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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’, BANGALORE
Before: SHRI GEORGE GEORGE, K & SHRI JASON P BOAZ
heard together and disposed of by this consolidated order.
The grounds raised for both the assessment years are identical.
The grounds raised reads as follows; “1. The CIT(A) erred in law and with obsessed mind who decided the appeals I favour of the department, did not even hear the advocate Sri G Lakshminarasimhan, who appeared earlier at many times and even requested to defer the appeals till the Hon’ble Tribunal decided the appeal for 2008-09 assessment year.
2. The CIT(A), though provided on 29-10-2013, a copy of the order of Hon’ble ITAT at Bangalore for 2008-09 dated 27-11-2013 did not choose to make a meaningful study of the order of the Tribunal remitting the case to AO but wrongly observed at para-6.15 that he kept in mind directions of ITAT to the AO.
3. The CIT(A) should have waited till the AO disposed of the matter for 2008-09 on the directions of the ITAT. The CIT(A), order illegally preempts any independent decision for 2008-09 assessment year which is bad in law.
4. The CIT(A) failed to note that the assessment orders for 2009-10 and 2010-11 are structured exactly on the reasons cited in the assessment order for 2008-09 which order was remitted back to the AO by Hon’ble ITAT.
5. The CIT(A) erred in supporting the impugned orders based on an erroneous judgment of ITAT(Hyderabad) which was relied on for 2008-09 assessment which order was over ruled by ITAT, Hyderabad itself. The CIT(A) was aware of it.
6. CIT(A), failed to note that a claim u/s 10A or 10B cannot be made every year, that is 2009-10 and 2010-11 assessment neither was he called upon to make a fresh claim for any of the 3 years 2008-09 to 2010-11. 7. a. The CIT(A) failed to consider that the impugned assessments for 2009-10 and 2010-11 were completed disregarding the pending appeal against the ITAT for 2008-09 assessment. b. The CIT(A), also failed to note that the impugned assessments for 2009-10 and 2010-11 were completed even before CIT(A) decided the appeal for 2008-09 assessment.
8. The CIT(A) failed to give proper thought to the directions of ITAT for 2008-09 and instead he preempted the AO from implementing the directions of Hon’ble ITAT for 2008-09. 9.The CIT(A), on deciding the appeals for 2009-10 and 2010-11 did not follow very important government notifications and did not give valid reasons for not following the (Karnataka)High Court decisions.
10. Hon’ble ITAT may please allow both the appeals.
3. Briefly the facts pertaining to assessment year 2009-10 reads as follows
The assessee is a company. It is engaged in the business of IT Enabled Services and Biological Research Services. For the relevant assessment year, the return of income was filed on 26-09-2009 disclosing an income of Rs.2,83,063/- after claiming deduction u/s 10B of the IT Act, amounting to Rs.75,01,349/-. The assessment was taken up for scrutiny by issuance of notice u/s 143(2) and scrutiny assessment was completed u/s 143(3) of the Act vide order dated 16-12-2011. In the assessment completed u/s 143(3) the claim of deduction u/s 10B of the Act was denied. The AO noted that the assessee company being an 100% Export Oriented Unit (EOU) claimed deduction u/s10B of the Act in respect of export of software and approved by the STPI Scheme. According to the AO, the approval under the STPI Scheme is not sufficient to claim deduction u/s 10B of the Act. The AO held a 100% EOU means an undertaking which has been approved by the Board appointed by the Central Government u/s 14 of the Industries (Development and Regulation) Act, 1951. A 100% EOU and STPI Scheme cannot be equated with 100% EOU approved by the Board. It was concluded by the AO that the assessee company had obtained certificate from STPI and 100% EOU under the STPI Scheme is not eligible for deduction u/s 10B of the Act, 1961.
4. Aggrieved by the assessment order denying the benefit of deduction u/s 10B of the Act, the assessee preferred an appeal before the first appellate authority. Before the CIT(A) following grounds were taken.
“1. The assessment order is opposed to law. The denial of exemption u/s 10B is challenged as illegal. 2. The AO has failed to consider CBDT instruction No.1/2006 dated 31/03/2006.
3. Even assuming the approval has not been obtained from the Board, it should not resul5t in denial of relief mandated u/s 10B as the assessee is otherwise eminently qualified.
4. Hypertechnical grounds should not scuttle or efface the object of the provisions which provide incentive and impetus to 100% EOUs. 5. As there is no time to limit to obtain proper approval, the assessee has taken steps to file it before CIT(A). 6. The AO has failed to uphold the principle of natural justice by keeping the assessment pending and directing the assessee to obtain the required approval”.
The assessee also raised an additional grounds which reads as follows.
“ 1. The Hon’ble CIT(A) may please grant relief u/s 10A o the IT Act, even though not claimed by the assessee in the return of income in the light of the very recent judgment of the Bombay High Court in CIT Vs Sheth Developers Private Ltd, 254 CT Page-127, besides the observations at ara-37 in the case of M/s Bebo Technologies Pvt.Ltd Vs The JCIT (ITA No.116/Chd/2010, dated 29.04.2011 and the letter from the Director, Ministry of Communications and Information Technology, Dept. of Information Technology, New Delhi dated 24.02.2012 along with the note titled Case No.A.1.
2. The Hon.CIT(A) may annul the assessment as prayed in written submissions dated 26.11.2012 and for the decision followed b y the Income Tax Officer which has been over ruled in subsequent decisions of ITAT”.
The assessee also filed elaborate written submission before the CIT(A) which is reproduced at page-4 to 8 of the impugned order of the CIT(A). The CIT(A) rejected all the ground of the assessee including the additional grounds raised.
The assessee being aggrieved is in appeal before us. The learned counsel for the assessee reiterated the submissions made before the income-tax authorities and placed reliance on the ground raised in the memorandum of appeal. The learned DR strongly supported the order of the CIT(A).
We have heard the rival submissions and perused the material on record. The Assessing Officer while denying the benefit of deduction u/s 10B of the Act has also referred to the assessment concluded in the immediate preceding assessment year namely AY : 2008-09, wherein the similar claim of deduction was also disallowed for the same reasoning. On appeal, the CIT(A) dismissed the assessee’s case. However, the Tribunal for AY : 2008-09 restored the matter to de-novo consideration to the file of the AO (ITA No.217/Bang/2012 order dated 20-09-2013). Subsequent to the remand by the Hon’ble Tribunal for the assessment year 2008-09 the assessment was de-novo done by the AO and the alternative plea of the assessee for deduction u/s 10A of the Act was allowed. The relevant portion of the assessment order allowing deduction u/s10A of the Act, for the assessment year 2008-09 subsequent to the remand by the Tribunal reads as follows;
“2. The assessee filed appeal before the CIT(A) which was partly allowed in favour of the assessee allowing relief of Rs.16,38,637/-. Accordingly, order giving effect was passed on 01/03/2013 with assessed income of Rs.49,69,221/- and demand of Rs.13,55,369/-.
3. The assessee filed further appeal before the Hon’ble ITAT and the ITAT passed an order dated 20/09/2013 remanding back the matter to the file of the AO for a fresh consideration of the assessee’s claim of deduction under section 10B of the Act. The Hon’ble ITAT has further directed the AO to-
i) The AO is directed to take a comprehensive view in the matter by considering the CBDT Circulars and instructions in the matter, Press releases of the Govt of India for clarifying this issue and guidance rendered by the orders of the Courts and Tribunals in this regard. ii) To consider the submissions made and the judicial decisions cited/relied on b y the assessee and to afford the assessee adequate opportunity of being heard and make submissions in respect of its claim for deduction under section 10B of the Act before rendering a speaking and reasoned order.
As directed by the Hon’ble ITAT, the assessee was given adequate opportunities of being heard and to make submissions. The assessee’s authorized representative appeared from time to time and made submissions regarding claim of deduction under section 10B. After considering the documents filed, cases and Circulars relied upon and discussion with the authorized representative, the assessment is completed as under;
Claim of deduction under section 10B
4.1. The assessee has made claim of deduction under section 1- B of the Act. The deduction under section 10B is available to an undertaking which is 100% Export Oriented Unit (EOU) which is defined in the Act as “an undertaking which has been approved by the Board appointed by the Central Government under section 14 of the Industries (Development and Regulation) Act, 1961.
4.2 In the case of the assessee, for being an undertaking as 100%, the approval has been obtained under STPI Scheme from STPI authorities as being 100% Export Oriented Unit engaged in export of software. Since the assessee has not obtained the approval of the Board appointed by the Central Government under section 14 of the Industries (Development and Regulation), Act, 1951, which is the requirement of the section 10B, the claim of deduction under section 10B is not correct and disallowed by the AO and held by the CIT(A).
4.3. The assessee’s authorized representative has filed various submissions in support of claim of the assessee for deduction under section 10B of the Act. The AR has during the appellate hearings relied upon various case laws and the circulars, press notes etc. The same has been examined and discussed. All the circulars and press notes relied upon by the assessee have nowhere indicated that the approvals obtained from the STPI authorities for set up of STP Units are also eligible for benefit under section 10B. The press notes have merely indicated setting up of Inter- ministerial committees for considering the set up of units under EHTP and STP deemed to be for the purpose of claim of deduction under section 10A of the Act and not for 10B. None of the circulars by the CBDT has ever spelt out any misunderstanding that the approval by the Director STPI could be deemed valid approval for the purpose of section 10B. The same circulars and press notes have been considered by the Hon’ble High Court of Delhi dated 17-09- 2012 in the case of CIT Vs M/s Valiant Communications Ltd., wherein assessee’s claim of 10B based on approval from STPI authorities was rejected.
5.1 However, the assessee has made an alternative claim under section 10A of the IT Act stating that the it also fulfills all the conditions of eligibility stipulated under section 10A. The assessee’s authorized representative filed Form No.56F for 10A deduction signed by the Chartered Accountant. The same was examined.
5.2 The assessee is into the business of export of IT enabled software and research services which is an eligible business under section 10A of the Act. The assessee has obtained approval from the STPI authorities for establishing STP Unit for export of software development.
5.3 The assessee has produced the details of realization of export sales with the time period allowed.
5.4 However, since the assessee has made claim of deduction under section 10B in the return of income filed, it was informed to the authorized representative that the alternative claim cannot be considered during the assessment stage. In response to this, the authorized representative stated that the Circular No.14(XI-35) of 1955 dated April,11, 1955 states that the AO should not take advantage of the assessee’s ignorance of assessee as to his rights and that although the responsibility for claiming refunds and reliefs rests with the assessee on whom it is imposed by law, yet the officers should draw the attention of the assessee to any relief to which they are entitled. The authorized representative relied upon the judgment of ITAT, New Delhi in the case of ITO Vs Efextra Esolutins Pvt.Ltd. dated 21-10-2011 wherein the alternative claim of the assessee under section 10A instead of original claim under section 10B on the basis of 56F filed during the assessment proceedings was allowed.
5.6 Considering the same, the alternate claim of the assessee for deduction under section 10A is allowed………
From the above order of assessment, it is evident that the AO entertained the alternative claim of the assessee for deduction u/s 10A of the Act, and allowed the same subject to certain calculation modification.
In the instant case, admittedly, the CIT(A) considered the Tribunal’s order in assessee’s own case for the assessment year 2008-09. However, he did not have the benefit of assessment order passed pursuant to the Tribunal order.
In the case of M/s VSN Macro Technologies (P)Ltd Vs ACIT SA No.56 & 57/H/2010 (arising out in dated 31-01-2011. It was held when wrong claim is made by assessee u/s 10B instead of 10A in the return on income, the department cannot thrust upon the assessee to avail deduction u/s 10B only. It was further held that, if the assessee entitled for deduction u/s 10A instead of 10B, that claim required to be examined by the AO in all fairness and the matter was remitted back to the file of the AO to consider the issue afresh.
In view of the above reasoning and the order in case of M/s VSN Macro Technologies (P)Ltd., (Supra), we direct the AO, in the interest of justice and equity to consider the alternative claim of assessee for the deduction u/s 10A of the Act. The AO is directed to dispose of the matter after affording reasonable opportunity of hearing to the assessee. It is ordered accordingly. For the same reasoning, we restore the issue raised in concerning assessment year 2010-11 to the file of the AO for de-novo consideration.
In the result, the appeals filed by the assessee for the assessment years 2009-10 and 2010-11 are allowed for statistical purposes.
Order pronounced in the open Court on the 12th August, 2015