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Facts
The assessee company initially claimed deduction under Section 10B for software exports for AY 2007-08. The Assessing Officer disallowed this. The assessee then claimed an alternative deduction under Section 10A, which was also rejected by the lower authorities. The High Court had previously directed the AO to examine the 10A claim.
Held
The Tribunal noted that similar issues were decided in favor of the assessee by other benches and the High Court had directed examination of the Section 10A claim. They also observed that the CIT(A) accepted the alternative claim for Section 10A for a subsequent assessment year.
Key Issues
Whether the assessee can claim an alternative deduction under Section 10A of the Income Tax Act, 1961, when an initial claim under Section 10B was disallowed, and if such a claim needs to be examined by the Assessing Officer.
Sections Cited
Section 10A, Section 10B, Section 143(3), Section 147, Section 250, Section 263, Section 254
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
[ Per Rahul Chaudhary, Judicial Member:
The present appeal preferred by the Assessee is directed against the order, dated 23/09/2014, passed by the Commissioner of Income Tax (Appeals)–II, Kochi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 22/02/2013, passed under Section 143(3) read with Section 147 of the Act for the Assessment Year 2007-2008. The present appeal has come up for hearing in view of the Order, dated 16/06/2025, passed by the Hon'ble Kerala High Court in the appeal (ITA No. 31/2025) preferred by the Assessee. Assessment Year 2007-2008
The Assessee has raised multiple grounds challenging the order passed by the Ld. CIT(A), whereby Ld. CIT(A) had confirmed the order of Assessing Officer [hereinafter referred to as ‘AO’] rejecting the deduction claimed by the assessee under Section 10A of the Act.
The relevant fact in brief are that that Assessee, a private limited company filed its return for the Assessment Year 2007-2008 and claimed deduction under Section 10B for the income from export of software. The case was selected for scrutiny through CASS and assessment was completed u/s 143(3) of the Act. Later, reassessment proceedings were initiated under Section 148 of the Act. The Assessee filed return under Section 148 of the Act on 19/04/2012 claiming deduction under Section 10A of the Act and in support obtained certificate in Form No. 56F from its auditors. The Assessing Officer disallowed the deduction claimed under Section 10A of the Act. Before CIT(A) the it was claimed by the Assessee that deduction under Section 10B of the Act was initially claimed by the Assessee under the bona fide belief that it is entitled to deduction under Section 10B of the Act. The CITT(A) dismissed the appeal of the Assessee agreeing with the Assessing Officer and holding that the Assessing Officer was justified in not considering the claim made by the Assessee under Section 10A of the Act. Now the Assessee is in appeal before the Tribunal.
When the appeal was taken up for hearing, Learned Senior Counsel for the Assessee placed on record copy of Order, dated 21/07/2020, passed by the First Appellate Authority in the case of Assessee for the Assessment Year 2008-09, whereby the alternative claim made by the Assessee for deduction under Section 10A of the Act was accepted. Reliance was also placed by the Learned Senior Counsel on the following judicial precedents to support the contention of the Assessee that even if, incorrect claim under Section 10B of the Act has been made by the Assessee, an alternative claim for exemption
2 Assessment Year 2007-2008 under section 10A of the Act can still be granted to the Assessee.
- CIT vs. Flytxt Technology P. Ltd. (ITA Nos. 47 & 77/2015, dt. 10/10/2017 – Ker. HC) [confirming the Order passed by the Tribunal in ITA No.97/Coch/2014, dt. 28/08/2014 – Coch. Trib.] - CIT vs. Technovate E. Solutions Pvt. Ltd. (ITA No.100/2012, dt. 26/02/2013 – Del. HC) - CIT vs. M/s. Heartland KG Information Ltd.(TC(A) No.625/2009, dt. 19/08/2013)
Per contra, the Learned Departmental Representative submitted that the alternative claim for deduction under Section 10A of the Act has not been examined by the authorities below and the same would require verification by the Assessing Officer.
Taking into consideration the above submissions advanced both the sides and the judicial precedents cited.
During the course of hearing the Learned Senior Counsel had cited the judgment of the juri iction High Court in the case of Commissioner of Income Tax vs. Flytxt Technology (P.) Ltd. [2017] 398 ITR 717 (Kerala) [10-10-2017] whereby the decision of the Tribunal passed in ITA No.97/Coch/2014, dt. 28/08/2014 was confirmed. The relevant extract of the said decision of the Cochin Bench of the Tribunal reads as under:
“4
We have considered the rival submissions and perused the relevant material on record. The contention of the ld AR of the assessee that the assessee is a 100% EOU entitled for exemption u/s 10A and wrongly claimed the deduction u/s 10B and it was a technical mistake in claiming deduction u/s 10B and there is no revenue loss so as to attract the provisions of sec. 263 of the Act and the order of the CIT may be cancelled. In our opinion, though the assessee made the claim before the CIT that the assessee is entitled for deduction u/s 10A, the claim of sec. 10A was not examined by the lower authorities and the CIT straight away directed the AO to withdraw the exemption made u/s 10B, which is not proper.
3 Assessment Year 2007-2008
1 Similar issue came before the Hyderbad Bench of this Tribunal in ITA No. 1811/Hyd/2011 in the case of M/s SP Software P Lt vs ITO where the Accountant Member, who was one of the parties in deciding the appeal. The Tribunal vide order dated 3rd Aug 2012 in the above case has held as under:
“5. We have heard rival contentions and perused the material on record. Admittedly, the assessee has not been approved as 100% EOU as per Explanation-2, clause (iv) of section 10B of the Act. Sections 10A and 10B stand on different footing while section 10B speaks of approval as 100% EOU by the appointed Board, no such requirement is there so far as 10A is concerned. In a case of similar nature, the ITAT, Hyderabad Bench in ITA No.577/Hyd/10 in case VNS Macro Technologies Pvt. Ltd., Hyderabad while holding that the assessee is not entitled to avail exemption u/s 10B,however directed the AO to examine the issue of allowance of deduction u/s 10A, if the assessee is entitled for such deduction. The ITAT held in the following manner:- “10. We have heard both the parties and perused the materials available on record. The contention of the assessee’s counsel is that the assessee is 100% EOU entitled for exemption u/s 10A and wrongly claimed the deduction u/s 10B and it was a technical mistake in claiming deduction u/s 10B. The assessee’s counsel further argued that the assessee has fulfilled all the requirements of provisions of section 10A. However, this claim of the assessee not examined by the lower authorities and they stick to one contention that the assessee claim u/s10B is not allowable. We are agreeing with the department that the condition for allowance of deduction u/s 10A and 10B are stood on different footing. However, the department cannot thrust upon the assessee to avail deduction u/s 10B only. If the assessee entitled for deduction u/s 10A instead of 10B, that claim required to be examined by the assessing officer in all fairness. The issue of allowance of deduction u/s 10A though assessee made a claim before the lower authorities has not examined by the assessing officer. In the facts and circumstances of the case, we are of the considered opinion that it shall be in the interest of justice to set aside the issue in the grounds of appeal of the assessee to the file of assessing officer with a direction to decide the issue in accordance with law after providing reasonable opportunity to the assessee, and also to give a specific finding whether the assessee is entitled to deduction u/s 10A of the Act or not. The assessee may file any evidence in support of its claim for deduction before the assessing officer. We make it clear that our observations herein above shall not have any bearing on the decision of the assessing officer with 4 Assessment Year 2007-2008 regard to the merits of the claim of the assessee for deduction u/s 10A of the Act. We direct accordingly.” Following the aforesaid order, we restore the matter to the file of the AO directing him to examine as to whether the assessee is entitled to deduction u/s 10A or not. It is open to the assessee to file evidence in support of deduction u/s 10A. If the AO ultimately comes to a conclusion that the assessee entitled to deduction u/s 10A, then such deduction shall be allowed to the assessee. The AO shall afford a reasonable opportunity of being heard to the assessee before completing the proceedings.
Ground Nos. (iv) and (v) relate to the claim of depreciation on software developed by Directors and software purchased from Oasis Infotech Limited which are allowed by the CIT (A).
At the outset, the learned AR for he assessee submitted that these grounds are squarely covered by the order of ITAT, Hyderabad Bench “A”, Hyderabad passed in ITA Nos. 534/Hyd/2008, 151 to 153/Hyd/2009 for assessment years 2001-02 to 2003-04 and for assessment year 2006-07. 8. The learned DR agrees that the issues are covered by the aforesaid order of the Tribunal.
We have heard rival contentions. After going through the orders passed by the ITAT, Hyderabad Bench in assessee’s own case in ITA Nos. 534/Hyd/2008, 151 to 153/Hyd/2009 for assessment years 2001-02 to 2003-04 and ITA No.777/Hyd/2010 for assessment year 2006-07, we are of the view that the grounds raised by the Revenue are squarely covered by the aforesaid orders of the ITAT in favour of the assessee. We therefore following the orders of the ITAT reject the grounds raised by the Revenue.
In the result, the appeal filed by the Revenue is partly allowed for statistical purpose.”
Therefore, respectfully following the order of the Tribunal cited supra, we are inclined to direct the AO to decide the issue afresh. Further, there is a judgment of the Hon’ble Delhi High Court in the case of Regency creations Ltd (supra) relied by the ld DR, which is in favour of the department and therefore, the judgment cited by the ld AR has not followed”
Confirming the above decision, the Hon’ble Kerala High Court held as under:
“6. We have considered the submissions made. Admittedly, the assessee initially claimed the benefit of Section 10B which was 5 Assessment Year 2007-2008 allowed by the Assessing Officer. Only when the Commissioner was seized of the proceedings under Section 263, the assessee raised an alternative claim for the benefit of Section 10A. The Commissioner did not examine that plea and on the other hand, directed the Assessing Officer to withdraw the exemption under Section 10B. It was this order which was challenged by the assessees in the appeals filed by them before the Tribunal. Such an appeal filed by the assessee is liable to be considered by the Tribunal exercising its power under Section 254 of the Act which obliged the Tribunal to consider the appeal and pass such orders thereon as it thinks fit. It was this power of the Tribunal which was considered by the Apex Court in National Thermal Power Co. Ltd.'s case (supra) which held that where the Tribunal is only required to consider the questions of law arising from the facts which are on record, there is no reason why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee. Even if the contention raised by the learned Senior Counsel for the revenue that the power conferred on the appellants under Section 263 only authorised him to examine whether the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue, that restriction of power cannot affect the powers of the Tribunal which is bound to exercise under Section 254 of the Act. In such a situation, having regard to the language of Section 254 and as interpreted by the Apex Court in National Thermal Power Co. Ltd.'s case (supra), we do not see any reason to think that the Tribunal has committed an illegality by directing the Assessing Officer to decide the matter afresh duly adverting to the claim of the assessee for the benefit of Section 10A.
Though the learned Senior Counsel for the revenue relied on the judgment of a Delhi High Court in Regency Creations Ltd.'s case (supra), a reading of the judgment shows that the Delhi High Court set aside the order of the Tribunal granting the benefit of Section 10B to the assessee therein. However, the subsequent order passed by the Delhi High Court, a copy of which has been made available by the learned senior counsel appearing for the assessee, shows that the High Court itself directed that when the matter is reconsidered by the Tribunal as directed in the judgment above, the Tribunal shall examine the claim of the assessee for the benefit of Section 10A. Therefore, in fact, this order of the Delhi High Court supports the claim of the assessee. In the aforesaid circumstances, we do not find any illegality in the order passed by the Tribunal. Therefore, the questions of law framed have to be answered in favour of the assessee and against the revenue. Accordingly, the appeals are dismissed.” (Emphasis Supplied)
Keeping in view the above judicial precedent, we are of the view that the alternative claim for deduction under Section 10A made by the Assessee can be examined by the Assessing Officer. We further note
6 Assessment Year 2007-2008 that the CIT(A), has while adjudicating appeal preferred by the Assessee for the immediately succeeding Assessment Year 2008- 2009, accepted the alternative claim for deduction under Section 10A of the Act. Accordingly, we set aside the order passed by the CIT(A) and restore the alternative claim made by the Assessee for deduction under Section 10A of the Act back to the file of the Assessing Officer for adjudication as per law. If the Assessing Officer ultimately comes to a conclusion that the Assessee entitled to deduction under Section 10A of the Act, then such deduction shall be allowed to the Assessee. The Assessee is directed to file before the Assessing Officer documents, details and submission in support its claim for deduction under Section 10A of the Act. It is clarified that the Assessing Officer shall afford a reasonable opportunity of being heard to the Assessee before completing the proceedings. In terms of the aforesaid, the grounds raised by the Assessee are allowed to the extent stated hereinbefore.
In result the appeal preferred by the Assessee is allowed for statistical purposes. Order pronounced on 22.08.2025. (Inturi Rama Rao) Judicial Member कोचीन Cochin; िदनांक Dated : 22.08.2025 vr/-
7 Assessment Year 2007-2008
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""थ" / The Respondent. 3. आयकर आयु"/ The CIT "धान आयकर आयु" / Pr.CIT 4. 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण कोचीन / DR, ITAT, Cochin 6. गाड" फाईल / Guard file.
आदेशानुसार/ BY ORDER, स"ािपत "ित ////
उप/सहायक पंजीकार /(Dy./Asstt.