2018 (4) TMI 1844 - AT - Income Tax

Exemption u/s.10A - assessee is duly registered with STPI as per requirement of the scheme of the year 2010-11 and the claim of deduction u/s. 10A of the Act has been allowed after due verification for the past 10 assessment years. But in the assessment year under appeal i.e. 2010-11 the claim of deduction was disallowed by AO - HELD THAT - On facts it is undisputed fact that the assessee has been consistently claiming deduction and the Revenue allowed the same without any disturbance. The Assessing Officer disturbed the same for the first time for the A.Y 2011-11. Considering ratio laid down in the case of Paul Brothers 1992 (10) TMI 5 - BOMBAY HIGH COURT we cannot appreciate the decisions of Assessing Officer and CIT(A). The decision of Pune Bench of Tribunal has already adopted the similar proposition as extracted above. Considering the above we are of opinion that this legal aspect stands covered in favour of the assessee. Thus we find merit on the grounds raised by assessee and argument made by Ld. DR on this context becomes academic exercise. Hence the grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Eligibility of the assessee for the deduction under section 10A of the Income Tax Act, 1961.
2. Validity of the disallowance of ?1,03,89,931/- under section 10A by the Assessing Officer (AO).
3. Consistency in granting deductions under section 10A in previous years.

Detailed Analysis:

1. Eligibility of the Assessee for Deduction under Section 10A:
The core issue is whether the assessee is eligible for the deduction under section 10A of the Income Tax Act, 1961. The assessee, engaged in the business of developing and exporting computer software, claimed this deduction, which was disallowed by the AO. The assessee argued that his concern, 'Talent Beat,' is duly registered with the Software Technology Parks of India (STPI) and has been claiming this deduction for the past ten years without any issues. The Tribunal found that the assessee's unit is indeed involved in the manufacturing and exporting of software, as evidenced by substantial expenses on salaries, depreciation, internet charges, and other operational costs.

2. Validity of the Disallowance of ?1,03,89,931/- Under Section 10A:
The AO disallowed the deduction on four grounds:
a) Failure to prove the development and export of software.
b) Inadequate substantiation of software development through bills raised.
c) The agreement between the parties being collusive, as the assessee is both the proprietor and the CEO of Talent Beat Inc., USA.
d) Lack of evidence to prove the claim of software export.

The Tribunal analyzed the evidence provided by the assessee, including the Profit & Loss account, details of employees, and significant operational expenses, which clearly indicated the manufacturing and exporting activities. The Tribunal found the AO's grounds for disallowance unsustainable, especially since the assessee had consistently been allowed the deduction in previous years.

3. Consistency in Granting Deductions Under Section 10A in Previous Years:
The Tribunal emphasized the principle of consistency, referring to the decisions in CIT Vs. Paul Brothers and M/s. Ygyan Consulting Pvt. Ltd. The Tribunal noted that the Revenue had allowed the deduction under section 10A in prior years, and there was no significant change in the facts or circumstances in the assessment year under appeal. The Tribunal cited the Hon'ble Jurisdictional High Court's observation that once a deduction is granted in the initial assessment year, it should not be questioned in subsequent years unless there is a withdrawal of the relief granted initially.

Conclusion:
The Tribunal concluded that the AO's decision to disallow the deduction under section 10A was unsustainable. The Tribunal allowed the appeal of the assessee, reinstating the deduction of ?1,03,89,931/- under section 10A for the assessment year 2010-11, and emphasized the importance of consistency in tax assessments.

Order:
The appeal of the assessee is allowed.