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TMI Blog2006 (1) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... the opportunity to the assessee to file the audit report in the Form No. 10CCAF in the place of Form No. 10CCAC and thereby disregarded the CBDT's Circular No. 1/2001, dated 17-1-2001 where the CBDT has clarified that procedural defect can be corrected. 4. The ld. CIT(A) erred in exceeding his jurisdiction in disallowing the entire claim of deduction of Rs. 1,67,38,513 without taking into account the facts that the Assessing Officer himself had allowed the deduction to the extent of Rs. 47,16,987 which remained to be deducted while computing the total income. 5. The ld. CIT(A) further erred in not appreciating that the Assessing Officer had erroneously computed the deduction at Rs. 47,16,987 as against Rs. 62,54,283 under section 80HHC due to not apportioning direct cost proportionately on the basis of export turnover to total turnover. 6. The ld. CIT(A) erred in not treating the payment of export dues received in shape of shares allotted by the foreign customer in settlement of export dues as foreign exchange brought into India without appreciating that the payments received in the shape of shares are in lieu of foreign exchange realization. The appellant submits that the CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report in Form No. 10CCAC for claiming deduction of Rs. 1,67,38,513 under section 80HHC. The assessee stated before the Assessing Officer that the entire turnover of Rs. 2,10,24,524 comprised export of software, mainly to Pinkmonkey. Com. The Assessing Officer observed from the inward remittance certificates that from the export of software during the relevant previous year only Rs. 78,55,735 was received in India in convertible foreign exchange. For the balance amount of exports of Rs. 1,28,51,014 the assessee had received 301667 fully paid shares of Pinkmonkey. Com Inc., USA. It was contended by the assessee that since these shares were received in India, these should also be construed as export proceeds received in India for purposes of computing admissible deduction under section 80HHC. The assessee applied to the RBI on 25-3-2002 for confirming this position. The RBI advised the assessee to divest the shares immediately and repatriate the sale proceeds of the shares to India. The Assessing Officer held that since convertible foreign exchange equivalent to $ 3,00,000 had not been brought in India within the permissible time-limit, the claim of the assessee that receipt of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer. It was further contended that even if it is held that the deduction is allowable only under section 80HHE and not under section 80HHC, a mere procedural defect in filing Form No. 10CCA in place of 10 CCAF could not reasonably result in defect in filing Form No. 10CCA in place of 10 CCAF could not reasonably result in denying the deduction altogether, particularly as Form No. 10CCAC contained all the essential information and particulars required under section 80HHE was also filed along with the return of income. 5. It was further contended that receipt of the fully paid shares of the face value of US $301667 should be construed as receipt of foreign exchange. It is averred that the assessee never desired to obtain shares in return for their export but the exigency of the situation compelled them to accept the shares only as a commercial alternative. It was further submitted that the assessee applied to RBI to permit the assessee in obtaining shares from US party as per the agreement entered into by the assessee and the US party. The attention of the CIT(A) was drawn on the correspondence made with the RBI. After considering the submissions and on perusal of the other relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant either in the return or before the Assessing Officer. For claiming the deduction it is a mandatory conditions under section 80HHE(4) that the audit report in Form No. 10CCA must be filed. No such report has been filed either with the return or thereafter to this day. The fact that there are some similarities between Form No. 10CCAC furnished by the appellant and Form No. 10CCAF cannot mean that the former can be regarded as a substitute to the latter. Form No. 10CCAC does not contain the certification that the deduction under section 80HHE has been correctly claimed. 4.5 For all the above reasons I am one with the Assessing Officer that the deduction claimed under section 80HHC is not exigible in the instant case. The disallowance of the deduction claimed under section 80HHC is therefore confirmed." 6. Now, the assessee is in appeal here before the Tribunal. 7. The ld. counsel for the assessee, who appeared before the Tribunal has filed a copy of brief propositions and stated that the assessee is entitled for benefit under section 80HHC on the entire amount of sales made to Atlantis Publishing Group (AGP) of the USA. It was further stated that agreement of sales were made fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has rejected the claim of the assessee for the entire deduction by treating that the assessee was entitled for deduction under section 80HHE and the assessee was supposed to file certificate in Form 10CCAF whereas the assessee has filed its return in Form 10CCAC. Accordingly, it was held that the assessee is not entitled for deduction on the whole amount. Regarding the deduction in regard to US $ 3,00,000 received in the form of shares, the Assessing Officer rejected the claim of the assessee by observing that no receipt has been received in convertible foreign exchange. Therefore, as per the provisions of law, no deduction can be allowed. Accordingly the entire deduction has been disallowed. The CIT(A) confirmed the action of the Assessing Officer. Further reliance was placed on the decisions in Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR 488 (Bom.), Dun & Bradstreet Espana, SA, In re [2005] 272 ITR 99 , Navnit Lal C. Javeri v. K.K. Sen., AAC [1965] 56 ITR 198 (SC) and Anchor Pressing (P.) Ltd. v. CIT [1986] 161 ITR 159 (SC). These decisions were relied upon in regard to the fact that the assessee is a manufacturer and the assessee is entitled for deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Publishing Group Inc., USA. On exporting the software in respect of 150 famous literature books and 14 college level instructional texts in narrative and software form, the Atlantis Publishing Group remitted Rs. 81,73,510 equivalent to US $ 2,00,000 in assessment year 1999-2000 the year under consideration. And allotted equity shares of Rs. 1,28,51,014 equivalent to US $ 3,00,000 on 24-6-1998. The Assessing Officer denied the deduction under section 80HHC on the entire receipts by holding that the assessee was entitled for deduction under section 80HHE and not under section 80HHC. It was further held by the Assessing Officer that the assessee is a Trader and the report has not filed in the required form and therefore, he has mentioned in his order that if the deduction is to be allowed that can be allowed Rs. 47,16,987 instead of Rs. 62,54,283 which was computed on account of receipt of US $ 2,00,000. Regarding the remaining amount i.e. Rs. 1,28,51,014, which was equivalent to US $ 3,00,000, it was held by the Assessing Officer that the assessee is not entitled on this account as no convertible foreign exchange has been received by the assessee as the assessee received only shares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is imposed on the ITO by section 84 of the IT Act, 1961, to grant relief thereunder and the relief cannot be effused merely because the assessee had omitted to claim the relief, but the mere existence of such an obligation on the ITO is not sufficient. Precise factual material and clear data must be contained in the record sufficient to enable the ITO to consider whether the relief should be granted under section 84. In the absence of such material, no fault can be found with the ITO for not making an order under section 84 favouring the assessee." 10. In the present case, all the materials for claiming deduction were placed on record. Audit report was filed. Form 10CCAC was filed. The Assessing Officer himself admits in his order that the assessee is entitled for deduction under section 80HHE but he has claimed deduction under section 80HHC, therefore, he has disallowed the claim of the assessee. In our considered view, the Assessing Officer was not justified in refusing to allow the claim of the assessee because the assessee has placed all the relevant materials before the Assessing Officer. Therefore, it was the duty of the Assessing Officer to rectify the mistake by asking t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treating the same as manufacture. Therefore, the same facts should apply in the year under consideration. 15. Now, the issue in regard to sales shown is sale of goods or not as the departmental authorities have mentioned that the assessee has not made sales of goods. The Hon'ble Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 4011 held that the transfer of right to use intellectual property (software) put in media, would amount to sale of goods under the General Sales Tax Act. The Supreme Court has held that the term "goods" cannot be given a narrow meaning. The properties, which are capable of being abstracted, consumed and used and/or transferred, delivery, stored or processed, are to be treated as goods. In the present case, the assessee has prepared software and has transferred through media. Therefore, the same has to be treated as sale of goods. 16. Similar view was taken by the Bombay High Court in the case of Abdul Gaffar A. Nadiadwalla (supra). In this case, the High Court has held that grant of exclusive rights of Satellite Broadcasting and through exhibition rights in respect of film, amounts to export of film software. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived in India where such sale proceeds are credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India." 21. Thus, the requirement for allowability of deduction under section 80HHC is that the sale proceeds of good or merchandise exported outside India are received in India in convertible foreign exchange within six months or within the period as extended by Competent authority. The competent authority as per Explanation (1) is RBI, which can extend the period for bringing the foreign exchange in India. Further, the Explanation provided that where RBI permits sale proceeds to be credited in separate account outside India, still the assessee would be entitled for deduction under section 80HHC. 22. In the background of this legal position, let us examine the relevant agreement which reads as under :-- IAssets to be delivered: (i)150 (total) Synopses of famous literature books (Pink Monkey notes) see list attached. (ii)14 college-level instructional texts, in narrative form (Pink Monkey guides) see list attached. (iii)14 college level instructions in software version (Pink Monkey software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the sale proceeds of its product. What it has received is shares in barter. Even RBI has objected to this sort of transaction vide its letter dated 28-3-2002, which reads as under :-- "Reserve Bank of India, Exchange Control Department Central Officer, Mumbai - 400 001 Ref. No. EC.CO.OID/635/19.33.01/2001-02, dated 28th March, 2002. M/s. Meena Exports, P.O. Box No. 16919, Santacruz (West), Mumbai - 400 054. Dear Sirs, Acquisition of shares in foreign company Please refer to the correspondence resting with your letter dated 24th March, 2002 on the captioned subject. We note that you have acquired 300,000 shares (face value of US$ 1.00 per share) for a total amount of US$ 3,00,000 from M/s Pinkmoney Com. Inc, USA, against your export receivables from them. Please note that it was irregular on your part to have acquired the shares without prior approval of the RBI. You are, therefore, advised to disinvest the shares immediately and repatriate the sale proceeds through normal banking channels and approach us with necessary documentary evidence in support of the repatriation for further action at your end. Yours faithfully, (V. Venugopalan) Manager" 25. From this, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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