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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAJESH KUMAR
PER SAKTIJIT DEY, J.M.
Aforesaid appeals by the assessee are against two separate orders passed by the learned Commissioner (Appeals)–1 and 2, Thane, pertaining to assessment years 2008–09 and 2010–11.
Ground no.3 of ITA no.3715/Mum./2015, is not pressed, hence, dismissed.
The only surviving ground, which is common in both the appeals are as under:–
“On the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the action of the Assessing Officer in disallowing of deduction under section 10B of the Act.
Brief facts are, the assessee a company is engaged in the business of software development and for that purpose it has set–up a new unit in domestic tariff area, Belapur Station Complex, CBD Belapur, is registered as 100% export oriented unit with software technology park of India (STPI) Mumbai. For the impugned assessment year assessee filed its return of income claiming deduction under section 10B of the Act. In the course of assessment proceedings, the Assessing Officer called upon the assessee to furnish necessary evidence / information regarding the claim of deduction
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under section 10B and also to justify how the conditions of section 10B are fulfilled. In response, it was submitted by the assessee that it has been approved as 100% Export Oriented Unit (EOU) by the STPI which is the basic condition of section 10B of the Act. Further, referring to MOEF Circular dated 9th March 2009, it was submitted by the assessee that approval given by an officer designated by the Ministry of Information and Technology instead of Development Commissioner and by the Inter Ministerial Standing Committee instead of Board of Approval recognising the assessee as 100% export oriented unit would fulfil the condition of section 10B. Thus, it was submitted by the assessee that the approval given by the Director, STPI, is sufficient for claiming deduction under section 10B of the Act. In support of such contention the assessee relied upon the decision of the Tribunal in case of ITO v/s Regency Creation Ltd. The Assessing Officer, however, did not find merit in the submissions of the assessee. Referring to the definition of 100% export oriented undertaking as provided under clause (iv) of Explanation–2 to section 10B of the Act, he observed that as per the condition prescribed therein, a 100% export oriented undertaking has to be approved by a Board appointed on that behalf by Central Government in exercise of power conferred by section 14 of the Industries (Development and Regulation) Act, 1951 and rules made thereunder. Further, referring to the Board’s instruction no.2/2009 dated 9th March 2009, the Assessing Officer observed either
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the assessee has to be approved by the Board constituted by the Central Government as per Explanation–2(iv) of section 10B or if the approval is given by the Development Commissioner or the Director, STPI it has to be ratified by the Board. Thus, holding that ass has not been approved by a Board constituted in terms of under clause (iv) of Explanation–2 to section 10B is not eligible to claim deduction under the said provision. Accordingly, he disallowed assessee’s claim of deduction under section 10B of the Act for both the assessment years. Being aggrieved of the disallowance of deduction claimed under section 10B of the Act, assessee preferred appeal before the first appellate authority.
The learned Commissioner (Appeals), however, observing that assessee’s approved as a 100% export oriented unit was not ratified by the Board for approval, upheld the disallowance made by the Assessing Officer. The assessee challenged the order of the learned Commissioner (Appeals) for the assessment year 2008–09 before the Tribunal. The Tribunal vide order dated 28th October 2014, in ITA no. 5991/Mum./2011, restored the issue to the learned Commissioner (Appeals) for re–adjudication. In pursuance to the direction of the Tribunal, the learned Commissioner (Appeals) took up the proceedings again and after considering the submissions of the assessee and in the light of the relevant facts and material on record, the statutory
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provisions governing the issue as well as relying upon the decision of the Hon'ble Delhi High Court in CIT v/s Regency Creations Ltd., 27 taxmann.com 322 (Del.), held that in absence of approval by the Board constituted in terms of Explanation 2(iv) of section 10B, assessee’s claim of deduction cannot be allowed. The same view was expressed by him while deciding assessee’s appeal for assessment year 2010–11 as well.
Learned Authorised Representative reiterating the stand taken before the first appellate authority submitted that the assessee is approved as a 100% export oriented unit by the director STPI, Mumbai. He submitted, though, as per Explanation–2(iv) of section 10B, the approval is required to be granted by a Board constituted by Government under section 14 of the Industries (Development and Regulation) Act, 1951, however, no such Board has been constituted by the Government. Instead, the Government has constituted an Inter Ministerial Standing Committee to perform the function of the Board. In this context, he referred to notification vide S.O. no.117(E) dated 22nd February 1993, issued by the Department of Industrial Development, Ministry of Industry, Government of India. The learned Authorised Representative submitted, after grant of approval by the Director, STPI, assessee has entered into an agreement for software export with the Government. He submitted, a green card has been
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issued on behalf of IMSC recognizing the assessee as a 100% export oriented unit under the STPI scheme. In this context, he drew our attention to the green card issued by designated officer, a copy of which is placed at Page–7 and 8 of the paper book. Referring to the letter dated 2nd September 2011, issued by the Asstt. Director, STPI, the learned Authorised Representative submitted, approval as 100% export oriented unit under the STPI scheme shall be granted by an officer designated by Ministry of Communication and Technology instead of Development Commissioner and by IMSC instead of Board of approved. The said letter stated that since STPI works under IMSC no ratification is necessary. Drawing our attention to the information obtained under RTI Act from the STPI a copy of which is placed at Page–47 of the paper book and the clarification issued by IMSC to CBDT on 7th September 2006, the learned Authorised Representative submitted that STPI units approved by the Director, STPI stands automatically approved by STP scheme. Learned Authorised Representative submitted, since the assessee has been granted approval by the Director, STPI and IMSC, there is no necessity of obtaining approval from the Board as prescribed under Explanation 2(iv) to section 10B of the Act. The learned Authorised Representative submitted, since, the Government has not constituted any Board of approval as prescribed under Explanation 2(iv) to section 10B, the assessee cannot be denied its legitimate claim as constitution of Board
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is not the hands of the assessee. He submitted, in the preceding assessment years assessee’s claim has been allowed. Therefore, the deduction claimed in the impugned assessment year cannot be denied. In support of his contention, assessee relied upon the following decisions:–
i) ITO v/s Neural Technologies and Software Pvt. Ltd., ITA no. 6525/Mum./2012, dated 19.10.2015; ii) ITO v/s Wizard Enterprises Pvt. Ltd., ITA no.628/Kol./2011 and Ors., dated 04.03.2016; iii) CIT v/s Western Outdoor Interactive Pvt. Ltd., ITA no.1150/ 2010 & Ors. Dated 14.08.2012.
Without prejudice to the aforesaid contention, the learned Authorised Representative in terms of ground no.2, submitted that in the event assessee’s claim of deduction under section 10B is not allowed, alternatively, assessee should be allowed deduction under section 10A since it fulfills all conditions of the said provisions. Learned Authorised Representative submitted, though, the assessee put forward its alternative claim of deduction under section 10A in course of proceedings before the first appellate authority, he rejected assessee’s claim for assessment year 2008–09 on the plea that in the set aside proceedings, assessee cannot raise a fresh claim. So far as assessment year 2010–11 is concerned, the learned Commissioner (Appeals) rejected assessee’s claim under section 10A on the reasoning that the assessee has not claimed such deduction before the
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Assessing Officer. The learned Authorised Representative submitted, there is no restriction / prohibition in law in raising a fresh claim either in second round of litigation or for the first time before the appellate authority. He submitted, if the assessee otherwise fulfills the conditions of section 10A and is eligible for deduction under the said provision, its claim should be allowed. In support of such contention, the learned Authorised Representative relied upon the following decisions:–
i) Fast Booking India Pvt. Ltd. V/s DCIT, ITA no.334/2015 & Ors. Dated 02.09.2015 (Del.); ii) ITO v/s Wizard Enterprises Pvt. Ltd., ITA no.628/Kol./2011 and Ors., dated 04.03.2016; iii) Geodis Overseas Pvt. Ltd. V/s DCIT, [2015] 67 SOT 220.
The learned Departmental Representative strongly supporting the reasoning of the Assessing Officer and learned Commissioner (Appeals) submitted, in the absence of an approval by the Board or ratification of approval by Board as constituted in terms of Explanation 2(iv) of section 10B, the assessee cannot be treated as 100% export oriented unit so as to entitle it to avail deduction under section 10B of the Act. He submitted, no material has been brought on record to demonstrate that any other authority has been delegated the powers to discharge the functions of Board. The learned Departmental Representative submitted, even CBDT circular no.2/2009 dated 9th
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March 2009, makes it clear that approval granted by Development Commissioner can be considered as valid if it is ratified by Board of approval. Therefore, he submitted, the approval by Board as prescribed under Explanation 2(iv) is mandatory for availing deduction under section 10B of the Act. In support of his contention, the learned Departmental Representative relied upon the decision of the Hon'ble Delhi High Court in Regency Creation Ltd. (supra). So far as the alternative claim of deduction u/s 10A is concerned, the learned Departmental Representative supported the view expressed by the learned Commissioner (Appeals).
We have heard the rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. At the outset, we have examined the validity of assessee’s claim of deduction under section 10B of the Act. Section 10B speaks of providing deduction of profit derived from newly established 100% export oriented undertakings from the export of articles or things of computer software for a period of 10 consecutive assessment years. Thus, the basic condition which has to be fulfilled is, the assessee must be a 100% export oriented undertaking. Explanation–2(iv) of section 10B defines a 100% export oriented undertaking as under:–
"(iv) hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf
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by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;”
As per the aforesaid definition, a 100% export oriented undertaking would mean an undertaking approved as such by the Board appointed by the Central Government under section 14 of the Industries (Development and Regulation) Act, 1951. Undisputedly, the assessee has established a unit for software development under the free trade zone as per STPI scheme. It is also a fact on record that the assessee has been registered as a 100% export oriented unit by the Director, STPI. However, the issue before us is, whether such approval of Director, STPI recognizing the assessee as a 100% export oriented unit fulfills the condition of Explanation–2(iv) of section 10B. Admittedly, the assessee has not been approved by the Board of Approval as 100% export oriented unit as per Explanation–2(iv) of section 10B. Neither, the approval granted to the assessee as 100% export oriented unit has been ratified by the Board of approval in terms of instruction no.2 of 2009 dated 9th March 2009. The Hon'ble Delhi High Court in Regency Creation Ltd. (supra) after considering almost identical argument advanced on behalf of the assessee as were taken before us by the learned Authorised Representative has held as under:–
“13. There is no dispute about the essential facts. Both assesses had received approval to start 100 per cent EOU under STP scheme. The question is whether this approval can be deemed one under Section 10-B of the Act. For that purpose a 100 per cent EOU
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is only that which is so approved by the Board appointed by Central Government in exercise of powers conferred under Section 14 of IDAR Act, 1951. The pre-conditions that govern units set up under STP scheme are different from those that govern the units set up as 100 per cent EOUs and so approved by the Board. Some conditions may undoubtedly overlap yet, criteria, such as fulfilment of the employment criteria, foreign exchange, etc., are not common. 14. The Inter-Ministerial Standing Committee set up for granting licences under STP scheme is also appointed by the Central Government in exercise of powers conferred under, Section 14 of IDAR Act. However, the question is whether that part of the Board's function (under Section 14 IDR Act) - to grant approval under ITAs 69/08, 783/09, 1239/11, 2002/10, 438,439,440, 441/12 Page 23 Section 10-Balso stands delegated. The assesses submit that the Inter- Ministerial Standing Committee has been replaced by the Board on the basis of the contents of para 2 of the notification of the Ministry of Commerce dt. 22nd March, 1994, is unpersuasive. That notification states that for the purpose of paras 111 to 117 of Chapter IX of the Export and Import Policy (1992- 97), Board of Approval shall be substituted by the Inter-Ministerial Standing Committee. Paras 111 to 117 of Chapter-DC of Export and Import Policy (1992-97) do not deal with that aspect, but other questions such as subcontracting by EOU/EPZ, Sale of imported materials, Disposal of scrap, Private bonded warehouses, period of bonding, and de-bonding. The notification therefore extended incentives to EOUs to set up units under the STP scheme. However, for the Court to conclude that the Interministerial Committee was authorized to issue approval under Section 10-B and that its imprimatur or approval under Section 10-A ought to be deemed as an approval under Section 10-B, there ought to be more direct, or express authorization. 15. Section 10A extends the exemption to the units set up under STP scheme which start production of goods during the previous year relevant to the assessment year commencing on or after 1st April, 1994. The assessee's plea about eligibility of a 100% EOU STP eligible for exemption would render the amendment brought about by the Finance Act, 1993 (extending the benefit under Section 10A of the ITAs 69/08, 783/09, 1239/11, 2002/10, 438,439,440,441/12 Page 24 Act to the STPs from 1st April, 1994) superfluous. There is no reason for Parliament to amend the law, and extend benefits of Section 10A to units under STP scheme and, restrict the benefits to those commencing their operations in the year of account relevant to the Assessment year 1994-95, if a STP unit is otherwise eligible for exemption under Section 10B of the Act on the ground of its being 100 per cent EOU.
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It is a settled principle of law that unless there is express authorization, in terms of a statute, and an actual delegation of power, a statutory authority in whom jurisdiction or power is reposed, is alone vested with it, to the exclusion of others (Ref. Hari Chand Agarwal v Batala Engineering Co. Ltd AIR 1969 SC 483; and Ajaib Singh vs. State Of Punjab AIR 1965 SC 1619). In the absence of a statutory power to delegate, and further to that power, an actual delegation in accordance with law, such functions cannot be performed or deemed to have been performed by a third agency or authority. Another cardinal rule which binds the court to interpret statutes is that "where power is given to do a certain thing in a certain way, the thing must be done in that way or not at all, and other methods of performance are necessarily forbidden..." (See Nazir Ahmed v King Emperor (1936) I. L. R. 17 Lah 629). 17. In the present case, there is no notification or official document suggesting that either the Inter Ministerial Committee, or any other ITAs 69/08, 783/09, 1239/11, 2002/10, 438,439,440,441/12 Page 25 officer or agency was nominated to perform the duties of the Board (constituted under Section 14 of the IDR Act), for purposes of approvals under Section 10-B. Though the considerations which apply for granting approval under Sections 10-A and 10-B may to an extent, overlap, yet the deliberate segregation of these two benefits by the statute reflects Parliamentary intention that to qualify for benefit under either, the specific procedure enacted for that purpose has to be followed. There is nothing in any of the Circulars or instructions relied on by the Tribunal in all the orders, implying that approval for purposes of an STP also entitled the unit to a benefit under Section 10-B. The orders of the Tribunal are consequently erroneous, and its reasoning, unsupportable.”
From the aforesaid decision, it becomes clear that for availing deduction under section 10B of the Act approval of board as prescribed under Explanation–2(iv) of section 10B is mandatory. Of–course, it needs to be observed, views expressed by different Benches of the Tribunal on this particular issue are conflicting. Though, the Tribunal, Kolkata Bench, in ITO v/s Wizard Enterprises Pvt. Ltd. (supra) and Mumbai Bench in ITO v/s Neural Technologies and Software Pvt. Ltd. (supra) appears to have decided the issue in favour of assessee,
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however, those decisions are without taking into consideration the decision of the Hon'ble Jurisdictional High Court in Regency Creation Ltd. (supra). On the other hand, the Tribunal, Pune Bench, in Ansh Systems Pvt. Ltd v/s DCIT, ITA no.185/Pn./2014 dated 30th December 2015, following the decision of the Hon'ble Delhi High Court in CIT v/s Regency Creation Ltd. (supra) has held that in the absence of approval by Board as prescribed under Explanation–2(iv) of section 10B, deduction cannot be allowed. In our considered opinion, when there is no decision of the Hon'ble Jurisdictional High Court on the issue and there is a decision of non–jurisdiction High Court directly on the issue, the decision of the non–jurisdictional High Court should prevail over the decision of the Tribunal, since, in the hierarchy of judicial system High Courts are at a higher pedestal than the Tribunal. Therefore, adhering to the norms of judicial discipline and following the decision of the Hon'ble Delhi High Court in Regency Creation Ltd. (supra), we hold that in the absence of an approval by the Board or ratification of approval granted by the Director, STPI, by the Board as prescribed under Explanation–2(iv) to section 10B, assessee’s claim of deduction under the said provision cannot be allowed. So far as the assessee’s contention that its claim of deduction since, was allowed in the preceding assessment year it has to be allowed in the impugned assessment year, we must observe that nothing has been brought before us to demonstrate that in the preceding assessment years, the Assessing Officer examined the issue whether the assessee has fulfilled the condition of section 10B to entitle it to claim deduction. Therefore, contention of the learned Authorised Representative cannot be accepted. In view of the aforesaid, we uphold the decision of the
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learned Commissioner (Appeals) insofar as it relate to assessee’s claim of deduction under section 10B of the Act.
Having held so, now we have to deal with assessee’s alternative claim of deduction under section 10A of the Act. Undisputedly, as per the facts emanating from record, the assessee is a 100% export oriented unit registered with STPI. There is no dispute to the fact that the assessee has derived profit from export of software as per the condition of section 10A. The first appellate authority has refused to entertain assessee’s claim of deduction under section 10A for the assessment year 2008–09 on the ground that such claim cannot be raised in the second round of litigation. In our view, the aforesaid reasoning of the learned Commissioner (Appeals) cannot be supported considering the fact that the assessee is entitled to claim deduction either under section 10A or section 10B. If the assessee is found to be eligible to claim deduction under section 10A, such deduction should be allowed to the assessee. Therefore, if the assessee in terms of provisions of the Act is entitled to claim certain deductions it cannot be debarred from raising such issue even in the second round of proceedings. This view of ours gets support from the decision of the Co–ordinate Bench in Geodis Overseas Pvt. Ltd. (supra). So far as assessment year 2010–11 is concerned, assessee’s alternative claim of deduction under section 10A was rejected by the first appellate authority on the reasoning that assessee has not raised such issue before the Assessing Officer. It is fairly well settled that even if the assessee has not raised a claim before the Assessing Officer it certainly can raise such issue before the appellate authority. Therefore,
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the learned Commissioner (Appeals) was not justified in refusing to examine assessee’s claim., In view of the aforesaid, we restore the issue relating to assessee’s claim of deduction under section 10A of the Act for both the assessment years under appeal to the file of the Assessing Officer for denovo adjudication after due opportunity of being heard to the assessee. Consequently, ground no.1 in both the appeals are dismissed and ground no.2 in both the appeals are allowed for statistical purposes.
In the result, both the appeals are partly allowed for statistical purposes. Order pronounced in the open Court on
Sd/- Sd/- RAJESH KUMAR SAKTIJIT DEY ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED:
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A);/ (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
(Asstt. Registrar/Sr.P.S) ITAT, Mumbai