2021 (10) TMI 977 - HC - Income Tax

Deduction u/s 80HHE - Substantial question of law or fact - whether Hon ble ITAT was correct in confirming order of CIT(A) allowing deduction u/s 80HHE without considering the facts brought on records which clearly established that the assessee did not conduct any software development and the assessee failed to establish the genuineness of the software development charges so paid as evidence from the replies to the summons issued to the persons to whom the assessee purportedly paid software development charge and the assessee even failed to produce the source code of the purported software developed and exported ? - HELD THAT - ITAT has come to the factual finding that on the basis of material on record the claim of respondent under Section 80HHE of the Act was in order. ITAT has also come to the factual finding that the source code of softwares developed have been provided by respondent to the Assessing Officer. ITAT, therefore, concluded that when the export made by LNSEL has been accepted to be genuine by the Assessing Officer in LNSEL s case, the objection of the Assessing Officer in the present case that the exporters Apkidukan.com, the ultimate purchasers of the softwares does not appear to be genuine, cannot be accepted. Assessing Officer had relied upon statements of 5 persons who had denied having developed any software for respondent. ITAT rightly concluded that respondent should have been given an opportunity to cross-examine those 5 persons, which was not granted. ITAT has also observed that there were others, whose affidavits were filed by respondent confirming that they worked for respondent and those affidavits have not been considered by the Assessing Officer. ITAT has made an observation on fact is that the Assessing Officer has also overlooked the fact that TDS for the payments made were duly recorded in the books of accounts and relevant vouchers found during the search only corroborate the genuineness of such payments and that TDS duly deducted was paid to the Government account. ITAT held that nothing has been brought on record by the Assessing Officer to suggest that all such facts borne from the books of account were bogus or incorrect as the books of account have not been rejected. We find that no substantial questions of law arise and the entire dispute revolves around question of facts. ITAT has not committed any perversity or applied incorrect principles to the given facts and when the facts and circumstances are properly analysed and correct test is applied to decide the issue at hand, then, we do not think that questions as pressed raises any substantial questions of law.

Summary

Issues Involved:
1. Deduction under Section 80HHE of the Income Tax Act.
2. Genuineness of software development and export.
3. Validity of disclaimer certificates issued by LNSEL.
4. Assessment of software development charges.
5. Procedural fairness in the assessment process.

Issue-wise Detailed Analysis:

1. Deduction under Section 80HHE of the Income Tax Act:
The respondent, a software exporter, claimed deductions under Section 80HHE for AY 2001-2002 and AY 2002-2003. The Assessing Officer disallowed these claims, but both CIT(A) and ITAT upheld the respondent's entitlement to the deductions. ITAT concluded that the respondent's claim under Section 80HHE was in order based on material evidence, including the acceptance of the export value by the Department of Electronics and the disclaimer certificate issued by LNSEL.

2. Genuineness of Software Development and Export:
The Assessing Officer challenged the genuineness of the software development and export, citing that the respondent failed to produce the source code and that certain individuals denied working for the respondent. ITAT found that the respondent had provided the source code and that the export was genuine, as confirmed by the Department of Electronics. ITAT also noted that the affidavits of individuals confirming work for the respondent were not considered by the Assessing Officer.

3. Validity of Disclaimer Certificates Issued by LNSEL:
The Assessing Officer argued that LNSEL was not entitled to issue disclaimer certificates for the respondent, thereby making the respondent ineligible for deductions under Section 80HHE. ITAT found that LNSEL, a recognized Software Technology Park, had issued valid disclaimer certificates and had claimed deductions under Section 10B, which were accepted by the department. ITAT concluded that the objection regarding the disclaimer certificates was unfounded.

4. Assessment of Software Development Charges:
The Assessing Officer disallowed software development charges claimed by the respondent, arguing that individuals denied having worked for the respondent and that no activity was carried out as per STPI, Bhubaneshwar. ITAT observed that the respondent should have been allowed to cross-examine these individuals and noted that other affidavits confirmed the work done. ITAT also highlighted that TDS for payments was recorded and paid to the government, supporting the genuineness of the transactions.

5. Procedural Fairness in the Assessment Process:
ITAT criticized the Assessing Officer for not allowing the respondent to cross-examine individuals whose statements were used against them and for not considering affidavits supporting the respondent's claims. ITAT emphasized that no addition could be made based on uncorroborated statements and that the books of accounts, which were not rejected, supported the respondent's claims.

Conclusion:
The High Court dismissed the appeals, agreeing with ITAT's findings that the issues were factual rather than legal. The court found no substantial questions of law and upheld ITAT's decision, noting that the Assessing Officer's objections were based on presumptions and not supported by evidence. The appeals were deemed devoid of merit and dismissed with no order as to costs.