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M/s APA Engineering Pvt. Ltd. Versus Deputy Commissioner of Income Tax, Company Circle-I (1) , Chennai

2016 (1) TMI 938 - ITAT CHENNAI

Deduction under section 10A denied - Held that:- As relying onassessee's own case for the assessment year 2006-07 to 2009-10 [2015 (4) TMI 1059 - ITAT CHENNAI] the assessee is entitled for deduction under section 10A of the Act. However, the claim shall be restricted only to 50% in view of the provisions of section 10A(1A) of the Act. - ITA No. 1623/Mds/2015 - Dated:- 18-12-2015 - A. Mohan Alankamony AM And Challa Nagendra Prasad, JM For the Appellant : Mr T Banusekar, CA For the Respondent : Dr .....

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bunal in assessee's own case for the assessment year 2006-07 to 2009-10 in ITA Nos.2306/Mds/2013, 505, 506 & 1354/Mds/2014 dated 30.04.2015, wherein the Tribunal held that the assessee is engaged in manufacturing activity /assembling the product for exports and also rendering information technology enabled services which entitles the assessee to claim deduction under section10A of the Act. However, the counsel submits that for this assessment year the deduction shall be only 50% and not .....

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he assessee by the Tribunal observing as under:- "2. The Assessee has raised 12,12 ,10 & 11 elaborate grounds in its respective appeals for the assessment years 2006-07,2007-08, 2008-09 & 2009-10; however the crux of the issues are that the Assessee is aggrieved by the order of the Ld. CIT (A), who had upheld the order of the Ld. Assessing Officer (i) in denying relief under section 10A of the Act for the assessment years 2006-07 to 2009-10. (ii) Levy of interest U/s. 234B of the Ac .....

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ompany, engaged in the business of sourcing and trading in auto parts, filed its return of income for the assessment year 2006-07 on 31.10.2006, for the assessment year 2007-08 on 25.10.2007, for the assessment year 2008-09 on 26.09.2008 and for the assessment year 2009-10 on 21.09.2010. All the cases were taken up for scrutiny barring assessment year 2007-08 which was reopened by issuance of notice U/s. 148 of the Act. 4.1 Ground No.1 - Denying deduction under section-10A of the Act During the .....

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for the goods directly purchased by the overseas clients from the manufacturers. ii) In some instance the overseas client places an order with the assessee company and pays the assessee company for the same. In turn, the assessee company procures the material from different manufacturers in India and exports them. In this case, the assessee receives money in foreign exchange for the entire value of sales. iii) The assessee company was only in possession of machineries such as 1.5 ton LG split AC .....

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such specifications. Thus the assessee company was only receiving the orders from its overseas customers which are passed on to other manufacturers in India. v) The copies of invoices raised by the assessee showed that billing was made under the head "international sales commission", "international inspection charges", and "Transaction charges". 4.2 Based on the above observations, the Ld. Assessing Officer queried as to how the assessee would be entitled for deduc .....

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ware, Creation and development of website and web catalogue, manufacturing and export of kits for automobile industry. From these activities, the assessee had received commission from, foreign clients for locating manufacturers, Indian clients for locating buyers, retainer-ship charges from overseas clients for Supplier liaison, and revenue from International auto-fair. It was therefore submitted that the assessee was eligible for claim U/s. 10A of the Act." 4.3 However, the Ld. Assessing O .....

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ey do not have any establishment in India. iii) The assessee has a data bank of the manufacturers who produced various components in India and through a webbased interactive tool, the assessee company communicates to its clients abroad the details of the Indian manufacturers, and their manufacturing schedules. Based on this information, the clients of the assessee company either placed orders directly with the manufacturers or through the assessee against which the assessee earns income. iii) Af .....

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Assessing Officer accepting his views. The relevant portion of the order is extracted herein below for reference:- "7.1. It is seen from the facts of the case that the appellant was doing the sourcing of auto parts for its overseas clients. During the A.Y 09-10, the appellant has reported the revenue as under:- 'Sales 12,06,74,577 Transaction charges 50,30,229 Software consultancy 36,34,439 Miscellaneous income 8,95,336 The appellant, through its expertise in automobile engineering, so .....

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ent in the form of a branch, etc. in India to identify the reliable and dependable manufacturer for their small orders. For such purposes, they utilize the services of the appellant. After getting the goods manufactured through other manufacturers in India, the appellant undertakes final assembly and packing before they are exported outside India. This process cannot be said to be a manufacturing process and therefore the appellant was asked to explain why deduction u/s l0A should not be disallo .....

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nd machinery to manufacture such goods in India. Therefore the activities of the appellant are like a trader, who just procures goods from a manufacturer and exports them. 7.3. Further, during the assessment proceedings, the appellant put forth an alternative argument that the receipts from software consultancy should be given the benefit of deduction u/s l0A. The appellant has disclosed transaction charges of ₹ 50,30,229/- and receipts from software consultancy of ₹ 36,34,439/-. The .....

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clients situated overseas the details of the Indian manufacturers and their manufacturing schedules Some of the overseas clients place direct orders on the Indian manufacturers. For the assessee company acting as a facilitating agent, international commission and international inspection charges are paid by the overseas entities. Such commission cannot be said to have been derived from rendering services in ITES field or through development of computer software. The services rendered are basica .....

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of ₹ 68,86,220/- u/s.10A of the Act as the apt is found to be not engaged in the business of export of computer software or articles or things manufactured in India. As a result, this ground of appeal is dismissed." 4.5 Before us, the Ld. A.R. made the following written submissions in order to establish that the assessee was engaged in manufacturing activity and software development which entitles it to claim the benefit U/s.10A of the Act:- "Manufacturer 2. The appellant is in t .....

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ot personally engaged in the manufacture it is the appellant who prepares the technical drawings and gets the same done through job workers supervises and inspects at the suppliers premises. The ultimate responsibility to deliver the end product as per the customers specifications is on the appellant. Therefore it is most humbly submitted that the appellant is a manufacturer and is entitled to claim deduction u/s.10A. 5. For this proposition reliance is placed on the decisions of the Hon'ble .....

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it is most humbly prayed that the Hon'ble Tribunal may be pleased to hold that the appellant is a manufacturer and direct the Assessing Officer to allow the claim of deduction u/s.10A Rendering Information Technology Enabled Services (ITES) 7.The appellant has entered into agreements with various parties for rendering information technology enabled services and uses the following tools to carry out the said services. Copy of two agreements filed before the Hon'ble Bench during the cours .....

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9. It may be noted that these are the back office operations of the customers which are done by the appellant. 10. The notification of the CBDT in S.O.890(E) dated 26.09.2000 [(2000) 163 CTR (St) 25] specifies back office operations and website services as one of the information technology enabled services. 11. Sample copies of the invoices raised in the names of Waterman Industries lnc and Reliance Parts Corporation for the assessment year 2007-08 along with ledger copies were submitted during .....

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hip etc received locally were offered only as commission etc and credit for the tax deducted at source on the same has been claimed. The appellant has not claimed deduction u/s.10A on these incomes 14.ln the light of the above submissions it is most humbly prayed that the Hon'ble Tribunal may be pleased to decide whether or not the appellant is in the business of rendering IT enabled services and if the Hon'ble Tribunal is satisfied that the appellant is in fact is engaged in rendering I .....

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e course of hearing to show that the appellant is engaged in the development of computer software for the customers. 17.ln the light of the above submissions it is most humbly prayed that the Hon'ble Tribunal may be pleased to decide whether or not the appellant is engaged in development of computer software and if the Hon'ble Tribunal is satisfied that the appellant is in fact is engaged in development of computer software then the Hon'ble Tribunal may be pleased to set aside the ma .....

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d carefully perused the materials available on record. The Ld. A.R. had argued by stating that the assessee is engaged in manufacturing activity and rendering information technology enables services. To establish the same he has produced before us the memo of understanding made between the assessee Company and Reliance Group/IPD Group. For reference we herein below extract the same:- i) Memorandum of understanding with IPD Group "This Covenant entered into between Autopartsasia Private Limi .....

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ll be USD 50,000,00 The payment schedule for the above will be on a monthly basis based on the development time consumed @ USD 10 per hour with project time estimation of 5000 hrs. Invoicing will be done both on a Retainer basis, Inspection Software basis & as an extent of business done that month. 2. Confidentialty & exclusivity AA promises to maintain complete confidentiality regarding all projects for which IPD mandates it. All efforts will be taken to maintain utmost confidentiality .....

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tes with pleasure the "Favored vendor" status accorded by IPD whereby, for any software project, the IPD will consider AAA as the preferred service provider. This means IPD will first make an offer to AA to roll-out any software related service before making an offer to any other software service provider. For Autopartasia Pvt Ltd. -Sd/- Mr.K.Vaidyanathan CEO For IPD Group -Sd/- Mr.richard grishabar" CEO ii) Memorandum of understanding with Reliance Group "This Covenant enter .....

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ase functions. 1.3. corporate presentation and other sales oriented development on a need based manner. The payment schedule for the above will be on a monthly basis based on the development time or software usage time @ USD 10 per hour with project time estimation of 5000 hrs. A minimum of USD 2000 for section 1.2. & USD 300 for section 1.3 to be given every month to cover the manpower allotted for this purpose. 2. Confidentialty & exclusivity AA promises to maintain complete confidenti .....

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the inputs & outputs of the project 2.4. AA will not approach business competitors of Reliance. 3. First right of refusal AA notes with pleasure the "Favored vendor" status accorded by Reliance whereby, for any software project. The Reliance will consider AAA as the preferred service provider. This means Reliance will first make an offer to AA to roll-out any software related service before making an offer to any other software service provider." From the above it is evident t .....

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technology enabled services. As pointed out by the assessee, the CBDT Circular No.S.O.890(E) dated 26.09.2000 reported in 163 CTR (St) 25 specifies that for the purpose of Section-10A of the Act, back office operations and web site services are information technology enabled services. The Ld. A.R. has also explained the nature of activity rendered by the assessee with respect to giving access of the ERP to its clients for their purchases as follows:- "For initiating purchase: When the stoc .....

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and the assessee proceeds with its activities as before. For updating stock records: Once the PO is met and the goods are received, inspected and approved, the assessee updates the customers' ERP for the goods received and warehoused." The Ld. A.R. has also explained that the assessee was engaged in development of computer software like making Customized Electronic Catalogues. Moreover, even if it is argued that the assessee was not developing software programmes, it is apparent that th .....

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e case CIT Vs.Elgi Ultra industries Ltd in 82 CCH (Madras) wherein it was held that even in the case of assembling done through job work, the assessee would be entitled to have the benefit U/s. 80-IA of the Act. The relevant portion of the order is extracted herein below for reference:- "13. A reading of the said judgment shows that the reasoning is similar to what is considered in the decision reported in 216 ITR 566 Commissioner of Wealth Tax V. Ramalingam. Thus, the sum and substance to .....

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ression to assessee engaged in the manufacturing process', to hold that so long as the effective involvement of the assessee is there in the form of quality control or supply of material and dyes for the manufacture of parts of the grinders or machinery, even in the case of assembling done through job work, the assessee would be entitled to have the benefit U/s. 80-IA of the Act." 4.9 From perusing the invoices produced by the assessee, the following facts are also revealed. Sl. No. Inv .....

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