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2019 (12) TMI 1409 - AT - Income TaxDeduction u/s 10A - restricting the deduction u/s 10A only to the extent of 70% of the profits instead of allowing 100% - HELD THAT - Assessee is not exporting the software, but engaged in the body shopping no conclusive evidence was brought on record to support the department s contention. As per the provisions of section 10A the assessee engaged in the export of software is entitled for deduction of 100% profits derived from the export of software. In the instant case, by providing various details, information, the assessee has proved that it was in the activity of software export and received foreign exchange on account of software export. No enquiries were made with the importing country, no evidence was brought on record from the STPI to establish that the assessee s claim is bogus. Therefore, we have no reason to disbelieve the export of software made by the assessee. Thus we hold that the assessee made export of software and entitled for deduction u/s 10A of the Act. - Decided in favour of assessee. Invoking the provisions of section 10A(7) and 80IA(10) - HELD THAT - AO has not made out a case for invoking the provisions to section 10A(7) and 80IA(10) and the issue was not referred to the Transfer Pricing Officer. The Ld.CIT(A) also blindly estimated the profits without bringing any comparable case on identical facts to hold that transactions were so arranged as to produce more than the ordinary profits in the hands of assessee. In the case decided by the coordinate bench in the case of Quick MD 2015 (9) TMI 552 - ITAT HYDERABAD the profit was 97.40%. The Coordinate Bench decided the issue against the department on similar facts of the assessee s case. Since the facts are similar and the AO did not make out case, the transactions are so arranged to increase the profits. Hence we are unable to sustain the order of the Ld.CIT(A) to restrict the profits to the extent of 70% instead of allowing 100% of profits for deduction u/s 10A. Accordingly, we set aside the order of the Ld.CIT(A) and direct the AO to allow the deduction of 100% profits as per law. The appeals of the revenue on this issue is dismissed and allow the appeals of the assessee. Receipts on account of recruitment of personnel - AO has taxed the entire receipts in the hands of VLS IT Systems substantively and protectively in the hands of the assessee firm - HELD THAT - AO placed reliance on the agreements between the VLS Inc. and VLS IT Systems for making the substantive assessment in the hands of the VLS IT systems. The department has challenged the order of the Ld.CIT(A) for the A.Y.2007-08 to 2010-11. CIT(A) confirmed the substantive assessment in the hands of VLS IT Systems and deleted the protective addition in the hands of the assessee. During the appeal hearing no material was placed before us to reverse the order of the Ld.CIT(A). We uphold the order of the Ld.CIT(A) with regard to confirming the addition in the hands of VLS IT Systems relating to the receipts of manpower selection and dismiss the appeal of the revenue.
Issues Involved:
1. Deduction under Section 10A of the Income Tax Act, 1961. 2. Alleged fabrication of evidence and fraudulent claims. 3. Alleged involvement in manpower supply instead of software export. 4. Invocation of Section 10A(7) read with Section 80IA(10) for excess profits. 5. Protective assessment of H1B visa processing fees. Detailed Analysis: 1. Deduction under Section 10A: The primary issue was whether the assessee was entitled to a deduction under Section 10A for software export profits. The assessee claimed 100% deduction, while the AO disallowed it, alleging fraudulent claims. The CIT(A) allowed 70% deduction, invoking Section 10A(7) read with Section 80IA(10) to restrict the profits. The Tribunal found that the assessee had provided sufficient evidence of software development and export, including FTP logs, STPI approvals, and email communications. The Tribunal held that the assessee was entitled to a 100% deduction under Section 10A, as the department failed to prove any fabrication or fraudulent claims conclusively. 2. Alleged Fabrication of Evidence and Fraudulent Claims: The AO alleged that the assessee fabricated evidence to claim deductions under Section 10A. Key points included: - Agreements signed by the same person under different names. - Alleged afterthought agreements for software development. - Discrepancies in invoices and agreements. - Contradictions in software sales to Megasoft Consultants Inc. The Tribunal found that the assessee provided reasonable explanations for these issues, including the use of different names due to different identities in India and the USA, and the loss of original agreements. No conclusive evidence of fabrication was presented by the department. 3. Alleged Involvement in Manpower Supply Instead of Software Export: The department argued that the assessee was involved in manpower supply rather than software export, based on statements from employees and agreements with VLS Systems Inc. The Tribunal noted that the receipts from manpower supply were assessed substantively in the hands of VLS IT Services, not the assessee. The Tribunal upheld the CIT(A)'s finding that the assessee was engaged in software development and export, not just manpower supply. 4. Invocation of Section 10A(7) read with Section 80IA(10) for Excess Profits: The CIT(A) invoked Section 10A(7) read with Section 80IA(10) to restrict the profits to 70%, citing unusually high profit margins. The Tribunal found that the AO did not conduct a Transfer Pricing study or provide comparable cases to justify the restriction. The Tribunal referred to previous ITAT decisions, emphasizing that mere high profits do not justify invoking these sections without concrete evidence of an arrangement to produce more than ordinary profits. The Tribunal directed the AO to allow a 100% deduction under Section 10A. 5. Protective Assessment of H1B Visa Processing Fees: For the assessment years 2007-08 to 2010-11, the AO made protective additions for H1B visa processing fees in the hands of the assessee, while substantively assessing them in the hands of VLS IT Services. The CIT(A) confirmed the substantive assessment in VLS IT Services and deleted the protective addition in the assessee's hands. The Tribunal upheld the CIT(A)'s decision, finding no material to reverse it. Conclusion: The Tribunal allowed the assessee's appeals, granting a 100% deduction under Section 10A, and dismissed the department's appeals. The Tribunal found that the assessee was genuinely engaged in software development and export, and the department failed to prove any fabrication or fraudulent claims conclusively.
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