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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI PRASHANT MAHARISHI
ORDER PER H.S. SIDHU : JM
The Revenue has filed this Appeal and Assessee has filed the Cross Objection against the impugned Order dated 17.4.2014 passed by the Ld. CIT(A)-XVI, Delhi relevant to assessment year 2010-11.
2. The grounds raised in the Revenue’s Appeal read as under:-
“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction u/s. 10A amounting to Rs. 95,88,414/- to the assessee by ignoring the observations of the AO in its assessment order that the STPI certificate has been obtained for the existing business and not for new business. Thus, the conditions envisaged in Section 10A(2) of the Income Tax Act has not been fulfilled by the assessee company.
1.1 On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the above disallowance by ignoring the fact that the claim of deduction u/s.10A of the Act has already been denied to the assessee company in the assessment order for AY 2009-10 passed u/s. 143(3) of the Act which was confirmed by the then Ld. CIT(A). 1.2 The appellant craves to be allowed to add any fresh grounds of appeal and /or delete or amend any of the grounds of appeal.
3. The grounds raised in the Assessee’s Cross Objection read as under:-
“1. On the facts and circumstances of the case, the order of AO in disallowing deduction u/s.10A amounting to Rs. 9588414/- is erroneous. Thus the order of Ld. CIT(A) be restored.
On the facts and circumstances of the case and in the law, the Ld. AO has erred in disallowing the deduction u/s.10A, by ignoring the fact that the claim of deduction u/s. 10A of the Act has even been allowed by the ITAT for the AY 2009- 10 vide dated 23.12.2014 of Delhi Bench ‘E’ New Delhi. 2 4 The brief facts of the case are that the original return of income was filed on 26.9.2010 at an income of Rs.7500/-. The case was processed and subsequently selected for scrutiny under CASS. Notice u/s. 143(2) dated 25.8.2011 was issued and served upon the assessee. In response to the said notice, the AR of the assessee attended the proceedings and filed the necessary details from time to time. The assessee is a private limited company and is engaged in the business of development and promotion of websites, outsourcing and searches operations. The assessee has declared only business income. AO observed that the assessee has claimed deduction u/s.10A of the I.T. Act, 1961. The assesee was asked to justify its claim for deduction u/s.10A and in response to the same the assessee filed its reply. After considering the same, observed that the condition envisaged in section 10A(2) has not been fulfilled by the assessee company. Hence, deduction was not allowed to the assessee. Thereafter, the AO vide Order dated 12.3.2013 passed u/s. 143(3) of the I.T. Act,1961 and assessed the income at Rs. 95,95,920.
Against the said order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated 17.4.2014 has partly allowed the appeal of the assessee.
Aggrieved with the aforesaid order of the Ld. CIT(A), Revenue is in appeal and Assessee is in Cross Objection before the Tribunal
Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal and stated that the Ld. CIT(A) has wrongly deleted the addition.
8. On the contrary, Ld. Counsel of the assessee relied upon the order of the Ld. CIT(A).
We have heard both the parties and perused the relevant records available with us, especially the orders of the revenue authorities. We find that Ld. CIT(A) has elaborately discussed the issue in dispute vide para no. 4.1 which reads as under:-
“4.1 I have carefully considered the submissions of the A/R of the appellant company, the facts of the case as well as the findings of the AO Ground Nos. 1 & 5 of appeal are general in nature and not pressed for by the appellant. Therefore, no adjudication is called for. Ground nos. 2 & 3 of appeal are directed against disallowance of deduction claimed u/s. 10A of the I.T. Act. AO observed that the assessee company has begun its manufacturing or production at Noida in 2007, and the certificate of STPI was obtained on 23.9.2008. AO observed that the assessee company has begun production prior to the date of obtaining STPI certificate. The STPI icate is not obtained for new business. As such AO held that the condition envisaged in see 10A(2) has not been fulfilled by the assessee company. AO also observed that on similar ground, claim of deduction u/s 1OA has already been denied to the assessee company in the assessment order for the A Y 2009-10. Therefore, deduction u/s 1OA is not allowed by the AO. The above issue was decided by me in Appeal No. 318/11-12 for the A Y 2009-10 in the assessee's own case by appellate order dated 27.02.2003 as under:-
“6.2 From the STPI letter of approval dt. 23/09/2008 it is evident that the unit of the appellant was approved as 100% export oriented unit under STP Scheme w.e.f. 23/09/2008. The Green Card issued to the unit approving it under the STP scheme as a 100% export oriented unit for computer software is dt. 07/1 0/2008 and valid for 5 years upto 06110/2013. Under sec 10A(1) deductions is allowed from profits and gains as are derived by an undertaking from export of computer software. The requirement uls 1OA(2)(i)(b) is that the undertaking has begun or begins to manufacture or produce computer software during the previous year in any software technology park. From a reading of the two provisions together" it is clear that only the profits derived by the undertaking from STP unit is eligible for deduction u/s lOA. Since the unit was approved on 23/09/2008, therefore, only the profits derived from the export of computer software from and after the date of approval of the STP unit on 23/09/2008 will be eligible for deduction uls lOA. Because in respect of the period prior to the date of approval, during the relevant previous year, even if the profits are derived from export of computer software, the same are not derived from export of computer software produced from STP unit as required uls 1 OA(2)(i)(b).
6.3 Circular No. 1/2005 dt. 06/0112005 of CBDT, New Delhi relating to clarification regarding Tax holiday under section lOB of the Income-tax Act to 100% Export Oriented Undertaking says:
"4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction under section lOB of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOD. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10."
Although the above circular is in the context of See 1 OB, the ratio of the circular equally applies to See lOA. In this view of the matter, I find support from the decisions of Hon 'ble Karnataka High Court in the case of CIT vs. Expert Outsource Pvt. Ltd. [2010] 20 taxmann.com 481 (Kar.) in which there was also categorical finding that no export of computer software was made before the date of approval.
6.4 From the above circular also it is clear that only the profits derived from the software export from and after the date of approval on 23/09/2008 shall be exempt uls lOA. The appellant has failed to provide details before the A.O. to prove that the profits derived are from software exports after the date of approval. Even before me in the appellate proceedings no details have been furnished to prove that the profits derived are not from export of software before the date of approval but from export of software after the date of approval on 23/0912008. In view of the above, as the appellant has failed to prove that profits derived are from export of software after the date of approval as STP unit, therefore, the A.O. is justified in disallowing the deduction uls lOA. The appeal fails in this ground."
The STPI approval was received by the appellant company on 23.09.2008 in the middle of the previous year relevant to the A Y 2009-10. In the AY 2009-10 it was held that profits derived from the export of computer software from and after the date of approval of the STP unit on 23/09/2008 will be eligible for deduction u/s lOA. In the A Y 2009-10 the disallowance of deduction uls lOA was confirmed because the appellant failed to provide details before the AO to prove that the profits derived during the A Y
2009-10 are from software exports after the date of approval. Since STPI approval was received in the previous year relevant to A Y 2009-10, therefore, the profits derived from export of computer software during the previous year relevant to A Y 2010-11 will be eligible for deduction u/s lOA provided other conditions of see lOA are fulfilled by the appellant company. In the instant AY 2010-11 there is no dispute that the other conditions of see lOA are fulfilled by the appellant. It is also seen that in the A Y 2011- 12 the AO has allowed the appellant's claim of deduction u/s 10A. In view of the above, the AO is not justified in disallowing the claim of deduction u/s 1OA. The appeal is allowed in these grounds.”
9.1 On perusing the above finding of the ld. CIT(A), we find that the STPI approval was received by the assessee company on 23.09.2008 in the middle of the previous year relevant to the A Y 2009-10. We further note that in the AY 2009-10 it was held that profits derived from the export of computer software from and after the date of approval of the STP unit on 23/09/2008 will be eligible for deduction u/s lOA. In the A Y 2009-10 the disallowance of deduction uls lOA was confirmed because the assessee failed to provide details before the AO to prove that the profits derived during the A Y 2009-10 are from software exports after the date of approval. Since, STPI approval was received in the previous year relevant to A Y 2009-10, therefore, the profits derived from export of computer software during the previous year relevant to AY 2010-11 will be eligible for deduction u/s lOA provided other conditions of sec. lOA are fulfilled by the assessee company. In the instant AY 2010-11 there is no dispute that the other conditions of see lOA are fulfilled by the assessee. We further note that 8 that in the A Y 2011-12 the AO has allowed the assessee’s claim of deduction u/s 10A. In view of the above, we are of the considered opinion that the AO is not justified in disallowing the claim of deduction u/s 1OA. Hence, the appeal was rightly allowed by the Ld. CIT(A), which does not need any interference on our part, therefore, we uphold the order of the Ld. CIT(A) on the issues in dispute and accordingly, the Appeal filed by the Revenue stands dismissed.
9.4 As regards the Assessee’s Cross Objection is concerned, since we have already dismissed the Revenue’s Appeal, the Cross Objection has become infructuous and dismissed as such.
In the result, the Appeal filed by the Revenue and Cross Objection filed by the Assessee stand dismissed. Order pronounced in the Open Court on 22/03/2017.