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TMI Blog2010 (3) TMI 1168X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 10(2), Mumbai u/s 144A of the I T Act seeking guidelines regarding allowability of deduction u/s 10A of the Act. The ACIT conducted a personal hearing of Shri Navin Thakkar, CA and authorised representative of the assessee company and Smt Manjula Denani, Director and Shri Manish Danani, son of Smt Manjula Danani and an ex-employee of the assessee company. After having carefully considered the facts of the case and the issues involved, the ACIT was of the opinion that the assessee is not eligible for deduction u/s 10A for AY 2003-04 and 2004-05. The detailed opinion expressed by the ld ACIT were sent to the AO. Thereafter, the AO considered the opinion and the facts of the case. According to the AO, the assessee company was not having regular running office for the purpose of its business in Software Technology Park (STP). In the opinion of the AO section 10A grants exemption to tax payers for onsite software development at premises located in foreign countries but the fact remains that a regular running office is a prime fundamental and pre-requisite for any organized business activity. Further, according to the AO, the assessee company was having just four walls in STP showed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to any benefit as envisaged u/s 10A/10B of the Act. 3.4 The AO also made certain observations in para 3.2 to 3.19 of his order that negotiations between the assessee company and the said contractee company were physically not recorded. Further, the consultant appointed by the assessee company was son of the directors and his formal appointment was not available for verification. Accordingly, the deduction claim u/s 10A/10B was denied. 4 It was explained before the CIT(A) that the assessee company had satisfied all the conditions regarding allowability of exemption of income u/s 10A/10B of the Act. According to the assessee profit and gains are derived by a hundred percent export-oriented unit (EOU) and hence, the condition is satisfied. It was explained that export of articles or things or computer software has been exported onsite. Similarly, the unit is not formed by splitting up or reconstruction of a business already in existence as it is a fresh company, fresh unit and that there was no existing business. It was also explained that the assessee company is not formed by transfer to a new business of machinery or plant previously used in India. Basically, the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 10A/10B is allowable. In respect to interpretation of the agreement between the assessee company and Alpharma, detailed note was also filed. 5 The ld CIT(A), after taking into consideration the order of the AO and the detailed submissions advanced before him found that the assessee is entitled for deduction u/s 10A/10B; accordingly, the claim of the assessee was allowed. The detailed reasoning given by the AO while rejecting the claim of the assessee as well as the detailed submissions advanced by the ld AR of the assessee are incorporated in the order of the ld CIT(A) at pages 2 to 12. Thereafter, the findings have been given by the ld CIT(A) at page 12 to 14 of his order. 6 The ld DR, who appeared before the Tribunal placed reliance on the order of the AO. Part of the order of the AO read also. It was explained that the assessee is only supplying manpower and not developing any software; therefore, the assessee is not eligible for deduction. Attention of the Bench was drawn on para 3.1 to 3.10 of the order of the AO. It was further submitted that there is only one employee that too son of the Managing Director; accordingly, it was submitted that the CIT(A) was not justif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he conclusion that the assessee is entitled for deduction u/s 10A/10B of the Act. The Board circular no.890 dated 26.9.2000 has also taken into consideration by the ld CIT(A) by which on the services provided by the assessee, the assessee is entitled for deduction u/s 10A/10B. Nothing has been brought on record by the ld DR that how the notification issued by the CBDT is not applicable on the facts of the present case. 8 On similar facts, in the case of Information Architects reported in 23 SOT 306 (Mum), the Tribunal has held that the assessee is entitled for deduction u/s 80HHE. The deduction u/s 80HHE is similar to the deduction u/s 10A/10B. In this case also the assessee a partnership firm was carrying on business of computer software development. It has entered into four agreements with a bank of Ireland for providing software developments and consultancy services. The assessee claimed deduction u/s 80HHE and explained that its partners together had more than 30 man-years of experience dealing with banking software systems and had sufficient expertise therein and that Appendix to agreements well depicted scope of its work, which was to provide analysis, programming and test ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also confirmed these facts. The remittance advices of the bank also corroborate with this fact. The company has only one employee and therefore it is improper to conclude that the company is engaged in supply of manpower. The overseas company has paid the amount based on the invoices raised by the Appellant Company from time to time. Had it been the services charges merely for providing one employee, the payment would have been a single amount and that too a meagre amount as compared to the amount actually received by the Appellant company. The ACIT s the observation regarding the possession of the premises also appears to be incorrect as the ACIT has referred to the agreement of renewal of lease. It is clear from the documents that the Appellant had the possession of the premises since when the Customs Department approved the same on 04.01.2002. With regard to estimations of sales, purchase of machinery etc given to the STPI, the observation made by the ACIT is not relevant in determining the eligibility of the benefit u/s.10A/10B. These are mere projections to indicate to STPI Authorities, the expected net foreign exchange earnings to the country. Since it was an onsite assi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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