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2017 (11) TMI 1541 - AT - Income TaxDeduction u/s 80-IC - assessee was engaged in supplying personnel possessing computer skills to its clients - Held that - The assessee controlled and provided all the facilities to its clients from Dehradun and the activities undertaken by the assessee falls in Item No. 13 of Part C of Schedule Fourteenth to the Income Tax Act, 1961. The assessee has its operational unit at Dehradun, paying taxes in Uttaranchal, creating jobs in the said State, bringing new IT call centres and BPO companies to Dehradun to deliver IT services. Therefore, it fulfills the conditions to claim the deduction u/s 80IC of the Act. We, therefore, by considering the totality of the facts as discussed hereinabove, are of the view that the assessee rightly claimed the deduction u/s 80IC of the Act and the AO was not justified in denying the said claim. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under Section 80-IC of the Income Tax Act, 1961. 2. Admittance of additional evidence by the CIT(A). 3. Business model classification of the appellant. 4. Rendering of services in the field of Information and Communication Technology (ICT). 5. Location of business operations within the State of Uttarakhand. 6. Reconstruction of existing business. 7. Levy of interest under Section 234B of the Act. Detailed Analysis: 1. Disallowance of Deduction under Section 80-IC: The appellant claimed a deduction under Section 80-IC for being engaged in the Information and Communication Technology (ICT) industry. The Assessing Officer (AO) disallowed this claim, stating that the appellant was merely providing manpower recruitment and supply services, not ICT services. The AO argued that the appellant’s operations did not fall under the category of "Information and Communication Technology Industry" as specified in the Fourteenth Schedule of the Act. The AO also noted that the appellant's operations were conducted outside the State of Uttarakhand, and the appellant had reconstructed an existing business rather than starting a new one. 2. Admittance of Additional Evidence by the CIT(A): The appellant contended that the CIT(A) erred in admitting additional evidence submitted by the AO, arguing that the AO exceeded the mandate of the remand. The CIT(A) countered that the appellate authority is duty-bound to assess the correct taxable income and can utilize any fact-finding without violating the principles of natural justice. 3. Business Model Classification of the Appellant: The appellant argued that it was engaged in providing ICT services, including software development, technical help desk support, and other related services. The AO, however, classified the appellant's business as manpower recruitment and supply. The CIT(A) upheld the AO’s classification, stating that the appellant was not directly involved in ICT services but was supplying skilled personnel to its clients. 4. Rendering of Services in the Field of ICT: The appellant claimed that its activities fell under the ICT industry as specified in the Fourteenth Schedule. The AO disagreed, stating that the appellant's services were not ICT operations but rather the supply of skilled manpower. The CIT(A) supported the AO’s view, noting that the appellant's operations did not qualify as ICT industry activities under the Act. 5. Location of Business Operations within the State of Uttarakhand: The AO and CIT(A) both observed that the appellant's significant business operations were conducted outside Uttarakhand, primarily from Gurgaon. The CIT(A) noted that only a small percentage of revenue was generated within Uttarakhand, and the appellant's presence in Dehradun was minimal and primarily for administrative purposes. 6. Reconstruction of Existing Business: The AO and CIT(A) concluded that the appellant’s business was a reconstruction of an existing business rather than a new establishment, which disqualified it from claiming the deduction under Section 80-IC. The CIT(A) cited various judicial precedents to support this conclusion. 7. Levy of Interest under Section 234B: The appellant also contested the levy of interest under Section 234B. However, this issue was not separately addressed in detail in the judgment. Final Judgment: The Tribunal found that the appellant’s operations did indeed fall under the category of ICT services as specified in the Fourteenth Schedule. The Tribunal noted that the appellant provided software support, development activities, and other ICT-related services through its employees, who remained under the appellant's control and were not directly employed by the clients. The Tribunal also held that the appellant’s operations were based in Dehradun, Uttarakhand, and that the appellant fulfilled the conditions for claiming the deduction under Section 80-IC. Consequently, the Tribunal set aside the CIT(A)’s order and directed the AO to allow the deduction under Section 80-IC to the appellant. Conclusion: The Tribunal allowed the appeals of the appellant, recognizing its eligibility for the deduction under Section 80-IC of the Income Tax Act, 1961, for the assessment years in question.
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