2015 (12) TMI 1547 - AT - Income Tax

Exemption u/s. 10A - Held that - CIT(A) correctly allowed the claim of the assessee observing that the assessee had satisfied the conditions for eligibility to claim exemption under section 10A of the Act. Also observed that the assessee s claim has also been allowed for the two assessment years following its inception. The assessee has duly proved by various evidences that the business was actually carried out by the assessee and that there were 88 employees employed by the assessee and they were having the requisite expertise and qualification required for the work of the assessee and that the assessee had actually carried out the business during the relevant financial year. All the claims have been duly verified by the AO and in view of this, he deleted the addition. - Decided against revenue

Summary

Issues:
1. Exemption u/s. 10A of I.T. Act, 1961 - Comparative study of expenses and profit earned.
2. High and abnormal profit claimed as exempt u/s 10A - Common direct control with USA firm.
3. Verification of expenses, profit, and workforce qualifications.
4. Eligibility of the assessee to claim exemption under section 10A.

Analysis:
1. The appeal was filed by the Revenue against the CIT(A)'s order for the assessment year 2009-10. The Revenue contended that the CIT(A) erred in allowing exemption u/s. 10A without a comparative study of expenses and profit earned. The AO noted high net profit ratio and questioned the genuineness of expenses. The AO doubted the turnover based on low expenses, discrepancies in employee count, and technical competence. The AO suspected a setup for tax-free income. The CIT(A) allowed the claim after verifying evidence of business activities, workforce qualifications, and expenses. The CIT(A) upheld the claim, stating the assessee met conditions for exemption under section 10A, having proven actual business operations and qualified workforce.

2. The Revenue argued that the assessee declared high profit as exempt u/s 10A, with common control with a USA firm. The AO raised concerns about expenses like foreign travel, partner's remuneration, and salary levels. The AO doubted the business genuineness and tax-free income motive. The CIT(A) reviewed the evidence, including drawings, software purchases, internet usage, and workforce details. The CIT(A) found the assessee had 88 qualified employees, conducted actual business, and met exemption criteria under section 10A. The CIT(A) relied on the AO's remand report and allowed the claim, dismissing the Revenue's appeal.

3. The AO's investigation included verifying voluminous data, software purchases, internet bills, and workforce details. The AO confirmed the business activities, software usage, and workforce qualifications. The CIT(A) considered these findings and upheld the exemption claim under section 10A. The CIT(A) emphasized the assessee's compliance with conditions and the actual conduct of business operations. The CIT(A) found no infirmity in the AO's verification and upheld the deletion of the addition, dismissing the Revenue's appeal.

4. The judgment concluded that the CIT(A)'s decision was based on verified facts and evidence, supported by the AO's investigations during the remand proceedings. The order upheld the assessee's eligibility for exemption under section 10A, confirming the actual business operations and qualified workforce. The appeal of the Revenue was dismissed, affirming the CIT(A)'s decision based on thorough verification and compliance with exemption conditions.

*Order pronounced in the open court on 11.12.2015.*