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2016 (7) TMI 179

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..... her. On the facts and in the circumstances of the case, the impugned order passed by the learned Commissioner of Income-tax, Bangalore - I1I ['the CIT'] under Section 263 of the Act is bad in law and void ab inito. The learned CIT erred in concluding that the order of the Asst. Commissioner of Income-tax, Circle 12(1), Bangalore ('the ACIT') is erroneous and prejudicial to the interest of the revenue. The conditions precedent for assumption I exercise of jurisdiction under section 263 not being satisfied, the order passed under section 263 is bad in law and liable to be quashed. 2 The Learned CIT erred in concluding that the order of ACIT is erroneous and prejudicial to the interest of the revenue without appreciating the fact that (a) The impugned issue for which notice was issued under section 263 had been examined by the Assessing Officer during the course of re-assessment proceedings and AO had passed the re-assessment Order after application of mind (b) The matter was still pending before the CIT (Appeals) and had not reached finality at the time the order under section 263 was passed. 3 The learned CIT erred in concluding that the .....

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..... assessment was challenged by the assessee before the CIT (Appeals) and thereafter the revenue carried the matter before this Tribunal. The Tribunal vide its order dt.31.7.2015 in ITA No.677/Bang/2014 has decided this issue in favour of the assessee in paras 4 to 7 as under : 4.We have heard the learned DR as well as learned AR and considered the relevant materials on record. 5. The assessee is engaged in the business of software development. The assessee received the work order from foreign client for software development. The part of the work has been carried out by the assessee in India and some part of development of computer software on site of the client has been performed by the associated enterprises of the assessee under sub contract. The Assessing Officer has denied the claim of deduction u/s 10B on the ground that the income received by the assessee from the on site development of software through its associated enterprises is not eligible for deduction, as it was not the work of export of software by the assessee. 6. On appeal, the CIT(A) has allowed the claim of the assessee by following the decision of the coordinate bench of this tribunal in the case .....

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..... has placed reliance upon the Circular No.694 dated 23.11.1994 to submit that the development of software need not be carried out at the premises of the assessee company and if the assessee performs the work at the site of the customer outside India, even then it is eligible for deduction u/s 10A of the Income-tax Act. Thus, it is clear that the CBDT Circular No. 694 only clarifies that the entire work of development or manufacture of the product need not be carried out by the assessee in its own premises in India. The moot question before us is whether the assessee can sub contract part or whole of its development of software work to an agency outside India and claim the income there-from as its income eligible for deduction u/s 10A of the Income-tax Act. The learned counsel for the assessee had placed reliance upon the decisions of this Tribunal at Delhi and Mumbai in various cases which are cited in para 3 above. In the case of Techdrive India Pvt. Ltd. (cited Supra), the Tribunal was considering whether exemption u/s 10B is allowable to the assessee therein where the product was produced by the sister concern of the assessee. The Tribunal at para 17 has culled out the various st .....

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..... se company. The contractors only possesses the intellectual property rights which are already owned by it and where such intellectual property right is used for the production of the computer software, it shall grant the assessee company a non-exclusive license to use such intellectual property enabling the company to use such source code for forming part of the deliverables developed for the company. The other document to be considered is the agreement of the assessee with the customer and it is seen therefrom that though the assessee company is entitled to sub contract the work, it shall alone be responsible for the risks and rewards arising out of the such sub-contract. Clause (23) of the agreement provides for sub contracting of the work, wherein it is stated that the supplier may not sub contract the performance of any of its obligations set out therein without the prior written consent of the customers and the approval of the contractor or sub contractor and the customer shall not constitute a superseding of events or wavier of any right of customer to reject work which is not in conformation with the standard set forth in the agreement and does not constitute nor imply autho .....

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