TMI Blog2021 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... o employees directly hired by the assessee. In the above table, the assessee has specified the nature of work done, details of manpower as well as work sheets showing utilization of the professionals to carry out the work of software development. The sample copies of timesheets have also been placed. Upon perusal of the same, it could be seen that elaborate timesheets have been maintained for time spent by software professionals on various projects. The invoices raised by various agencies for supply of manpower to the assessee has also been placed. It could be seen that these agencies have supplied technical manpower to the assessee to carry out software development work at Baddi. There is no concrete material on record which would suggest that the assessee s claim was not genuine and no work was carried at the Baddi Unit. The fact that the assessee had one internet connection / AC or inadequate computer facilities or the fact the bank accounts were not maintained at Baddi location is only a matter of perception and nothing conclusive could be borne out of those observations. Assessee had well substantiated its claim of deduction u/s 80-IC - Decided in favour of assessee. - I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it at Himachal Pardesh. 2. The Ld. AR, drawing attention to various documents as placed in the paper-book, assailed the conclusions drawn by lower authorities. The Ld. DR, on the other hand, submitted that the impugned order is a reasoned order and the same should be upheld. 3. We have carefully heard the rival submissions and perused relevant material on record including documents placed in the paper-book. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. Assessment Proceedings 4.1 The material facts are that the assessee being resident partnership firm is stated to be engaged in the business of software development export. The assessee firm is part of Fox group which is engaged in providing complete automation solutions. The assessee carries out development of software whereas the other concerns are engaged in manufacturing trading activities. The software developed by the assessee is loaded into CPUs being manufactured by the other group concern i.e., Fox Solutions who also has plant at Baddi. The finished goods are exported from that unit at Baddi. The partners of the assessee firm have stated to have develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of sale invoices, it was also observed that the group had common format of sales invoices, quotation invoice and letter head etc. The assessed was having bank account only at Thane and Andheri. The employees employed by the assessee were residing only at Nashik. No evidence could be furnished by the assessee regarding working of these employees at Baddi Location. 4.5 Notice was issued u/s 133(6) to Fox Solutions calling for details of personnel who rendered services on their behalf to the assessee. The reply was duly responded to by that entity and the transactions were confirmed. However, the same could not convince Ld. AO who alleged that there was overlapping of the business. 4.6 Finally, it was held that there was no value addition arising from Baddi Unit. The business receipts did not arise from Baddi location and there was no sufficient nexus between the activity being carried out at Baddi unit and the business income arising in the hands of the assessee. Therefore, the deduction as claimed u/s 80-IC would not be available to the assessee. Accordingly, assessment was framed denying this deduction to the assessee. 5. Appellate Proceedings 5.1 Duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uire trained software professional which were engaged on contractual basis. The confirmation from the software professionals was placed on record. The confirmation from clients supporting the fact that they placed orders on Baddi Unit was also placed on record. Accordingly, the assessee assailed the action of Ld. AO in denying the deduction. 5.4 The assessee further submitted that the software developed by the unit was loaded on a CPU which was supplied by another concern. The CPU became part of control panel which was finally used by the ultimate customer for plant automation. The control panel as a whole including the software installed therein was tested by the ultimate customer at Baddi Unit. The said control panel was exported from Baddi. The sales register of the assessee with corresponding sales register of sister concern i.e., Fox Solutions would establish this link. The copies of export invoices etc. were produced in support of the claim. The particulars of software professionals and their visit to Baddi unit was also tabulated in para-5 of the submissions. The copies of purchase orders for hiring the professional from sister concern was also furnished. The total amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any Export Processing Zone or Integrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified^ by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States; (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, ^[2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unit is indeed earned from the unit eligible for claiming deduction under the section. The most important aspect envisaged by the section is that income should have been genuinely earned by the aforesaid unit by setting up an undertaking in the areas/region/states such that not only profits are derived by the undertakings but more essentially there is employment generation, real estate development and progress in these backward regions. This is the underlying spirit of the section as envisaged by the lawmakers. 4.1.10 The AO has noted in para 10 of the assessment order that ... ...the claim is not that the business receipt is not there but, the facts show that these business receipts don't arise from the activities taking place at Baddi, Himachal Pradesh. Further, there is no sufficient nexus between the activity taking place at Baddi Himachal Pradesh and the business income arising in the hands of the assessee....... . The assessed income and other relevant figures of the Assessee for past three years is as follows: Table A A.Y. 2009 -2010 A.Y. 2010 - 2011 A.Y. 2011 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Baddi provided by the assessee during the assessment proceedings are- S. No. Name 1 Aarti Kothule 2 Artee Chougule 3 Depali Zure 4 Kaveri Sonawane 5 Manoj Kale 6 Nasrin Khan 7 Pradyna Thite 8 Sonali Panse 9 Vishal Bhavsar ii) Vide its first submission dtd. 16.02.2015 the appellant provided affidavits of the following persons/software professionals who worked at Baddi during the FY-2010-11. S.No Names 1 Dhannajay Patil 2 Deependra Parikh 3 Jitendra Kocher 4 Soumitra Bhattachayya 5 Rohan To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /KTER146 06/09/10 TO 12/09/10 15700 Rohan Tokekar FSL/101 1/TER705 17/02/11 TO 27/02/11 5736 Mayur Mirase FSL/ 101 1/TER665 13/12/10 TO 27/01/11 1387 Pruthviraj Toge FSL/1011/TFJ1739 07/03/11 to 22/03/11 11902 Subhas Chandra FSL/101 1/KTER255 15/01/11 to 27/01/11 5213 Kiran Shelar FSL/ 101 1/TER780 13/12/10 to 27/01/11 1387 The above details submitted at various points of time indicate that there are only two names which find mentioned in the list i.e. Gajanan Rokade Rohan Tokekar. It must be pointed out that Gajanan Rokade is also the authorize signatory for the appellant. Why list of different names have been submitted at different junctures is anybody's guess but it indicates that these names are an afterthought. Moreover the costs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kiran Shelar The above table depicts the inconsistencies in the submissions made by the appellant such that at each stage different software professionals were shown to be engaged and working at Baddi. Such details submitted cannot be accepted as true just for the very fact that each letter/submission contradicts the other. The affidavits of software professionals submitted as additional evidence during appellate proceedings are vague and inconclusive as they merely state that the persons signing it worked in the Baddi unit during the AY-2010-11 but do not mention the exact time period. Some say they worked for two months, some five months and some do not mentions any specific time period. The affidavit of Rohan Tokekar and Gajanan Rokade do not specify that they are software professionals nor their qualification indicating that they were probably engaged in another capacity. An analysis of the particulars of software professionals and their visits to Baddi submitted by the appellant in his final submission in October, 2018 as indicated in Table C above reveal that out of 17 alleged software professionals there were 5 persons who were paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns and payment to independent consultant of ₹ 22,91,290/- ₹ 50,10,929/- is not reflected as per the table C submitted by the appellant. The facts of the case and the statement of the partner reveal that for a company hugely and solely reliant on internet and software have only one Basic Dongle for internet access i.e. there is no LAN/Broadband provision. The partner has also confirmed that the office premises in Baddi wherein such huge software development projects/contracts are being undertaken consists of only one room with one Air conditioner dedicated for the development of software. The photographs submitted of the Baddi premises reveal a single barren room with six tables and six computers with no indication of any work being undertaken. The AO has recorded in his order that the website of Fox Group and Fox Automation bears no mention of the unit at Baddi. Yet in spite of this the appellant has claimed generation of new business and the development of software in Baddi. The observation of the AO that all Banks operated by the group and Fox Automation in particular were located at Thane, Mumbai is noteworthy as it indicates that most of the funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to time and letter from patwari in Baddi. Thus, apparently, the assessee fulfils all the prescribed conditions of claiming deduction u/s 80-IC. As per the rent agreement dated 20/02/2010, the assessee has agreed to take on rent first floor of a premise having approx. area of 850 square feets situated at Baddi. The said premises have been registered as per Service Tax Rules which is evident from Form ST-2 as placed on record. 7. The assessee is engaged in the business of software under information and communication technology industry. This software is related to PLC, Drives, SCADA and Automation IT. The other group concerns of the assessee carry out manufacturing activity and trading activity whereas the assessee has carried out software activity. The operations may be overlapping in nature since the client would require all the three services. However, separate purchase orders quantifying the amount of each activity were issued by the clients which has been booked as revenue in respective concerns. The software developed by the unit was loaded on a CPU which was supplied by another concern. The CPU became part of control panel which was finally used by the ultimate customer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 2. Fox Solutions ₹ 33,74,077 Software Development Work Sheets are submitted in response to question 1 SANJAY KUMAR SAHA TARIK ISLAM SAMEET PATHAN KANISHKA BHATTACHRY VINIT TAWARE SUBRATA MANNA RAJU HARP ALE SAMRAT DATTA ROHAN TOKEKAR MAYUR MIRASE MOHAN SAMPKAR PRUTHVIRAJ TOGE SUBHAS CHANDRA KIRAN SHELAR GAJANAN ROKADE NILESH SHIMPI SATISH LOKHANDE MOHAMMAD A.LI TUKARAM DAREKAR PRASHANT SONAWANE PAVAN GOSAVI PANKAJ BHAVSAR FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 3. Shree Consultancy Services ₹ 3,19,425 Software Development D. PATIL FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 4. Ayaan Consultancy Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een that the assessee engaged the services of software professionals from sister concern as well as from outside agencies at different rates. The manpower is hired at ₹ 7000/- per day including travelling from sister concerns. This rate is ₹ 9500/- per day for outside agencies. The amount paid to independent professional was ₹ 22.91 Lacs whereas amount paid for manpower hired from sister concern was ₹ 50.10 Lacs. Thus, the manpower was sourced from various streams viz. independent consultants directly hired by the assessee himself and the manpower hired from sister concerns and outside agencies. This fact has not been fully appreciated by Ld. CIT(A) and hence, the observations that the assessee supplied different names at different point of time and there were inconsistencies in the information supplied by the assessee. However, upon perusal of above table, it becomes clear that these employees were contractual employees whereas the details submitted before Ld. AO was with respect to employees directly hired by the assessee. In the above table, the assessee has specified the nature of work done, details of manpower as well as work sheets showing utilization ..... X X X X Extracts X X X X X X X X Extracts X X X X
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