St. Croix Systems India Pvt.Ltd., Hyd, Hyderabad V. ITO, Ward-3(1), Hyderabad, Hyderabad

ITA 278/HYD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6391 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2016
• Court: TRIBUNAL
• Department Lawyers: M SITARAM
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Depreciation; Earning of tax free income; Wrong claim; Assessment record
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 278/HYD/2016 ASSESSMENT YEAR: 2010-11 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., HYDERABAD [PAN: AAHCS3048N] VS INCOME TAX OFFICER, WARD-3(1), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI P. MURALI MOHAN RAO, AR FOR REVENUE : SHRI M. SITARAM, DR DATE OF HEARING : 20-06-2016 DATE OF PRONOUNCEMENT : 30-06-2016 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-3, HYDERABAD D ATED 05-01-2016 FOR THE AY. 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT, ASSESSEE-COMPANY W AS IN THE BUSINESS OF EXPORT OF SOFTWARE. IN THE RETURN OF INC OME FILED, THE COMPANY CLAIMED ENTIRE PROFIT OF RS. 14,45,429/- AS E XEMPT U/S. 10A OF THE INCOME TAX ACT [ACT]. THE 10A DEDUCTION WA S CLAIMED ON THE GROUND THAT IT WAS A 100% EXPORT ORIENTED UNIT (EOU) AND WAS REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDI A, HYDERABAD (STPI). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) EXAMINED THE ELIGIBILITY OF TH E COMPANY FOR THE PURPOSE OF 10A DEDUCTION AND IT WAS FOUND THAT STPI HAD GIVEN APPROVAL TO ASSESSEE THROUGH ITS LETTER DT. 29-08-2003. AS PER THE I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 2 -: APPROVAL LETTER, THE COMPANY SHOULD COMMENCE ITS PROD UCTION WITHIN THE PERIOD OF THREE YEARS AND SUCH APPROVAL IS VALID ONLY FOR A PERIOD OF FIVE YEARS SINCE THE DATE OF COMMENCEMEN T OF PRODUCTION. THE DATE OF COMMENCEMENT OF PRODUCTION A S PER FORM NO. 56F WAS 01-08-2003. THEREFORE, THE APPROVAL GRA NTED BY STPI WAS VALID ONLY UP TO 31-07-2008. IN THE ABSENCE OF ANY RENEWAL OF STPI STATUS, THE AO DISALLOWED 10A CLAIMED IN SCRUTINY ASSESSMENT. THE SCRUTINY ASSESSMENT WAS ACCEPTED AND NO APPEAL WAS PREFERRED BY ASSESSEE. AO INITIATED PENALTY PRO CEEDINGS U/S. 271(1)(C) ON THE REASON THAT ASSESSEE DELIBERATELY MA DE THE WRONG CLAIM OF DEDUCTION U/S. 10A KNOWING FULL WELL THAT IT I S NOT ELIGIBLE TO CLAIM THE SAME, SINCE THE UNIT WAS NOT REGISTERED WITH THE STPI. 3. THE AO RELIED ON THE FOLLOWING DECISIONS: I. ACIT VS. TVS FINANCE & SERVICES LTD., [126 TTJ 302] (CHENNAI TRIBUNAL) WHERE THE HON'BLE ITAT UPHELD THE PENALTY LEVIED U/S. 271(1)(C) ON A WRONG CLAIM OF DEPRECIATION MADE BY THE ASSESSEE; II. DR. KD ARORA VS. CIT [162 ITR 481] (PATNA), WHERE IN THE HON'BLE HIGH COURT HAS HELD THAT CONCEALMENT IS ALWAYS DELIBERATE AND THE PRESUMPTION OF DELIBERATE CONCEALMENT HAS TO BE REBUTED BY THE ASSESSEE. IF IT I S NOT REBUTTED BY COGENT MATERIALS, THE PRESUMPTION MUST BE THAT IT WAS DELIBERATE CONCEALMENT AND THE PENALTY HAD TO FOLLOW; I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 3 -: 4. BEFORE CIT(A), ASSESSEE SUBMITTED THAT: I. IN THE INSTANT CASE AND IN THE YEAR UNDER CONSIDER ATION, IT HAS MADE AN APPLICATION TO THE DIRECTOR OF STPI FOR RE NEWAL OF THE STPI STATUS. ASSESSEE HAD ALREADY BEEN GRANTED TH E STATUS OF 100% EOU SET UP UNDER THE STP SCHEME; II. IT WAS SUBMITTED THAT, AS THE COMPANY GOT REGISTERED UNDER STP SCHEME ON 29-08-2003, IT WAS ELIGIBLE FOR DEDUCTION U/S. 10A FROM AY. 2004-05 ONWARDS FOR A PE RIOD OF TEN YEARS. IT WAS UNDER THE IMPRESSION THAT ONCE IT B ECOMES ELIGIBLE TO CLAIM DEDUCTION U/S. 10A OF THE ACT, IT CAN CONTINUE TO CLAIM THE SAME FOR TEN YEARS AS PER THE PR OVISIONS OF SECTION 10A OF THE ACT. ACCORDINGLY, IT STARTED CLAI MING DEDUCTIONS U/S. 10A ONLY FROM THE CURRENT YEAR AS IT DI D NOT EARN ANY PROFITS IN THE PREVIOUS YEAR; III. IT WAS FURTHER SUBMITTED BY ASSESSEE THAT IT HAS FULFILLE D THE FIRST CONDITION OF OBTAINING APPROVAL OF GOVERNMEN T THROUGH STPI AS 100% EOU. SECONDLY, IT OBTAINED THE S ALE PROCEEDS BY WAY OF CONVERTIBLE FOREIGN EXCHANGE, WHI CH IS CREDITED INTO THE BANK ACCOUNT HELD IN ORIENTAL BANK OF COMMERCE, SD ROAD, SECUNDERABAD. THE BANK HAD ALSO GIVEN CERTIFICATES OF FOREIGN INWARD REMITTANCE PERI ODICALLY WHICH, OF COURSE ARE SUBMITTED SEPARATELY; IT RELIED ON THE FOLLOWING DECISIONS: I. CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., [322 ITR 18 9]; I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 4 -: II. CIT VS. HARSHVARDHAN CHEMICALS & MINERAL LTD., [259 ITR 212]; III. P.V. RAMANA REDDY VS. ITO (ITA NO. 1852 TO 1857/HYD/2011); IV. ACIT VS. VIP INDUSTRIES [112 TTJ 289]; V. MAHAVIR IRRIGATION PVT. LTD., VS. CIT [314 ITR 150]; VI. ROSHAN LAL MADAN VS. ACIT [67 TTD 33]; VII. S. PRASADA RAO, HYD IN ITAT A BENCH (ITA 338/HYD/06, DTD. 21.11.2008); VIII. CIT VS. MS. SANIA MIRZA [259 CTR 386] (AP); 5. LD. CIT(A) HOWEVER, CONFIRMED THE PENALTY BY STATIN G AS UNDER: THE INFORMATION ON RECORD IS CAREFULLY CONSIDERED. THE ASSESSMENT RECORDS WERE PERUSED. THE COPY OF APPROVAL GIVEN B Y STPI DATED 29.08.2003 WAS GIVEN SUBJECT TO CERTAIN CONDITIONS WHICH ARE AS UNDER: A. THAT THE PRODUCTION SHOULD COMMENCE WITHIN THREE YE ARS FROM THE DATE OF ISSUE OF APPROVAL OTHERWISE SUCH APPROVAL W OULD LAPSE AUTOMATICALLY UNLESS THE APPLICATION FOR EXTENSION OF VALIDITY IS MADE BEFORE THE END OF THREE YEARS; B. DATE OF COMMENCEMENT OF PRODUCTION SHALL BE INTIMAT ED TO DIRECTOR OF STPI, HYDERABAD; C. THE APPROVAL IS VALID FOR A PERIOD OF FIVE YEARS FR OM THE DATE OF COMMENCEMENT OF PRODUCTION; D. THE UNIT OPTION TO RENEW ITS STPI STATUS OR OPT OUT AT THE END OF FIVE YEARS; AS PER THE CERTIFICATE IN FORM 56F THE COMMENCEMENT OF PRODUCTION WAS 01.08.2003, THEREFORE THE APPROVAL G RANTED BY STPI WAS VALID ONLY UP TO 31.07.2008. FURTHER THE ASSESS ING OFFICER ALSO OBSERVED THAT AS PER THE INFORMATION AVAILABLE ON W EBSITE AT WWW.HYD.SPTI.IN, THE APPELLANT COMPANY IS NOT REGIS TERED WITH STPI FOR THE RELEVANT YEAR. IN FACT, THE SUBMISSIONS MAD E BY THE AR ARE CONTRADICTORY, ON ONE HAND HE IS PLEADING THAT APPL ICATION FOR RENEWAL WITH STPI WAS MADE, ON THE OTHER HAND HE IS PLEADIN G THAT HE WAS I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 5 -: UNDER THE IMPRESSION THAT THE APPROVAL WAS FOR A PE RIOD OF 10 YEARS, NEVERTHELESS, AS PER THE STPI APPROVAL DATED 29.08. 2003 IT IS CATEGORICALLY MENTIONED THAT SPTI APPROVAL WAS ONLY FOR A PERIOD OF 5 YEARS WHICH EXPIRED ON 31.07.2008 AND FURTHER EXTEN SION WAS NOT GRANTED BY STPI. THE APPELLANT WAS VERY MUCH AWARE THAT THE REGISTRATION WAS GRANTED ONLY FOR A PERIOD OF 5 YEA RS. EVEN THEN FRAUDULENTLY 10A CLAIM WAS MADE BY FURNISHING INACC URATE PARTICULARS THAT IT WAS A REGISTERED UNIT WITH STPI. THEREFORE THE ACTION OF ASSESSING OFFICER IN LEVYING PENALTY OF RS.4.5 IAKH S, IS CONFIRMED. I ALSO WOULD LIKE TO MENTION HERE THAT NONE OF THE CASE LA WS RELIED UPON BY THE APPELLANT ARE RELEVANT TO THE FACTS OF THE CASE . BOTH PARTIES REITERATED THE RESPECTIVE CONTENTIONS ON TH E ISSUE. 6. HAVING CONSIDERED THE RIVAL CONTENTIONS AND PERUSIN G THE PAPER BOOK, I AM OF THE OPINION THAT THERE IS NO SCOPE FOR LEVY OF PENALTY ON THE GIVEN FACTS OF THE CASE. AS FAR AS THE PROVISIONS OF SECTION 10A ARE CONCERNED, THE SUB-SECTION 1 OF SECTION 10A ALLOWS THE DEDUCTION FOR A PERIOD OF TEN CONSECUTIVE AS SESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO INFORM OR PRO DUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE AS THE CASE MAY BE. SUB- SECTION 1A HOWEVER, HAS CERTAIN RESTRICTIONS ON QUANTUM OF DEDUCTION AND REST OF THE PROVISIONS PERTAIN TO COMPUTATI ON OF QUANTUM AND RESTRICTIONS PLACED, IF THE UNITS ARE TRANSF ERRED ETC. NOWHERE IN SECTION 10A, IT IS SPECIFIED THAT THE DEDUCTI ON IS NOT ELIGIBLE, IF THE STPI DOES NOT CONTINUE THE APPROVAL BE YOND THE FIVE YEAR PERIOD. ON A COMPLETE READING OF THE PROVISION , ANYBODY WILL COME TO A CONCLUSION THAT ONCE DEDUCTION OF SECTION 10A IS ALLOWED IN THE FIRST YEAR, ON THE BASIS OF SATISFYING THE COND ITIONS, ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION FOR CONSECUTIVE TEN A SSESSMENT YEARS. IN THIS CASE, THERE IS NO DISPUTE THAT ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 10A IN EARLIER YEARS. THERE IS AL SO NO DISPUTE THAT ASSESSEE HAS APPLIED FOR RENEWAL ON STPI APPROVA L FOR THE LATER I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 6 -: FIVE YEARS WHICH WAS HOWEVER, NOT PURSUED. ACCORDIN G TO MY UNDERSTANDING, ASSESSEE HAS MADE A CLAIM OF DEDUCTION ON THE STRENGTH OF THE PROVISIONS, EVEN THOUGH IT HAS ACCEPTED TH AT THE CLAIM MADE CANNOT BE SUBSTANTIATED IN THE ABSENCE OF ST PI APPROVAL. IT MAY BE ASSESSEES OPINION AND ACCEPTED THE DISALLOWANCE MADE IN ASSESSMENT PROCEEDINGS. MERE E RRONEOUS CLAIM IN THE ABSENCE OF ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS IS NOT A GROUND FOR LEVYING PE NALTY ESPECIALLY WHEN THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSEE HA S CONCEALED ANY PARTICULARS OR FURNISHED ANY INACCURA TE PARTICULARS. ASSESSEE SIMPLY MADE A CLAIM U/S. 10A ON THE REASON THAT HAVING BEEN ELIGIBLE IN EARLIER YEARS, ASSESSEE WOULD BE A LLOWED DEDUCTION IN THE IMPUGNED ASSESSMENT YEAR AS WELL. THIS, IN MY VIEW DOES NOT COME INTO THE PURVIEW AS CONCEALMENT OF INCOME OR O F FURNISHING OF INACCURATE PARTICULARS. BY FOLLOWING THE JUDGMENT OF SUPREME COURT, THE CO-ORDINATE BENCH (ITAT, DELHI) IN THE CASE OF M/S. DSL SOFTWARE LTD., (NOW AMALGAMATED WITH HCL TEC HNOLOGIES LTD) IN ITA NOS. 861 & 862/DEL/2011 DT. 09-03-2012, TH E PENALTY WAS DELETED BY THE BENCH ON SIMILAR FACTS. THE RELEVA NT PORTION OF THE SAID ORDER IS EXTRACTED HEREUNDER: HON'BLE APEX COURT IN RELIANCE PETRO PRODUCTS [322 ITR 158] [189 TAXMAN 322] (SUPRA) HELD THAT A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NO T AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. THUS, MERELY BECAUSE THE ASSESSEE HAD CLA IMED THE EXPENDITURE IN RELATION TO EXEMPT INCOME, WHICH CLA IM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, ATTRACT THE PENALTY U/S 271 (1)(C) OF THE ACT. IN THE PRESENT CASE, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF CLAI M FOR DEDUCTIONS U/S 10A & 80HHE IN RELATION TO UNREALISED EXPORTS O R DISALLOWANCE OF AN ESTIMATED AMOUNT, HAVING RECOURSE TO PROVISIO NS OF SEC.14A THE ACT CANNOT BE CONSIDERED AS CONCEALMENT OF INCO ME OR FURNISHING INACCURATE PARTICULARS THEREOF, ESPECIALLY WHEN ALL THE RELEVANT PARTICULARS WERE DISCLOSED BEFORE THE AG. THE FOLLO WING OBSERVATIONS I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 7 -: MADE BY THE HON'BLE APEX COURT IN THE AFORESAID CAS E OF M/S RELIANCE PETRO PRODUCTS(SUPRA) ARE RELEVANT: '10. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF THE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT; IT AMOU NTED TO CONCEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSE HOOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RECEIP T MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FA LSELY (OR IN AN EXAGGERATED AMOUNT) CLAIMED, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONE'S INCOME AS WELL AS FURNISHING O F INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FUR NISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COU LD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WA S NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINI ON, ATTRACT THE PENALTY UNDER SECTION 271 (1 )(C). IF WE ACCEPT THE CONTENT ION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING OFFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDME NT OF THE LEGISLATURE. 11. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT M ADE IN SREE KRISHNA ELECTRICALS V. STATE OF TAMIL NEAU & ANR. [ (2009) 23VST 249 (SC)] AS REGARDS THE PENALTY ARE APPOSITE. IN THE AFOREME NTIONED DECISION WHICH PERTAINED TO THE PENALTY PROCEEDINGS IN TAMIL NADU GENERAL SALES TAX ACT, THE COURT HAD FOUND THAT THE AUTHORITIES B ELOW HAD FOUND THAT THERE WERE SOME INCORRECT STATEMENTS MADE IN THE RE TURN. HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED: SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANT'S ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED IN THE T URNOVER ARE DISCLOSED IN THE DEALER'S OWN ACCOUNT BOOKS AND THE ASSESSING AUTHOR ITIES INCLUDE THESE ITEMS IN THE DEALER'S TURNOVER DISALLOWING THE EXEMPTION, PENALT Y CANNOT BE IMPOSED. THE PENALTY LEVIED STANDS SET ASIDE.' I.T.A. NO. 278/HYD/2016 M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., :- 8 -: THE SITUATION IN THE PRESENT CASE IS STILL BETTER A S NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSE E IN ITS RETURN. ' RESPECTFULLY FOLLOWING THE SAME, I HEREBY CANCEL THE PENALTY AND ALLOW ASSESSEES GROUNDS. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2016 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 30 TH JUNE, 2016 TNMM COPY TO : 1. M/S. ST. CROIX SYSTEMS INDIA PVT. LTD., HYDERABAD. C/O. P. MURALI & CO., CHARTERED ACCOUNTANTS, 6-3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD. 2. INCOME TAX OFFICER, WARD-3(1), HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-3, HYDERABAD 4. THE PR. COMMISSIONER OF INCOME TAX-3, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.