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2005 (11) TMI 367 - ITAT MUMBAIValidity of the assessment framed u/s 147 - 100% Export oriented undertaking - Income escaping assessment - Deduction u/s 10B or u/s 80HHE - manufacture of computer software - income derived on export of software out of India to this client - activities of the assessee-company have been carried on the basis of the agreement. HELD THAT:- All the details relating to the claim were available in the return. In the light of the same it cannot be said that there had been any escapement of income for assessment. According to him there existed no prima facie material for coming to such a conclusion. The contention of the assessee, as we see in the light of the discussions in the impugned order, the reassessment has no legs to stand. Prima facie the Assessing Officer had no reason to arrive at the conclusion that the income had, in fact, escaped assessment. Moreover, the income was only determined u/s 143(1) of the Act and the Assessing Officer had not issued any notice u/s 143 of the Act and the only way to bring the income escaping the tax is by taking recourse to section 148 of the Act. Thus, the reassessment proceedings have been validly initiated and we decline to interfere. Deduction u/s 10B - We are unable to accept the departmental view that the assessee cannot considered as engaged in the business of manufacture of production of articles or things within the meaning of sections 10B and 10BB of the Act in respect of the profits and gains arising out of this agreement. The denial of such relief, in our view, is on a wrong reasoning that export of articles and things under this agreement with Unisys did not exceed 75% of the total sales. It only results in the miscarriage of justice if such a proposition of the department were to be accepted. We, therefore, direct the Assessing Officer to allow deduction u/s 10B of the Act. The relief u/s 80HHE, in the facts and circumstances of the case, as an alternative prayer, becomes academic. Agreement No. 3 with CTE-BNP - We do not agree with the stand of the revenue that the assessee is not entitled for relief under section 10B of the Act in respect of the exports made to this client. Accordingly, we direct the Assessing Officer to allow relief under section 10B of the Act in respect of the profits and gains derived as admittedly the agreement is an old agreement and on which the revenue has already granted relief under section 80HHE of the Act, which is directed to be withdrawn. Agreement No. 4 with CIC e-worker - In our opinion, having regard to the terms of the agreement, it was clearly for manufacture or production of articles or things within the meaning of section 10B and its extended meaning as spelt out in section 10BB of the Act. We may also mention that merely because the payment is based on the man-hour spent on the job or the employees provided, it does not mean that the assessee was not engaged in the activity of manufacture or production of articles or things within the meaning of the provisions stated above. The complex and highly technical activities in the field of computer software, in our opinion, truly is an act of manufacture or production of articles or things as spelt out in the aforesaid provision. Agreement with SAP Arabia - This is not a case where the assessee has only to do recruitment or training of personnel, but the assessee is engaged in the on-site software development. In this contract with SAP-Arabia the software professionals remained on the payroll of the assessee while they are deputed on-site for carrying out assignment of software development. The relevant copies of the agreement are also placed at pages 10-15 of the paper-book. Having gone through the details contained therein, we are of the opinion that it cannot be said that the assessee is not entitled to relief u/s 10B or u/s 80HHE of the Act. The revenue authorities have denied both the relief but, in our view, the assessee is entitled to relief u/s 10B of the Act in relation to the income derived on export of software out of India to this client. Agreement with Geotronics-UK and Veritema-Sweden. These agreements are of the same nature as has been entered with SAF Arabia. In the light of our decision in relation to the agreement with SAF Arabia, we hold that the assessee is entitled to relief u/s 10B of the Act in respect to the profits and gains derived by the assessee under these agreements. Having regard to all these, it cannot be said that the assessee is only a recruiting and training agent while considering its claim for relief u/s 10B of the Act. We, therefore, in the light of all these discussions, accept the claim of the assessee for relief u/s 10B of the Act. As a result of this, the revenue may have to withdraw the relief granted u/s 80HHE of the Act as a consequence of this order. As regards the claim of deduction u/s 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief u/s 10B of the Act, the assessee is naturally entitled for relief u/s 10B of the Act in respect of the interest income also, which is admittedly a part of business income. In the result, both the appeals are partly allowed.
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