Indican Software, Parwanoo V. ITO, Solan

ITA 248/CHANDI/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9147 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 05-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SURINDER BABBER
• Keywords: Business income; Depreciation; Income from undisclosed sources; Salary income; Assessment record
• Section: 143(3); 80IB; 133(6); 145; 263; 144

Judgement Text

PAGE 1 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 248 /CHD/20 15 ASSESSMENT YEAR: 2000 - 01 INDICAN SOFTWARE, PLOT NO. 17, SECTOR - 1, PARWANOO - 173220 HIMACHAL PRADESH PAN:AAAFI9266L VS. INCOME TAX OFFICER, PARWANOO, DISTT. SOLAN (HP) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SURINDER BABBER REVENUE BY: SH. MANJIT SINGH, DR DATE OF HEARING 02 /0 8 /2016 DATE OF PRONOUNCEMENT 0 9 /0 8 /2016 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THIS IS AN APPEAL FILED BY THE A SSESSEE AGAINST THE ORDER OF THE LD CIT ( A), SHIMLA DATED 24.12.2012 FOR THE ASSESSMENT YEAR 2000 - 01 AGAINST THE DENIAL OF DEDUCTION U/S 80IA OF THE INCOME TAX ACT 1961 OF THE ACT AND ADOPTING AN ARBITRARY FIGURE OF 5% OF THE INCOME AS BUSINESS INCOME. 2 . THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FIRM FILED ITS RETURN OF INCOME ON 31.12.2000 DECLARING NIL INCOME AFTER CLAIMING DEDUCTION OF RS. 1446797/ - U/S 80IA O F THE ACT AS A SSESSEE IS SUPPOSEDLY ENGAGED IN THE BUSINESS OF DEVELOPMENT OF SOFTWARE. SUBSEQUENTLY, THE ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED VIDE ORDER DATED 25.03.2003, WHEREIN THE CLAIM OF THE ASSESSEE WAS ALLOWED. ASSUMING POWER U/S 263 OF THE ACT THE LD CIT, S H IMLA PASSED AN ORDER DATED 12.10.2004 WHEREIN HE HELD THAT THAT THE ORDER OF THE AO ALLOWING THE CLAIM OF THE DEDUCTION U/S 80IA IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST PAGE 2 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 OF REVENUE AND THEREFORE HE HELD THAT THE INCOME ASSESSED IN EXCESS OF 5% IS TO BE TREATED AS UNDISCLOSED INCOME OF THE ASSESSEE AND THE ASSESSEE DOES NOT FULF ILL MANY OF THE CONDITIONS FOR DEDUCTION U/S 80 IA OF THE ACT . AGAINST THIS ORDER U/S 263 THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COORDINATE BENCH WHO V IDE ORDER DATED 03.06.2008 MODIFIED THE ORDER OF THE LD CIT (A) AND DIRECTED THE AO FOR MAKING PROPER ENQUIRY FOR SCRUTINIZING TH E CLAIM OF THE ASSESSEE U/S 80IA TO CONSIDER THE GENUINENESS OF THE CLAIM AND FULFILLMENT OF OTHER CONDITIONS. THE COORDINATE B ENCH FURTHER HELD THAT THE AO SHALL NOT REV IEW HIS DECISION RELATING TO MANUFACTURING OF COMPUTER SOFTWARE WHETHER FALLING WITHIN THE AMBIT OF INDUSTRIAL UNDERTAKING ELIGIBLE FOR DEDUCTION U/S 80IB OR NOT. PURSUANT TO THE ORDER OF THE COORDINATE BENCH THE LD AO PASSED AN ASSESSMENT ORDER U/S 144 OF THE ACT REJECTING THE BOOKS OF ACCOUNT STATING THE REASONS ABOUT DISCREPANCY IN ACCOUNTING OF ELECTRICITY BILLS, NON AVAILABILITY OF COMPLETE ADDRESS OF THE PARTIES TO WHOM THE SALES OF SOFTWARE IS MADE, ABSENCE OF ANY C OST OF PURCHASE OF SOFTWARE AND ON THE COMPETENCE OF THE EMPLOYEES OF THE A SSESSEE TO DEVELOP THE SOFTWARE. SUBSEQUENTLY, DEDUCTION U/S 80IA CITING THE IN COMPETENCE OF THE STAFF/ EMPLOYEE OF THE A SSESSEE , FOR ADEQUACY OF THE EQUIPMENT OF THE EQUI PMENTS AVAILABLE IN THE F O RM OF COMPUTERS ETC, ABSENCE OF COMPLETE DETAILS WITH RESPECT TO THE DEVELOPMENT OF THE SOFTWARE, NON AVAILABILITY OF SOME OF THE EMPLOYEES FOR EXAMINATION, ABSENCE OF ANY EXPENDITURE ON R&D ACTIVITIES, ABSENCE OF ANY LITERATURE A BOUT THE SOFTWARE, IGNORANCE OF THE PARTNERS ABOUT THE COMPUTER PROGRAMMING AND HOST OF OTHER REASONS LED TO SUCH DISALLOWANCE. THE A SSESSEE CARRIED THE MATTER BEFORE THE LD CIT ( A) WHO IN TURN CONFIRM ED THE FINDING OF THE LD AO FOR REJECTING THE CLAIM O F THE A SSESSEE FOR DEDUCTION U/S 80I A OF THE ACT. AGGRIEVED BY THE ORDER OF THE LD CIT ( A) THE ASSESSEE IS IN APPEAL BEFORE US. 3 . THE LD AR SUBMITTED THAT THE ASSESSEE HAS DEVELOPED THE SOFTWARE AND SOLD IT AND IT HAS 14 EMPLOYEES IN ALL WHOSE DETAILS WERE PROVIDED AT PAGE 112 OF THE PAPER BOOK. HE FURTHER SUBMITTED THAT THERE IS NO DISCREPANCY IN ACCOUNTING FOR ELECTRICITY EXPENSES WHICH WAS EXPLAINED TO THE AO VIDE LETTER DATED 23.11.2009 AND THEREFORE HE SUBMITTED THAT THE LD AO HAS ERRED IN REJECTI NG THE BOOKS OF ACCOUNT. HE FURTHER STATED THAT THE COMPLETE DETAILS OF THE SALE OF SOFTWARE ARE SUBMITTED WHICH IS AVAILABLE AT PAGE 104 TO 106 OF THE PAPER BOOK. HE FURTHER PAGE 3 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 SUBMITTED THAT THE QUANTITATIVE DETAILS OF THE PRODUCTION OF THE SOFTWARE AND ITS SALES ARE ALSO AVAILABLE AT PAGE 107 OF THE PAPER BOOK. BASED ON THE ABOVE EVIDENCE HIS SUBMISSION WAS THAT THE A SSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SOFTWARE AND HAS EARNED PROFIT, WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IA, AND THEREFORE THE LD AO AS WELL AS THE LD CIT ( A) HAS ERRED IN NOT ALLOWING DEDUCTION TO THE ASSESSEE. 4 . THE LD DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE LD AO HAS GIVEN DETAILED REASONING AND FURTHER THE LD CIT ( A ) HAS GIVEN SUFFICIENT REA SON F OR DI SALLOWING ALL THE CLAIM OF THE ASSESSEE. THEREFORE, HE SUBMITTED THAT A SSESSEE IS FOUND TO BE NOT ELIGIBLE FOR DEDUCTION. IN VIEW OF THIS, HE SUBMITTED THAT THE ORDER OF AO MAY BE UPHELD. 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS . F OR T HE PURPOSE OF DEDUCTION U/S 80IA OF THE ACT, THE A SSESSEE SHOULD BE ENGAGED IN THE BUSINESS OF MANUFACTURING OR PRODUCTION OF THINGS EMPLOY ING MORE THAN 10 WORKERS AND IT SHOULD FURNISH A CERTIFICATE BY A CHARTERED ACCOUNTANT QUANTIFYING THE CLAIM OF THE ASSESSEE. THE ASSESSEE IS A PARTNERSHIP FIRM FORMED BY HUSBAND AND WIFE . THE HUSBAND DERIVED INCOME FROM SALARY AND RUNNING BUSINESS CONCERN IN THE FORM OF CHOPRA GAS AGENCY AND THE WIFE OF THE ASSESSEE IS DERIVING SALARY FROM SOME FILLING STATION . BOTH OF THEM ARE NOT QUALIFIED AS SOFTWARE PROFESSION ALS OR HAVING PAST EXPERIENCE IN THAT BUSINESS OF SOFTWARE DEVELOPMENT OR ITS MARKETING . BOTH OF THEM STARTED THE ASSESSEE FIRM BY EMPLOYING OTHER PEOPLE. DURING THE YEAR, THE FIRM HAS EXECUTED THE SALE OF RS. 18.96 LAKHS AND HAS EARNE D NET PROFIT OF RS. 14.46 LAKHS THEREON. THE TOTAL SALARY/ WAGES PAID BY THE FIRM WAS RS. 2.41 LAKHS ONLY AND THE NEXT MAJOR AMOUNT OF EXPENDITURE WAS DEPRECIATION OF RS. 51000/ - . THE BALANCE SHEET OF T HE COMPANY ALSO SHOWS THAT THE INVESTMENT IN PLANT AND MACHINERY WAS ONLY R S . 85000/ - . THE ASSESSEE DOES NOT HAVE ANY FURNITURE AND FIXTURES AND IS RUNNING BUSINESS FROM RENTED PREMISES . THE CLAIM OF THE ASSESSEE THAT IT HAS TAKEN ON RENT PREMISES WHICH IS FITTED WITH ALL THE REQUIRED FURNITURE AND FIXTURE IS ALSO NOT SUPPORTED BY EVIDENCES. THE LIST OF THE EMPLOYEES GIVEN BY THE A SSESSEE IN ALL 14, THE ASSESSEE COULD GIVE INFORMATION ABOUT EDUCATIONAL QUALIFICATION WITH RESPECT TO ONLY FOUR PERSONS AND TWO OUT OF THEM ARE SIMPLE GRADUATES AND ONE MATRICULATE. THE ONLY ONE PERSON WAS HOLDING DIPLOMA IN PAGE 4 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 COMPUTER FROM SOME PRIVATE INSTITUTE, HE WAS HAVING THE LONGEST EXPERIENCE OF TWO YEARS ONLY, AND HE IS DESIGNATED AS SR. PROGRAMMER DRAWING S ALARY OF ONLY RS. 32299 / - P.A. ANNUM. IN THE DETAILS OF THE EMPLOYEES, THE INDIVIDUAL WORK/ CONTRIBUTION OF STAFF WAS ALSO COULD NOT BE IDENTIFIED. ON THIS FACT, THE FINANCIAL RESULTS SHOW N BY THE A SS ESSEE THAT THE A SSESSEE HAS EARNED A PROFIT OF RS. 14.4 6 LAKHS ON TURNOVER OF RS. 18.96 LAKHS RESULTING INTO ASTRONOMICAL NET PROFIT RATIO OF 76.26%. ON THIS FACTS AND CIRCUMSTANCES THE LD CIT(A) HAS DEALT WITH THE FACTS OF THE CASE AND ALSO THE RIVAL ARGUMENTS IN ALL ITS COMPLETENESS AND THEN DECIDED T HIS IS SUE IN PARA 7 OF HIS ORDER AS UNDER: - 7. THE RIVAL SUBMISSIONS HAVE BEEN CAREFULLY CONSIDERED W.R.T. THE FACTS OF THE CASE AND THE RELEVANT CASE RECORDS. IT IS PERTINENT TO NOTE THAT THE CIT, SHIMLA, IN HIS ORDER U/S 263 HAD GIVEN DETAILED FINDINGS OF FAC TS WHICH LED HIM TO CONCLUDE THAT THE ASSESSEE DID NOT SATISFY EVEN THE PRE - REQUISITE CONDITIONS FOR DEDUCTION U/S 80IA OF THE ACT. IT WAS ON THE BASIS OF THESE FINDINGS OF FACT THAT THE HON'BLE ITAT OBSERVED IN PARA 16 & 17 OF THEIR ORDER DATED 03/06/2008 AS FOLLOWS: .............SO HOWEVER, THE COMMISSIONER OF INCOME - TAX IN HIS ORDER U/S 263 HAS DEMONSTRATED AS TO HOW THE ASSESSING OFFICER HAS FAILED TO LOOK INTO VARIOUS FACTS AS WELL AS ASPECTS WHICH RAISED A STRONG SUSPICION ABOUT CONDITIONS FOR GRANT OF DEDUCTION U/S 80IB BEING SATISFIED IN THIS CASE. IT IS TRUE THAT THE SUSPICION HOWSOEVER STRONG IT MAY BE, DOES NOT TAKE PLACE OF PROOF. SO HOWEVER, IF IS EQUALL Y VERY WELL ACCEPTED PRINCIPLE T HAT THE SUSPICION IS THE MOTHER OF INVESTIGATION. WHEN FACTS ON RECORD RAISED STRONG SUSPICION ABOUT THE NON - EXISTENCE OF THE CONDITIONS REQUIRED TO BE SATISFIED FOR GRANT OF DEDUCTION U/S 80IB, THE ASSESSING OFFICER OUGHT TO HAVE PROBED IN THE MATTER AND MADE DEEP SCRUTINY. FOR EXAMPLE, THE COMMISSIONER OF INCOME TAX HAS MENTIONED ABOUT THE MACHINERY IN THE FORM OF COMPUTER SOFTWARE OWNED BY THE ASSESSEE. WHETHER TWO COMPUTERS OWNED BY THE ASSESSEE WERE SUFFICIENT FOR THE MANUFACTURING OF COMPUTER SOFTWARE WAS A MATTER WARRANTING SCRUTINY. THE ASSESSING OFFICER HAS FAILED TOTALLY TO ENQUIRE ABOUT THIS ASPECT OF THE MATTER. THE COMMISSIONER OF INCOME TAX HAS ALSO POINTED OUT THAT THE ASSESSEE HAD NOT EVEN PURCHASED UPS WHICH ARE NECESSARY FOR RUNNING OF COMPUTERS. THE ASSESSING OFFICER HAS FAILED TO MAKE ANY ENQUIRY ABOUT THE SAME. THE COMMISSIONER OF IN COME - TAX HAS ALSO POINTED OUT ABOUT THE NON - EXISTENCE OF ANY FURNITURE FOR THE EMPLOYEES WHICH HAS ALSO ESCAPED THE ATTENTION OF THE ASSESSING OFFICER. WHEREAS THE ASSESSEE HAS CLAIMED TO HAVE EMPLOYED 10 OR MORE WORKE RS IN THE MANUFACTURING PROCESS, THE ASSESSING OFFICER HAS FAILED TO ENQUIRE ABOUT THEIR QUALIFICATION, DESIGNATION AND AS TO WHETHER THEY WERE ENGAGED IN THE MANUFACTURING ACTIVITIES. THE ASSESSING OFFICER HAS ALSO OVERLOOKED THE FACT THAT A MEAGER SALARY WAS CLAIMED TO HAVE BEEN PAID TO THE PAGE 5 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 EMPLOYEES RAISING A STRONG SUSPICION ABOUT THEIR QUALIFICATIONS REQUIRED FOR DISCHARGING THE JOB OF COMPUTER SOFTWARE ENGINEERS. ON GOING THROUGH THE ORDER OF THE ASSESSING OFFICER U/S 143(1) AND THE ORDER OF THE COMMI SSIONER OF INCOME TAX U/S 263, IT BECOMES ABUNDANTLY CLEAR THAT THE ASSESSING OFFICER HAS MISERABLY FAILED TO APPLY HIS MIND TO THE MATERIAL AVAILABLE ON RECORD AND ALSO FAILED TO MAKE REQUISITE ENQUIRY SO AS TO VERIFY THE GENUINENESS OF THE CLAIM OF THE A SSESSEE U/S 80IB. AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. (SUPRA) THE ORDER PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIND FALLS WITHIN THE CATEGORY OF ERRONEOUS ORDERS WARRANTING ACTION U/S 263. SINCE I N THIS CASE, THE ASSESSING OFFICER HAD FAILED TO APPLY HIS MIND IN ORDER TO VERIFY THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND, THEREFORE, THE COMMISSIONER OF INCOME TAX WAS JUSTIFIED IN IINVOKING HIS POWER U/S 263............... 7.1 ACCORDINGLY BY TH E HON'BLE ITAT RESTORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR MAKING PROPER SCRUTINY OF THE CLAIM OF THE ASSESSEE U/S 80IB. THUS AS PER THE DIRECTIONS OF THE HON'BLE ITAT, THE ASSESSING OFFICER WAS REQUIRED TO DO THE FOLLOWING: (A) TO CONDUCT PROPER ENQUIRIES WHETHER THE CONDITIONS REQUIRED FOR GRANT OF DEDUCTION U/S 80IA WERE FULFILLED BY THE ASSESSEE. (B) TO CONDUCT ENQUIRIES WHETHER THE ASSESSEE WAS ACTUALLY ENGAGED IN THE MANUFACTURING OF COMPUTER SOFTWARE. 7.2 IF THE ASSESSEE WERE TO BE FOUND TO BE FULFILLING THE OTHER CONDITIONS WERE REQUIRED FOR GRANT OF DEDUCTION U/S 80IA, AND IF IT WERE FOUND ENGAGED IN THE MANUFACTURING OF COMPUTER SOFTWARE, DEDUCTION U/S 80IA WAS TO BE ALLOWED TO THE ASSESSEE IN ACCORDANCE WITH THE CLEAR DIRECTIONS OF THE HON'BLE ITAT THAT THE EARLIER A.O. 'S DECISION IN THIS REGARD SHALL NOT BE REVIEWED BY A.O. WHILE MAKING THE FRESH ASSESSMENT. 7.3 AS REGARDS THE ENQUIRIES MADE REGARDING THE (A) ABOVE, THE A.O. HAS DISCUSSED THEM AT LENGTH IN THE ASSESSMENT ORDER. IT IS NOTED THAT A DETAILED QUESTIONNAIRE WAS ISSUED TO THE APPELLANT BY THE A.O. ON 21.07.2009 SEEKING INFORMATION ON VARIOUS ISSUES WHICH INTER - ALIA INCLUDED THE ISSUES PERTAINING TO CONDITIONS REQUIRED TO BE FULFILLED BY THE APPELLANT TO CLAIM DEDUCTION U/S 801A. THESE INCLUDED THE DETAILS REGARDING THE WORKERS EMPLOYED, THE DETAILS REGARDING THE CONSUMPTION OF ELECTRICITY ETC. ON THE BASIS OF THE PERUSAL OF THE ASSESSMENT ORDER, THE RELEVANT ASSESSMENT RECORDS AND THE APPELLANT'S SUBMISSIONS, THE FOLLOW ING IMPORTANT FACTS EMERGE: - (A) THE APPELLANT HAD SHOWN THE PURCHASE OF ONE COMPUTER ON 16.02.1999. THE SECOND COMPUTER WAS SHOWN PURCHASED ON 28.07.1999 AND THE THIRD COMPUTER ON 20.02.2000. IT IS NOTED OF FIRST TWO COMPUTERS WAS SHOWN AS RS.29000/ - EACH, WHILE THE THIRD COMPUTER WAS PURCHASED FOR A COST OF RS.17300/ - ONLY. THE A.O. HAS NOT CONDUCTED ANY ENQUIRIES IN RESPECT OF THE SAID PURCHASES, BUT, PRIMA - FACIE, EVEN THE PURCHASE PRICE CLAIMED FOR THE G IVEN PAGE 6 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 COMPUTERS IS GROSSLY UNDERSTATED, GIVEN THE FACT THAT IN THE YEAR 1999 - 2000 THE COMPUTERS WERE QUITE EXPENSIVE. THE PURCHASE PRICE OF RS.17,300/ - ONLY FOR A COMPUTER SYSTEM WAY BACK IN 1999 - 2000 IS APPARENTLY UNDERSTATED, AS THE GOOD COMPUTERS ARE NOT AVAILABLE FOR THIS PRICE EVEN TODAY DESPITE THE INFORMATION TECHNOLOGY AND ELECTRONIC BOOM. (B) SOPHISTICATED COMPUTERS WERE REQUIRED, IF AT ALL THE APPELLANT WAS TO GENUINELY MANUFACTURE GOOD QUALITY COMPUTER SOFTWARE. HOWEVER, GOING BY THE APPELLANT' S OWN BOOKS OF ACCOUNTS, IT OWNED ONLY ONE COMPUTER DURING THE FIRST 4 MONTHS OF ITS WORKING AND OWNED TWO COMPUTERS DURING THE NEXT 7 MONTHS OF ITS WORKING. (C) WITH SUCH SCANTY SUB - STANDARD MACHINERY AT ITS DISPOSAL, THE APPELLANT HAS CLAIMED TO HAVE E NGAGED 14 STAFF MEMBERS AT VARIOUS POINTS OF TIME DURING THE YEAR UNDER CONSIDERATION. (D) A PERUSAL OF THE EMPLOYEES DETAILS SUBMITTED BY THE APPELLANT DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVEALS THAT THE FOLLOWING EMPLOYEES WERE SHOWN TO HAVE WO RKED THROUGHOUT THE YEAR. SUMAN, VIBHA, RAJEEV, KUSUM, NAMI CHAND, RAKESH, RAJAT KUMAR, MS JYOTI WORKED FOR 5 MONTHS FROM APRIL TO AUGUST, NIDHI WORKED FOR 8 MONTHS FROM APRIL TO NOVEMBER, SUNNY WORKED FO,R THE MONTHS OF APRIL, JUNE TO DECEMBER, ASHUTOSH W ORKED FOR 5 MONTHS FROM APRIL TO AUGUST, MEENA WORKED FOR 6 MONTHS FROM SEPT. TO FEBRUARY, AMLT WORKED FOR 6 MONTHS FROM SEPT. TO FEB., SATISH WORKED FOR 3 MONTHS FROM DEC. TO FEB. (E) ALL THE ABOVE MENTIONED EMPLOYEES WERE PAID A MEAGRE SALARY, WITH NO O NE GETTING A SALARY OF MORE THAN RS.2,900/ - PER MONTH. THE HIGHEST SALARY OF RS.2,907/ - PER MONTH HAS, BEEN SHOWN PAID TO ONE M/S. KUSUM WHOSE QUALIFICATION HAS NOT BEEN REVEALED BY THE APPELLANT . STILL SHE WAS CLAIMED TO BE A 'SYSTEM ANALYST'. THE COMP LETE WAS NOT MADE AVAILABLE BY THE ASSESSES EVEN DURING COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, AS A RESULT OF WHICH THE LETTER ISSUED TO HER BY THE A.O. U/S 133(6) OF THE ACT WAS RECEIVED BACK UNDELIVERED. (F) SIMILARLY IN THE CASE OF MS. VIBHA, WHO WAS CLAIMED TO BE A COMPUTER OPERATOR, BUT IN WHOSE REGARD NO DETAILS REGARDING QUALIFICATION WERE SUBMITTED, THE LETTER ISSUED U/S 133(6) BY THE A.O. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS WAS RECEIVED BACK UNDELIVERED. (G) AS REGARDS S UNNY, A LETTER WAS RECEIVED FROM HIM ON 24.03.2003 STATING AS FOLLOWS '....... I WAS WORKING AS COMPUTER OPERATOR IN INDICAM SOFTWARE DURING THE PERIOD 01.04.1999 TO 31.12.1999. MY SALARY WAS RS.3,000/ - PER MONTH.' AS AGAINST THE SAID ST ATEMENT OF SH. SUNNY, THE APPELLANT HAS CLAIMED THE FOLLOWING SALARY PAYMENTS TO HIM: MARCH, 1999 687.75 PAGE 7 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 APRIL, 1999 491.25 MAY JUNE 884.25 JULY 262.55 AUG 951 .05 AUG 951 .05 SEPT. 1965 OCT. 1711.50 NOV. 2161.50 DEC. 2282.35 THUS - THE APPELLANT HAS SHOWN HIM EMPLOYED FROM 01.03.1999 AS AGAINST 01.04.1999 CLAIMED BY SH.SUNNY, AND HAS BOOKED HIS SALARY AT A MUCH LESSER AMOUNT THAN RS.3000/ - PER MONTH AS CLAIMED BY SH.SUNNY. (H) A LETTER WAS ALSO RECEIVED ON 24.03.2003 FROM MS JYOTI WHICH STATED AS FOLLOWS '....... IN REFERENCE TO YOUR LETTER NO. ITO/PWN/MISC/2002 - 03/3649 RECEIVED ON DATED 17/03/03. I WAS WORKING IN INDICAM SOFTWARE PARWANOO DURING THE 01.04.1999 TO 31.08.199. I WAS RECEPTIONIST WITH AMOUNT OF SALARY 2500/ - /PER MONTHS.......'. AS AGAINST THIS STATEMENT OF MS. JYOTI, THE APPELLANT HAS SHOWN HER EMPLOYED W.E.F. MARCH, 1999 AT A SALARY LESS THAN RS.2,500/ - PER MONTH. THE APPELLANT HAS ALSO CLAIMED HER TO BE A 'SYSTEM ANALYST', ALTHOUGH SHE WAS WORKING AS A 'RECEPTIONIST'. ( I) AS REGARDS THE APPELLANT'S CLAIM THAT IT HAD DISCHARGED ITS ONUS DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS BY PRESENTING ALL THE EMPLOYEES WITH THE EXCEPTION OF TWO EMPLOYEES, THE SAME IS NOT FOUND TO BE FAC TUALLY CORRECT. A PERUSAL OF THE RELEVANT ASSESSMENT RECORDS REVEALS THAT THE STATEMENTS OF ONLY THE FOLLOWING EMPLOYEES WERE RECORDED ON 25.03.2003 BY THE A.O. DURING THE COURSE OF ORIGINAL , ASSESSMENT PROCEEDINGS: - (I) SH.SATISH KUMAR WHO STATED TO BE E MPLOYED WITH THE ASSESSEE FIRM ONLY 'FOR THE LAST Y* YEAR'. THUS THE SAID SH. SATISH KUMAR DID NOT EVEN ADMIT TO BE THE EMPLOYEE OF THE ASSESSEE FIRM DURING THE YEAR 1999 - 2000. HENCE THE APPELLANT'S CLAIM OF PAYMENT OF SALARY TO HIM IN THE MONTHS OF JAN. A ND FEB., 2000 IS FALSE. (II) SH. ROHIT AS PER HIS STATEMENT, WAS AGAIN NOT THE ASSESSEE'S EMPLOYEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. (III) SH. RAJEEV WHO ADMITTED TO BE THE EMPLOYEE OF THE ASSESSEE CONCERN SINCE 1999 AND CLAIMED TO BE A PROG RAMMER. (J) NO OTHER EMPLOYEES WERE PRODUCED BY THE ASSESSEE FIRM EVEN DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THUS VIRTUALLY ONLY ONE EMPLOYEE, PAGE 8 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 NAMELY SH. RAJEEV, MADE A STATEMENT TO THE EFFECT THAI BE WAS AN_EMPLOYEE OF ASSESSEE DU RING THE YEAR 1999 - 2000. (K) DURING THE COURSE OF SUBSEQUENT ASSESSMENT PROCEEDINGS, THE APPELLANT AGAIN EXPRESSED ITS INABILITY TO PRODUCE ANY OF THE SO - CALLED EMPLOYEES, AND DID NOT EVEN PROVIDE THE ADDRESSES OF MS. MEENA, AMIT AND SATISH WHOM IT CLAIMED TO BE IT S EMPLOYEES. (I) IT IS CLEAR FROM ABOVE THAT AT NO STAGE OF ITS ASSE SSMENT PROCEEDINGS COULD THE APPELLANT ESTABLISH THAT THE PERSONS CLAIMED TO BE ITS EMPLOYEES WERE ACTUALLY EMPLOYED DURING THE YEAR UNDER CONSIDERATION. FURTHER, IT COULD NOT BE ESTA BLISHED THAT THE SAID PERSONS HAD THE REQUISITE KNOWLEDGE AND COMPUTER SKILLS TO DEVELOP THE COMPUTER SOFTWARE WHICH COULD BE COMMERCIALLY SOLD IN THE MARKET ON SUCH A SCALE. NO DOCUMENTARY EVIDENCE WAS SUBMITTED BY THE ASSESSESSE IN SUPPORT OF THE EDUCATI ONAL QUALIFICATION OF EVEN MS. SUMAN AND MS. JYOTI WHO WERE CLAIMED TO BE A GRADUATE AND A COMMERCE GRADUATE RESPECTIVELY. IT IS NOT UNDERSTOOD AS TO HOW MS. SUMAN, A SIMPLE GRADUATE, HAS BEEN CLAIMED TO BE A 'PROGRAMMER.' SIMILARLY, MS. JYOTI, A HAS BEEN SHOWN TO BE A 'SYSTEM ANALYST. THE APPELLANT'S CLAIM IN THIS REGARD STANDS EXPOSED SUBMISSION OF MS JYOTI, AS MENTIONED IN 'H' ABOVE, IN WHICH SHE HAS STATED THAT SHE WORKED AS A 'RECEPTIONIST'. (M) THE A.O., DURING THE COURSE OF THE SECOND ASSESSMENT PROC EEDINGS, HAD REQUIRED THE ASSESSEE TO SUBMIT THE DETAILS OF THE 'OUTPUT' OF THE WORKERS CLAIMED TO HAVE BEEN EMPLOYED IN THE MANUFACTURING PROCESS, IN RESPONSE TO WHICH THE APPELLANT /RESPONDED THAT THE OUTPUT 'CANNOT BE IDENTIFIED INDIVIDUALLY'. 7.4 IT IS CLEAR FROM THE ABOVE - MENTIONED FACTS THAT THE ASSESSEE FAILED TO ESTABLISH THAT 10 OR MORE WORKERS WERE ACTUALLY EMPLOYED BY IT THROUGHOUT THE YEAR IN THE 'MANUFACTURING PROCESS'. THE APPELLANT DID NOT EVEN HAVE ENOUGH MACHINERY TO JUSTIFY THE DEPLOYMENT OF 10 OR 11 PERSONS. THE CLAIM OF THE APPELLANT REGARDING THE EMPLOYMENT OF THE STAFF IS APPARENTLY EXAGGERATED AND WITHOUT ANY BASIS. AS PER THE CONDITIONS LAID DOWN IN CLAUSE (V) OF SUB - SECTION (2} OF SECTION 80IA, IN A CASE WHERE THE INDUSTRIAF UNDERTAK ING MANUFACTURES OR PRODUCES, ARTICLES AND THINGS, THE UNDERTAKING HAS TO EMPLOY 10 OR MORE WORKERS IN A MANUFACTURING PROCESS CARRIED ON WITH THE AID OF POWER. THUS 10 R MORE WORKERS SHOULD BE EMPLOYED IN THE MANUFACTURING PROCESS ALONE, AND THE WORKERS EMPLOYED FOR OTHER ADMINISTRATIVE OR MISC. JOBS CANNOT BE SAID TO BE EMPLOYED IN THE MANUFACTURING PROCESS. WITHOUT PREJUDICE TO THIS LEGAL REQUIREMENT OF EMPLOYMENT OF 10 OR MORE WORKERS IN THE MANUFACTURING PROCESS, IN THE APPELLANT'S CASE THERE IS NO C ONCLUSIVE EVIDENCE OF THE EMPLOYMENT OF 10 OR MORE WORKERS EVEN AS A WHOLE FOR THE ENTIRE FUNCTIONING OF THE TOTAL UNIT. 7.5 IT IS ALSO IMPORTANT TO NOTE THAT THE DEVELOPMENT OF COMPUTER SOFTWARE IS A HIGHLY SPECIALIZED TASK WHICH REQUIRES SOFTWARE ENGINEE RS AND PERSONS WITH A HIGH DEGREE OF KNOWLEDGE OF COMPUTERS AND SOFTWARE DESIGNING. NO DETAILS OF QUALIFICATION WERE SUBMITTED BY THE APPELLANT IN RESPECT OF THE PERSONS CLAIMED TO HAVE BEEN EMPLOYED BY IT FOR THE SO - CALLED DEVELOPMENT OF COMPUTER SOFTWA RE. THE 3 PERSONS CLAIMED TO HAVE BEEN EMPLOYED BY THE ASSESSES, NAMELY, JYOTI, SUMAN AND RAJEEV, WHO WERE CLAIMED TO BE GRADUATES DID NOT POSSESS THE REQUISITE QUALIFICATION TO HANDLE A SPECIALIZED JOB LIKE, SOFTWARE DEVELOPMENT. THEIR WAGES STRUCTURE AG AIN INDICATES THAT THE PERSONS, IF AT ALL GENUINE, COULD AT PAGE 9 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 BEST BE EMPLOYED AS LOW LEVEL EMPLOYEES FOR ORDINARY MISCELLANEOUS JOBS. NO DETAILS WERE FURNISHED BY THE APPELLANT REGARDING THE MANNER AND THE MODE OF THEIR EMPLOYMENT. IT IS NOT KNOWN AS TO HOW THE HEAD - HUNTING WAS DONE BY THE ASSESSEE. IT IS ALSO PERTINENT TO NOTE THAT EVEN THE PARTNERS OF THE APPELLANT FIRM HAD NO KN OWL EDGE OF COMPUTERS, WHAT TO TALK OF SOFTWARE DEVELOPMENT. THUS THE GIVEN FACTS LEAD, TO THE OBVIOUS CONCLUSION THAT THE APPE LLANT HAD FAILED TO ESTABLISH THAT IT HAD ACTUALLY ENGAGED 10 OR MORE WORKERS DURING THE YEAR UNDER CONSIDERATION. HENCE THE BASIC CONDITION AS PER SECTION 80IA (2)(V) OF THE ACT DOES NOT STAND SATISFIED IN THE APPELLANT'S CASE. THE SAID CONCLUSION CAN BE EASILY DRAWN FROM THE FINDING GIVEN BY THE ASSESSING OFFICER HERSELF IN PARA 13, CLAUSE (C) AS FOLLOWS ' THE ASSESSEE WAS UNABLE TO PRODUCE A SINGLE EMPLOYEE IN SUPPORT OF ITS CONTENTION THAT FHE SAID EMPLOYEES WORKED FOR HIM AND PRODUCED THE NECESSARY SOF TWARE,...........' AGAIN IN CLAUSE (D), THE A.O. HAS MENTIONED THAT 'THE ASSESSEE KNEW THAT THE MATTER WAS UNDER LITIGATION AND THE ONUS WAS ON IT TO KEEP TRACK OF THE EMPLOYEES SO THAT IT'COULD PROVE THAT THEY WERE EMPLOYED BY IT DURING THE YEAR UNDER CON SIDERATION AND DID THE WORK AS HAS BEEN STATED BY THE ASSESSEE FOR SALARIES AS REPORTED BY IT. THE ASSESSEE HAS FAILED TO DISCHARGE THE ONUS CAST UPON IT.' 7.6 IN VIEW OF THE DISCUSSION ABOVE, IT IS HELD THAT THE APPELLANT IS NOT ELIGIBLE FOR DEDUCTION U/S 80IA IN RESPECT OF THE INCOME EARNED BY IT AS IT HAS FAILED TO SATISFY THE BASIC CONDITION, PRE - REQUISITE FOR CLAIM OF DEDUCTION U/S 80IA. 7.7 WITHOUT PREJUDICE TO ABOVE, IT IS CONSIDERED APPROPRIATE TO DISCUSS THE SECOND FINDING GIVEN BY THE A.O. THAT TH E ASSESSEE WAS NOT ENGAGED IN THE DEVELOPMENT OF ANY COMPUTER SOFTWARE, AND THAT AT BEST IT WAS ONLY DUPLICATING THE SOFTWARE. APART FROM THE PRIMARY FACT THAT THE ASSESSEE DID NOT HAVE THE REQUISITE SKILLED MANPOWER TO DEVELOP ANY COMPUTER SOFTWARE, IT HA S ALSO BEEN MENTIONED BY THE A.O. THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE ON THE PRINTING OF THE LITERATURE (INSTRUCTION MANUAL) WHICH COULD ACT AS A GUIDING MATERIAL FOR THE USE OF THE SO - CALLED SOFTWARE DEVELOPED BY THE ASSESSEE. IT IS COMMON KN OWLEDGE THAT EVERY SOFTWARE WHICH IS COMMERCIALLY SOLD IN THE MARKET DOES CARRY SOME OPERATING MANUAL. SIMILARLY, NOT EVEN A SINGLE CHAIR WAS PURCHASED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ALTHOUGH IT CLAIMED TO HAVE EMPLOYED 10 OR 11 WORKERS. WHAT TO TALK OF THE CUSTOMIZED TABLES AND CHAIRS WHICH ARE NEEDED TO WORK ON COMPUTERS, THE ASSESSEE DID NOT BUY EVEN A SINGLE PIECE OF FURNITURE. SO MUCH SO THAT EVEN THE UPS NOT PURCHASED BY THE APPELLANT DESPITE ITS CLAIM THAT ITS COMPUTERS WER E USED FOR THE SOPHISTICATED AND SPECIALIZED TASK OF SOFTWARE DEVELOPMENT. THE APPELLANT'S SUBMISSION THAT THE FURNITURE WAS PROVIDED BY THE LANDLORD IS NOT SUBSTANTIATED BY THE RENT DEED. THE APPELLANT IS MISTAKING THE GLASS PANES AND ELECTRICAL FITTINGS, DOORS AND WINDOWS FOR FURNITURE, AND IS THUS TAKING A TOTALLY MISLEADING THE PLEA. FURTHER, THE ASSESSEE HAS NOT SPENT A PENNY TOWARDS THE INSTALLATION OF VARIOUS OPERATING SOFTWARES WHICH WERE MANDATORY FOR THE DEVELOPMENT OF NEW COMPUTER SOFTWARE. LI KE - WISE, NO EXPENDITURE HAS BEEN INCURRED TOWARDS MARKETING DESPITE THE CLAIM OF SALES OF RS.19 LACS IN THE VERY FIRST YEAR. A PERUSAL OF THE SO - CALLED PROJECT REPORT REPEATEDLY EMPHASIZED BY THE APPELLANT ALSO MENTIONS UNDER THE HEAD 'PROJECT MARKETING' T HAT 'THE COMPANY WILL DEPUTE MARKET MANAGERS TO APPOINT DISTRIBUTORS, DEALERS AND APPROACH THROUGH ITS NETWORK TO THE CUSTOMER DIRECT TO SELL THE COMPUTER SOFTWARE PROGRAMMES,' IT IS NOT UNDERSTOOD AS TO HOW THE PAGE 10 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 ASSESSEE COULD CAPTURE THE MARKET WITHOUT HA VING ANY MANPOWER, WITHOUT HAVING ANY NAME OR BRAND AND WITHOUT INCURRING ANY EXPENDITURE. 7.8 WITH NONE OF THE FACILITIES AVAILABLE WITH THE APPELLANT IN THE FORM OF MAN, MACHINERY AND KNOW - HOW, ITS CLAIM OF DEVELOPMENT OF SOFTWARE IS FOUND TO BE ENTIREL Y WITHOUT ANY MERIT. WITH NIL OR ALMOST NEGLIGIBLE EXPENSES DEBITED BY THE ASSESSEE UNDER ALL ESSENTIAL HEADS, LIKE WAGES, ELECTRICITY, FURNITURE AND FIXTURES, MACHINERY, OPERATING SOFTWARE PROGRAMS, MARKETING, PRINTING, POSTAGE AND TRAVELLING, PACKING ETC ., IT IS OBVIOUS THAT NO MANUFACTURING ACTIVITY HAD ACTUALLY BEEN CARRIED OUT BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. THE APPELLANT HAS ALSO OBVIOUSLY PROJECTED ITS A.O. IS DIRECTED TO RECTIFY THE MISTAKE AND CALCULATE INCOME @ 5:/C OF THE DECLARED TURNOVER. THE INCOME SHOWN IN EXCESS OF THE SAID 5% OF THE DECLARED TURNOVER, OUT OF THE RETURNED INCOME OF RS. 14,46,797/ - P SHOULD BE TREATED AS THE INCOME FROM UNDISCLOSED SOURCES. SINCE THE APPELLANT IS NOT FOUND FULFILLING THE CONDITIONS FOR B EING ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT, NO PART OF ITS INCOME SHALL QUALIFY FOR DEDUCTION U/S 80IA OF THE ACT. THE A.O.'S ACTION TO THIS EFFECT IS UPHELD. 7.9 ALTHOUGH I HAVE ALREADY HELD THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 80IA D UE TO NON - FULFILLMENT OF THE CONDITIONS LAID DOWN IN THE GIVEN SECTION, IT IS ALSO CONSIDERED NECESSARY TO RESPOND TO THE APPELLANT'S ARGUMENT THAT THE LD. A.O. HAS TREATED THE ACTIVITIES OF THE ASSESSEE AS THE DUPLICATION OF THE SOFTWARE AND THE SAME SHOU LD BE TREATED AS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. ORACLE SOFTWARE INDIA LTD. (2010) 320 ITR 546. 7.10 A PERUSAL OF THE JUDGMENT RELIED UPON BY THE APPELLANT REVEALS THE FOLLOWING IMPORTANT FACTS: (A). IT WAS RENDERED IN THE CONTEXT OF SECTION 801A (1) READ WITH SECTION 80IA (12)(B) READ WITH EXPLANATION (2) TO SECTION 33B OF THE I.T.ACT AS IT STOOD THEN, I.E. IN THE A.Y. 1995 - 96 AND 1996 - 97. (B) AS PER EXPLANATION TO SECTION 33B OF THE ACT , 'INDUSTRIAL UNDERTAKING' MEANS ANY UNDERTAKING WHICH IS INTER - ALIA ENGAGED IN THE MANUFACTURE OR PROCESSING OF GOODS. (C) IT WAS MADE AMPLY CLEAR BY THE HON'BLE SUPREME COURT THAT THEIR JUDGMENT IS CONFINED STRICTLY TO THE PROCES S IMPUGNED IN THE PRESENT CASE (I.E. THE CASE OF ORACLE SOFTWARE INDIA LTD.) (D) IT WAS ALSO MADE CLEAR BY THE HON'BLE COURT IN PARA 10 THAT 'COMPLEX TECHNICAL NUANCES ARE REQUIRED TO BE KEPT IN MIND WHILE DECIDING ISSUES OF THE PRESENT NATURE. THE TERM 'MANUFACTURE' IMPLIES A CHANGE, BUT EVERY CHANGE IS NOT A MANUFACTURE, DESPITE THE FACT THAT EVERY CHANGE IN AN ARTICLE IS THE RESULT OF A TREATMENT OF LABOUR AND MANIPULATION.' (E) IN PARA 11 OF THE ORDER, IT WAS MADE FURTHER CLEAR BY THE HON'BLE COURT THAT 'WHAT ONE NEEDS TO BE EXAMINE IN EACH CASE IS THE PROCESS UNDERTAKEN BY THE ASSESSEE.' (F) I N PARA 8 & 9 OF THE ORDER, THE HON'BLE COURT HAS ALSO DETAILED THE PROCESS OF COMMERCIAL DUPLICATION IN THE FOLLOWING WORDS: PAGE 11 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 8. '........A COMMERCIAL DUPLICATION PROCESS INVOLVES FOUR STEPS. FOR THE SAID PROCESS OF COMMERCIAL DUPLICATION, ONE REQUIRES MASTER MEDIA, FULLY OPERATIONAL COMPUTER, CD BLASTER MACHINE (A COMMERCIAL DEVICE USED FOR REPLICATION FROM MASTER MEDIA), BLANK/UNRECORDED CD ALSO KNOWN AS RECORDABLE MEDIA AND PRINTING SOFFWARE/LABLES. THE MASTER MEDIA IS SUBJECTED TO A VALIDATION AND CHECKING PROCESS BY SOFTWARE ENGINEERS BY INSTALLING AND RECHECKING THE INTEGRITY OF THE MASTER MEDIA WITH THE HELP OF THE SOFTWARE INSTALLED IN THE FULLY O PERATIONAL COMPUTER. AFTER SUCH VALIDATION AND CHECKING OF THE MASTER MEDIA, THE SAME IS INSERTED IN A MACHINE WHICH IS CALLED AS THE CD BLASTER AND A VIRTUAL IMAGE OF THE SOFTWARE IN THE MASTER MEDIA IS THEREAFTER CREATED IN ITS INTERNAL STORAGE DEVICE. T HIS VIRTUAL IMAGE IS UTILIZED TO REPLICATE THE SOFTWARE ON THE RECORDABLE MEDIA. 9. WHAT IS VIRTUAL IMAGE? IT IS AN IMAGE THAT IS STORED IN COMPUTER MEMORY BUT IT TOO LARGE TO BE SHOWN ON THE SCREEN. THEREFORE, SCROLLING AND PANNING ARE USED TO BRING THE U NSEEN PORTIONS OF THE IMAGE INTO VIEW. [SEE MICROSOFT COMPUTER DICTIONARY, FIFTH EDITION, P.553] ACCORDING TO THE SAME DICTIONARY, BURNING IS A PROCESS INVOLVED IN WRITING OF A DATA ELECTRONICALLY INTO A PROGRAMMABLE READ ONLY MEMORY (PROM) CHIP BY USING A SPECIAL PROGRAMMING DEVICE KNOWN AS A PROM PROGRAMMER, PROM BLOWER, OR PROM BLASTER [SEE PP. 64,77 OF MICROSOFT COMPUTER DICTIONARY, FIFTH EDITION]' (G) PARA 12 HAS BEEN CONCLUDED BY THE HON'BLE COURT CLEARLY STATING AS FOLLOWS: 12. '..... WE ARE OF THE VIEW THAT THE MARKETED COPIES ARE GOODS AND IF THEY ARE GOODS THAT THE PROCESS BY WHICH THEY BECOME GOODS WOULD CERTAINLY FALL WITHIN THE AMBIT OF S. 80 - IA(I2)[B) R/W S. 33B BECAUSE AN INDUSTRIAL UNDERTAKING HAS BEEN DEFINED IN S. 33B TO COVER MANUFACTURE OR PROCESSING OF GOODS.'[EMPHASIS SUPPLIED) 7.11 THUS IT WOULD BE OBVIOUS FROM THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF ORACLE SOFTWARE THAT IT WAS RENDERED IN A DIFFERENT CONTEXT WHERE IT WAS NOT SIMPLY THE MANUFACTURE, BUT ALSO THE PROCESSING OF GOODS WHICH WAS ELIGIBLE FOR DEDUCTION. ACCORDINGLY THE HONB'LE COURT OBSERVED IN PARA 7 OF THE ORDER THAT '.... ONE HAS TO INTERPRET THE MEANING OF THE EXPRESSION 'MANUFACTURE OR PROCESSING OF GOODS'.' ON THE CONTRARY, THE DEDUCTION U/S 80IA IN THE IN STANT CASE IS TO BE EXAMINED AS PER THE AMENDED PROVISIONS OF SECTION 80IA, WHEN THE 'PROCESSING OF GOODS' STOOD EXCLUDED FROM ITS AMBIT. 7.12 WITHOUT PREJUDICE TO ABOVE, THE HON'BLE APEX COURT HAD DELIVERED THE JUDGMENT IN THE CASE OF ORACLE SOFTWARE ON ITS OWN PECULIAR FACTS AND AFTER FULLY APPRECIATING THE COMPLEX PROCESS OF COMMERCIAL DUPLICATION CARRIED OUT BY ORACLE SOFTWARE INDIA LTD. THEREFORE, THE HON'BLE COURT TOOK SPECIAL PAINS TO MAKE IT UNEQUIVOCALLY CLEAR THAT THEIR JUDGMENT WAS CONFINED STRI CTLY TO THE PROCESS CARRIED OUT BY ORACLE SOFTWARE, MEANING THEREBY THAT THE JUDGMENT WAS NOT MEANT TO BE APPLIED ANYWHERE AND EVERYWHERE IN A CASUAL MANNER. IT WAS THE PROCESS CARRIED OUT BY ORACLE SOFTWARE INDIA LTD. HAVING COMPLEX TECHNICAL NUANCES AND INVOLVING SOPHISTICATED MACHINERY THAT LED THE HON'BLE COURT TO HOLD PAGE 12 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 THAT THE PROCESSING OF GOODS CARRIED OUT BY M/S. ORACLE SOFTWARE WAS ELIGIBLE FOR DEDUCTION U/S 80IA (1) R/W SECTION 80IA(12)(B) R/WS. 33B OF THE ACT. 7.13 THE APPELLANT, BY CONTRAST, HA S NOT BEEN ABLE TO EXPLAIN EVEN THE BASIC PROCESS ADOPTED BY IT EVEN FOR THE DUPLICATION OF THE SOFTWARE PURCHASED BY IT. THE MACHINERY AVAILABLE WITH THE APPELLANT CARRIES A MEASLY WORTH OF ABOUT RS. 60,000/ - FOR A MAJOR PART OF THE YEAR. THE MANPOWER HIR ED BY THE APPELLANT APPEARS TO BE NEGLIGIBLE IN NUMBER AND EXTREMELY DEFICIENT IN SKILLS AND QUALIFICATION. THE METHODOLOGY ADOPTED BY THE APPELLANT FOR THE RECRUITMENT OF ITS SCANTY MANPOWER IS ALSO NOT KNOWN. THE WORK PLACE OF THE APPELLANT APPARENTLY DI D NOT HAVE EVEN THE BASIC FACILITIES FOR PROPER SITTING AND WORKING IN THE ABSENCE OF ANY FURNITURE AND FIXTURES. HOW THE MARKET WAS CAPTURED BY THE APPELLANT FOR ITS UNKNOWN OUTPUT ALSO LIES IN THE REALM OF UNKNOWN. IN NUTSHELL, THERE IS ABSOLUTELY NO TRA NSPARENCY IN THE FACTS OF THE APPELLANT'S CASE WHICH COULD MAKE A CONVINCING CASE FOR,DEDUCTION U/S 80IA OF THE ACT. IT IS SETTLED LAW THAT CHAPTER VI - A IS A CODE BY ITSELF, WHICH PROVIDES FOR SPECIAL DEDUCTIONS. THESE SPECIAL DEDUCTIONS ARE INCENTIVES PRO VIDED FOR SETTING UP INDUSTRIAL UNDERTAKINGS IN BACKWARD AREAS, AND ACCORDINGLY THESE DEDUCTIONS CANNOT BE ALLOWED TO PERSONS PUTTING UP A FACADE OF AN INDUSTRIAL UNDERTAKING AND MANUFACTURING. 7.14 ON THE BASIS OF THE DISCUSSION IN THE FOREGOING PARAGRAPH S, IT IS CONCLUDED THAT THE APPELLANT IS NOT ENTITLED TO DEDUCTION U/S 80IA OF THE ACT FOR THE FOLLOWING REASONS: (I) NON - FULFILLMENT OF BASIC CONDITION OF HAVING 10 OR MORE PERSONS EMPLOYED IN THE PROCESS OF MANUFACTURING. THIS IS AN OBVIOUS CONCLUSION E MERGING FROM THE ASSESSMENT ORDER, THOUGH THE A.O. HAS OMITTED THE SAID CONCLUSION IN THE SUMMARY OF CONCLUSION. THE APPELLANT HAS FAILED TO ESTABLISH THAT IT HAD EMPLOYED 10 OR MORE PERSONS. {II) PRIMA - FACIE NO SOFTWARE DEVELOPMENT WAS UNDERTAKEN BY THE A PPELLANT WITH THERE BEING NO SKILLED MANPOWER, MACHINERY, EXPERIENCE AND EXPERTISE, R&D FACILITIES, TRAINING FACILITIES, PHYSICAL INFRASTRUCTURE, MARKET AVAILABILITY ETC. (III) EVEN IF ANY SIMPLE DUPLICATION OF SOME SOFTWARE WAS CARRIED OUT BY THE APPELLAN T, IT DOES NOT QUALIFY AS MANUFACTURING FOR DEDUCTION U/S 80IA OF THE ACT. 6 . THE LD CIT(A) HAS CATEGORICALLY HELD IN PARA 7.13 AND 7.14 THAT APPELLANT HAS NOT EXPLAINED EVEN THE BASIC PROCESS FOR DEVELOPMENT OF SOFTWARE, FULFILLING THE CAPABILITY OF ITS STAFF. DURING THE COURSE OF HEARING ON QUERY FROM THE BENCH ABOUT THE NATURE OF THE SOFTWARE DEVELOP ED AND THE COMPUTER LANGUAGE WHICH WAS USED FOR DEVELOPMENT OF SOFTWARE AND AVAILABILITY SOURCES CODES THEREOF OF THE LD AR OF THE APPELLANT COULD NOT EXPLAIN IT . FURTHER, IT WAS ALSO SUBMITTED THAT DURING THE COURSE OF HEARING THAT THE BUSINESS OF THE A SSESSEE WAS CARRIE D OUT ONLY FOR ONE YEAR. IN VIEW OF THE ABOVE STARTLING FACTS, IT IS APPARENT THAT THE A SSESSEE HAS FAILED MISERABLY TO SUBSTANTIATE ITS CLAIM THAT IT MANUFACTURE PAGE 13 OF 13 INDICAN SOFTWARE VS ITO ITA NO 248 CHD 2013 A Y 2000 - 01 SOFTWARE , PROFIT FROM WHICH IS ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. T HEREFORE WE CONFI RM THE FINDING OF THE LD CIT(A) IN CONFIRMING THE DISALLOWANCE O F DEDUCTION OF RS. 14.46 LAKHS AS WELL AS CONFIRMING THE REJECTION OF THE BOOK RESULTS APPLYI NG THE PROVISIONS OF SECTION 145 RWS 144 OF THE ACT AND CONSIDERING ONLY 5% OF THE INCOME OF THE A SSESSEE AS BUSINESS INCOME AND BALANCE 95% AS INCOME FROM OTHER SOURCES. IN THE RESULT ALL THE GROUNDS OF THE APPEAL OF THE A SSESSEE IS DISMISSED. 7 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN COURT ON 0 9 / 08 /2016. - S D / - - S D / - ( BHAVNESH SAINI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 9 / 08 /2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, CHANDIGARH