ITO, New Delhi V. M/s. Netsity Systems Pvt. Ltd., New Delhi

ITA 5093/DEL/2011

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2851 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 07-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P DAM KANUNJNA
• Keywords: Rule of consistency
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: E NEW DELHI BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDI CIAL MEMBER ITA NO: 5093/DEL/2011 ASSTT. YEAR 2008-09 ITO (E) VS. NETSITY SYSTEMS PVT. LTD. WARD-13(2), 81, MAIN ROAD, ROOM NO. 338, VISHWAS NAGAR, SHADHARA C.R. BUILDING NEW DELHI NEW DELHI (PAN AABCN8047L) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANAT KAPOOR, ADVOCATE RESPONDENT BY : SHRI P.DAM KANUNJNA, SR.DR DATE OF HEARING : 09.10.2015 DATE OF PRONOUNCEMENT : 0 1.01.2016 O R D E R PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER THIS APPEAL HAS BEEN PREFERRED BY THE DEPART MENT AGAINST THE ORDER DATED 28.7.2011 PASSED BY THE LD. CIT(A)-XVI, NEW DELHI AY 2008-09. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAD FILED IT S RETURN OF INCOME ON 30.9.2008 DECLARING A TOTAL INCOME OF RS. 19,26,816/- . THE R ETURN WAS PROCESSED U/S 143(1) AND WAS SELECTED FOR SCRUTINY. THE COMPANY WAS INCO RPORATED ON 7.4.1994 AND IS A SOFTWARE DEVELOPMENT UNDERTAKING. THE ASSESSEE HAD CLAIMED A DEDUCTION /EXEMPTION OF RS. 1,26,38,051/- U/S 10B OF THE INCO ME TAX ACT, 1961 AS THE ITA NO.5093/DEL/2011 ITO VS. M/S. NETSITY SYSTEMS PVT. LTD. 2 'V* ' COMPANY WAS ENGAGED IN THE SOFTWARE DEVELOPMENT AND EXPORT. COPY OF FORM 56G WAS FILED ALONG WITH A LETTER DATED 20.10.2010. THI S IS EIGHTH YEAR OF CLAIM US/ 10B. THE ASSESEE ALSO HAS A STPI REGISTRATION CERTIFICAT E DATED 26.3.2000 WHICH IS VALID UP TO 13.3.2010. DURING THE ASSESSMENT PROCEEDINGS, THE AO REACHED THE CONCLUSION THAT THE ASSESSEE COMPANY HAD FAILED TO FULFIL TWO CONDITIONS REQUIRED UNDER SECTION 10B OF THE INCOME TAX ACT FOR CLAIMING DEDUCTION/EX EMPTION UNDER THE SECTION. THESE CONDITIONS, AS PER THE AO, WERE I) FAILURE TO FURNISH THE CERTIFICATE FROM THE APPROPRIATE AUTHORITY COMPETENT TO ISSUE SUCH CERTI FICATE FOR CLAIMING DEDUCTION/EXEMPTION U/S 10B. II) FORM NO. 56G BEIN G FILED AFTER THE FILING OF RETURN. IT WAS THE AOS OPINION THAT THE UNDERTAKING OF THE ASSESSEE HAD NOT BEEN APPROVED BY THE BOARD AS REQUIRED BY SUB CLAUSE (IV) OF EXPL ANATION (2) OF SECTION 10B. THE AO CONCLUDED THAT IN ABSENCE OF THE APPROVAL BY THE SAID BOARD, THE CLAIM OF EXEMPTION U/S 10B COULD NOT BE GRANTED. THE AO FURT HER OBSERVED THAT THE APPROVAL GRANTED TO THE ASSESSEE BY STPI AUTHORITY CANNOT BE REGARDED AS AN APPROVAL GRANTED BY THE BOARD. ACCORDINGLY, THE CLAIM OF DED UCTION OF RS. 1,26,38,051/- U/S 10B WAS DISALLOWED BY THE AO. 2. AGGRIEVED, THE ASSESSEE WENT INTO APPEAL BEFORE THE LD. CIT(A) WHEREIN THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE BY HOL DING THAT FURNISHING OF FORM NO. 56G DURING THE COURSE OF ASSESSMENT PROCEEDINGS WA S AMPLE COMPLIANCE OF THE DIRECTIONS FOR FURNISHING THIS FORM ALONG WITH THE RETURN OF INCOME, AS CONTAINED IN SECTION 10B (5). ON THE OBJECTION OF THE AO ABOUT T HE APPROVAL FROM THE STPI NOT BEING THE REQUISITE APPROVAL OF THE COMPETENT AUTHO RITY/BOARD AS PER SECTION 10B, THE LD. CIT (A) WAS OF THE OPINION THAT SINCE IT WA S THE EIGHTH YEAR OF CLAIM OF DEDUCTION U/S 10B, THE PRINCIPLE OF CONSISTENCY REQ UIRED THAT THE CLAIM BE ACCEPTED ITA NO.5093/DEL/2011 ITO VS. M/S. NETSITY SYSTEMS PVT. LTD. 3 'V* ' THIS YEAR ALSO AS IN THE EARLIER YEARS THE CLAIM OF THE ASSESSEE WAS ALLOWED ON THE BASIS OF CERTIFICATE FROM STPI. ACCORDINGLY, THE CL AIM OF THE ASSESSEE U/S 10B WAS ALLOWED. 3. IN THE PRESENT APPEAL BEFORE US, THE DEPA RTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD . CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXEMPTION AMOUNTING TO RS. 1,26,38,051/- U/S 10B OF THE I.T. ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN ACCEPTING THE CLAIM OF ASSESSEE THAT THE APPROVAL O F STPI CONSTITUTES THE REQUISITE APPROVAL LAID DOWN IN SECTION OF THE ACT SINCE EXPRESSION HUNDRED PERCENT EXPORT-ORIENTED UNDERTAKING MEANS AN UNDERTAKING WHICH HAS BEEN APPROVED AS PER SECTION 14 OF THE IN DUSTRIES (DEVELOPMENT AND REGULATION) ACT, 1951. 4. LD. DR PRAYED FOR THE RESTORATION OF THE O RDER OF THE AO AND THE LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE RE IS NO DIFFERENCE BETWEEN 100% EOU AND 100% EOU APPROVED BY THE BOARD AND UNI T UNDER THE STPI SCHEME. HE SUBMITTED THAT THIS VIEW HAS BEEN UPHELD BY THE HONBLE ANDHRA PRADESH ALSO IN ITAT APPEAL NO. 238 OF 2013 IN CIT VS. VISION 2K+IN C. AND AS SUCH THE ASSESSEE CANNOT BE DENIED THE BENEFIT OF DEDUCTION U/S10B. O N THE SECOND ISSUE OF FORM 56G NOT HAVING BEEN FILED ALONG WITH THE RETURN OF INCO ME, THE LD. AR SUBMITTED THAT THE HONBLE DELHI HIGH HAS HELD IN CIT VS. WEB COMMERCE INDIAN PVT. LTD. 318 ITR 135 (DEL) THAT FILING OF SUCH REPORTS U/S 10B (5) IS DI RECTORY AND NOT MANDATORY AND EVEN IF THEY WERE FILED AT ANY TIME IN THE ASSESSMENT PR OCEEDINGS, THE ASSESSEE CAN BE SAID TO HAVE COMPLIED WITH THE REQUIREMENT OF THE S ECTION. LD. AR FURTHER SUBMITTED THAT THE CLAIM OF THE ASSESSEE IS ALSO ALLOWABLE ON THE PRINCIPLE OF CONSISTENCY AS THE ITA NO.5093/DEL/2011 ITO VS. M/S. NETSITY SYSTEMS PVT. LTD. 4 'V* ' DEPARTMENT HAD NEVER IN THE PAST DISALLOWED THE CLA IM AND THIS WAS THE 8 TH YEAR OF CLAIM U/S 10B. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HA VE ALSO PERUSED THE RECORDS. AS IT IS SEEN, THE DEDUCTION U/S 10B WAS DISPUTED BY THE AO FOR TWO REASONS. THE REPORT IN FORM 56G WAS NOT OBTAINED BEFORE THE FILING OF R ETURN OF INCOME AND SECONDLY THAT THE CERTIFICATE FROM THE STPI DID NOT CONSTITUTE TH E REQUISITE APPROVAL U/S 10B. THE ASSESSEE HAS PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CIT VS. WEB COMMERCE INDIA PVT. LTD. (SUPRA). THE FINDI NG OF THE HONBLE COURT IS BASED ON THE REASONING THAT THE PROVISION REGARDING FILIN G OF THE AUDIT REPORT WITH THE RETURN IS A PROCEDURAL PROVISION AND AS SUCH IT IS HENCE DIRECTORY AND NOT MANDATORY. THEREFORE, IF THE CLAIM OF THE ASSESSEE IS OTHERWIS E ALLOWABLE, IT CANNOT BE REJECTED ON A MERE TECHNICALITY. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT WE HOLD THAT THE FURNISHING OF FORM 56G DURING THE COURSE OF ASSESSMENT PROCEEDINGS WAS AMPLE COMPLIANCE OF THE DIRECTIONS FOR FURNISHING THIS FORM ALONG WITH THE RETURN OF INCOME AS CONTAINED I N SECTION 10B(5) AND THE DISALLOWANCE BY THE AO ON THIS GROUND WAS NOT JUSTI FIED. WE, THEREFORE, FIND NO REASON TO INTERFERE WITH THE FINDING OF THE LD. CIT (A) ON THIS ISSUE. 6. AS REGARDS THE OTHER OBJECTION OF THE AO ABOUT THE APPROVAL FROM STPI NOT BEING THE REQUISITE APPROVAL OF THE COMPETENT AUTHO RITY/BOARD AS PER SECTION 10B, REFERENCE CAN BE MADE TO THE DECISION OF THE HONBL E DELHI HIGH COURT IN THE CASE OF CIT VS. ENABLE EXPORTS PVT. LTD. IN ITA NO. 1072/2 011 WHEREIN IN ITS ORDER DATED 14 TH SEPTEMBER 2011, THE HONBLE HIGH COURT IN PARAS 9, 10 AND 11, WHILE DISCUSSING THIS ISSUE, HAD OBSERVED AS UNDER :- ITA NO.5093/DEL/2011 ITO VS. M/S. NETSITY SYSTEMS PVT. LTD. 5 'V* ' 9. LEARNED COUNSEL FOR THE ASSESSEE IS RIGHT IN HIS SUBMISSION THAT THE POWER TO GRANT APPROVALS TO 100% EOUS INITIALLY VES TED WITH THE BOARD SPECIFICALLY CONSTITUTED UNDER SECTION 14 OF THE IN DUSTRIES (DEVELOPMENT & REGULATION) ACT, 1951. HOWEVER, THE GOVERNMENT IN A SERIES OF MEASURES AIMED AT SPEEDING UP THE APPROVAL PROCESS HAD DELEG ATED THE POWERS FOR APPROVAL TO THE DEVELOPMENT COMMISSIONER. THUS, CBD T IN ITS CIRCULAR F.N. 178/19/2008-ITA DATED 9.3.2009 ISSUED CLARIFICATION REGARDING DEDUCTION UNDER SECTION 10 B OF THE ACT, WHICH READS AS UNDER :- THE MATTER REGARDING VALIDITY OF APPROVALS GIVEN B Y DEVELOPMENT COMMISSIONER HAS BEEN EXAMINED IN THE BOARD. IT HAS BEEN DECIDED THAT AN APPROVAL GRANTED BY THE DEVELOPMENT COMMISS IONER IN THE CASE OF AN HUNDRED PERCENT EXPORT ORIENTED UNIT WILL BE CONSIDERED VALID, ONCE SUCH AN APPROVAL IS RATIFIED BY THE BOARD OF A PPROVAL FOR EOU SCHEME.(EMPHASIS SUPPLIED) 10. THE AFORESAID CIRCULAR WAS ISSUED BY THE CBDT IN VIEW OF THE REQUEST MADE BY THE EXPORT PROMOTION COUNCIL FOR EOUS AND S EZS THESE EOUS HAVE BEEN APPROVED BY THE DEVELOPMENT COMMISSIONER UNDER DELEGATED POWERS OF THE BOARD OF APPROVAL AND ARE ENTITLED FOR EXEMPTIO N FROM THE ACT. IN VIEW OF THE AFORESAID, CBDT ISSUED THE AFORESAID CIRCULAR C LARIFYING THAT THE APPROVAL GRANTED BY THE DEVELOPMENT COMMISSIONER IS VALID F OR CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT. IT IS FURTHER SUBMITT ED THAT THE APPROVAL GRANTED BY THE DEVELOPMENT COMMISSIONER HAS ALSO BEEN RATIF IED BY BOARD OF APPROVAL FOR EOU SCHEME. 11. WE ARE, THEREFORE, OF THE OPINION THAT THE AP PROVAL GRANTED BY THE DEVELOPMENT COMMISSIONER WAS VALID FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT. THIS APPEAL IS DISMIS SED IN LIMINE. 7. RESPECTFULLY FOLLOWING THE RATIO OF JUDGM ENT LAID DOWN BY THE HONBLE HIGH COURT OF DELHI, WE HOLD THAT THERE IS NO DIFFERENCE BETWEEN 100% EOU AND 100% EOU APPROVED BY THE BOARD AND UNIT UNDER STPI SCHEM E AND ACCORDINGLY THE BENEFIT OF DEDUCTION U/S 10B CANNOT BE DENIED TO THE ASSESS EE ON THIS GROUND ALSO. MOREOVER, FOLLOWING THE PRINCIPLE OF CONSISTENCY, S INCE THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED BY THE DEPARTMENT IN SEVEN EARLIER YEA RS, THE CLAIM CANNOT BE DISALLOWED IN THIS EIGHT YEAR AS THE DEPARTMENT COU LD NOT POINT OUT EVEN A SINGLE FEATURE IN THE YEAR UNDER CONSIDERATION WHICH COULD JUSTIFY A DIFFERENT VIEW. ITA NO.5093/DEL/2011 ITO VS. M/S. NETSITY SYSTEMS PVT. LTD. 6 'V* ' 8. IN THE RESULT APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01. 01.2016. SD/- SD/- (INTURI RAMA RAO) (SUD HANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 1 ST JANUARY, 2016 VEENA COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER DY. REGISTRAR