2019 (5) TMI 538 - ITAT DELHI

Reopening of assessment - disallowance of deduction/exemption claimed u/s 10B and 80HHE - HELD THAT:- It is not in dispute that the assessing officer has examined the claim of deduction under section 80HHE / 10A of the Act in the original assessment proceedings. In fact, the assessing officer had made adjustments to the computation of deduction under section 80HHE / 10A of the Act, as claimed by the appellant. Further, clause (d) of Explanation to section 80HHE of the Act providing that profit of branch/office of the assessee situated outside India, is to be excluded from the profit of the business as also Explanation to sub-section (1) of section 80HHE of the Act with regard to the on-site software services, did exist in the statute when the original assessment proceedings were in progress before the assessing officer. Therefore, it cannot be anybody’s case that the assessing officer was not aware of the factual and legal position with regard to the claim of such deduction by the appellant under section 80HHE and 10A of the Act in respect of profit of the overseas branches, which were contended to be profit derived from on-site software services. In fact, it is noted from the statement of profitability of the overseas branches filed with the return of income that the fact that profit of such branches was on account of on-site software services rendered by the appellant, was clearly evident to the AO in the course of the original assessment proceedings before him.

We are not inclined to interfere with the findings of the ld. CIT(A) on the ground of re assessment having been made on the basis of change of opinion. Accordingly, the ld. CIT(A) has rightly quashed the reassessment made by the AO being bad in law ab initio. As a result, the appeal of the Revenue deserves to be dismissed on this score only. Since, we have supported the quashing of re-assessment proceedings being invalid, we need not to enter into other grounds of Revenue’s appeal as well as the ground of assessee’s cross objection on merits of additions.

Addition u/s. 10A and 80HHE - DR held that assessee has not provided any technical services. Therefore, expenditure incurred in foreign exchange need not to be reduced from the export turnover or from total turnover - items on which the higher depreciation was claimed were in the nature of electric installation not eligible for depreciation more than 15% - HELD THAT:- No justification in allocating a particular percentage of software development charges towards expenses alleged to have been incurred for providing technical services. We allow this ground of appeal raised by the assessee and reject the ground of appeal raised by the revenue. We direct the assessing officer not to exclude any amount from software development charges under the garb of expenses incurred, towards providing consultancy services. He will not exclude these amounts from the export turnover while computing the deduction admissible under section 10A

The overseas branches of the appellant merely act as conduit for rendering of the onsite software development services in relation to software development projects undertaken by the various undertakings located in India. The aforesaid profits of the branches do satisfy the test laid down by the Hon’ble Delhi High Court in the case of Interra Software India Pvt. Ltd. [2010 (12) TMI 142 - DELHI HIGH COURT] in as much as the overseas branches of the appellant are acting merely as conduit for rendering on site services. The profits of such branches being essentially in the nature of profits derived by the appellant from onsite software development services, is apparently covered by Explanation 3 of Section 10A of the Act and would accordingly qualify for deduction under that Section - Decided against revenue