SHREEPATI COMPUTER CENTRE, MUUMBAI V. ACIT CEN CIR-9, MUMBAI

ITA 889/MUM/2009

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 3617 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 28-05-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 10-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Business expenditure; Search and seizure; Opportunity of being heard; Principle of natural justice; Opportunity of cross examination; Corroborative evidences; Competent authority; Retraction; Documents seized
• Section: 40A(3); 133A; 10B; 147; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI E BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER. ITA. NOS. 1481, 1527, 1528 & 1402/MUM/2009 (ASSESSMENT YEAR: 2000-01 TO 2003-04) ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 9, OLD CGO, MUMBAI A PPELLANT VS. M/S. SHREEPATI COMPUTER CENTRE, 7/8, RAGHAVJI BLDG., 15/17, RAGHAVJI ROAD, GAWALIA TANK, MUMBAI 400 036 RESPONDEN T & ITA. NOS. 889 TO 892/MUM/2009 (ASSESSMENT YEAR: 2000-01 TO 2003-04) M/S. SHREEPATI COMPUTER CENTRE, 4 TH FLOOR, BUILDING A, SHREEPATI ARCADE, NANA CHOWK, A. K. MARG, MUMBAI 400 036 APPELLANT VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 9, OLD CGO, MUMBAI RESPONDE NT PAN: AABFS1142E ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 2 / BY ASSESSEE : MR. ARVIND SINDE, A.R. MRS. LATA PARULEKAR, A.R. / BY REVENUE : MR. MANJU NATHASWAMI, D.R /DATE OF HEARING : 30.06.2016 /DATE OF PRONOUNCEMENT : 18.08.2016 ORDER PER BENCH : THESE FOUR CROSS APPEALS HAVE BEEN FILED BY ASSESSE E AND REVENUE AGAINST THE ORDERS OF COMMISSIONER OF I NCOME- TAX (APPEALS), CENTRAL-VII, MUMBAI, FOR A.YS. 2000- 01 TO 2003-04. SINCE, ALL APPEALS PERTAIN TO SAME ASSESS EE AND ON ALMOST SIMILAR ISSUE, SO THEY ARE BEING DISPOSED OF BY COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. IN ITA NO.1481/MUM/2009 FOR A.Y.2000-01, REVENUE HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.69,20,471/- ON ACCOUNT OF DISALLOWANCE OF THE CLAIM U/S.80HHE OF THE I.T. ACT, 1961, MADE BY THE ASSESSING OFFICER. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.1,73,98 5/- ON ACCOUNT OF DISALLOWANCE OF THE SOFTWARE DEVELOPMENT CHARGES, MADE BY THE ASSESSING OFFICER. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 3 2.1 IN ITA NO.889/MUM/2009 FOR A.Y.2000-01, ASSESSE E HAS FILED THE APPEAL ON THE FOLLOWING GROUND: GROUND NO.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, ERRED IN REST RICTING THE DEPRECIATION ON CAR TO 50% OF THE AMOUNT CLAIME D OF RS.1,73,650 BY THE APPELLANT. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.86,825 MAY PLEASE BE ALLOWED , AS THE CAR WAS USED FOR THE PURPOSE OF THE APPELLANTS BUSINESS. ITA NO.1481/MUM/2009 FOR A.Y.2000-01 (REVENUES APP EAL) 3. A SEARCH AND SEIZURE ACTION U/S.132(1) WAS UNDER TAKEN ON 23.03.2005. ASSESSEE FILED THE RETURN DECLARING TOTAL INCOME OF RS.19,60,460/-. THE FIRM WAS STATED TO BE CONDUCTING COMPUTER TRAINING COURSES AND OTHER RELA TED ACTIVITIES UNDER THE HEAD COMPUTER TRAINING DIVISIO N. IT HAS STATED DURING THE YEAR UNDER CONSIDERATION COMPUTER SOFTWARE DEVELOPMENT DIVISION FOR CONDUCTING SOFTWA RE DEVELOPMENT AND ALL OTHER RELATED SERVICES. IT HAD TWO DIVISIONS OF BUSINESS I.E. (I) COMPUTER TRAINING SERVICE DIVISION AND (II) COMPUTER SOFTWARE DEVELOPMENT DIVISION. FROM THE SOFTWARE DEVELOPMENT DIVISION, IT HAD SHOWN NET PRO FIT OF RS.79,11,630/-, AGAINST WHICH DEDUCTION U/S.80HHE CLAIMED WAS RS.69,20,471/-. IT CLAIMED TO HAVE DEVE LOPED SOFTWARE AND SOLD TO M/S. LEE & NEE SOFTWARE (EXPOR T) LTD. KOLKATA (HEREINAFTER AFTER CALLED AS LNSEL) AND I TS THREE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 4 UNITS VIZ. (I) M/S. RAJ SOFTWARE & SERVICES, (II) M /S. L & T SOFTWARE SERVICES & (III) M/S. SOFTWARE SERVICES. ASSESSING OFFICER FOUND THAT THESE EXPORTERS HAD RECEIVED EXP ORT ORDER FROM ONE APKIDUKAN.COM CORPORATION, AN AMERICA BA SED COMPANY. ASSESSEE SUPPOSEDLY DEVELOPED THE SOFTWAR E FOR THESE CONCERNS, WHICH IN TURN EXPORTED IT TO APKIDU KAN.COM AS UNDER: NAME OF EXPORTER EXPORTED IN A.Y. 2000-01 EXPORTED IN A.Y. 2001-02 EXPORTED IN A.Y. 2002-03 LEE & NEE SOFTWARE RS.6,16,61,250/ - RS.7,60,12,574/- RS.8,08,68,420/- L & T SOFTWARE RS. NIL RS.2,36,69,100/- RS.3,76,49,577/- M/S. SOFTWARE SERVICES RS. NIL RS.2,34,39,962/- RS.3,72,84,952/- RAJ SOFTWARE RS. NIL RS.2,33,90,640/- RS.3,72,07,620/- 3.1 IT IS STATED THAT LNSEL IS ENGAGED IN TRADING O F SOFTWARE AND CLAIMED EXEMPTION U/S.10A/B OF RS.2,51,69,603/- FOR A.Y. 2001-02, RS.3,19,54,924/- FOR A.Y. 2002-03 AND RS.59,42,402/- FOR A.Y. 2004-05 AND HAD ALSO GIVEN DISCLAIMER CERTIFICATE TO THE ASSESSEE U/S.80HHE OF THE ACT. THE PROFIT SHOWN FROM DEVELOPMENT OF SOFTWARE BY AS SESSEE WERE RS.84,76,015/- FOR A.Y. 2000-01, 9,92,51,800/- FOR A.Y. 2001-02 AND RS.15,11,25,880/- FOR A.Y. 2002-03. TH E ASSESSING OFFICER WAS OF THE OPINION THAT BOTH THE CONCERNS INCLUDING ASSESSEE WERE NOT ELIGIBLE FOR EXEMPTION. ASSESSING OFFICER OBSERVED THAT JOB CHARGES FOR DEVELOPMENT O F SOFTWARE WERE BOGUS. MOREOVER, IN THE RECORDED STATEMENTS O F CERTAIN PERSONS CLAIMED TO BE DEVELOPERS OF SOFTWARE, THEY DENIED ANY SUCH JOB DONE. THUS, IT WAS CONCLUDED THAT ASS ESSEE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 5 HAD NEVER DEVELOPED ANY SOFTWARE WHICH WAS ALSO FOU ND IN COURSE OF SURVEY AT KOLKATA AND BHUBANESWAR WHICH REVEALED THAT IT NEVER DEVELOPED ANY SOFTWARE NOR L NSEL PROCURED THEM FORM IT AND NEVER EXPORTED. ASSESSIN G OFFICER FURTHER NOTED THAT ON THE BASIS OF CERTAIN SEIZED P APERS IMPOUNDED FROM THE OFFICE OF LNSEL THAT ASSESSEE HA D MADE EXPORT OF RS.15,00,000/- IN F.Y. 2000-01, RS.16,00, 000/- IN F.Y. 2001-02 AND RS.15,00,000/- IN F.Y. 2002-03. H OWEVER, AGAINST THESE EXPORTS, ASSESSEE HAD CREDITED EXPORT S IN ITS BOOKS RS.10,16,00,000/- IN F.Y. 2000-01, RS.15,57,4 6,280/- IN F.Y. 2001-02 AND FOR F.Y. 2002-03. ASSESSING OF FICER ALSO FOUND OTHER DEFICIENCIES WITH REGARD TO PRESENT CLA IM OF ASSESSEE U/S. 80HHE OF THE ACT. IN RESPONSE TO ABO VE ALLEGATIONS, ASSESSEE MADE A DETAILED REPLY DURING ASSESSMENT PROCEEDINGS WHICH IS BEING NARRATED AS U NDER: (1) THE ASSESSEE HAS DEALT WITH LNSL AS A SUPPORTI NG MANUFACTURER FOR THEIR EXPORT TO M/S. APKIDUKAAN.CO M/ MERIKITAB.COM WITH MAINTENANCE CONTRACT FOR THE SAME AND WAS NOT HAVING ANY DIRECT RELATION WITH M/S. APKIDUKAAN.COM CORPORATION. HENCE, IT WAS NOT AWARE /CONCERNED WITH THE COMPANY APKIDUKAAN. COM PVT. LTD. OR ITS OFFICE. (2) THE JOB WORK CHARGES WERE PAID BY THE ASSESSES TO VARIOUS STAFF AND AGENCIES. MR. C.L. DESHPANDE WHO WAS TECHNICAL DIRECTOR WAS LOOKING AFTER OPERATIONAL WO RK AND DAY TO DAY ACTIVITIES HAS GOT THE WORK EXECUTED BY VARIOUS STAFF AND AGENCIES. HE WAS AUTHORIZED TO MAKE NEC ESSARY PAYMENT TO THE STAFF AND THE EXPENSES INCURRED IN VOUCHERS SEIZED FOR THE SAME ARE ACCOUNTED IN THE B OOKS OF ACCOUNTS TOWARDS EXPENSES AND HAS BEEN REFLECTED IN THE PROFIT & LOSS ACCOUNT AND BALANCE SHEETS. FURTH ER, TDS HAS ALSO BEEN DEDUCTED AND PAID ON SUCH JOB WOR K CHARGES. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 6 3) LATE SHRI. C.L. DESHPANDE WAS ONLY AWARE OF TECH NICAL DETAILS AND FROM WHOM THE WORK HAS BEEN EXECUTED AS HE WAS THE ONLY PERSON INVOLVED IN APPOINTING EMPLOYEE S OR FREELANCERS AND OTHER AGENCIES. OTHER PARTNERS WERE NOT INVOLVED IN DAY TO DAY SOFTWARE DEVELOPMENT PROCESS AS THEY WERE NOT TECHNICALLY QUALIFIED. THEREFORE, RET RACTION BY SOME PERSONS AFTER FOUR YEARS AND THAT TOO UNDER WHAT CIRCUMSTANCES COULD ONLY HAVE BEEN EXPLAINED BY MR. DESHPANDE. FURTHER, IT WAS SUBMITTED THAT IN CASE T HE DEPARTMENT WANTED TO USE THE STATEMENTS RECORDED BY THE I.T. DEPT, OF SOFTWARE DEVELOPMENT STAFF, THE SAME MAY BE MADE AVAILABLE TO US AND AN OPPORTUNITY TO CROSS- EXAMINING THE DEPONENTS MAY ALSO BE GIVEN TO US. (4) AS REGARD THE LETTER FROM STP BHUWANESHWAR IT W AS STATED THAT THE ONUS OF GETTING THE EXPORTS CERTIFI ED BY STP IS ON THE LNSEL AND NOT ON THE SUPPORTING MANUFACTU RE. THE ASSESSEE HAD DEVELOPED SOFTWARE AND SUBMITTED T HE SAME AS SUPPORTING MANUFACTURER TO THE EXPORTERS. (7) THE DOCUMENTS SEIZED FROM THE KOLKATA OFFICE OF LNSL WERE RELEVANT TO IT ONLY. THE CLAIM OF EXPENSE S OF RS.71,42,585/- ARE GENUINE JOB WORK EXPENSES INCURR ED BY US AND DULY RECORDED IN BOOKS OF ACCOUNT IN THE YEAR IT PERTAINS. SALES CREDITED BY THE ASSESSEE IN ITS BOO KS OF ACCOUNT ARE AS PER THE BILLS RAISED ON LNSEL AND OT HERS AS A SUPPORTING MANUFACTURER, FOR THEIR EXPORTS FOR WHICH CERTIFICATES ARE ISSUED BY EXPORTERS LNSEL & OTHERS IN FORM NO.L0CCAG. THE CLAIM U/S.80HHE FOR AY. 2000-01 TO 2002-03 ARE GENUINE AND REQUIRED TO BE ACCEPTED. (8) FURTHER, THE ASSESSEE CLARIFIED THAT THE FIRM W AS FORMED SOMEWHERE IN THE YEAR 1992-93 WITH THE OBJEC T OF EARNING INCOME THROUGH BUSINESS OF DEVELOPMENT OF SOFTWARE AND BY RUNNING TRAINING INSTITUTE BY APPOI NTING SHRI.C. L. DESHPANDE AS TECHNICAL DIRECTOR AND INIT IALLY, THE REVENUE WAS EARNED ONLY BY RUNNING TRAINING INSTITUTE. SUBSEQUENTLY, ONE OF THE PARTNERS OF THE ASSESSEE FIRM CAME IN THE CONTACT OF SHRI. S.M. GUP TA, DIRECTOR OF M/S. LEE & NEE SOFTWARE (EXPORT) LTD. A S THEY WERE IN THE SAME FIELD. SHRI. S.M. GUPTA PROPOSED F OR THE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 7 BUSINESS OF DEVELOPING SOFTWARE FOR HIS COMPANY, WH ICH WAS ACCEPTED BY THE ASSESSEE FIRM IN CONSULTATION W ITH TECHNICAL DIRECTOR MR.C. L. DESHPANDE AND THE FIRST CONTRACT WAS ENTERED INTO ON 28-12-1999 AS A TEST A ND CASE WAS COMPLETED SUCCESSFULLY, WHICH LED TO THE R ECEIPT OF EVEN A LARGER CONTRACTS DATED 28-7-2000 FROM LE E & NEO GROUP. FOR THIS PURPOSE, THE PREMISES WERE TAKEN ON LEASE AT BHUBNNESHWAR. ON GAINING MORE CONFIDENC E, THE ASSESSEE DECIDED TO APPLY FOR SETTING UP OF 100 % EXPORT ORIENTED UNIT UNDER SOFTWARE TECHNOLOGY PARK OF INDIA (STPI), BHUBANESHWAR, WHICH WAS DONE VIDE APPLICATION DATED 16-12-2000 AND THE STPI GRANTED PERMISSION ON 1/1/2001. IT HAS ENCLOSED COPIES OF 4 AGREEMENTS WITH LEE & NEE GROUP DATED 28-7-2000 AND ALSO THE SCOPE OF WORK CARRIED OUT. FURTHER, IT IS REITERATED THAT SHRI C.L. DESHPANDE WAS THE WHOLE AND SOLE PER SON TO MANAGE THE SAID DIVISION, WHO IS NO MORE. FURTHE R, IT IS STALED THAT THE PREMISES WERE TAKEN ON LEASE, ELECT RICITY EXPENSES WERE INCURRED, NEW COMPUTERS WERE PURCHASE D FOR FULFILLING THE CONTRACT. IT HAS ALSO FILED SAMP LE COPY OF SOFTEX .WHICH IS A DECLARATION FOR EXPORT OF SOFTWA RE BY LNSL TO AAPKIDUKAN.COM CORPORATION, USA. IT IS ALSO CLARIFIED THAT LNSL AND ITS GROUP WAS ELIGIBLE TO I SSUE DISCLAIMER CERTIFICATE AS THE ONLY REQUIREMENT TO B E FULFILLED FOR CLAIMING 80HHE IS THAT THERE SHOULD B E AN EXPORT OF COMPUTER SOFTWARE AND IT IS IMMATERIAL WH ETHER THE SAME IS DEVELOPED BY THE ASSESSEE OR PURCHASED FROM MARKET AND EXPORTED. 3.2 ON TAKING INTO CONSIDERATION OF ABOVE REPLY, AS SESSING OFFICER OBSERVED THAT ASSESSEE DID NOT KNOW ANYTHIN G ABOUT THE DEVELOPMENT OF SOFTWARE, DID NOT KNOW THE PRECI SE NATURE OF BUSINESS OR TECHNICAL ACTIVITIES OF M/S. SHREEPA TI COMPUTER CENTRE, AS PER THE STATEMENT OF MAIN PARTN ER SRI R. R. CHATURVEDI RECORDED DURING COURSE OF SURVEY. IT HAD NO PREVIOUS EXPERTISE IN DEVELOPMENT OF SOFTWARE OR EX PORT THEREOF, STILL IT HAD ENTERED INTO A CORRECT WITH L NSL FOR ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 8 DEVELOPMENT OF SOFTWARE TO BE EXPORTED TO M/S AAPKIDUKAAN.COM CORPORATION, USA. SHRI CHATURVEDI, IN HIS STATEMENT COULD NOT GIVE THE VALUE OF SOFTWARE DEVELOPED. ASSESSEE ALSO COULD NOT PRODUCE ANY EVIDENCE OF DEV ELOPING ANY SOFTWARE. IT WAS FURTHER STATED THAT LNSEL WAS ONLY ENGAGED IN TRADING OF SOFTWARE AND WAS NOT MANUFACT URING ANY SOFTWARE. THE SO CALLED EXPORTER WAS NOT ENTIT LED TO GIVE ANY DISCLAIMER U/S.80HHE OF THE ACT TO SUPPORTING MANUFACTURER. BY GIVING DISCLAIMER CERTIFICATE TO ASSESSEE, IT VIOLATED THE PROVISIONS OF THE ACT. 3.3 IT WAS ALSO STATED THAT SHRI S. M. GUPTA, PRINC IPAL OFFICER OF LNSEL HAD NOT AUTHORITY UNDER ANY PROVIS IONS OF ACT TO ISSUE A DISCLAIMER U/S.80HHE OF THE ACT TO M /S. SHREEPATI COMPUTER CENTRE AS IT CLAIMED EXEMPTION U /S.10B OF THE ACT. ON THE SAME PROFIT FOR SAME EXPORT, DOU BLE EXEMPTION CANNOT BE ALLOWED. FURTHERMORE, LNSEL WA S ITSELF HAVING IN-HOUSE FACILITIES AT CALCUTTA, BHUV ANESWAR AND ROURKELA AND ITS CENTRES WERE IN EXISTENCE AT S OFTWARE TECHNOLOGY PARKS AT THESE PLACES SINCE LONG. HAD T HESE SOFTWARE DEVELOPMENT TRANSACTIONS WITH AAPKIDUKAAN. COM BEEN INDEED GENUINE, LNSL WITH A BETTER INFRASTRUCT URE FACILITY WOULD HAVE BEEN IN A BETTER POSITION TO EX ECUTE IT, ESPECIALLY WHEN THE PROFITS MARGIN WAS SO HIGH. 3.4 ASSESSING OFFICER FURTHER STATED THAT IN ORDER TO VERIFY THE GENUINENESS OF THE EXPORT SOFTWARE TRANSACTIONS OF M/S. LEE & NEE SOFTWARE (EXPORT) LTD. WITH AAPKIDUKAAN.C OM ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 9 CORPORATION, USA, A REFERENCE WAS MADE TO THE FOREI GN TAX DIVISION, CBDT, NEW DELHI, WHO IN TURN HAD MADE THE ENQUIRIES AND SUBMITTED ITS REPORT WHICH IS NARRATE D AS UNDER: 1. DOES AAPKIDUKAAN.COM CORPN. EXIST AT THE FOLLOWING ADDRESS: AAPKIDUKAAN.COM 545 LAWRENCE EXPRESS WAY SUNVILLE, CA 90468, USA YES, THE COMPANY WAS INCORPORATED IN CALIFORNIA ON APRIL 10, 2000, BUT WAS DISSOLVED ON MARCH 21, 2005. 2. IF SO, WHAT BUSINESS IS BEING CARRIED OUT BY AAPKIDUKAAN.COM CORPORATION. THE COMPANY WAS SET UP TO SELL CONSUMER GOODS VIA INTERNE, HOWEVER, THE COMPANY WAS NEVER ACTIVE AND IT WAS FINALLY DISSOLVED. 3 WHAT ARE THE NAMES & COMPLETE ADDRESSES OF THE OWNERS /DIRECTORS OF AAPKIDUKAAN.COM CORPORATION? THE FOLLOWING ARE THE OWNERS FROM APRIL 10,2000 THROUGH MARCH, 21, 2005. A) KISHORE BUBNA 204, MCDUFF AVENUE, FREMONT, CALIFORNIA 94539. B) ANITA GUPTA 204, MCDUFF AVENUE, FREMONT, CALIFORNIA 94539. C) SCHWARK SATYAVOLU INDIA. 4. IS AAPKIDUKAAN.COM CORPORATION A COMPANY REGISTERED IN THE USA? YES. THIS IS A U.S. COMPANY REGISTERED IN CALIFORNIA. 5. NAME & COMPLETE ADDRESS OF THE DIRECTORS/PARTNERS OF THE COMPANY /FIRM, IF THE ACCOUNT HOLDERS ARE OF ANY COMPANY/FIRM SEE ITEM NO.3 6. COPIES OF STATEMENTS OF THEIR BANK ACCOUNTS. THE COMPANY HAS TWO BANK ACCOUNTS, HOWEVER, THE OWNERS OF AAPKIDUKAAN. COM WERE NOT THE OWNERS OF THESE ACCOUNTS. THEY DO NOT KNOW THE NAMES AND ADDRESSES OF THE DIRECTORS /PARTNERS OF THE COMPANY /FIRM, OF THESE BANK ACCOUNTS. 7. NATURE OF THE BUSINESS CARRIED OUT BY THE HOLDERS OF THE ABOVE SAID TWO ACCOUNTS IN U.S.A. COPIES OF STATEMENTS OF ACCOUNTS (FINANCIAL RESULTS), IF ANY FILED BY THEM WITH THE DIRECTORS OF AAPKIDUKAAN. COM HELPED SETTING UP THE BUSINESS AND PROVIDED TECHNICAL DIRECTION TO LEE & NEE. THE AGREEMENT WAS THAT ONCE THE BUSINESS WAS ESTABLISHED ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 10 THEIR RETURNS OF INCOME FOR THE FINANCIAL YEARS COVERING THE PERIOD APRIL 1, 1999 TO MARCH 31,2002. AAPKIDUKAAN.COM WOULD OWN THE U.S. OPERATIONS, HOWEVER, THIS AGREEMENT WAS NEVER MATERIALIZED. 3.5 ON THE BASIS OF AVOVE REPORT, IT WAS OBSERVED B Y THE ASSESSING OFFICER THAT AAPKIDUKAAN.COM CORPORATION WAS NEVER ACTIVE. LNSEL HAD EXPORTED NOTHING AND ALTER NATIVELY, ASSESSEE DID NOT DEVELOP ANY SOFTWARE AND NOR EXPOR TED. IN RESPONSE TO FURTHER QUERY MADE IN THIS REGARD, ASSE SSEE CONTENDED THAT AS AAPKIDUKAAN.COM CORPORATION DEALT WITH LNSL, WHO ISSUED DISCLAIMER CERTIFICATE TO ASSESSEE . 3.6 AFTER TAKING INTO ACCOUNT THE ABOVE EXPLANATION OF THE ASSESSEE, ASSESSING OFFICER OBSERVED THAT THOUGH AS SESSEE STRESSED ON THE ADMISSIBILITY OF EXEMPTION U/S.10B OF THE ACT CLAIMED AND ALLOWED BY THE DEPARTMENT TO THE EXPORT ER COMPANY TO WHOM PERMISSION WAS GRANTED BY STPI VIDE LETTER DATED 30.04.1992 AND IF THIS WAS A CASE, THEN WHAT IS THE FATE OF A CERTIFICATE OF RECOGNITION OF SOFTWARE EX PORT HOUSE W.E.F. 01.04.2002 ISSUED BY THE JT. DIRECTOR GENERA L OF FOREIGN TRADE, KOLKATA VIDE NO.013420 DATED 03.04.2 003 ADDRESSED TO M/S. LEE & NEE SOFTWARE (EXPORT) LTD. AS REGARDS TO THE SOURCE CODE, IT WAS STATED THAT THE DOCUMENTS WERE LYING WITH THE DEPARTMENT, THEREFORE, THE ASSE SSEE WAS NOT IN A POSITION TO PROVIDE ANY FURTHER CLARIFICAT ION. ACCORDING TO ASSESSING OFFICER, A PRUDENT BUSINESSM AN COULD NOT FORGET THE BASIC INGREDIENTS OF ANY PRODUCTS MANUFACTURED BY HIM BY WHICH HE HAS FLOURISHED AND THEREFORE, THE PLEA THAT DOCUMENTS WERE WITH THE DE PARTMENT ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 11 COULD NOT BE ACCEPTED BY HIM. REGARDING EXPORT OF S OFTWARE, IT HAD ENCLOSED A COPY OF SOFTEX FORM CERTIFIED BY THE STPI, IN WHICH NAME OF THE ASSESSEE APPEARED AS SUPPORTING MANUFACTURER. ACCORDING TO ASSESSING OFFICER, THE FOREIGN TAX DIVISION HAD NOT COME ACROSS ANY TRANSACTION IN ITS INQUIRIES. IT HAS FOUND THAT AAPKIDUKAAN.COM, USA W AS NEVER ACTIVE. FOREIGN TAX DIVISION ALSO FOUND THAT AGREEMENT BETWEEN AAPKIDUKAAN.COM AND LEE & NEE SOFTWARE LTD. NEVER MATERIALIZED. 3.7 IT WAS FURTHER STATED BY THE ASSESSING OFFICER THAT ASSESSEE WAS UNABLE TO ESTABLISH AS TO HOW IT HAD E XPLAINED THE SOURCE CODE OF THE PRODUCTS MANUFACTURED BY IT AND SOLD TO LNSL, WHO IN TURN HAD EXPORTED AND RECEIVED FORE IGN EXCHANGE FOR CLAIMING EXEMPTIONS/DEDUCTIONS AS IT S TATED THAT IT WAS NOT ABLE TO EXPLAIN HOW THE TWO BANK AC COUNTS WERE OPERATED BY AAPKIDUKAAN.COM CORPORATION, BUT RECEIPTS OF FOREIGN EXCHANGE WERE RECEIVED BY LNSL FOR EXPORT OF SOFTWARE TO AAPKIDUKAAN.COM CORPORATION. IF THE ASSESSEE HAD DEVELOPED THE SOFTWARE TRANSMITTED TO LNSEL, WH O IN TURN TRANSMITTED TO AAPKIDUKAAN.COM CORPORATION, TH ERE WOULD HAVE BEEN ANY INSTANCE DETECTED DURING THE CO URSE OF INQUIRY BY FOREIGN TAX DIVISION, THE ASSESSEE WOULD HAVE BEEN ABLE TO PRESERVE THE SOURCE CODE, EMPLOYEES WO ULD HAVE BEEN ABLE TO ANSWER POSITIVELY AND THERE WOULD NOT HAVE BEEN ANY AMBIGUITY IN THE BANK ACCOUNTS HELD BY AAPKIDUK AAN. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 12 COM CORPORATION, USA, FROM WHICH FOREIGN EXCHANGE H AS BEEN RECEIVED BY THE PRINCIPAL EXPORTER. 3.8 IT WAS OBSERVED BY ASSESSING OFFICER THAT ASSES SEE HAD RECEIVED ADVANCE PAYMENTS OF RS.10,84,05,000/- FROM LNSL WITHOUT HAVING MADE ANY SALES. ALL THE PURCHASES W ERE QUARTER ENDING JUNE, 2002 TO MARCH, 2005, BUT ASSES SEE CLAIMED DEDUCTION U/S.80HHE ON ABOVE RECEIPTS FOR A Y 2002-03. 3.9 IT WAS FURTHER STATED BY ASSESSING OFFICER THAT THE MANAGING PARTNER OF FIRM VIZ. SHRI RAJENDRA CHATURV EDI IN HIS STATEMENT RECORDED UNDER SEC.132(4) OF THE ACT ON 24.03.2005 WAS CONFRONTED ON THIS ISSUE AND ASSESSE E HAD MADE DISCLOSURE OF ADDITIONAL INCOME OF RS.7CRORE. HOWEVER, ASSESSEE RETRACTED THE DECLARATION MADE VIDE ITS AF FIDAVIT DATED 30.08.2005 ON THE COUNT THAT IT WAS MADE IN FRUSTRATION AND COMPULSIONS AND CONDITIONALLY I.E. SUBJECT TO DETECTION OF UNDISCLOSED INCOME FROM THE BOOKS OF A CCOUNTS AND DOCUMENTS FOUND DURING THE SEARCH. THIS WAS NOT FOUND CORRECT AND ACCEPTABLE BY ASSESSING OFFICER. ACCORD ING TO ASSESSING OFFICER, THERE WAS ALSO NO COMPULSION. SE CONDLY, THE STATEMENT RECORDED WAS DATED 24.03.2005 AND THE RETRACTION DATE IS 30.08.2005. THUS, IT WAS FOUND AN AFTER THOUGHT BY ASSESSING OFFICER. 3.10 IN VIEW OF ABOVE, ASSESSING OFFICER HELD THAT ASSESSEE FIRM HAD NOT DEVELOPED AND EXPORTED ANY SOFTWARE AS ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 13 ASSESSEE ENGAGED A NUMBER OF UNDER GRADUATE STUDENT S BOTH AT MUMBAI AND BHUBANESWAR. THEY TOTALLY DENIED HAVI NG DEVELOPED ANY SOFTWARE AND THEY DID NOT KNOW THE AS SESSEE FIRM. IN ADDITION TO ABOVE, SUMMONS WERE ISSUED AND STATEMENTS WERE RECORDED CERTAIN OTHER PERSONS WHO ALSO DENIED HAVING DEVELOPED ANY SOFTWARE FOR ASSESSEE. EVEN THESE PERSONS DID NOT KNOW SHRI. C. L. DESHPANDE AT ALL. ASSESSING OFFICER FURTHER OBSERVED FROM THE DOCUMEN TS IMPOUNDED FROM LNSL DURING THE COURSE OF SURVEY U/S 133A OF THE ACT ON 23.03.2005 THAT IT HAD MADE EXPORTS O F 26,41,08,562/- DURING F.Y.1999-2000 TO 2001-02 (F.Y . 1999-2000 RS.72,27,568/-, F.Y. 2000-01 RS.7,60,12,5 74/- & F.Y. 2001-02 RS.8,08,68,420/-). HOWEVER, TOTAL SO FTWARE REPORTEDLY DEVELOPED AND EXPORTED BY ASSESSEE DURIN G THE SAID PERIOD WAS RS.26,59,96,280/-. IT WAS FURTHER S TATED THAT AS PER LETTER ADDRESSED TO ASSESSEE ON 03.03.2003 B Y THE ADDL. DIRECTOR, STPI, BHUBANESHWAR SEEKING REPORT O N THE PERFORMANCE OF ASSESSEE AND IMPOUNDED FROM THE OFFI CE OF THE LEE & NEE SOFTWARE THAT ASSESSEE HAD MADE EXPOR T DURING THE F.Y.2000-01 TO 2002-03 OF RS.15,00,000/- , 16,00,000/- AND RS.15,00,000/- RESPECTIVELY AND AS AGAINST THE ABOVE EXPORTS, THE ASSESSEE HAS CREDITED IN ITS BOOKS EXPORTS OF SALE OF RS,10,16,00,000/- IN F.Y. 2000-0 1 AND RS.15,57,46,280/- IN F.Y.2001-02, WHICH ITSELF PROV ES THAT THE EXPORTS CLAIMED TO HAVE BEEN MADE BY LNSL OF TH E SOFTWARE DEVELOPED BY ASSESSEE WAS BOGUS. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 14 3.11 ACCORDING TO ASSESSING OFFICER, AS PER LETTER DATED 07.07.2003 OF STP BHUWANESHWAR, ASSESSEE HAD NOT ST ARTED ANY COMMERCIAL PRODUCTION WITHIN THE INITIAL VALIDI TY PERIOD OF THREE YEARS. IN VIEW OF ABOVE DISCUSSION, THE D EDUCTION CLAIMED U/S.80HHE OF THE ACT AND JOB WORK CHARGES PERTAINING TO A.YS. 2001-02 AND 2002-03 WERE ALSO DISALLOWED ON THE SAME REASONING BEING BOGUS. 4. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F ASSESSEE. CIT(A) HAS ALLOWED THE CLAIM OF ASSESSEE BY OBSERVING AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FIND SUFFICIENT FORCE IN THE CONTENTIONS OF THE APPELLAN T. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS BASED ON HALF BAKED FINDINGS AND WITHOUT APPRECIATING THE FA CTS OF THE CASE PROPERLY. THE CONCLUSION IS DRAWN AGAINST THE APPELLANT MAINLY ON PRESUMPTIONS AND SURMISES AND I S NOT SUBSTANTIATED WITH COGENT EVIDENCES. THE OBSERV ATIONS AND FINDINGS OF THE ASSESSING OFFICER HAVE BEEN PRO PERLY COUNTERED BY THE APPELLANT AND AFTER EVALUATING SUC H REPLIES/ARGUMENTS, MY OWN FINDINGS ARE NARRATED IN THE COMING PARAS BELOW. 7.1 IN SO FAR AS THE LACK OF REQUISITE EXPERTISE HE LD BY THE PARTNERS AS OBSERVED BY THE ASSESSING OFFICER IS CONCERNED, ON GOING THROUGH THE CONTENTS OF THE STATEMENT OF SRI CHATURVEDI, IT IS QUITE EVIDENT TH AT HE WAS FULLY AWARE OF THE AFFAIRS OF THE APPELLANT FIR M VIS-A- VIS THE TRANSACTIONS WITH LNSEL THOUGH HE COULD NOT OFFER PLAUSIBLE ANSWERS TO CERTAIN TECHNICAL QUESTIONS WH ICH IS NOT SO UNUSUAL AS HE HAVING MANY OTHER BUSINESS AFF AIRS TO HANDLE, THERE IS NOTHING TO DISBELIEVE THAT SUCH AFFAIRS WERE TAKEN CARE OF BY SRI DESHPANDE. THE SAID PERSO N EXPRESSED HIS INABILITY TO ANSWER SUCH QUERRIES IS ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 15 UNDERSTANDABLE BUT CANNOT BE BRUSHED ASIDE AND MADE THE BASIS FOR DOUBTING THE ENTIRE TRANSACTION ENTER ED INTO WITH LNSEL. THUS, NOT MUCH SIGNIFICANCE IS ATTRIBUT ED SUCH OBSERVATION OF THE ASSESSING OFFICER. MOREOVER , THE ASSESSING OFFICER HAS NOT BROUGHT ON RECORD ANY MAT ERIAL FACT TO DISBELIEVE THE FACT THAT THE TECHNICAL ASPE CTS OF THE DEAL WERE BEING LOOKED AFTER BY LATE SRI DESHPANDE. THE APPELLANT WAS ENGAGED IN SUCH IT RELATED BUSINESS F OR SEVERAL YEARS THOUGH HAD TAKEN UP THE SOFTWARE DEVELOPMENT ON SUCH A LARGE SCALE FOR THE FIRST TIM E. IN THE PRESENT AGE OF OUTSOURCING, EXECUTION OF SUCH A WOR K ASSIGNED COULD BE CONSUMMATED WITH EASE WITH THE HE LP OF IT PROFESSIONALS AND THEREFORE, IT IS NOT ESSENT IAL REQUIREMENT OF THE PARTNERS TO BE CONVERSANT WITH TECHNICALITIES OF SUCH JOB. 7.2 AS REGARDS UNDUE IMPORTANCE ATTACHED TO THE DISCLOSURE OF ADDITIONAL INCOME BY THE MANAGING PAR TNER, I FIND SUFFICIENT MERITS IN THE SUBMISSIONS OF THE APPELLANT. ON CAREFUL CONSIDERATION OF THE STATED F ACTS, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS HEAVILY R ELIED UPON THE DISCLOSURE MADE BY THE MANAGING PARTNER IN THE COURSE OF SEARCH, THOUGH IT IS ALSO STATED THAT SUC H DISCLOSURE WAS RETRACED LATER. IN THIS CASE, THE AP PELLANT FIRM HAD ALREADY BEEN ASSESSED BY THE DEPARTMENT WI TH REGARD TO THE RETURNS FILED WELL BEFORE THE SEARCH AND NO INFIRMITY WAS FOUND BY THE ASSESSING OFFICER THOUGH THE ASSESSMENT WAS ALSO FRAMED AFTER DUE SCRUTINY. SRI CHATURVEDI RETRACTED FROM THE SURRENDER ON THE BASI S OF SUCH AN ARGUMENT WHICH CANNOT BE DISBELIEVED. MOREO VER, THE RETRACTION WAS MADE WITHIN A REASONABLE PERIOD OF TIME AFTER PONDERING OVER THE WHOLE SCENARIO, CONSE QUENT TO THE SEARCH OPERATIONS. IN THE RETRACTED AFFIDAVI T, IT IS CLEARLY STATED THAT THE STATEMENT U/S 132(4) WAS MA DE SUBJECT TO DETECTION OF UNDISCLOSED INCOME FROM THE BOOKS OF ACCOUNT AND DOCUMENTS FOUND DURING SEARCH. IT WA S STATED THAT EXPORT PROCEEDS RECEIVED WERE DULY RECO RDED IN THE REGULAR BOOKS OF ACCOUNT ON ACCRUAL BASIS AND A S AND WHEN THE INCOME ACCRUED, DEDUCTION WAS CLAIMED AS P ER THE ACT AND WAS ALSO ALLOWED IN RESPECTIVE ASSESSME NT ORDERS. NO ADDITION COULD BE MADE ON THE BASIS OF S UCH STATEMENT UNLESS AND UNTIL, IT IS CORROBORATED WITH ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 16 EVIDENCES. IN THE PRESENT CASE, IT APPEARS THAT THE MANAGING PARTNER MADE SUCH A DISCLOSURE MORE IN A CONFUSED STATE OF MIND, RATHER THAN MAKING A CONSCI OUS DECLARATION, MORE SO, IN THE LIGHT OF DISCLOSED FAC TS AS PER THE RETURNS FILED MUCH EARLIER THAN THE SEARCH. THE REFORE, SOME ELEMENT OF COERCION CANNOT BE RULED OUT COMPLE TELY. THE CORROBORATIVE EVIDENCES BROUGHT ON RECORD ARE N OT CONCLUSIVE AND INFALLIBLE AND HAVE BEEN SUCCESSFULL Y REBUTTED BY THE APPELLANT. 7.3 IT MAY BE STATED HERE THAT SIMILAR DISCLOSURE A ND SUBSEQUENT RETRACTION HAS BEEN A MATTER OF DISPUTE BEFORE VARIOUS COURTS FROM TIME TO TIME. REFERENCE COULD B E MADE TO THE CASE OF DCIT VS SAMITA MARINE KAKINADA(2007) 10 SOT 335(MUM) WHERE IT WAS HELD THAT EVEN THOUGH THE ASSESSEE HAD MADE CERTAIN DECLARATION DURING SURVEY REGARDING THE EXPENDITURE INCURRED BEING BOGUS AND HAD ALSO SURRENDERED SUCH EXPENSES AS UNDISCLOSED INCOM E, THE ASSESSING OFFICER WAS NOT FOUND JUSTIFIED IN MA KING SUCH ADDITION WHEN THE ASSESSEE DID NOT DECLARE SUC H ADDITIONAL INCOME IN THE RETURN FILED. IT WAS HELD THAT THE APPELLANT DID INCUR SUCH EXPENDITURE IN COURSE OF C ARRYING ON THE BUSINESS AND THE ASSESSING OFFICER FAILED TO BRING ON RECORD ANY DOCUMENTARY EVIDENCE TO PROVE THE NON - GENUINENESS OF THE EXPENSES. IN ANOTHER CASE OF DC IT VS PRAMUKH BUILDERS (2008) 112 ITD 179 ITD 179 (AHM) (TM) WHERE THE PARTNERS SURRENDERED CERTAIN UNDISCL OSED STATEMENT IN THE COURSE OF SEARCH BUT RETRACTED THE SAME WHILE FILING THE RETURN, IT WAS HELD THAT NO ADDITI ON COULD BE JUSTIFIED MERELY ON THE BASIS OF SUCH A STATEMEN T, IN ABSENCE OF ANY EVIDENCE REGARDING CHARGING OF ON MO NEY BY THE SAID BUILDER. THE PARTNER MADE THE DISCLOSURE UNDER UTTER STATE OF CONFUSION. THEREFORE, NOT MUCH SIGNIFICANCE COULD BE ATTACHED TO SUCH DISCLOSURE A ND THE MATTER NEEDS TO BE EVALUATED IN THE LIGHT OF THE EV IDENCES GATHERED CONSEQUENT TO THE SEARCH OPERATIONS. RELIA NCE COULD ALSO BE PLACED ON KAILASHBEN M.CHOKSI VS CIT(2008) 174 TAXMAN 466(GUJ) IN WHICH ON IDENTICAL CIRCUMSTANCES, IT WAS HELD THAT ADDITION COULD NOT BE MADE ON SUCH STATEMENT AS THE REVENUE DESPITE RETRA CTION COULD NOT FIND ANY CORROBORATIVE EVIDENCE. SIMILARL Y IN THE CASE OF FIRST GLOBAL STOCKBROKING P. LTD VS ACIT(20 08) ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 17 115 TTJ 173(MUM), IT WAS HELD THAT DISCLOSURE OR ADMISSION U/S 132(4) DURING SEARCH PROCEEDINGS IS A N ADMISSIBLE EVIDENCE BUT NOT A CONCLUSIVE ONE. IF TH E ASSESSEE IS ABLE TO DEMONSTRATE WITH THE HELP OF SO ME MATERIAL THAT SUCH ADMISSION WAS MADE UNDER A MISTA KE OR MISCONCEPTION OF FACTS, NO ADDITION CAN BE MADE SOLELY ON THE BASIS OF SUCH ADMISSION, FURTHER, ADDITION B ASED ON RETRACTED DECLARATION IS NOT SAFE. IN ANOTHER CA SE OF ITO VS LEELA DEVI BADOLA(2008) 116 TTJ 214(JODH) IT WAS OBSERVED THAT THOUGH A SURRENDER ON THE BASIS OF TH E STATEMENT RECORDED DURING SURVEY IS BINDING ON THE ASSESSEE, HE IS ENTITLED TO RETRACT FROM THE SAME, IF THE ASSESSEE LEADS INFALLIBLE EVIDENCE TO SHOW THAT THE SURRENDER WAS EXTRACTED BY COERCION OR WAS MADE WIT H A MISUNDERSTANDING. SIMILAR DECISIONS WERE RENDERED I N PRABAL LAKHOTIA VS ACIT(2008) 114 TTJ 938(JODH) AND ITO VS LANYARD FOODS LTD(2008) 25 SOT 71(MUM)(URO). 7.4 IN RESPECT OF THE OBSERVATIONS MADE BY THE ASSE SSING OFFICER THAT LNSEL DID NOT MAKE ANY EXPORT, ON CARE FUL CONSIDERATION OF THE ABOVE FACTS AND GOING THROUGH THE COPIES OF SOFTEX FORMS, I DO NOT FIND ANY MERIT IN THE CONCLUSION DRAWN BY HIM. UNDER THE PROVISIONS OF FO REIGN EXCHANGE MANAGEMENT REGULATIONS, 2000/EXIM POLICY E TC SUCH TYPE OF BUSINESS IS REQUIRED TO MAKE A DECLARA TION OF EXPORT OF SOFTWARE IN SOFTEX FORM WHICH IS NECESSAR ILY TO BE SUBMITTED TO THE DESIGNATED OFFICIAL OF THE DEPA RTMENT OF ELECTRONICS, GOVERNMENT OF INDIA AT THE SOFTWARE TECHNOLOGY PARKS OF INDIA (STPIS) ETC. PERUSAL OF S UCH FORMS SUBMITTED BY LNSEL AND RELATED CONCERNS CLEAR LY SHOWS THAT THE COMPETENT AUTHORITY ON BEHALF OF DEPARTMENT OF ELECTRONICS, IN THE SPACE PROVIDED IN THE SAID FORM, HAS DULY CERTIFIED THAT THE SOFTWARE DES CRIBED ABOVE WAS ACTUALLY TRANSMITTED AND THE EXPORT/ROYAL TY VALUE DECLARED BY THE EXPORTER HAS BEEN FOUND TO BE IN ORDER AND ACCEPTED BY THEM. 7.5 THE CONTENTION OF THE ASSESSING OFFICER REGARDI NG DUPLICATION IN THE CLAIM IS UNFOUNDED. PERUSAL OF T HE COPIES OF CERTIFICATE ISSUED BY LNSEL AND ASSOCIATE S IN FORM NO10CCAC IN TERMS OF RULE 18BBA(8) CLEARLY SHO WS THAT THEY HAVE DULY CERTIFIED THAT THEY HAVE NOT CL AIMED ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 18 DEDUCTION U/S 80HHE(1) IN RESPECT OF THE EXPORT TUR NOVER ATTRIBUTED TO THE APPELLANT. SUCH A CERTIFICATE IS DULY AUTHENTICATED BY THE RESPECTIVE PRINCIPAL OFFICERS AND THE AUDITORS. IN THE DISCLAIMER CERTIFICATE, IT IS CATE GORICALLY STATED THAT THE SAID CONCERNS WOULD NOT CLAIM AND E XPORT PERFORMANCE FOR ISSUE OF I) EXPORT PERFORMANCE CERT IFICATE II) EXPORT/TRADING CERTIFICATE AND III) SPECIAL IMP ORT LICENSE. NOTHING HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER IN THIS REGARD TO SHOW THAT SUCH DOCUMENTS AND DECLARATIONS WERE FALSE OR FABRICATED . THUS, THERE IS NO CASE OF DOUBLE DEDUCTION CLAIMED BY THE EXPORTERS AND THE APPELLANT. IT MAY ALSO BE STATED HERE IN A LETTER FROM LNSEL, IT IS CATEGORICALLY STATED THA T IT MADE CLAIM U/S 10A/B FOR AYS 2000-01 TO 2002-03 IN RESPE CT OF SUCH EXPORT PROFIT AFTER DEDUCTING THE EXPENSES INC LUDING PURCHASES MADE FROM THE APPELLANT. HENCE, ANY CASE OF DOUBLE DEDUCTION HAS BEEN VEHEMENTLY DENIED BY THEM AS WELL. IT IS ALSO STATED BY IT THAT THE CLAIM OF DED UCTION U/S 10A/B MADE IN THE RESPECTIVE YEARS WAS DULY ACCEPTE D BY THE DEPARTMENT IN THE ASSESSMENTS MADE AND THERE WA S NO DISPUTE IN THIS REGARD EXCEPTING IN AY 2000-01 I N THE CASE OF ONE OF THE ERSTWHILE AMALGAMATING COMPANY, M/S L.T. ESTATE P.LTD IN WHICH DISALLOWANCE OF DEDUCTIO N U/S 10B WAS ON ACCOUNT OF NON-RECEIPT OF FOREIGN EXCHAN GE WAS ALLOWED BY THE HON'BLE ITAT, KOLKATA BENCH IN I TS ORDER DATED 12.5.2004.IT MAY ALSO BE STATED HERE TH AT ON CORRESPONDENCE MADE BY THE UNDERSIGNED WITH THE ASSESSING OFFICE/ CONCERNED OF LNSEL, KOLKATA, IT H AS BEEN INTIMATED VIDE LETTER DATED 10.12.2008 THAT TH ERE WAS NO DISPUTE PENDING WITH REGARD TO THE CLAIM OF DEDUCTION U/S 10B OF THE ACT AND NO RECOURSE WAS TA KEN TO THE PROVISIONS OF SECTION 147 FOR AYS 2000-01 TO 2002- 03.THUS.THE ISSUE REGARDING CLAIM OF DEDUCTION U/S 10B IN THIS CASE OF WHICH THE APPELLANT IS A SUPPORTING MANUFACTURER, IS SETTLED AND ACCORDINGLY FULLY ALLO WED. AS SUCH, THE CLAIM OF THE APPELLANT CANNOT BE DENIED O N THIS GROUND ALSO. 7.6 THE OBSERVATIONS OF THE ASSESSING OFFICER THAT IF LNSEL HAD BEEN GRANTED PERMISSION BY STPI VIDE LETT ER DATED 30-4-92, WHAT WAS THE FATE OF CERTIFICATE OF RECOGNITION OF SOFTWARE EXPORT HOUSE W.E.F. 1-4-02 VIDE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 19 LETTER DT. 3-4-2003 ISSUED BY JT. DIRECTOR GENERAL OF FOREIGN TRADE, KOLKATA, HAS BEEN DULY REBUTTED BY T HE APPELLANT. I FIND THAT THE ISSUE RAISED BY THE ASSE SSING OFFICER IS NOT RELEVANT AT ALL. APART FROM THE CERT IFICATE BEING IRRELEVANT FOR THE YEARS UNDER CONSIDERATION, THE ASSESSING OFFICER CANNOT IGNORE THE CERTIFICATE ISS UED BY STPI TO LNSEL FROM 30.4.1992. THE DECLARATIONS MAD E IN THE SOFTEX FORM FROM TIME TO TIME MAKES SUCH AN OBJ ECTION ALL THE MORE IRRELEVANT., HAVING NO BEARING ON THE GENUINENESS OF THE CLAIM OF THE EXPORTER AS WELL TH AT OF THE APPELLANT IN THE CAPACITY OF SUPPORTING MANUFACTURE R. 7.7 REGARDING THE FAILURE OF THE APPELLANT TO STATE THAT SOURCE CODE, RE IS EVIDENT THAT THE ASSESSING OFFIC ER WAS DULY INTIMATED OF THE REASONS FOR NON FURNISHING OF THE SAME. THE ASSESSING OFFICER HAS NOT MADE ANY COUNTE R COMMENTS ON SUCH UNAVOIDABLE CIRCUMSTANCES STATED B Y THE APPELLANT AND WENT ON TO LINK UP SUCH NON-PRODU CTION TO THE GENUINENESS OF THE EXPORT ITSELF THOUGH THE SAME WAS A FAIT ACCOMPLI. HAD IN HIS OPINION SOURCE CODE CARRIED SUCH AN IMPORTANCE, NOTHING PREVENTED HIM T O VERIFY THE CONTENTIONS OF THE APPELLANT WHICH APPEA RS TO HAVE BEEN COMPLETELY OVERLOOKED. NO EFFORT SEEMS TO HAVE BEEN MADE WITH THE INVESTIGATION WING OF THE DEPART MENT WHICH CARRIED OUT THE SEARCH AND SURVEY OPERATIONS. ACCORDINGLY, NOT MUCH IMPORTANCE COULD BE ATTRIBUTE D TO SUCH AN ISSUE. 7.8 THE ASSESSING OFFICER HAS LAID TOO MUCH STRESS ON THE REPORT OF THE FTD BUT HAS CONVENIENTLY FORGOTTE N TO TAKE IN COGNIZANCE THE SOFTEX DECLARATION AND ACCEP TANCE OF THE SAME BY THE COMPETENT AUTHORITIES OF DEPARTM ENT OF ELECTRONICS. IT MAY BE STATED HERE THAT THE SAID AU THORITY HAS BEEN ENTRUSTED AND AUTHORISED A SPECIFIC DUTY R ELATING TO EXPORT OF SOFTWARE AND A CERTIFICATE ISSUED BY T HEM GIVING CREDENCE TO THE ENTIRE FACTUM OF EXPORT CANN OT BE BRUSHED ASIDE LIGHTLY, AS DONE BY THE ASSESSING OFF ICER. THE GENUINENESS OF THE CERTIFICATES HAS .NOT BEEN D ISPUTED BY THE ASSESSING OFFICER WHO JUMPED TO AN ADVERSE CONCLUSION BASED ON REPORT WHICH SUITED HIS PURPOSE , MOREOVER, IT MAY ALSO BE STATED HERE THAT THE REPOR T OF FTD IS DIRECTLY PERTAINING TO THE TRANSACTIONS OF L NSEL ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 20 VIS-A-VIS AAAPKIDUKAAN.COM AND NOT TO THE APPELLANT . AS SLATED IN PRECEDING PARAS, THE ASSESSING OFFICER OF LNSEL DID NOT FIND ANY INFIRMITY IN THE GENUINENESS OF TH E CLAIM OF THE APPELLANT. IN SUCH A SITUATION, THE ASSESSIN G OFFICER OF THE APPELLANT HAS NO LOCUS STANDI IN THE MATTER TO DISBELIEVE THE BONAFIDES OF THE SAID TRANSACTIONS. IT ALSO APPEARS THAT THE REPORT OF FTD DOES NOT WHOLLY FALS IFY THE CLAIM OF EXPORT MADE BY LNSEL. AND IT CONCERNS MORE THE BUSINESS ACTIVITIES OF AAPKIDUKAAAN, RATHER THAN TH E ALLEGED BOGUS NATURE OF TRANSACTIONS. ACCORDINGLY, IT IS HELD THAT THE POINT RAISED BY THE ASSESSING OFFICER DOES NOT CARRY MUCH SIGNIFICANCE VIS-A-VIS THE APPELLANT , SO LONG AS THE EXPORT MADE BY LNSEL HAVE BEEN ACCEPTED TO BEEN GENUINE BY THE ASSESSING OFFICER CONCERNED IN ITS CASE. HE HAS NOT BROUGHT ON RECORD ANY CONTRARY FAC T. 7.9 IN SO FAR AS STATEMENTS OF CERTAIN JOB WORKE RS IS CONCERNED, I HAVE CAREFULLY CONSIDERED THE ABOVE FA CTS. IT IS EVIDENT THAT THE ASSESSING OFFICER HAS HEAVILY R ELIED UPON THE STATEMENTS OF CERTAIN PERSONS TO SHOW THAT NO SOFTWARE WAS DEVELOPED BY THE APPELLANT AND ALSO ON THE LETTER OF STPI IN THIS REGARD. IT IS EVIDENT THAT THE STATEMENTS WERE RECORDED SUBSEQUENT TO THE POST-SEA RCH PROCEEDINGS SOMETIME IN EARLY 2005 AND NOT DURING ASSESSMENT PROCEEDINGS WHICH WAS COMPLETED IN DECEMBER, 2008. THE ASSESSING OFFICER HAS MERELY ADOPTED THE FINDINGS OF THE INVESTIGATION WING AND NO INDEPENDENT FINDING HAS BEEN FORTHCOMING FROM HIM T HE PAYMENTS MADE WERE DULY RECORDED IN THE BOOKS OF ACCOUNTS AND RELEVANT VOUCHERS FOUND DURING THE SEA RCH ONLY CORROBORATE THE GENUINENESS OF SUCH PAYMENTS. THE ASSESSING OFFICER HAS ALSO OVERLOOKED THE FACT THAT TDS WAS DULY DEDUCTED AND PAID TO THE GOVERNMENT ACCOUN T. NOTHING HAS BEEN BROUGHT ON RECORD TO SHOW THAT ALL SUCH FACTS BORNE FROM THE BOOKS OF ACCOUNT WERE BOGUS OR INCORRECT AS THE BOOKS HAVE NOT BEEN REJECTED EITHE R. MOREOVER, THERE IS NOTHING TO SHOW THAT THE APPELLA NT WAS ALLOWED THE OPPORTUNITY TO CROSS-EXAMINE THE SAID P ERSONS AS PER REQUEST MADE DURING ASSESSMENT PROCEEDINGS THOUGH THE STATEMENT OF THE SAID PERSONS WERE USED AGAINST THE APPELLANT AND IN A WAY, THEY WERE USED AS WITNESSES OF THE DEPARTMENT. THE REASONS FOR DENIAL OF ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 21 NATURAL JUSTICE IS NOT COMPREHENSIBLE THOUGH THE FA CTS REMAINS THAT SUCH STATEMENTS HAVE BEEN TREATED AS CLINCHING EVIDENCE BY THE ASSESSING OFFICER. THUS, THE ASSESSING OFFICER HAS VIOLATED THE PRINCIPLES OF NA TURAL JUSTICE IN THE MATTER. IT MAY BE STATED HERE IN THE CASE OF STATE OF KERALA VS K.T.SHADULI GROCERY DEALER AIR 1 977 SC 1627, THE HON'BLE APEX COURT HELD THAT A TAXING OFFICER IS UNDER OBLIGATION TO COMPLY WITH THE PRIN CIPLES OF NATURAL JUSTICE IN REACHING THE CONCLUSION. IN ANOT HER CASE OF K.I.SHEPHERD VS UNION OF INDIA AIR 1988 SC 686, IT WAS OBSERVED THAT NATURAL JUSTICE REQUIRES THAT PERSONS LIABLE TO BE DIRECTLY AFFECTED BY PROPOSED ADMINIST RATIVE ACT, DECISION OR PROCEEDINGS BE GIVEN ADEQUATE NOTI CE OF WHAT IS PROPOSED SO THAT THEY MAY BE IN A POSITION TO MAKE REPRESENTATION ON THEIR OWN BEHALF OR TO APPEA R AT A HEARING OR ENQUIRY AND EFFECTIVELY PREPARE THEIR OW N CASE AND TO ANSWER THE CASE, IF ANY, THEY HAVE TO MEET. IT MAY ALSO BE STALED HERE THAT IN A RECENT CASE OF PRAKAS H CHAND NAHTA VS CIT(2008) 301 ITR 134(MP), THE ASSESSMENT ORDER ITSELF WAS TREATED AS INVALID WHERE THE ASSES SMENT WAS BASED ON THE STATEMENT OF A THIRD PARTY WHO ALS O RETRACTED HIS STATEMENT AND THE ASSESSEE WAS NOT AL LOWED OPPORTUNITY TO CROSS EXAMINE THIS THIRD PARTY. IT W AS HELD THAT THOUGH THE AO HAD POWERS FOR ISSUING SUMMONS, DESPITE REQUEST OF THE ASSESSEE, HE DID NOT SUMMON AND SUCH AN EVIDENCE COULD NOT BE USED AGAINST THE ASSE SSEE AND IN THE ABSENCE OF AFFORDING OPPORTUNITY OF A REASONABLE OPPORTUNITY OF BEING HEARD, THE ASSESSME NT ORDER WAS VITIATED. SIMILAR DECISION WAS RENDERED I N THE CASE OF DHARAM PAL PREM CHAND LTD(2008) 295 ITR 105(DEL) AND HEIRS AND LRS LATE LAKSHMIBAI S. PATEL VS CIT(2008) 174TAXMAN 206(GUJ). 7.2 MOREOVER, THE MATTER REQUIRES TO BE CONSIDERED IN THE LIGHT OF THE FACT THAT DEPARTMENT OF ELECTRONICS, G OVT. OF INDIA AS WELL AS THE ASSESSING OFFICER OF LNSEL HAV E ACCEPTED THE EXPORT MADE BY IT TO BE GENUINE. SINCE THE APPELLANT IS MERELY A SUPPORTING MANUFACTURER, THE TRANSACTIONS MADE WITH LNSEL WHICH ULTIMATELY RESUL TED IN EXPORT, IT IS QUITE LOGICAL TO TREAT SUCH SALES TO BE GENUINE, NOTWITHSTANDING THE DENIAL OF INVOLVEMENT OF CERTAIN PERSONS IN DEVELOPMENT OF SOFTWARE. IT MAY ALSO BE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 22 STATED HERE THAT THE ASSESSING OFFICER HAS USED THE STATEMENTS OF SUCH PERSONS IN PROVING THE TRANSACTI ON AS BOGUS BUT HAS CONVENIENTLY LOST SIGHT OF AFFIDAVITS OF AS MANY AS FIVE PERSONS WHICH INCLUDED SOFTWARE EXPERT S WHO HAVE, IN NO UNCERTAIN TERMS ADMITTED HAVING DON E SUCH JOB FOR THE APPELLANT. ONE SRI RAJESH CHATURVE DI IN THE AFFIDAVIT DATED 3.12.2007 SUBMITTED TO THE ASSE SSING OFFICER HAS STATED HE WAS ASSOCIATED WITH THE APPEL LANT DURING THE YEAR 2000 TO 2003 AS COMPUTER PROFESSION AL AND HAD UNDERTAKEN JOB WORK UNDER THE SUPERVISION O F SRI DESHPANDE. FROM THE TDS CERTIFICATE DATED 31.3.2003 ISSUED BY THE APPELLANT, IT IS EVIDENT THAT TDS WAS DULY MADE ON JOB WORK CHARGES. LIKEWISE, ANOTHER COMPUTE R PROFESSION MS. PRAJAKTA SHINDE IN THE AFFIDAVIT DAT ED 3.12.2007 AFFIRMED SIMILAR FACTS. IT IS ALSO STATED BY HER THAT SHE CONFIRMED JOB WORK CHARGES TO THE DEPARTME NT CONSEQUENT TO SEARCH OPERATIONS IN MARCH 2005. BESI DES, IT MAY ALSO BE STALED HERE THAT THE APPELLANT COULD NOT COUNTER THE FINDINGS OF THE ASSESSING OFFICER AS SU CH PERSONS COULD NOT BE TRACED OUT AS THE MATTER WAS Q UITE OLD AND THE APPELLANT HAD STOPPED SUCH ACTIVITY LON G TIME BACK. THUS, IT COULD NOT BE EXPECTED TO DO AN IMPO SSIBLE TASK. HOWEVER, IT HAS TO BE APPRECIATED THAT THE AP PELLANT HAD TO UNDERGO SEARCH AND SEIZURE OPERATION AND THE VOUCHERS AND BILLS RELATING TO SUCH JOB WORK WERE F OUND DURING SEARCH. IN FACT, PRESENCE OF SUCH EVIDENCES AT THE TIME OF SEARCH ONLY STRENGTHENS THE CONTENTIONS OF THE APPELLANT THAT ACTUAL WORK IN THIS REGARD WAS DONE OR ELSE NO SUCH EVIDENCES COULD HAVE BEEN FOUND, HAD THE CL AIM BEEN BOGUS AND COOKED UP. THUS, SUCH RELIANCE ON T HE STATEMENTS, CONTRARY TO OVERWHELMING EVIDENCES IN F AVOUR OF THE CLAIM OF THE APPELLANT, CANNOT BE CONSIDERED ENOUGH FOR SUSTAINING THE DISALLOWANCES MADE. 7.3 IN SO FAR THE LETTER TO STPI IS CONCERNED, GIV ING CERTAIN AD HOC FIGURES OF EXPORTS MADE, IT MAY BE S TATED HERE THAT WHEN THE APPELLANT SUBMITTED SUCH A BREAK -UP OF EXPORT BUT AT THE RELEVANT POINT OF TIME, THE BO OKS OF ACCOUNT DID REFLECT THE ACTUAL SALES TURNOVER WHICH WERE ALSO DULY DISCLOSED IN THE RETURNS OF INCOME OF THE RELEVANT ASSESSMENT YEARS AND THE SAID EXPORTS WERE DULY ACCEPTED TO BE GENUINE IN THE ORIGINAL ASSESSMENT O RDERS. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 23 THUS, NOT MUCH IMPORTANCE CAN BE ATTRIBUTED TO SUCH A DECLARATION WHICH ALSO APPEARS TO HAVE BEEN MADE ON ESTIMATE AND AD HOC BASIS ONLY. 7.4 IN THE LIGHT OF ABOVE DISCUSSION, IT IS HELD T HAT THE APPELLANT MADE A BONA FIDE CLAIM FOR DEDUCTION U/S 80HHE AND THE JOB WORK CHARGES PAID DURING THE RELE VANT YEARS WERE GENUINE. THE ASSESSING OFFICER IS DIRECT ED TO ALLOW DEDUCTION U/S 80HHE FOR ALL THE AYS 2000-01 T O 2002-03 4.1 BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT CIT(A) ERRED IN DELETING THE ADDITION OF RS.69 ,20,471/- ON ACCOUNT OF DISALLOWANCE OF CLAIM U/S.80HHE OF TH E ACT MADE BY ASSESSING OFFICER. IN VIEW OF THIS, LD. DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDER OF CIT(A) B E SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. I N THIS REGARD, LD. DEPARTMENTAL REPRESENTATIVE TOOK US THE DIFFERENT FINDINGS OF ASSESSING OFFICER AND TO ESTABLISH THE FELICITY OF ORDER OF CIT(A) ALSO RELIED UPON CERTAIN CASE LAWS IN THIS REGARD. ON THE OTHER HAND, LD. AUTHORIZED REPRESEN TATIVE SUPPORTED THE ORDER OF CIT(A) WITH VARIOUS REASONIN GS COUPLED WITH CASE LAWS ON THE POINTS INVOKED IN THI S CASE. 5. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERI AL ON RECORD, WE FIND THAT A SEARCH AND SEIZURE ACTION U/ S.132(1) OF THE ACT WAS CONDUCTED IN ASSESSEES PREMISES ON 23. 03.2005. PURSUANT TO NOTICE U/S.153A OF THE ACT, ASSESSEE FI LED RETURN OF INCOME ON 14.10.2005 DECLARING TOTAL INCOME OF R S. 19,60,460/-. LD. AUTHORIZED REPRESENTATIVE STATED T HAT ASSESSEE FIRM WAS FORMED IN 1992-93 WITH OBJECT OF EARNING ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 24 INCOME THROUGH BUSINESS OF DEVELOPMENT OF SOFTWARE AND BY RUNNING TRAINING INSTITUTE BY APPOINTING SHRI C.L. DESHPANDE AS TECHNICAL DIRECTOR AND INITIALLY, REVENUE WAS EA RNED ONLY BY RUNNING TRAINING INSTITUTE. SUBSEQUENTLY, ONE O F THE PARTNERS OF ASSESSEE FIRM CAME IN THE CONTRACT OF S HRI S. M. GUPTA, DIRECTOR OF M/S. LEE & NEE SOFTWARE (EXPORT) LTD. AS THEY WERE IN THE SAME FILED. SHRI S. M. GUPTA PROP OSED FOR THE BUSINESS OF DEVELOPING SOFTWARE FOR M/S. LEE & NEE SOFTWARE (EXPORT) LTD., WHICH WAS ACCEPTED BY ASSES SEE FIRM IN CONSULTATION WITH TECHNICAL DIRECTOR, MR. C. L. DESHPANDE AND THE FIRST CONTRACT WAS ENTERED INTO ON 28.12.19 99 AS A TEST CASE AND WAS COMPLETED SUCCESSFULLY. 5.1 ON SUCCESSFUL COMPLETION OF THE SAME, ONE LARGE CONTRACT WAS RECEIVED BY THE APPELLANT FIRM. THE DE TAILS OF THE CONTRACTS ARE AS UNDER: NAME OF THE PARTY DATE OF CONTRACT M/S. LEE & NEE SOFTWARE (EXPORTS) LTD. (LNSEL) 28.07.2000 M/S. L T SOFT & SERVICES 28.07.2000 M/S RAJ SOFT & SERVICES 28.07.2000 M/S. M S SOFT & SERVICES 28.07.2000 OUT OF THE ABOVE FOUR PARTIES, M/S. L T SOFT & SERV ICES, M/S. RAJ SOFT & SERVICES AND M/S. M S SOFT & SERVICES AMALGAMATED WITH LNSEL VIDE CALCUTTA HIGH COURT ORD ER DATED 18.09.2000 W.E.F. 28.02.2000. HENCE VIRTUALLY ALL THE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 25 FOUR CONTRACTS WERE ENTERED WITH LNSEL. COPY OF ALL THE ABOVE CONTRACTS HAS BEEN ENCLOSED IN PAPER BOOK (RE FER PAGE 103 TO 114) BEFORE US, WHICH IS NOT IN DISPUTE. 5.2 ON GAINING EVEN MORE CONFIDENCE, THE APPELLANT DECIDED TO APPLY FOR 100% EXPORT ORIENTED UNIT (EOU) UNDER SOFTWARE TECHNOLOGY PARK OF INDIA, BHUBANESWAR CENT RE FOR THE DEVELOPMENT OF COMPUTER SOFTWARE WHICH WAS DONE VIDE APPLICATION DATED 16.12,2000. THE STPI GRANTED PERM ISSION ON 01.1.2001. FOR THE PURPOSE, THE PREMISES WERE AL SO TAKEN ON LEASE. THE CONTRACT OF LEE & NEE GROUP WAS HUGE ENOUGH TO ENGAGE ASSESSEE IN EXPORT RELATED WORK. AS ALRE ADY STATED ABOVE, ASSESSEE FIRM HAD ALREADY APPOINTED SHRI C.L . DESHPANDE AS TECHNICAL DIRECTOR AS NONE OF THE PART NERS WERE FAMILIAR WITH THE INFORMATION TECHNOLOGY INDUSTRIES . 5.3 THE SOFTWARE DEVELOPMENT WORK PURSUANT TO THE A BOVE CONTRACTS WAS INITIALLY CARRIED OUT IN BOMBAY OFFIC E I.E. FOR A.Y. 2000-01 AND 2001-02, UNDER THE SUPERVISION OF SHRI DESHPANDE. THE SAID SOFTWARE DEVELOPED WERE SOLD TO LNSEL, WHICH IN TURN, AFTER MAKING THE VALUE ADDITION IN T HE SOFTWARE DEVELOPED BY THE APPELLANT FIRM AS WELL AS IN THE SOFTWARE, DEVELOPMENT OF WHICH WAS OUTSOURCED TO OT HER PARTIES, THE SAID LNSEL EXPORTED THE SAME TO M/S. AAPKIDUKAN.COM CORPORATION, WHICH WAS A US BASED COMPANY. THOUGH, THE APPELLANT FIRM DID NOT DIRECTL Y EXPORT THE SAID SOFTWARES, BEING A SUPPORTING MANUFACTURER , ON ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 26 RECEIPT OF DISCLAIMER CERTIFICATE FROM LNSEL, IT WA S ELIGIBLE TO CLAIM DEDUCTION U/S.80 HHE ON PROFITS EARNED FROM T HE SALE OF THE SAID SOFTWARE. 5.4 THE DETAILS OF SALES MADE TO LNSEL AND THE DET AILS OF DEDUCTION U/S.80HHE CLAIMED ARE AS UNDER: ASSESSMENT AMOUNT OF TURNOVER (RS.) AMOUNT OF DEDUCTION U/S. 80HHE (RS.) 2000-2001 86,50,000 69,20,471 2001-2002 10,16,00,000 7,67,33,710 2002-2003 15,57,46,280 10,33,88,045 5.5 BACKGROUND OF LNSEL GROUP IS THAT IT IS A LISTE D COMPANY AND IS AN ESTABLISHED SOFTWARE DEVELOPING C OMPANY AND IS ALSO ENGAGED IN EXPORT OF SOFTWARES. COPY OF ITS FINANCIALS ARE DETAILED IN THE PAPERBOOK PAGE NO 23 9 TO 286 FILED BY ASSESSEE BEFORE US. LNSEL HAS BEEN APPROVE D AS SOFTWARE TECHNOLOGY PARK BY DEPARTMENT OF ELECTRONI CS VIDE LETTER OF PERMISSION DATED 30.04.1992. SINCE THEN, LNSEL IS ELIGIBLE FOR EXEMPTION U/S.10B OF THE ACT. LNSEL, O N 27.01.2000, UNDERTOOK A MAJOR PROJECT BEING AN ORDE R RECEIVED FROM AAPKIDUKAAN.COM CORPORATION, WHICH IS A US BASED COMPANY, FOR DEVELOPING A PORTAL OF AAPKIDUKA AN.COM. THE MAIN OBJECT OF THE SAID PORTAL WAS TO GRAB US M ARKET FOR INDIAN GOODS AND SERVICES AND THUS TO CREATE A LARG EST ONLINE SHOPPING MALL FOR INDIAN GOODS IN US MARKET. SAID I NDIAN COMPANY, AAPKIDUKAAN.COM PVT. LTD. WAS ESTABLISHED IN 2001, WHICH WAS ENGAGED IN THE MARKETING OF THE SAI D PORTAL ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 27 IN INDIA, BY PROCURING CLIENTS IN INDIA TO HAVE THE IR VIRTUE SHOPS ON THE PORTAL THROUGH ITS OFFICES/ASSOCIATES IN KOLKATA, PUNE, BANGLORE, BHUBHANESHWAR OR ITS FRANCHISES. 5.6 LNSEL ITSELF DESIGNED THE MAIN PORTAL OF AAPKIDUKAN.COM AND DECIDED TO OUTSOURCE DESIGNING O F VARIOUS MODULES AND TEMPLATES FOR THE SAID SOFTWARE . FOR SAID PURPOSE, ORDERS WERE PLACED WIH VARIOUS OTHER SOFTWARE DEVELOPERS APART FROM THE APPELLANT FIRM. ONCE THE WORK OUTSOURCED WAS COMPLETED AND RECEIVED BY LNSEL THRO UGH EMAIL, THE VARIOUS PARTS OUTSOURCED TO DIFFERENT DE VELOPERS WERE ASSEMBLED AND LINKED WITH THE MAIN PORTAL. TO THIS EXTENT, THERE WAS A VALUE ADDITION BY LNSEL. ON THE SAID VALUE ADDITION, EXEMPTION U/S. 10B WAS CLAIMED BY L NSEL AND SAME WAS ACCEPTED BY THE DEPARTMENT IN ITAT. CO PY OF SAID ITAT ORDER IN CASE OF L&T ESTATE IS ENCLOSED I N PAPER- BOOK PAGE NO. 297-300 TO JUSTIFY CHAIN TRANSACTION IN THIS REGARD. 5.7 SUBSEQUENTLY, ASSESSEE CLAIMED DEDUCTION U/S.80 HHE OF THE ACT ON SUPPLY OF ABOVE DEVICE TO LNSEL AS SU PPORTING MANUFACTURER. ASSESSING OFFICER HAS DISALLOWED DED UCTION U/S.80HHE OF THE ACT CLAIMED BY THE APPELLANT FIRM. THE REASONS MENTIONED BY ASSESSING OFFICER AT VARIOUS P LACES IN THE ASSESSMENT ORDER FOR DISALLOWING THE SAID CLAIM ARE ENUMERATED BELOW: 1. SHRI R. R. CHATURVEDI WAS NOT HAVING ANY KNOWLEDGE ABOUT THE DEVELOPMENT OF SOFTWARE AND ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 28 THE APPELLANT FIRM HAD NO PREVIOUS EXPERTISE IN DEVELOPMENT AND EXPORT OF SOFTWARES. THE SAID BUSINESS PROPOSITION HAD COME TO SHRI R. R. CHATURVEDI, THROUGH LUCK AND NOT THROUGH EFFORTS OR KNOWLEDGE. 2. SHRI, R R CHATURVEDI VOLUNTARILY DECLARED RS.7 CRORES IN HIS STATEMENT DATED 24.03.05, WHICH WAS SUBSEQUENTLY RETRACTED VIDE HIS AFFIDAVIT DATED 30.08.05. ACCORDING TO ASSESSING OFFICER, IT WAS AN AFTER THOUGHT AS EVEN PAYMENTS WERE NOT MADE AS CONTEMPLATED THE AGREEMENT ENTERED WITH LNSEL. 3. M/S. LNSEL IS ONLY ENGAGED IN TRADING OF SOFTWARE AND THEY ARE NOT MANUFACTURING ANY SOFTWARE. THERE WAS NO MENTION IN THE RETURN OF INCOME OF LNSEL THAT IT HAD GIVEN DISCLAIMER CERTIFICATE TO THE APPELLANT FIRM AND THUS IT HAS VIOLATED THE PROVISIONS OF INCOME TAX ACT. LNSEL CLAIMED EXEMPTION U/S. 10 B ON THE SAME PROFITS ON WHICH THE APPELLANT FIRM CLAIMED DEDUCTION U/S. 80HHE. 4. FURTHER IF LNSEL HAS BEEN GRANTED PERMISSION BY STPI VIDE LETTER DATED 30.04.92, WHAT IS THE FATE O F CERTIFICATE OF RECOGNITION OF SOFTWARE EXPORT HOUSE W.E.F. 1-4-02 VIDE LETTER DT. 3-4-03 ISSUED BY JT. DIRECTOR GENERAL OF FOREIGN TRADE, KOLKATA. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 29 5. THE SOURCE CODE OF THE SOFTWARES DEVELOPED COULD NOT BE PROVIDED BY THE APPELLANT FIRM AS WELL AS BY DIRECTOR OF M/S. LNSEL, SHRI S.M. GUPTA. 6. THE ENQUIRY MADE BY FOREIGN TAX DIVISION WITH RESPECT TO THE TRANSMISSION OF SOFTWARE DEVELOPED TO AAPKIDUKAN.COM CORPORATION, DID NOT COME ACROSS ANY SUCH TRANSACTION. FURTHER THE SAID COMPANY HAD TWO BANK ACCOUNTS BUT THE OWNERS OF AAPKIDUKAN.COM WERE NOT THE OWNERS OF THESE ACCOUNTS. 7. THE APPELLANT FIRM NEVER DEVELOPED ANY SOFTWARE AS DURING THE COURSE OF SEARCH, FIELD ENQUIRIES WERE MADE WITH THE PERSONS TO WHOM APPELLANT FIRM HAD CLAIMED TO HAVE PAID JOB WORK CHARGES DENIED HAVING WORKED FOR THEM. FURTHER LETTER RECEIVED FROM STPI BHUBANESHWAR ALSO STATES THAT NO ACTIVITY HAD BEEN CARRIED OUT. 8. WITHOUT PREJUDICE TO ALL THE ABOVE ALLEGATIONS WHICH PROVE THAT EXPORT OF SOFTWARE WERE NOT GENUINE, THE LEARNED ASSESSING OFFICER HAS CALCULATED EXCESS DEDUCTION U/S 80 HHE CLAIMED BY THE APPELLANT AND CORRELATING THE SAME WITH THE DISCLOSURE MADE BY THE APPELLANT. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 30 5.8 ALL OF THE ALLEGATIONS OF ASSESSING OFFICER ARE BEING DEALT WITH HEREUNDER: 5.8.1 FIRST OBJECTION OF ASSESSING OFFICER IS THAT SHRI R. R. CHATURVEDI WAS NOT HAVING ANY KNOWLEDGE ABOUT TH E DEVELOPMENT OF SOFTWARE AND THE APPELLANT FIRM HAD NO PREVIOUS EXPERTISE IN DEVELOPMENT AND EXPORT OF SOF TWARE'S. THE SAID BUSINESS PROPOSITION HAD COME TO SHRI R. R . CHATURVEDI,, THROUGH LUCK AND NOT THROUGH EFFORTS O R KNOWLEDGE. A PERSON CAN CARRY ON ANY BUSINESS WITH OUT HAVING ANY PREVIOUS KNOWLEDGE WITH RESPECT TO SAID BUSINESS. SHRI R. R. CHATURVEDI GRABBED AN OPPORTUN ITY ON RECEIPT OF PROPOSAL SINCE HE HAD AT HIS DISPOSAL, S HRI C. L. DESHPANDE WHO WAS TECHNICALLY QUALIFIED. HE UNDERTO OK A RESPONSIBILITY TO GET DEVELOPED SOFTWARE AS REQUIRE D BY LNSEL. UNFORTUNATELY, AT THE TIME OF SEARCH, SHRI C . L. DESHPANDE WAS NO MORE ALIVE. THE MAIN REASON FOR AR RIVING AT THIS CONCLUSION BY ASSESSING OFFICER WAS THAT TH E TECHNICAL QUESTIONS RAISED BY THE SEARCH PARTY COULD NOT BE A NSWERED BY SHRI R. R. CHATURVEDI. SO FAR AS AGREEMENTS AND FINANCE WAS CONCERNED, SHRI R. R. CHATURVEDI WAS VERY MUCH AWARE OF THE SAME, AS DECISION MAKING AND CONTROL OF THE BUSINESS WAS ENTIRELY IN HIS HANDS. THERE IS NO NECESSITY T O HAVE TECHNICAL EXPERTISE TO CARRY ON ANY BUSINESS AS SAM E MAY BE DELEGATED TO EXPERT PERSON OF FIELD, LATE SHRI C. L . DESHPANDE AS DISCUSSED ABOVE. OTHER OBJECTIONS RAISED BY ASSE SSING OFFICER IS THAT THE SAID BUSINESS PROPOSITION COME TO SHRI R. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 31 R. CHATURVEDI THROUGH LUCK AND NOT THROUGH EFFORTS OR KNOWLEDGE. MR. R. R. CHATURVEDI HIMSELF HAS STATED THE SAME IN ANSWER TO Q. 19 OF THE STATEMENT RECORDED O N 24.03.05. IN ANSWER TO Q. 2 OF THE SAID STATEMENT, SHRI R. R. CHATURVEDI HAS DESCRIBED THE SITUATION UNDER WHICH HE GOT THIS PROPOSAL. THE POSSIBILITY OF LUCK IN GETTING B USINESS PROPOSALS COULD NOT BE RULED OUT. THUS BOTH THE AL LEGATIONS OF ASSESSING OFFICER THAT NO BUSINESS COULD BE CARR IED ON WITHOUT HAVING ANY PREVIOUS KNOWLEDGE FOR THE SAME AS WELL AS THE BUSINESS PROPOSITION SHOULD COME ONLY THROUG H EFFORTS OR KNOWLEDGE ARE BASELESS. THE ASSESSING OFFICER HA S NOT BROUGHT ON RECORD ANY MATERIAL FACT TO DISBELIEVE T HE FACT THAT TECHNICAL ASPECT OF THE DEAL WERE BEING LOOKED AFTE R BY LATE SHRI DESHPANDE. AS DISCUSSED ABOVE, IN THE PRESENT AGE, EXECUTION OF SUCH SPECIALISED WORK CAN BE COMPLETED WITH THE HELP OF IT PROFESSIONALS AND THEREFORE, IT IS N OT ESSENTIAL REQUIREMENT OF THE PARTNERS TO BE CONVERSANT WITH TECHNICALITIES OF SUCH JOB. 5.8.2 NEXT OBJECTION OF ASSESSING OFFICER WAS THAT SHRI. R. R. CHATURVEDI VOLUNTARILY DECLARED RS. 7 CRORES IN HIS STATEMENT DATED 24.03.05, WHICH WAS SUBSEQUENTLY RETRACTED VI DE HIS AFFIDAVIT DATED 30.08.05., WHICH WAS FOUND BY ASSES SING OFFICER AS AN AFTER THOUGHT. IN THIS REGARD, WE FIN D THAT STATEMENT RECORDED U/S.132(4) OF THE ACT IS FORMING PART OF PAPER BOOK ON PAGE NOS.199-231. FROM THE CONTENTS O F SAME, WE FIND THAT THE SAID DISCLOSURE WAS MADE WITHOUT P REJUDICE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 32 TO HIS CONTENTION THAT ACCOUNTING METHOD ADOPTED BY THE FIRM IS CORRECT. A PERUSAL OF THE ANSWERS TO QUESTI ON NOS.11 TO 57 WOULD INDICATE THAT THE SAID DISCLOSURE WAS P ROMPTED BY AN ALLEGED MISTAKEN CLAIM U/S. 80HHE OF THE ACT WITHOUT ANALYZING MERIT OF CLAIM. IT IS FOR THAT REASON THA T IN THE ANSWER TO QUESTION 78 MR R.R. CHATURVEDI MADE THE DISCLOSURE. SUBSEQUENTLY, IN CONSULTATION WITH CHAR TERED ACCOUNTANTS, WHEN IT WAS REALIZED BY SHRI R. R. CHA TURVEDI THAT THE CLAIM MADE BY THE ASSESSEE FIRM WAS VERY M UCH IN ACCORDANCE WITH LAW, THE STATEMENT WAS RETRACTED BY FILING AN AFFIDAVIT DATED 30-8-05 WHICH IS FORMING PART OF PA PERBOOK PAGE NO 232 - 235. THE CIT(A) HAS RIGHTLY ACCEPTED THE JUSTIFICATION OF ASSESSEE IN PARA 7.2 PAGE 27 OF HI S ORDER BY STATING THAT 'NO ADDITION COULD BE MADE ON THE BASI S OF SUCH STATEMENT UNLESS AND UNTIL IT IS CORROBORATED WITH THE EVIDENCE. IN OTHER WORDS, THE RETRACTION CAN BE MA DE ON THE BASIS OF VALIDITY OF CLAIM. 5.8.3 REGARDING M/S. LNSEL IS ONLY ENGAGED IN TRADI NG OF SOFTWARE AND THEY ARE NOT MANUFACTURING ANY SOFT WARE. FURTHER, THERE WAS NO MENTION IN THE RETURN OF INCO ME OF LNSEL THAT IT HAD GIVEN DISCLAIMER CERTIFICATE TO T HE APPELLANT FIRM AND THUS IT HAS VIOLATED THE PROVISI ONS OF INCOME TAX ACT. LNSEL CLAIMED EXEMPTION U/S. 10 A O N THE SAME PROFITS ON WHICH THE ASSESSEE FIRM CLAIMED DED UCTION U/S. 80 HHE. AT PARA 7, PAGE NO.8 OF THE ASSESSMEN T ORDER, ASSESSING OFFICER HAS COMMENTED THAT LNSEL IS ENGAG ED IN ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 33 ONLY TRADING OF SOFTWARE AND NOT IN MANUFACTURING O F SOFTWARE. ON THE SAME PAGE 8 OF THE ASSESSMENT ORD ER, IN THE BEGINNING PARA, ASSESSING OFFICER HAS STATED TH AT THE ASSESSEE FIRM HAS FILED SAMPLE COPY OF SOFTEX FORM, WHICH IS A DECLARATION FOR EXPORT OF SOFTWARE BY M/S. LNS EL. THE SOFTEX FORM HAS TO BE SUBMITTED TO THE DESIGNATED O FFICIAL OF DEPARTMENT OF ELECTRONICS OF GOVERNMENT OF INDIA AT THE STPI AND THE SAID EXPORT IS DONE UNDER THE SUPERVIS ION OF COMPETENT AUTHORITY I.E. DIRECTOR OF STPI. APART FR OM THE ABOVE, IT WAS CERTIFIED BY THE SAID OFFICER THAT TH E SOFTWARE DESCRIBED IN THE SOFTEX FORM WAS ACTUALLY TRANSMITT ED AND THE EXPORT VALUE BY THE EXPORTER HAS BEEN FOUND IN ORDER AND ACCEPTED BY THE SAID AUTHORITY. FURTHER THE EXPORT THROUGH STPI IS ALLOWED ONLY WHEN CERTIFICATE OF STPI IS GR ANTED. COPY OF SAMPLE SOFTEX FORM FILED BY LNSEL IS FORMING PAR T OF PAPER BOOK PAGE NOS. 141-160. FURTHER THE CLAIM OF ASSESSEE LNSEL WOULD BE PROPORTIONATELY REDUCED WHE N DISCLAIMER CERTIFICATE IS ISSUED TO THE SUPPORTING MANUFACTURER. IN THE INSTANT CASE, LNSEL IS ELIGIBL E TO ISSUE DISCLAIMER CERTIFICATE, AS IT IS AN EXPORTING COMPA NY. FURTHER LNSEL CLAIMED DEDUCTION U/S.10B OF THE ACT ON THE V ALUE ADDITION. LNSEL ISSUED DISCLAIMER CERTIFICATE IN FO RM 10CCAG TO ASSESSEE COMPANY WITH RESPECT TO APPELLAN T COMPANY'S SHARE IN SOFTWARE EXPORT. THE COPY OF FOR M 10CCAG IS FORMING PART OF PAPERBOOK PAGE NOS. 44-60 . IN THIS REGARD, DURING THE APPELLATE PROCEEDINGS, CIT( A) HAD CORRESPONDED WITH THE ASSESSING OFFICER OF LNSEL, K OLKATA ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 34 WHEREIN HE WAS INTIMATED VIDE LETTER DATED 10.12.20 08 THAT THERE WAS NO DISPUTE PENDING WITH REGARD TO THE CLA IM OF DEDUCTION U/S.10B OF THE ACT AND NO RECOURSE WAS TA KEN TO THE PROVISION OF SECTION 147 FOR AYS 2000-01 TO 200 2-03. THE CIT(A) HAS RECORDED THIS FACT IN PARA 7.5 AT PAGE 2 9 OF HIS ORDER WHICH READS AS FOLLOWS: 'IT MAY ALSO BE STATED HERE IN A LETTER FROM LNSEL, IT IS CATEGORICALLY STATED THAT IT MADE A CLAIM U/S 10A/B FOR AYS 2000-01 TO 2002-03 IN RESPECT OF SUCH EXPORT PROFITS AFTER DEDUCTING THE EXPENSES INCLUDING PURCHASES MADE FROM THE APPELLANT. HENCE, ANY CASE OF DOUBLE DEDUCTION HAS BEEN VEHEMENTLY DENIED BY THEM AS WELL. IT IS ALSO STATE D BY IT THAT THE CLAIM OF DEDUCTION U/S 10A/B MADE IN RESPECTIVE YEARS WAS DULY ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT MADE AND THERE WAS NO DISPUTE IN THIS REGARD EXCEPTING IN AY 2000-01 I N CASE OF ONE OF THE ERSTWHILE AMALGAMATING COMPANY M/S L. T ESTATE PVT LTD IN WHICH DISALLOWANCE OF DEDUCTION U/S 10B WAS ON ACCOUNT OF NON-RECEIPT OF FOREIGN EXCHANGE WAS ALLOWED BY THE HON'BLE ITAT KOLKATA BENCH IN ITS ORDER DATED 12.5.2004. IT MAY ALSO BE STATED HERE THAT ON CORRESPONDENCE MADE BY UNDERSIGNED WITH THE ASSESSING OFFICER CONCERNED OF LNSEL, KOLKATA, IT HAS BEEN INTIMATED VIDE LETTER DATED 10.12.2008 THAT THERE WAS NO DISPUTE PENDING WITH REGARD TO CLAIM OF DEDUCTION U/S 10B OF THE AC T AND NO RECOURSE WAS TAKEN TO THE PROVISIONS OF SECTION 147 FOR AYS 2000-01 TO 2002-03. THUS THE ISSUE REGARDING CLAIM OF DEDUCTION U/S 10B IN THIS CASE OF WHICH THE APPELLANT IS SUPPORTING MANUFACTURER, IS SETTLED AND ACCORDINGLY FULLY ALLOWED. AS SUCH, THE CLAIM OF THE APPELLANT CANNOT BE DENIED ON THIS GROUND ALSO.' THUS, IT IS CLEAR ON THE BASIS OF MATERIAL ON RECOR D THAT CLAIM OF ASSESSEE U/S.80HHE OF THE ACT IS IN ORDER. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 35 5.8.4 NEXT ISSUE IS THAT THE SOURCE CODE OF THE SOF TWARES DEVELOPED COULD NOT BE PROVIDED BY THE ASSESSEE FIR M AS WELL AS BY DIRECTOR OF M/S. LNSEL, SHRI S.M. GUPTA. THE SAID STATEMENT MADE BY ASSESSING OFFICER ON PAGE NO. 14 PARA 10 OF THE ASSESSMENT ORDER. IN THIS REGARD, IT WAS SU BMITTED THAT THE SOURCE CODE AS REQUESTED ASSESSING OFFICER WAS VERY MUCH PROVIDED TO THE SEARCH TEAM DURING THE COURSE OF INVESTIGATION ON 14.06.05, AT MUMBAI INCOME TAX OFF ICE. THE SAID INFORMATION WAS PROVIDED TO ASSESSING OFFICER VIDE LETTER DATED 14.11.07 AND SAME HAS ALSO BEEN REPRODUCED IN THE ASSESSMENT ORDER ON PAGE 11 OF THE ASSESSMENT ORDER . DURING THE SEARCH, CDS CONTAINING SOURCE CODE WERE SEIZED AND SAME WERE WITH THE DEPARTMENT. COPY OF THE PANC HNAMA WHICH IS IS ON PAGE NO 125 TO 134 OF THE PAPERBOOK CLARIFIES THIS FACT IN NUTSHELL THAT THE SOURCE CODE INFORMAT ION WAS ALREADY IN THE POSSESSION OF THE INCOME TAX AUTHORI TIES AND THE APPELLANT FIRM WAS HANDICAPPED ON ACCOUNT OF TH E SEIZURE FROM PRODUCING THE RELEVANT SOURCE CODE. CI T(A) IN PARA 7.7 PAGE 30 OF HIS ORDER HAS ACCEPTED THE ASSE SSEE'S JUSTIFICATION OF NON-FURNISHING OF SOURCE CODE. NOT HING PREVENTED THE ASSESSING OFFICER FROM VERIFYING THE CONTENTIONS OF THE ASSESSEE AS THE RELEVANT MATERIA L WAS IN THE POSSESSION OF THE DEPARTMENT FROM THE DATE OF T HE SEARCH OPERATIONS ITSELF. THIS FACT HAS BEEN COMPLETELY OV ERLOOKED BY THE ASSESSING OFFICER, WHICH IS NOT JUSTIFIED. SO, CIT(A) WAS JUSTIFIED ON TAKEN FAVOURABLE VIEW. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 36 5.8.5 NEXT OBJECTION OF ASSESSING OFFICER WAS THAT ENQUIRY MADE BY FOREIGN TAX DIVISION WITH RESPECT T O THE TRANSMISSION OF SOFTWARE DEVELOPED TO AAPKIDUKAN.CO M CORPORATION, DID NOT COME ACROSS ANY SUCH TRANSACTI ON. FURTHER THE SAID COMPANY HAD TWO BANK ACCOUNTS BUT THE OWNERS OF AAPKIDUKAN.COM WERE NOT THE OWNERS OF THE SE ACCOUNTS. ASSESSING OFFICER DOUBTED THE EXPORT OF SOFTWARE. IN THIS REGARD, STAND OF ASSESSEE HAS BEEN THAT SOF TEX FORM THROUGH WHICH THE SOFTWARE HAS BEEN EXPORTED BY LNS EL, WAS CERTIFIED BY COMPETENT AUTHORITY I.E. DIRECTOR OF STPI, WHICH IS A GOVERNMENT AUTHORITY. THUS, THE STAND OF THE ASSESSING OFFICER IS A MERE SURMISE AND IN CONTRADI CTION TO THE COMPETENT AUTHORITY WHICH IS THE DIRECTOR STPI. ASSESSEE FIRM WAS ALSO REQUIRED TO EXPLAIN WHY M/S. APAKIDUKAAN.COM CORPORATION HAD TWO BANE ACCOUNTS B UT THE OWNERS OF AAPKIDUKAAN.COM WERE NOT THE OWNERS O F THESE ACCOUNTS. IN RESPONSE TO THIS, IT WAS REITERATED BY ASSESSEE FIRM THAT THE BANK CERTIFICATE SOFTEX FORM PROVES T HE RECEIPT OF FOREIGN EXCHANGE BY LNSEL. THE APPELLANT FIRM CANNOT BE EXPECTED TO KNOW THE INTERNAL AFFAIRS OF AAPKIDUKAAN.COM CORPORATION WITH WHOM, ASSESSEE FIR M HAD NO PRIVITY OF CONTRACT OR TRANSACTION. AS ASSESSEE FIRM HAD DIRECT TRANSACTION WITH LNSEL, IT HAS TRIED TO ENQU IRE WITH THEM AND PROVIDE AS MANY INFORMATION AS IS RELEVANT TO ESTABLISH THE CLAIM OF ASSESSEE FIRM. THE ASSESSEE FIRM WAS NEVER IN DIRECT TOUCH WITH M/S. AAPKIDUKAAN.COM CORPORATION AND HENCE TO PROVIDING SUCH INFORMATION WAS ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 37 BEYOND THE SCOPE OF ASSESSEE FIRM. CIT(A) RIGHTLY HELD THAT THE REPORT OF FTD DOES NOT FALSIFY THE CLAIM OF EXP ORT MADE BY LNSEL AND IT CONCERNS ITSELF MORE ABOUT THE BUSINES S ACTIVITIES OF AAPKIDUKAN AND ITS EXISTENCE AS AN EN TITY. ON BOTH THESE COUNTS THE REPORT OF THE FTD CONFIRMS TH E EXISTENCE AND BUSINESS ACTIVITIES. ACCORDINGLY, IT WAS RIGHTLY HELD THAT THE POINT RAISED BY ASSESSING OFFICER DOE S NOT CARRY SIGNIFICANCE VIS--VIS THE APPELLANT, SO LONG AS TH E EXPORT MADE BY LNSEL HAVE BEEN ACCEPTED TO BE GENUINE BY ASSESSING OFFICER IN ITS CASE. IN VIEW OF ABOVE DI SCUSSION, THIS OBJECT WAS RIGHTLY NOTED OUT BY CIT(A) WHILE G RANTING RELIEF TO ASSESSEE. 5.8.6 NEXT OBJECTION IS THAT ASSESSEE FIRM NEVER DEVELOPED ANY SOFTWARE AS DURING THE COURSE OF SEAR CH, FIELD ENQUIRIES WERE MADE WITH THE PERSONS TO WHOM ASSESS EE FIRM HAD CLAIMED TO HAVE PAID JOB WORK CHARGES DENIED HA VING WORKED FOR THEM. FURTHER LETTER RECEIVED FROM STPI BHUBANESWAR ALSO STATES THAT NO ACTIVITY HAD BEEN C ARRIED OUT. ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COULD NOT ESTABLISH ITS JOB WORK DONE. SHRI R. R. CHATURVEDI WAS ALSO CONFRONTED WITH THE STATEMENTS OF 5 PERSONS, WHO HA D TOTALLY DENIED HAVING DEVELOPED ANY SOFTWARE FOR ASSESSEE F IRM. HOWEVER, SHRI CHATURVEDI REITERATED THAT THE RESPON SIBILITY OF GETTING DEVELOPED THE SOFTWARE WAS OF SHRI C. L. DE SHPANDE, WHO WAS NO MORE ALIVE AT RELEVANT POINT OF TIME. TH ESE STATEMENTS W-ERE NEVER FURNISHED TO THE ASSESSE DUR ING ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 38 ASSESSMENT PROCEEDINGS EVEN THOUGH DURING THE COURS E OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FIRM HAD SPECI FICALLY REQUESTED ASSESSING OFFICER TO PROVIDE CROSS EXAMIN ATION OF SUCH PERSONS WHO HAVE GIVEN STATEMENT AGAINST THE APPELLANT FIRM, VIDE ASSESSEE'S LETTER DATED 27.09. 2007, IN REPLY TO Q. 5 OF ASSESSING OFFICERS QUESTIONNAIRE AS DETAILED ON PAGE 35 AND 36 POINT 5 OF THE PAPER BOOK. NO SUC H OPPORTUNITY OF CROSS EXAMINATION WAS PROVIDED TO TH E APPELLANT FIRM. ISSUE OF NON GRANT OF CROSS EXAMIN ATION OF THESE PARTIES WAS RAISED IN THE STATEMENT OF FACTS FILED BEFORE THE CIT(A). ALL THESE FOUR STATEMENTS REMAI NED UNTESTED BY CROSS EXAMINATION. WITHOUT PREJUDICE T O ABOVE, WE FIND THAT THE FOUR STATEMENTS DEAL WITH AN AMOUN T OF APPROXIMATELY RS 2 LAKHS OUT OF A TOTAL AMOUNT OF J OB WORK CLAIMED IN THE FOUR YEARS OF RS.71,42,585/- AND THE REFORE FORMS AN INSIGNIFICANT 2.5% OF THE TOTAL AMOUNT. T HE EXTRAPOLATION CANNOT BE MADE OF THIS MAGNITUDE ON T HE BASIS OF A FEW STRAY COMMENTS. IT IS RELEVANT TO NOTE THA T THE APPELLANT FIRM HAS FILED AFFIDAVITS OF SEVERAL JOB WORKERS/SALARIED PEOPLE, SHRI RAJESH CHATURVEDI, MS . PHEONA MIRANDA, MS. VIDYA SAWANT, MR. SACHIN OWAL A ND MS. PRAJAKTA SHINDE VIDE LETTER DATED 14-12-07, WHI CH HAVE NOT BEEN CONSIDERED BY THE ASSESSING OFFICER WHILE MAKING DETAILED COMMENTS ON THIS POINT IN THE ASSESSMENT O RDER. THE CIT(A) MENTIONED THAT THE ASSESSING OFFICER HAS MERELY ADOPTED THE FINDINGS OF THE INVESTIGATION WING AND NO INDEPENDENT FINDING HAS BEEN FORTHCOMING FROM HIM. THE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 39 PAYMENTS MADE WERE DULY RECORDED IN THE BOOKS OF AC COUNTS AND RELEVANT VOUCHERS FOUND DURING THE SEARCH ONLY CORROBORATE THE GENUINENESS OF SUCH PAYMENTS. THE ASSESSING OFFICER HAS ALSO OVERLOOKED THE FACT THAT TDS WAS DULY DEDUCTED AND PAID TO THE GOVERNMENT ACCOUNT. N OTHING HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT ALL SUCH FACTS BORNE FROM THE BOOKS OF ACCOUNT WERE BOGUS OR INCOR RECT AS THE BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED. MOREOV ER, THERE IS NOTHING TO SHOW THAT THE APPELLANT WAS ALLOWED T HE OPPORTUNITY TO CROSS EXAMINE THE SAID PERSONS AS PE R REQUEST MADE DURING THE ASSESSMENT PROCEEDINGS THOUGH THE STATEMENT OF THE SAID PERSONS WERE USED AGAINST THE APPELLANT AND IN A WAY, THEY WERE USED AS WITNESSES OF THE DEPARTMENT, WHICH IS NOT JUSTIFIED. 5.8.7 OTHER OBJECTION OF ASSESSING OFFICER HAS BEEN THAT THERE WAS SOME DISCREPANCIES WITH REGARD TO QUANTUM OF THE EXPORT, WHICH WAS OBSERVED BY HIM FROM THE COMMUNIC ATION OF ADDITIONAL DIRECTOR, STPI ADDRESSED TO ASSESSEE. ASSESSING OFFICER OBSERVED THAT COMMERCIAL PRODUCTI ON HAS NOT STARTED AND QUANTITY OF PRODUCTION WAS ALSO DIS PUTED. IN THIS REGARD, STAND OF ASSESSEE HAS BEEN THAT ASSESS EE SUBMITTED CLARIFICATION VIDE LETTER DATED 15.07.200 3 INTER ALIA SUBMITTED THAT THEY HAD ALREADY STARTED COMMERCIAL PRODUCTION FROM A.Y. 2002-03 IN BHUBANESWAR. COPY OF SAME HAS BEEN PLACED ON PAGE NOS. 165-166 OF THE PAPERBOOK FILED BY ASSESSEE AND REQUESTED THAT IN T HESE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 40 CIRCUMSTANCES, CLAIM OF ASSESSEE U/S.80HHE OF THE A CT MUST BE ALLOWED AS LNSEL BEING EXPORTER HAS BEEN ALLOWED THE CLAIM. CLAIM HAS BECOME FINAL AS OBSERVED BY CIT(A )S FINDING LISTED AT PAGE NO.33 OF HIS ORDER. LNSEL IS A LISTED COMPANY AND ITS CLAIMS WERE SUPPORTED BY THE FILING OF SOFTEX FORMS THAT HAVE NEVER BEEN REJECTED. ASSESSI NG OFFICER HAS PUT THE MAIN RELIANCE ON STATEMENTS, FO R WHICH, NO OPPORTUNITY OF CROSS EXAMINATION WAS GIVEN TO AS SESSEE. FURTHER, ASSESSING OFFICER PLACED RELIANCE ON CERTA IN REPLIES, WHICH WERE NOT ACCEPTABLE AS THE FULL CONTENT OF TH E SAME WERE NEVER CONFRONTED TO ASSESSEE IN ANY MANNER. PROCEEDINGS MADE BY THE ENFORCEMENT DIRECTORATE AGA INST THE ASSESSEE ON SIMILAR GROUNDS AS CONTENDED BY ASSESSI NG OFFICER HAS ALREADY BEEN DROPPED, WHICH IS EVIDENT FROM PAGE NO.306 OF PAPER BOOK. THIS TAKES CARE THE ISSUE OF DISALLOWANCE OF SOFTWARE DEVELOPMENT CHARGES OF RS. 1,73,985/-. SIMILAR DISALLOWANCE ON ACCOUNT OF SOFT WARE DEVELOPMENT CHARGES AROSE IN A.YS.2001-02 & 2002-03 RAISED IN REVENUES APPEALS. FACTS BEING SIMILAR, SO, FOLL OWING SAME REASONING, THIS ISSUE IS TAKEN CARE IN FAVOUR OF AS SESSEE IN VIEW OF OUR OBSERVATION ON THIS POINT IN A.Y. 2000-01. 5.8.8 IN VIEW OF ABOVE FACTUAL AND LEGAL DISCUSSION , CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF DEDUC TION AS CLAIMED BY ASSESSEE U/S.80HHE OF THE ACT. SAME IS UPHELD. 6. SIMILAR ISSUE OF DEDUCTION U/S.80HHE OF THE ACT AROSE IN 2001-02 AND 2002-03 AND CIT(A) GRANTED RELIEF IN BOTH THE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 41 YEARS ON THE SAME REASONING. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO IN TERFERE WITH THE ORDER OF CIT(A) WHO HAS ALLOWED THE DEDUCT ION U/S.80HHE OF THE ACT AS CLAIMED. SAME ARE UPHELD. 7. IN THE RESULT, APPEAL FILED BY REVENUE IN ITA NO.1481/MUM/2009 FOR A.Y. 2000-01 IS DISMISSED. ITA NO.889/MUM/2009 FOR A.Y. 2000-01 (ASSESSEES AP PEAL) 8. THE ONLY ISSUE IN ASSESSEES APPEAL IN A.Y. 2000 -01 IS WITH REGARD TO DEPRECIATION ON CAR. ASSESSING OFFI CER DISALLOWED RS.1,73,650/- ON ACCOUNT OF DEPRECIATION ON CAR. IN APPEAL, SAME WAS RESTRICTED TO 50% OF THE AMOUNT CLAIMED OF RS.1,73,650/- BY ASSESSEE. UNDER THESE CIRCUMST ANCES, THIS REASONED FACTUAL FINDING OF CIT(A) WITH REGARD TO RESTRICTION OF 50% ON DEPRECIATION ON CAR, NEEDS NO INTERFERENCE FROM OUR SIDE. WE UPHOLD THE SAME. 9. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. 10. IN ITA NO.1527/MUM/2009 FOR A.Y.2001-02, REVENU E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.7,67,33,946/- ON ACCOUNT OF DISALLOWANCE OF THE CLAIM U/S.80HHE OF THE I.T. ACT, 1961, MADE BY THE ASSESSING OFFICER. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 42 RS.23,08,200/- ON ACCOUNT OF DISALLOWANCE OF THE SOFTWARE DEVELOPMENT CHARGES, MADE BY THE ASSESSING OFFICER. 11. FIRST ISSUE IS WITH REGARD TO ADDITION OF RS. 7,67,33,946/- ON ACCOUNT OF DISALLOWANCE OF THE CLA IM U/S.80HHE OF THE ACT. SIMILAR ISSUE AROSE IN A.Y.2 000-01, WHICH HAS BEEN DISCUSSED AND DECIDED BY US IN PARA 6 OF THIS ORDER IN FAVOUR OF ASSESSEE. FACTS BEING SIMI LAR, SO, FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO IN TERFERE WITH THE ORDER OF CIT(A) WHO HAS DELETED THE ADDITI ON OF RS.7,67,33,946/- ON ACCOUNT OF DISALLOWANCE OF CLAI M U/S.80HHE OF THE ACT. SAME IS UPHELD. 12. NEXT ISSUE IN REVENUES APPEAL IS WITH REGARD T O ADDITION OF RS.23,08,200/- ON ACCOUNT OF DISALLOWAN CE OF SOFTWARE DEVELOPMENT CHARGES MADE BY ASSESSING OFFI CER. THIS ISSUE HAS BEEN DISCUSSED AND DECIDED IN A.Y. 2 000-01 VIDE PARA NO.5.8.7 OF THIS ORDER, WHEREIN ADDITION ON ACCOUNT OF DISALLOWANCE OF SOFTWARE DEVELOPMENT CHARGES OF RS.1,73,985/- HAS BEEN UPHELD BY US. FACTS BEING S IMILAR, SO, FOLLOWING SAME REASONING, WE ARE NOT INCLINED T O INTERFERE IN THE FINDING OF CIT(A). SAME IS UPHELD. 13. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2001-0 2 IS DISMISSED. 14. IN ITA NO.890/MUM/2009 FOR A.Y.2001-02, ASSESSE E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 43 GROUND NO.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, MUMBAI, GROSS LY ERRED IN CONFIRMING THE A.O.S ACTION OF MAKING AN ADDITION OF RS.50,00,000/ ON ACCOUNT OF UNEXPLAINED LOAN FROM SHRI G SURAMMA. THE APPELLANT PRAYS THAT THE ADDITION OF RS.50,00,000/- MAY PLEASE BE DELETED. GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, MUMBAI, GROSS LY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY M AKING A DISALLOWANCE OF RS.40,000 U/S 40A(3) ON ACCOUNT O F CASH PAYMENT MADE EXCEEDING RS.20,000 TOWARDS JOB WORK CHARGES. THE APPELLANT PRAYS THAT THE DISALLO WANCE OF RS.40,000/- MAY PLEASE BE DELETED. 15. AT THE OUTSET OF HEARING, LD. AUTHORIZED REPRES ENTATIVE DID NOT PRESS GROUND NO.2. SAME IS DISMISSED AS NO T PRESSED. 16. NEXT ISSUE IS WITH REGARDS TO ADDITION OF RS.50 ,00,000/- ON ACCOUNT OF UNEXPLAINED LOAN FROM SHRI G SURAMMA. ASSESSING OFFICER MADE ADDITION OF SAID AMOUNT U/S. 68 OF THE ACT. SAME WAS CONFIRMED BY CIT(A). 16.1 BEFORE US, LD. AUTHORIZED REPRESENTATIVE SUBMI TTED THAT CIT(A) ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER. SO, ADDITION IN QUESTION BE DELETED. ON OTHER HAND , LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A). 16.2 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD, WE FIND THAT ASSESSEE HAS FAILED TO DISCHAR GE ITS ONUS ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 44 AND HAS NEITHER ESTABLISHED THE IDENTITY AND CREDITWORTHINESS OF ALLEGED LENDER NOR PROVED THE GENUINENESS OF CREDIT. EVEN THOUGH, THE SAID PERSO NS WERE STATED TO HAVE EXPIRED LONG TIME BACK, ASSISTANCE O F THE LEGAL REPRESENTATIVES/RELATIVES OF THE SAID PERSON COULD HAVE BEEN AVAILED FOR THE SAID PURPOSES. ASSESSEE HAS MERELY STRESSED UPON THE FACT THAT THE TRANSACTION WAS ENTERED THRO UGH BANKING CHANNELS WHICH MEETS THE TEST OF SECTION 68 OF THE ACT. BUT THIS CONTENTION WAS NOT ACCEPTED BY REVEN UE AUTHORITIES AS TRANSACTIONS THROUGH CHEQUES CANNOT BE CONSIDERED TO BE SACROSANCT IN THE ABSENCES OF FAIL URE OF ASSESSEE TO PROVE THE CREDITWORTHINESS OF LENDER AS ALSO THE GENUINENESS OF TRANSACTION. THE BURDEN IS ON ASSES SEE TO REBUT THE SAME, BUT ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON HIM IN THIS REGARD TO ADDITION IS QUESTIO N. TAKING ALL FACTS AND CIRCUMSTANCES INTO CONSIDERATION, EVE N THOUGH TRANSACTION IS THROUGH BANKING CHANNEL, AS ASSESSEE COULD NOT PROVE THE SAME WITH COGENT EVIDENCE, SO, CIT(A) WAS JUSTIFIED IN CONFIRMING THE SAME. SAME IS UPHELD. 17. IN THE RESULT, APPEAL OF ASSESSEE FOR A.Y. 2001 -02 IS DISMISSED. 18. IN ITA NO.1528/MUM/2009 FOR A.Y.2002-03, REVENU E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.10,33,88,045/- ON ACCOUNT OF DISALLOWANCE OF THE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 45 CLAIM U/S.80HHE OF THE I.T. ACT, 1961, MADE BY THE ASSESSING OFFICER. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.23,50,400/- ON ACCOUNT OF DISALLOWANCE OF THE SOFTWARE DEVELOPMENT CHARGES, MADE BY THE ASSESSING OFFICER. 19. FIRST ISSUE IS WITH REGARD TO ADDITION OF RS.10,33,88,045/- ON ACCOUNT OF DISALLOWANCE OF CLA IM U/S.80HHE OF THE ACT MADE BY ASSESSING OFFICER. SI MILAR ISSUE AROSE IN A.Y. 2000-01 WHICH HAS BEEN DISCUSSE D AND DECIDED BY US IN FAVOUR OF ASSESSEE VIDE PARA NO. 6 OF THIS ORDER. THE CONTENTS OF THE SAME ARE NOT REPEATED F OR THE SAKE OF CONVENIENCE. FACTS BEING SIMILAR, SO FOLLO WING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH TH E FINDING OF CIT(A) WHO HAS DELETED THE ADDITION OF RS.10,33,88, 045/- ON ACCOUNT OF DISALLOWANCE U/S.80HHE OF THE ACT. SAME IS UPHELD. 20. NEXT ISSUE IS WITH REGARD TO ADDITION OF RS.23, 50,400/- ON ACCOUNT OF DISALLOWANCE OF SOFTWARE DEVELOPMENT CHARGES MADE BY ASSESSING OFFICER. THIS ISSUE HAS BEEN DIS CUSSED AND DECIDED IN A.Y. 2000-01 VIDE PARA NO.5.8.7 OF T HIS ORDER, WHEREIN ADDITION ON ACCOUNT OF DISALLOWANCE OF SOFT WARE DEVELOPMENT CHARGES OF RS.1,73,985/- HAS BEEN UPHEL D BY US. FACTS BEING SIMILAR, SO, FOLLOWING SAME REASON ING, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT(A). SAME IS UPHELD. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 46 21. IN THE RESULT, REVENUES APPEAL FOR A.Y. 2002-0 3 IS DISMISSED. 22. IN ITA NO.891/MUM/2009 FOR A.Y.2002-03, ASSESSE E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: GROUND NO.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, MUMBAI, GROSS LY ERRED IN ENHANCING THE INCOME OF THE APPELLANT BY M AKING A DISALLOWANCE OF RS.6,000 U/S 40A(3) ON ACCOUNT OF CASH PAYMENT MADE EXCEEDING RS.20,000 TOWARDS JOB WORK CHARGES. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS.6,000/- MAY PLEASE BE DELETED. GROUND NO.2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, MUMBAI, GROSS LY ERRED IN PARTLY DISALLOWING THE JOB WORK CHARGES OF RS.22,64,000. THE APPELLANT PRAYS THAT THE DISALLO WANCE OF RS.22,64,000/- MAY PLEASE BE DELETED. GROUND NO.3: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, ERRED IN RESTR ICTING THE DEPRECIATION ON CAR TO 50% OF THE AMOUNT CLAIME D OF RS.2,50,028 BY THE APPELLANT. THE APPELLANT PRAYS T HAT THE DISALLOWANCE OF RS.1,25,028 MAY PLEASE BE ALLOW ED, AS THE CAR WAS USED FOR THE PURPOSE OF THE APPELLANTS BUSINESS. 23. AT THE OUTSET OF HEARING, LD. AUTHORIZED REPRES ENTATIVE DID NOT PRESS GROUND NOS.1 & 2. SO, SAME ARE DISMI SSED AS NOT PRESSED. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 47 24. REGARDING ISSUE OF DEPRECIATION ON CAR TO 50% O F THE AMOUNT CLAIMED OF RS.2,50,028/- BY ASSESSEE. WE FI ND THAT ASSESSING OFFICER DISALLOWED THE DEPRECIATION OF RS.2,50,028/-. SIMILAR ISSUE CAME BEFORE US IN A.Y .2000-01. FACT BEING SIMILAR, SO FOLLOWING SAME REASONING, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDING OF CIT(A) WH O HAD RIGHTLY RESTRICTED THE DISALLOWANCE 50%. SAME IS UPHELD. 25. IN THE RESULT, APPEAL OF ASSESSEE FOR A.Y. 2002 -03 IS DISMISSED. 26. IN ITA NO.1402/MUM/2009 FOR A.Y.2003-04, REVENU E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) OUGHT NOT HAVE ALLOWED THE APPEAL OF THE ASSESSEE IN FACTS AND CIRCUMSTANCES OF THE CASE AND ON THE CONTRARY SHOULD HAVE CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.15,00,000/- MADE BY THE ASSESSING OFFICER. 27. FIRST ISSUE IS GENERAL IN NATURE WHICH NEEDS NO ELABORATION. 28. SECOND ISSUE IS WITH REGARD TO ADDITION OF RS.1 5LACS MADE BY ASSESSING OFFICER. ASSESSING OFFICER MADE ESTIMATED ADDITION OF RS.15LACS AS UNDISCLOSED SALE S. ACCORDING TO THE ORDER, SEARCH AND SEIZURE ACTION U /S.132(1) OF THE ACT WAS UNDERTAKEN ON 23.3.2005. THE FIRM IS CLAIMED ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 48 TO BE CONDUCTING COMPUTER TRAINING COURSES AND OTHE R RELATED ACTIVITIES UNDER THE HEAD COMPUTER TRAININ G DIVISION AND IT HAS STARTED DURING THE YEAR A COMP UTER SOFTWARE DEVELOPMENT DIVISION FOR CONDUCTING SOFTWA RE DEVELOPMENT AND ALL OTHER RELATED SERVICES. IT HAD TWO DIVISIONS OF BUSINESS I.E. (I) COMPUTER TRAINING SE RVICE DIVISION AND (II) COMPUTER SOFTWARE DEVELOPMENT DIV ISION FROM WHICH IT DISCLOSED LOSS OF RS. 9,67,771/- AND NO BUSINESS INCOME EXCEPTING INTEREST OF RS 5,89,717/- EARNED ON LOAN AS ADVANCED TO CERTAIN PARTIES. ASSESSING O FFICER NOTED THAT ALTHOUGH ASSESSEE DID NOT CARRY ON ANY B USINESS ACTIVITY DURING THE YEAR, IT HAD SUBMITTED A LETTER TO STPI, BHUBANESHWAR ACCORDING TO WHICH IT MADE EXPORT OF R S 15 LAKH. THUS, THE ASSESSING OFFICER ON THE BASIS OF S UCH FIGURES MADE AN ADDITION OF RS.15 LAKH AND ALSO DISALLOWED THE CLAIM OF DEDUCTION OF JOB WORK CHARGES AMOUNTING TO RS.21 ,142/- ON THE BASIS OF HIS FINDINGS IN THE ASSESSMENT ORDE R FOR A.YS. 2000-01 TO 2002-03 REGARDING NON-GENUINENESS OF SUC H EXPENSES. 28.1 IN THE WRITTEN SUBMISSION, IT WAS STATED THAT SO FAR AS DISALLOWANCE OF JOB WORK CHARGES ARE CONCERNED, IT WAS STATED THAT ASSESSEE CLARIFIED BEFORE THE ASSESSING OFFICE R THAT THOUGH THERE WAS NO ACTIVITY CARRIED OUT IN THE SOF TWARE DIVISION DURING THE A.Y. 2003-04, THERE WERE SOME J OB WORK CHARGES PROVISIONS MADE IN THE PREVIOUS A.Y. I.E. A Y 2002- 03, WHICH WAS MADE ON AN ESTIMATE BASIS AS THE SAME WERE WORKED OUT ON HOURLY BASIS. SUBSEQUENTLY, THE PROVI SION FELL ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 49 SHORT. HENCE, THE ACTUAL PAYMENT OF SHORT PROVISIO N WAS MADE IN A.Y. 2003-04 AND THE SAME WAS DEBITED TO PR OFIT & LOSS ACCOUNT. HOWEVER, AS THE JOB WORK CHARGES WER E DISALLOWED BY ASSESSING OFFICER EVEN IN EARLIER YEA RS AND THE AMOUNT CLAIMED IN THE AFORESAID ASSESSMENT YEAR WAS A SHORT PROVISION OF THE SAME JOB WORK CHARGES, THE A SSESSING OFFICER DISALLOWED JOB WORK CHARGES IN AFORESAID AS SESSMENT YEAR ALSO, WHICH WAS DELETED BY CIT(A) BY OBSERVING AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS. IN SO FAR AS THE ESTIMATION OF BUSINESS INCOME OF RS.15 LAKH IS CONCERNED, I DO NOT FIND ANY MERIT THEREIN. AS REGA RDS THE LETTER TO STPI, IT IS EVIDENT THAT ONLY CERTAIN AD HOC FIGURES OF EXPORTS WERE STATED THEREIN, AS ACTUAL EXPORTS W ERE DONE IN THE EARLIER YEARS AND THE BOOKS OF ACCOUNT DID REFLECT THE ACTUAL SALES TURNOVER WHICH WERE ALSO D ULY DISCLOSED IN THE RETURNS OF INCOME OF THE RELEVANT ASSESSMENT YEARS AND THE SAID EXPORTS WERE DULY ACC EPTED TO BE GENUINE IN THE ORIGINAL ASSESSMENT ORDERS. NO BUSINESS ACTIVITY, NOT TO SPEAK OF ANY EXPORT HAS B EEN CARRIED ON DURING THE RELEVANT YEAR. MOREOVER, THER E WAS NO CORROBORATIVE EVIDENCE TO SHOW THAT THE APPELLAN T WAS ENGAGED IN ANY SUCH BUSINESS ACTIVITY DURING THE RE LEVANT YEAR THUS, NOT MUCH IMPORTANCE CAN BE ATTRIBUTED TO SUCH A DECLARATION WHICH ALSO APPEARS TO HAVE BEEN MADE ON ESTIMATE AND AD HOC BASIS ONLY WITH A BONA FIDE BUSINESS EXPEDIENCY. ACCORDINGLY, THE ADDITION MADE IS DELETED. 28.2 SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF R EVENUE INTER ALIA SUBMITTED THAT THE ORDER OF CIT(A) BE SE T ASIDE AND THAT ORDER OF ASSESSING OFFICER BE RESTORED. LD. AU THORIZED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A). ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 50 28.3 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATE RIAL ON RECORD, WE FIND THAT IN SO FAR AS ESTIMATION OF BUS INESS INCOME OF RS.15LACS IS CONCERNED, CIT(A) RIGHTLY DI D NOT FIND ANY MERIT THEREIN. AS REGARDS THE LETTER TO STPI, I T WAS FOUND EVIDENT THAT ONLY CERTAIN AD HOC FIGURES OF EXPORTS WERE STATED THEREIN, AS ACTUAL EXPORTS WERE DONE IN THE EARLIER YEARS AND THE BOOKS OF ACCOUNT DID REFLECT THE ACTU AL SALES TURNOVER WHICH WERE ALSO DULY DISCLOSED IN THE RETU RNS OF INCOME OF THE RELEVANT ASSESSMENT YEARS AND THE SAI D EXPORTS WERE DULY ACCEPTED TO BE GENUINE IN THE ORIGINAL AS SESSMENT ORDERS. NO BUSINESS ACTIVITY, NOT TO SPEAK OF ANY E XPORT HAS BEEN CARRIED ON DURING THE RELEVANT YEAR. MOREOVER, THERE WAS NO CORROBORATIVE EVIDENCE TO SHOW THAT ASSESSEE WAS RUNNING ANY SUCH BUSINESS ACTIVITY DURING THE RELEV ANT YEAR. EACH YEAR IS INDEPENDENT IN ITS FACTS AND CIRCUMSTA NCES. THUS, NOT MUCH IMPORTANCE CAN BE ATTRIBUTED TO SUCH A DECLARATION WHICH ALSO APPEARS TO HAVE BEEN MADE ON ESTIMATE AND AD HOC BASIS ONLY WITH A BONA FIDE BUS INESS EXPEDIENCY. ACCORDINGLY, ADDITION DELETED BY CIT(A ) NEEDS NO INTERFERENCE FROM OUR SIDE. SAME IS UPHELD. 29. IN THE RESULT, APPEAL OF REVENUE FOR A.Y. 2003- 04 IS DISMISSED. 30. IN ITA NO.892/MUM/2009 FOR A.Y.2003-04, ASSESSE E HAS FILED THE APPEAL ON THE FOLLOWING GROUNDS: GROUND NO.1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A), CENTRAL VII, MUMBAI, GROSS LY ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 51 ERRED IN ENHANCING THE ASSESSMENT BY TREATING INTER EST INCOME OF RS.5,89,717/- AS INCOME FROM OTHER SOURCE S. THE SAID INTEREST INCOME IS EMANATING FROM BUSINESS TRANSACTIONS AND OUGHT TO HAVE BEEN TREATED AS INCO ME FROM BUSINESS. THE APPELLANT PRAYS THAT THE SAID IN COME SHOULD BE TREATED AS BUSINESS INCOME. GROUND NO.2: WITHOUT PREJUDICE TO THE ABOVE GROUND NO.1, ALTERNA TIVELY, IT IS CONTENDED THAT THE HONBLE CIT(A) GROSSLY ERR ED IN ENHANCING THE ASSESSMENT BY DISALLOWING ALL THE EXP ENSES CLAIMED IN THE PROFIT & LOS AT RS.15,57,488. THE A PPELLANT PRAYS THAT THE SAID EXPENSES MAY BE ALLOWED. 31. AT THE OUTSET OF HEARING, LD. AUTHORIZED REPRES ENTATIVE DID NOT PRESS GROUND NO.1. SO, SAME IS DISMISSED A S NOT PRESSED. 32. THE ISSUE WITH REGARD TO DISALLOWANCE OF BUSINE SS EXPENSES OF RS.15,57,488/-. THE CIT(A) ENHANCED THE ASSESSED INCOME BY DISALLOWING BUSINESS EXPENSES OF RS.15,57,488/- ON THE GROUND THAT THERE IS NO BUSIN ESS ACTIVITY DURING THE YEAR. AT THE OUTSET OF HEARING , LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ISSUE IS COVERED WITH ITAT ORDER IN ASSESSEES OWN CASE FOR AY 2004- 05, WHEREIN ITAT, SMC, BENCH, MUMBAI HAS ALLOWED TH E BUSINESS LOSS OF RS.36,41,385/- BY OBSERVING AS UND ER: 6. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH SIDES AND PERUSED THE MATERIAL PLACED BEFORE ME. I FIND THAT IN THE ASSESSMENT YEAR 2006-07, THE ASSESSING OFFICER CONSIDERED THE FACTS OF THE ASSESSES CASE IN DETAIL WHILE ALLOWING THE BUSINESS LOSS OF RS.36,41,385/- AND HE ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 52 HAS ACCEPTED THAT THE BUSINESS CONTINUED SINCE THE ASSESSMENT YEAR 2002-03. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND THE ARGUMENTS OF BOTH SIDES, IN MY OPINION, IT IS THE CASE OF TEMPORARY LULL IN THE BU SINESS IN THE YEAR UNDER CONSIDERATION AND THEREFORE, IT CANN OT BE SAID THAT THERE WAS A CLOSURE OF THE BUSINESS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE BUSINESS EXPENDITURE IN ACCORDANCE WITH LAW. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED AS ABOVE. 33. IN THIS REGARD, LD. AUTHORIZED REPRESENTATIVE S UBMITTED THAT IN CASE, ASSESSEE HAS BEEN GIVEN RELIEF IN SIM ILAR SET OF FACTS IN A.Y. 2004-05, SAME SHOULD HAVE BEEN CONFRO NTED TO THE ASSESSING OFFICER AT RELEVANT POINT OF TIME, SO THAT, HE COULD TAKE ADVANTAGE OF THE SAME. MOREOVER, SAME W AS NOT DONE BEFORE CIT(A) IN SPITE OF THAT SAME ORDER ALLE GED TO BE IN HIS FAVOUR IN A.Y. 2004-05. SO, BOTH AUTHORITIES N OT HAVING ADVANTAGE OF SAID ORDER FOR A.Y. 2004-05. AGREEING TO THE CONTENTION OF LD. DEPARTMENTAL REPRESENTATIVE, WE R ESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER WITH DI RECTION TO DECIDE THE SAME AS PER FACT AND LAW, AFTER PROVIDIN G DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. SINCE, WE ARE RESTORING THE ISSUE TO ASSESSING OFFICER FOR THE RE ASONS DISCUSSED ABOVE, WE ARE REFRAINING TO COMMENT ON TH E MERIT OF ISSUE AT HAND. 34. IN THE RESULT, THE APPEAL OF ASSESSEE FOR A.Y. 2003-04 IS PARTLY ALLOWED. ITA NOS.889 TO 892, 1481, 1527, 1528 & 1402/MUM/09 A.YS. 00-01 & 03-04 (M/S. SHREEPATI COMPUTERS) PAGE 53 35. IN THE RESULT, ALL APPEALS OF REVENUE AND ASSES SEE ARE DISMISSED, EXCEPT, ASSESSEES APPEAL FOR A.Y. 2003- 04 IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 18 TH DAY OF AUGUST, 2016. SD/- SD/- ( RAJESH KUMAR ) (SHAILENDRA KUMAR YADAV) CCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: DATED 18/08/2016 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. / REVENUE 2. / ASSESSEE 3. ! / CONCERNED CIT 4. !- $%&' / CIT (A) 5. )*+& ,--, $%&' $, / / DR, ITAT, MUMBAI 6. +12 34' / GUARD FILE. BY ORDER / 5 , 6%/8 % &, $%&' $, / 9