DCIT, BHUBANESWAR vs. M/S. DISCOVERTURE SOLUTIONS (INDIA) PVT. LTD., BHUBANESWAR

IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK

BEFORE S/SHRI N.S SAINI, ACCOUNTANT MEMBER AND KULDIP SINGH JUDICIAL MEMBER

ITA No.50/CTK/2015 Assessment Year : 2011-12

DCIT, Corporate Circle 1(1), Vs. M/s. Discoverture Solutions (India) Pvt Ltd., E/48, Bhubaneswar. Infocity, Chandrasekharpur, Bhubaneswar. PAN/GIR No. (Appellant) .. ( Respondent)

Assessee by : Shri Bibek Mohanty, AR Revenue by : Shri Kunal Singh, CIT DR

Date of Hearing : 24/04/ 2017 Date of Pronouncement : /04/ 2017

O R D E R Per N.S.Saini, AM

This is an appeal filed by the assessee against the order of CIT(A)-

II, Bhubaneswar, dated13.11.2014, for the assessment year 2011-12.

deleting the addition of Rs. 3,67,15,136/- as wrong claim of deduction

u/s.10A of the I.T.Act.

2 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 3. We have heard the rival submissions and perused the orders of

lower authorities and materials available on record. The undisputed

facts of the case are that the assessee filed its e-return of income for

the assessment year 2011-12 on 27.9.2011 showing income of

Rs.14,80,454/- after claiming deduction of Rs.3,93,09,436/- u/s.10A of

the Act. The Assessing Officer found that the assessee was claiming

deduction u/s.10B as against u/s.10A since assessment year 2004-05

and only in the impugned assessment year 2011-12, the assessee has

claimed exemption u/s.10A of the Act. The Assessing Officer also

observed that the assessee had filed Form 56F in the audit report for

claiming deduction u/s.10A of the Act. In reply to show cause notice,

the assessee submitted on 30.12.2013 that with regard to claim u/s.10B

of the Act, the assessee company is a 100% EOU and while submitting

the documents earlier, there was typographical error on the part of the

assessee’s tax auditor and it was wrongly mentioned deduction u/s.10A

in stead of 10B in the computation sheet. The Assessing Officer

observed that these are contradictory facts as in the return of income,

the assessee has claimed deduction u/s 10A and filed Form 56F in the

audit report and subsequently vide submission dated 30.12.2013, the

assessee is claiming exemption u/s.10B of the Act. Therefore, the

Assessing Officer disallowed deduction u/s.10A on the ground that it was

available only to unit established under Special Economic Zone and that

in the case of the assessee it was not so. He also observed that

deduction u/s.10B cannot be allowed to the assessee as the assessee

3 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 had not submitted the audit report in Form No.56G for assessment year

2011-12. Hence, he disallowed deduction of Rs.3,67,15,136.19 claimed

by the assessee u/s.10A and also did not allow deduction u/s.10B of the

Act to the assessee.

Assessing Officer to allow the claim of exemption of Rs.3,67,15,136.19

after considering the relative merits of its applicability u/s.10A or 10B of

the Act. Accordingly, Form 56F/Form 50G is to be admitted and taken

on record in the interest of justice and equity particularly in the light of

the fact that the contents of Form 56F and 56G are largely similar.

appeal before us.

allowed without filing the mandatory form 56F or 56G by the assessee

alongwith return of income u/s.139(1) of the Act has been considered

and decided by the Rajkot Special Bench Bench of the Tribunal in the

case of Saffire Garments Versus Income-tax Officer, 140 ITD 6

(SB)(Raj), wherein, it has been held as under:

4 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 “11. The 1st question raised before us is this as to whether this proviso to Section 10A(1A) of the Income tax Act, 1961, is mandatory or merely directory. In order to decide this issue, we feel that we have to consider the whole scheme of the Act. The assessee is required to file the return of income within the prescribed time as per the provisions of Section 139(1). This provision of Section 139(1) is applicable to all companies and firms irrespective of the fact as to whether they are earning taxable income or not for the current year i.e. from 01.04.2006. In respect of other persons such as individual, HUF, AOP or BOI and Artificial Judicial Person, the requirement is this that if such a person is having taxable income before giving effect to the provisions of Section 10A, then also, he is required to file return of income before the due date even if this person is not having taxable income after giving effect to the provisions of Section 10A. We find that the provisions of the proviso to Section 10A(1A) is nothing but a consequence of failure of the assessee to file the return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961. For such a failure of the assessee to file his return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961, this is not the only consequence. One consequence of such failure is prescribed in Section 234A of the Income tax Act, 1961 also as per which, the assessee is liable to pay interest on the tax payable by him after reducing advance tax and TDS/TCS if any paid by him apart from some other reductions. Such interest is payable from the date immediately following the due date for filing return of income and is payable up to the date on which such return of income was furnished by the assessee and if the assessee has not furnished any return of income then the interest is payable till the date of completion of the assessment u/s 144. In our considered opinion, this is also one of the consequences of not filing return of income by the assessee within the due date. One may raise this argument that interest u/s 234A is payable only if the assessee has not paid his advance tax and, therefore, this is interest for the failure of the assessee to pay advance tax as per the requirement of the Act and not for the delay in filing return of income. But in our considered opinion, this is not so. For the failure of the assessee to pay advance tax as per the requirement o the Act, interest is chargeable u/s 234B of the Income tax Act, 1961 if such advance tax paid by the assessee is less than 90% of the assessed tax. Such interest u/s 234B is payable from the first day of April of the relevant assessment year till the date of determination of the total income either u/s 143(1) or u/s 143(3) of the Act. The interest u/s 234A is payable from a date after the due date for filing the return of income and is payable up to the date on which the return of income is furnished by the assessee and if no return is furnished by the assessee at all then only, the interest is payable till the date of completion of the assessment u/s 144 of the Act. Under this factual and legal position, we have no hesitation in holding that the interest payable by the assessee u/s 234A is for his failure to file the return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961. This is by now a settled position of law that charging of interest under various sections including u/s 234A of the Income tax Act, 1961, is mandatory. When one of the consequences for not filing return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961 is mandatory then, other consequence of the same failure of the assessee cannot be directory and the same is also mandatory. In our considered opinion and in view of our above discussion, the provisions of the proviso to Section 10A(1A) is mandatory and not directory and, therefore, question (a) referred to us is answered in negative and it is held that this proviso to Section 10A(1A) of the Income tax Act, 1961 is mandatory. 12. We now examine and discuss other consequences also for the failure of the assessee to file the return of income within the due date as required u/s 139(1) of the Income tax Act, 1961. One of such consequence is the provisions of

5 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 Section 276CC as per which if the assessee fails to file the return of income within the due date prescribed under sub-section (1) of Section 139 of the Act then he shall be punishable for rigorous imprisonment along with fine and the quantum of such imprisonment and fine is dependent on the amount of tax which would have been evaded if the failure had not been detected. This issue was examined by Hon’ble Apex Court in the case of Prakash Nath Khanna (supra) as cited by the learned DR and it was held by the Hon’ble Apex Court in that case that even if the return of income is filed in terms of sub- section (4) of Section 139 and it does not dilute infraction in not furnishing return in due time as prescribed u/s 139(1) of the Act. This judgement also supports the view taken by us while answering question NO.1 as per above paras. When even for the purpose of prosecution also, it was held by the Hon’ble Apex Court that even if the return of income furnished by the assessee within the time allowed u/s 139(4), it does not dilute infraction in not furnishing the return in due time as prescribed under sub-section(1) of Section 139, then it cannot be accepted that such furnishing of return of income within time allowed u/s 139(4) will dilute the provisions contained in the proviso to Section 10A(1A) of the Income tax Act, 1961. 13. Regarding various submissions of the Ld. A.R. and various judgements on which reliance has been placed by the Ld. A.R., we would like to observe that these submissions do not have merit in view of our above discussion. The first submission is this that the provision of Section 139(4) are considered as proviso to Section 139(1) and if the assessee has filed return of income u/s 139(4), the same should be considered as return filed u/s 139(1) of the Income tax Act, 1961. On this aspect, we have already seen the judgement of Hon’ble Apex Court cited by the Ld. D.R. having been rendered in the case of Prakash Nath Khanna (supra), where it was held by Hon’ble Apex Court that the filing of return of income within the time allowed u/s 139(4) of the Income tax Act, 1961 cannot dilute the infraction in not furnishing return in due time as prescribed u/s 139(1) of the Income tax Act, 1961. In view of this judgement of Hon’ble Apex Court in this regard, the judgments cited by the Ld. A.R. i.e. CIT v. Jagariti Agrawal (supra) and Trustees of Tulsidas Gopalji Charitable & Chaleshwar Temple Trust (supra) are of no relevance because these judgements are of two different High Courts but this aspect of the matter is covered against the assessee by the judgement of Hon’ble Apex Court cited by the Ld. D.R. 14. The 2nd submission of the Ld. A.R. in the written submission is this that requirement of filing of return of income is procedural aspect and, therefore, it should be considered as directory and not mandatory. In support of this contention also, reliance has been placed on various decisions submitted by the assessee in the paper book II and III. We do not find any merit in these submissions of the assessee also because when consequences of not filing the return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961 are so grave i.e. charging of interest u/s 234A, possibility of prosecution u/s 276CC and denial of various deductions u/s 10A, 10B, 10BA and various sections under Chapter VIA, it cannot be said that this requirement of filing return of income is a procedural aspect. 15. Regarding various judgments cited by the Ld. A.R. in this regard, we find that some of these judgments are rendered by the division bench of the Tribunal and hence not binding on us. Regarding other judgements of various High Courts and Hon’ble Apex Court, we find that the same are not in respect of failure of the assessee for filing the return of income within the due date prescribed u/s 139(1) of the Income tax Act, 1961 and hence not applicable. Still, we discuss, each of those judgments cited before us as under :

6 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 – The first judgement submitted in paper book II is the judgement of Hon’ble Apex Court rendered in the case of Director of Inspection of Income Tax v. Pooran Mall & Sons (96 ITR 390). In that case, the issue involved was regarding the validity of the order passed by the A.O. u/s 132(5) for retaining the seized assets and hence, this judgement is not relevant in the present case. – The 2nd judgement cited is the judgement of Hon’ble Madhya Pradesh High court rendered in the case of CIT v. Panama Chemical Works (113 Taxman 717). In that case, the issue involved was regarding filing of audit report in Form 10CCB. The same was required to be filed along with the return of income filed by the assessee but in that case, the same was filed during assessment proceedings. Under these facts, it was held that the claim of the assessee regarding deduction u/s 80-I cannot be rejected if the required report in Form 10CCB was filed in the course of assessment proceedings. In the present case, the dispute is not regarding filing of some report along with return of income but the dispute is regarding filing of return of income itself within due date and hence, this judgment is also not relevant in the present case. – The 3rd judgement cited is the judgement of Hon’ble Delhi High court rendered in the case of CIT v. Axis Computers (India) (P) Ltd. (178 Taxman 143). In that case also, the dispute was regarding the requirement of filing of audit report along with return of income and not regarding filing of return of income within the due date and hence, this judgement of Hon’ble Delhi High Court is also not applicable in the present case. – The next judgement cited is the judgement of Hon’ble Apex Court rendered in the case of CIT v. National Taj Traders (2 Taxman 546). In that case, the dispute was regarding passing of order by CIT u/s 33B of 1922 Act corresponding to Section 263 of the present Act and hence, this judgement is also not relevant in the present case. – The next judgement cited before us is the judgement of Hon’ble Delhi High court rendered in the case of CIT v. Web Commerce (India) (P) Ltd. (178 Taxman 310). The dispute in that case is also similar to the dispute in the earlier decision of Hon’ble Delhi High Court rendered in the case of Axis Computers (India) (P) Ltd. (supra) and for the same reasons, this judgement is also not applicable in the present case. – The next judgement cited before us is the judgment of Hon’ble Apex Court rendered in the case of Bajaj Tempo Ltd. v. CIT (62 Taxman 480). In that case, the dispute before the Hon’ble Apex Court was regarding allowability of deduction u/s 15C of 1922 Act corresponding to Section 80J of Income tax Act, 1961 and the facts were that the industrial undertaking was established in a building taken on lese, which was used previously for other business. Under these facts, it was held that the assessee was entitled to deduction. Since the facts are different, this judgement of Hon’ble Apex Court is also not relevant in the present case. – The next judgement cited before us is the judgement of Hon’ble Calcutta High court rendered in the case of CIT v. Hardeodas Agarwala Trust (198 ITR 511). In that case, the issue in dispute was regarding furnishing of audit report along with return of income for the purpose of claiming exemption u/s 11 of the Income tax Act, 1961 and not the dispute was not regarding filing of return of income u/s 139(1) of the Act and hence, this judgement of Hon’ble Calcutta High Court is also not applicable in the present case. – The next judgement cited before us is the judgement of Hon’ble Delhi High Court rendered in the case of Church’s Auxiliary for Social Acton and

7 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 Anr v. Director General of Income Tax (Exemption) & Others (325 ITR 362). In that case, the dispute was regarding deduction u/s 80G of the Income tax Act, 1961 and as per the facts of that case, the objection was regarding failure of assessee in rendering accounts to the competent authority within the prescribed period and it was held that such a requirement is directory and not mandatory. In the present case, the dispute is regarding filing of return of income itself within the due date and hence, this judgement of Hon’ble Delhi High Court is also not relevant in the present case. – The next judgement cited before us is the judgment of Hon’ble Gujarat High Court rendered in the case o CIT v. Gujarat Oil and Allied Industries (201 ITR 325). In that case also, the dispute was regarding the requirement of filing of audit report as to whether the same is mandatory or directory and as discussed in above paras, this judgment is also not relevant in the present case. – The next judgement cited before us is the judgement of Hon’ble Delhi High Court rendered in the case of Continental Contraction Ltd. v. Union of India and others (185 ITR 230). This judgement is also not applicable in the present case because in that case, the issue was this as to when CBDT had approved agreement for such a project for the purpose of Section 80 – O while in fact Section 80HHB was found applicable and it was held that assessee has to be given an opportunity for complying with the provisions of sub-section (3) of Section 80HHB. Since the facts are different, this judgement is also not relevant in the present case. – The next judgement cited before us is the judgement of Hon’ble Bombay High court rendered in the case of CIT v. Shivanand Electronics (209 ITR 63). Very strong reliance was placed by the learned AR on this judgment but we find that for the same reasons as discussed above in respect of various judgements, this judgement is also not applicable in the present case because in that case also, the issue in dispute was regarding requirement of filing of audit report along with return of income for deduction u/s 80J(via) and it was held that it is not mandatory in strict sense. In the present case, the dispute is regarding filing of return of income within due date prescribed u/s 139(1) of the Income tax Act, 1961 and hence, this judgement is also not relevant in the present case. – The next judgment is the judgement of Hon’ble Gujarat High Court rendered in the case of ITO v. VXL India Ltd. (312 ITR 187). In that case also, dispute was regarding filing of audit report and hence, this judgement is also not relevant. – The next judgement cited before us is the judgement of Hon’ble Calcutta High court rendered in the case of Presidency Medical Centre (P) Ltd. v. CIT (108 ITR 838). The conclusion as per this judgment is reproduced below from the Head notes: “Loss return can be filed within time specified by s.139(4) and once that return is filed within time it would be deemed to be in accordance with law and loss had to be determined and carried forward.” In view of this conclusion in this judgment that loss return can be filed within time specified u/139(4), this judgement is also not applicable in the present case because in the present case, the dispute is regarding filing of return of income within time allowed u/s 139(1) of the Income tax Act, 1961 and not u/s 139(4) of the Income tax Act, 1961 and hence, this judgement is also not applicable in the present case.

8 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 16. We have discussed all the judgments which were cited by the Ld. A.R. in the synopsis as well as copies of which are submitted in the paper book II and III and we have seen that none of these judgments is relevant in the present case. 17. In view of our above discussion, we have no hesitation in holding that the provisions of proviso to Section 10A(1A) is mandatory and not merely directory.” 10. The language of section 10A & 10B are para maeria and, therefore,

the above quoted decision of Rajkot Tribunal Special Bench in the case

of Saffire Garments(Saffire Garments (supra) squarely applies to

the facts of assessee’s case. It is not in dispute that the assessee since

assessment year 2004-05 had been claiming deduction u/.s.10B of the

Act. Further, the assessee is not a unit established under Special

Economic Zone and, therefore, provisions of section 10A are not

applicable. So far as deduction 10B is concerned, in view of above

quoted decision of the Tribunal in the case of Saffire Garments(supra)

the assessee is not entitled for deduction u/s.10B also as the

mandatorily required audit report in Form 56G was not filed by the

assessee alongwith the return of income u/s.139(1) of the Act.

Therefore, we set aside the order of the CIT(A) and restore the order of

the Assessing Officer and allow the ground of appeal of the revenue.

In the result, the appeal filed by the revenue is allowed. 11. Order pronounced in the open court on 26 /04/2017 in the presence of parties.

Sd/- sd/- (Kuldip Singh) (N.S Saini) JUDICIAL MEMBER ACCOUNTANT MEMBER Cuttack; Dated 26 /04/2017

9 ITA No. 50/ CTK/2015 Asse ssment Year : 20 11- 12 B.K.Parida, SPS Copy of the Order forwarded to : 1. The Appellant : DCIT, Corporate Circle 1(1), Bhubaneswar. The Respondent. M/s. Discoverture Solutions (India) Pvt Ltd., E/48, Infocity, Chandrasekharpur, Bhubaneswar 3. The CIT(A)-11, Bhubaneswar. 4. Pr.CIT-II, Bhubaneswar. 5. DR, ITAT, Cuttack BY ORDER, 6. Guard file. //True Copy// SR.PRIVATE SECRETARY ITAT, Cuttack