Software Exports to Foreign Subsidiaries Genuine on Documentary Evidence: ITAT Upholds Exemption u/s 10A and 10AA [Read Order]

The assessee, Moons Technologies Limited, is engaged in the business of developing software technologies and services for various segments, including exchange business, brokerage, and intermediary services in India as well as outside India. The assessee has incorporated its wholly owned subsidiaries and step-down subsidiaries, including exchange joint ventures, to represent its exchange business globally since AY 2006-07.

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Assessee has been registered with Software Technology Parks of India (STPI) since 30.03.2005. It claimed exemption under Section 10A from AY 2006- 07 to AY 2011-12, which, according to the assessee, has been allowed regularly by the Department. Assessee has also set up a unit in the Special Economic Zone (SEZ) for which approval was granted by the Development Commissioner, which began manufacturing computer software and related services.

Assessee claimed deduction under Section 10AA in respect of export of computer software for its exchange business out of the said SEZ starting from AY 2011-12. For AY 2011-12, the original return was filed on, reporting total income at Rs 57,16,88,452/- after claiming deduction

of Rs 89,81,59,063/- under Section 10A and of Rs 4,33,44,906/- under Section 10AA, totalling to Rs 94,15,03,969/-.

The case of the assessee was taken up for scrutiny assessment. In the course of the original assessment, the assessee filed extensive details about deductions under Section 10A and 10AA. In this case, the Assessing Officer reopened the assessment for AY 2011–12 based on findings from the scrutiny proceedings for AY 2014–15, completed under section 143(3) r.w.s. 144C(3).

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The Assessing Officer noted that the assessee had invested ₹490.9 crore and advanced loans of ₹490.03 crore to these subsidiaries, suggesting that export receipts were effectively routed back through loans and investments, raising doubts about the genuineness of export proceeds. On this basis, he concluded that exemptions of ₹94.15 crore claimed under sections 10A and 10AA for AY 2011–12 had escaped assessment.

The assessee filed detailed objections contesting both the jurisdiction for reopening and the disallowance of exemptions under sections 10A and 10AA, but these objections were rejected by the Assessing Officer. Consequently, reassessment was completed, and the claim of deduction under these sections was disallowed in full. Aggrieved by this order, the assessee filed an appeal before the CIT(A).

Before the CIT(A), the assessee reiterated that all relevant financial details about its own accounts and those of its subsidiaries, as well as export transactions, had already been examined during the original assessment for AY 2011–12. The CIT(A) noted that the reopening was based solely on observations made in a later year’s assessment, with no new facts or tangible material specific to AY 2011–12.

On account of the exemption under sections 10A and 10AA, the assessee submitted that its software exports were made through the internet, duly supported by Softex Forms certified by the SEZ authorities. These forms contained all mandatory details such as exporter and buyer information, invoice particulars, and mode of export realisation, thereby proving that the software was developed in SEZ units and exported electronically.

The Assessing Officer did not dispute these documents, confirming that the assessee had indeed exported customised software to its foreign subsidiaries and received export proceeds.

The CIT(A) noted that all transactions with the subsidiaries were reported in Form 3CEB and scrutinised under transfer pricing regulations. The assessee had disclosed financial details of its domestic and foreign subsidiaries in its accounts, and the AO had not brought any evidence showing that the exports were fictitious or inflated.

The CIT(A) observed that the AO’s assumption that the subsidiaries’ financial losses implied non-genuine transactions was unfounded, as extending loans or investments to subsidiaries was a legitimate commercial decision of the assessee.

The CIT(A) held that the Assessing Officer had merely formed a new opinion based on the same set of facts that were already on record and verified earlier. In the absence of any fresh evidence or material unearthed during the subsequent assessment, the reopening was deemed unjustified and based on assumptions.

Thus, the CIT(A) accepted the assessee’s contention that the reassessment was a case of “change of opinion” and invalidated the reopening.

Since all conditions prescribed under sections 10A and 10AA were satisfied and the AO failed to present any contrary material, the CIT(A) also held that the exemption could not be denied merely on suspicion or conjecture.

The disallowance was therefore deleted, and the appellate authority directed the AO to allow the exemptions. Aggrieved by this order, the revenue filed an appeal before the Tribunal.

The two-member bench of Sandeep Gosain (Judicial Member) and Girish Agrawal (Accountant Member) upheld the view of CIT(A) in the matter, considering all the relevant facts and circumstances of the matter. The Tribunal held that there is no reason for it to interfere with the findings arrived at by CIT(A) to allow the claim made by the assessee under Section 10A and 10AA.

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