M/S. vs. R INFOTECH,VISAKHAPATNAM

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

These appeals filed by the assessee are directed against order of

the Commissioner of Income Tax-1 (CIT), Visakhapatnam vide F.No.CIT-

1/VSP/263/11/2014-15 dated 30.3.2016 for the assessment years 2008-

09 & 2010-11. Since the facts are identical and the issue involved is

common in these appeals, they are clubbed, heard together, disposed of

by this common order for the sake of convenience.

the order of the CIT(A) was served on the assessee on 31.3.2015, the

appeal ought to have been filed on 29.5.2015 against which, the

assessee has filed appeal on 22.8.2016 for the A.Y 2008-09. The

assessee filed an affidavit explaining reasons for delay. In his petition for

condonation of delay, the assessee submitted that he was in Mumbai

from July, 2014 and had received the order of the CIT u/s 263 of the

Income Tax Act, 1961 (hereinafter called as 'the Act') through his

auditor on 31.3.2015 and after signing he had sent the appeal papers to

the Accountant of the firm. The accountant of the firm had forgotten to

hand over the documents to the Chartered Accountant and meanwhile

he left the job of the assessee firm without handing over the appeal

papers to the incumbent Accountant. The Managing partner was under

the bonafide belief that appeal was filed in time. Meanwhile, the

Managing Partner stated to have left to Singapore and thereafter he was

busy in travelling in search of new assignments. Subsequently, he got

the new assignment based at USA and he had to travel to USA on

29.4.2016 to get acquainted with the requirement of new clients and he

returned to India in the first week of July, 2016 and by surprise, he had 2

received the order passed by the A.O. giving effect to the revision order

u/s 263 of the Act on 19.7.2016, then only he came to know that the

assessee has not preferred the appeal against order u/s 263 of the Act.

After coming to know that the appeal was not filed, the assessee filed

the appeal with a request to condonation of delay. The assessee has

enclosed a copy of the passport evidencing the travelling dates out of

country. The Ld. A.R. argued that there is a reasonable and sufficient

cause for not filing of appeal and the assessee was under the bonafide

belief that the appeal was filed. There was no willful default from the

assessee in filing the appeal. The Ld. A.R. further argued that there was

merit in the assessee’s case and merely because of the bonafide default

condonation of delay should not be rejected. The Ld. A.R. further

argued that non condonation of delay would cause financial injury to the

assessee and accordingly requested for condonation of delay and admit

the appeal of the assessee.

453 days in this case, which is a long delay which required to be

explained. The assessee has not explained the delay satisfactorily;

hence, opposed the condonation of delay.

on record and gone through the evidence placed before us. In this case, 3

the fact that the assessee was not residing in Visakhapatnam and

residing at Mumbai was not disputed by the revenue. Similarly, the Ld.

A.R. explained that the assessee was under the bonafide belief that the

appeal was filed since the papers were sent to the Accountant after duly

signed by the Managing Partner and due to frequent travel to abroad

and overstayal, the assessee could not follow up with the authorized

representative with regard to the status of filing of appeal. The Ld. A.R.

also argued that there is substantial merit in the case of the assessee

and non condonation of delay would cause financial injury and injustice

to the assessee. Therefore, in the interest of justice, we are of the view

that the delay required to be condoned in the assessee’s case,

accordingly, the delay is condoned and the appeal is admitted.

originally on 30.8.2010 accepting the income returned. The assessee

filed return of income admitting total income of ` 2,50,220/- on

29.8.2008. Subsequently, the assessment was reopened u/s 148 of the

Act on 29.2.2012 for verification of the assessee’s eligibility regarding

the deduction claimed by the assessee u/s 10B of the Act. The assessee

had claimed exemption of ` 53,07,039/- u/s 10B of the Act for the

A.Y.2008-09. For the A.Y2010-11 the assessee has claimed the

exemption of ` 88,80,362/- u/s 10B and the assessment was completed

under section143(3) of the act dated 17/12/2012.

and registered with the Software Technology Park of India (STPI),

Duvvada, Visakhapatnam. The A.O. has called for the explanation of the

assessee as to why the exemption claimed by the assessee u/s 10B of

the Act should not be disallowed and requested the assessee to produce

information with regard to the satisfaction of the conditions laid down

for granting deduction u/s 10B of the Act as well as the approval from

the board for allowing the exemption u/s 10B. The assessee had

replied to the A.O., and the same is extracted as under:

“On verification of Profit and loss account and computation it is noticed that the assessee has claimed exemption U/s 10B of Rs. 53,07,039,According to the provisions of section lOB, for claiming exemption under this section the assessee should obtain statutory approval from Board of Approval" appointed by Government of India. In this case no proof for approval obtained from "Board of Approval" placed on record. Further, the deduction U/s 10B is available to undertaking which manufactures or produces any article or thing or computer software. But, the assessee is providing certain consulting services to the "CHEMTURA" company relating to EAS marketing, Sales and services. Further, the consulting agreement with "CHEMTURA" was expired on 1-3-2007 and no agreement for the F.Y.2007-08 relevant to A.Y.2008- 09. The assessee is also required to enter a legal agreement with the Director, STPI, Hyderabad in the prescribed form Apendix-14F. In the absence of the above approvals and agreements the assessee firm is not entitled for exemption U/s lOB. Therefore, the assessee is asked to produce the information and also called upon as to why the exemption claimed U/s 10B should not be withdrawn. In response thereto the assessee furnished a detailed reply as under: "a) Approval from Board: it was mentioned in your letter that the assessee should obtain statutory approval from the Board appointed by 5 Government of India. You have also mentioned the case of MIs Infotech enterprises LTD Vs CIT. But however the Income tax Appellate Tribunal, Hyderabad, in the case Secunderabad Software Vs. CIT, has held that, having been registered with STPI, is entitled for deduction under Section 10B of the Income Tax Act. It has specifically mentioned that STPI registration is sufficient to claim deduction under Section 108 of the IT Act. We herewith enclosed the copy of the said case for your reference. We also herewith enclosed another Tribunal case Smt, K.Sudha Rani Vs. Department of Income tax (ITA No. 412\HYD\2012).

b) Computer Software: it was mentioned in your letter that deduction U/s. lOB is available only to an undertaking which fulfils "Manufacture, or produces any article or thing or computer software. We invite your kind attention to the Notification issued by Central Board of Direct Taxes vide Notification No. 11521 dated 26-9-2000. As per the said notification, the following information Technology enabled products or services are covered under Section lOB.

Back-office Operations; (i) Call Centres; (ii) Content Development or Animation; .jiv) Data Processing; (iii) Engineering and Design; (v) Geographic Information System Services; (vi) Human Resource Services; (vii) (viii) Insurance Claim Processing; Legal Databases; (ix) Medical Transcription; (x) Payroll; (xi) (xii) Remote Maintenance; (xiii) Revenue Accounting; (xiv) Support Centres (xv) Website Services-

Our services to the company Chemtura would squarely cover under Computer software as per the above circular. c) It was also mentioned that the agreement with Chemtura was expired on 1st March, 2007. We herewith enclosed the renewed agreement with Chemtura.

d) We also herewith enclosed the legal agreement with the Director STPI, in the prescribed form of Appendix- 14F.

Hence, we request your goodselves to drop the re-opening of assessment under Section 148 of the Income Tax Act." The assessee has entered into legal agreement with the Director, 6 STPI, Hyderabad on 7-7-2006 in the prescribed from 14-IF within one month from the date of letter of approval (LOP) dated 29-06-2006 and furnished copy of the same. The assessee also furnished the Revival and extension of consulting agreement with "CHEMTURA" from 1-3-2007 to 31-3-2006. The assessee furnished copy of the Notification No. 11521 dated 26-9-2000 issued by the CBDT and as per which all the Information technology enabled services are covered under clause (b) of explanation 2 of the section 10B were covered. The assessee submitted that the services rendered to "Chemtura" involves

Support and Configuring SAP Business Processs, (a) Lead Business Blue Print/GAP Analysis Sessions (b) Provide weekly Projects updates or as required (c) Development of solutions to issue (d) Training of users functionality, as required (e) Demonstration of SAP Processes (f) Other SAP related services as required (g) Investigation of SAP Best Practices (h) Data Migration as required. (i)

He explained that some of the above services cover under Data Processing and some of the services cover under Remote maintenance of CBDT Notification No. 11521 dated 26-9-2000.

A letter was addressed to the Director, Software Technology Parks of India, VSEZ, Duvvada, Visakhapatnam to provide copy of approval or ratification of LOP by 'Board of Approval" on 16-11-2012. The Software Technology Parks of India vide its letter dated 5-122012 furnished a copy of letter No.1(1)/06-IPHW dated 7-9-2006 by the Additional Director, Department of IT to the Director, Ministry of Finance, Department of Revenue, CBDT, North Block, New Delhi stating that no further ratification of approvals issued by the Directors of Software Technology Parks of India is required from the Inter Ministerial Standing Committee(IMSC). It is clarified that tax benefits shall not be denied by Incometax Department to STP units only on the ground that the approval to units have been granted by the Directors of Software Technology Parks of India.

after considering the clarification received from the Director, the A.O.

accepted the claim of the assessee and completed the reassessment

allowing the exemption claimed u/s 10B of the Act. 7

8. In the assessment year 2010-11, the assessment was completed

u/s 143(3) of the Act allowing the exemption u/s 10B of the Act. The

A.O. completed the assessment in the assessment year 2010-11 also

after verification of the eligibility of the assessee with regard to the

engagement of assessee in the computer software services and also

with regard to the requirement of approval from the Board appointed by

the Government of India. Subsequently, the Ld. CIT has taken up the

cases for revision for both the assessment years and held that the

assessments made by the A.O. were erroneous and prejudicial to the

interest of the revenue due to the following reasons:

The assessee is engaged only in consultancy work which will not

come with in the purview of section 10B of the Act. The A.O. has not

followed the ratio of the Delhi High Court in the case of M/s. Regency

Creations Limited as mentioned above.

on record and gone through the orders of the authorities below. The Ld.

CIT has taken up the case for revision u/s 263 of the Act since the

assessee is not in the activity of manufacturing the computer software

and the assessee did not obtain the approval from the Board to be

constituted by Central Government which issues notification. However,

on verification of the assessment order, it is observed that the assessing

officer has examined the issue whether the assessee is carrying on

consultancy work or engaged in the manufacturing of computer

software. In the reply submitted by the assessee before the A.O. which

was reproduced above, the assessee submitted that the it is engaged in

the Data processing and Remote Maintenance which is information

technology enabled products or services covered u/s 10B of the Act as

per the notification issued by the vide CBDT vide Notification No.11521

dated 26.9.2000. Since the issue has been considered by the assessing

officer and taken a conscious decision that the assessee is engaged in

the computer software after conducting necessary enquiry and analyzing

the information filed by the assessee, the Ld. CIT is not permitted to

revisit the same issue which was already examined by the assessing

officer and allowed the deduction. Similarly, the issue with regard to the

approval from the Board constituted by Central Government was also

examined by the assessing officer. The A.O. has conducted enquiries

with the Director, Software Technology Parks of India, VSEZ, Duvvada,

Visakhapatnam who has clarified vide letter dated 5.12.2012 that once

the Director, STPI approves the unit, no further ratification of approval

from the inter-ministerial standing committee is required and the income

tax benefits should not be denied on the ground that the approval of

units have been granted by the Director of STPI. Hence, it is evident

from the assessment order passed u/s 143(3) r.w.s. 147/143(3) of the

Act that the A.O. has examined the issue of requirement of approval

from the Board also.

dated 17.9.2010 in the case of K. Sudharani has examined the issue

with regard to the requirement of approval by the Board appointed by

the Central Government in exercise of powers u/s 14 of the Industries

(Development & Regularisation Act, 1951) and the Rules made

thereunder, which prescribed under the Income Tax Act for the purpose

of claiming deduction u/s 10B of the Act and gave a Ruling that the

approval of 100% EOU by the Board and STPI is one and the same and

the assessee is eligible for deduction u/s 10B of the Act. For ready

reference, we extract relevant para No.3 of the cited order which reads

as under:

accordance with the software technology park scheme notified by the government in the Ministry of Commerce and Industry. The deduction u/s 10B as claimed has been denied in the case under consideration by the department only on the ground that software technology park scheme as notified stipulates that the entity STP must be approved by the Board and mere approval by the Inter Ministerial Standing Committee (IMSC) is not enough. As per Gazette Notification GSR No.526(E) published in Part II Sec. III of the Gazette of India Extra ordinary, dated 13th August, 1991, the IMSC was invested with the function of approval of setting up of 100% EOUs for the units under the STP scheme. It may be noted that STP while registering a unit executes an agreement between such unit and President of India (referred to as the Govt.) and accordingly grants the status of 100% export oriented unit as defined in Ministry of Commerce, Notification No.33 (RE) 92-97 dated 22" March 1994 on software technology parks. Hence, it is not relevant as to how the software technology parks. Hence, It is not relevant as to how the statutory obligation or authority is delegated to STP since it is an internal matter of the govt. Therefore, once STP approves the unit as a 100% export oriented undertaking, it should be allowed deduction u/s lOB provided it complies with other conditions as specified in that section. S.10B is a special incentive provision Introduced by the legislature in order to promote exports of computer software/IT enabled services and therefore the same ought to be construed liberally. The Supreme Court In the case of Bajaj Tempo Ltd. Vs. CIT (196 ITR 188) had held as under: A provision In taxing statute granting incentives for promoting growth and development should be construed liberally, the restriction on it too has to be construed so as to advance objective of the provision and not to frustrate it'.

There is no dispute that the assessee in the instant case has obtained approval from STP Hyderabad as 100% EOU. The first appellate authority held that the assessee as not eligible for relief u/s lOB only on the ground that the 100% EOU under STP scheme cannot be equated with the 100% EOU approved by the Board. Since in our considered opinion the approval of 100% EOU by the Board and STP Is one and the same, assessee is eligible for exemption u/s 10B of the Act. We accordingly, set aside the impugned order of the CIT(A), and direct the assessing officer to allow the assessee's claim for exemption u/s 10B of the Act, allowing the grounds of the assessee in this behalf.

11. The revenue went on appeal before the Hon’ble jurisdictional

High Court against the order of the Hon’ble ITAT in the case cited

(supra) and the Hon’ble jurisdictional High Court dismissed the appeal of

the revenue. Therefore, issue is put at rest by the Hon’ble jurisdictional

High Court in the case of K. Sudharani in ITTA No.87 of 2013 dated

25.6.2013 with regard to the requirement of Board approval. Similar

views are taken by the Hon’ble ITAT ‘B’ Bench in following cases:

(i) ITA Nos.836, 815, 816, 817/Hyd/2016 & 916/Hyd/2017 in the case of DCIT, Circle-8(1), Hyderabad Vs. M/s. Value Labs, Hyderabad dated 15.12.2017.

(ii) ITA No.1501/Hyd/2011 in the case of ITO Ward-3(1), Hyderabad Vs. M/s. Secunderabad Software Services, Secunderabad dated 10.4.2012. 12. Therefore, it is evident from the order of the A.O. that the A.O.

has taken one of the possible views. Therefore, once the A.O. has taken

one of the possible views after conducting the enquiries, the Ld. CIT is

not permitted to take up the case for revision u/s 263 because the Ld.

CIT has another independent view. This view is supported by the

Hon’ble Supreme Court decision in the case of CIT Vs. Max India Limited

166 Taxman.com 0188 and similar view was expressed by the Hon’ble

Supreme Court in the case of CIT Gujarat II Vs. Quality Steel Supply

Complex 84 Taxmann.com 234 (SC). Hon’ble apex court held that

where two views are possible and the ITO has taken one of the views

which the CIT does not agree, it cannot be treated as erroneous order

prejudicial to the interest of the revenue. Therefore, we hold that there

is no case for assuming jurisdiction by the Ld. CIT u/s 263 of the Act,

accordingly we set aside the order of the Ld. CIT and allow the appeal

of the assessee.

The above order was pronounced in the open court on 28th Feb’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. . . . सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 28.02.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant – M/s. VSR Infotech, D.No.9-42-9/31, Flat No.504, Mahalakshmi Towers, Balaji Nagar, Siripuram, Visakhapatnam 2. ��याथ� / The Respondent – The ITO, Ward-3(2), Visakhapatnam 3. आयकर आयु+त / The CIT-1, Visakhapatnam 4. आयकर आयु+त (अपील) / The CIT (A), Visakhapatnam 5. #वभागीय ��त�न.ध, आय कर अपील�य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam 6. गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM Sl. Description Date Initials No. 1. Date of dictation by the Author 22.02.2018 Sr.PS 2. Draft placed before the Dictating Member 23.02.2018 Sr.PS 3. Draft placed before the Second Member Sr. PS 4. Draft approved by the Second Member Sr. PS 5. Date of approved order comes to the Sr. PS Sr. PS 6. Date of pronouncement of order Sr. PS 7. Date of file sent to the Bench Clerk Sr. PS 8. Date on which file goes to the Head Clerk Hd. Clk 9. Date of dispatch of order Sr. PS