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Income Tax Appellate Tribunal, DELHI BENCH: ‘G’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K.NARASIMHA CHARY&
PER K.NARASIMHA CHARY, JUDICIAL MEMBER Challenging the order dated 22.8.2016 in Appeal No.480/14-15/69/15-16 passed by the learned Commissioner of Income-tax (Appeals)-28, New Delhi {Ld. CIT(A)}, assessee preferred this appeal.
Brief facts of the case are that the assessee is a subsidiary company of Smart Cube Ltd., U.K. and is a captive service provider rendering Information
Technology Enabled Services to its Associated Enterprises (AE). For the Asstt. Year 2007-08 they have filed a return of income on 31.10.2007 declaring nil income after claiming deduction of Rs.4,94,99,936/- u/s 10B of the Income-tax Act, 1961 (“The Act”). Return of income was processed u/s 143(1) of the Act accepting the claim of the assessee u/s 10B of the Act. However, stating that during the course of assessment proceedings for AY 2010-11 in the case of the assessee, it was noticed that the assessee had been claiming deduction u/s 10B of the Act despite the fact that the STPI, Noida from whom the assessee had been taking approval was not competent to accord approval for deduction/exemption u/s 10B of the Act. On that ground learned AO sought to reopen the assessment proceedings for AY 2007-08 by issuing a notice u/s 148 of the Act, in response to which the assessee filed the return of income on 1.5.2014 claiming deduction of Rs.4,95,31,186/- u/s 10A of the Act with a request to consider the same. However, by way of order dated 30.6.2014, learned AO assessed the income of the assessee at Rs.4,86,20,748/- against the returned income of nil, by disallowing the deduction of Rs.4,86,20,748/- u/s 10B of the Act.
When the assessee carried the matter in appeal before the learned CIT(A), learned CIT(A) by way of impugned order observed that the reassessment proceedings are always intended to put the revenue in beneficial position so as to charge any income which escaped taxation at an earlier stage, as such, the assessee cannot make use of the reassessment proceedings to convert the claim originally made u/s 10B of the Act into a claim u/s 10A of the Act. Learned CIT(A), therefore, turned down the claim of the assessee u/s 10A of the Act.
Challenging this finding, the assessee is in appeal before us. The assessee also filed Stay Application seeking stay of demand of Rs.2,57,38,552/- pending disposal of the appeal. Having regard to the facts and circumstances of the case and after hearing the counsel, we deem it just and necessary to dispose of the appeal itself instead of disposing the stay application, while keeping the appeal pending, because the discussion on the merits of these two proceedings would be same and overlapping. Learned counsel on either side agreed for the same and argued the matter on merits of the appeal. Hence the Stay application has become infructuous. We, therefore, proceed to dispose of these two matters by way of this common order.
It is the argument of the learned AR that the claim u/s 10B of the Act in the original return that was filed u/s 139(1) of the Act well within time was accepted by not choosing the case for scrutiny and allowing it to be processed u/s 143(1) of the Act. However, when the asesssment was sought to be reopened, the learned AO was under legal obligation to issue notice u/s 148 of the Act affording an opportunity to the assessee to file the return of income and for all practical purposes, the return so filed is the return u/s 139(1) of the Act and all other provisions of the Act would be applicable accordingly. He, therefore, submits that when once the claim u/s 10A of the Act was preferred in the return so filed in response to Section 148 of the Act, learned AO has to adjudicate the claim u/s 10A of the Act only, but not on the basis of 10B of the Act. He further submitted that the provisions of Section 10A(2) of the Act are in pari materia with the provisions u/s 10B of the Act, therefore, the AO cannot refuse to allow the deduction/exemption claimed by the assessee u/s 10A of the Act when all the conditions required u/s 10A(2) of the Act are satisfied. 3
He placed reliance on the decisions reported in CITvs N. Sannamma, 204 Taxman 356 (Kar) and ITO vs Mahakal Mandir Prabandh Samiti, 42 SOT 1 (Indore Trib) in support of his submission that when the assessee filed the return of income in response to notice issued u/s 148 of the Act, the return so filed shall be considered as the return u/s 139(1) of the Act and the learned AO cannot go beyond that return to the original one to disallow the claim of the assessee u/s 10B of the Act.
In so far as merits are concerned, learned AR submitted that in CIT vs Regency Creations Ltd., 353 ITR 326 (Del), the Hon’ble jurisdictional High Court initially rejected the claim of the assessee for deduction u/s 10B of the Act for want of approval from the board appointed u/s 14 of the Industries (Development and Regulation ) Act, 1951 (“IDR Act”) but not by the STPI authorities. He submitted that, however, in the review petition filed by the assessee in CM No.19897/2012, the Hon’ble High Court considered the request of the assessee and directed the AO to examine the claim of the allowability of deduction u/s 10A with respect to the STPI unit. He further submitted that similar are the facts and the direction of the Hon’ble jurisdictional High Court in the case of CIT vs Valiant Communications Ltd. ITA 2002/2010 and batch of cases wherein the Hon’ble High Court thought it fit that when once the deduction u/s 10B was not accepted, the alternative claim for entitlement u/s 10A of the Act has to be considered.
Learned DR, per contra, based his submissions on Section 139(1), 80A(5) and the proviso to sub Section 1A of Section 10A of the Act and submitted that inasmuch as the return of income in response to Section 148 notice dated 31.3.2014 was filed on1.5.2014 i.e beyond the directed period of 30 days is not a
valid return to be considered as if filed u/s 139(1) of the Act. His further submission is that in the cases relied upon by the assessee, there was no discussion with regard to Section 80A(5) or proviso to Section 10Aof the Act, as such they are not applicable to the case of the assessee. Further, issuance of notice u/s 148 of the Act was not involved in the decisions relied upon by the assessee and in such cases the alternative claim was made during the assessment proceedings. He, therefore, submitted that inasmuch as no claim was made u/s 10A of the Act in the original return and no revised return was filed before the due date specified under law, in view of Section 80A(5) and proviso to Section 10A of the Act, the claim of the assessee for direction u/s 10A of the Act could be countenanced.
We have carefully gone through the record in the light of the submissions made on either side. In this case, the claim u/s 10B of the Act made in the original return of income was accepted. However, subsequently, learned AO opined that for want of approval of the authority u/s 14 of the IDR Act and not that of the STPI authority, allowing deduction/exemption u/s 10B of the Act was bad and for such purpose he issued notice u/s 148 of the Act, in response to which the assessee filed a return of income on 1.5.2014 preferring claim u/s 10A of the Act. Both the learned AR and learned DR are placing reliance on the decision of the Hon’ble Apex Court in CIT vs. Sun Engineering Works P. Ltd., 198 ITR 297 (SC). Placing reliance on this decision learned DR argued that keeping in view the object and purpose of the proceedings u/s 147 of the Act, which are for the benefit of the revenue and not an assessee, the assessee cannot raise a claim u/s 10A of the Act in the return filed in response to the notice u/s 148 of the Act inasmuch as such a claim was not there in the original return. However, learned AR argued that in 5
the reassessment proceedings for bringing to tax items which had escaped assessment, it is always open to the assessee to put forward claims for deduction of any expenditure in respect of that income or the non taxability of the items at all. He, therefore, submitted that it is open for the assessee to contend that the items sought to be brought to tax by initiating the proceedings u/s 147 of the Act , are nontaxable at all, u/s 10Aof the Act.
For proper appreciation of these contentions, it is necessary to extract the relevant portion of the observations of the Hon’ble Apex Court in Sun Engineering case (supra), which read as follows:
Claims which have been disallowed in the original assessment proceeding cannot be permitted to be reagitated on the assessment being reopened for bringing to tax certain income which had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under Section 147 of the Act which are for the benefit of the Revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed. 11. From the above it is clear that in the reassessment proceeding for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for non taxability of the same. Since in this matter the
amount sought to be brought under tax by reassessment proceedings is the same amount which the assessee claims non taxable u/s 10A of the Act, we hold that the assessee cannot be prevented from contending the amount which was originally allowed to be deductible u/s 10B is also deductible u/s 10A of the Act. There is no dispute that the agitation in this matter relates to the item sought to be taxed as escaped income. We, while respectfully following the decision in the case of Sun Engineering (supra), hold that the assessee has to be permitted to agitate the ground which renders the escaped income as nontaxable.
Now coming to the submission of the learned AR basing on the decision of the jurisdiction High Court in review petitions in Regency Creations Ltd. (supra) and Valiant Communications (supra), we find that in Regency Creations, the Hon’ble jurisdictional High Court held as follows:
“We have carefully considered the records and submissions. It appears that the assessee had claimed the benefit of Section 10A. Therefore, AO must in fairness consider the documents on the basis of the claim and ascertain whether they are proper and after verifying them, pass appropriate order as to whether the benefit of Section 10A can be granted.” Almost similar was the finding of the Hon’ble jurisdictional High Court in the case Valiant Communications Ltd. (supra).
In the preceding paragraphs, while following the decisions of the Hon’ble High Court, we held that it is open to the assessee to put forth claim for non taxability of the escaped income in view of Section 10A of the Act, while respectfully following the decision of Hon’ble jurisdictional High Court in Regency Creations Ltd. and Valiant Communications Ltd.(supra), we deem it just and proper to direct the learned AO to examine the claim of the assessee for
deduction u/s 10A of the Act by affording an opportunity to the assessee. Accordingly we set aside the matter to the file of the AO to consider the case of the assessee u/s 10A of the Act.
In the result, appeal of the assessee is allowed for statistical purpose, and the stay petition is dismissed as infructuous.
Order pronounced in the open court on 27.02.2018
Sd/- sd/- (G.D. AGRAWAL) (K.NARASIMHA CHARY) PRESIDENT JUDICIAL MEMBER
Dated: 27 .02.2018 VJ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT TRUE COPY
ASSISTANT REGISTRAR ITAT NEW DELHI