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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S.SUNDER SINGH
आदेश / O R D E R
PER D.S.SUNDER SINGH, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the Order dated
24.06.2016 of Commissioner of Income Tax (Appeals)-1, Chennai, in ITA
No.47/15-16 for the AY 2009-10.
2.0 Ground Nos.1 & 5 are general in nature which do not require specific
adjudication.
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3.0 Ground Nos.2 & 3 are related to the validity of re-assessment
u/s.147 of Income Tax Act (in short ‘the Act’).
The assessee filed return of income for the AY 2009-10 on
11.08.2009 admitting total income of Rs.NIL and the case was selected for
scrutiny and the assessment was completed u/s.143(3) on 04.10.2011
accepting the income returned. Later on, the Assessing Officer (in short
‘AO’) noticed that the assessee has made wrong claim u/s.10A and
reopened the assessment u/s 147 and accordingly issued the notice
u/s.148 on 18.03.2014 and completed the assessment u/s.143(3) r.w.s.
147 by an Order dated 23.03.2015 on total income of Rs.3,11,69,970/-.
In the re-assessment made u/s.147. The AO has withdrawn the deduction
claimed u/s.10A of the Act.
3.1 Aggrieved by the order of the AO, the assessee went on appeal
before the CIT(A) and the Ld.CIT(A) upheld the issue of notice u/s.148.
Hence, the assessee is on appeal before this Tribunal.
4.0 During the appeal, the Ld.AR of the assessee argued that, in this
case the assessment was completed u/s.143(3) and in original
assessment proceedings, the assessee has furnished all the relevant
details to the AO and after examination of all the details, the AO has
allowed the deduction u/s.10A, hence the the AR contended that revisiting
the claim made by the assessee with regard to the deduction claimed
u/s.10A tantamount to difference of opinion and the AO is not permitted
to resort to re-opening of assessment u/s.148 because it is a mere
change of opinion. The Ld.AR relied on the following decisions:
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34 Capgemini India Pvt. Ltd. v. ACIT [2015] 232 taxmann.com 175 (Bombay) 2. 35 CIT v. Aravind remedies Ltd. [2015] 378 ITR 547 (Mad) 3. 36 CIT v. Maruthi Suzuki India Ltd. in ITA No.1232/2009 dated 18.10.2012.
5.0 On the other hand, the Ld.DR argued that the assessment is re-
opened within four years from the end of the relevant assessment year
and the assessee has claimed the deduction u/s.10A stating that it was 10th year of claim and the Audit Report filed by the assessee in 56-F Column No.8 it was also certified that the claim was made for 10th year.
The AO relied on the Audit report and allowed the deduction believing that the claim was made genuinely for 10th year. Whereas the date of
commencement of manufacture/production of articles/things was way
back to the date of 03.10.1997 and considering the date of
commencement of manufacturing the year under consideration for which the claim made was 11th year and the assessee is not eligible for
deduction u/s.10A for the year under consideration. The assessee has furnished the wrong statement for claiming the deduction as 10th year.
Therefore, the Ld.DR argued that the assessee has made the wrong claim
u/s.10A for which it was not eligible for deduction. Therefore, the Ld.DR
argued that notice issued u/s.148 is valid and no interference is called for.
6.0 We heard the rival submissions and perused the material placed on
record.
The assessee’s Audit Report for the AY 2009-10, in Form-56F, the
assessee has mentioned that the claim for the consecutive year for which deduction claimed was 10th year. The assessee has commenced the
production/manufacture of articles/things on 03.10.1997 and till the end
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of the previous year relevant to the AY 2009-10, the assessee has
completed 11 years from the date of commencement of
production/manufacture of articles/things. As per the provisions of
Sec.10A, the assessee is eligible for deduction u/s.10A only for 10 years
from the end of the relevant AY from the year in which
production/manufacture of articles/things have been commenced. The
period of 10 years was completed by the FY 2007-08. Therefore, the claim of the assessee for the A.Y. 2009-10 would be 11th consecutive A.Y
and the prima facie case it is incorrect or wrong claim which is not
allowable. The AO has issued notice u/s.148 within four years from the
end of the relevant assessment year and the information filed by the
assessee in Form No.56F gives misleading facts on the basis of which the assessment was completed. The auditor has certified that it was 10th year
of claim and the assessee is eligible for deduction though the claim was 11th made for year from the date of commencement of
production/manufacture of articles/things. The assessee relied on the
decision of the Hon’ble Bombay High Court in the case of Capegemini
India (P) Ltd. v. ACIT reported in 58 taxmann.com 175 (Bombay) and
argued that re-opening of assessment on the ground that deduction
u/s.10A was wrongly allowed would be a case of revisiting the claim which
was impermissible. In the case law relied upon by the assessee a specific
question regarding deduction was raised by the AO in the questionnaire
and the assessment was completed after considering the reply of the
assessee. Further the facts of the case in capegemini India was as follows:
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It filed its return of income for assessment year 2007 -08 and declared income of Rs 2.76 crores. While filing return, assessee claimed deduction under section 10A with respect to profits derived from two units. The assessee pointed out that the deduction under section 10A was elaborated in Schedule 10A. The case of assessee was selected for scrutiny and the assessment was completed. Further, the assessee pointed out that during the course of assessment proceedings, there was a questionnaire that raised a specific query in relation to the deduction claimed under section 10A. The Assessing Officer issued reassessment notice in March, 2014, claiming that the income had escaped assessment and the deduction under section 10A was wrongly allowed. According to the Assessing Officer, the assessee claimed deduction under section 10A without setting off the losses of the other units from the profits derived from eligible units and, thus, there existed valid reasons to believe that assessee failed to disclose full and true material facts. In the case law cited, the facts regarding the profits of the 10A units and
the losses were declared by the assessee and the AO after calling for the
information completed the assessesment. The assessee has not furnished
any wrong or misleading information. In the instant case the assessee has
made the wrong claim and furnished the misleading information and
incorrect certificate issued by the Accountant. Therefore, the Hon’ble
jurisdictional High Court decision is not applicable in assessee’s case. In
the instant case, the assessee has not brought on record any evidence to
show that the AO has examined the claim of the assessee with respect to
the number of years. There was no discussion in the assessment order.
Therefore, we are of the considered pinion that the facts of the case law
relied upon by the assessee are not applicable in this case. In the case of
CIT v. Aravind Remedies Ltd., relied upon by the assessee, the AY
involved was 1996-97 and the notice was issued u/s.148 on 04.02.2003
which is beyond the period of four years and the issue was whether the
expenditure was revenue expenditure or the deduction u/s 35D
amortization of preliminary expenses. Similarly in the case of CIT v.
Maruti Suzuki India Ltd. cited supra also the notice u/s.148 was issued
beyond four years and the issue was revenue expenditure or capital
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expenditure. In both the cases inferences can be drawn on both side i.e
capital or revenue. In both the cases there was no Form 56-F giving
misleading information for claiming wrong deduction of section 10A,
Therefore, the case laws relied upon by the assessee are not applicable in
the case of the assessee. In the instant case the assessment was re-
opened within four years from the end of the relevant AY and there was a
prima facie case of wrong deduction claimed by the assessee. This fact
was not brought to the notice of the AO by the assessee at the time of
original assessment proceedings u/s.143(3) and the AO also has not
examined the eligibility of entitlement of deduction u/s.10A. Therefore,
we hold that the notice issued u/s.148 is valid and the order of the CIT(A)
is upheld. The assessee’s appeal on this ground is dismissed.
7.0 Ground No.4 is related to the disallowance of claim made by the
assessee u/s.10A.
The AO disallowed the claim of the assessee u/s.10A stating that the
period of 10 years from the date of the commencement of
manufacturing/production was completed by the AY 2007-08 and the
assessee is not eligible for deduction for the A.Y 2009-10. The deduction
was covered for the period from 1998-99 to 2007-08 and completed the
period of 10 years and no deduction is permissible beyond the period of
10 years. Accordingly, the AO has withdrawn the incorrect/wrong claim
made by the assessee. The Ld.CIT(A) confirmed the order of the AO
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holding that the assessee was entitled for deduction u/s.10A from the
commencement of production/manufacture of articles/things and in the
assessee’s case the date of commencement of production/manufacture
was 06.10.1997 and first of year happens to be 1998-99 and the 10 years
period for exemption ended on 2007-08 and hence the assessee is not
eligible for deduction u/s.10A in the relevant A.Y.200-09.The relevant part
of the Ld.CIT(A) is extracted as under:
As regards to the facts of the case, I have considered the assessment order and the written submissions of the assessee. The issue to be decided is whether the assessee is entitled to deduction u/s.10A for ten years from Asst. Year 1998-99, relevant to previous year 1997-98 i.e. when the assessee began to manufacture or produce such article or thing or computer software or the year from which the assessee was granted STPI Registration i.e. from Asst. Year 2000-01, considering that the assessee was granted STPI Registration on 27.03.2000.
In this regard the contention of the assessee is that the date of commencement was wrongly mentioned in the Audit Report as 03.10.1997, whereas it was incorporated only on 06.10.1997. It is submitted that even if the date was wrongly mentioned as 03.10.1997 (i.e. 3 days prior to date of actual incorporation) in the Audit Report, it does not have any effect on the merits of the case as the first year of business anyway happens to be only the A.Y. 1998-99. This is acknowledged by the assessee as well as evidenced by the copy of the covering letter to the return of income filed by the assessee for that assessment year, “a copy of which is enclosed in Annexure-A”. 8. It is the contention of the assessee that the 1st proviso to Section 10A is not applicable to them. Ironically, during the course of the assessment proceedings, the assessee had relied on the very same proviso in their support.
The assessee further seeks to place reliance on the decision of the Hon’ble Madras High Court in the case of M/s.CIT Vs Soffia Software Ltd. (2015) 370 ITR 146. In this regard, it may be pointed out that the issue for consideration in that case was whether the exemption u/s.10A would be available only for the period of the financial year after the date of approval as 100% EOU or for that entire previous year. Therefore, the portions of the order sought to be emphasized by the assessee are found to be quoted totally out of context. Hence, the said decision does not come to their aid.
As regards, the other case law cited by them viz. CIT Vs Foresee Information Systems (P) Ltd. 365 ITR 335 (Kar.), rather than advancing their case, it only goes to buttress the stand of the Revenue that the ten year period is to be reckoned from the date of commencement of the business and not from the date of registration in a STP.
Considering the above legal issues in favour of the revenue, as well as CBDT Circular No.1/2005 dated 06.01.2005, it is to be held that 10 years reckoned from Asst. Year 1998- 99 and therefore the assessee is not entitled to claim the deduction u/s.10A i.e. for the current year i.e. A.Y. 2009-10.
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Appearing for the assessee, the Ld.AR argued that the assessee had
set up 100% EOU under the STPI scheme during the previous year relevant to the AY 2000-01 and as such the AY 2009-10 was 10th year of
deduction and the assessee is eligible for deduction u/s.10A of the Act
which rightly allowed in the regular assessment. The Ld.AR argued that
the period for exemption should be reckoned from the AY 2000-01 but not
form the A.Y 1998-99. Therefore, the Ld.AR contended that the AO has
wrongly disallowed the deduction claimed by the assessee and hence the
orders of the lower authorities required to be set a side. On the other
hand, the Ld.DR argued that it is evident from the Audit Report that the
assessee has commenced production on 03.10.1997 and the assessee is
entitled for deduction u/s.10A for 10 years up to AY 2007-08 and the
claim of deduction u/s.10A for the AY 2009-10 is a wrong claim made by
the assessee which is withdrawn by the AO correctly and no interference
is called for.
8.0 We heard the rival submissions and perused the material placed on
record.
In this case, as per the Audit Report furnished by the assessee
under From-56F, the commencement of production/manufacture was
03.10.1997 and the date of initial registration with the SEZ was
27.03.2000. Though, the assessee argued that the company was
incorporated on 06.10.1997, no evidence has been produced by the
assessee to establish that the company has not commenced the
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production on 06.10.1997. The assessee also not produced the evidence
in the form of Income Tax returns filed for the AY 1998-99 to 2000-01
evidencing that the company has not commenced its manufacturing
activities. Prior to 2000, the company was in a free trade zone but not in
software Technology Park. As per the material placed before us, the
company has filed its return of income for the AY 1998-99 and the
company’s income for the AYs 1998-99 & 1999-2000 are taxed under the
normal provisions of the Act as the deduction u/s Sec.10A was not
available to the assessee.
As per the letter dated 27.11.2012 filed by S.Krishna Murthy, CA,
the company was in existence ,commenced the production and the filed
returns of income for the AYs 1998-99 & 1999-2000. The relevant part of
the letter from the S. Krishna Murthy,CA dated 27.11.2012 is re-produced
as under:
The proviso under Sub Section (i) of Section 10A — if the undertaking had existed in Software Technology Park, immediately before the substitution of subsection (i) of Section 10A by the Finance Act, 2000, then the undertaking shall be entitled to deduction referred to in sub-section only for the unexpired period of the aforesaid 10 consecutive asst. years. It is not in dispute, that in computing the total income as undertaking for the Asst Years 1998-99 and 1999-2000, its profits and gains was included in the computation of total income under the normal provisions of the Act, as the application for provision to Section 10A was not available, as the undertaking was not in a Software Technology Park. It is therefore, submitted that in the audit report filed under Section 10A, the Asst Years 2008-09 and 2009-10 are mentioned as 9th and 10th Year from the date of commencement of production of computer software in Software Technology Park. The year of production referred to in your letter is that of the assessee’s business and not that of the undertaking in a “Software Technology Park”. The error therefore, in the Audit Report is to be rectified and the assessee is rightly entitled and eligible for claiming its profits from its undertaking under Section 10A as exempt in respect of the Asst Years 2008-09 and 2009-10.
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From the above facts, it is clear that the company was incorporated
and commenced production/manufacture of articles/things on 06.10.1997
and the Chartered Accountant in Form No.56F has rightly certified the
date of commencement . The Ld.AR of the assessee did not furnish any
evidence disputing the facts. Therefore, there was no dispute in the date
of commencement of production/manufacture of articles/things on
06.10.1997. Now, the question is whether the assesse’s claim for dection
u/s.10A has to be reckoned from 2000-01 or from 1997-98. The
company has started its existence in software technology park by
completing all the formalities from the AY 2000-01. Therefore, the
assessee contended that, for the purpose of deduction u/s.10A the year of
commencement should be reckoned from the AY 2000-01 but not from
the AY 1998-99.
8.1 Now, it is an undisputed fact that the assessee has commenced the
production in previous year relevant to the A.Y. 1998-99 and relocated in
SEZ from A.Y. 2000-01. Therefore, the assessee argued that period for
reckoning u/s.10A deduction should be from the date of re-location of the
unit in STPI zone. The assessee has commenced its production in the FY
1997-98 and section 10A for the relevant FY 1997-98 is extracted as
under 64[Special provision in respect of newly established industrial undertakings in free trade zones.65 10A. (1) Subject to the provisions of this section, any profits and gains derived by an assessee from an industrial undertaking to which this section applies shall not be included in the total income of the assessee. (2) This section applies to any industrial undertaking which fulfils all the following conditions, namely:— 66[(i) it has begun or begins to manufacture or produce articles or things during the previous year relevant to the assessment year— (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or
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(b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park or, as the case may be, software technology park;] 67[(ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1995, its exports of such articles or things are not less than seventy-five per cent of the total sales thereof during the previous year;] (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any industrial undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such industrial undertaking as is referred to in section 33B, 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. Explanation.—The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. 68[(3) The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any five consecutive assessment years, falling within a period of eight years beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things, specified by the assessee at his option : Provided that nothing in this sub-section shall be construed to extend the aforesaid five assessment years to cover any period after the expiry of the said period of eight years.]
As per the provisions of Sec.10A for the period from 1997-98 to
1999-2000, the assessee is not entitled for deduction u/s.10A since the
assessee’s activity is not covered by Sec.10A of the Act. However, as per
Sec.10A(3) the eligible period for deduction u/s.10A was five consecutive
AYs within a period of 8 years beginning with the AY, relevant to the
previous year in which the industrial undertaking has commenced the
production/manufacture of articles/things. The provisions of Sec.10A was
amended by Finance Act, 2000 extending the benifit to the assessee. In
the amendment, the assessee’s business activity was also covered for
deduction u/s.10A and the period of eight years has been extended to 10
years from the date of commencement of production/manufacture of
articles/things. For ready reference, we re-produce hereunder that the
provisions of Sec.10A as amended by the Finance Act, 2000.
[Special provision in respect of newly established undertakings in free trade zone, etc.
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10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an 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 articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years : Provided further that where an undertaking initially located in any free trade zone or export processing zone is subsequently located in a special economic zone by reason of conversion of such free trade zone or export processing zone into a special economic zone, the period of ten consecutive assessment years referred to in this sub-section shall be reckoned from the assessment year relevant to the previous year in which the 70a[undertaking began to manufacture or produce such articles or things or computer software] in such free trade zone or export processing zone : 70b[Provided also that the profits and gains derived from such domestic sales of articles or things or computer software as do not exceed twenty-five per cent of total sales shall be deemed to be the profits and gains derived from the export of articles or things or computer software :] Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2010 and subsequent years. (2) This section applies to any undertaking which fulfils all the following conditions, namely :— (i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year— (a) commencing on or after the 1st day of April, 1981, in any free trade zone; or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware technology park, or, as the case may be, software technology park; (c) commencing on or after the 1st day of April, 2001 in any special economic zone; (ii) it is not formed by the splitting up, or the 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, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, 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. Explanation.—The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
From the plain reading amended section of Sec.10A, it is clear that
the assessee is eligible for deduction u/s.10A for the period of 10 years
from the date of commencement of production/manufacture of
articles/things for 10 consecutive AYs. It was also made it clear in section
that where in computing the total income of the undertaking for any
assessment year, its profits and gains had not been included by
application of the provisions of this section as it stood immediately before
its substitution by the Finance Act, 2000, the undertaking shall be entitled
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to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years. The assessee is in existence from 1997-98 which had commenced production/manufacture of articles/things during the FY 1997-98 and exemption period of 10 years was ended with the AY 2007-08 and therefore for the AY under consideration, the assessee is not eligible for deduction u/s.10A as held by the Ld.CIT(A) in his order. Accordingly, the order of the Ld.CIT(A) is upheld and the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the Open Court on 26th May, 2017, at Chennai.
Sd/- Sd/- (एन.आर.एस. गणेशन) ("ड.एस. सु�दर %संह) (N.R.S. GANESAN) (D.S.SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
चे�नई/Chennai, 6दनांक/Dated: 26th May, 2017. TLN
आदेश क1 /�त%ल7प अ8े7षत/Copy to: 1. अपीलाथ./Appellant 4. आयकर आयु9त/CIT 5. 7वभागीय /�त�न�ध/DR 2. /0यथ./Respondent 3. आयकर आयु9त (अपील)/CIT(A) 6. गाड+ फाईल/GF