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2020 (11) TMI 938 - AT - Income TaxExemption u/s 10A - denial of exemption as no evidence for software export made through STPI and clearance received from STPI given - HELD THAT:- Assessee has discharged the burden with regard to software development and export of software services by furnishing necessary information to the STPI and also before the AO. Merely because of some defects, the same cannot be brushed aside and deny the exemption claimed by the assessee u/s 10A - It is for the department to establish that the assessee has not made software exports or prove that the information furnished by the assessee is false or incorrect. No such exercise was done by the department. No adverse observations were made by the STPI with regard to exports. Though PF, ESI payment does not establish the salary payments, they definitely show that the assessee has engaged the personnel for carrying the work - AO has not conducted any enquiries either with the clients of the assessee or with the STPI to show that the assessee has neither developed the software nor exported the same to the foreign company. STPI is a Government Agency which monitors the activities of the assessee company and collecting timely reports for export of software. The very fact that the STPI has permitted expansion of operations shows that the assessee company was engaged in software development which is proposed for expansion of the existing activity at a broader level. All these facts show that the assessee is carrying on software activity in the STPI and made the exports. Once there is evidence for software export made through STPI and clearance received from STPI by softex forms and the receipt of foreign exchange remittances, it is for the department to bring evidence to deny the exemption u/s 10A of the Act. In the instant case, no such evidence was brought on record by the AO. - Decided in favour of assessee. Disallowance made u/s 14A - scope of assessment u/s 143(3) r.w.s. 153A - HELD THAT:- As discussed while discussing the issue of deduction u/s 10A, we have observed that no incriminating material was found in respect of the claim made u/s 10A - Similarly, during the course of search, no evidence was found relating to income derived by the assessee u/s 14A - For the A.Y. 2009-10, the time limit for issue of notice u/s 143(2) got expired and the assessment became completed. Therefore, we hold that the disallowance made by the AO u/s 14A is outside the scope of assessment u/s 153A r.w.s. 143(3). Accordingly, we set aside the orders of the lower authorities and delete the addition made by the AO. Appeal of the assessee for the A.Y. 2009-10 in respect of addition made u/s 14A stands allowed. Disallowance @0.5% of the average investment u/s 14A - HELD THAT:- In the instant case, there was no dispute that the assessee has earned dividend income and provisions of Rule 8D attracts. Accordingly, the AO made the disallowance applying Rule 8D, hence, we do not find any infirmity in the order of the Ld.CIT(A) and the same is upheld. The appeals of the assessee on this ground is dismissed. Addition being opening balance of the advances received by the assessee - HELD THAT:- The assessee had admitted the income, stating that the advances were no more payable to the customers. The assessee had admitted the income u/s 132(4) and subsequently filed the return of income and paid the taxes. No addition was made by the AO to the returned income. Therefore, there is no grievance to the assessee. Having paid the taxes and filed the return of income, if there is mistake in the return of income , the assessee ought to have filed the revised return of income within the time allowed under the Act. Alternatively, the assessee ought to have taken remedial measures by filing the petition u/s 264 before the Ld.CIT(A). In the instant case, the assessee has neither agitated the addition before the AO nor filed the revision petition u/s 264 of the Act or the revised return. It is also observed from the order of the Ld.CIT(A) that the assessee has not retracted the statement given u/s 132(4) before the AO. All the above facts show that the assessee has admitted the income voluntarily having belief that the advances constitute income. Therefore, we are of the view that filing additional ground before the CIT(A) seeking relief was nothing but an afterthought. The assessee has not established the fact that the admission was made erroneously with supporting evidences regarding the existence of the liability. During the appeal hearing, the Ld.AR pressed for relief of ₹ 4.23 crores. No evidence was placed by the Ld.AR to support the claim of outstanding advance. For a query from the bench, the Ld.AR admitted that there is no evidence of payment of ₹ 4,23,00,000/- to the foreign company subsequently. No reason to interfere with the order of the Ld.CIT(A). Accordingly, we hold that the Ld.CIT(A) rightly confirmed the addition and the same is upheld. The appeal of the assessee on this ground is dismissed. Addition of balance amount of the opening balance - HELD THAT:- In the instant case, the AO neither brought any evidence to disprove the genuineness of outstanding liability nor found any material evidencing that the liability was written off by the assessee or the company has waived the advance. No material was brought on record by the AO to show that the liability was not in existence. The AO also failed to establish that the liability outstanding was related to the deduction or loss claimed by the assessee with regard to trading liability in respect of the earlier years. Therefore, the addition made by the AO is unsustainable. Difference of turnover in STPI and the turnover declared in the P&L account - HELD THAT:- AO did not bring any evidence to show that the assessee has suppressed the turnover by reconciling the turnover of the assessee with the invoices raised and the turnover declared to the STPI. In the instant case the books of accounts were audited and the entire sales were export sales and no domestic sales / cash sales by the company. No evidence was brought on record to show that the assessee has received the sums over and above the sales admitted in the return of Income. The turnover is supported by invoices, therefore, there is no reason to suspect the turnover admitted by the assessee in the books of accounts. Addition made of notional interest on advances made - HELD THAT:- The assessee submitted that the amounts were given as advances for purchase of property and subsequently, the lands were also purchased and registered in respect of some properties. It was also explained that in the case of M.Durga Reddy, due to some problem, the sale deed was cancelled and the amount was received back. In the case of Veenus Developers, due to defective construction, the sale agreement was cancelled. The above explanation of the assessee shows that the amounts were advanced for acquiring the properties and the AO misdirected himself because of the promissory note of M.Venkata Narayana found bearing interest. No material was found by the department evidencing the charging of interest on amounts advanced by the assessee or indicating the finance business. The AO did not make any cross verifications with the borrowers of money to support the case of department. No evidence was brought on record to show that the assessee was receiving interest. In the absence of any material to show that the assessee was receiving interest, we have no reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed. Charging of notional interest on outstanding advances - HELD THAT:- Assessee has to pay back the deposits or the amounts collected from unsuccessful candidates to the respective candidates. Merely because of operations, the company is ceased, the company cannot escape the liability and the AO is also not permitted to treat the same as income. Once receipt is accepted and shown as liability, unless, it is established that the amounts need not be refunded to the unsuccessful candidates or the liability is proved to be bogus, the AO is not permitted to tax the same amount. Since the names of the candidates are available, the AO ought to have made enquiries with the candidates and made the addition in respect of the candidates who surrendered the amounts. Since no such evidence was brought on record, the addition made by the AO is unsustainable, hence, we do not find any reason to interfere with the order of the CIT(A) and the same is upheld.
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