOMS AND CENTRAL EXCISE AUTHORITIES INDICATE THAT THE PERMISSION FOR MANUFACTURING WAS GRANTED BY THE DY. COMMISSIONER OF CENTRAL EXCISE, DIVISION-VI, AHMEDABAD-I ON 12.01.2001 VIDE NO. MISC.08/100% EOU/2000-01 DOES NOT QUALIFY FOR EXEMPTION U/S.10A SINCE THE COMPANY HAD NOT RECEIVED APPROVAL UPTO 12.01.2001 FOR PRODUCTION FR OM THE EXCISE AUTHORITIES, WHICH WAS A PRE CONDITION SET BY SOFTWARE TECHNOLOG Y PARK, GANDHINAGAR. THE ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 11 - BUSINESS ACTIVITY PRIOR TO 12.01.2001 DOES NOT QUAL IFY FOR EXEMPTION UNDER SECTION 10A OF THE ACT. WE FIND THAT ASSESSEE HAS PLACED AT PAGE 62 OF THE PAPER BOOK, LETTER DATED 12.10.2000 WRITTEN BY DIRECTOR, STPI-G ANDHINAGAR, WHICH READS AS UNDER:- SOFTWARE TECHNOLOGY PARKS OF INDIA (AN AUTONOMOUS SOCIETY UNDER MINISTRY OF INFORMATION TECHNOLOGY, GOVT. OF INDIA) STPG COMPLEX, A/78/7/2, FLATTED FACTORY SHED, GIDC ELECTRONIC ESTATE, SECTOR#25, GANDHINAGAR-382 044, GUJARAT-INDIA, PHONE:[phone], 31571, FAX:[phone], EMAIL: [e-mail] . TO, THE ICUBIX INFOTECH LTD., NOBLES, A WING, STPIG/EXIM/S//III.-227-APPELLANT/ CHA_LOC/2602 4 TH FLOOR, ASHRAM ROAD, 12.10.2000 AHMEDABAD-380 009. SUB: CHANGE IN LOCATION OF THE STP UNIT. THIS IS IN REFERENCE TO YOUR LETTER IIL/R91 DATED 6 .10.2000 AND IIL/R95 DATED 12.10.2000 FOR APPROVAL OF NEW WORK PLACE AT SANGI TA, A & B WING, 7 TH FLOOR, NR. PARIMAL CROSSING, ELLISBRIDGE, AHMEDABAD-380 00 6. YOUR REQUEST FOR SHIFT TO NEW OFFICE AT SANGITA, A & B WING, 7 TH FLOOR, NR. PARIMAL CROSSING, ELLISBRIDGE, AHMEDABAD-380 006 H AS BEEN EXAMINED BY THIS OFFICE. IN RESPECT OF THE ABOVE, THE LOCATION OF THE STP UN IT, M/S. ICUBIX INFOTECH LTD., FOR THE PERMISSION GRANTED AGAINST ITS APPLICATION TO WORK UNDER STP SCHEME VIDE LETTER NO.STPIG/EXIM/S/RIL/2278043 DATED 28.03 .2000 IS CHANGED FROM NOBLES, A-WING, 4 TH FLOOR, ASHRAM ROAD, AHMEDABAD 380 006 TO ITS NE W LOCATION AT SANGITA, A & B WING, 7 TH FLOOR, NR. PARIMAL CROSSING, ELLISBRIDGE, AHMEDABAD-380 006. ALL OTHER TERMS AND CONDITIONS OF THE REFERRED PERMISSION LETTER REMAINS UNCHANGED. THIS LETTER SHOULD BE KEPT ATTACHED TO THE ORIGINAL PERMISSION LETTER NO.STPIG/EXIM/S/RIL/227/8043 DATED 28.03.2000. THE STP UNIT, M/S. ICUBIX INFOTECH LTD., AHMEDABAD , HAS TO COMPLY WITH THE FORMALITIES PRESCRIBED BY MINISTRY OF FINANCE, DEPA RTMENT OF REVENUE, CUSTOMS DIVISION, AHMEDABAD. THE UNIT ON GETTING THE PREMISES SANGITA, A & B W ING, 7 TH FLOOR, NR. PARIMAL CROSSING, ELLISBRIDGE, AHMEDABAD-380 006J CUSTOM BO UNDED WILL GET THE PRIVATE BOUNDED WAREHOUSE LICENSE ON 706, SAFFRON, NR. PANC HVATI CIRCLE, AMBAWADI, AHMEDABAD-380 006 CANCELLED FROM CUSTOMS & CENTRAL EXCISE. PLEASE ACKNOWLEDGE THE RECEIPT. YOURS FAITHFULLY, FOR STPI-GANDHIANGAR ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 12 - AJAY SHARMA DIRECTOR CC. THE ASST. COMMISSIONER, CUSTOMS & CENTRAL EXCIS E, DIV.VI, NAVRANGPURA, AHMEDABAD. 9. FROM THE ABOVE, THE LEARNED AUTHORISED REPRESENT ATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS RUNNING ITS BUSINES S FROM ANOTHER STPI AREA BEFORE SHIFTING TO THE NEW STPI PREMISES WHEREIN PR ODUCTION WAS CARRIED OUT AFTER 12.01.2001. IN OTHER WORDS, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT BEFORE, 12.01.2001, THE ASS ESSEE CARRIED OUT THE PRODUCTION FROM ANOTHER PREMISES, WHICH WERE ALSO R EGISTERED STPI AREA. THE OTHER CONTENTION OF THE REVENUE WAS THAT THE ASSESS EE HAS HIMSELF NOT MANUFACTURED OR PRODUCED THE COMPUTER SOFTWARE WHIC H WAS EXPORTED BY IT AND ASSESSEE GOT IT DEVELOPED FROM OUTSIDE AGENCY. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE CONTROVERTED THE ABO VE CONTENTION BY SUBMITTING THAT THE ADVANCE OF RS.42 LACS PAID BY THE ASSESSEE TO M/S. GENESIS CONSULTANTS LIMITED ON 31.03.2004 AS PER MOU DATED 25.02.2000 W AS RECEIVED BACK BY THE ASSESSEE DURING THE YEAR AND NO WORK WAS CARRIED OU T BY THE SAID M/S. GENESIS CONSULTANTS LIMITED ON BEHALF OF THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION. HE ALSO SUBMITTED THAT ASSESSEE HAD SUFFICIENT NUMB ER OF COMPUTERS AMOUNTING TO RS.12,16,652/- AS EVIDENCED FROM SCHEDULE-3 OF FIXE D ASSETS OF THE BALANCE SHEET AS AT 31.03.2001 TO DEVELOP AND PRODUCE THE COMPUTE R SOFTWARE WHICH WAS EXPORTED BY IT. HE EXPLAINED THAT THE SOFTWARE WERE PRODUCED BY ITS OWN EMPLOYEES WHICH WILL BE EVIDENT FROM THE FACT THAT ASSESSEE HAS SHOWN SALARIES AND ALLOWANCES OF RS.31,71,464/- PAID TO EMPLOYEES AS PER SCHEDULE-7 ATTACHED WITH THE BALANCE SHEET FOR THE YEAR ENDING ON 31.03 .2001 AND ALSO BY TAKING HELP FROM PROFESSIONAL EXPERTS TO WHOM PROFESSIONAL CHAR GES OF RS.2,21,093/- WAS PAID AS WILL BE EVIDENCED FROM SCHEDULE-7 ATTACHED WITH THE BALANCE SHEET FOR THE YEAR ENDING ON 31.03.2001. WE FIND THAT NO MATERIAL COU LD BE BROUGHT ON RECORD BY THE REVENUE TO SHOW THAT THE ASSESSEE HAS PURCHASED ANY DEVELOPED COMPUTER SOFTWARE ITA NO. 133/AHD/2005 M/S.ICUBIX INFOTECH LTD. ASST.YEAR -2001-2002 - 13 - WHICH WAS EXPORTED BY IT. THE REVENUE ALSO CONTENDE D THAT FROM VERIFICATION OF DETAILS OF EXPORTS MADE BY THE ASSESSEE IT IS OBSER VED THAT IT INCLUDED CAPITAL RECEIPT IN ITS SALE BY SUBMITTING THAT THE ASSESSEE HAS RECEIVED AMOUNT IN RESPECT OF SALE OF CORPORATE LICENSE. THE ASSESSEE SUBMITTED THAT THE LEARNED ASSESSING OFFICER WAS NOT ABLE TO PROPERLY APPRECIATE THE FAC TS OF THE CASE. THE ASSESSEE ACTUALLY SOLD LICENSED SOFTWARE FOR RS.81,43,200/-A ND NOT ANY CORPORATE LICENSE. THE ASSESSEE SUBMITTED THAT THE RELEVANT SALE WAS A N EXPORT SALE AND NO FOREIGN PARTY WILL PURCHASE INDIAN CORPORATE LICENSE AND IN FACT THE SALE WAS OF SOFTWARE WHICH WERE PRODUCED BY THE ASSESSEE AND WHICH WAS S TYLED AS LICENSED SOFTWARE. WE FIND THAT THE LEARNED DEPARTMENTAL REPRESENTATIV E COULD NOT POINT OUT ANY ERROR IN THE ORDER OF THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) THUS, WE DO NOT FIND ANY GOOD REASON TO INTERFERE WITH THE O RDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). IT IS CONFIRMED AND THE GRO UND OF APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 13.11.2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 13/11/2009 PREPARED AND COMPARED BY : PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD