122 ITD 421 Per K.P.T. Thangal, Vice President. : These appeals are preferred by revenue against respective orders of CIT(A). 2. only ground of objection by revenue is directed against order of CIT(A) in holding that assessee has fulfilled all mandatory requirements of section 80HHE and, therefore, directing Assessing Officer to allow claim under section 80HHE. 3. Assessee is engaged in business of information vending. During year under consideration assessee declared sale turnover of Rs. 76,49,949 and gross profit of Rs. 43,54,225 at rate of 60.84 per cent. net profit shown was Rs. 43,23,039 at rate of 56.51 per cent. Assessee claimed deduction under section 80HHE of Rs. 44,16,671. Assessing Officer held that to claim deduction under section 80HHC assessee has to comply with following conditions: (i) Exports out of India, i.e., assessee is actually exporting computer software (actual exporter). There must be export; (ii) Consideration in respect of such software received in or brought into India by assessee; and (iii) Such consideration is received or brought into India in convertible foreign exchange. Assessee was asked about nature of business and was required to produce evidence with regard to actual export of computer software/data transmitted out of India by any mode and to establish nexus between foreign exchange receipt by assessee and export claim by assessee. 4. In response to above assessee replied as under: "At hearing on 15-11-2002 you had asked about business and our claim under section 80HHE of Act. Below we are giving in simple layman s terms nature of business and basis of our claim. financial data is stored in our computer and is delivered to our clients via internet (e-mail and/or FTP) thus there is no customs clearance or shipment, etc. which is required for normal export of goods. We would like to point out that before transmitting customized electronic data to our customers, we collect various documents, segregate same, capture relevant data into proprietary data base and extract only required data from proprietary data base into format customized and designed earlier specifically for each client and then transmit same. Between process of collection and transmission of data, same undergoes process of segregation, capture and conversion into customized format. In data processing projects, client sends us documents (physical or as images). information contained in documents is captured by us into data files, using internally developed project specific programmes. data contained in these data files undergoes several quality checks. Upon completion of quality checks data is extracted from files, using project specific conversion programme into format that has been specified by client. converted data is then transmitted to client via internet. Due to nature of business which involves delivery of data via modern telecommunication facilities, there is no requirement for any customs formalities. . . . There are no formal orders. Work is obtained after several interactions with clients and payments are made by client for work delivered. There is no requirement for registration with any export promotion councils or boards. We satisfy conditions required for deduction under section 80HHE of Act and, therefore, we are entitled to deduction of Rs. 44,16,671 being profit from export out of India of computer software as defined in clause (b) of Explanation to section 80HHE on its transmission from India to places outside India." 5. After discussing issue in detail Assessing Officer came to conclusion that assessee could not produce any evidence to establish that software/data has been transmitted out of India. What assessee claimed is that he is engaged in business of information vending and assessee could not produce any evidence to establishing nexus between export claim and consideration received. Assessing Officer further came to conclusion that assessee failed to comply with RBI regulations. It is pertinent to note that RBI is competent authority under section 80HHE read with section 80HHC of Act. He held that if export is made out of India and it is established that consideration has been received in lieu of such export then deduction under section 80HHE would be available to such person. In instant case assessee has failed to establish and substantiate that there has been export out of India. He further held that assessee could not establish nexus between export activity and receipt of foreign exchange. Aggrieved by above order assessee approached first appellate authority. 6. It was submitted before CIT(A) that assessee had satisfied all three conditions which were essential to claim benefit of section 80HHE. Firstly, assessee is in business of exporting customized data as defined in clause (b) of Explanation 2 of section 80HHE. Secondly, assessee has received entire consideration from export of customized data in convertible foreign exchange within six months of close of accounting year and thirdly, assessees has furnished with return of income for assessment year 2001-02 report of Chartered Accountants and Auditors M/s. Natvarlal Vepari & Co. certificate in Form No. 10CCAF. It was submitted that, without giving any further opportunity, Assessing Officer rejected claim of assessee with regard to section 80HHE, which violated principles of natural justice. He collected information without giving opportunity to assessee and decided issue against assessee. One of reasons given by Assessing Officer was that assessee failed to comply with requirements of RBI. It was submitted before CIT(A) that Administrative Directors (AD) (M.A. Series) Circular No. 1 dated 8-1-1999 categorically says that it is modifying existing procedure applicable to export of software and revised procedure is stated in para 2 of said circular. circular came into effect from 1-2-1999. Assessee applied to RBI through its letter dated 24-1-2003 for regularization of procedure and RBI by its letter dated 22-2-2003 has asked Union Bank of India, authorized dealer to regularize transaction and it was regularized subsequently. With regard to remand report, it was contended that it harps, absence of nexus between export of customized vending data and consideration received. Assessee s Chartered Accountant in para 2(a) of Form 10CCAF has categorically certified that consideration for export of customized vending data has been received by assessee in convertible foreign exchange. It was contended that under existing provision of section 80HHE, 100 per cent deduction is allowed on profits derived from export of computer software provided sale consideration is received in or brought into India in convertible foreign exchange. With view to increasing India s market share in international arena, Explanation (b ) below section 80HHE was introduced. Now by virtue of this Explanation scope has been extended to include any customized electronic data within meaning of computer software. benefit of deduction has also been extended to supporting software developers. It was further submitted that with this in view, proviso to sub- section (1) and sub-sections (1A), (3A) and (4A) were also inserted by Act so that benefit of export can also be passed on to software developers by software exporting companies. CIT(A) held that assessee in fact satisfies all conditions to avail benefit of section 80HHE. First of all, he held that, definition of computer software in clause (b) was amended by Finance (No. 2) Act, 1998 with effect from assessment year 1999-2000 to include any programme or any customized electronic data which is transmitted from India to place outside India by any means. claim of assessee was allowed by CIT(A) observing as under: "Considering fact that appellant has fulfilled all mandatory conditions of section 80HHE of Act, deduction claimed by appellant cannot be denied by Assessing Officer. For technical objection raised by Assessing Officer, as per para 9.6 of assessment order which is based o n letter received from Dy. Commissioner of Customs (Appg), Mumbai, dated 30-1-2003. During course of appellate proceedings, appellant pointed out that said letter was not made available to appellant and Assessing Officer relied on said letter for purpose of rejecting claim of appellant. In remand report, by Income-tax Officer, Ward-14(3)-3, Mumbai dated 25-7-2003 has mentioned that letter received from Customs Authorities, contents of which are reproduced in para 8.4 of page 9 of assessment order, this is clearly just position of law and not any specific detail or evidence about either assessee or case under consideration . T h e Assessing Officer has not provided copy of letter received from Custom Authorities because it is just position of law. In such case, specific reference to letter received from Custom Authority was not required to be mentioned. basic principle is that if particular material is used against appellant, it has to be supplied for rebuttal. In my opinion, letter should have been supplied to appellant before it is used for disallowing claim under section. 80HHE of Act. Taking into account, fact that all mandatory requirement of section 80HHE has been fulfilled by appellant, deduction claimed by appellant cannot be denied. Assessing Officer is, therefore, directed to allow deduction under section 80HHE of Act to Appellant." 7. While coming to above conclusion CIT(A) also noted that "assessee s clients include reputed companies like James Capel Quantitative Techniques, Edinburgh, UK, Extel Financials, London, UK, Bloomberg LP, USA, MSEI, Geneva, Switzerland who are all big companies and assessee has earned R s . 53,37,534 by sending information which was sought by these Companies. Hence, activity of appellant is clearly export of customized electronic data." Aggrieved by above order revenue is in appeal before Tribunal. 8. learned DR, on other hand, supported order of Assessing Officer. 9. learned counsel for assessee brought our attention to paper book pages 20 to 27, which is letter addressed to Assessing Officer dated 21-1-2003. It is mentioned that as regard to declaration, valuation, etc. referred to in letter by Assessing Officer were within domain of Reserve Bank of India and FEMA. By not complying with procedural aspect of export of computer software in non-physical forms, assessee might have committed technical violation of FEMA but nonetheless assessee substantially adhered to requirements of FEMA regarding export of customized electronic data. It was submitted that assessee raised invoice on assessee s customers abroad, remittance for invoice was received through banking channels and money was received within 180 days of raising invoice. Hence, assessee satisfied conditions. It was further submitted that assessee had taken up matter with RBI to regularize requirement of SOFTEX Form etc. which w s necessary procedure to be carried out by assessee. Assessee s representative again brought our attention to paper book page 29, letter addressed to RBI for regularization of software export in non-physical form. It is mentioned that assessee was in this field of activity since 1995 and started providing data processing services to clients since 1999 and data is transmitted using telecommunication facilities through internet and all details are further given. Page 31 is letter from Union Bank of India dated 24-1- 2003 with regard to export of software in non-physical form. letter is addressed to Deputy General Manager, RBI. It reads as under: "Sub.: Export of software in non-physical form. In reference to ADMA Series Circular No. 1 dated 8-1-1999, our exporter customers, M/s. Malhar Information Services have submitted details of software exports made by them in non-physical form for period January, 1999 to December, 2002. We are forwarding said details duly certified by us seeking your permission to regularize transactions. We may mention here that said exports could not be declared under SOFTEX forms since exporters/branch were not aware of provisions. This anomaly was pointed out by RBI inspectors during their recent inspection of foreign exchange transactions of our branch. We request you to condone lapse and permit regularization of transactions." 10. Counsel again brought our attention to paper book page 35, which is letter from Union Bank of India, which certifies that transactions of M/s. Malhar Information Services (assessee) that have been referred to RBI have b e e n regularized as per their instructions dated 22-2-2003. Assessee s representative submitted that in view of above appeals by revenue are liable to be dismissed as irregularities pointed out by Assessing Officer had been regularized by RBI. 11. Considering rival submissions and going through orders of revenue authorities, we are of view that appeals of revenue are liable to be dismissed. Reason for disallowance of assessee s claim of section 80HHE was that assessee has violated certain procedural norms. Vide their letter dated 22-2-2003, RBI had condoned procedural lapse and regularized it. Even otherwise in earlier years on same set of facts under same circumstances assessee was claiming under section 80HHE and it was always been allowed. only difference between earlier years and subsequent years is that now transmission is not by export zone but through internet. As rightly pointed out by assessee s representative, by introduction of Explanation (b) below section 80HHE with effect from 1-4-1999, which reads as under, assessee has undisputedly exported customized electronic data from India to places outside India and it is to be treated as valid export for purpose of section 80HHE: "Computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data which is transmitted from India to place outside India by any means." Therefore, we are of view that order of CIT(A) is in consonance with law. Appeals of revenue on all issues fails and are dismissed. 12. In result, appeals of revenue are dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. MALHAR INFORMATION SERVICES