ITAT Delhi Blesses “Typo” Claim – ₹43 Cr Arbitration Award Recast as Software Sales!

ACIT Vs Nuwave E Solutions (P) Ltd (ITAT Delhi)

ITAT Delhi Blesses “Typo” Claim – ₹43 Cr Arbitration Award Recast as Software Sales!

Case Background

• Assessee: Nuwave E Solutions (P) Ltd., a 100% EOU engaged in development & export of software, registered with STPI.
• Major shareholder: Shri Anil Gupta (99%), who also owns the US AE (sole buyer).
• AO’s Assessment (31.12.2010 u/s 143(3)):

Disallowed deduction u/s 10A on:

₹43.49 Cr “Arbitration Award” (claimed to be software sale).

₹1.23 Cr forex gain.

• Invoked s.40(a)(ia) on ₹3.55 Cr for short TDS (10% instead of 20%) on buyback from Anil Gupta.
• Assessed income at ₹49.74 Cr.
• CIT(A) (15.03.2011) deleted additions, holding “Arbitration Award” was typographical error & forex gain eligible.
• Revenue’s Appeal before ITAT: Challenged CIT(A)’s order on all three issues.

Tribunal’s Findings

1.₹43.49 Cr “Arbitration Award” (Sale of Source Code) – 10A Deduction

• AO treated as arbitration award, not export; alleged inflated NP (87%).
• Assessee showed it as software export, error in notes; filed CA certificates, SOFTEX forms, FIRC, TPO order confirming ₹56.36 Cr turnover.
• Tribunal noted:

In AY 2006-07, NP margin 80% accepted with 10A deduction.

TPO accepted ALP; no TP adjustment.

Typographical error established with supporting documents.

AO’s contradictory treatment (included in turnover in one part, excluded elsewhere).

• Held: It was export of software, not arbitration award. Deduction u/s 10A allowed. Revenue’s Grounds 1–4 dismissed

2. Forex Fluctuation Gain of ₹1.23 Cr

• AO excluded as post-export, relying on Pandian Chemicals.
• CIT(A) relied on Woodward Governor (SC), Sony India (ITAT-Del) & others, holding forex gain integral to export.
• Tribunal noted consistency—forex gain accepted in earlier years as 10A eligible.
• Held: Forex fluctuation is part of export turnover; eligible for 10A. Revenue’s Ground 5 dismissed

3. Buyback of Shares – Short TDS @10% vs 20% (₹3.55 Cr disallowance)

• AO applied s.40(a)(ia) for short deduction.
• CIT(A): Buyback is not P&L expenditure (adjusted from reserves), hence s.40(a)(ia) not applicable; even otherwise, short deduction does not trigger disallowance.
• Tribunal relied on CIT v. M.C. Sharma Associates (Raj HC) & CIT v. S.K. Tekriwal (Cal HC, 361 ITR 432).
• Held: Short TDS not hit by s.40(a)(ia). Revenue’s Ground 6 dismissed

Decision

• Appeal of Revenue dismissed in entirety.
• CIT(A)’s order upheld.
• Assessee entitled to full deduction u/s 10A, including forex gain, and no disallowance for short TDS.

FULL TEXT OF THE ORDER OF ITAT DELHI