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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: SHRI L. P. SAHU & SMT. BEENA A. PILLAI
ORDER
PER BEENA A. PILLAI, JM:
The present appeal has been filed by the assessee against order dated 17.10.2014 passed by Ld. CIT (A) 24, New Delhi on the following grounds of appeal:
1. The learned CIT (Appeal) erred in not allowed deduction u/s 10B of Income Tax Act.
2. The Assessee craves leave to add, alter or modify the aforesaid ground and craves leaves to file additional grounds.
The brief facts of the case are as under:
Assessee is a firm and filed its return of income on 25.09.2010 declaring total income at nil after claiming deduction under section 10B of the Act amounting to Rs.1,10,74,010/-. The case was selected for scrutiny and notice under section 143(2) was issued and served upon assessee. Representative of the assessee appeared before assessing officer and filed financial details. Subsequently, the case was transferred from ITO, ward 47 (1), Ward 25 (3), New Delhi, and notice under section 143 (2) was issued to assessee. As none appeared before the assessing officer on transfer of assessment, assessing officer proceeded to complete the assessment under section 144 of the Act. Ld. AO observed that assessee had claimed deduction of Rs. 1,10,74,010/- under section 10B of the Act, assessee was registered as 100% percent EOU, located at F/30 1A, Moti Nagar, New Delhi by STTPI (Noida), dated 15/01/2010, vide registration number STTPIN/APP/115 2010/201299. Assessing officer was of the view that assessee’s unit had not obtained approval of the board appointed under section 14 of industries (Development and Regulation)
Act 1951 as required under Explanation2 (v) of section 10B, so as to qualify for the state is 100% EOU.
Ld. AO relying upon the decision of Hon’ble Delhi High Court in the case of CIT Vs. Valliant Communication Ltd., (in and ors, dated 17.09.2012) rejected the claim of deduction under section 10B of the assessee. Ld. AO also rejected the books of account of assessee under section 145 of the Act and disallowed an amount of Rs. 2, 04, 095/-being 10% of various expenses debited in the P&L account of assessee. He also disallowed the claim of liability of assessee during the relevant year, amounting to Rs. 65 lakhs from M/s Logiciel Information Systems Pvt. Ltd., for want of evidence. Ld. AO thus, completed the assessment by making an addition of Rs.1,77,78,110/- as against nil income declared by the assessee.
Aggrieved by the order passed by Ld. AO, assessee preferred an appeal before Ld. CIT(A), before whom assessee submitted additional evidence under rule 46A. These documents were sent to Ld. AO and he submitted the remand report on June 2014, wherein assessing officer rejected the books of account and confirmed the addition made by him. Ld. CIT(A) upheld the additions made by Ld. AO following the decision of Hon’ble Delhi High Court in the case of Valiant Communications Ltd (supra).
Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now.
Ld. Counsel for assessee submits that approval granted by the Development Commissioner is valid for claiming deduction under section 10B of the Act. She submitted that CBDT in its circular number F.N.178/19’2008-ITA dated 09/03/2009 has issued a clarification regarding deduction under section 10B of the Act which reads as under:
“The matter regarding validity of approvals given by development commissioner has been examined in the board. It has been decided that an approval granted by development commissioner in the case of an hundred percent EOU will be considered valid, once such an approval is ratified by the board of approval for EOU scheme.”
Ld. Counsel for assessee submitted that the power to grant approvals for 100% EOU, vests in which the board specifically constituted under section 14 of the Industries (Development and Regulation) Act, 1951. Further, she submitted that the Government in a series of measures aimed at speeding up the approval process had delegated powers for approval to the Development Commissioner. She thus submitted that the assessee is eligible for deduction under section 10B of the Act. She placed reliance upon various judicial decisions of Hon’ble jurisdictional High Court as well as coordinate benches of this Tribunal.
Ld. Counsel for the assessee submitted that the application for STPI certification was filed on 24.03.2008 (placed at page 1-14 of paper book). It has been submitted that on 02.09.2009 communication was received from STPI office, for resubmission of the application (placed at page 64 of paper book). Subsequently, on 15.01.2010 assessee received the certification from STPI for setting up 100% EOU, under the scheme placed at page 66-67 of paper book). Ld. Counsel for assessee submitted that assessee is eligible for deduction under section 10B for the relevant financial year, as it had made the application for STPI approval on 24.03.2008. She submitted that assessee started manufacturing and exporting of the goods in the financial year relevant to the assessment year under consideration
On the contrary, Ld. DR objected to the submissions made by the Ld. Counsel regarding the amount that qualifies for deduction under section 10. At this juncture, Ld. DR admits that assessee is no doubt eligible to claim deduction under section 10B. He submitted that as the assessee has received approval from STPI on 15.01.2010, therefore, any export made before the date of acceptance by STPI needs to be excluded. Ld. DR referred to the provisions of section 10B (1) which reads as under:
“1. Subject to the provisions of this section, deduction of such profits and gains as are derived by 100% export oriented undertaking from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software as the case may be shall be allowed from the total income of the assessee.”
He submitted that the condition necessary for claiming deduction under 10B is subjected to approval obtained from STPI. Unless the assessee has an approval it cannot be regarded as an eligible undertaking under this section. In the present case, the assessee has received approval on 15.01.2010 and therefore, any export prior to the said date would not be considered for the purposes of section 10B as during the period prior to such date assessee was not considered to be an eligible undertaking.
In the rejoinder, the Ld. Counsel for the assessee submitted that the requirement for claiming deduction under section 10 B has been listed in sub-clause 2 to the section which reads as under:
2. This section applies to any undertaking which fulfils all the following conditions, namely:- (i) it manufacturers or producers any articles or things or computer software; (ii) it is not formed by 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, he construction or revival by the assessee of the business of any such undertaking as is referred to in section 30 3B, 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.
She submitted that the mandate for claiming deduction under section 10B is that it must be an hundred percent export oriented undertaking and it manufacturers or producers any article or thing during the previous year and it has not been formed by splitting up or reconstruction of a business
already in existence. As assessee fulfills the conditions specified u/s 10B.
We have perused rival contentions/advanced by both parties in light of the records and judicial precedents placed before.
Ld. counsel for assessee has strongly argued that section 10B (2) of the Act clearly mandates regarding benefit of section 10B which is available in the year in which begins to manufacture article or thing. The unit to the present facts came into operation in the financial year relevant to the assessment year under consideration, with permission of STPI vide letter dated 15.01.2010. The whole controversy boils down to that deduction claimed by assessee under section 10B, for the entire assessment year, whereas the stand of the revenue is that assessee can claim deduction under section 10B only on exports made after 15.01.2010. We find that the issue in question has to be seen in perspective.
There is no dispute that deduction/exemption u/s 10B of the IT Act is available in respect of 100% Export Oriented Undertaking from the Export of Articles or things or computer software for a 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 such items.
Hon’ble Delhi High Court in CIT vs. AA ERSS Exim Pvt.Ltd., reported in (1992) 196 ITR 149 has held as under;
“It is settled law that the expression used in a taxing statute would ordinarily be understood in the sense in which it is harmonious with the object of the statute to effectuate the legislative animation. In Raja Jagadambika Pratap Narain Singh vs. CBDT 1975 CTR (SC) 206 : (1975) 100 ITR 698 (SC), this Court held that equity and income-tax have been described as strangers. The Act from the very nature of things cannot be absolutely cast upon logic. It is to be read and understood according to its language. If the plain reading of the language compels the Court to adopt an approach different from that dictated by any rule of logic the Court may have to adopt it, vide Azam Jah Bahadur (H.H. Prince) vs. ETO (1972) 83 ITR 92 (SC). Logic alone will not be determinative of a controversy arising from a taxing statute. Equally, common sense is a stranger and incompatible partner to the IT Act. It does not concern itself with the principles of morality or ethics. It is concerned with the very limited question as to whether the amount brought to tax constitutes the income of the assessee. It is equally settled law that if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative animation. Nevertheless tax laws have to be interpreted reasonably and in consonance with justice adopting purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee. The object being that in computation of the net income, the statute provides deductions, exemptions or depreciation of the value of the capital assets from taxable income. Therefore, building which has not been specifically defined to include road in the Act must be taken in the legal sense.”
There is no allegation by the authorities below regarding the activity of export of computer software,
by assessee and date of application made by assessee to STPI. As on the date of application as well as the date on which the approval was sought, Ld.AO has also not alleged that assessee violated any of the conditions specified in Sec.10B(2).
In the light of above discussion, we are thus inclined to reject the argument advanced by Ld. counsel for assessee and uphold that assessee is eligible for deduction under 10B for the entire period of assessment year under consideration.
In the result, appeal filed by the assessee stands allowed.
Order pronounced in the open court on 16th December, 2016.