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2012 (11) TMI 1210 - ITAT NAGPUR

2012 (11) TMI 1210 - ITAT NAGPUR - TMI - I.T.A. Nos.99, 100 & 101/NAG/11 - Dated:- 23-11-2012 - SHRI P. K. BANSAL, ACCOUNTANT MEMBER, AND, SHRI D. T. GARASIA, JUDICIAL MEMBER For the Appellant : Shri M. Mani, Advocate For the Respondent : Shri D. P. Tiwari, Jt. C.I.T. & Dr. Milind Bhusani, C.I.T. (D.R.) ORDER PER P. K. BANSAL: All these three appeals have been filed by the assessee against the respective orders of the CIT(A) dated 29/03/2011. In all these appeals, filed by the assessee, the .....

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2001-2002 and 2002-2003 have not been pressed by the assessee. The common ground as taken by the assessee are laid down as under: 1. The learned CIT(A) erred in not holding that the notice issued u/s 148 is without jurisdiction and therefore proceedings for assessment are illegal and invalid and consequently the order of assessment is void, ab initio. 2. The learned CIT(A) erred in holding that there was reason to believe that income had escaped assessment. 3. The learned CIT(A) erred in not ho .....

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rred in not following the order of the I.T.A.T. for assessment year 2004-2005. On the ground that the factual parameters for this year are different from 2004- 2005. 10. The learned CIT(A) erred in stating that letter dated 04/08/2003 written by the Director and Chief Executive of STPI to Jt. Commissioner of Customs and Excise was furnished by the assessee. 11. The learned CIT(A) erred relying on the copy of said letter without proper opportunity to the assessee to explain the said document. 12. .....

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to 4 have not been pressed in assessment year 2001-2002 and 2002- 2003, therefore, these grounds stand dismissed as not pressed in both the years. So far as the merit of the case is concerned, the only issue involved in all the grounds No. 5 to 13 in all the assessment years is the allowability of the deduction u/s 10B to the assessee. Both the learned A. R. and learned D. R. agreed that the brief facts for the assessment year 2001-2002 be taken for disposal of all these appeals. 3. The brief f .....

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return at nil income claiming deduction u/s 10B of the I.T. Act. The deduction was allowed while processing the return u/s 143(1) but in the assessment year 2003-2004 the deduction was allowed after making the deemed query by passing an order u/s 143(3). Subsequently, there has been a survey at the business premises of the assessee. The Assessing Officer issued the notice u/s 148 dated 10/03/2008 by recording following reasons in the assessment year 2001-2002: Reasons for reopening assessment : .....

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e Investigation wing of the department. During the course of survey it was revealed that during the period from 1999-2000 to 2003-04 the assessee has shown to have received a total consideration of 55,94,054 US Dollars (approx ₹ 26.66 crores) against the export to M/s Alpha Impex Hongkong. The assessee has also claimed exemption under section 10B of the Income-tax Act, 1961 as an 100% export oriented unit. The assessee has stated that it was exporting computer software to the above referre .....

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dia, a government of India autonomous society. They were not followed by assessee as can be proved by the STPI vide its letter No. STP/N.GEN/2006-07/5328 dated 03.01.2007 to the assessee by a letter the STPI asked Shri Jugalkishore Maniyar to furnish certain information with reference to the export certified by the STPI. The letter is issued certain information with reference to the export certified by the STPI. The letter is issued as late as 03.01.2007 when the business of the assessee of the .....

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hich the assessee has stated to have been purchased the computers is not in existence at the two address in Mumbai and payment has also been made in cash after one year from the date of purchase. All the above facts clearly prove that the assessee has actually not exported anything and the transactions element have been done by the assessee are nothing but money laundering transactions. The assessee is not entitled to exemption under section 10B of the Act. Moreover, the entire receipt shown by .....

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ome assessable in the hands of an assessee to the extent of ₹ 6,69,35,376/- has escaped assessment for the assessment year 2001-02. Hence it is considered necessary to issue notice under section 148 of the Income-tax Act, 1961 in the case of assessee for the assessment year 2001- 02. 3.1 Similar type of reasons were recorded for reopening the assessment in the assessment year 2002-2003 and 2003-2004. In the assessment proceedings initiated u/s 147, the Assessing Officer sought to disallow .....

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cer also took note of the finding of the survey team and observed that the assessee has diverted its sales to its in-laws and sister concern in the form of interest free loans, the profit earned are unrealistic almost 90% while leading software companies are showing profit @25%. The assessee has shown to have developed a project known 19-Scribe Alias X 2 was a software designed to automise the work flow of medical transcription company and these were specialized digital recorder, which are used .....

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tained any details of the computers as required under STPI guidelines. The assessee has also not furnished the technical details as required viz. specific flow chart, the system requirement study relevant correspondence. The assessee has taken a plea that genuineness of software development is over seen by the STPI, which is controlling and monitoring authority of the software development and all the details have been checked. The Assessing Officer, therefore, held that the export is non-genuine .....

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: a) The net profit claims is unrealistically high being 96.4%. b) No software expenses have been debited by the assessee although software export of ₹ 6.69 crores is stated to be made. c) There is no endorsement by the banker on the FIRC against export contract advance and misc. receipts that relevant documents have been presented to show that exports have been subsequently made. d) The certification of the STPI authorities relied upon by the appellant is based on the appellant s own decl .....

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/s 68. This has no merit. The appellant has not established that the transaction purported to be export is genuine. There is no transparency in the nature of transaction as discussed in the foregoing paragraphs. Since the amounts have been credited to the books of the assessee, provisions of section 68 have been rightly invoked by the Assessing Officer. As regards the alternate contention of the appellant that expenses may be allowed against income brought to tax u/s 68. There is no case made ou .....

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as not allowed to the assessee during the assessment year 2004-2005 against which the matter travelled to the Tribunal and the Tribunal has allowed the appeal of the assessee directing the Assessing Officer to allow the deduction u/s 10B of the I.T.Act. The explanation given by the assessee in respect of the survey report in that assessment year is duly reproduced in the order of the Tribunal in I.T.A. No.159/NAG/08 dated 06/03/2009. The Tribunal has duly satisfied that the assessee has duly est .....

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Directors of the STPI are claiming deduction under section 10A whereas the STP scheme requires approval by the Inter- Ministerial Standing Committee of the Department of Electronics. Accordingly, the cases of such claimants have been reopened by the authorities. The matter has been examined in consultation with the officers of the Department of Information Technology (earlier,Department of Electronics). In view of the ambiguity in the legal status of the approval by Director of STPs, the Inter-M .....

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ured that all other conditions specified in section 10A are fully satisfied before allowing any such claim. In cases where assessments / reassessments have already been completed, and the claim under section 10A has been disallowed only on the ground that the approval to the STP has not been granted by the Inter-Ministerial Standing Committee in accordance with the Scheme, the demand so arising should be kept in abeyance until further orders - Instruction : No. 1/2006, dated 31-3-2006. 4.1 It wa .....

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the contents and/or Form of Softex at any point of time. The assessee does not have any record showing for rejected Softex Forms are concerned except the correspondence and letters exchanged between the assessee and the importer. The copy thereof was duly filed by the Assessing Officer. The letter dated 30/01/2007 was issued by Assessment. Director, STPI, Maharashtra just to expedite the proceedings initiated by the ACIT, Nagpur. It was not an independent letter seeking any information by STPI. .....

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number of queries were raised by the Assessing Officer from the Addl. Director, STPI but STPI never denied that the assessee has not carried out any export. RBI has prescribed a particular procedure and the assessee has complied with the procedures while exporting the software. Our attention was drawn to page No. 119, which consists a certificate issued by one Sonal C. Bhattawadekar, Dy. Director (Technical), STPI. This certificate reads as under: Certified that the software described above was .....

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ded that the CIT(A) is totally wrong that STPI authorities have not to verify the export declared by the assessee. Our attention was drawn to the copy of the invoices and it was pointed out that along with the each invoice, certificate has to be taken from Dy. Director (Tech.), STPI. The certificates and the copy of the invoices are available at paper book from page No. 118 to 150. It was vehemently contended that the certificate has duly been issued by the Officer of the STPI at the time when t .....

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to page No. 71 of the paper book, which contained a letter in reply to RTI application dated 15/05/2012, it was pointed out that this letter clearly states that the CIT(A) under para 5.6 of its order has wrongly mentioned that the assessee has filed a letter dated 04/08/2003 addressed to the Jt. Commissioner (Customs & Excise) while this letter was never filed by the assessee but was the part of the remand report of the Assessing Officer dated 02/11/2009. The Tribunal has given clear cut fin .....

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nded that the facts involved in this year are different as compared to assessment year 2004-2005. On a query from the Bench that the assessment in the years have been reopened only on the basis of the findings given by the survey team and also the deduction was disallowed to the assessee u/s 10B only on the basis of the finding given by the survey report, the learned D.R. was fair enough to concede that the deduction in all the years has been disallowed by the Assessing Officer mainly on the bas .....

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4 of the ITAR Act, 1951. 100% EOU under the STP Scheme cannot be equated with 1005 EOU approved by the Board u/s 14 of the ITAR Act. We have gone through the Instruction No. 1 dated 11/03/2006 and Instruction No. 2/2009 dated 09/03/2009. In view of these Instructions, in our opinion, approval by the Inter Ministerial Standing Committee is the sufficient compliance of the approval by the Board appointed by the Central Government as the Central Government has not appointed any other separate autho .....

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a fact that there has been a survey at the business premises of the assessee on 07/03/2007 and on the basis of the survey finding, the Assessing Officer raised the query by reopening the assessment u/s 147 from time to time and ultimately took the view that the assessee has not actually exported the software. The survey took place in the case of the assessee on 07/03/2007 while the assessee in fact did not make any software development and export after 31/03/2004. The finding given by the survey .....

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before us. The CIT(Appeals) has sustained the disallowance of exemption u/s 10B mainly on the basis of finding in the survey report and has extensively quoted the same from page 3 to 5 of his order. The learned counsel for the assessee explained each and every finding in the survey report. The learned D.R has not controverted the explanation of the learned counsel for the assessee with reference to the issues raised in the survey report. The learned CIT(Appeals) has also mentioned the AO s repor .....

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er consideration we find that there was a receipt of ₹ 46.55 lakhs from the export of software against which the total expenditure claimed was ₹ 31,99,772/- details of which are as under : To Direct Expenses: Salary & Allowances 720,000.00 Internet Expenses 159,174.00 AMC for Computers 11,959.00 STPI - Service Charges 100,000.00 991,133.00 To Administrative & Other Expenses: Bank Charges 1,493.00 Books & Periodicals 6,370.00 Conveyance Expenses 2 4,000.00 Electricity Char .....

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genuineness of the above expenditure has not been doubted by the AO or the CIT(Appeals). The above expenditure has been duly allowed. When the huge expenditure on salary, internet expenses, annual maintenance charge for computers and the service charges to STPI is allowed, it cannot be said that there was no business of software development by the assessee during the relevant accounting year. The assessee is registered as Importer Exporter with STPI. The certificate of the same is placed at page .....

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d that the assessee has duly established the genuineness of the export of the software by it during the year under consideration. The AO disallowed the claim of the assessee on the basis of mere presumption and suspicion. We, therefore, accept the assessee s appeal and direct the AO to allow deduction u/s 10B of the I.T. Act amounting to ₹ 14,55,227/- In the result, assessee s appeal is allowed. 6.1 Against this decision of the Tribunal, the Revenue filed the Misc. Application, which was a .....

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he assessment year 2004-2005, which was confirmed by the CIT(A). thus, in our opinion, the basis of the reopening of all these assessment years is the disallowance made by the Assessing Officer in the assessment year 2004-2005 as well as their findings given in the survey report. We also noted that along with each and every invoice, through which the export has been made by the assessee, certificate issued by the Dy. Director (Tech.) of STPI was attached. This certificate clearly states that the .....

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n who alleges apparent is not real. We have gone through the orders of the authorities below but we do not find any evidence which may prove that the export made by the assessee was bogus. There had been survey in the case of the assessee but no specific material was being brought on record which may discharge the onus of the Revenue that the assessee has not made the export but has in fact brought his own funds at the pretext of export being made. Whenever the exports are to be made, the assess .....

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stance, which may prove that the assessee had not complied with the guidelines in this regard. The Assessing Officer has mainly relied on a letter dated 03/01/2007 issued by STPI to the assessee asking the assessee to furnish certain information. This letter is issued after the expiry when actually export had already taken place and also at the instance of the Assessing Officer as is apparent from para 6 of the letter dated 22/07/2009 written by the Assessment. Director, STPI, Maharashtra to ACI .....

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ceived by us from the Income Tax Officer (Inv.), Nagpur. As regards SOFTEX forms certified by our Office and the nature of information furnished by M/s Jai Hari Softech, we wish to state that certification of the said forms was done by the then concerned Officials in conformity with the requirements of SOFTEX forms as already explained in Para No.2 above. 6.2 In view of this fact, we do not find that there are any difference of facts as compared to the assessment year 2004-2005 and in the assess .....

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deduction to the assessee u/s 10B of the Act. 7. The grounds which remain for disposal for assessment year 2003-2004 are the ground Nos. 1, 2 and 4 as the ground Nos. 5 to 11 have already been disposed of along with I.T.A. No.99/NAG/11 and 100/AG/11. The only issue involved in all these grounds relate to the assailment of the initiation of the reassessment proceedings and the validity of the order passed in consequence of reassessment proceedings. The brief facts relating to this issue are that .....

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sons: Assessment Year 2003-04 Reasons for reopening assessment :- the assessee has filed a return of income for assessment year 2001-02 on 29-11-2003 declaring income of ₹ 52,93,205/-. The assessee is running a computer software business in the name of M/s Jai Hari Softech, Nagpur. During the year under consideration, the assessee has shown total receipt of ₹ 5,69,32,783/- and net profit has been shown at ₹ 4,90,13,560/- giving profit rate of 90.2%. The entire profit has been s .....

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exemption under section 10B of the Income-tax Act, 1961 as an 100% export oriented unit. The assessee has stated that it was exporting computer software to the above referred firm during the above years. The exemption claimed under section 10B has been allowed except for the assessment year 2004-05 wherein it was disallowed as the assessment was passed as an ex-parte under section 144 of the Act. The disallowance made for the assessment year 2004-05 has been confirmed by the CIT(A) II Nagpur vid .....

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letter is issued certain information with reference to the export certified by the STPI. The letter is issued as late as 03.01.2007 when the business of the assessee of the export of software has discontinued as per the version of the assessee asking for the details as 07.03.2007 by STPI. Itself means that there was no such business of software done by the assessee as it is seen that the assessee is showing net profit as 90% and above from this business which is not possible at any time of busin .....

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by the assessee are nothing but money laundering transactions. The assessee is not entitled to exemption under section 10B of the Act. Moreover, the entire receipt shown by the assessee is to be taxed in the hands of the assessee as undisclosed income of the assessee. In view of above, I have reasons to believe that the income assessable in the hands of the assessee to the extent of ₹ 5,69,32,783/- has escaped assessment for the assessment year 2003-04. Hence it is considered necessary to .....

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Officer did not supply the copy of the reasons. The reasons were supplied to the assessee vide letter dated 29/12/2008, which were received by the assessee on 30/12/2008. The assessee furnished various comments vide letter dated 25/12/2008 to substantiate the bonafide of the export and the claim of the exemption u/s 10B of the I.T. Act. The assessee sought one week time to file the objection on 31/12/2008 but as the assessment was going to be time barred on 31/12/2008, the Assessing Officer comp .....

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d due to change in opinion on the same very facts. From the reasons recorded, it was contended that the Assessing Officer has merely acted upon a letter stated to have been addressed by STI dated 03/01/2007, the contents of which have also been quoted by the Assessing Officer in the reasons to believe. The Assessing Officer himself had not come to a definite conclusion of escapement of income but on the contrary has went upon certain information alleged to have been received from a foreign sourc .....

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TR 561 (SC). 9. The learned D. R., on the other hand, relied on the orders of the authorities below. 10. We have carefully considered the rival submissions and perused the material on record along with the orders of the authorities below. We have gone through the provisions of section 147. Under section 147, the Assessing Officer can reopen the assessment. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, the expressi .....

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assessment on the basis of mere change of opinion. In this regard the Hon'ble Supreme Court in the case of CIT vs. Kelvinator (supra) has held as under: In the case of CIT vs Kelvinator of India Ltd 320 ITR 564 (SC) has held that however, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of mere change of opinion , which cannot be per se .....

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