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Issues Involved:
1. Whether the assessee has fulfilled all the mandatory requirements of Section 80HHE to claim the deduction. 2. Whether the assessee has complied with the procedural norms under the RBI regulations. 3. Whether the CIT(A) was correct in allowing the deduction under Section 80HHE. Detailed Analysis: Issue 1: Fulfillment of Mandatory Requirements of Section 80HHE The Revenue's primary objection was that the assessee did not meet the requirements of Section 80HHE, which necessitates: - Actual export of computer software. - Receipt of consideration in convertible foreign exchange. - Establishment of a nexus between the export and the foreign exchange received. The assessee, engaged in information vending, claimed that its business involved delivering financial data via the internet, which does not require customs clearance. The assessee argued that it met all conditions for the deduction under Section 80HHE, including the receipt of consideration in convertible foreign exchange and submitting the necessary chartered accountant's certificate. The CIT(A) agreed, noting that the definition of computer software under Section 80HHE includes customized electronic data transmitted from India to a place outside India. Therefore, the CIT(A) concluded that the assessee satisfied all conditions for the deduction. Issue 2: Compliance with RBI Regulations The AO contended that the assessee failed to comply with RBI regulations, which is essential under Section 80HHE read with Section 80HHC. The assessee argued that it had applied to the RBI for regularization of the procedure, and the RBI had instructed the Union Bank of India to regularize the transactions. The CIT(A) found that the AO had rejected the claim without providing the assessee an opportunity to respond to the information collected, thus violating the principles of natural justice. The CIT(A) held that the procedural lapses were regularized by the RBI, and the assessee substantially adhered to FEMA requirements. Issue 3: CIT(A)'s Decision to Allow Deduction The CIT(A) noted that the AO relied on a letter from the Deputy Commissioner of Customs, which was not shared with the assessee, to reject the claim. This was deemed a violation of the basic principle that any material used against the appellant must be supplied for rebuttal. The CIT(A) observed that the assessee's clients were reputed international companies, and the activity clearly constituted an export of customized electronic data. The CIT(A) directed the AO to allow the deduction under Section 80HHE, as all mandatory requirements were fulfilled. Conclusion: The Tribunal dismissed the Revenue's appeals, agreeing with the CIT(A) that the assessee met all conditions under Section 80HHE. The Tribunal emphasized that the procedural lapses pointed out by the AO were regularized by the RBI, and the assessee had consistently been allowed the deduction in previous years. The Tribunal upheld the CIT(A)'s order, finding it in consonance with the law. Thus, the appeals of the Revenue were dismissed.
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