Credit Pointe Services Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 111/PUN/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9488 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 23-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Assessee Lawyers: KRISHNA GUJRATHI
• Keywords: Transfer pricing; Opportunity of being heard; International transaction; Wholly owned subsidiary; Competent authority
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 111 /PUN/201 5 / ASSESSMENT YEAR : 20 10 - 11 CREDIT POINTE SERVICES PVT. LTD., OFFICE 1B, 1 ST FLOOR, THE CEREBRUM IT PARK, KALYANINAGAR, PUNE 411014 PAN : AACCC7203N ....... / APPELLANT / V S. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), PUNE / RESPONDENT ASSESSEE BY : S HRI KRISHNA GUJRATHI REVENUE BY : S HRI S.P. WALIMBE / DATE OF HEARING : 1 7 - 05 - 2017 / DATE OF PRONOUNCEMENT : 24 - 0 5 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) (IT/TP), PUNE DATED 13 - 11 - 2014 FOR THE ASSESSMENT YEAR 2010 - 11. 2 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 2 . THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF CREDIT POINTE INC., USA. THE ASSESSEE IS ENGAGED IN RENDERING IT ENABLED SUPPORT SERVICES TO CREDIT POINTE US. I N OTHER WORDS THE ASSESSEE IS A CAPTIVE SERVICE PROVIDER. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 29 - 0 9 - 2010 DECLARING TOTAL INCOME AS NIL AFTER CLAIMING DEDUCTION OF RS.86,07,141/ - U/S. 10B O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S. 143(2) WAS ISSUED TO THE ASSESSEE. 2.1 DURING THE COURSE OF SCRUTINY ASSESSMENT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS CHARGING ITS AE COST PLUS MARK UP OF 10% FOR PROVIDING IT SUPPORT SERVICES . DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE TO THE TUNE OF RS.10,05,89,248/ - . THE ASSESSEE APPLIED TRANSACTIONAL NET MARGIN METHOD (TNMM) TO BENCHMARK ITS INTERNATIONAL TRANSACTIONS , WITH PROFIT LEVEL INDICATOR (PLI) OF OPERATING PROFIT (OP)/OPERATING COST (OC). THE ASSESSEE HAD ORIGINALLY SELECTED 12 COMPANIES AS COMPARABLES. THE ASSESSING OFFICER REJECTED 6 COMPANIES OUT OF TOTAL LIST OF 12 BY APPLYING VARIOUS FILTERS VIZ. LOSS MAKING COMPANIES, LOW EXPORT TURNOVER , DATA NOT AV AILABLE. THE ASSESSING OFFICER , THEREAFTER, INCLUDED 3 COMPANIES IN THE LIST OF COMPARABLES VIZ. CORAL HUB LTD. (FORMERLY KNOWN AS VISHAL INFORMATION TECH LTD.), ECLERX SERVICES AND CEPHA IMAGING PRIVATE LTD. THUS, THE FINAL LIST OF COMPARABLE COMPANIES ADOPTED BY THE ASSESSING OFFICER IS AS UNDER : 3 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 SR. NO. NAME OF THE COMPARABLE OP/OC (%) 1 ADITYA BIRLA MINACS WORLDWIDE LTD. 6.42% 2 COSMIC GLOBAL LIMITED 17.91% 3 DELTA SERVICES (I) PVT. LTD. 6.40% 4 INFORMED TECHNOLOGIES INDIA LTD. 22.19% 5 INFOSYS BPO LTD. 28.68% 6 OMEGA HEALTHCARE MANAGEMENT SERVICES PVT. LTD. 11.38% 7 CORAL HUBS LTD. (VISHAL INFORMATION TECHNOLOGIES LTD.) 41.66% 8 ECLERX SERVICES 42.14% 9 CEPHA IMAGING PRIVATE LTD. 17.54% ARITHMETIC MEAN 21.59% THE ASSESSING OFFICER DETERMINED ALP OF INTERNATIONAL TRANSACTIONS AT RS.11,11,87, 778/ - AND MADE TRANSFER PRIC ING ADJUSTMENT OF RS.1,04,61,139/ - 2. 2 FURTHER, THE ASSESSING OFFICER DISALLOWED DEDUCTION U/S. 10B CLAIMED BY THE ASSESSEE ON THE PREMISE THAT THE ASSESSEE IS NOT 10 0% EXPORT ORIENTED UNIT (EOU) APPROVED BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT AS ENVISAGED IN EXPLANATION 2(IV) TO SECTION 10B OF THE ACT. 2.3 AGGRIEVED BY THE ASSESSMENT ORDER DATED 28 - 03 - 2013, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO EXCLUDE INFOSYS BPO LTD. AND ECLERX SERVICES FROM THE LIST OF COMPARABLES AND THEREAFTER COMPUTE ALP. THE COMMISSIONER OF INCOME TAX (APPEALS ) 4 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 REJECTED THE CONTENTIONS OF THE ASSESSEE AGAINST DENIAL OF DEDUCTION U/S. 10B OF THE ACT. NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). 3. THE ASSESSEE HAS RAISED FOLLOWING G ROUNDS OF APPEAL BEFORE THE TRIBUNAL : 1 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT(APPEAL) II, PUNE ERRED IN CONFIRMING THE NEW SEARCH FOR COMPARABLES BY THE LEARNED AO AND NOT ACCEPTING THE ARM'S LENGTH PRICE AS COM PUTED BY THE APPELLANT IN THE TP STUDY REPORT. THE APPELLANT HEREBY PRAYS THAT NO ADJUSTMENT BE MADE TO THE PRICE CHARGED TO ASSOCIATED ENTERPRISES SINCE APPELLANT WAS ENJOYING TAX HOLIDAY AND THERE WAS NO MOTIVE TO SHIFT PROFITS OUT OF INDIA. 2 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) II, PUNE ERRED IN CONFIRMING THE EXCLUSION OF AOK IN - HOUSE BPO SERVICES LTD. FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE COMPANY HAS INCURRED LO SS IN THE RELEVANT PREVIOUS YEAR WITHOUT APPRECIATING THE FACT THAT THE COMPANY HAS EARNED OPERATING PROFIT IN THE RELEVANT PREVIOUS YEAR. THE APPELLANT HEREBY PRAYS THAT THE COMPANIES THAT HAVE INCURRED LOSSES BE INCLUDED IN THE LIST OF COMPARABLE COMP ANIES. 3 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) II, PUNE ERRED IN CONFIRMING THE EXCLUSION OF R SYSTEMS INTERNATIONAL LTD. (BPO SEGMENT) FROM THE LIST OF COMPARABLE COMPANIES ON THE GROUND THAT THE COMP ANY HAS INCURRED LOSS IN THE RELEVANT PREVIOUS YEAR. THE APPELLANT HEREBY PRAYS THAT THE COMPANIES THAT HAVE INCURRED LOSSES BE INCLUDED IN THE LIST OF COMPARABLE COMPANIES. 4 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE C IT (APPEAL) II, PUNE ERRED IN CONFIRMING THE INCLUSION OF CORAL HUBS LTD. AS A COMPARABLE COMPANY. THE APPELLANT HEREBY PRAYS THAT THE SAID COMPANY MAY PLEASE BE EXCLUDED FROM THE LIST OF COMPARABLE COMPANIES. 5 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) II, PUNE ERRED IN NOT ALLOWING FOR ADJUSTMENT TO THE ARM'S LENGTH PRICE ON ACCOUNT OF DIFFERENCES IN RISKS BORNE BY THE APPELLANT AND THE COMPARABLE COMPANIES. T HE APPELLANT HEREBY PRAYS THAT RISK ADJUSTMENT TO THE OPERATING MARGINS OF COMPARABLE COMPANIES BE ALLOWED TO ARRIVE AT THE ARM'S LENGTH PRICE. 6 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) II, PUNE ERRED I N CONFIRMING THE DISALLOWANCE OF DEDUCTION MADE BY LEARNED A O OF RS. 86,07,141/ - CLAIMED BY THE APPELLANT UNDER 5 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 SECTION 10B OF THE INCOME TAX ACT, 1961 IN ITS RETURN OF INCOME, FOR ALLEGED NON FULFILMENT OF CONDITION OF HAVING APPROVAL AS A 100% EOU FROM THE DEVELOPMENT COMMISSIONER AS SPECIFIED UNDER EXPLANATION 2(IV) OF SECTION 10B OF THE ACT. THE APPELLANT HEREBY PRAYS THAT THE DEDUCTION UNDER SECTION 10B MAY BE ALLOWED. 7 ) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONOURABLE CIT (APPEAL) II, PUNE ERRED IN CONFIRMING THE REJECTION OF ALTERNATE CLAIM OF THE APPELLANT THAT IN CASE THE DEDUCTION UNDER SECTION 10B IS DISALLOWED, IT SHO ULD BE ALLOWED DEDUCTION OF RS. 86,07,141/ - UNDER SECTION 10A OF THE ACT. 8 ) THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD, AMEND, ALTER OR RAISE ANY ADDITIONAL GROUND OR GROUNDS OF APPEAL OR DELETE OR WITHDRAW ANY OF THE GROUND OF APPEAL/S. 4. SHRI KRISHNA GUJRATHI APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT GROUND NOS. 1 TO 5 RAISED IN THE APPEAL RELATE TO TP ADJUSTMENT. THE LD. AR POINTED THAT IF GROUND NO. 4 RAISED IN THE APPEAL IS ALLOWED , THE ASSESSEE WOULD FALL WITHIN MARGIN OF 5% . THUS, THE LD. AR OF THE ASSESSEE CONFINED HIS ARGUMENTS AGAINST INCLUSION OF CORAL HUBS LTD. IN THE FINAL LIST OF COMPARABLES. THE LD. AR POINTED THAT CORAL HUBS LTD. FORMERLY KNOWN AS VISHAL INFORMATION TECHNOLOGIES LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES ON ACCOUNT OF FUNCTIONAL DIFFERENCE. THE LD. AR POINTED THAT CORAL HUBS LTD. IS OUTSOURCING ITS WORK WHEREAS THE ASSESSEE IS RENDERING SERVICES FROM IN - HOUSE EMPLOYEES. 60% OF THE EXPENDITURE OF ASSESSEE IS TOWARDS PAYMENT OF SALARIES . THE LD. AR SUBMITTED THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX REPORTED AS 377 ITR 533 HAS HELD THAT CORAL HUBS LTD. IS ENGAGED IN KPO SERVICES AND THE SAID COMPANY IS NOT COMPARABLE WITH THE COMPANY ENGAGED IN ITES AS THE BUSINESS MODEL OF BOTH THE COMPANIES ARE ENT IRELY DIFFERENT. THE HONBLE COURT HAS SPECIFICALLY POINTED THAT THE EXPENDITURE ON EMPLOYMENT COST OF CORAL HUBS 6 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 LTD. IS A SMALL FRACTION OF THE PROPORTIONATE COST INCURRED BY THE ASSESSEE (THEREIN) AS MOST OF THE WORK WAS OUTSOURCED TO OTHER VENDORS/SER VICE PROVIDERS BY THE CORAL HUBS LTD. THE LD. AR POINTED THAT IN VIEW OF THE JUDGMENT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) , CORAL HUBS LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES. 4.1 THE LD. AR F URTHER SUBMITTED THAT IN GROUND NO. 6 OF THE APPEAL , THE ASSESSEE HAS ASSAILED DISALLOWANCE OF DEDUCTION CLAIMED U/S. 10B OF THE ACT. THE ASSESSEE IS A 100% EOU AND HAS BEEN APPROVED BY STPI. ADMITTEDLY, THE ASSESSEE IS NOT APPROVED 100% EOU BY THE BOARD AS SPECIFIED U/S. 10B OF THE ACT. HOWEVER, T HE ASSESSEE HAS BEEN APPROVED BY STPI , AN AUTONOMOUS BODY UNDER THE AEGIS OF MINISTRY OF INFORMATION TECHNOLOGY, GOVERNMENT OF INDIA, THEREFORE, THE SAID APPROVAL GRANTED SHOULD SUFFICE THE CONDITION FOR GRANT O F DEDUCTION U/S. 10B OF THE ACT. 4.2 THE ASSESSEE HAS MADE AN ALTERNATE SUBMISSION IN GROUND NO. 7 OF THE APPEAL CLAIMING DEDUCTION U/S. 10A IF THE ASSESSEE IS FOUND TO BE INELIGIBLE FOR CLAIMING DEDUCTION U/S. 10B OF THE ACT. THE LD. AR SUBMITTED THAT THE TRIBUNAL IN VARIOUS CASES UNDER SIMILAR CIRCUMSTANCES WHERE THE ASSESSEE S HAVE FAILED TO OBTAIN APPROVAL FROM THE BOARD AS ENVISAGED U/S. 10B OF THE ACT HAVE MADE ALTERNATE CLAIM OF DEDUCTION U/S. 10A , THE TRIBUNAL HAS ACCEPTED ALTERNATE SUBMISSIONS S UBJECT TO ASSESSEE FULFILLING ALL THE CONDITIONS SET OUT IN SECTION 10A OF THE ACT. THE LD. AR IN SUPPORT OF HIS SUBMISSIONS PLACED RELIANCE ON THE FOLLOWING DECISIONS OF THE TRIBUNAL : 7 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 I . CLARION TECHNOLOGIES PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX, 20 14 (11) TMI 141 ITAT, PUNE; II . EXPERT NET CAD SOLUTIONS PVT. LTD. VS. THE ASSTT. COMMISSIONER OF INCOME TAX, 2016 (7) TMI 8 ITAT, PUNE. 5. ON THE OTHER HAND SHRI S.P. WALIMBE REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT PROVISIONS OF SECTIONS 10A AND 10B GRANT BENEFIT TO THE ASSESSEE UNDER DIFFERENT SITUATION S. G RANT OF DEDUCTION U/S. 10A AND 10B ARE NOT AN ALTERNATIVE TO EACH OTHER. IF THE ASSESSEE IS ELIGIBLE TO CLA IM DEDUCTION U/S. 10A THEN THE ASSESSEE SHOULD HAVE CLAIMED THE SAME IN THE RETURN OF INCOME. NOW, AFTER REJECTION OF CLAIM OF DEDUCTION U/S. 10B , THE ASSESSEE CANNOT SWITCHOVER THE CLAIM OF DEDUCTION U/S. 10A BY MERELY MAKING A REQUEST BEFORE THE APPELLATE AUTHORITIES. THE LD. DR PRAYED FOR DISMISSING THE APPEAL OF ASSESSEE. 6. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . THE LD. AR OF THE ASSESSEE WHILE MAKING HIS SUBMISSIONS IN RESPECT OF TP ADJUSTMENT HAS CONFINED HIS ARGUMENTS FOR EXCLUSION OF CORAL HUBS LTD. FORM THE LIST OF COMPARABLES. THE LD. AR OF THE AS SESSEE HAS SUBMITTED THAT THE CORAL HUBS LTD. SHOULD BE EXCLUDED FROM THE LIST OF COMPARABLES AS THE SAID COMPANY IS FUNCTIONALLY NOT COMPARABLE . CORAL HUBS LTD. IS OUTSOURCING MAJOR PART OF ITS WORK TO THE SERVICE PROVIDER AND THUS ONLY A SMALL FRACTION OF ITS EXPENDITURE IS ON SALARIES OF EMPLOYEES. ON THE OTHER HAND , THE ASSESSEE IS INCURRING OVER 60% OF ITS EXPENDITURE ON SALARIES. A PERUSAL OF 8 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 THE IMPUGNED ORDER SHOWS THAT SIMILAR SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE COMMISSIONER OF INCO ME TAX (APPEALS) TO EXCLUDE CORAL HUBS LTD. FROM THE LIST OF COMPARABLES. 7. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) HAS EXCLUDED CORAL HUBS LTD. (FORMERLY KNOWN AS VISHAL INFORMATION TECH LTD.) FROM THE LIST OF COMPARABLES FOR THE FOLLOWING REASONS : 38. IN OUR VIEW, EVEN VISHAL COULD NOT BE CONSIDERED AS A COMPARABLE, AS ADMITTEDLY, ITS BUSINESS MODEL WAS COMPLETELY DIFFERENT. ADMITTEDLY, VISHAL'S EXPENDITURE ON EM PLOYMENT COST DURING THE RELEVANT PERIOD WAS A SMALL FRACTION OF THE PROPORTIONATE COST INCURRED BY THE ASSESSEE, APPARENTLY, FOR THE REASON THAT MOST OF ITS WORK WAS OUTSOURCED TO OTHER VENDORS/SERVICE PROVIDERS. THE DRP AND THE TRIBUNAL ERRED IN BRUSHING ASIDE THIS VITAL DIFFERENCE BY OBSERVING THAT OUTSOURCING WAS COMMON IN ITES INDUSTRY AND THE SAME WOULD NOT HAVE A BEARING ON PROFITABILITY. PLAINLY, A BUSINESS MODEL WHERE SERVICES ARE RENDERED BY EMPLOYING OWN EMPLOYEES AND USING ONE'S OWN INFRASTRUCTU RE WOULD HAVE A DIFFERENT COST STRUCTURE AS COMPARED TO A BUSINESS MODEL WHERE SERVICES ARE OUTSOURCED. THERE WAS NO MATERIAL FOR THE TRIBUNAL TO CONCLUDE THAT THE OUTSOURCING OF SERVICES BY VISHAL WOULD HAVE NO BEARING ON THE PROFITABILITY OF THE SAID ENT ITY. 39. IT IS ALSO RELEVANT TO NOTE THAT IN THE CASE OF MAERSK GLOBAL CENTERS (INDIA) PVT. LTD. (SUPRA), THE DRP ITSELF HAD ACCEPTED THE OBJECTION OF THE ASSESSEE AND HAD EXCLUDED VISHAL AS A COMPARABLE FOR THE REASON AS QUOTED BELOW: - '... THAT IT HAD A VERY LOW EMPLOYMENT COST AND VERY HIGH COST ON ACCOUNT OF VENTURE PAYMENT, WHICH SUGGESTED THAT ITS BUSINESS MODEL WAS THAT OF AN OUTSOURCING COMPANY AND IN VIEW OF THIS FUNCTIONAL DIFFERENCE, VISHAL LTD. COULD NOT BE CONSIDERED AS A COMPARABLE.' THE DECISION RENDERED IN THE CASE OF RAMPGREEN SOLUTIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA) WAS NOT AVAILABLE BEFORE THE 9 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 COMMISSIONER OF INCOME TAX (APPEALS) AS IT IS SUBSEQUENT TO THE DATE OF PASSING OF IMPUGNED ORDER . THE LD. AR OF THE ASS ESSEE HAS FILED A REVISED COMPUTATION OF AVERAGE MARGIN OF COMPARABLES AFTER EXCLUSION OF CORAL HUBS LTD. AS PER THE COMPUTATION SHEET SUBMITTED BY THE LD. AR THE MARGINS OF ASSESSEE ARE WITHIN 5% VARIATION OF ACTUAL TRANSACTION. TAKING INTO CONSIDERAT ION THE ENTIRETY OF FACTS, WE DEEM IT APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO RE - CONSIDER THE INCLUSION/EXCLUSION OF CORAL HUBS LTD. IN THE LIST OF COMPARABLES IN THE LIGHT OF DECISION RENDERED IN THE CASE OF RAMPGREEN SOLU TIONS PVT. LTD. VS. COMMISSIONER OF INCOME TAX (SUPRA). THE ASSESSING OFFICER WHILE DECIDING THE ISSUE DE NOVO SHALL GIVE DUE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 4 RAISED IN THE APPEAL BY THE ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSE. 8 . SINCE, THE ASSESSEE HAS NOT MADE ANY SUBMISSION IN RESPECT OF GROUND NOS. 1, 2, 3 AND 5, THE SAME ARE DISMISSED. 9 . THE SECOND ISSUE IN APPEAL RELATES TO ALLOWABILITY OF ASSESSEE S CLAIM OF DEDUCTION U/S. 10B OF THE ACT. UNDER THE PROVISIONS OF SECTION 10B DEDUCTION IS ALLOWED TO 100% EOU ON PROFITS AND GAINS DERIVED FROM EXPORT OF ARTICLES, THINGS OR COMPUTER SOFTWARE. THE ASSESSEE HAS BEEN APPROVED AS 100% EOU BY STPI . THE ASSESSEE HAS FILED LETTER OF PERMISS ION DATED 27 - 01 - 2006 FORM SOFTWARE TECHNOLOGY PARKS OF INDIA AT PAGE 369 OF THE PAPER BOOK. 100% EXPORT ORIENTED UNDERTAKING HAS BEEN DEFINED IN S ECTION 10B , EXPLANATION 2(IV) AS UNDER : (IV) HUNDRED PER CENT EXPORT - ORIENTED UNDERTAKING' MEANS AN UNDERTA KING WHICH HAS BEEN APPROVED AS A HUNDRED PER CENT EXPORT - ORIENTED 10 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT; A PERUSAL OF THE DEFINITION SHOWS THAT 100% EXPORT ORIENTED UNDERTAKING HAS TO BE APPROVED BY BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EX ERCISE OF THE POWER S CONFERRED BY SECTION 14 OF THE INDUSTRIES DEVELOPMENT REGULATION ACT, 1941. ADMITTEDLY, THE ASSESSEE HAS NOT BEEN APPROVED BY THE BOARD AS SPECIFIED UNDER THE PROVISIONS OF SECTION 10B OF THE ACT. THE LANGUAGE OF THE SECTION IS UNAMBIGUOUS AND HENCE REQUIRES NO FURTHER INTERPRETATION. THEREFORE , THE ASSESSEE IS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S. 10B OF THE ACT. ACCORDINGLY, GROUND NO. 6 RAISED IN THE APPEAL BY THE ASSESSEE IS DISMISSED. 10 . IN GROUND NO. 7 THE ASSESSEE HAS MADE AN ALTERNATE PRAYER THAT IF THE ASSESSEE CANNOT BE GRANTED BENEFIT OF DEDUCTION U/S. 10B THE SAME MAY BE GRANTED UNDER THE PROVISIONS OF SECTION 10A. THE BENEFIT OF DEDUCTION U/S. 10A OF THE ACT IS GRANTED TO AN UNDERTAKING ESTABLISHED IN FREE TRADE ZONE. THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS SET UP EOU IN THE FREE TRADE ZONES/SOFTWARE TECHNOLOGY PARK AND FULFILLS ALL THE CONDITIONS FOR AVAILING DEDUCTION U/S. 10A OF THE ACT. THE LD. AR POINTED THAT CBDT INSTRUCTIONS DATED 31 - 03 - 2006 HAS CLARIFIED THAT WHERE THE UNITS HAVE BEEN APPROVED BY STP I THEY ARE ELIGIBLE TO CLAIM DEDUCTION U/S. 10A OF THE ACT. THE LD. AR REFERRED TO CBDT INSTRUCTIONS DATED 31 - 03 - 2006 AT PAGE 368 OF THE PAPER BOOK. 11 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 1 1 . A PERUSAL OF THE IMPUGNED ORDER SHOWS THAT THE ASSESSEE HAD RAISED THIS PLEA OF ALTERNATE CLAIM OF D EDUCTION U/S. 10A BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE ASSESSING OFFICER. THE ASSESSING OFFICER REJECTED ALTERNATE PLEA OF DEDUCTION U/S. 10A PRIMARILY ON THE GROUND THAT THE CLAIM WAS NOT MADE THROUGH RETURN OF INCOME. THE COMMISSIONE R OF INCOME TAX (APPEALS) REJECTED ALTERNATE CLAIM OF THE ASSESSEE ON THE PREMISE THAT S WITCHING OVER OF CLAIM OF DEDUCTION FROM SECTION 10B TO SECTION 10A CANNOT BE ACCEPTED, AS OBJECTIVES OF BOTH THE SECTIONS ARE DIFFERENT. THE OBJECTIONS RAISED BY ASSESSING OFFICER CAN WELL BE UNDERST OOD AS THE ASSESSING OFFICER HAS NO POWER TO EXAMINE A CLAIM IF NOT MADE IN RETURN OF INCOME. THE POWERS OF TRIBUNAL ARE NOT IMPINGED TO ENTERTAIN THE CLAIM OF ASSESSEE IF NOT MADE IN THE RETURN OF INCOME [GOETZE (INDI A) LTD. VS. CIT, 284 ITR 323 (SC)]. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN REJECTING THE CLAIM OF ASSESSEE IN A SUMMARY MANNER WITHOUT EXAMINING ASSESSEES ELIGIBILITY TO CLAIM DEDUCTION U/S. 10A. THE COMMISSIONER OF INCOME TAX (APPEALS) H AS FAILED TO VERIFY AS TO WHETHER THE ASSESSEE FULFILLS THE CONDITIONS SET OUT IN SECTION 10A OF THE ACT, TO CLAIM DEDUCTION. 1 2 . T HE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CLARION TECHNOLOGIES PVT. LTD. VS. DY. COMMISSIONER OF INCOME TAX (SUPR A) HA S HELD THAT WHERE THE ASSESSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S. 10B FOR WANT OF APPROVAL FROM THE COMPETENT AUTHORITY , AS SPECIFIED UNDER THE SAID SECTION AND IF THE ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTION U/S. 10A SUBJECT 12 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 TO FULFILLMENT OF ALL MANDATORY CONDITIONS AS SET OUT IN THE SECTION , THE ALTERNATE CLAIM OF ASSESSEE CAN BE CONSIDERED. THE RELEVANT EXTRACT OF THE FINDINGS OF TRIBUNAL IN THIS REGARD ARE AS UNDER : 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN THE PRESENT CASE , IN THE PAST YEARS ASSESSEE HAS BEEN ALLOWED THE CLAIM OF DEDUCTION U/S 10B OF THE ACT. IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2010 - 11 ALSO ASSESSEE CLAIMED DEDUCTION U/S 10B OF THE ACT IN RELATION TO THE PROFITS DE RIVED FROM ITS STPI UNIT. THIS CLAIM OF DEDUCTION CAME TO BE DENIED ON THE GROUND THAT THE APPROVAL FROM DIRECTOR, STPI WAS INSUFFICIENT AND THAT THE ASSESSEE WAS REQUIRED TO TAKE APPROVAL FROM THE BOARD APPOINTED FOR THIS PURPOSE BY THE CENTRAL GOVERNMENT , FOLLOWING THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF REGENCY CREATIONS LTD. (SUPRA). IN THE AFORESAID SITUATION, AT THE TIME OF FILING OF RETURN OF INCOME FOR THE INSTANT ASSESSMENT YEAR, ASSESSEE COULD NOT HAVE ENVISAGED THE DENIAL OF ITS CLAIM OF DEDUCTION U/S 10B OF THE ACT, WHICH WAS BEING ALLOWED IN THE PAST. THE AFORESAID CIRCUMSTANCE CLEARLY ESTABLISHES THE BONAFIDES OF THE REASONS PREVAILING WITH THE ASSESSEE FOR NOT HAVING MADE A CLAIM FOR DEDUCTION U/S 10A OF THE ACT IN THE RET URN OF INCOME. HAVING REGARD TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, IN OUR VIEW, THE STAND OF THE REVENUE THAT ASSESSEE CANNOT BE ALLOWED THE BENEFITS OF SECTION 10A OF THE ACT MERELY BECAUSE THE PRESCRIBED AUDIT REPORT IN FORM NO.56F WAS NOT FILED IN THE RETURN OF INCOME, IS QUITE ERRONEOUS. PERTINENTLY, AFTER DENIAL OF DEDUCTION U/S 10B OF THE ACT IN THE ASSESSMENT ORDER, THE EARLIEST OPPORTUNITY FOR THE ASSESSEE TO STAKE CLAIM FOR DEDUCTION U/S 10A OF THE ACT WAS BEFORE THE CIT(A); AND, THE ASSESSEE MADE THE CLAIM BEFORE THE CIT(A) ALONG WITH THE PRESCRIBED AUDIT REPORT IN FORM NO.56F. THE HONBLE DELHI HIGH COURT IN THE CASE OF VALIANT COMMUNICATIONS (SUPRA) IN SIMILAR CIRCUMSTANCES HELD THAT THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10A OF THE ACT IS REQUIRED TO BE EXAMINED IN ACCORDANCE WITH LAW. PERTINENTLY, EVEN IN THAT CASE ASSESSEE HAD CLAIMED DEDUCTION U/S 10B OF THE ACT IN THE RETURN OF INCOME, WHICH WAS NOT ALLOWED ULTIMATELY IN THE ABSENCE OF THE UNIT BEING APPROVED BY TH E BOARD APPOINTED BY THE CENTRAL GOVERNMENT, WHEREAS THE UNIT WAS ONLY REGISTERED WITH THE STPI. THE HONBLE DELHI HIGH COURT DIRECTED THE LOWER AUTHORITIES TO CONSIDER THE CLAIM OF DEDUCTION U/S 10A OF THE ACT IN ACCORDANCE WITH LAW. IN THE PRESENT CASE A LSO, WE FIND NO REASON TO DENY THE ASSESSEE AN OPPORTUNITY TO PUT - FORTH ITS CLAIM FOR DEDUCTION U/S 10A OF THE 13 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 ACT WITH REGARD THE PROFITS OF ITS STPI UNIT, SUBJECT OF - COURSE TO THE FULFILLMENT OF THE PRESCRIBED CONDITIONS. 17. SECTION 10A OF THE ACT PRO VIDES A DEDUCTION OF SUCH PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT. THE ASSESSEE CLAIMED THAT IT HAS UNDERTAKEN EXPORT OF COMPUTER SOFTWARE MANUFACTURED BY IT AND ITS UNIT IS REGISTERED WITH DIRECTOR, STPI. THE APPROVAL GRANTED BY DIRECTOR, STPI HAS BEEN HELD TO BE A SUFFICIENT COMPLIANCE WITH REQUIREMENTS OF SECTION 10A(2)(I)(B) OF THE ACT EVEN AS PER THE CBDT VIDE INSTRUCTION NO.1 OF 2006 DATED 31.03.2006. THEREFORE, PRIMA - FACIE THE 100% EOU OF THE ASSESSEE, BEING REGISTERED WITH STPI, IS ELIGIBLE TO STAKE CLAIM FOR DEDUCTION U/S 10A OF THE ACT, PROVIDED THE OTHER CONDITIONS LAID DOWN IN SECTION 10A OF THE ACT ARE SATISFIED. THEREFORE, IN CONFORMITY WITH THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF VALIANT COMMUNICATIONS (SUPRA), WE DEEM IT FIT AND PROPER TO REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFYING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10A OF THE ACT AS PER LAW. THE ASSESSING OFFICER SHALL CONSIDER THE FORM NO.56F FURNISHED BY THE ASSESSEE BEFORE THE CIT(A) AND SUCH OTHER MATERIAL AND SUBMISSIONS THAT THE ASSESSEE MAY PUT - FORTH IN ORDER TO JUSTIFY ITS CLAIM OF DEDUCTION U/S 10A OF THE ACT. NEEDLESS TO SAY, THE ASSESS ING OFFICER SHALL ALLOW A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE ADJUDICATING ON THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 10A OF THE ACT IN ACCORDANCE WITH LAW. THUS, ON THE ALTERNATE PLEA ASSESSEE SUCCEEDS . SIMILAR VIEW HAS BEEN TAKEN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF EXPERT NET CAD SOLUTIONS PVT. LTD. VS. THE ASSSTT. COMMISSIONER OF INCOME TAX (SUPRA). 1 3 . THUS, IN THE FACTS OF THE CASE AND THE DECISION OF CO - ORDINATE BENCH , WE DEEM I T APPROPRIATE TO REMIT THIS ISSUE BACK TO THE FILE OF ASSESSING OFFICER TO CONSIDER ASSESSEES CLAIM OF DEDUCTION U/S. 10A OF THE ACT. THE ASSESSING OFFICER SHALL VERIFY ASSESSEES ELIGIBILITY FOR CLAIMING DEDUCTION U/S. 10A. WHILE CONSIDERING ASSESSEES ALTERNATE CLAIM U/S. 10A, THE 14 ITA NO . 111/PUN/2015, A.Y. 2010 - 11 ASSESSING OFFICER SHALL AFFORD DUE OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDANCE WITH LAW. ACCORDINGLY, GROUND NO. 7 RAISED IN THE APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 1 4 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE IN THE AFORESAID TERMS. ORDER PRONOUNCED ON WEDNESDAY, THE 24 TH DAY OF MAY, 201 7 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 24 TH MAY, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - IT/TP, PUNE 4. THE DIT (IT/TP), PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE