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TMI Blog2010 (12) TMI 835X X X X Extracts X X X X X X X X Extracts X X X X ..... es u/s. 10A of the Act as claimed by the assessee. The first disallowance made by the Assessing Officer related to the exemption u/s. 10A of the Act as claimed by the assessee. The Assessing Officer has denied the claim of the assessee u/s. 10A of the I. T. Act on the following grounds: "From a study of the agreements with its clients as well as the invoices raised by it on its clients, it is seen that the assessee did not export programmes on any physical information storage device. The exports on which the assessee claims deduction u/s. 10A consist of export of data/services uploaded/exported over internet. Thus, its claims of software development does not involve sub-clause (a) of the definition quoted above. For the claim to be considered to be eligible, thus, it was necessary that the services rendered by it were, firstly "customized electronic data or any product or service of similar nature", and that the same were "notified by the Board". Specific requisition was made of the particular Board's notification which enlists the services rendered by the assssee as an eligible service. However, till date, the assesee has failed to produce the same. Thus, the entire claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced by the assessee, it is seen that the following relate to services rendered in the months of June, July and August 2003, i.e., periods prior to the agreement. No. Party Invoiced services for Amount in USD Amount in INR 1. Kents Pvt. Ltd. June 2003 7100 3,20,281 2. Great Mdia Technologies LLC July 2003 36020 16,24,862 3 DO August 2003 44194 19,93,591 Total 39,35,734 Therefore, in the absence of any provision in the said agreement in respect of export made earlier to the agreement, all these exports of services etc., made prior to the agreement has to be excluded from the benefits allowable u/s. 10A. In response to the query in the show cause notice in respect of this issue, the assessee claimed that the date of recognition as an STP Unit did not matter, the entire export made in the year that the unit gains recognition is eligible for deduction. This claim is not found acceptable. The statute grants deduction made by a recognized unit in a year. However, the exports made earlier to the date of recognition cannot be considered as constituting exports made by an STP Unit. Hence the claim of deduction has to reduce to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further found that the recognition to the assessee company as 100% EOU was received by an agreement signed on 15.9.2003 and therefore any amount received before that date during inadmissible period and was out side the purview of the claim u/s. 10A. She also opined that in this export the assessee had remarkable degree of profitability. She found that out of the total export of Rs.1,24,40,567/- the assessee incurred expenses of Rs.3,74,310/- in aggregate and earned a remarkable profit of Rs.69.7%. She opined that the fixed assets employed in the form of computer and peripheral were very low. She also opined that the importer and the assesee were closely connected and according to her the arrangement between the two required to be examined more circumspectly. She also found that there was mis-match between raising of the bills and receipt of payments of the export price and the payments were received on ad hoc basis or in advance which according to her were not acceptable. Finally she was of the opinion that- a) the assessee was not equipped in terms of plant and machinery or staff to render the services it claims to have exported, b) the assessee was receiving moneys fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne of which was a concern under common management control as itself, and the other was represented, as agent, by Vikas Kedia, a director of the said associate company. That is, for the FY 2003-04, no liaison work of any person outside the company was utilized for the business of the company. Therefore, any payments to any person in connection with the same cannot be considered as expenditure laid out in its business interest. Hence the said amount was disallowed. In appeal, the Ld. CIT(A) in respect of disallowance u/s. 10A, held that the Assessing Officer was not justified in treating the some of Rs.1,24,40,567/- as incomes of unexplained nature. The Assessing Officer was directed to treat the said receipt as sale proceeds of computer software and allow deduction u/s. 10A. In respect of commission payment, the Ld. CIT(A) held that there is no basis to dispute such payment. Therefore, the addition made was deleted. Aggrieved by the said order, the revenue is in appeal before us. Though the revenue has taken six grounds of appeal but the issues involved are only two i.e. (i) claim of deduction u/s. 10A of the I. T. Act and (ii) commission payment amounting to Rs.16,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Support Centres ana (xv) Website Services-Notification No. SO 890(E) dated 26.9.2000 15. Looking to the aforesaid definition of Computer Software coupled with the notification it is evident that the word Computer Software includes various Software Development Activities including Website services. The subject is highly Technical. Development of Computer software and services related thereto and website services can extend to huge area of information technology services of the assessee's products are considered in the light of the vide definition covering almost all the information technology services it will be clear from the agreement between the Soft Ware Export Technology Part dated 15th Sept.2003 wherein it is mentioned that the assessee have been recognised as the producer of Computer Software and execution of I.T. enabled services. Under the said agreement the assessee was required to submit the monthly declarations of its products and dispatches the Government and such declarations in soft ware Export declaration (Soft Tax Form)were in fact submitted as required by the Government for which evidences including the agreement have been placed in the paper book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide its letter dated 29.12.2006 para 2 has mentioned that the payments were received and the evidences were again enclosed along with the said letter. Earlier the assessee also filed two letters giving details of the payments received, copy of which have also been filed before me. It appears that the assessee was receiving payments from the importer from time to time and as on 31.3.2004 the outstanding balance was Rs.48873 USD against which the assessee received a payment of Rs.84600 USD on 5.5.04. The said payment was cleared on 24.5.04. There was no other outstanding as on the said date. The assessee right from the beginning have been contending that the payments were received in advance ad hoc basis from time to time and is adjusted against the bills to be raised or bills outstanding if there be any such bill pending. The Assessing Officer has also taken note of the same in the assessment order. It also appears that finally the entire payments received are adjusted against the bills. Therefore the AO was not correct in holding that the payments were not received within the six months of the close of the year and the deduction cannot be restricted to the export receipts to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rter will make the payment on Ad hoc basis to be adjusted against the bills finally raised. She therefore concluded that the entire arrangement was fictitious collusive arrangement, the arrangement cannot be treated to be genuine and the foreign exchange received by the assessee was money received for some other purposes. She treated the same as income from undisclosed sources thereby she made the addition of Rs.12440567." After this analysis the Ld. CIT(A) has given his finding as under: "20 It appears to me that the AO was not happy with such a huge margin and have tried to make out her case on the basis of suppositions. As discussed by me in earlier paragraphs, the assessee has filed the declaration of the export to the approving authority of software export technology park and the same have not been doubted our disputed. The rates of the export materials is not disputed or found to be excessive. The export itself is also not disputed. The AO has not found that the assesee itself has taken services from outside to do the job exported. The fact remains that the export earning have been received against the bills raised which has not been disputed by any of the gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the lower authorities relied on the order of the Ld. CIT(A) and submitted that the Ld. CIT(A) while giving relief to the assessee has held as under: "the Assessing Officer has disallowed the commission paid to Tracy Louie of California USA on the ground that the assesee worked out only for two clients and therefore no liaison work was done by any person. I find that the commission was paid for branding marketing consulting and liaison work and have been paid after deduction of tax and the permission of the RBI. There is no basis to dispute such payment. Therefore the addition mad is deleted." In this regard the Ld. Counsel submitted that the payment made to Tracy Louie was made for branding, marketing, consulting and liaison work done with various companies. The Assessing Officer had claimed that the assessee had earlier admitted that Tracy Loui had not rendered any service to earn such commission relevant to any of the assessee's business transactions made during the relevant year. The statement made by the assessee had been wrongly interpreted by the Assessing Officer. The assessee had earlier stated that the ground work done by the lady has yielded the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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