9911796707
TMI Blog2021 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... formation supplied by the assessee. These employees were contractual employees whereas the details submitted before Ld. AO was with respect to employees directly hired by the assessee. In the above table, the assessee has specified the nature of work done, details of manpower as well as work sheets showing utilization of the professionals to carry out the work of software development. The sample copies of timesheets have also been placed. Upon perusal of the same, it could be seen that elaborate timesheets have been maintained for time spent by software professionals on various projects. The invoices raised by various agencies for supply of manpower to the assessee has also been placed. It could be seen that these agencies have supplied technical manpower to the assessee to carry out software development work at Baddi. There is no concrete material on record which would suggest that the assessee s claim was not genuine and no work was carried at the Baddi Unit. The fact that the assessee had one internet connection / AC or inadequate computer facilities or the fact the bank accounts were not maintained at Baddi location is only a matter of perception and nothing conclusive could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to various documents as placed in the paper-book, assailed the conclusions drawn by lower authorities. The Ld. DR, on the other hand, submitted that the impugned order is a reasoned order and the same should be upheld. 3. We have carefully heard the rival submissions and perused relevant material on record including documents placed in the paper-book. Our adjudication to the subject matter of appeal would be as given in succeeding paragraphs. Assessment Proceedings 4.1 The material facts are that the assessee being resident partnership firm is stated to be engaged in the business of software development & export. The assessee firm is part of Fox group which is engaged in providing complete automation solutions. The assessee carries out development of software whereas the other concerns are engaged in manufacturing & trading activities. The software developed by the assessee is loaded into CPUs being manufactured by the other group concern i.e., Fox Solutions who also has plant at Baddi. The finished goods are exported from that unit at Baddi. The partners of the assessee firm have stated to have developed a software prototype which requires further customization to bring it in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voices, quotation invoice and letter head etc. The assessed was having bank account only at Thane and Andheri. The employees employed by the assessee were residing only at Nashik. No evidence could be furnished by the assessee regarding working of these employees at Baddi Location. 4.5 Notice was issued u/s 133(6) to Fox Solutions calling for details of personnel who rendered services on their behalf to the assessee. The reply was duly responded to by that entity and the transactions were confirmed. However, the same could not convince Ld. AO who alleged that there was overlapping of the business. 4.6 Finally, it was held that there was no value addition arising from Baddi Unit. The business receipts did not arise from Baddi location and there was no sufficient nexus between the activity being carried out at Baddi unit and the business income arising in the hands of the assessee. Therefore, the deduction as claimed u/s 80-IC would not be available to the assessee. Accordingly, assessment was framed denying this deduction to the assessee. 5. Appellate Proceedings 5.1 During appellate proceedings, the assessee assailed the action of Ld. AO, inter-alia, by submitting that the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sionals was placed on record. The confirmation from clients supporting the fact that they placed orders on Baddi Unit was also placed on record. Accordingly, the assessee assailed the action of Ld. AO in denying the deduction. 5.4 The assessee further submitted that the software developed by the unit was loaded on a CPU which was supplied by another concern. The CPU became part of control panel which was finally used by the ultimate customer for plant automation. The control panel as a whole including the software installed therein was tested by the ultimate customer at Baddi Unit. The said control panel was exported from Baddi. The sales register of the assessee with corresponding sales register of sister concern i.e., Fox Solutions would establish this link. The copies of export invoices etc. were produced in support of the claim. The particulars of software professionals and their visit to Baddi unit was also tabulated in para-5 of the submissions. The copies of purchase orders for hiring the professional from sister concern was also furnished. The total amount paid to independent consultants was stated to be ₹ 22.91 Lacs whereas the amount paid to sister concern to hire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egrated Infrastructure Development Centre or Industrial Growth Centre or Industrial Estate or Industrial Park or Software Technology Park or Industrial Area or Theme Park, as notified^ by the Board in accordance with the scheme framed and notified by the Central Government in this regard, in any of the North-Eastern States; (b) which has begun or begins to manufacture or produce any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule, or which manufactures or produces any article or thing, specified in the Fourteenth Schedule or commences any operation specified in that Schedule and undertakes substantial expansion during the period beginning- (i) on the 23rd day of December, 2002 and ending before the 1st day of April, ^[2007], in the State of Sikkim; or (ii) on the 7th day of January, 2003 and ending before the 1st day of April, 2012, in the State of Himachal Pradesh or the State of Uttaranchal; or (iii) on the 24th day of December, 1997 and ending before the 1st day of April, 2007, in any of the North-Eastern States. (3) The deduction referred to in sub-section (1) shall be- (i) in the case of any undertaking o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up an undertaking in the areas/region/states such that not only profits are derived by the undertakings but more essentially there is employment generation, real estate development and progress in these backward regions. This is the underlying spirit of the section as envisaged by the lawmakers. 4.1.10 The AO has noted in para 10 of the assessment order that "... ...the claim is not that the business receipt is not there but, the facts show that these business receipts don't arise from the activities taking place at Baddi, Himachal Pradesh. Further, there is no sufficient nexus between the activity taking place at Baddi Himachal Pradesh and the business income arising in the hands of the assessee.......". The assessed income and other relevant figures of the Assessee for past three years is as follows: Table A A.Y. 2009 -2010 A.Y. 2010 - 2011 A.Y. 2011 - 2012 Mumbai Mumbai Mumbai Baddi Gross Receipts 2,65,82,622 2,39,67,889 26,30,905 6,79,77,197 Net Profit 2,03,92,222 1,70,99,748 23,56,547 5,97,15,814 NP Ratio 77% 71% 89% 88% Exemption u/s 10A or 80 -1C 2,03,33,680 u/s 10A 1,67,92,919 u/s 10A NIL 5,97,15,814 u/s 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TER Period Amount Gajanan Rokade FSL/101 1/BTER001 29/03/10 to 10/04/10 11712 Gajanan Rokade FSL/ 101 1/BTER039 14/12/10 to 01/01/11 14753 Gajanan Rokade FSL/101 1/BTER042 01/03/11 to 10/03/11 7127 Sunil Pawar FSL/1112/TER273 18/10/10 to 22/10/10 20696 Tukaram Darekar FSL/101 1/BTER009 29/05/l0 to 05/07/10 15298 Pavan Gosavi FSL/ 101 1/BTER017 07/09/l0 to 13/09/10 4881 Pankaj Bhavsar FSL/101 1/BTER020 01/10/10 to 13/10/10 6073 Sanjay Kumar Saha FSIV101 1/KTER171 0l/10/l0 to 09/10/10 7200 Tariklslam FSL/1011/TER529 21/10/10 to 05/12/10 2777 Sameer Pathan FSL/101 1/TER530 21/10/10 to 05/12/10 3414 Kanishka Bhattacharya FSL/1011/TER637 15/01/11 to 26/01/11 8075 Vinit Taware FSL/ 101 1/TER654 13/12/10 TO 27/01/11 4947 Raju Harp ale FSL/101 1/PTER029 08/11/10 to 06/12/10 2869 Samrat Datta FSL/101 1/KTER146 06/09/10 TO 12/09/10 15700 Rohan Tokekar FSL/101 1/TER705 17/02/11 TO 27/02/11 5736 Mayur Mirase FSL/ 101 1/TER665 13/12/10 TO 27/01/11 1387 Pruthviraj Toge FSL/1011/TFJ1739 07/03/11 to 22/03/11 11902 Subhas Chandra FSL/101 1/KTER255 15/01/11 to 27/01/11 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essionals nor their qualification indicating that they were probably engaged in another capacity. • An analysis of the particulars of software professionals and their visits to Baddi submitted by the appellant in his final submission in October, 2018 as indicated in Table C above reveal that out of 17 alleged software professionals there were 5 persons who were paid between ₹ 30 to ₹ 107 per day indicating that they were not full-fledged software professionals but were most likely data entry level operators. Table D Month Name of Software Professional Duration of Stay at Baddi April 2010 Gajanan Rokade 10 days May 2010 Tukaram Darekar 3 days June 2010 Tukaram Darekar 30 days July 2010 Tukaram Darekar 5 days August 2010 Nil Nil September 2010 Samrat Datta/ Pavan Gosavi 7 days October 2010 Sanjay Kumar Shah/Pankaj Bhavsar/Sunil pawar/ Tariq Islam/Sameer Pathan 26 days November 2010 Tariq Islam/Sameer Pathan/Raju Harpale 30 days December 2010 Tariq Islam/Sameer Pathan/Raju Harpale/ Gajanan Rokade/Vinit Taware/Mayur Mirase/Kiran Shelar 25 days January 2011 Vinit Taware/Mayur Mirase/Kiran Shelar/Subhas Chandra/Kani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned from a nonexempt unit is allowed to be shown as the income of the exempt unit. In this case, it is apparent that the income earned from units in Mumbai were being diverted and shown as income from the Baddi unit when in reality no worthwhile software development work was being accomplished in Baddi. * The Intention of the appellant is paramount in determining whether the Baddi unit was set up only for diverting profit and claiming ineligible deduction u/s. 80IC or that it was set up as a serious, committed business venture in keeping with the requirements of the Law. During the appellate proceedings the AR informed that the Baddi unit has closed shop for the last 3-4 years and the reason for winding up was stated to be the litigations pending with the judicial authorities. The reasoning given for winding up is not acceptable and it reveals the true intention of the appellant was to divert profits and evade taxes because a genuine undertaking will not close operations only for the reasons that cases were in various stages of litigation. * For the reasons cited above after considering the facts of the case and the various of submissions of the appellant, I find no infirmity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng sales register of Fox Solutions for establishing the link between the software developed and its further export was also furnished. 8. It is quite evident that the assessee furnished confirmation letters from various customers specifying that the orders were placed on Baddi Unit and they visited Baddi unit for inspection of the software developed by the assessee. The sample purchase orders, invoices raised by the assessee and the confirmations of various customers have also been placed before us on page nos. 31 to 86 of the paper-book. It is categorical confirmation by the customers that the orders for software development were placed on Baddi Unit and they also confirmed having visited Baddi unit for software Factory Acceptance Tests (FAT) purposes. 9. To carry out software development, besides engaging independent professionals, the assessee has engaged software professionals on contract basis. These professionals are outsourced from sister concern as well as from outside agencies. In reply dated 29/11/2013 to Ld. AO, the assessee furnished list of employees in AY 2011-12 along with cost to assessee as well as the nature and functions performed by them. However, in subsequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 8 Anand Engineers 3,00,000 Software Development J. KOCHER FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 9 Om Solutions ₹ 3,00,000 Software Development MANOJ ATTARDE FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. 10. SSB Consultancy Services 4,81,595 Software Development SOUMITRA BHATTACHARRYA FOX AUTOMATION Khasara No 437, Kashav Complex, NH-21 A, Pinjore Nalagarh Road.Village Surajmajra Labana. Prg Dharampur.Tehsil Baddi.District Solan.Himachal Pradesh. Thus, it could be seen that the assessee engaged the services of software professionals from sister concern as well as from outside agencies at different rates. The manpower is hired at ₹ 7000/- per day including travelling from sister concerns. This rate is ₹ 9500/- per day for outside agencies. The amount paid to independent professional was ₹ 22.91 Lacs whereas amount paid fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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