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2012 (11) TMI 105 - AT - Income TaxExemption u/s 10A - export of software - A.O. concluded that the required condition of Sec.10A was violated by assessee. - AO observed that claim of the assessee as not genuine and therefore, rejected the claim of the assessee. - CIT(A) allowed the claim - Held that - On identical facts of the case in assessee s own case for A.Y. 2002-03, Hon ble Tribunal has allowed the appeal of the assessee & this order of the Tribunal had been duly confirmed by the Hon ble Gujarat High Court by way of dismissing the appeal of the Revenue - as in the present case, the Revenue could not controvert by bringing any material on record that the factual position in the current year is different from that of earlier years - in favour of assessee. Short term capital gain v/s business income - share transactions -CIT(A) allowed the claim - Held that - CIT (A) has given a finding that no borrowed capital was invested in purchase of shares, buying and selling of shares was an occasional activity of the assessee and was carried out only in the last quarter of the year, the assessee had treated the shares as its investments in its Balance Sheet in Assessment Year 2004- 05 and 2005-06, the Department had accepted the income as short term capital gains - as decided in CIT vs. Associated Industrial Development Co.(P) Ltd 1971 (9) TMI 3 - SUPREME COURT the most important test is the volume, frequency, continuity and regularity of transactions of purchase and sale of the shares to come to any conclusion - CIT (A) here was right in holding the income from sale of shares as capital gains instead of business income - in favour of assessee.
Issues:
1. Claim of exemption u/s. 10A for income from software business. 2. Treatment of short term capital gain as business income. Claim of exemption u/s. 10A for income from software business: The appeal was filed by the Revenue against the order of Ld. CIT (A)- XI, Ahmedabad for the assessment year 2006-07. The Revenue raised 4 grounds of appeal, with grounds 3 and 4 being of a general nature. The assessee, a company involved in exporting computer software, declared a total income of Rs.7,93,712/-. The Assessing Officer (A.O.) observed discrepancies in the claim made under section 10A regarding income from software business. The A.O. found the company's profit from software business to be significantly high compared to the sales, and noticed irregularities in maintaining records and complying with section 10A conditions. The A.O. concluded that the claim was not genuine and rejected it. However, the CIT (A) allowed the benefit of section 10A to the assessee, citing precedents and decisions in favor of the appellant from earlier years. The Revenue, aggrieved by the CIT (A) order, appealed to the Appellate Tribunal. Before the Tribunal, the Revenue argued that the conditions of section 10A were not met, the profits were exceptionally high, and the assessee failed to provide necessary details and explanations. The Revenue contended that the assessee did not comply with the requirements and had similar issues in previous years. On the other hand, the appellant's representative highlighted previous tribunal and high court decisions favoring the assessee in similar cases. The Tribunal noted that the factual position in the current year was not different from earlier years where the assessee had been allowed the benefit of deduction. Consequently, the Tribunal dismissed the Revenue's appeal, upholding the decisions of the Co-ordinate Bench and the High Court. Treatment of short term capital gain as business income: The A.O. observed that the assessee, primarily engaged in software export business, had significant transactions in shares and commodities. The A.O. considered the turnover and frequency of share transactions, concluding that the intention was to earn profits akin to a trading activity. The A.O. treated the short term capital gain as business income. The CIT (A) overturned this decision, noting that the share transactions were occasional, surplus funds were invested, and the shares were treated as investments in the balance sheet. The CIT (A) directed the A.O. to assess the income from share transactions as short-term capital gains. The Revenue appealed this decision. During the appeal, the Revenue reiterated the A.O.'s stance, while the appellant's representative emphasized the treatment of gains as capital gains and the accounting treatment given to investments. The Tribunal considered the facts presented, including the absence of borrowed capital for share investments, occasional nature of share transactions, and treatment of shares as investments in the balance sheet. The Tribunal referred to a relevant High Court decision and concluded that the income from share sales should be treated as capital gains, not business income. Therefore, the Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decision. In conclusion, the Appellate Tribunal ITAT, Ahmedabad dismissed the Revenue's appeal regarding the claim of exemption u/s. 10A for income from software business and the treatment of short term capital gain as business income, based on detailed analysis and precedents from earlier cases.
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