LEELA LACE SOFTWARE SOLUTIONS P.LTD, MUMBAI V. ACIT 8(2), MUMBAI

ITA 8011/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9463 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Keywords: Business income; Onus to prove
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 8011/MUM/2011 (ASSESSMENT YEAR: 2007-08) LEELA LACE SOFTWARE SOLUTION (P.) LTD., LEELA BAUG, SIR M.V. ROAD, ANDHERI (E), MUMBAI - 400 059 [PAN: AAACD 9926 D] VS. ACIT 8(2) ROOM NO. 209, AAYKAR BHAVAN, M.K. ROAD, MUMBAI 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI AMARDEEP DATE OF HEARING: 12.11.2012 DATE OF PRONOUNCEMENT: 05.12.2012 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-17, MUMBAI (CIT(A FOR SHORT) ) DATED 20.10.2011, CONFIRMING THE LEVY OF PENALTY BY THE ASSESSING OFFICER (AO) U /S. 271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2007-08 VIDE HIS ORDER DATED 29.06.2010. 2.1 OPENING THE ARGUMENTS FOR AND ON BEHALF OF ASSE SSEE, THE LD. AR, ITS COUNSEL, WOULD SUBMIT THAT THE INSTANT CASE IS COVERED BY, INTER ALIA , THE ORDER OF THE TRIBUNAL IN THE CASE OF ITO V/S. JEWELEX INTERNATIONAL PVT. LTD ., MUMBAI (IN ITA NO. 3302/MUM/2009 DATED 15/9/2010), WHEREIN THE TRIBUNA L DELETED THE PENALTY UNDER LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 2 SIMILAR CIRCUMSTANCES, PLACING A COPY OF THE SAME O N RECORD. THE ASSESSEE HAD SET OFF INTEREST RECEIVED, WHICH WAS ONLY ON MARGIN MONEY G IVEN FOR OBTAINING LETTERS OF THE CREDIT REQUIRED FOR AVAILING CREDIT FACILITIES FOR BUSINESS, AGAINST INTEREST PAID, CLAIMING DEDUCTION U/SS. 10A AND 10B ON THE NET INCOME FROM ITS ELIGIBLE UNDERTAKINGS. IT IS NOT A CASE OF EARNING INTEREST ON SURPLUS FUNDS FOR THE TIME BEING PARKED IN INVESTMENTS. THE REVENUE, THOUGH SEGREGATED AND ASSESSED INTERES T INCOME (RS.19,17,771), THAT STOOD SET OFF, AS BUSINESS INCOME, YET DISALLOWED D EDUCTION U/SS. 10A & 10B ON THE SAME TO THE EXTENT IT RELATES TO EOU AND SEZ UNITS (RS.14,27,547) ON THE GROUND THAT THE SAME DO NOT REPRESENT INCOME OF THE ELIGIBLE UN DERTAKING, RELYING ON THE DECISIONS IN THE CASE OF, AMONG OTHERS, CIT V. STERLING FOODS (1999) 237 ITR 579 (SC), PANDIAN CHEMICALS LTD. V. CIT (2003) 262 ITR 278 (SC), CIT V. A . SRINIVASA PAI , 242 ITR 29 (KER.) AND SHRIRAM HONDA POWER EQUIPMENT 207 CTR (DEL) 689. THE TRIBUNAL IN THE CASE OF ITO V . JEWELEX INTERNATIONAL PVT. LTD . (SUPRA) WAS OF THE VIEW THAT EVEN SO, PENALTY U/S. 271(1)(C) OF THE ACT COULD NOT BE LEVI ED IN VIEW OF SECTION 10B(4), WHICH PROVIDES THAT THE INCOME EXIGIBLE TO DEDUCTION UNDE R THE SAID SECTION IS PROFITS OF THE SAID BUSINESS AS FURTHER WORKED OUT ON A PROPORTION ATE BASIS, TAKING US THROUGH THE RELEVANT PART OF THE ORDER, WHICH READS AS UNDER : 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS. THERE IS NO DISPUTE THAT THE INTEREST WAS RECEIVED FROM MARG IN MONIES KEPT AS DEPOSITS WITH THE BANKS FOR THE PURPOSE OF BORROWING MONIES FOR THE BUSINESS. THE ASSESSEES BUSINESS IS IN THE EXPORT OF JEWELLERY A ND IN THE FIRST PAGE OF THE ASSESSMENT ORDER IT HAS BEEN STATED BY THE ASSESSIN G OFFICER THAT THE ASSESSEE IS A 100% EXPORT ORIENTED UNDERTAKING WITHIN THE ME ANING OF SECTION 10B. IF THAT IS THE FACTUAL POSITION, THE INTEREST HAS TO B E CONSIDERED AS HAVING BEEN DERIVED FROM THE EXPORT OF THE ARTICLES. EVEN IF I T IS ARGUED THAT THE IMMEDIATE SOURCE OF THE INTEREST IS THE DEPOSITS WITH THE BAN KS AND NOT THE EXPORT OF ARTICLES, IN VIEW OF SUB-SECTION (4) OF SECTION 10B THE ASSESSEE IS ENTITLED TO SUCCEED. THE ASSESSING OFFICER HAS NOT ASSESSED TH E INTEREST UNDER THE HEAD INCOME FROM OTHER SOURCES. HE HAS TREATED THE IN TEREST AS PART OF THE PROFITS OF THE ASSESSEES BUSINESS. SUB-SECTION (4) OF SEC TION 10B STATUTORILY PRESCRIBES A FORMULA AS TO WHAT SHOULD BE CONSIDERED AS PROFIT S DERIVED FROM EXPORT OF ARTICLES. THE PROFITS OF THE BUSINESS OF THE UNDER TAKING ARE TO BE ASCERTAINED FIRST AND THE NEXT STEP IS TO BIFURCATE THE SAME IN THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF THE ARTICLES BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. IF THE INT EREST INCOME FORMS PART OF THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THEN IN THE LIGHT OF THE STATUTORY LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 3 FORMULA THE RESULTANT FIGURE AFTER APPLYING THE FOR MULA HAS TO BE STATUTORILY CONSIDERED AS PROFITS DERIVED FROM EXPORT OF ARTICL ES. IN THE PRESENT CASE THE INTEREST HAVING BEEN ASSESSED AS PART OF THE PROFIT S OF THE BUSINESS OF THE UNDERTAKING, THE FORMULA HAS TO BE APPLIED AND SUB- SECTION (4) LEAVES NO CHOICE. IN THIS VIEW OF THE MATTER WE ARE IN AGREE MENT WITH THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE . THE TRIBUNAL HAS IN THE SAID ORDER ALSO DISCUSSED THE DECISIONS IN THE CASE OF LIBERTY INDIA VS. CIT (2009) 317 ITR 218 (SC) AND CIT VS. K. RAVINDRANATHAN NAIR (2007) 295 ITR 228 (SC) AND, FURTHER, STANDS FOLLOW ED BY IT (THE TRIBUNAL) IN THE CASE OF ITO VS. GREYTRIX (INDIA) PVT. LTD . (IN ITA NO. 5787/MUM/2009 DATED 07.10.2011/COPY ON RECORD). IN FACT, IN THE CASE OF TROPICATE TEXTILES PVT. LTD. VS. DY. CIT (IN ITA NO. 1827/MUM/2006 DATED 30.09.2011/COPY ON RECORD), THE INTEREST INCOME HAD BEEN ASSESSED AS INCOME FROM OTHER SOURC ES, AND WHICH WAS HELD BY THE TRIBUNAL AS ASSESSABLE AS INCOME FROM BUSINESS DUE TO ITS NEXUS WITH THE APPELLANTS BUSINESS, WHILE IN THE INSTANT CASE THE AO HAD HIMS ELF ASSESSED IT ONLY AS BUSINESS INCOME. 2.2 ON BEING QUESTIONED BY THE BENCH AS TO WHETHER THERE IS A FINDING IN RESPECT OF THE INTEREST INCOME AS ARISING OUT OF MARGIN MONEY KEPT WITH THE BANK TOWARD VARIOUS FUND OR NON-FUND BASED CREDIT FACILITIES AVAILED TH ERE-FROM FOR ITS BUSINESS, HE STATED THAT SAME WAS NOT IN DISPUTE, TAKING US TO PARAS 5, 6 (PAGE 3) OF THE ASSESSMENT ORDER. ON FURTHER QUERY AS TO WHETHER SECTION 10A ALSO CON TAINS A PROVISION SIMILAR TO SECTION 10B(4), THE DEDUCTION FOR THE YEAR HAVING BEEN ALSO CLAIMED U/S. 10A, HE DREW OUR ATTENTION TO SECTION 10(A)(4), WHICH WAS FOUND TO B E IDENTICALLY WORDED IN THE RELEVANT PART, SO THAT THE TWO PROVISIONS ARE PARA MATERIA . FINALLY, HE WOULD SUBMIT THAT THE ASSESSEE SHOULD IN ANY CASE GET THE BENEFIT OF DOUB T, IN VIEW OF THE PROVISION SECTIONS 10(A)(4) & 10(B)(4), WHICH READ AS UNDER: SECTION 10A (4) (4) FOR THE PURPOSES OF SUB-SECTION (1) AND (1A), THE PROFITS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE TH E AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 4 ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO TH E TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING . SECTION 10B (4) (4) FOR THE PURPOSES OF SUB-SECTION (1), THE PROFI TS DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE SHALL BE THE AMOUNT WHI CH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TOTAL TURNOVER IN RESPECT OF SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURN OVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING . 2.3 THE LD. DR, ON THE OTHER HAND, WOULD SUBMIT THAT THE ASSESSEE HAVING ACCEPTED ITS ASSESSMENT DISALLOWING DEDUCTIONS U/SS. 10A & 1 0B ON THE IMPUGNED INTEREST INCOME, THERE IS NO SCOPE FOR DISCUSSING THE MERITS OF THE SAME, WHICH IS ONLY AN ACCORDANCE WITH THE LAW, AS EXPLAINED IN, AMONG OTH ERS, THE DECISIONS IN THE CASE OF LIBERTY INDIA (SUPRA) AND STERLING FOODS (SUPRA). REFERENCE TO THE PROVISIONS OF SECTIONS 10A(4) AND 10B(4) WOULD THUS BE OF NO MOME NT. FURTHER, THE ASSESSEE HAD SET OFF INTEREST INCOME AGAINST INTEREST EXPENDITURE IN AN ATTEMPT TO CONCEAL THE TRUE PARTICULARS OF ITS INCOME AND, IN ANY CASE, HAS FUR NISHED INACCURATE PARTICULARS THEREOF. THE SAME WAS FOUND ONLY DURING THE COURSE OF ASSESS MENT PROCEEDINGS U/S. 143(3). IT IS THUS A CLEAR CASE FOR LEVY OF PENALTY U/S. 271(1 )(C); THE ONUS TO PROVE ITS CLAIMS PER ITS RETURN OF INCOME AND, IN ANY CASE, TO ESTABLISH THE BONA FIDES OF ITS CLAIMS, IS ONLY ON THE ASSESSEE, AND TOWARD WHICH THERE IS ABUNDANT REFERENCE IN THE ORDERS BY THE AUTHORITIES BELOW TO CASE LAW, AS IN THE CASE OF ATUL MOHAN BINDAL V. CIT (2009) 317 ITR 1 (SC); UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS & O THERS (2008) 306 ITR 277; K.P. MADHUSUDHANAN VS. CIT (2001) 251 ITR 99 (SC); B.A. BALASUBRAMANIAM & BROS. CO. VS. CIT (1999) 236 ITR 977 (SC); AND A . SRINIVASA PAI (SUPRA). 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE RECOR D. 3.1 THE FIRST THING THAT WE WOULD WISH TO CLARIFY IS THAT THE IMPUGNED INTEREST INCOME (RS. 14,27,547) STANDS ASSESSED BY THE AO AS INCOME FROM OTHER SOURCES, AND NOT AS BUSINESS INCOME, BEFORE US BY THE LD. AR BEFORE US AND, FURTHER, THAT THIS ASPECT HAS ALSO NOT BEEN DISPUTED BY THE ASSESSEE IN APPEAL. I N THIS VIEW OF THE MATTER, THE LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 5 ASSESSEES RELIANCE ON THE DECISION IN THE CASE OF TROPICATE TEXTILES PVT. LTD . (SUPRA), RENDERED BY RELYING ON THE JUDGMENT IN THE CASE OF CIT VS. INDO SWISS JEWELS LTD . [2006] 284 ITR 389 (BOM.), WHEREIN INTEREST ON MARG IN MONEY HAD BEEN HELD AS ASSESSABLE AS BUSINESS INCOME ON ACCOUNT OF ITS CLO SE NEXUS WITH THE APPELLANTS BUSINESS, MAY NOT BE OF MUCH ASSISTANCE. THIS IS MO RE SO AS THE MATTER, IN ANY CASE, IT NEEDS TO BE APPRECIATED, IS AS TO WHETHER THE SAID INCOME IS DERIVED FROM THE EXPORT BY THE ASSESSEES ELIGIBLE UNDERTAKING/S OR NOT, WHICH ONLY QUALIFIES FOR THE DEDUCTIONS CLAIMED; THE WORD DERIVED FROM BEING RESTRICTED I N SCOPE, AS EXPLAINED BY THE APEX COURT TIME AND AGAIN PER A SERIES OF DECISIONS, SO THAT THE SAME OUGHT TO CONSIDERED AS WELL SETTLED. IN THE CASE OF PANDIAN CHEMICALS LTD . (SUPRA), THE INTEREST INCOME WAS ON DEPOSIT PLACED WITH THE ELECTRICITY BOARD FOR SUPPL Y OF ELECTRICITY, AN ESSENTIAL INPUT TO THE ASSESSEES INDUSTRIAL UNDERTAKING. IT WAS HOWEV ER HELD AS NOT LIABLE TO BE CONSIDERED AS DERIVED FROM THE SAID UNDERTAKING, BU T FROM THE SAID DEPOSIT, WHICH CONSTITUTES ITS PRIMARY AND IMMEDIATE SOURCE, CONTR ACTUALLY PLACED WITH THE ELECTRICITY DEPARTMENT, AS IS THE CASE WITH THE BANK IN THE INS TANT CASE. THIS POSITION STANDS AGAIN REITERATED RECENTLY IN THE CASE OF LIBERTY INDIA (SUPRA). THE ASSESSEES ARGUMENT, SEEKING TO DRAW MILEAGE FROM THE FACT THAT IMPUGNED INTEREST INCOME STANDS TO BE ASSESSED AS BUSINESS INCOME, BEING ONLY AGAINST MAR GIN MONEY ON GUARANTEES OR LETTERS OF CREDIT, IS THUS OF LITTLE CONSEQUENCE. 3.2 FURTHER, IT NEEDS TO BE CLARIFIED THAT THE NON- INDICATION PER ITS RETURN OF INCOME BY THE ASSESSEE THAT THE SAID INCOME STANDS IMBEDDE D IN ITS (REDUCED) CLAIM FOR INTEREST EXPENDITURE ON BORROWINGS FOR ITS ELIGIBLE UNDERTAK INGS, INCOME FOR WHICH IS EXIGIBLE TO DEDUCTION U/SS. 10A & 10B, WHICH STAND DULY CLAI MED, DOES INDEED AMOUNT TO FURNISHING INACCURATE PARTICULARS OF INCOME. THERE IS NO RULE OF ACCOUNTANCY OR MANNER OF PRESENTATION OF ACCOUNTS THAT SUBSCRIBES TO THE NETTING OF INCOME AGAINST EXPENDITURE, WHICH IS OSTENSIBLY INCURRED OR SUFFER ED FOR OR IN THE PROCESS OF EARNING INCOME. THE INTEREST INCOME THEREFORE OUGHT TO HAVE BEEN EXHIBITED SEPARATELY AND EXPLICITLY IN ACCOUNTS AND, IN ANY CASE, THE RETURN OF INCOME. CLEARLY, BUT FOR THE RETURN HAVING BEEN TAKEN UP UNDER THE VERIFICATION PROCEDU RE UNDER THE ACT, AND EXAMINATION LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 6 OF THE RELEVANT DEDUCTION BY THE AO, THIS FACT ITSE LF WOULD NOT HAVE TO LIGHT. THIS IS PARTICULARLY RELEVANT AND ASSUMES SIGNIFICANCE IN V IEW OF THE INCOME DERIVED FROM THE EXPORT BY THE ELIGIBLE UNDERTAKINGS BEING CLAIMED E XEMPT, AND THE EXPRESS PRONOUNCEMENTS BY THE NO LESS THAN THE APEX COURT, TIME AND AGAIN, I.E., QUA DIFFERENT INCOMES AND IN CONTEXT OF DIFFERENT BENEFICIAL PROV ISIONS, ON THE SCOPE AND AMBIT OF THE WORD DERIVED FROM OCCURRING THEREIN. IN FACT, THE ISSUE OF NETTING OF INTEREST INCOME AGAINST INTEREST EXPENDITURE HAS ALSO RECEIV ED CONSIDERATION BY THE HIGHER COURTS, AND ONLY IN THE CONTEXT OF BENEFICIAL PROVI SIONS; IT BEING HELD THAT THE SAME IS ACCEPTABLE ONLY IN THE CASE OF A DIRECT NEXUS BETWE EN THE INTEREST INCOME AND THE INTEREST EXPENDITURE, WHICH IS ADMITTEDLY MISSING I N THE INSTANT CASE, AND TOWARD WHICH THE LD. CIT(A) HAS REFERRED TO THE DECISIONS IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) AND SHRIRAM HONDA POWER EQUIPMENTS LTD . (SUPRA). 3.3 FINALLY, WE TAKE UP THE ASSESSEES ARGUMENT WITH REFERENCE TO THE PROVISION OF SECTIONS 10A(4) AND 10B(4), REPRODUCED HEREINABOVE , ON WHICH BASIS ONLY FAVOR STOOD EXTENDED TO THE ASSESSEE-RESPONDENT IN THE CA SE OF ITO V . JEWELEX INTERNATIONAL PVT. LTD . (SUPRA). THOUGH IN OUR CLEAR VIEW THE ASSESSEE SH OULD HAVE, PARTICULARLY GIVEN THE CLEAR AND SETTLED POSITION OF LAW IN THE MATTER PER A HOST OF JUDGMENTS BY THE HONBLE APEX COURT, CLEARLY STATED OF ITS RELIANCE ON THE LANGUAGE OF SECTIONS 10A(4) & 10B(4) FOR CLAIMING DEDUCTION ON INTEREST INCOME TH ERE-UNDER, ESTABLISHING ITS BONA FIDES , YET, IT CANNOT BE DENIED THAT THE SAID PROVISIONS DO INJECT AN AMBIGUITY IN THE MATTER INASMUCH AS THE DEDUCTION U/S. 10A(1) AND S. 10B(1) OF INCOME DERIVED FROM AN ELIGIBLE UNDERTAKING IS SUBJECT TO THE PROVISIONS O F THE SAID SECTIONS AND, THUS, TO SUB- SECTIONS 10A(4) & 10B(4) RESPECTIVELY, WHICH PROVID E FOR THE MANNER OF WORKING OF THE DEDUCTION UNDER THE SAID SECTIONS. THE REVENUE HAS NOT PLACED ON RECORD ANY DECISION BY THE APEX COURT OR BY THE HONBLE JURISD ICTIONAL HIGH COURT ON THE INTERPRETATION OF THE SECTIONS 10A(4) & 10B(4) IN T HE CONTEXT OF INCOME, WHICH THOUGH NOT DERIVED FROM EXPORT PER SE , YET FORMS A PART OF THE BUSINESS CARRIED ON BY OR THROUGH THE ELIGIBLE UNDERTAKING. THERE IS, IT NEED S TO BE BORNE IN MIND, NO PARALLEL PROVISION TO SUB-SECTIONS 10A(4) & 10B(4) IN SECTIO N 80J, SECTION 80HH, SECTION 80I, LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 7 ETC. UNDER WHICH THE APEX COURT HAS RENDERED ITS VA RIOUS JUDGMENTS IN THE MATTER. AN INTERPRETATION FAVORING INCLUSION OF SUCH INTEREST INCOME, I.E., AS EMANATES DIRECTLY FROM THE CONDUCT OF THE ASSESSEES EXPORT BUSINESS, FOR CLAIM OF DEDUCTION UNDER THE RELEVANT SECTIONS, THEREFORE, CANNOT BE RULED OUT O R OUSTED AS UNREASONABLE, AND WHICH WOULD OPERATE TO SAVE PENALTY. THIS IS IN VIEW OF T HE DECISIONS BY THE APEX COURT IN THE CASE OF, AMONG OTHERS, VEGETABLE PRODUCTS LTD. V. CIT (1973) 88 ITR 192 (SC) AND HINDUSTAN STEEL LTD. V. STATE OF ORISSA (1972) 83 ITR 26 (SC), WHICH AGAIN REPRESENT THE SETTLED LAW IN RESPECT OF LEVY OF PENALTY. 3.4 WITH REGARD TO THE ASSESSMENT OF THE IMPUGNED I NCOME AS FROM OTHER SOURCES, AS AGAINST FROM BUSINESS, WHICH IS A PREREQUISITE F OR IT TO BE CONSIDERED AS EXIGIBLE FOR DEDUCTION U/S. 10A(1) OR S.10B(1), WHAT IS RELEVANT AND IS TO BE SEEN IS THE ASSESSEES RETURN OF INCOME, PER WHICH THE CLAIM STANDS MADE, AND NOT ITS TREATMENT BY THE AO, WHICH THOUGH NOT DISPUTED BY THE ASSESSEE, WOULD YE T NOT DETRACT FROM THE MERITS OF THE ASSESSEES EXPLANATION IN HAVING RETURNED IT ON LY AS BUSINESS INCOME AND, FURTHER, AS DERIVED BY ITS ELIGIBLE UNDERTAKING, SO AS TO BE ELIGIBLE FOR DEDUCTION U/S. 10A(1) OR, AS THE CASE MAY BE, S.10B(1), IN VIEW OF SS. 10A(4) AND 10B(4) RESPECTIVELY. THE ISSUE QUA HEAD OF INCOME UNDER WHICH THE SAME IS TO ASSESSED STANDS CLARIFIED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. INDO SWISS JEWELS LTD . (SUPRA), SINCE FOLLOWED BY THE TRIBUNAL IN TROPICATE TEXTILES PVT. LTD . (SUPRA). 3.5 IN VIEW OF THE FOREGOING, THE IMPUGNED PENA LTY IS LIABLE TO BE DELETED, AND WE DIRECT SO, ALSO DRAWING SUPPORT FROM THE DECISIONS IN THE CASE OF ITO V. JEWELEX INTERNATIONAL PVT. LTD . (SUPRA) AND ITO V. GREYTRIX (I) PVT. LTD . (SUPRA). WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF DECEMBER, 2012 LEELA LACE SOFTWARE SOLUTION P. LTD. V. ACIT ITA NO. 8011/MUM/2011 (A.Y. 2007-08) 8 SD/- (B.R. MITTAL) JUDICIAL MEMBER SD/- (SANJAY ARORA) ACCOUTANT MEMBER MUMBAI, DATE: 05/12/2012 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A)-17, MUMBAI. 4) THE CITV, MUMBAI, 5) THE D.R. A BENCH, MUMBAI. BY ORDER 6) COPY TO GUARD FILE. ASSTT. REGISTRAR I.T.A.T., MUMBAI RASIKA