SHRI BHAVNESH SAINI AND SHRI T.R. SOOD, JJ.

ORDER

The order of the Bench was delivered by

T. R. Sood (Accountant Member).-This appeal is directed against the order of the learned Commissioner of Income-tax (Appeals), Chandigarh dated September 18, 2013.

2. In this appeal, the Revenue has raised the following grounds :

              "1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in allowing appeal of the assessee without appreciating the facts of the case.

              2. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the additions without appreciating the fact that assessment which resulted in substantial additions on various grounds was made under section 144 of the Act after affording several opportunities to the assessee to furnish the reply and the information called for which the assessee failed to avail.

             3. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) has erred in deleting the additions made under section 144 by accepting additional evidence under rule 46A of the Income-tax Rules especially when the Assessing Officer at the time of assessment has afforded sufficient opportunities to the assessee to furnish the required details which he failed to comply with when courts/Tribunal have held that the Commissioner of Income-tax (Appeals) should not invariably accept additional evidence when the Assessing Officer has afforded sufficient opportunities to the assessee.

            4. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in passing the appellate order by accepting the additional evidences submitted by the assessee without providing sufficient opportunity to the Assessing Officer to examine the same.

             5. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in deleting the addition of Rs. 97,60,72 made by the Assessing Officer while framing the order under section 144 of the Income-tax Act on account of failure of the assessee to substantiate its claim of exemption under section 10B even after affording sufficient opportunities which the assessee failed to avail.
           6. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in deleting the addition of Rs. 44,38,257 made by the Assessing Officer while framing order under section 144 of the Income-tax Act on account of failure of the assessee to reconcile the figures of the turnover after affording sufficient opportunities which the assessee failed to avail.

        7. The learned Commissioner of Income-tax (Appeals) has erred n law and in facts in deleting the addition of Rs. 6,90,000 made on account of disallowance of expenses claimed by the assessee in the profit and loss account under the head 'Investment in shares written off' on the plea that the additions would not have any effect on the total taxable income, since the appellant has been allowed benefit of exemption under section 10B of the Act when section 80(5) provides that the assessee is not entitled for exemptions not claimed in the Income-tax return.

           8. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in deleting the addition of Rs. 3,06,364 and Rs. 2,02,620 after rectification under section 154 made on account of disallowance of expenses claimed by the assessee in the profit and loss account under the heads 'Travelling and local conveyance' and 'Singapore living expenses', respectively on the plea that the additions would not have any effect on the total taxable income, since the appellant has been allowed benefit of exemption under section 10B of the Act when section 80(5) provides that the assessee is not entitled for exemptions not claimed in the Income-tax return.

         9. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in deleting the addition of Rs. 6,96,000 made by the Assessing Officer while framing order under section 144 of the Income-tax Act on account of failure of the assessee to substantiate the genuineness of the salaries paid to persons specified under section 40A(2)(b).

        10. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in deleting the addition of Rs. 6,98,603 made by the Assessing Officer while framing order under section 144 of the Income-tax Act on account of failure of the assessee to substantiate the genuineness of claim of exchange rate fluctuations."

3. After hearing both parties we find that the assessment was completed on ex parte basis under section 144. The main reason for the same is that earlier the dispute has arisen regarding grant of exemption under section 10B and the assessee requested the Assessing Officer that sometime may be given because the issue regarding exemption under section 10B was pending before the Tribunal. Since the assessment was getting time barred, therefore assessment was completed on ex parte basis. In the absence of relevant material whole of the turnover was held to be domestic turnover and therefore exemption under section 10B was not granted. Following further additions have been made :

Exemption under section 10B was also denied because total turnover was treated as domestic turnover and ultimately total income assessed after making above additions was Rs. 1,58,10,130 against returned income of Rs. 12,83,680.

4. The issue regarding exemption under section 10B was adjudicated by the learned Commissioner of Income-tax (Appeals) vide paragraphs 4.2.1, 4.3 and 5.3 which are as under :

              "4.2.1 The submission of the appellant along with the various document filed in support of its claim of exemption under section 10B of the Act were forwarded to the Assessing Officer (ITO-Ward-4(4), Chandigarh) vide this officer letter No. 605 dated July 2, 2013 for his comments in view of rule 46A(3) of the Income-tax Rules, 1962 (here inafter referred to as 'the rules') and Income-tax Officer, Ward-4(4), Chandigarh forwarded my letter along with annexures to Asst. CIT, Circle-4(1), Chandigarh vide his letter No. 2552 dated July 15, 2013. No report has been received till the date of passing of this order.

            4.3 From the documents submitted by the appellant, it is evident that the appellant is a 100 per cent. export-oriented unit duly registered with STPI and had exported computer software during the year. As per the explanation given by learned counsel for the assessee/ appellant, as discussed in para 2.1 above, the appellant was prevented by sufficient cause from producing these documents before the Assessing Officer and so the same are admitted under rule 46A(1) of the Rules. The entire amount of software export transaction is duly reported to the Reserve Bank of India by the appellant. The appellant had duly filed Form 56G along with detailed calculation before the Assessing Officer also. In fact, the Assessing Officer had sufficient material on record and there was no reason for not allowing the exemption under section 10B of the Act. In view of this discussion, it is held that the appellant is duly eligible for exemption under section 10B of the Act and the Assessing Officer is directed to allow the same. Ground of appeal No. 2 is allowed.

          5.3 I have considered the submission of learned counsel for the assessee. The net export turnover was correctly taken by the auditors at Rs. 3,89,76,026 in Form 56G after deducting the domestic turnover from total turnover and the Assessing Officer was not right in taking the export turnover at Rs. 3,43,58,299. In fact, the amount of Rs. 44,38,257 deducted by the Assessing Officer is the amount of export of software maintenance and software training and installation. The Assessing Officer has wrongly treated this amount as domestic turnover and applied the net profit rate on this turnover. I have gone through the computation and clarification given by the appellant on the issue and find that the same is correct. The addition made on this account is accordingly deleted. Ground of appeal No. 3 is allowed."

As far as additions on account of loss on share investment- Rs. 6,90,000, one-tenth of expenses on account of travelling and local conveyance at Singapore-Rs. 6,12,380, disallowance of salary paid to the relatives of director under section 40A(2)(b)-Rs. 6,96,000 and loss on account of exchange rate fluctuation - Rs. 6,98,603 have been deleted vide para 6.1, 7.1, 8.3.2 and 8.4 which are as under :
               "Para 6.1-The appellant had debited an amount of Rs. 6,90,000 to the profit and loss account on account of investment in shares written off. The Assessing Officer has added this amount. Learned counsel for the assessee has explained that the long-term capital loss was not taking into account in the return of income because 100 per cent. income of the appellant-company was exempt under section 10B of the Act since if loss on investment was taking into account, the operating profit would increase by the same figure and net tax effect would have been nil. The submissions of the appellant in this regard is correct and since exemption under section 10B has now been allowed to the appellant while adjudicating ground of appeal No. 2, the addition made on this account is also deleted. Ground of appeal No. 4 is allowed.

             7.1 The appellant had debited certain amounts on account of travelling and local conveyance and Singapore living expenses. The Assessing Officer has disallowed one-tenth of the travelling and local conveyance expenses and Singapore living expenses. In the computation of income in the assessment order, the correct amounts were not added, which have been subsequently rectified by the Assessing Officer vide order under section 154 dated January 16, 2013. Learned counsel for the appellant has submitted that the additions will have no effect on the taxable income of the appellant if the claim of the appellant regarding exemption under section 10B is accepted. The contentions of the appellant is correct. The additions would not have any effect on the total taxable income, since the appellant has been allowed benefit of exemption under section 10B of the Act. Ground of appeal No. 5 is allowed.

           8.3.2 I have considered the submissions of learned counsel. The Assessing Officer has reduced the claim of the salaries paid to relatives of the company's directors from Rs. 25,000 per month to Rs. 18,000 and from Rs. 29,000 to Rs. 20,000 per month. No cogent reason has been given by the Assessing Officer for reducing the amount of salary paid to the relatives and no material has been brought on record, leave aside the justification for reducing claim of salary. Moreover, the salaries paid are not excessive keeping in view the fact that persons working in information technology industry are getting hefty packages. The disallowance has been made by the Assessing Officer in an arbitrary manner and so the same is deleted.

            8.4 Regarding the disallowance of claim of deduction of Rs. 6,98,603 on account of exchange rate fluctuation, it appears that the disallowance was made because the Assessing Officer could not verify the rate which the invoices were issued and the rate at which these were realised. The credit is given by the banks as per the rates prevailing on the date of actual receipt. The appellant has also provided complete details in this regard in the assessment proceedings. These documents were forwarded to the Assessing Officer for comments in view of the provisions of section 46A(3) of the Rules, as already discussed hereinabove. No reply was received from the Assessing Officer till the date of passing of this order. The documents filed by the appellant are extracts from the books of account and copies of bank accounts in support of realisation of the bill amounts. As per the explanation given by learned counsel for the appellant, as discussed in para 2.1 above, the appellant was prevented by sufficient cause from producing these documents before the Assessing Officer and so the same are admitted under rule 46A(1) of the Rules. The exchange rate fluctuation given by the appellant is duly supported by documents and the Assessing Officer was not right in not allowing the deduction of this amount. The addition made on this account is accordingly deleted."

5. However, additions on account of difference in interest income in terms of Form 26-AS amounting to Rs. 33,867 and difference in provisional fee from Anglo Eastern Ship Management India (P) Ltd. amounting to Rs. 8,676 were confirmed vide paras 8.1.2 and 8.2 which are as under :
                  "8.1.2 I have considered the submission of learned counsel for the assessee. The accrued interest is to be taxed in the year in which it has accrued. The explanation of learned counsel that accrued interest on fixed deposit receipts must have been accounted for in the next accounting year does not hold water. Learned counsel is himself not sure as to whether the said difference of interest of Rs. 33,867 was actually declared in the next financial year. The addition made of Rs. 33,867 on this account is accordingly upheld.

              8.2 Regarding the difference of Rs. 8,676 on account of receipt from M/s. Anglo Eastern Ship Management India (P) Ltd., learned counsel for the assessee has submitted that the amount of Rs. 8,676 is tax deducted by payers which should have been taken into account. As learned counsel for the assessee has accepted the mistake, the addition made of Rs. 8,676 is confirmed."
The above clearly show that the learned Commissioner of Income-tax (Appeals) has mainly deleted the addition by observing that if these expenses are disallowed, the profits of the assessee would increase which would mean that the assessee would become entitled to enhanced deduction under section 10B of the Income-tax Act.

6. Before us, the learned Departmental representative for the Revenue strongly supported the order of the Assessing Officer.

7. On the other hand, learned counsel for the assessee submitted that as far as issue regarding grant of exemption is concerned, the Tribunal has already decided the issue in the case of the assessee in I. T. A. No. 1023/ Chd/2008, etc., (reported in Vertex Infosoft Solutions P. Ltd. v. Asst. CIT [2014] 30 ITR (Trib) 607 (Chandigarh)). As far as other expenses deleted by the learned Commissioner of Income-tax (Appeals), even if the addition is confirmed, deduction under section 10B is to be allowed on the enhanced income and in this regard he relied on the decisions of CIT v. Allied Industries [2010] 229 CTR (HP) 462, Deputy CIT v. Magarpatta Township Development and Construction Company [2013] 141 ITD 682 (Pune) and CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bom). Therefore addition has been correctly deleted.

8. We have considered the rival submissions carefully and find that the issue regarding allowability of deduction under section 10B is concerned, same was decided in favour of the assessee by the order of the Tribunal in assessee's own case in I. T. A. No. 1023/Chd/2008, etc. (reported in Vertex Infosoft Solutions P. Ltd. v. Asst. CIT [2014] 30 ITR (Trib) 607 (Chandigarh)). This issue was decided vide para 10 which is as under (page 612) :

               "10. After considering the rival submissions, we find force in the submissions of learned counsel for the assessee. The software is gen erally developed by the software company and then the same is sold to various customers. The normal procedure for such sale is through a licence agreement by which the customer get to use the software. But the source code is normally not provided because that will enable the customer to make any number of copies and the developer would lose the premium which it can receive by selling it to various customers. We are of the opinion that example of selling of a book would clarify the situation. Whenever a person buys a book, he gets the right to read but he does not get the copyright to produce the copies or any content of such books which does not mean that the books seller has not sold the books or customers has not purchased the books. Similarly it can be said about the usage of law journals which are being sold or purchased on licence basis. The hon'ble Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401 (SC), wherein the question arose whether sale of intellectual property in case of software through a licence would amount to sale of goods or not. In this connection, the hon'ble Supreme Court observed as under (headnote) :
              'The term "goods", for the purposes of sales tax, cannot be given a narrow meaning. Properties which are capable of being abstracted, consumed and used and/or transmitted, transferred, delivered, stored or possessed, etc., are "goods" for the purpose of sales tax. The test to ascertain whether a property is "goods" for the purposes of sales tax is not whether the property is tangible or intangible or incorporeal. The test is whether the concerned item is capable of abstraction, consumption and use and whether it can be transmitted, transferred, delivered, stored, possessed, etc. In the case of software, both canned and uncanned, all of these are possible. Intellectual property when it is put on a media becomes goods. A software programme may consist of various commands which enable the computer to perform a designated task. The copyright in the programme may remain with the originator of the programme. But the moment copies are made and marketed, it becomes goods which are susceptible to sales tax. Even intellectual property, once it is put on to a media, whether it be in the form of books or canvas (in the case of painting) or computer discs or cassettes, and marketed would become "goods". There is no difference between sale of a software programme on a compact disc/floppy disc and sale of music on a cassette/compact disc or sale of a film on a video cassette/compact disc. In all such cases, the intellectual property has been incorporated on a media for purposes of transfer. Sale is not just of the media which by itself has very little value. The software and the media cannot be split up. What the buyer purchases and pays for is not the disc or the compact disc. As in the case of paintings or books or music or films the buyer is purchasing the intellectual property and not the media, i.e., the paper cassette or disc or compact disc.

A transaction of sale of computer software package off the shelf is clearly a sale of 'goods' within the meaning of that term in section 2(n) of the Andhra Pradesh General Sales tax Act, 1957. The term 'all materials, articles and commodities' in section 2(h) of the Act includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The software programmes have all these attributes.'

11. From the above it is clear that transfer of right to use the software in media form, i.e., in the form of compact disc etc., was held to be sale of goods. The hon'ble Supreme Court in the case of CIT v. B. Suresh [2009] 313 ITR 149 (SC) where the issue arose whether exploitation of a film right which were transferred by the assessee in India to abroad would constitute export for the purposes of deduction under section 80HHC of the Act, it was observed as under (headnote) :

'Held, affirming the decision of the High Court, that the telecast ing rights fell in the category of articles of trade and commerce and hence within the category of "merchandise" and the transfer of the said rights by way of lease fell within the meaning "sale" and would attract section 80HHC.'"

Therefore the issue of exemption under section 10B is squarely covered in favour of the assessee by the above decision.

9. Now the question is if some additions are made on account of disallowances of expenses, etc. whether such income would also constitute income eligible for exemption. This issue came up for consideration of the hon'ble Himachal Pradesh High Court in the case of CIT v. Allied Industries [2010] 229 CTR (HP) 462. In that case it was held as under :

               "Deduction under section 80-IB-Profits and gains derived from industrial undertaking-Income surrendered by assessee-Assessee firm offered a sum of Rs. 2,50,000 for taxation to cover up certain dis crepancies-It is not the case of the Revenue that this was income derived from undisclosed sources-Also there is no finding of any unexplained expenditure-Addition of Rs. 2,50,000 was made to the income of the business itself -Therefore said addition would result in enhancement of income of the business and is entitled for deduction under section 80-IB- Kedar Nath Modi v. CIT [1993] 109 CTR (Delhi) 112; [1993] 200 ITR 685 (Delhi) distinguished."

Similarly the hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175 (Bom) also took a similar view and held as under (page 182) :

                ". . . As a matter of fact the question of law which is formulated by the Revenue proceeds on the basis that the assessee income was enhanced due to the disallowance of the employer's as well as the employees' contribution towards provident fund/employees State insurance corporation and the only question which is canvassed on behalf of the Revenue is whether on that basis the Tribunal was justified in directing the Assessing Officer to grant the exemption under section 10A. On this position, in the present case it cannot be disputed that the net consequences of the disallowance of the employer's and he employees' contribution is that the business profits have to that extent been enhanced. There was, as we have already noted, an add back by the Assessing Officer to the income. All profits of the unit of the assessee have been derived from manufacturing activity. The salaries paid by the assessee, it has not been disputed relate to the manufacturing activity. The disallowance of the provident fund/employees State insurance corporation payments has been made because of the statutory provisions-section 43B in the case of the employer's contribution and section 36(v) read with section 2(24)(x) in the case of the employees' contribution which has been deemed to be the income of the assessee. The plain consequences of the disallowance and the add back that has been made by the Assessing Officer is an increase in the business profits of the assessee. The contentions of the Revenue that in computing the deduction under section 10A the addition made on account of the disallowance of the provident fund/employees State insurance corporation payments ought to be ignored cannot be accepted. No statutory provision to that effect having been made, the plain consequence of the disallowance made by the Assessing Officer must follow."

From the above it becomes clear that whatever disallowances are made, such income in turn becomes eligible for exemption under section 10B of Income-tax Act. Therefore we agree with the findings of the learned Commissioner of Income-tax (Appeals) that there was no purpose of making such additions and in our opinion, such additions have been rightly deleted. Accordingly we uphold his order.

10. In the result, the appeal of the Revenue is dismissed.

The order pronounced in the open court on 18th day of November, 2014.