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TMI Blog2021 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... d during Assessment proceedings, Appeal proceedings and in reply to remand report. 3. The Commissioner (Appeals) failed to understand that software development is a specialized work and one cannot judge the manpower days, infrastructure required for software development by applying any yardstick. 4. The Commissioner (Appeals) has erred in concluding that the said business receipts are not arising from Baddi because of the following additional reasons: a) The appellant firm has no bank account in Baddi district of Himachal Pradesh. b) The appellant firm has not hired any employees directly in Baddi. 5. The Commissioner (Appeals) has erred in concluding that there is no nexus between the income earned at Baddi and business activity undertaken at Baddi. 6. The Commissioner (Appeals) has erred in concluding that business activity at Baddi was not genuine by questioning the business decision of the appellant of closing down the Baddi unit to avoid litigation and going beyond the scope of law. 7. The Commissioner (Appeals) has erred in not granting exemption u/s 80IC even though the appellant has not violated any of the conditions as prescribed u/s 80IC. As evident, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, technical people were outsourced. The other sister concern i.e., M/s Fox Controls Private Limited was stated to be engaged in trading of PLC, Drives and providing various related services etc in India. The other concern namely Fox Engineering Pvt. Ltd. was stated to be engaged in manufacturing / assembly of control panels. It was stated that the projects were undertaken on turnkey basis in the group concern namely Fox Solutions. The assessee as well as Fox Solution had certain common clients. The assessee carried out on-site development / installation of software etc. at various airports. For the same, contractual employees were stated to be hired for commissioning the projects. In reply to question no.24, it was submitted that the technical manpower was hired from sister concern namely M/s Fox Controls Private Ltd. & M/s Fox Solution. 4.4 On the basis of the statement, Ld. AO alleged that the activities of software development were carried out at Thane or Nashik but not at Baddi location for which deduction u/s 80-IC was claimed. Upon perusal of invoices, it was alleged that the assessee was mainly engaged in installation and commissioning of software whereas deduction was av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. The assessee also filed photograph of premises, travel tickets of the partner and declaration by technical professionals in support of the fact that work was actually carried out at Baddi unit. The assessee also submitted the copies of purchase orders. It was submitted that there was no contrary evidence on record and the deduction was denied merely on the basis of suspicion. 5.2 The additional evidences submitted by the assessee were subjected to remand proceedings wherein Ld. AO reiterated the stand that deduction was not available to the assessee. It was submitted that photographs would not conclusively prove that the assessee had operations in Baddi. The pictures do not provide concrete evidence of business operations and merely shows people sitting on a computer system which was inconclusive. The declaration could also not be accepted since they did not contain address, PAN or identification details etc. The affidavits submitted by the assessee were not supported by any corroborative evidences. Therefore, the additional evidences fail to refute the conclusions drawn in the assessment order. 5.3 The assessee assailed the same, inter-alia, by submitting that software busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any article or thing, not being any article or thing specified in the Thirteenth Schedule, or which manufactures or produces any article or thing, not being any article or thing specified in the Thirteenth 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 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 the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, 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 the State of Himachal Pradesh or the State of Uttaranchal; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 33B, in the circumstances and within the period specified in that section; (ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. 4.1.8 From the above requirements of the provision of section 80IC it is seen that Fox Automation is a Software Technology Park Industry Unit, situated in Baddi, Himachal Pradesh which commenced business operations between the requisite date of 07.01.2003 to 01.04.2012 and has derived profit from the aforesaid business. The appellant has submitted rental agreement, service tax certificate, customer replies and letter from Patwari in Baddi. To this extent it appears that the appellant fulfils the requirements demanded by section 80IC. But fulfillment of legal/basic requirements is not complete proof of operations being conducted at the Baddi unit. 4.1.9 I agree with the observations and findings of the AO in his assessment order as well as in the remand report submitted that mere fulfillment of some of the requirements of section 80IC do not in itself validate that income shown as earned by the Unit is indeed earned from the unit eligible for claiming deduction under the section. The most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cate a situation which is logically and practically impossible to arrive at due to the following: i) Inconsistencies about employees/software professionals -working in Baddi. In his statement the partner Shri Shamlal Betharia stated that 4 to 5 employees were working in Baddi whereas the AO in his order at para 9 page 9 mentions nine employees allegedly working in Baddi but were found to reside full time at Nashik. The names of the employees working in the firm 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 Tokekar 6 Gajanan Rokade 7 Vijay Ingle 8 Prashant Sonawane iv) vide its last submission in reply to the comments of the AO in the remand report submitted on 9th September, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Powar 3 Depali Zure Jitendra Kocher Tukaram Darekar 4 Kaveri Sonawane Soumitra Bhattachayya Pavan Gosavi 5 Manoj Kale Rohan Tokekar Pankaj Bhavsar 6 Nasrin Khan Gajanan Rokade Sanjay kumar Saha 7 PradynaThite Vijay Ingle Tarik Islam 8 Sonali Panse Prashant Sonawane Sameer Pathan 9 Vishal Bhavsar Kanishka Bhattacharya 10 Vinit Taware 11 Raju Harpale 12 Samrat Datta 13 Rohan Tokekar 14 Mayur Mirase 15 PruthvirajToge 16 Subhas Chandra 17 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-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 functions were still controlled and managed by the head office in Mumbai. The payments for all software development done were received in Mumbai and not in Baddi. * The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SH 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 Rs. 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 Services Rs. 3,36,833 Software Development SAHIR CHOPDAR FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 5. Shri Sai Solutions 2,90,425 Software Development RAJU RAUT FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 6. Logical Solutions 3,71,612 Software Development D. PARIKH FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 84 to 86 of the paper-book. 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 on page nos. 89 to 100 of the paper book. It could be seen that these agencies have supplied technical manpower to the assessee to carry out software development work at Baddi. 10. As against this, except for mere allegations, 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. 11. In view of the foregoing, we are inclined to hold that the assessee had well substantiated its claim of deduction u/s 80-IC. Hence, the impugned deduction u/s 80-IC was available to the assessee. We order so. The Ld. AO is directed to recompute assessee's income in terms of our abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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