THE ITO, COCHIN vs. M/S.PESCAINDE, COCHIN

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue and the Cross Objections filed by the

assessee are directed against the common order of the CIT(A)-II, Kochi dated

24/12/2018 and pertain to the assessment years 2009-10, 2010-11 and 2011-12.

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 The assessment orders for the assessment years 2009-10 and 2010-11 were passed

u/s. 143(3) r.w.s. 147 of the Act and the assessment order for the assessment year

2011-12 was passed u/s. 143(3) r.w.s. 263 of the Act.

ld. DR has filed condonation petitions accompanied by affidavits for the above

assessment years stating that the claim of deduction u/s. 10B made by the assessee

was held to be allowable by the CIT(A). The Ld. DR submitted that he was directed

by the Pr. CIT, Kochi that the said decision of the CIT(A) was legally not tenable

and appeals u/s. 253 shall be filed. The order of the CIT(A) having been received

on 25/01/2019, the appeals u/s. 253 were due to be filed on 25/01/2019 and since

the period of 25/01/2019 had already expired, there was delay of more than 3 days

in filing the appeals u/s. 253. It was submitted that the delay in filing the appeals

was for bona fide reasons since the officer and staff were very busy in conducting

surveys and also with time barring and year ending works and there is no willful

negligence or lapses on the part of the Revenue in not filing the appeals before the

Tribunal in time. Thus it was prayed that the delay of three days in filing the

appeals before the Tribunal may be condoned and the appeals may be admitted

and disposed off on merits.

2.1 We have heard the rival submissions and gone through the reasons advanced

by the Revenue for filing the appeals belatedly before this Tribunal. We are

satisfied with the reasons explained by the Revenue for filing the appeals belatedly. 2

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 Accordingly, we condone the delay of three days in filing the appeals and admit the

appeals for adjudication.

engaged in the business of export of I.T. enabled services. The scrutiny assessment

in this case was completed on 27.09.2013 allowing assessee's claim for exemption

u/s 10B amounting to Rs. 1,81,50,007/- and the total income tax assessed was Rs.

Nil. Subsequently, the Principal Commissioner of Income Tax, Kochi vide order u/s

263 dated 02.11.2015 set aside the assessment order dated 27.09.2013 with a

direction to re-examine the claim of the assessee u/s 10B of the l.T. Act and to do

the assessment afresh after allowing the assessee an opportunity of being heard.

In response to the notice, the Authorized Representative of the assessee appeared

and filed a letter stating that the assessee had filed an appeal before the Tribunal

against the order of The Principal CIT and the Tribunal vide order in ITA No. 3

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 542/Coch/2015 dated 24.05.2016 directed the Assessing Officer to consider the

claim of deduction u/s 10A of the Act and if the assessee had satisfied the condition

mentioned u/s 10A for claiming deduction u/s 10A of the Act, the same shall be

granted to it. While considering the assessee’s eligibility to claim deduction u/s. 10B

and 10A of the Act, the Assessing Officer observed as follows:

4.1 Regarding claim for exemption u/s. 10B, according to the Assessing Officer as

per explanation 2(iv) of Section 10B, a hundred percent Export Oriented

Undertaking (EOU) means an undertaking which has been approved as a hundred

percent EOU by the Board appointed in this behalf by the Central Government in

exercise of the powers conferred by Section 14 of the Industries Act, 1951 and rules

made under the Act. A hundred percent EOU under the Software Technology Park

Scheme cannot be equated with 100 percent EOU for availing deduction u/s 10B.

The approval from STPI is not sufficient to claim deduction u/s 10B. The approval

from STPI is not sufficient for claiming deduction as per explanation 2(iv) of section

10B. According to the Assessing Officer, the circular cited by the assessee nowhere

says that approval from STPI is sufficient to claim deduction u/s 10B and in fact the

Instruction dated 09.01.2009 expressly states that such approvals require

ratification by Board. Such approval is lacking in this case. For the above mentioned

reasons, the Assessing Officer denied exemption u/s 10B and accordingly, the claim

of the assessee for exemption of Rs. 1,81,50,007/- u/s 10B of the Income Tax Act

was disallowed.

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 4.2 Regarding claim for exemption u/s. 10A, according to the Assessing Officer as

per Section 10A(2) clauses (i) to (iii) in order to avail exemption under section 10A,

the assessee has to fulfill the following conditions:

Section 10A(2): This section applies to any undertaking which fulfills all the

following conditions namely:

i. It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the Assessment Year.

a. Commencing on or after the 1st day of April 1981 in any free trade zone; or b. Commencing on or after the 1sl day of April 1994 in any electronic hardware technology park or as the case may be software technology park c. Commencing on or after the 1st day of April 2001 in any special economic zone.

ii. It is not formed by the splitting up or reconstruction of a business already in existence:

Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section

iii. It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

4.3 Thus, the Assessing Officer observed that as per sub-clause (c) of clause (i) to

Section 10A(2) any undertaking is eligible for exemption u/s 10A where it has begun

or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 day of April 1981 in any special economic zone. Further, the Assessing Officer

observed that in the case of the assessee, the business undertaking is located in

Panampilly Nagar which is not coming under special economic zone. From the

supporting materials available on record, the Assessing Officer found that the

assessee had begun the manufacturing with effect from 01/07/2014 and as per

Section 10A(2)(i)(c), in order to become eligible for exemption u/s. 10A, the

business of the assessee should have been set up in any special economic zone.

According to the Assessing Officer, the assessee had clearly not satisfied this

condition and hence, the assessee was not eligible for exemption u/s. 10A also.

Thus, the Assessing Officer rejected both the claims made by the assessee for

exemption u/s. 10A and u/s. 10B of the Act and added back the profits of the

assessee amounting to Rs.1,81,50,007/-. Identical orders were passed by the

Assessing Officer for Assessment Years 2009-10 and 2010-11 through proceedings

u/s. 143(3) r.w.s. 147 of the Act.

approved unit under the STP scheme of the Government of India having green card dated 15th March, 2005. The assessee submitted that Section IOB stipulates

approval of the 100% EOU, by an authority, to enjoy the benefit of deduction under

the said section. The assessee relied on CBDT Instruction No. 02/2009 dated

09/03/2009 corrected by F. No. 178/19/2008-1TA-1 dated 08/05/2009, stating that

a 100% EOU approval granted by the Development Commissioner will be

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 considered valid once the approval is ratified by a Board of Approval for EOU

Scheme. It was submitted that the assessee had applied to the concerned

authorities for the certificate of ratification and this ratification is purely an internal

procedure of the Board of Approval for EOU Scheme on which the assessee has no

control. Thus, the assessee cannot be denied exemption on the grounds that the

ratification has not been done. For this, he relied on the decision of the ITAT,

Ahmedabad in the case of Income Tax Officer Ors. Vs Mednautix Outsourcing Pvt.

Ltd & Ors. dated 05-09-2017 wherein the Tribunal had clearly pointed out that, "Any

delay in ratification of the action of the Development Commissioner as per

procedure prescribed by the Board appointed under section 14 of Industries

(Development and Regulation) Act, 1951 will not mar the claim of deduction by the

assesses altogether." Before the CIT(A), the assessee also placed reliance on the

decision of the ITAT, ‘B’ Bench, Kolkata inn ITA. No. 1368/Kol/2017 in the case of

Linitex Infotech Ltd. vs ITO for assessment year 2010-11 wherein the Tribunal

narrated the brief facts of the case as under:"

“The brief facts of this case are that the assessee has two main verticles in its business. One verticle comprises development of software and other verticle comprises of running a call centre, income from which has been claimed as exempt u/s 10B of the Act. The assessee was registered under the Software Technology Park (STP in short) scheme as 100% export oriented unit (EOU in short) on 28.01.2005. The same was subsequently renewed on 27.07.2010, The green card was issued to the assessee by the designated officer for secretary to the Government of India, Department of Information Technology and Chairman in the Ministerial Standing Committee on software Technology Park Scheme. The assessee does not have any approval from the Board of Approval for EOU Scheme. The claim of deduction u/s 10B of the Act was disallowed by the Learned Assessing Officer."

In the instant case, the scrutiny 'assessment was completed' on 27.09.2013 allowing assessee's claim for exemption u/s 10B. Subsequently, the case was 7

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 set aside u/s 263 with a direction to re-examine the claim of the assessee u/s 10B was denied because though they had STPI registration, but they were not approved by the Board of Approval for EOU scheme. In this case, the Honorable ITAT, Kolkata placed reliance on the decision of co-ordinate bench of ITAT, Chandigarh in the case of Bebo Technologies Pvt. Ltd. vs JCIT, wherein the Assessing Officer had denied deduction u/s 10B to the Act on the ground that no approval was obtained from the Board appointed by the Central Government in exercise of power conferred by Section 14 of Industrial (Development and Regulation) Act, 1951 and Rules made under the Act. It was ultimately held in that case as under: " 39. The Learned DR for the Revenue before us has failed to point out any contrary evidence to the same. The learned counsel for the assessee drew attention to the gazette notification in this regard placed at Page 16 of the paper Book-II under which the powers had been given to consider the application for setting up of units under STP scheme operated vide custom notification No. 138 and 140 dated 22.10.1991. The said committee was also empowered to consider the proposals for industrial license, foreign technical collaboration agreement and import of capital goods. The assessee has furnished the Registration under the Software Technology Park scheme of India vide approval STP/M/PCMG/PSE/02/199-7492 dated 17.02.2003 registering the assessee as a 100% EOU. The copy of the said certificate is enclosed at pages 105 to 109 of the Paper Book along with the copy of the agreement entered into by the assessee with STPI on 17.02.2003 a copy of which is enclosed at pages 111 to 113 of the paper-book. In view of the above said evidence, upholding the order of CIT (A), we hold that the assessee is entitled to deduction u/s 10B of the Act as 100% EOU on being registered with STPI. In the entirety of facts and circumstances of the case and in view of our observation in paras hereinabove, we uphold the order of the CIT(A) in holding that the assessee is eligible to the exemption claimed u/s 10B of the Act. Accordingly, ground No. 2 raised by the revenue is thus dismissed."

5.1 The CIT(A) found that the facts and circumstances of the above cases were

identical to the instant case and since the assessee did not have registration under

the STPI, it was eligible to claim deduction u/s 10B of the Act. Accordingly, he

directed the Assessing Officer to allow deduction u/s 10B and allowed these grounds

of appeal of the assessee for all the three assessment years, 2009-10, 2010-11 and

2011-12. However, he rejected the alternate claim of deduction u/s. 10A of the Act.

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 6. Against this, the Revenue is in appeal before us.

giving effect order to the order of the CIT u/s. 263 of the Act, the Assessing Officer

observed as follows:

“As per Section 10A(2) clauses (i) to (iii) in order to avail exemption under section 10A, the assessee has to fulfill the following conditions:

Section 10A(2): This section applies to any undertaking which fulfills all the following conditions namely:

i. It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the Assessment Year.

a. Commencing on or after the 1st day of April 1981 in any free trade zone; or b. Commencing on or after the 1sl day of April 1994 in any electronic hardware technology park or as the case may be software technology park c. Commencing on or after the 1st day of April 2001 in any special economic zone.

ii. It is not formed by the splitting up or reconstruction of a business already in existence;

Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section;

iii. It is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 7.1 Contrary to this, the CIT(A) has given a finding that since the assessee had

registration under the STPI, it was eligible to claim deduction u/s 10B of the instead

of deduction under section 10A Act for which he has no power since the Tribunal on

a earlier occasion in assessee’s own case in ITA No. 542/Coch/2015 dated

24.05.2016 for the assessment year 2011-12 rejected the claim of deduction u/s.

10B by observing as follows:

“4.1 The claim of deduction u/s 10A and 10B is more or less para-materia except that registration u/s 10B & 10A are with different authorities and also claim is to be made in Form 56G and 56F respectively. The basis for invoking the revisionary jurisdiction by the CIT u/s 263 is the judgment of the Hon’ble Delhi High Court in the case of Regency Creations Ltd reported in 255 CTR 63, whereinit was held that the assessee, having not got the necessary approval from the appropriate authority, under the statute, was not entitled to claim deduction u/s 10B of the Act. However, the above said judgment of the Hon’ble Delhi High Court was modified in the review petition in the case of CIT vs Vallant Commissions Ltd in ITA 2002 of 2010(order dated 4.1.2013), wherein the matter was remanded to the Tribunal to consider the assessee’s alternative claim u/s 10A of the Act.

4.2 In the instant case, the CIT directed the AO to re-do the assessment. The CIT, in his order u/s 263 specifically stated that the assessee is not entitled to claim 10A of the Act, since it had not claimed 10A deduction in the return of income. This observation of the CIT is unwarranted in view of the judicial pronouncement cited by the assessee. The judicial pronouncement, cited supra, has clearly held that alternative claim u/s 10A can be entertained even before appellate forum. The assessee, during the course of revisionary proceeding, contended that even if it is not entitled to deduction u/s 10B, then alternative claim u/s 10A of the Act may be considered. The assessee also furnished Form 56F before the CIT for claiming deduction u/s 10A (a copy of the same is placed on record at page 17 of the paper book filed by the assessee) of the Act. The CIT ought to have directed the AO to consider the asessee’s claim u/s 10A also. Therefore, we direct the AO to complete the assessment, de-hors the observation of the CIT that the assessee is not entitle to deduction u/s 10A of the Act for the reason that no claim of deduction u/s 10A was made in the return of income. The AO shall consider the claim of deduction u/s 10A of the Act and if the assessee had satisfied the conditions mentioned u/s 10A for claiming deduction u/ 10A of the Act, the same shall granted to it. It is ordered accordingly.

5 In the result, the appeal filed by the assessee is partly allowed for statistical purpose.” 10

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 Thus, the findings of the Tribunal is that the Assessing Officer has to examine

exemption u/s. 10A of the Act instead of sec. 10B of the Act. Against this, the

CIT(A) granted deduction u/s. 10B of the Act which is inappropriate. Hence, this

finding of the CIT(A) is vacated.

7.2 Coming to the findings of the Assessing Officer, the Assessing Officer observed

as follows:

“Thus as per sub-clause (c) of clause (1) to section 10(2) any undertaking is eligible for exemption u/s. 10A where it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year commencing on or after the 1st day of April 1981 in any special economic zone. In the case of the assessee, the business undertaking is located in Panampilly Nagar which is not coming under special economic zone. As per the supporting materials available on record, the assessee had begun the manufacturing with effect from 01.07.2014 and as per Section 10A(2)(i)(c), in order to become eligible for exemption u/s. 10A, the business of the assessee should have been set up in any special economic zone. The assessee has clearly not satisfied this condition and hence the assessee is not eligible for exemption u/s. 10A also. The claim of exemption u/s. 10A made by the assessee is therefore rejected.”

7.3 However, he failed to consider sec. 10A(2)(i)(b) of the Act which reads as

follows: “(b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or as the case may be, software technology park.

The conditions laid down in sections 10A(2)(i)(b) and 10A(2)(i)(c) of the Act are not

cumulative. The Assessing Officer has to examine whether the assessee is entitled

to deduction u/s. 10A of the Act if he commences manufacture or produce articles or things or computer software on or after the 1st day of April, 1994 located in an

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 area which is under software technology park or on or after the 1st day of April,

2001 located in an area which is under special economic zone. With this

observation, we remit this issue to the file of the Assessing Officer for fresh

consideration with regard to grant of deduction u/s. 10A of the Act. For AY’s 2009-

10 and 2010-11, the issue was same, but the assessments were framed u/s. 143(3)

r.w.s. 147 of the Act. Hence, for these two assessment years, the issue is remitted

to the file of the Assessing Officer with similar direction. Thus, this ground of

appeal of the assessee is partly allowed for statistical purposes for all the

assessment years.

Assessing Officer for fresh consideration, the Cross Objections of the assessee in

C.O. Nos. 26 to 28/Coch/2019 are also remitted to the file of the Assessing Officer

for fresh consideration. Thus, the Cross Objections filed by the assessee are partly

allowed for statistical purposes.

assessee are partly allowed for statistical purposes. Order pronounced in the open Court on this 22nd July, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 22nd July, 2019 12

I.T.A. Nos. 227-229/Coch/2019 & C.O. Nos. 26 to 28/Coch/2019 GJ Copy to: 1. M/s. Pescinde, G-130 1st Floor, Panampilly Nagar, Kochi-682 036. 2. The Income Tax Officer, Non-Corporate, Ward-1(4), Kochi. 3. The Commissioner of Income-tax(Appeals)-II, Kochi. 4. The Pr. Commissioner of Income-tax, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin