CGI INFORMATION SYSTEMS V. THE INCOME TAX OFFICER

ITA/608/2016

AI Insights

The case involves CGI Information Systems and Management Consultants Private Limited, which appealed against the orders of the Income Tax Appellate Tribunal (ITAT) concerning the denial of deductions under Section 10A of the Income Tax Act for several assessment years. The primary contention was whether the assessee was eligible for the benefits under Section 10A for the years following the initial grant in A.Y. 1997-98, despite a subsequent denial in A.Y. 1998-99, which was not challenged by the assessee. The ITAT had earlier denied the benefits for A.Y. 1998-99, and this decision was upheld by the CIT(A). The High Court of Karnataka, however, found that the Assessing Officer's refusal to continue the relief for subsequent years was unjustified, emphasizing the need for consistency in tax relief once granted.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 763019 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 31-10-2022
• Assessment Year: misc
• Other Referred Cases: Saurashtra Cement & Chemical Industries Ltd. Vs. CIT, Direct Information (P.) Ltd. Vs. Income-tax Officer, Commissioner of Income-tax-2 Vs. Western Outdoor Interactive (P.) Ltd., Deputy Commissioner of Income Tax, Circle 11(1), Bangalore Vs. ACE Multi Axes Systems Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: E I SANMATHI
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Deduction Disallowance; Export oriented unit; Income tax appeal; Section 10A; Section 80HHE; Software Development
• Section: 10A; 80HHE; 260-A

Judgement Text

" - 1 - IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF OCTOBER, 2022 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE T.G. SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 608 OF 2016 C/W INCOME TAX APPEAL NO. 609 OF 2016 INCOME TAX APPEAL NO. 686 OF 2017 IN I.T.A NO.608 OF 2016 BETWEEN : CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED PRESENTLY ELECTRONIC CITY TOWER II NO.95/1 AND 95/2 ELECTRONIC CITY PHASE I (WEST), BANGALORE-560 100 REPRESENTED HEREIN BY ITS DIRECTOR MS. BABALUSHA ESTHER ALEXANDER …APPELLANT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND : 1. THE INCOME TAX OFFICER WARD-8(1)(2), MUMBAI [PRESENTLY ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1)] BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 2. COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS (BY SHRI. E.I. SANMATHI, SENIOR STANDING COUNSEL) Digitally signed by S P SUDHA Location: HIGH COURT OF KARNATAKA - 2 - . . . . THIS INCOME TAX APPEAL IS UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.06.2016 PASSED IN ITA NO.868/MUM/2006, FOR THE ASSESSMENT YEAR 2001-2002 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE COMMON ORDER OF THE TRIBUNAL DATED 30.06.2016 PASSED TO THE EXTENT OF ITA NO.868/MUM/2006 (ANNEXURE-E) AND ETC. IN I.T.A NO.609 OF 2016 BETWEEN : CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED ELECTRONIC CITY TOWER II NO.95/1 AND 95/2 ELECTRONIC CITY PHASE I (WEST), BANGALORE-560 100 REPRESENTED HEREIN BY ITS DIRECTOR MS. BABALUSHA ESTHER ALEXANDER …APPELLANT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND : 1. THE INCOME TAX OFFICER WARD-8(1)(2), MUMBAI (TRANSFERRED TO BANGALORE) THE ASSISTANT COMMISSIONER OF INCOME TAX WARD 8(1) [PRESENTLY DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 11(2)] BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 2. COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS (BY SHRI. E.I. SANMATHI, SENIOR STANDING COUNSEL) . . . . - 3 - THIS INCOME TAX APPEAL IS UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.06.2016 PASSED IN ITA NO.869/MUM/2006, FOR THE ASSESSMENT YEAR 2002-2003 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE COMMON ORDER OF THE TRIBUNAL DATED 30.06.2016 PASSED TO THE EXTENT OF ITA NO.869/MUM/2006 (ANNEXURE-E) AND ETC. IN I.T.A NO.686 OF 2017 BETWEEN : CGI INFORMATION SYSTEMS AND MANAGEMENT CONSULTANTS PRIVATE LIMITED ELECTRONIC CITY TOWER II NO.95/1 AND 95/2 ELECTRONIC CITY PHASE I (WEST), BANGALORE-560 100 REPRESENTED HEREIN BY ITS DIRECTOR MS. BABALUSHA ESTHER ALEXANDER PAN NO.AAACI1994C …APPELLANT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR SMT. TANMAYEE RAJKUMAR, ADVOCATE) AND : 1. DEPUTY COMMISSIONER OF INCOME-TAX - CIRCLE 2(1)(1) (FORMERLY DCIT-CIRCLE 11(2) BENGALURU BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 2. COMMISSIONER OF INCOME TAX BMTC BUILDING, 80 FEET ROAD KORAMANGALA BANGALORE-560 095 …RESPONDENTS (BY SHRI. E.I. SANMATHI, SENIOR STANDING COUNSEL) . . . . THIS INCOME TAX APPEAL IS UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 21.04.2017 PASSED IN - 4 - IT(TP)A NO.439/BANG/2011, FOR THE ASSESSMENT YEAR 2005-2006 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTION OF LAW STATED THEREIN AND ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE TRIBUNAL DATED 21.04.2017 PASSED IN IT(TP)A NO.439/BANG/2011 TO THE EXTENT QUESTIONED HEREIN (ANNEXURE-E) AND ETC. THESE ITAs, COMING ON FOR ADMISSION, THIS DAY, P.S. DINESH KUMAR J., DELIVERED THE FOLLOWING: JUDGMENT These three appeals by the assessee are filed challenging the common order dated 30.06.2016 in ITAs No.868/2006 and connected cases passed by the ITAT1 for the Assessment years 2001-02, 2002-03 and 2005-06, wherein, common questions are raised for consideration. Hence, they are heard together and disposed of by this common order. 2. Brief facts of the case are, assessee is a 100% EOU2 engaged in the business of Software development. Initially, it had set up an Unit in Mumbai during A.Y. 1991-92. Thereafter, it set up an unit in Trivandrum during A.Y. 1993-94 and a new Software Technology Park in Bengaluru in A.Y. 1996-97. 1 Income Tax Appellate Tribunal 2 Export Oriented Unit - 5 - 3. For A.Y. 1996-97, though assessee was eligible to claim exemption under Section 10A of the Income Tax Act, 1961 ('IT Act' for short), it claimed deduction under Section 80HHE of the IT Act and the same was allowed. For A.Y. 1997-98, assessee claimed deduction under Section 10A of the IT Act for the first time and the same was allowed. However, for A.Y. 1998-99, assessee's claim for deduction under Section 10A of the IT Act was disallowed. For A.Y. 1999-2000, 2000-2001 deduction claimed under Section 10A was allowed. Thereafter from A.Y.2001-02, the Assessing Officer has disallowed the deduction under Section 10A on the ground that the Mumbai Unit was started in A.Y.1991-92 and therefore, A.Y.2000-2001 was the last assessment year to claim exemption under Section 10A of the IT Act. 4. Shri. T. Suryanarayana, learned Senior Advocate for the assessee submitted that the above finding of the AO is erroneous and perverse because, AO has misconstrued that the shifting of machinery from Mumbai to Bengaluru as - 6 - shifting of Mumbai Unit. In A.Y.1991-92, Mumbai unit was started and the Bengaluru unit was set-up in 1996-97 and this contention has been accepted by the CIT(A)3 in para 8 of his order and the said finding has attained finality. The CIT(A) having recorded this finding, has denied the benefit under Section 10A of the IT Act for A.Y. 1998-99 and dismissed the appeal. On further appeal, the ITAT has agreed with the view taken by the CIT(A) and dismissed the appeal. 5. Shri. Sanmathi contended that denial of benefit under Section 10A of the IT Act for A.Y. 1998-99 by the CIT(A) has attained finality as the assessee did not challenge that finding. In reply Shri. Suryanarayana contended that the assessee had got substantial relief under Section 80HHE of the IT Act. Therefore, assessee did not choose to challenge it. He argued that notwithstanding disallowance of deduction under Section 10A of the IT Act for A.Y.1998-949, the AO had granted the relief under Section 80HHE for the subsequent two years. 3 Commissioner of Income Tax (Appeal) - 7 - 6. Placing reliance on Saurashtra Cement & Chemical Industries Ltd., Vs. CIT4, Direct Information (P.) Ltd. Vs.Income-tax Officer5 and Commissioner of Income- tax-2 Vs. Western Outdoor Interactive (P.) Ltd.6, Shri. Suryanarayana urged that, the AO having granted relief in the first year (A.Y.1997-98) after formation of the STP in Bangalore, could not have rejected the same on any other grounds more particularly, that assessee was not given the benefit for the AY.1998-99. 7. Shri. Sanmathi's only argument is, assessee was not given the benefit under Section 10A of the IT Act for A.Y.1998-99 and the same was not challenged by the assessee; and the Assessment Order for the year 1998-99 has attained finality. He submitted that the CIT(A) and the ITAT have rightly noticed that assessee was denied the benefit for the said year and accordingly not granted relief for A.Y. 2001-02 and subsequent years. Insofar as the 4 1979(2) Taxmann) 22 (Guj) [para 7] 5 (2011)15 taxmann.com 63 (Bom.) [para 17] 6 (2012)25 taxmann.com 340 (Bom.) - 8 - argument of Shri. Suryanarayana that benefit was given for subsequent years namely, 1999-2000, 2000-01, he submitted that each years' assessment has to be considered independently. In support of this contention, he placed reliance on Deputy Commissioner of Income Tax, Circle 11(1), Bangalore Vs. ACE Multi Axes Systems Ltd.7 8. We have carefully considered rival contentions and perused the records. 9. The first question is, whether ITAT's finding that condition stipulated in Section 10A(2)(iii) of the IT Act had not been satisfied in the first year of commencement of manufacture, is correct? 10. The ITAT in para 8 of its order has recorded that assessee was disallowed the benefit under Section 10A of the IT Act for A.Y.1998-99. For the said reason among others, ITAT has dismissed the appeal concurring with the finding of the CIT(A). 7 (2017)88 taxmann.com 69 (SC) (para 13) - 9 - 11. In the assessment order for the A.Y. 1997-98, the AO has recorded thus: \"3. As in the earlier year, the assessee is engaged in the business of export out of India of computer software as also providing technical services out of India in connection with development or production of computer software. The assessee was having its units at SEEPZ, Mumbai which commenced operation during the A.Y.1991-92 and another unit at Trivendrum which commenced operations during the A.Y.1993-94. The assessee consolidated its operations at \"Seepz\" and \"Trivandrum\" unit to a new private Software Technology Park (STP) at Bangalore in the A.Y.1996-97 and accordingly, the assessee carried out all its activities of software development from STP, Bangalore during the P.Y. relevant to the A.Y. 1997-98. The assessee has claimed exemption u/s.10A for the A.Y.1997-98 for its consolidated STP unit at Bangalore.\" 12. Shri. Sanmathi's objection is that the AO has considered it as a consolidated operation. In our view, the AO has indeed noticed that the assessee was having its unit at Mumbai and accordingly granted benefit under Section 10A of the Act. The CIT(A) has recorded his finding at para 9 that the view taken by the AO that the 10 years period had expired from 1991-92 was incorrect. This finding has attained finality. We are satisfied that the contention urged by Shri. Suryanarayana that though benefit under Section - 10 - 10A of the IT Act was denied for A.Y.1998-99, the assessee did not choose to challenge the same, because, he had got substantial relief under Section 80HHE of the IT Act. We may record that the Revenue's next specific argument is, each assessment year are different. If this logic is applied, denial of benefit for 1998-99 cannot be treated as a precedent. 13. For subsequent years namely 1999-2000, 2000- 2001 the assessee has been given relief under Section 10A of IT Act. In Sourashtra Cement, Gujarat High Court has held as follows: \"7. ……………The neat question to which the Tribunal addressed itself, and in our opinion rightly, was whether the ITO was justified in refusing to continue the relief of tax holidy granted to the assessee-company for the assessment year 1968-69 in the assessment year under reference, i.e., 1969-70 without disturbing the relief granted for the initial year. It should be stated that there is no provision in the scheme of Section 80J similar to one which we find in case of development rebate which could be withdrawn in subsequent years for breach of certain conditions. No doubt, the relief of tax holiday under section 80J can be withheld or discontinued provided the relief granted in the initial year of the assessment is disturbed or changed on valid grounds. But without disturbing the relief granted in the initial year, the ITO cannot examine the question - 11 - again and decide to withhold or withdraw the relief which has been already once granted.\" (Emphasis Supplied) 14. In Direct Information Pvt. Ltd., the Bombay High Court has held as follows: \"17. ………… Now, it is true that each Assessment Year constitutes a separate unit in itself and the principles of res judicata as such are inapplicable. Equally, though the principles of res judicata do not strictly apply, as in the case of different Assessment Years, there is some value to be placed on the need for uniformity even in tax adjudication……..\" 15. A combined reading of these two authorities make it clear that there cannot be uncertainty in the assessments for different years. Assessee sought deduction under Section 10A of the IT Act for the first time in A.Y.1997-98 and the same has been allowed. Therefore, without disturbing the relief granted in that year, the AO could not have denied the benefit for subsequent years. 16. For 1998-99, the learned Senior Advocate has explained that assessee did not challenge the said order because assessee had got relief under Section 80HHE. For the subsequent two years, assessee has been given the - 12 - relief. Therefore, we are of the considered view that the AO's view is perverse and not sustainable. Resultantly, this appeal merits consideration. 17. Hence, the following: ORDER (a) Appeals are allowed. (b) First substantial question of law is answered in favour of the assessee and against the Revenue. Consequently, second question is rendered infructuous. No costs Sd/- JUDGE Sd/- JUDGE SPS List No.: 1 Sl No.: 30 "