ITO 30(1)(1), MUMBAI V. AJAY AGARWAL HUF, MUMBAI

ITA 3358/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5707 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR YADAVLD
• Assessee Lawyers: RAHUL HAKANI LD
• Keywords: Question of law
• Section: 143(3); 10

Judgement Text

ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . , , BEFORE SHRI C.N. PRASAD, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3358/MUM/2016 ( / ASSESSMENT YEAR: 2011-12) INCOME TAX OFFICER - 30(1)(1) C-13,5 TH FLOOR, PRATYAKSHKAR BHAWAN BKC, BANDRA(E) MUMBAI-400 051 / VS. AJAY AGARWAL (HUF) 1503, QUIESCENT HEIGHT, MINDSPACE CHINCHOLI BUNDER, MALAD(W) MUMBAI-400 064 !' ./ ./ PAN/GIR NO.AAEHA-0303-G ( '$ /APPELLANT ) : ( %'$ / RESPONDENT ) REVENUE BY : RAJESH KUMAR YADAV,LD.DR ASSESSEE BY : RAHUL HAKANI, LD. AR / DATE OF HEARING : 05/07/2018 / DATE OF PRONOUNCEMENT : 11 /07/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY ] 2011-12 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-41 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-41[34]/IT-140/14-15 DATED 30/03/2016 BY RAISING FOLLOWING GROUNDS OF APPEAL: - 2 ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S.10A OF THE ACT, 196 1 IGNORING THE FACT THAT THE ASSESSEE IS NOT ENTITLED TO THE CLAIM OF DEDUCTION U/S.10A IN RESPECT OF PRODUCTION OF PC ENGINE SOFTWARE FOR THE REASON THAT THE SAID UNIT IS NEITHER SEPARATE AND HAS A DISTINCT IDENTITY BUT WAS A MERE EXPANSION OF THE EXISTING BUSINESS FOR COMPUTING DEDUCTION U/S. 10 OF THE ACT? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION U/S.10A OF THE ACT, 196 1 AND HAS NOT GIVEN SIGNIFICANCE IMPORTANCE TO THE DEPOSITION MADE BY T HE TEAM LEADER, SHRI SUHAS KATE, WHO HAS ADMITTED THAT THE BASIC ENGINE OF THE SOFTWARE WHICH FORMS CORE OF THE SOFTWARE WAS DEVELOPED AT MUMBAI AND IS BROUGHT TO DEHRADUN IN A HARD DISC FOR FURTHER DEVELOPMENT. FURTHER, THE ASSESSEE HIMS ELF HAS ADMITTED THAT HALF PORTION OF THE SOFTWARE WAS DEVELOPED IN MUMBAI? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE ASSESSEE HAS MADE SUPER ABNORMAL PROFIT, I.E., MORE THAN 97.5% WITH A MEAGER EXPENSES SHOWN AT THE STPI DEHRADUN? 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE SET ASIDE AND MATTER MAY BE DECIDED ACCORDING TO LAW. THE APPELLANT CRAVES LEAV E TO AMEND OR ALTER ANY GROUND OR ADD NEW GROUND WHICH MAY BE NECESSARY. THE ASSESSMENT FOR IMPUGNED ASSESSMENT YEAR WAS FRA MED BY LD. INCOME TAX OFFICER-24(1)(3), MUMBAI U/S 143(3) OF THE INCO ME TAX ACT,1961 ON 30/03/2014 WHEREIN THE ASSESSEE HAS BEEN DENIED DED UCTION U/S 10A FOR RS.57.21 CRORES, WHICH IS SUBJECT MATTER OF DISPUTE BEFORE US. 2.1 THE ASSESSEE, BEING RESIDENT HUF, WAS ENGAGED IN TRADING OF MOBILE ACCESSORIES UNDER PROPRIETORSHIP CONCERN NAMELY JANSI TRADING CO. AND DEVELOPMENT OF SOFTWARE UNDER PROPRIETORSHIP CONCER N NAMELY E-MAC TECHNOLOGIES. A NET LOSS OF RS.74 LACS WAS REFLECTED FROM JANSI TRADING CO. DURING IMPUGNED AY WHICH, AFTER DISALLOWANCE OF VAT PENALTY OF RS.76.21 LACS, HAS BEEN REFLECTED AT A PROFIT OF RS .2.23 LACS. THE OTHER PROPRIETORSHIP CONCERN NAMELY M/S E-MAC TECHNOLOGIES WAS A 100% EXPORT SOFTWARE EOU REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA, DEHRADUN [STPI] WHEREIN A PROFIT OF RS.57.21 CRORES HAS BEEN REFLEC TED 3 ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 AGAINST EXPORT TURNOVER OF RS.58.81 CRORES, WHICH T RANSLATES INTO NET PROFIT RATE OF 97.3%. THIS EXPORT INCOME HAS BEEN CLAIMED AS D EDUCTION U/S 10A. 2.2 THE LD. AO, AFTER CONSIDERING THE THREE REPORTS DATED 14/12/2011, 19/12/2011 & 21/12/2011 OF THE COMMISSION U/S 131(D ), WAS NOT CONVINCED WITH THE CLAIM OF THE ASSESSEE U/S 10A FOR SEVERAL REASONS, WHICH ARE EXTRACTED AT PARA 5.3 & 5.4 OF THE QUANTUM ASSESSMENT ORDER. FINALLY, THE DEDUCTION OF RS.57.21 CRORES AS CLAIMED U/S 10A WAS DENIED TO THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 30/03/2016 WHEREIN LD. CIT(A), RELYING UPON THE DECISION OF ITS PREDECESSOR DATED 05/12/20 14 FOR AY 2010-11 IN ASSESSEES OWN CASE, GRANTED RELIEF TO THE ASSESSEE . THE AFORESAID DECISION OF LD. CIT(A) FOR AY 2010-11, IN TURN, PLA CED RELIANCE ON THE DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FO R AY 2009-10, ITA NO. 295/MUM/2014 DATED 25/07/2014. AGGRIEVED, THE REVEN UE IS IN FURTHER APPEAL BEFORE US. WE HAVE HEARD THE SUBMISSIONS OF RESPECTIVE REPRESENTATIVES. 4. SO FAR AS THE CLAIM OF THE ASSESSEE U/S 10A IS C ONCERNED, THE LD. AUTHORIZED REPRESENTATIVE FOR ASSESSEE [AR], SHRI RAHUL HAKANI, AT THE OUTSET, DREW OUR ATTENTION TO THE FACT THAT THE CAS E OF THE ASSESSEE IS SQUARELY COVERED BY THE AFORESAID DECISION OF THIS TRIBUNAL FOR AY 2009-10. IT WAS FURTHER SUBMITTED THAT THE REVENUE CHALLENGE D THE AFORESAID DECISION OF THE TRIBUNAL WITHOUT ANY SUCCESS BEFORE HONBLE BOMBAY HIGH COURT VIDE 4 ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 ITA NO. 554 OF 2015, DATED 12/12/20 17 WHEREIN THE REVENUES APPEAL HAS DISMISSED, FINDING NO SUBSTANTIAL QUESTION OF LAW. THE COPY OF THE SAME HAS BEEN PLACED ON RECORD. THE LD. DR, SHRI RAJESH KUMAR YADAV, FAIRLY CONCEDED THE AFORESAID POSITION. 5. WE HAVE CONSIDERED THE AFORESAID DECISION OF THI S TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 WHEREIN THE CLAI M OF THE ASSESSEE U/S 10A, UNDER IDENTICAL FACTUAL MATRIX, HAS BEEN ALLOW ED BY THE TRIBUNAL. THE REVENUES APPEAL AGAINST THE SAME HAS NOT BEEN ADMI TTED BY HONBLE BOMBAY HIGH COURT BY OBSERVING AS UNDER:- 7. WE FIND THAT THE IMPUGNED ORDER ITSELF RECORDS THE FACT THAT IT IS UNDISPUTED POSITION BEFORE THE TRIBUNAL THAT THERE IS A UNIT A T MALAD WHICH HAS DEVELOPED BASIC ENGINE AND THERE IS ANOTHER UNIT AT DEHRADUN, STPI, WHERE THE PC SUIT SOFTWARE CHIP WAS DEVELOPED AND EXPORTED. CONSEQUEN TLY, IN THE FACE OF THE ABOVE ACCEPTED POSITION, THE SUBMISSIONS OF THE REV ENUE THAT THERE IS NO UNIT AT DEHRADUN IS UNSUSTAINABLE. 8. SO FAR AS THE SECOND CONTENTION OF THE REVENUE VIZ. DEHRADUN UNIT IS MERE EXTENSION OF MALAD, MUMBAI UNIT IS CONCERNED, WE FI ND THAT THE TRIBUNAL HAS RENDERED A FINDING OF FACT THAT THE BASIC ENGINE FA CILITY WAS DEVELOPED AT MUMBAI. THEREAFTER THIS BASIC ENGINE WAS TAKEN TO THE DEHRA DUN UNIT AND DEVELOPED INTO SEPARATE, INTELLIGENT AND SUPERIOR SOFTWARE KNOWN A S PC SUIT SOFTWARE. THIS DEVELOPMENT OF THE SOFTWARE WAS DONE ADMITTEDLY AT DEHRADUN AS THE TRIBUNAL ITSELF RECORDS UNDISPUTED POSITION THAT ONLY BASIC ENGINE WAS DEVELOPED AT MUMBAI AND THE PC SUIT SOFTWARE WHICH IS DISTINCT S OFTWARE WAS DEVELOPED AT STPI, DEHRADUN. THIS SOFTWARE WAS EXPORTED AND BENE FIT OF SECTION 10A OF THE ACT IS CLAIMED IN RESPECT OF THE DEHRADUN UNIT WHIC H HAS DEVELOPED THE SOFTWARE AND EXPORTED IT. THEREFORE, FROM THE ABOVE IT IS CL EAR THAT A SEPARATE ACTIVITY WAS PERFORMED AT DEHRADUN UNIT AT STPI. THE TRIBUNAL RE CORDS THE FACT THAT SEPARATE ACTIVITY WAS PERFORMED AT DEHRADUN UNIT AT STPI AND IT IS A DISTINCT ACTIVITY FROM THE MANUFACTURE OF BASIC ENGINE WHICH WAS DONE AT M UMBAI. THIS IS ESSENTIALLY A FINDING OF FACT OF THE TRIBUNAL AND NOT SHOWN TO BE PERVERSE WARRANTING OUR INTERFERENCE. 9. THE LAST CONTENTION ON BEHALF OF THE REVENUE IS THAT AS THIRD PARTY TOOLS WERE EMPLOYED BY THE RESPONDENT- ASSESSEE, IT WOULD LOSE THE BENEFIT UNDER SECTION 10A OF THE ACT. NO SUCH BAR UNDER SECTION 10A OF TH E ACT ON USER OF THE THIRD PARTY TOOLS HAS BEEN SHOWN TO US. THIS IS DIFFERENT FROM OUTSOURCING THE ENTIRE 5 ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 WORK OF DEVELOPING THE SOFTWARE TO THIRD PARTIES. T HIS IS EVEN NOT THE CASE OF THE REVENUE. IN ANY EVENT THE IMPUGNED ORDER RECORDS TH E STPI PARK ITSELF MAKES INTERNET SITES AVAILABLE FOR FREE AND SUCH SITES WO ULD BECOME A PART OF THE PRODUCT DEVELOPMENT. THESE SITES ARE IN NATURE OF DIGITAL LIBRARY WHERE THE UNITS IN THE STPI ARE PERMITTED TO HAVE FREE ACCESS TO TH E INTERNET, DIGITAL LIBRARIES AND OTHER COMPUTER PERIPHERALS. THESE FACILITIES AVAILA BLE AT THE DEHRADUN STPI WERE USED BY THE RESPONDENT ASSESSEE SO AS TO DEVELOP THE PC SUIT SOFTWARE CHIP. THEREFORE, THIS FINDING OF THE TRIBUNAL IS ES SENTIALLY A FINDING OF THE FACT AND NOT SHOWN TO BE PERVERSE. 10. FROM THE ABOVE, IT IS VERY CLEAR THAT THE FIND ING RECORDED BY THE IMPUGNED ORDER OF THE TRIBUNAL IS ESSENTIALLY FINDINGS OF FACT WHI CH ARE NOT SHOWN TO BE PERVERSE AND / OR ARBITRARY. IT MUST BE POINTED OUT THAT IT IS NOT THE CASE OF THE REVENUE BEFORE US THAT ANY PARTICULAR PROVISION OF SECTION 10A OF THE ACT HAS BEEN VIOLATED AND / OR BREACHED BY THE RESPONDENT. 11. ACCORDINGLY, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. 12. THUS APPEAL IS DISMISSED . NO ORDER AS TO COSTS. IN VIEW OF THE ADMITTED POSITION, GROUND NUMBERS 1 & 2 OF THE APPEAL STAND DISMISSED. 6. HOWEVER, SO FAR AS THE QUANTUM OF DEDUCTION U/S 10A IS CONCERNED, IT IS EVIDENT FROM THE QUANTUM ASSESSMENT ORDER THAT T HE ASSESSEE HAS REFLECTED VERY HIGH NET PROFIT RATE OF 97.5% AGAINST EXPORT TURNOVER, WHICH IS DIFFICULT TO COMPREHEND. NO CONVINCING / PLAUSIBLE EXPLANATION, IN THIS REGARD, IS AVAILABLE ON RECORD AND THIS ISSUE HAS R EMAINED UN-ADDRESSED BEFORE US ALSO. THE QUANTUM ASSESSMENT ORDER RECORD S A FINDING THAT THE ASSESSEE HAS CLAIMED VERY MEAGER EXPENSES AS COMPAR ED TO THE INCOME WHICH IS HIGHLY IMPOSSIBLE. THEREFORE, IN VIEW OF T HE AFORESAID FACT, WE DEEM IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF LD. AO TO APPRECIATE THE NATURE OF EXPORTS DONE BY THE ASSESSEE, COSTS INVOL VED THEREIN AND THE EXTENT OF PROFIT MARGINS IN THIS LINE OF BUSINESS. THE ASSESSEE, IN TURN, IS 6 ITA NO.3358/MUM/2016 AJAY AGARWAL (HUF) ASSESSMENT YEAR-2011-12 DIRECTED TO SUBSTANTIATE THE SAME WITH REQUISITE DO CUMENTARY EVIDENCES & EXPLANATION. GROUND NO. 3 STAND ALLOWED FOR STATIST ICAL PURPOSES. GROUND NO. 4 IS GENERAL IN NATURE. 7. RESULTANTLY, THE ASSESSEES APPEAL STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JULY,2018 SD/- SD/- (C.N.PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11.07.2018 SR.PS:-THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. ()*+,- / THE APPELLANT 2. 123,- / THE RES PONDENT 3. 73873 9: ) ()*+ ( / THE CIT(A) 4. 73873 9: / CIT CONCERNED 5. CDEF*31G:GHI , 738()*+K3(HI8L , / DR, ITAT, MUMBAI 6. FNOP+ / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) ./01 , / ITAT, MUMBAI