The ACIT,Cir-1(1), Trivandrum V. M/s.US Technology International P. Ltd, Trivandrum

ITA 514/COCH/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2257 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-11-2019
• Assessment Year: 2009-2010
• Appeal Filed On: 02-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHANTHAM BOSE
• Assessee Lawyers: RAGHUNATHAN S
• Keywords: Depreciation; Fair market value; Notional interest; Tax effect; Revised return; Set aside
• Section: 10B; 80HH; 148; 263

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M IT(TP)A NO.514/COCH/2019 ASSESSMENT YEAR: 2009 - 10 THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM. VS. M/S. US TECHNOLOGY INTERNATIONAL (P) LTD. 721, NILA, TECHNOPARK CAMPUS, KARYAVATTOM, TRIVANDRUM - 695 581. [PAN:AAACU 5628B] ( REVENUE - APPELLANT) (ASSESSEE - RESPONDENT) C.O. NO. 47/COCH/2019 (ARSG. OUT OF IT(TP)A NO.514/COCH/2019) ASSESSMENT YEAR: 2009 - 10 M/S. US TECHNOLOGY INTERNATIONAL (P) LTD. 721, NILA, TECHNOPARK CAMPUS, KARYAVATTOM, TRIVANDRUM - 695 581. [PAN:AAACU 5628B] VS. THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) REVENUE BY SHRI SHANTHAM BOSE, CIT(DR) ASSESSEE BY SHRI RAGHUNATHAN S. ADV. D ATE OF HEARING 27/11 /2019 DATE OF PRONOUNCEMENT 04 / 1 2 /201 9 I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 2 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED ORDER OF THE CIT(A), TRIVANDRUM DATED 22/02/2018 AND PERTAINS TO THE ASSESSMENT YEAR 2009 - 10. 1.1 AT THE TIME OF HEARING, THE LD. AR MADE AN ENDORSEMENT THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE CROSS OBJECTION IN C.O. NO.47/COCH/2019. HENCE, THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED AS WITHDRAWN. 2. AT THE OUTSET, THERE WAS A DELAY OF 49 6 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. THE LD. DR HAS FILED A CONDONATION PETITION ACCOMPANIED BY AN AFFIDAVIT STATING THAT THE ORDER OF THE CIT(A), TRIVANDRUM DATED 22/02/2018 IN THE CASE OF THE ASSESSEE HEREIN FO R THE ASSESSMENT YEAR 2009 - 10 WAS RECEIVED IN THE O/ O PRINCIPAL COMMISSIONER OF INCOME - TAX ON 23/02/2018. THE LD. DR SUBMITTED THAT AS SUCH, AN APPEAL AGAINST THE SAID ORDER SHOULD HAVE BEEN FILED ON OR BEFORE 24.04.2018. ACCORDING TO THE LD. DR , AS P ER THE SAID ORDER, IT WAS NOTICED THAT CIT(A) ERRED IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR ALTERNATE CLAIM OF DEDUCTION U/S. 10A OF THE ACT. 2.1 IT WAS SUBMITTED THAT THE CIT(A) OUGHT TO HAVE NOTED THAT SECTION 10A(5) OF THE INCOME - TAX ACT STIPU LATES THAT THE DEDUCTION U/S. 10A SHALL NOT BE ADMISSIBLE I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 3 UNLESS THE ASSESSEE FURNISHED FORM NO. 56F ALONGWITH THE RETURN OF INCOME, BY WHICH THE TAX EFFECT IS RS.14,56,56,499/ - . HENCE, VIDE THIS ORDER IN C. NO. 404 /J/8/2018 DATED 17/04/2018, THE PRINCIPA L COMMISSIONER OF INCOME - TAX, T HIRUVANANTHAPURAM HAD DIRECTED THE DEPUTY COMMISSIONER TO FILE AN APPEAL AGAINST THE IMPUGNED ORDER. IT WAS SUBMITTED THAT AS DIRECTED BY THE PRINCIPAL COMMISSIONER OF INCOME - TAX, THIRUVANANTHAPURAM, ALL THE REQUIRED DOCUME NTS WERE SENT TO THE OFFICE OF THE COMMISSIONER OF INCOME - TAX(DR) ON 20/04/2018. IT WAS SUBMITTED THAT INADVERTENTLY, BOTH THE TAPALS WERE DELIVERED TO THE OFFICE OF THE COMMISSIONER OF INCOME - TAX(DR) AND BOTH COPIES WERE RETAINED THERE ON THE IMPRESSION THAT IT PERTAINS TO THAT OFFICE. LATER ON, IT WAS LEARNT THAT THIS CASE HAD NOT BEEN FILED BEFORE THE ITAT AND S UBSEQUENTLY, VIDE LETTER DATED 31/07/2019, COMMISSIONER OF INCOME - TAX(DR), ITAT, KOCHI DIRECTED THIS OFFICE TO FILE THE APPEAL AFRESH WITH NECE SSARY CONDONATION PETITION AFTER COMPLETING THE FORMALITIES FROM THE HIGHER AUTHORITIES. ACCORDING TO THE LD. DR, ON THAT BASIS THIS OFFICE HAD ONCE AGAIN OBTAINED AN ORDER U/S. 253(2) FROM THE PRINCIPAL COMMISSIONER OF INCOME - TAX, THIRUVANANTHAPURAM ON 26/08/2019. THUS, THERE W AS DELAY OF 49 DAY. ACCORDINGLY, IT WAS PRAYED THAT IT IS ONLY JUST AND REASONABLE THAT THE DELAY WAS CONDONED, AND THE APPEAL WAS HEARD ON MERITS. 2.2 WE HAVE GONE THROUGH THE CONDONATION PETITION FILED BY THE DEPARTMENT. A S SEEN FROM THE RECOR DS , BOTH THE COPIES OF REQUIRED DOCUMENTS RELATING TO THE FILING OF THE APPEAL WERE INADVERTENTLY SENT TO THE OFFICE OF THE COMMISSIONER OF INCOME - I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 4 TAX(DR), ITAT, KOCHI INSTEAD OF THE COMMISSIONER OF INCOME - TAX (APPEALS), TRIVANDRUM. W E FIND THAT REASONS ADVANCED BY THE DEPARTMENT IS BONA FIDE AND THERE IS GOOD AND SUFFICIENT CAUSE FOR BELATEDLY FILING THE APPEAL BEFORE THE TRIBUNAL. ACCORDINGLY, THE DELAY OF 49 6 DAYS IN FILING THE APPEAL IS CONDONED AND THE APPEAL IS ADMITTED FOR ADJU DICATION. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS), THIRUVANANTHAPURAM, IN SO FAR AS ON THE POINTS MENTIONED BELOW ARE CON CONCERNED, IS OPPOSED TO LAW ON THE FACTS AND C IRCUMSTANCES OF THE CASE. 2. THE LD. COMMISSIONER OF INCOME - TAX(APPEALS) ERRED IN HOLDING THAT THE APPELLANT IS ELIGIBLE FOR ALTERNATE CLAIM OF DEDUCTION U/S. 10A OF THE ACT. THE CIT(A) OUGHT TO HAVE NOTED THAT SECTION 10A(5) OF THE INCOME TAX ACT STIPU LATES THAT THE DEDUCTION U/S. 10A SHALL NOT BE ADMISSIBLE UNLESS THE ASSESSEE FURNISHES FORM NO. 56F ALONG WITH THE RETURN OF INCOME AND THE REPORT OF AN ACCOUNTANT AS SPECIFIED. NO SUCH CLAIM WAS MADE BY THE APPELLANT IN THE RETURN OF INCOME FILED AND THI S WAS NOT RAISED AS AN ADDITIONAL GROUND/CLAIM BUT AS AN ALTERNATIVE CLAIM BEFORE THE APPELLATE AUTHORITY, WHERE AS A CLAIM FOR DEDUCTION U/S. 10B WAS ALREADY MAD EIN THE RETURN OF INCOME. 3. THE LD. COMMISSIONER OF INCOME - TAX(APPEALS) OUGHT TO HAVE FO LLOWED THE DECISION OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF GOETZE(INDIA) LTD. (284 ITR 323) WHEREIN IT WAS HELD THAT AN ADDITIONAL CLAIM FOR DEDUCTION NOT MADE IN THE RETURN OF INCOME CANNOT BE ENTERTAINED OTHERWISE THAN BY FILING A VALID REV ISED RETURN. 4. THE APPEAL FILED BY THE DEPARTMENT, INVOLVING SIMILAR QUESTION IS PENDING BEFORE THE HONBLE HIGH COURT OF KERALA IN THE CASE OF APPELLANT FOR AY 2007 - 08 AND ALSO IN THE FOLLOWING CASES: (I) Q B URST TECHNOLOGIES PVT. LTD. AYS 2008 - 09 AND 2010 - 11 (II) PARAGON BIOMEDICAL INDIA PVT. LTD. AYS 2010 - 11 AND 2011 - 12 I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 5 5. THE LD. COMMISSIONER OF INCOME - TAX(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF PROPORTIONATE AMOUNT OF INTEREST RELATABLE TO THE AMOUNTS DIVERTED TO THE ASS OCIATE CONCERNS BASED ON THE DECISION OF HONBLE ITAT IN ITA NO.02/COCH/2013 DATED 20/03/2013 IN THE APPELLANTS CASE FOR AY 2008 - 09, STATING THAT THE ISSUE INVOLVED FOR THE YEAR UNDER CONSIDERATION IS ALSO SAME AND IDENTICAL TO EACH OTHER. THE CIT(A) OUG HT TO HAVE NOTICED THAT THE RELIEF FOR AY 2008 - 09 WAS GRANTED BY ITAT ON THE SPECIFIC FINDING THAT THE APPELLANT HAD NOT ADVANCED FUND TO SISTER CONCERNS DURING THE PREVIOUS YEAR 2007 - 08. DURING THE PREVIOUS YEAR 2008 - 09, RELEVANT TO THE AY UNDER CONSIDER ATION, THE APPELLANT HAD ADVANCED AN AMOUNT OF RS.50,00,000/ - TO TOONZ ANIMATION INDIA (P) LTD. ON 27.02.2009 AND RS.16,18,441/ - TO UST GLOBAL INFORMATION TECHNOLOGY PARKS (P) LTD. ON 12/03/2009 WHICH CANT BE CONSIDERED AS IDENTICAL TO THE DECISION RELIE D UPON. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADVANCED AT THE TIME OF HEARING THE ORDER OF THE LEARNED COMMISSIONER OF APPEALS, TRIVANDRUM ON THE ABOVE POINTS MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 4 . THE FIRST GROUND IS TO O GENERAL IN NATURE WHICH DOES NOT REQUIRE ADJUDICATION. 4.1 THE SECOND GROUND IS WITH REGARD TO ALLOWANCE OF DEDUCTION U/S. 10 A OF THE I.T. ACT. 5 . THE FACTS OF THE CASE ARE THAT HAVING FOUND THAT ITS CLAIM OF DEDUCTION MADE U/S. 10B HAS NOT BEEN ENTERTAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE MADE AN ALTERNATIVE CLAIM OF DEDUCTION U/S. 10A OF THE ACT BY FILING A REVISED RETURN BUT THE SAME HAS NOT BEEN ENTERTAINED BY THE ASSESSING OFFICER AS THERE WA S NO CONSISTENCY IN THE CL AIM OF DEDUCTION AND NOT SUPPORTED BY RECOGNIZED CERTIFICATION. TH E ASSESSEE FILED FORM NO. 56F DT.17.02.2016 MAKING A CLAIM OF DEDUCTION U/S 10A OF A SUM OF RS.34,76,09,469/ - . THE ASSESSEE HAS ALSO FILED ANOTHER FORM NO.56F DT. 17.04.2017 CLAIMING A DIFFE RENT AMOUNT OF RS.36,08 , 47,424/ - TO BE ALLOWED AS DEDUCTION U/S 10A. BY VIRTUE OF THE PROVISIONS OF I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 6 SECTION 10A(5) DEDUCTION U/S 10A IS ALLOWABLE ONLY IF THE PRESCRIBED FORM I.E. FORM N O. 56F ALONG WITH THE REPORT OF THE ACCOUNTANT CERTIFYING THAT THE DEDU CTION HAS CORRECTLY BEEN CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THE SECTION, IS FILED ALONG WITH THE RETURN OF INCOME. SINCE THE ASSESSEE NEITHER HAD FILED THE RETURN CLAIMING THE DEDUCTION U/S 10 A NOR FILED FORM NO.56F ALONG WITH THE RETURN, ORDINAR ILY THE CLAIM OF DEDUCTION CANNOT BE ALLOWED IN ACCORDANCE WITH THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD VS CIT (284 ITR 323) AS CLAIM OF DEDUCTION NOT BEEN MADE IN THE ORIGINAL RETURN FILED CANNOT BE ENTERTAINED UNLESS A VALID REVISED RETURN IS FILED. THUS, FILING A RETURN ALONG WITH FORM NO.56F IS THE MUST FOR CLAIMING FRESH DEDUCTION U/S 10 A BUT IN THE ABSENCE OF SUCH RETURN BEEN FILED BEFORE THE CIT(A), WHETHER THE FRESH CLAIM MADE NOW COU LD BE ENTERTAINED OR NOT IS THE QUESTION TO BE ANSWERED FIRST. TO ANSWER THIS QUESTION , THE CIT(A) RELIED ON THE DECISION OF THE HON'BLE ITAT, COCHIN BENCH IN THE CASE OF CWP TAYLOR VS D CI T FOR THE ASST. YEAR 2004 - 05 IN ITA NO.695/COCH/2008 DATED 28.07.200 9 WHEREIN IT WAS HELD AS FOLLOWS: 'WE HAVE HEARD RIVAL SUBMISSIONS. NO DOUBT, IN THE CASE OF GOETZE (INDIA) LTD. 284 ITR 323 THE APEX COURT HE LD THAT AN ASSESSEE COULD NOT MAKE A CLAIM FOR DEDUCTION BEFORE THE ASSESSING OFFICER OTHERWISE THAN BY FLING A RE VISED RETURN. HON'BLE APEX COURT DISTINGUISHED ITS OWN DECISION IN THE CASE OF NATIONAL THERMAL POWER CORPORATION VS. CIT (SUPRA) BY MENTIONING THAT THE QUESTION THERE WAS REGARDING THE POWER OF THE TRIBUNAL U/S 254 OF THE ACT TO ENTERTAIN, FOR THE FIRST T IME, A POINT OF LAW, PROVIDED THE FACTS ON THE BASIS OF WHICH THE ISSUE COULD BE RAISED WERE THERE BEFORE THE TRIBUNAL. THEIR LORDSHIPS SPECIFICALLY HELD THAT ITS DECISION DID NOT IMPINGE THE POWER OF THE TRIBUNAL TO ENTERTAIN FIRST TIME A POINT OF LAW PRO VIDED THE FACTS ON THE BASIS OF WHICH THE ISSUE IS RAISED IS THERE ON RECORD. THIS DECISION OF HON'BLE APEX COURT IS LIMITED TO THE POWER OF ASSESSING AUTHORITIES FOR CONSIDERING A CLAIM MADE BY THE ASSESSEE WHICH WAS ORIGINALLY NOT THERE IN THE RETURN' . I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 7 'IN OUR OPINION, THOUGH THE ASSESSING OFFICER COULD NOT ENTERTAIN THE CLAIM MADE BY THE ASSESSEE OTHERWISE THAN THROUGH A REVISED RETURN, NOTHING PREVENTED THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) FROM CONSIDERING THE CLAIM OF THE ASSESSEE, WHICH T HE ASSESSEE HAD SPECIFICALLY, RAISED IN ITS GROUND OF APPEAL IN VIEW OF THE DECISION OF THE HON'BLE APEX COURT IN NTPC'S CASE REFERRED SUPRA.' 5 .1 IN THE BACKGROUND OF FORGOING, ACCORDING TO THE CIT(A), IT WAS C LARIFIED BEYOND DOUBT THAT THE FIRST APPELLATE AUTHORITY CAN ENTERTAIN THE FRESH CLAIM OF DEDUCTION MADE U/S 10 A SUBJECT TO RAISING THE ISSUE IN THE GROUNDS OF APPEAL AND THE FACTS ON THE BASIS OF WHICH THE ISSUE COULD BE RAISED ARE READILY AVAILABLE BEFOR E THE FIRST APPELLATE AUTHORITY. FURTHER, VARIOUS COURTS HAVE HELD THAT POWERS OF THE CIT(A) IS CO - TERMINUS WITH THAT OF THE ASSESSING OFFICER. THUS, THE CIT(A) WENT AHEAD WITH VERIFYING THE CLAIM OF DEDUCTION MADE U/S 10A AS THE ASSESSEE HA D ALREADY RAISE D THIS ISSUE IN THE GROUNDS OF APPEAL AND FACTS ARE MORE OR LESS SAME FOR THE CLAIM OF DE D UCTION EITHER U/S 10B OR U/S 10 A OF THE ACT . 5 .2 WITH REGARD TO THE ELIGIBILITY TO CLAIM DEDUCTION, THE CIT(A) OBSERVED THAT SECTION 10A(2) OF THE ACT ASSUMES SIGNIFICANCE, WHICH READS AS FOLLOWS, THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILLS ALL THE FOLLOWING CONDITIONS, NAMELY, (I) I T HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING THE PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR. (A) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1981, IN ANY FREE TRADE ZONE; OR I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 8 (B) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 1994, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK, OR, AS THE CASE MAY BE, SOFTWARE TECHN OLOGY PARK; (C) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL, 2001 IN ANY SPECIAL ECONOMIC ZONE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE - ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKINGS AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THA T SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 5 .3 THUS, ACCORDING TO THE CIT(A), THE CASE OF THE ASSESSEE WAS COVERED BY THE PROVISIONS OF SECTION 10A(2 )(( B) SINCE THEY GOT REGISTERED ON 28.09.1999 AND STARTED BUSINESS ON 13.03.2000 AT THE SOFTWARE TECHNOLOGY PARK. TRIVANDRUM AND H A D BEEN IN THE BUSINESS OF EXPORTING COMPUTER SOFTWARE SINCE THEN. ACCORDING TO THE CIT(A) T HE ASSESSING OFFICER'S OBSERVATION IN THE REMAND R EPORT DATED 17.11.2017 STATING THAT THE ASSESSEE HA D COMMENCED MANUFACTURING OR PRODUCTION ON 13.10.2010 AS PER FORM NO.56F SUBMITTED BUT AS PER SECTION 10A, THE ASSESSEE CAN CLAIM DEDUCTION U/S 10A FOR A PERIOD OF 10 CONSECUTIVE ASSESSMENT YEARS BEGINNIN G WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. SO, THE ASSESSEE IS ELIGIBLE FOR 10A DEDUCTION ONLY FROM AY 2010 - 11 AND NOT FOR AY 2009 - 10, THE YEAR UNDER CONSIDERATION ', IS FACTUALLY INC ORRECT SINCE THE SAME WA S AN OUTCOME OF TYPOGRAPHICAL ERROR INADVERTENTLY COMMITTED BY THE ASSESSEE IN FORM NO. 56 F FILED ON 17.02.2016, A COPY OF WHICH I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 9 WAS FORWARDED TO THE ASSESSING OFFICER WHILE CALLING FOR REMAND REPORT AND N O FURTHER ACTION IN THIS REG ARD NEED BE TAKEN AS THE MANUFACTURE OR PRODUCTION HA D RIGHTLY BEEN STARTED ONLY ON 13.03.2000 BASED ON WHICH NOT ONLY THE ASSESSMENT ORDERS FOR THE EARLIER ASSESSMENT YEARS WERE PASSED BUT ALSO THE APPELLATE PROCEEDINGS WERE ALSO COMPLETED. 5 . 4 FOR THE ALTERNATIVE CLAIM OF DEDUCTION MADE U/S 10 A OF THE ACT, THE CIT(A) CALLED FOR REMAND REPORT F ROM THE INCUMBENT ASSESSING OFFICER. THE ASSESSING AUTHORITY ON VERIFICATION OF DETAILS FURNISHED BY THE ASSESSEE BROUGHT OUT THE FOLLOWING ISSUES AS IDEN TIFIED AND FOR FURTHER CONSIDERATION : (A) THE ASSESSES HAS COMMENCED MANUFACTURING OR PRODUCTION ON 13.03.2010 AS PER FORM 56F SUBMITTED, BUT AS PER SECTION 10 A THE ASSESSES CAN CLAIM THE DEDUCTION U/S 10A FOR A PERIOD OF 10 CONSECUTIVE ASS ESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. SO ASSESSEE IS ELIGIBLE FOR 10A DEDUCTION ONLY FROM AY 2010 - 11, AND NOT FOR AY 2009 - 10. (B) AS PER SECTION 80A(5) OF THE INCOME TAX ACT 1961 DEDUCTION U/S 10A CAN BE ALLOWED ONLY IF THE CLAIM IS MADE IN THE RETURN OF INCOME FILED. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10A ONLY IN THE RETURN OF INCOME FILED AGAINST NOTICE U/S 147. HENCE ASSESSEE IS NOT ELIGIBLE FOR CLAIM ING DEDUCTION U/S IDA OF THE ACT (C) FROM THE SUBMISSION OF THE ASSESSEE IT WAS SEEN THAT THE ASSESSEE DID NOT E - FILE FORM 56F ALONG WITH THE RETURN OF INCOME, HOWEVER, THE ASSESSEE HAS FURNISHED FORM 56F ON 17.02.2016. HOWEVER AS PER THE PROVISIONS OF SECTION 10A, DEDUCTION U/S 10A IS NOT ADMISSIBLE IF THE ASSESSEE FAILS TO FURNISH FORM 56F AIONG WITH THE RETURN OF INCOME. (D) IT IS ALSO BROUGHT TO YOUR KIND ATTENTION THAT REVISION U/S 263 WAS COMPLETED ON 29.06.2017 IN THIS CASE AND THERE IS A CHANGE IN TOTAL TURNOVER AND HENCE , DEDUCTION U/S 10A AND HENCE , THE COMPUTATION SUBMITTED BY ASSESSEE WILL HAVE TO BE MODIFIED ACCORDINGLY. I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 10 IN VIEW OF THE POINTS (A) TO (C ) ABOVE, IT APPEARS THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/ S. 10A. 5 .5 FROM THE ABOVE, IT COULD BE MADE OUT THAT THE FIRST APPELLATE AUTHORITY HA D POWER TO ENTERTAIN A FRESH CLAIM OF DEDUCTION NOT BEEN MADE BEFORE THE ASSESSING OFFICER. ACCORDING TO THE CIT(A), THE ASSESSING OFFICER HA D NOT COMMENTED ADVERSELY ON THE ALLOWABILIT Y OF DEDUCTION U/S 10A CLAIMED BY THE ASSESSEE EXCEPT POINTING OUT THAT THE DEDUCTION CAN BE ALLOWED ONLY IF THE CLAIM WAS MADE IN THE ORIGINAL RETURN FILED BUT NOT IN THE RETURN WHICH WAS FILED SUBSEQUENT TO THE NOTICE ISSUED U/S 148 OF THE ACT. FURTHE R, THE CIT(A) OBSERVED THAT PROVISIONS REGARDING FILING OF AUDIT REPORT ETC . HA D BEEN DECLARED DIRECTORY BUT NOT MANDATORY AND THEREBY , AUDIT REPORT ETC . COULD BE FILED EVEN DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS AS WELL. T HE CIT(A) RELIED ON THE DECISION OF THE I TAT, COCHIN BENCH IN THE CASE OF CWP TAYLOR VS . C I T SUPRA, THE DECISION OF THE SUPREME COURT IN THE CASE OF GOETZE INDIA LTD . SUPRA IS LIMITED TO THE POWER OF ASSESSING OFFICER ONLY AND DOES NOT AFFECT THE POWERS O F THE FIRST APPELLATE AUTHORITY IN ENTERTAINING THE CLAIM NOT BEEN MADE BEFORE THE ASSESSING OFFICER BY FILING A VALID RETURN. 5 . 6 THE CIT(A) REFERRED TO THE LETTER OF THE REPRESENTATIVE DATED 22.02.2016 EXPLAINING HOW THE ASSESSEE HAD FULFILLED ALL THE CONDITIONS CONTEMPLATED U/S 10 A OF I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 11 THE ACT AND SATISFIED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION. THE CONDITIONS CONTEMPLATED U/S 10A WERE COMPLIED WITH AS FOLLOWS: SUB - SECTION 1 100% DEDUCTION IS ALLOWED FOR A TEN (10) CONSECUTIVE ASSESSMENT YEARS ON PROFITS EARNED FROM EXPORT OF COMPUTER SOFTWARE FROM THE YEAR IN WHICH THE UNIT BEGINS TO MANUFACTURE COMPUTER SOFTWARE, SUBJECT TO CONDITIONS MENTIONED IN THE SUB - SECTIONS TO 10A YES SUB - SECTION 1A SUB - SECTION 1B SUB - SECTION 1C CONDITIONS FOR DEDUCTION UNDER SECTION AVAILABLE TO ERSTWHILE UNITS IN SEZ NOT APPLICABLE SUB - SECTION 2 (I) THE UNIT SHOULD BEGIN DEVELOPMENT OF SOFTWARE IN A SOFTWARE TECHNOLOGY PARK LIMITED ON OR AFTER 01 A PRIL, 1994. (THE COMPANY HAD OBTAINED APPROVAL AS A 100% EXPO RT ORIENTED UNIT FROM STPI ON 28 SEPTEMBER 1999) YES IN THE YEAR OF FORMATION FOR ALL THREE ELIGIBLE UNITS. SUB - SECTION 2(II) THE UNIT SHOULD NOT BE FORMED BY SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. (THE ELIGIBLE UNIT OF THE C OMPANY WERE NEWLY FORMED IN AY 1999 - 2000) SUB - SECTION 2(III) THE UNIT SHOULD NOT BE FORMED BY TRANSFER OF PLANT AND MACHINERY PREVIOUSLY USED. SUB - SECTION 3 SALES AND PROCEEDS OF COMPUTER SOFTWARE SHOULD BE RECEIVED WITHIN A PERIOD OF 6 MONTHS OR SUCH OTHER EXTENDED TIME PRESCRIBED BY RESERVE BANK OF INDIA. YES SUB - SECTION 4 THE PROFITS ELIGIBLE FOR SECTION 10A OF THE ACT, SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF THE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN R ESPECT OF SUCH COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF THE BUSINESS CARRIED ON BY THE UNDERTAKING. YES SUB - SECTION 5 FOR AVAILING BENEFIT UNDER SECTION 10A OF THE ACT, FORM 56F SHOULD BE FURNISHED YES SUB - SECTION 6(I) (APPLICABLE ONLY TILL A.Y. 2000 - 01 NOT APPLICABLE SUB - SECTION 6(II) (APPLICABLE ONLY TILL AY 2000 - 01) NOT APPLICABLE. SUB - SECTION 6(III) NO DEDUCTION UNDER SECTION 80HH OR 80HHA OR SECTION 80 - I OR SETION 80 - IA OR SECTION 80 - IB IS ALLOWABLE ON PROFITS OF THE UNDERTAKING YES SUB - SECTION 6(IV) IN COMPUTING THE DEPRECIATION ALLOWANCE UNDER SECTION 32, THE WRITTEN DOWN VALUE OF ANY ASSET USED FOR THE PURPOSES OF THE BUSINESS OF THE UNDERTAKING SHALL BE COMPUTED AS IF THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF DEPRECIATION F OR EACH OF THE RELEVANT YES I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 12 ASSESSMENT YEAR SUB - SECTION 7 TRANSFER OF GOODS AND SERVICES MUST BE AT FAIR MARKET VALUE OF GOODS IN CASE OF AVAILING DEDUCTION UNDER SECTION 10A OF THE ACT NOT APPLICABLE SUB - SECTION 7A TAX HOLIDAY BENEFITS IN CASE OF TRANSFER OF UNDERTAKING PURSUANT TO AMALGAMATION OR DEMERGER IS SUBJECT TO CERTAIN RESTRICTIONS. NOT APPLICABLE 5 .7 IN VIEW OF THE ABOVE, THE CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S . 10A OF THE ACT AND HE RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS TECHNOVATE E SOLUTIONS P LTD REPORTED IN 354 ITR 110 WHEREIN IT WAS HELD AS FOLLOWS: ' THAT THE CENTRAL BOARD OF DIRECT TAXES IN INSTRUCTION NO.L OF 2006, DATED MARCH 31, 2006, CLARIFIED THAT THE CLAIM OF DEDUCTION UNDER SECTION 10A SHOULD NOT BE DENIED TO THE SOFTWARE TECHNOLOGY PARK UNITS ONLY ON THE GROUND THAT THE APPROVAL / REGISTRATION TO SUCH UNITS HAD BEEN GRANTED BY THE DIRECTORS OF THE SOFTWARE TECHNOLOGY PARKS OF INDIA. IN THE INSTRUCTION, THE BO ARD ALSO MADE A REFERENCE TO THE INTER - MINISTERIAL COMMUNICATION DATED MARCH 23, 2006, ISSUED BY THE SECRETARY, MINISTRY OF COMMUNICATIONS AND TECHNOLOGIES TO THE EFFECT THAT THE APPROVALS ISSUED BY THE DIRECTORS OF THE SOFTWARE TECHNOLOGY PARKS OF INDIA H AD THE AUTHORITY OF THE INTER - MINISTERIAL STANDING COMMITTEE AND THAT ALL APPROVALS GRANTED BY THE DIRECTORS OF THE SOFTWARE TECHNOLOGY PARKS OF INDIA WERE, THEREFORE, DEEMED TO BE VALID. THE POSITION WAS ALSO CLEAR FROM A LETTER DATED MAY 6, 2009, ISSUED BY THE BOARD TO THE JOINT SECRETARY, MINISTRY OF COMMERCE AND INDUSTRY WHEREIN A DISTINCTION HAD BEEN DRAWN BETWEEN THE PROVISIONS OF SECTIONS 10 A AND 10B AND IN WHICH IT HAD BEEN CLARIFIED THAT A UNIT APPROVED BY A DIRECTOR UNDER THE SOFTWARE TECHNOLOGY PARKS SCHEME WOULD BE ALLOWED EXEMPTION ONLY U/S 10A AS A SOFTWARE TECHNOLOGY PARK UNIT AND NOT U/S 10B AS A 100 PERCENT EXPORT ORIENTED UNIT. THEREFORE, APPROVALS GRANTED BY THE DIRECTORS OF THE SOFTWARE TECHNOLOGY P ARKS OF INDIA WOULD BE DEEMED TO BE VALID IN AS MUCH AS THE DIRECTORS WERE FUNCTIONING UNDER THE DELEGATED AUTHORITY OF THE INTER - MINISTERIAL STANDING COMMITTEE. THUS, THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT THE APPROVAL GRANTED BY THE DIRE CTORS OF THE SOFTWARE TECHNOLOGY PARKS OF INDIA WAS SUFFICIENT APPROVAL SO AS TO SATISFY THE CONDITIONS RELATING TO APPROVALS U/S 10A' . I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 13 5 .8 THE CIT(A) PLACED RE LIANCE ON THE DECISION OF THE ITAT, COCHIN BENCH, COCHIN PASSED IN THE ASSESSEE'S OWN CASE FO R THE AY 2007 - 08 IN ITA NO. 1 53/COCH/2015 DT. 26.09.2016 CONFIRMING THE ORDER OF THE CIT(A) WHILE ALLOWING THE ASSESSEE TO BE ENTITLED FOR DEDUCTION U/S 10A. 5 . 9 IN THE BACKDROP, CONSIDERING THE FACT THAT THE ASSESSEE ITSELF HAD CLAIMED TWO DIFFERENT AMOUNT S FOR THE DEDUCTION TO BE ALLOWED U/S 10A AND THE ASSESSING OFFICER ALSO HA D MENTIONED IN THE REMAND REPORT SUBMITTED ABOUT CHANGE IN THE TURNOVER SUBSEQUENT TO THE ORDER PASSED U/S 263, THE ASSESSING OFFICER WAS DIRECTED TO WO RK OUT THE CLAIM OF DEDUCTION TO BE ALLOWED U/S 10A AFRESH IN ACCORDANCE WITH THE ACT. ACCORDINGLY, THE CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 6 AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 7 . THE LD. AR RELIED ON THE ORDER OF THE CIT(A). 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. A SIMILAR ISSUE WAS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FLYTXT TECHNOLOGY (P) LTD. 87 TAXMANN.COM 77 WHERE IT WAS HELD AS FOLLOWS: 6. WE HAVE CONSIDERED T HE SUBMISSIONS MADE. ADMITTEDLY, THE ASSESSEE INITIALLY CLAIMED THE BENEFIT OF SECTION 10B WHICH WAS ALLOWED BY THE ASSESSING OFFICER. ONLY WHEN THE COMMISSIONER WAS SEIZED OF THE PROCEEDINGS UNDER SECTION 263, THE ASSESSEE RAISED AN ALTERNATIVE CLAIM FOR THE BENEFIT OF SECTION 10 A. THE COMMISSIONER DID NOT EXAMINE THAT PLEA AND ON THE OTHER HAND, DIRECTED THE ASSESSING OFFICER TO WITHDRAW THE EXEMPTION UNDER SECTION 10B. IT I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 14 WAS THIS ORDER WHICH WAS CHALLENGED BY THE ASSESSEES IN THE APPEALS FILED BY THEM B EFORE THE TRIBUNAL. SUCH AN APPEAL FILED BY THE ASSESSEE IS LIABLE TO BE CONSIDERED BY THE TRIBUNAL EXERCISING ITS POWER UNDER SECTION 254 OF THE ACT WHICH OBLIGED THE TRIBUNAL TO CONSIDER APPEAL AND PASS SUCH ORDERS THEREON AS IT THINKS FIT. IT WAS THIS P OWER OF THE TRIBUNAL WHICH CONSIDERED BY THE APEX COURT IN NATIONAL THERMAL POWER CO. LTD. 'S CASE (SUPRA) WHICH HELD THAT THE TRIBUNAL IS ONLY REQUIRED TO CONSIDER THE QUESTIONS OF LAW ARISING FROM THE FACTS WHICH ARE ON RECORD, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSAR Y TO CON SIDER THAT QUESTION IN ORDER TO CORRECTLY ASSESS THE TAX LIABILITY OF AN ASSESSEE. EVEN IF THE CONTENTION RAISED BY THE LEARNED SENIOR COUNSEL FOR THE REVENUE THAT THE POWER CONFERRE D ON THE APPELLANTS UNDER SECTION 263 ONLY AUTHORISED HIM TO EXAMINE WHETHER THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE, THAT RESTRICTION OF POWER CANNOT AFFEC T THE POWERS OF THE TRIBUNAL WHICH IS BOUND TO EXERCISE UNDER SECTION 254 OF THE ACT. IN SUCH A SITUA TION, HAVING REGARD TO THE LANGUAGE OF SECTION 254 AND AS INTERPRETED BY THE APEX COURT IN NATIONAL THERMAL POWER CO. LTD . 'S CASE (SUPRA), WE DO NOT SEE ANY REASON TO THINK THAT THE TRIBUNAL H AS COMMITTED AN ILLEGALITY BY DIRECTING THE ASSESSING OFFICER TO DECIDE THE MATTER AFRESH DULY ADVERTING TO THE CLAIM OF THE ASSESSEE FOR THE BENEFIT OF SECTION 10A. 7. THOUGH THE LEARNED SENIOR COUNSEL FOR THE REVENUE RELIED ON THE JUDGMENT OF A DELHI HIGH COUR T IN REGENCY CREATIONS L T D . S CASE (SUPRA), A READING OF THE JUDGMENT SHOWS THAT THE DELHI HIGH COUR T SET ASIDE THE ORDER OF THE TRIBUNAL GRANTING THE BENEFIT OF SECTION 10B TO THE ASSESSEE THEREIN. HOWEVER , THE S UBSEQUENT ORDER PASSED BY THE DELH I HIGH COURT, A COPY OF WHICH HAS BEEN MADE AVAILABLE BY THE LEARNED SENIOR COUNSEL APPEARING FOR THE ASSESSEE, SHOWS THAT THE HIGH COURT ITSELF DIRECTED THAT WHEN THE MATTER IS RECONSIDERED BY THE TRIBUNAL AS DIRECTED IN THE JUDGMENT ABOVE, THE TRIBUNAL S HALL EXAMI NE THE CLAIM OF THE ASSESSEE FOR THE BENEFIT OF SECTION 10A. THEREFORE, IN FACT, THIS ORDER OF THE DELHI H IGH COURT SUPPORTS THE CLAIM OF THE ASSESSEE. IN THE AFORESAID CIRCUMSTANCES, WE DO NOT FIND ANY ILLEGALITY IN THE ORDER PASSED BY THE TRIBUNAL. THEREFORE, THE QUESTIONS OF LAW FRAMED HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST REVENUE. ACCORDINGLY, THE APPEALS ARE DISMISSED. 8 .1 IN VIEW OF THE ABOVE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FLYTXT TECHNOLOGY (P) LTD. SUPRA, TH E SECOND GROUND OF APPEAL OF THE REVENUE IS DISMISSED. I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 15 9. REGARDING THE THIRD GROUND RELATING TO ENTERTAINING A NEW CLAIM OF DEDUCTION U/S. 10A OF THE ACT BY THE CIT(A), IN OUR OPINION, THERE IS NO BAR TO ENTERTAIN S UCH CLAIM BY THE CIT(A) OTHERWISE THAN BY FILING A REVISED RETURN AS HELD BY THE SUPREME COURT OF INDIA IN THE CASE OF GOETZE (INDIA) LTD. (284 ITR 323). BEING SO, GROUND NO. 3 OF THE REVENUE IS DISMISSED. 10. THE FOURTH GROUND IS WITH REGARD TO NOT AWA ITING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, Q BURST TECHNOLOGIES PVT. LTD. FOR AYS 2008 - 09 AND 2010 - 11 AND PARAGON BIOMEDICAL INDIA PVT. LTD. FOR AYS 2010 - 11 AND 2011 - 12 WHICH IS PENDING BEFOR E THE JURISDICTIONAL HIGH COURT ON SIMILAR ISSUE. 10.1 SINCE WE HAVE FOLLOWED THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. FLYTXT TECHNOLOGY (P) LTD. 87 TAXMANN.COM 77 , THERE IS NO QUESTION OF AWAITING FOR FURTHER DECISION OF TH E JURISDICTIONAL HIGH COURT ON THIS ISSUE . ACCORDINGLY, TH E FOURTH GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 1 1. THE FIFTH GROUND IS WITH REGARD TO DISALLOWANCE OF INTEREST ON DIVERTED FUND. 1 2 . THE FACTS OF THE CASE ARE THAT THE DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HA D NOTICED THAT THE ASSESSES HA D GIVEN INTEREST FREE ADVANCES TO ITS ASSOCIATE CONCERNS NAMELY TOONS ANIMATION INDIA (,P) LTD AND UST GLOBAL I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 16 INFORMATION TECHNOLOGY PARKS (P) LTD WITHOUT CHARGING INTE REST THEREON. THE ASSESSING OFFICER FURTHER NOTICED THAT THE ASSESSEE HAD AVAILED INTEREST BEARING LOANS TO THE TUNE OF RS.60.51 CR AND PAID INTEREST OF RS.7.40 CR THEREON DURING THE YEAR UNDER CONSIDERATION. HE TOOK THE VIEW THAT THE ASSESSEE HA D DIVERTED INTEREST BEARING FUNDS TO ITS ASSOCIATE CONCERNS FOR NON BUSINESS PURPOSES THAT TOO WITHOUT CHARGING INTEREST. THE ASSESSEE OBJECTED TO THE INFERENCE DRAWN BY THE ASSESSING AUTHORITY AND ALSO SUBMITTED THAT IT IS ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. HOWEVER, THE ASSESSING OFFICER BY PLACING RELIANCE ON THE DECISION OF THE JURISDICTIONAL HIGH COURT OF KERALA IN THE CASE OF CIT VS . V I BABY & CO (254 ITR 248) DISALLOWED PROPORTIONATE AMOUNT OF INTEREST RELATABLE TO THE AMOUNTS DIVERTED TO THE ASSOCIA TE CONCERNS. THE DISALLOWANCE WORKED OUT IS RS.1,18,408/ - . 1 3 . ON APPEAL, THE CIT(A) OBSERVED THAT AN IDENTICAL ISSUE IN THE ASSESSEE'S OWN CASE FOR THE A Y 2008 - 09 IN ITA NO.02/COCH/2013 DT.23.08.2013, THE ITAT, COCHIN BENCH HA D DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE AND DELETED THE INTEREST WHICH WAS PROPORTIONATELY DISALLOWED. SINCE THE ISSUE INVOLVED FOR THE YEAR UNDER CONSIDERATION IS ALSO SAME AND IDENTICAL TO EACH OTHER, RESPECTFULLY FOLLOWING THE SAID DECISION OF THE ITAT, THE CIT(A) DELETED THE INTEREST OF RS.1,18,408/ - PROPORTIONATELY DISALLOWED AND ACCORDINGLY, THE APPEAL FILED ON THIS GROUND WAS ALLOWED. 1 4 . AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 17 1 5 . THE LD. AR RELIED ON THE ORDER OF THE CIT(A). 1 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. A SIMILAR ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN IT(TP)A NO.02/COCH/2013 DATED 23/08/2018 , WHEREIN IT WAS HELD A S FOLLOWS: 6. WE HAVE HEARD THE RIVAL CONTENTION AND CAREFULLY PERUSED THE RECORD. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE AO HAS DISALLOWED A PART OF INTEREST EXPENDITURE CLAIM ON THE REASONING THAT (A) THAT ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO SISTER CONCERNS AS PER THE BALANC E SHEET AS AT 31 . 3.2008 AND (B) THE DECISION RENDERED BY J URISDICTIONAL HON'BLE KERALA HIGH COURT IN THE CASE OF V.I. BABY (SUPRA) SUPPORTS DISALLOWANCE OF INTEREST ATTRIBUTABLE TO THE FUNDS DIVERTED. IN THE WRITTEN SUBMISSIONS, THE ASSESSEE HAS TABULATED THE YEAR WISE DETAILS OF FUNDS GIVEN TO THE SISTER CONCERNS AS WELL AS THE RESERVES AND SURPLUS FUNDS AVAILABLE WITH IT IN THOSE YEARS. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE SAID DETAILS: FINANCIAL YEAR AMT DISBURSED TO TEN AMT DISBURSED TO TOONZ TOTAL ADVANCES RESERVES AND SURPLUS 2002 - 03 2,551,812 - 2,551,812 51,459,144 2003 - 04 5,959,312 - 5,959,312 93,539,478 2004 - 05 961,388 - 961,388 139,593,897 2005 - 06 325,049 - 325,049 209,274,643 2006 - 07 - 700,000 700,000 467,452,244 2007 - 08 - - - 717,455,603 TOTAL 9,797,561 700,000 10,497,561 THUS, IT IS SEEN THAT THE ASSESSEE HAS ADVANCED THE AMOUNTS TO ITS SISTER CONCERNS IN THE EARLIER YEARS AND NOT DURING THE YEAR UNDER CONSIDERATION, AS PRESUMED BY THE I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 18 ASSESSING OFFICER. THUS, THE PRESUMPTION ENTERTAINED BY THE AO IS AGAINST THE FACTS AVAI LABLE ON RECORD. 7. FURTHER, THE AO HAS PLACED RELIANCE ON THE DECISION RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF V.I. BABY AND CO., REFERRED SUPRA. THE LD D.R ALSO PLACED HEAVY RELIANCE ON THE ABOVE SAID DECISION RENDERED BY THE HO N'BLE JURISDICTIONAL HIGH COURT. WE HAVE CAREFULLY GONE THROUGH THE SAID DECISION AND NOTICE THAT THE ASSESSEE THEREIN WAS A PARTNERSHIP FIRM AND THE WITHDRAWALS MADE BY ITS PARTNERS RESULTED IN CONVERTING THE CAPITAL BALANCES INTO 'DEBIT BALANCES'. THERE SHOULD NOT BE ANY DOUBT THAT THE DEBIT BALANCE IN THE CAPITAL ACCOUNT INDICATES DRAWING OF FUNDS FROM OUT OF LOAN AND OTHER CREDITORS ACCOUNT. UNDER THAT SET OF FACTS, T HE WITHDRAWALS MADE BY THE PARTNERS OF THE FIRM WERE CONSIDERED AS DIVERSION OF FUNDS IN THE CASE OF V. I . BABY (SUPRA). HOWEVER, IN THE INSTANT CASE, THE ASSESSEE HAS SHOWN THAT IT WAS HAVING 'RESERVES AND SURPLUS', MORE THAN THE AMOUNT ADVANCED TO THE SISTE R CONCERNS. ACCORDINGLY, IN OUR VIEW, THE FACTS PREVAILING IN THE CASE OF V.I BABY & CO (SUPRA) IS TOTALLY DIFFERENT FROM THE FACTS PREVAILING IN THE INSTANT CASE AND ACCORDINGLY, IN OUR VIEW, THE DECISION RENDERED IN THE CASE OF V.I. BABY (REFERRED SUPRA) BY THE JURISDICTIONAL HIGH COURT SHALL NOT APPLY TO THE FACTS OF THE INSTANT CASE. 8. THUS, BOTH THE GROUNDS ON WHICH THE IMPUGNED DISALLOWANCE WAS MADE THE ASSESSING OFFICER FAILS AND CONSEQUENTLY, IN OUR VIEW, THE IMPUGNED DISALLOWANCE OF RS.8,24,600/ - IS LIABLE TO BE DELETED. WE ORDER ACCORDINGLY. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 1 6 .1 FURTHER, WE RELY ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. 330 ITR 177 WHEREIN IT WAS HELD AS FOLLOWS: IV) THAT IT WAS AN ADMITTED POSITION THAT THE ASSESSEE HAD DEPOSITED BOTH THE EMPLOYERS AND THE EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE ASSES SING OFFICER ADDED THESE PAYMENTS TO THE TOTAL INCOME OF THE ASSESSEE. THE DISALLOWANCE WHICH WAS EFFECTED BY THE ASSESSING OFFICER HAD NOT BEEN CHALLENGED BY THE ASSESSEE. THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE ADD BACK THAT HAD BEEN MADE BY THE ASSESSING OFFICER WAS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER SECTION 10A, THE ADDITION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OUGHT TO B E IGNORED I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 19 COULD NOT BE ACCEPTED. NO STATUTORY PROVISIONS TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEM PTION UNDER SECTION 10A OF THE ACT ON THE ASSESSED INCOME, WHICH WAS ENHANCED DUE TO DISALLOWANCE OF THE EMPLOYERS AS WELL AS EMPLOYEES CONTRIBUTION TOWARDS PF/ESIC. 1 6 . 2 I N VIEW OF THIS, WE ARE OF THE OPINION, THAT EVEN IF DISALLOWANCE IS MADE TOWARDS NOTIONAL INTEREST ON ACCOUNT OF DIVERSION OF FUNDS TO THE SISTER CONCERNS, IT IS OF NO CONSEQUENCE SINCE THE ASSESSEES INCOME IS EXEMPTED U/S. 10A OF THE I.T. ACT. 1 6 .3 THUS, IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 02/COCH/2013 DATED 23/08/2013 AND THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. (SUPRA), WE ARE INCLINED TO DISMISS THE FIFTH GROUND OF APPEAL OF THE REVENUE. 1 7 . IN THE RESULT, BOTH APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH DECEMBER , 2019. SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 4 TH DECEMBER , 2019 GJ COPY TO: I. T( T P) .A. NO . 514 COC H/ 2019 & C.O. NO.47/COCH/2019 20 1 . M/S. US TECHNOLOGY INTERNATIONAL (P) LTD. 721, NILA, TECHNOPARK CAMPUS, KARYAVATTOM, TRIVANDRUM - 695 581. 2. THE DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME - TAX(APPEALS), TRIVANDRUM. 3 . THE PR. COMMISSIONER OF INCOME - TAX, TRIVANDRUM . 4 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 5 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN