Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश /O R D E R
PER MANJUNATHA. G, ACCOUNTANT MEMBER:
This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-6, Chennai, dated 30.01.2018 and pertains to assessment year 2011-12.
:-2-: ITA. No: 959/Chny/2018 2. The assessee has raised the following grounds of appeal: “The order of the Hon'ble Commissioner of Income Tax (Appeal) is against facts and circumstances of the case. Both the Assistant Commissioner of Income Tax (OSD) and the CIT(A) has failed to appreciate the various submissions made in the current perspective.
1. Reopening of Assessment not valid: The Assessment was completed under section 143(3) dt 14.3.2014. While completing the Assessment the AO has considered the deduction under section 10A of the Income-Tax Act and disallowed Telecommunication and Overseas Travel as not forming part of Export Turnover and recomputed the deduction under section 10A. There was no fresh material which formed the reasons to believe that income has escaped Assessment under section 147 for Reopening the Assessment. All the facts are already available before AO while completing the Assessment. It is a mere change of Opinion. The Appellant relies upon the decision of Swarovski India Pvt Ltd Vs DCIT (Delhi High Court) 397 ITR 558 HCL Technologies Ltd Vs DCIT(Delhi High Court) 397 TR 469 Wherein it held that if Assessment is completed under section 143(3) and all material facts were placed before Assessing officer and the same issue cannot be disallowed for subsequent years The Reassessment proceedings consequent to a change of opinion by the succeeding Assessing Officer on the same set of facts without any 'fresh information' is illegal and deserved to be cancelled.
2. Validity of STPI approval for 10B Deduction:
:-3-: ITA. No: 959/Chny/2018 The Assessing officer held that the assessee has claimed exemption u/ s. 10A in the Computation of Income which is incorrect. Even during the assessment stage, the assessee has never claimed exemption u/ s. 10A. The assessee has correctly claimed exemption u/s. 10B in the Computation of Income and also in the Income Tax Return. The same has already been produced before the Assessing officer during the course of hearing. The decision of Live Connection software relied by the CIT (A) is not applicable to Appellant's case as the facts are entirely different. In the said decision the assessee had applied for registration as 100% EOU to Software Technology Parks of India (STPI) on 24.03.2005 and obtained approval only in May 2005. The issue before the court is whether 10B should be granted for the year ending 31.3.2005 or in the subsequent years. It is pertinent to note that the ruling by the Madras High Court in this case, makes it amply clear that Software Technology Parks of India(STPI) is a Competent Authority to Approve Registration of 100% EOUs in case of Companies engaged in Software Development. The Appellant further submits ITAT Delhi in the case of M/s Valliant Communication vide ITA 2706/DEL/2008 and ITAT Kolkatta in the case of M/s Wizard Enterprises vide IT A no.628/1K.01/2013 for Ay 2008-09have clearly held that Approval of STPI is sufficient for the purposes of claiming exemption under Section 10A and 10B Hence it is amply clear that STPI Approval validity is enough for the purposes of claiming exemption under Section 10B and the same was available for Assessment year 2011-12. Based on the above submission the Appellant prays that appeal be allowed. The Appellant prays to submit additional grounds if any at the time of hearing.”
:-4-: ITA. No: 959/Chny/2018 3. The brief facts of the case are that, the appellant company is engaged in the business of engineering consultancy. The assessee company has various divisions within which the company had 100% export oriented units for which permission under the Software Technology Park Scheme were obtained for export of ITES in Mumbai and Bangalore units. The appellant company had received approval for setting up 100% export oriented unit under the STPI scheme of Government of India for Bangalore unit vide approval dated 25.10.2007, by the Director of Software Technology Park of India. The appellant had also got approval under STPI scheme of Government of India for Mumbai unit vide approval letter dated 19.02.2009. As per letter of permission issued by the Director of Software Technology Park of India for both units, the permission granted/approval given is valid for three years from the date of issue and within such period, the appellant should implement the project and commence production. The letter further states that, if any application for the extension of validity is not made before the end of the said period, then the approval granted would automatically lapse.
:-5-: ITA. No: 959/Chny/2018 4. The appellant has filed its return of income for the assessment year 2011-12 on 30.09.2011, declaring total income of Rs. 24,85,37,930/-. The appellant had claimed exemption u/s. 10B of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for profit derived from Bangalore unit and Mumbai unit. The assessment has been completed u/s. 143(3) of the Act, on 14.03.2015 and determined total income of Rs. 29,71,16,985/-. The case has been subsequently reopened u/s. 147 of the Act, for the reasons recorded as per which income chargeable to tax has been escaped assessment on account of ineligible claim of exemption u/s. 10B of the Act, and accordingly, notice u/s. 148 of the Act dated 23.03.2016, was issued and duly served on the assessee. In response to notice u/s. 148 of the Act dated 23.03.2016, the assessee had requested to treat the original return of income filed u/s. 139(1) of the Act, as return filed in response to notice u/s. 148 of the Act. The case has been taken up for scrutiny and during the course of assessment proceedings, the Assessing Officer called upon the assessee to file necessary evidences including approval, if any, for claiming the benefit of exemption u/s. 10B of the Act. In response, the assessee through its Authorized Representative filed various details and justified claim of :-6-: ITA. No: 959/Chny/2018 exemption u/s. 10B of the Act and also filed revised Form no. 56F from Accountant certifying the eligible amount for benefit of exemption u/s. 10B of the Act.
The Assessing Officer, however was not satisfied with the explanation furnished by the assessee and according to the Assessing Officer, the assessee is not eligible to claim exemption u/s. 10B of the Act, for the reason that there is no approval by the prescribed authority, i.e., Board appointed by the Central Government in exercise of the powers conferred by section 14 of the Industrial (Development and Regulation) Act, 1951 and rule made there under for STPI unit at Mumbai. The Assessing Officer, further noted that from the approval given by the Director of STPI, to Bangalore unit, the validity of approval is only up to 24.10.2010 and the assessee has not furnished the copy of the extension of the approval. Since, the appellant has not furnished relevant approvals for both the units, the Assessing Officer was of the opinion that the assessee is not entitled for exemption u/s. 10B of the Act and accordingly, rejected exemption claimed u/s. 10B of the Act and recomputed total income. The relevant findings of the Assessing Officer are as under:
:-7-: ITA. No: 959/Chny/2018 “4.2 I have duly gone through the above submission and find the same as not acceptable. The assessee is not eligible to claim exemption u/s 10 B reason that there is no approval of the prescribed authority i.e Board appointed by the Central Government in exercise of the powers conferred by section 14 of the Industrial (Development and Regulation) Act, 1951and rule made under that Act. Further it is also seen from the approval to Bangalore Unit is upto Oct 2010 and the assessee has not furnished the copy of extension of the approval. Moreover, the decision cited by the assessee are mainly based on the CBDT Instruction No.1/2006 which is relevant for section 10 A wherein it is stated that the exemption u/s 1 O A may not be denied if the approval to STP is issued by director of STP whereas the STP scheme requires approval by the Inter Ministerial Standing Committee". This is not the case in the instant case as the assessee has claimed exemption u/s 10 8. Hence, the Instruction as well as decisions relied upon are not applicable to the assessee's case and the assessee's claim of exemption u/s 10 B is not correct for the reasons mentioned above. Accordingly, claim of exemption u/s 10 8 made during the course of reassessment proceedings is disallowed and an amount of Rs. 3,98,41,955/-is added to the total income of the assessee. Penalty proceedings u/s 271(1)(c) is initiated for concealing the particulars of income and furnishing of inaccurate particulars of income.”
Being aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the ld. CIT(A), the appellant has challenged re-opening of assessment on the ground of ‘change of opinion’. The appellant had also justified exemption u/s. 10B of the Act, towards profit derived from STPI units of Mumbai and Bangalore on the ground that once the units are approved by the Director of STPI, then subsequent ratification, if any, by the Board appointed for this :-8-: ITA. No: 959/Chny/2018 purpose by the Central Government is not necessary. The ld. CIT(A), after considering relevant submissions of the assessee rejected legal grounds taken by the assessee challenging validity of re-opening of assessment, on the ground that there is a live link between reasons recorded for re-opening of assessment and escapement of income, further, it is clear from the reasons recorded for re-opening of assessment, where the Assessing Officer clearly establishes escapement of income on account of inadmissible claim of exemption u/s. 10B of the Act. The ld. CIT(A), had also rejected arguments of the assessee on merit in respect of exemption u/s. 10B of the Act, on the ground that approval from the Board is mandatory to claim exemption u/s. 10B of the Act, even if units are approved by the Director of STPI. The ld. CIT(A), had also followed the decision of Jurisdictional High Court of Madras in the case of CIT vs Live Connection Software Solutions P. Ltd [2015] 370 ITR 356. Aggrieved by the CIT(A) order, the assessee is in appeal before us.
The Ld. Counsel for the assessee, submitted that the ld. CIT(A) is erred in upholding reopening of assessment without appreciating fact the Assessing Officer reopened the :-9-: ITA. No: 959/Chny/2018 assessment merely on ‘change of opinion’, without there being any fresh tangible material in his possession, subsequent to completion of original assessment u/s. 143(3) of the Act. The Ld. Counsel for the assessee, referring to the assessment order passed u/s. 143(3) of the Act dated 14.03.2014, submitted that the Assessing Officer has considered the issue of exemption claimed u/s. 10A of the Act and reworked eligible amount of exemption. Therefore, re-opening of assessment on the issue of exemption claimed towards eligible profit from STPI units amounts to mere change of opinion which is not permissible under the law.
The ld. DR, Shri. P. Sajit Kumar, JCIT, on the other hand supporting the order of the CIT(A) submitted that, there is a live nexus between reasons for reopening of assessment and escapement of income, which is clearly brought out from the reasons recorded for reopening of assessment, where it has been clearly spelt out that the appellant has made a wrong claim for exemption u/s. 10A of the Act. Since, there is a live nexus between escapement of income and reasons recorded for reopening of assessment and such reasonable belief of escapement was formed on the basis of fresh tangible :-10-: ITA. No: 959/Chny/2018 material, the question of change of opinion does not arise. The ld. CIT(A), after considering relevant facts has rightly rejected legal grounds taken by the assessee and their order should be upheld.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, reopening of assessment in the present case is within four years from the end of the relevant assessment year and thus, the proviso to section 147 of the Act is not applicable. Further, on perusal of reasons recorded for reopening of assessment, we find that there is a live nexus between escapement of income and formation of reasonable belief and such belief has been formed on the basis of fresh tangible material in the possession of Assessing Officer. Therefore, we are of the considered view that, it is not a case of mere change of opinion as alleged by the Ld. Counsel for the assessee, because the formation of belief on escapement of income is having nexus with fresh tangible material in possession of the Assessing Officer. Further, there is contradiction in the conduct of the assessee in claiming exemption towards profit derived from eligible units under :-11-: ITA. No: 959/Chny/2018 STPI scheme, which is evident from facts brought on record by the Assessing Officer, where the Assessing Officer noted that the assessee has claimed exemption u/s. 10B of the Act in the return of income, whereas in the statement of total income said exemption was claimed u/s. 10A of the Act. The conditions for claiming exemption u/s. 10A and 10B of the Act are totally different. In order to be eligible for claiming exemption u/s. 10B of the Act, the appellant must satisfy the conditions prescribed therein. Since, there is contradiction in claim of the assessee, the Assessing Officer has rightly taken a remedial action by issuing notice u/s. 148 of the Act. Therefore, we are of the considered view that re-opening of assessment is valid in the given facts and circumstances of this case and thus, we reject grounds taken by the assessee challenging validity of reopening of assessment.
The next issue that came up for our consideration from grounds of appeal filed by the assessee is exemption u/s. 10B of the Act. The Ld. Counsel for the assessee, submitted that the assessee has rightly claimed exemption u/s. 10B of the Act, for STPI units at Mumbai and Bangalore, because both units are approved from the Director of STPI. Further, the :-12-: ITA. No: 959/Chny/2018 appellant has satisfied all conditions prescribed therein, including manufacturing and export of computer software. Other conditions prescribed including repartition of export proceeds to India within the prescribed limit are also satisfied. The appellant has filed audit report in Form no. 56F from the Accountant certifying the eligible amount for exemption u/s. 10B of the Act. But, the Assessing Officer and CIT(A) rejected exemption claimed u/s. 10B of the Act, only on the ground that the STPI unit at Mumbai has not received ratification of approval by the competent authority and further for unit at Bangalore, the approval granted by the STPI was not renewed for further period. He further submitted that, the Assessing Officer has completely misunderstood the concept of approval granted under STPI scheme and conditions prescribed therein. As per the approval letter issued by the Director, the said permission is only for implementation and commencement of production, but not for claiming exemption. Since, the appellant has commenced production, it has rightly claimed exemption for the impugned assessment year. Further, once the unit has been approved by the Director of STPI, then in respect of obtaining/non-obtaining subsequent ratification of approval from the Board of Approval is not mandatory and in :-13-: ITA. No: 959/Chny/2018 this regard, he relied upon the decision of Hon’ble High Court of Madras in the case of Indus Teqsite (P) Ltd vs DCIT [2021] 133 Taxmann.com 134 and CIT vs Live Connection Software Solutions Pvt. Ltd., [2015] 370 ITR 356.
The ld. Sr. AR, P. Sajit kumar, JCIT, supporting the order of the Assessing Officer and CIT(A) submitted that, as per the provisions of Explanation 2(iv) to section 10B of the Act, 100% export oriented undertaking means an undertaking which has been approved as 100% EOU by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 14 of the Industrial (Development and Regulation) Act, 1951 and rules made under that Act. Since, the appellant failed to produce relevant approval from the Board, the Assessing Officer has rightly rejected exemption u/s. 10B of the Act, in respect of unit at Mumbai. In so far as STPI at Bangalore, the approval granted by the authority was expired in October, 2010. The appellant could not file any evidence for extension of said approval. Therefore, the Assessing Officer has rightly rejected the claim of the assessee and their order should be upheld.
:-14-: ITA. No: 959/Chny/2018 12. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The main issue in the present appeal pertains to eligibility of exemption claimed u/s. 10B of the Act, for profits derived from 100% export oriented units at STPI Mumbai and STPI Bangalore. Admittedly, both units at Mumbai and Bangalore are approved by the Director of STPI. In fact, the Assessing Officer has not disputed this fact. But, the only reason for the Assessing Officer to reject exemption claimed for STPI unit at Mumbai is not obtaining subsequent ratification from the Board appointed for this behalf by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951. As per the provisions of Explanation 2(iv) to section 10B of the Act, 100% (EOU) export oriented undertaking means an undertaking which has been approved as 100% EOU by the Board appointed in this behalf by the Central Government in exercise of powers conferred by section 14 of the Industrial (Development and Regulation) Act, 1951 and rules made under that Act. The Central Government has delegated the powers of the Board appointed u/s. 14 of the Industrial (Development and Regulation) Act, 1951, to Development Commissioners, for :-15-: ITA. No: 959/Chny/2018 approvals under STPI scheme which are later ratified by the Board of Approvals. In other words, initially the approval is granted by the Director of STPI and the same has been subsequently ratified by the Board appointed by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951. From a plain reading of provisions of section 10B of the Act, it is very clear that in order to claim exemption under said section, approval from the Board appointed by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951 is mandatory. In case, the assessee does not have any approval, it cannot claim exemption u/s. 10B of the Act. In the present case, the appellant 100% EOU unit at Mumbai is approved by the Director of STPI, but the appellant could not file any evidence to prove that said approval has been ratified by the Board appointed by the Central Government or not.
The Ld. Counsel for the assessee, is only on the legal point that once the unit is approved by the Director of STPI, obtaining subsequent ratification should not affect the claim of the exemption u/s. 10B of the Act, and in this regard he relied upon the decision of Hon’ble Madras High Court in the case of :-16-: ITA. No: 959/Chny/2018 Indus Teqsite (P) Ltd vs DCIT (Supra) and the decision of ITAT Pune Benches in the case of ACIT vs HSBC Software Development (P) Ltd., 149 Taxmann.Com 424. We have gone through the decisions cited by the Ld. Counsel for the assessee. In the above two cases, it was held that obtaining of ratification certificate from the Board has not been attributable to the assessee as a default. In other words, in case the ratification of approval has not been received from the Board appointed by the Central Government and there is no default from the assessee in this regard, then exemption u/s. 10B of the Act cannot be denied. We do not find any error in the ratio laid down by the Hon’ble High Court of Madras, because once there is an approval from the Director of STPI, and further the appellant has filed necessary papers for ratification of such approval from the Board appointed by the Central Government, then non-receipt of ratification of approval from the Board cannot be attributable to the assessee and further for this reason exemption u/s. 10B of the Act, cannot be denied. In the present case, the assessee could not file any evidences including the position of application filed by the assessee before the Board of Approval appointed by the Central Government. In our considered :-17-: ITA. No: 959/Chny/2018 view, if assessee has filed all requisite documents for ratification of approval and the Board has not cleared or processed the application filed by the assessee, then the default in not receiving approval from the Board cannot be attributable to the assessee. But, fact remains that the assessee should file necessary evidences to prove that it has discharged its obligation and filed necessary papers. In the present case, the assessee could not file any evidence before us. Further, there is no evidence with the assessee whether the Board has approved the unit or not. Since, the approval from the Board appointed by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951 is mandatory for claiming exemption u/s. 10B of the Act, in our considered view, unless the assessee files necessary evidences including approval from the Board, the assessee cannot claim the benefit of exemption u/s.10B of the Act. Since, the appellant has already having approval from the Director of STPI, we are of the considered view that, one more opportunity must be given to the assessee to justify its case with necessary evidences. Thus, we set aside the issue of exemption claimed towards STPI unit at Mumbai to the file of the Assessing Officer and direct the Assessing Officer to :-18-: ITA. No: 959/Chny/2018 reexamine the claim of the assessee in light of necessary evidence, if any may be filed by the assessee to prove approval if any granted by the Board appointed by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951.
Coming back to the 100% EOU unit of STPI Bangalore. The Assessing Officer, rejected exemption for STPI, Bangalore on the ground that approval granted by the Director of STPI was expired in October, 2010 and the assessee has not filed any evidence for extension of the approval. In our considered view, the Assessing Officer has completely misunderstood the concept of approval, because as per letter issued by the Director of STPI, it only talk about the implementation of the project and commencement of production within three years from the date of issue of approval letter, but it does not speak about the period of approval. As per provisions of section 10B of the Act, once the unit is approved by the authority, then it can claim exemption for a period of 10 years. Therefore, we are of the considered view that, the Assessing Officer has completely erred in rejecting exemption for STPI, Bangalore on this ground. Be that as it may. But, fact remains that once :-19-: ITA. No: 959/Chny/2018 again the assessee could not file any evidence with regard to the ratification of approval by the Board appointed by the Central Government u/s. 14 of the Industrial (Development and Regulation) Act, 1951. In our considered view, ratification of approval by the Board is compulsory to claim exemption u/s. 10B of the Act. In case, the unit is not approved by the Board, then it cannot claim exemption at all. But, initially approval granted by the Director of STPI should necessarily be ratified by the Board and in this regard, the assessee should file necessary evidences. In case, for any reason the Board reject application at the stage of ratification, then the assessee cannot claim exemption. Further, if the assessee has filed necessary details for ratification of approval and for any reason the Board has not completed the process, then the default cannot be attributable to the assessee for claiming the benefit of exemption. These facts are not clear. Further, the assessee did not file any evidence with regard to approval of ratification by the Board. Therefore, we are of the considered view that the entire issue needs to go back to the file of the Assessing Officer for fresh verification. Thus, we set aside the issue to the file of the Assessing Officer and direct the Assessing Officer to reexamine the claim of the assessee in :-20-: ITA. No: 959/Chny/2018 light of evidence, if any, that can be filed to justify the claim of exemption u/s. 10B of the Act.
In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the court on 11th October, 2023 at Chennai.