M/s.Pescainde, Cochin V. The ITO, Cochin

ITA 542/COCH/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8619 (ITAT-COCHIN)
• Duration Of Justice: 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 17-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard
• Section: 143(3); 10B; 263

Judgement Text

ITA NO . 542/COCH/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO . 542/COCH/2015 (ASST YEAR 2011 - 12 ) PESCAINDE G - 130 1 ST FLOOR PANAMPILLY NAGAR KOCHI 682 036 VS THE INCOME TAX OFFICER WARD 3, RANGE 2 KOC HI ( APPELLANT) (RESPONDENT) PAN NO. AAHFP5016G ASSESSEE BY SH R VIJAYARAGHAVAN REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 19 TH MAY 2016 DATE OF PRONOUNCEMENT 24 TH , MAY 2016 OR D ER PER GEORGE GEORGE. K. J M: THIS APPEAL, AT THE INST ANCE OF THE ASSESSEE IS DIRECTED AGAINST CITS ORDER DATED 2.11.2015 PASSED U/S 263 LF THE I T ACT. THE RELEVANT ASSESSMENT YEAR IS 2011 - 12. 2 THE BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A FIRM , HAVING 100% EXPORT ORIENTED U NDERTAKING ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY ENABLED SERVICES TO ITS FOREIGN CLIENTS. FOR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILED ON 30.9.2011 DECLARING NIL INCOME , AFTER CLAIMING DEDUCTION U/S 10B OF THE ACT AM OUNTING TO RS. 1,81,50,007.98. THE SCRUTINY ASSESSMENT U/S 143(3) WAS ITA NO . 542/COCH/2015 2 COMPLETED VIDE ORDER DATED 27.9.2013 ACCEPTING THE TOTAL INCOME RETURNED AS NIL. 3 SUBSEQUENTLY ON 24.11.2014, THE COMMISSIONER OF INCOME TAX ISSUED NOTICE U/S 263 OF THE ACT PROPOSI NG TO REVISE THE ORDER OF THE AO TO DENY THE EXEMPTION CLAIMED U/S 10B OF THE ACT. IN RESPONSE TO THE NOTICE U/S 263, THE ASSESSEE FILED REPLY STATING THAT IF THE CLAIM IS NOT ALLOWABLE U/S 10B, THEN IT SHOULD BE ALLOWED U/S 10A OF THE ACT AND PLEADED THA T INVOKING PROVISIONS U/S 263 BE DROPPED; SINCE THERE IS NO INCOME, WHICH HAS ESCAPE ASSESSMENT AND HENCE, THE ORDER OF ASSESSMENT CANNOT BE STATED TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER, THE CIT PASSED ORDER U/S 263 OF THE ACT (ORDER DATED 2.11.2011) DIRECTING THE AO TO REEXAMINE THE CLAIM U/S 10B OF THE ACT AND DO THE ASSESSMENT AFRESH. THE CIT FURTHER HELD THAT THE CLAIM OF 10A DEDUCTION HAVING NOT BEEN MADE IN THE RETURN OF INCOME , THE SAME CANNOT BE ENTERTAINED . THE RE LEVANT FINDINGS OF THE CIT READ AS UNDER: 3. I HAVE CONSIDERED THE ARGUMENTS OF THE ASSESSEE IN DETAIL. I DO NOT FIND ANY STRENGTH IN ASSESSEES CONTENTION. AS PER EXPLANATION 2(IV) OF SECTION 10B A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING MEANS AN UNDE RTAKING WHICH HAS BEEN APPROVED AS A HUNDRED PERCENT EXPORT ORIENTED UNDERTAKING BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES ACT 1951 AND RULES MADE UNDER THAT ACT. A H UNDRED EOU UNDER THE SOFTWARE TECHNOLOGY PARK SCHEME CANNOT BE EQUATED WITH 100% PERCENT EOU APPROVED BY THE BOARD. THE ASSESSEE HAS NOT OBTAINED THE STATUTORY APPROVAL BY THE BOARD AS 100% EOU FOR AVAILING DEDUCTION U/S 10B. THE APPROVAL FROM STYPI IS NO T SUFFICIENT FOR CLAIMING DEDUCTION AS PER EXPLANATION 2(IV) OF SECTION 10B. IN FACT THE INSTRUCTION DATED 9.1.2009 EXPRESSLY STATES THAT SUCH APPROVALS REQUIRES RATIFICATION BY BOARD . SUCH APPROVAL IS LACKING IN THE PRESENT CASE. HENCE, THE ASSESSEE IS NO T ELIGIBLE FOR DEDUCTION U/S 10B. THE CONDITIONS PRESCRIBED FOR DEDUCTION U/10A AND 10B ARE DIFFERENT. FURTHER, THE ASSESSEE DOES NOT FULFILL ALL THE CONDITIONS REQUIRED U/S 10A ITA NO . 542/COCH/2015 3 OR THE I T ACT. THE CLAIM FOR DEDUCTION U/S 10A SHOULD HAVE BEEN MADE DURING T HE TIME OF FILING OF RETURN OF INCOME AND CANNOT BE ENTERTAINED DURING THE COURSE OF REVISION/S 263 . THE CLAIM OF ASSESSEE TOWARDS DEDUCTION U/S 10AALSO IS REJECTED . THE ORDER PASSED BY THE AO IS THEREFORE, SET ASIDE. THE AO IS DIRECTED TO EXAMINE THE CLA IM OF THE ASSESSEE TOWARDS DEDUCTION U/S 10B OF THE I T ACT AND TO DO THE ASSESSMENT AFRESH AFTER AVAILING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 3 AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX, THE ASSESSEE IS IN APPEAL BEFORE US , RAISI NG THE FOLLOWING GROUNDS: 1 THE ORD E R OF THE COMMISSIONER OF INCOME TA X, KOCHI - 2 IS CONTRARY TO LAW , FACTS A ND IN THE CIRCUMSTANCES OF THE CASE . 2 THE COMMIS S IONER OF INCOME TAX ERRED IN ASSUMING JURISDICTION UNDER SECTION 263 . 2.1 THE COMMISSIONER OF INCOM E TAX O UGHT TO HAVE APPRECIATED THAT THE APPELL A NT H AS BE E N C LAIMIN G DEDUCTION U / S 10B O N A B ONAF ID E B E LIE F TH A T S E CTION 10B IS A L S O A PPLIC A BL E FO R 100 % E O U UNITS EXPORT I N G S O F T WA RE F ROM S T PL . 2.2 T H E COMMISSIONER OF INCOM E TA X E RRED IN R E J E CTIN G TH E C LAIM FOR D E DUCTION U / S. 10A . 2.3 TH E COMMISSIONER OF INCOM E T AX OU G HT T O HAVE A PPRECIATED THAT A LL TH E INFORMATION R E QUIRED F OR C LAIMING D E DUCTI O N U / S 10A H A D BE E N FILED IN TH E ROI , EV E N THOU G H TH E SE CTION MA Y HAVE BEEN WRON G LY M E NTION E D . 2.4 TH E COMMI SSIONER OF INCOM E TAX E RRED IN DIR E CTING THE AO TO CONSID E R TH E D E DUCTION U / S 10B . HE OUGHT TO HAVE APPR E CIATED THAT AS THE ASSESSEE HAD CLAIMED DEDUCTION U / S . 10A HE SHOULD HAVE CONSIDERED THE ALTERNATE C LAIM DIRECTION . 2.5 THE COMMISSIONER OF INCOM E T A X FAIL E D TO APPRECIATE THAT THE WORDIN GS OF SECTION 10B I S IN PARI MATERIA WITH S EC. 10A . H E NC E IT I S ONL Y A WRON G MENTIONIN G OF SE CTI O N W HICH W OULD NOT DI S ENTITL E TH E A PP E LL A NT F R O M CL A IMIN G TH E D E DUCTION IN R E SP EC T O F 100 % EOU S ITU A T E D IN STPI . 2.6 T HE CO MMISSIONER OF INCOME TA X O U G HT T O HA VE A PPRECIATED THE JUDGMENT G I VE N B Y TH E MADRAS HIGH COURT IN CIT V S HEARTLAND K G INFORMATION 359 ITR 1 WH E R E IN IT HELD TH A T I F TH E C LAIM COULD B E F AVO R A BL Y CO N S IDER E D UND E R A NY OF THOSE S PECI A L D E DUCTION PRO V I S ION S AND ON THE CONDITION S SP E CIFI E D TH E REIN BEING SATISFIED , THE AS S ESSEE CANNOT B E DI S ENTITL E D F ROM C LAIMIN G TH E B E N E FIT ON THE G ROUND THAT HE HAD NOT REFERR E D TO TH E SE CTION CORRECTLY. 2.7 T HE COMMI S SIONER OF INCOM E T AX O U G HT T O H A V E APPRECIATED THAT TH E CONDIT ION S AND QUANTUM O F D E DUCTION U / S 10A AND 10B BEIN G ID E NTICAL RELIEF GRANTED U / S . 1 OB IN S T EA D OF SEC.10A IS NOT PREJUDICI A L TO TH E INT E R E ST OF TH E R EVE NU E. ITA NO . 542/COCH/2015 4 3.1 THE LD COUNSEL FOR THE ASSESSEE REITERATED HIS SUBMISSIONS MADE BEFORE THE INCOME TAX AUTH ORITIES AND PACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENT FOR THE PROPOSI TI ON THAT IF THE CLAIM OF 10B DEDUCTION IS DENIED, THEY AUTHORITY CONCERNED OUGHT TO HAVE EXAMINED THE CLAIM OF DEDUCTION U/S 10A OF THE ACT: I) CIT VS HEARTLAND K G INFORM ATION LTD 359 ITR 0001 (MAD) II)CIT VS VALLANT COMMUNICATIONS LTD ITA 2002 OF 2010 (ORDER DT 4.1.2013(DEL)) III)DCIT VS DATA SOFTWARE RESEARCH CO P LTYD (2015 TIOL - 1229 (MAD) IV) ITO VS ARACKAL DIGITAL SOLUTIONS LTD (ITA NO. 09/COCH/2016 3.2 THE L D DR PRESENT WAS DULY HEARD. 4 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE COCHIN BENCH OF THE TRIBUNAL ON IDENTICAL FACTS IN THE CASE OF ACIT VS FIRMUSOFT SOLUTIONS P LTD IN ITA NO. 244/COCH/2015 (ORDER DATED 22.1.2016) AND IN THE CASE OF M/S Q BURST TECHNOLOGIES P LTD IN ITA NOS. 172 & 173/COCH/2015 (ORDER DATED 17 TH NOV 2015) HAD HELD THAT WHEN THE CLAIM OF DEDUCTION U/S 10B HAS BEEN DENIED BY THE AO, THE CIT IS JUSTIFIED IN CONSIDERING THE ALTERNATIVE CLAIM OF THE ASSESSEE U/S 10A OF THE ACT. THE RELEVANT FINDINGS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF FIRMSOFT SOLUTIONS P LTD (SUPRA) READ AS UNDER: 6 WE HAVE HEARD THE LD DR AND PERUSED THE MATERIAL ON RECORD. IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 10B OF THE ACT. THE CLAIM OF DEDUCTION U/S 10B OF THE ACT WAS WITHDRAWN IN THE REASSESSMENT ORDER DATED 9.3.2013 BY FOLLOWING THE DICTUM LAID DOWN BY ITA NO . 542/COCH/2015 5 THE HONBLE DELHI HIGH COURT IN THE CASE OF REGENCY CREATIONS LTD (SUPRA). THE FIRST APPELLATE AUTHORITY HAS CONFIRMED THE ACTION OF THE AO IN MAKING THE DISALLOWANCE OF DEDUCTION U/S 10B OF THE ACT BASED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT, CITED SUPRA. HOWEVER, THE FIRST APPELLATE AUTHORITY HAS ALLOWED THE ALTERNATIVE CLAIM FOR DEDUCTION U/S 10A OF THE ACT BASED ON THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CWP TAYLOR IN ITA NO. 695/COCH/2008(ORDER DATED 28.7.2009). THE CIT(A) HAS ALSO VERIFIED THE FACTS RELATING TO THE COMPLIANCE OF ALL THE CONDI TIONS PRESCRIBED UNDER SECTION 10A OF THE ACT ( IN PARA 3.6.8 OF THE IMPUGNED ORDER). BASED ON THE VERIFICATION OF FACTS, THE CIT(A) DIRECTED THE AO TO ALLOW DEDUCTION U/S 10A OF THE ACT. THE FOLLOWING JUDGMENT OF THE HONBLE DELHI HIGH COURT AND ORDERS O F THE ITAT HAVE HELD THAT WHEN DEDUCTION U/S 10B IS DENIED, IT IS THE DUTY OF THE REVENUE TO EXAMINE WHETHER THE ALTERNATIVE CLAIM OF DEDUCTION U/S 10A CAN BE GRANTED ON FACTS AND CIRCUMSTANCES OF THE CASE: I) FAST BOOKING (I) PVT LTD VS DCIT IN ITA 334 /2015 ( JUDGMENT DATED 2.9.2015)(DELHI HIGH COURT JUDGMENT ) II ) M/S DEVICE DRIVEN (INDIA) P LTD (ITA NO. 282/COCH/2013 (ORDER DT 29.11.2013) III ) CRONOS CONSULTING INDIA P LTD VS ACIT (ITA NO. 105/COCH/2014 (ORDER DT 6.6.2014) 7 FURTHER, WE NOTICE THAT THE AO, IN THE REMAND REPORT HAS NOT STATED THAT THE ASSESSEE HAS NOT SATISFIED THE CONDITIONS PRECEDENT TO CLAIM DEDUCTION U/S 10A OF THE ACT. THE AO HAD ONLY RAISED A TECHNICAL OBJECTION NAMELY, THE ASSESSEE IS NOT ENTITLED DEDUCTION U/S 10A OF THE ACT , SI NCE, THE CLAIM WAS NOT MADE IN THE RETURN OF INCOME FILED. HOWEVER, WE NOTICE THAT THE CLAIM OF DEDUCTION U/S 10B OF THE ACT WAS MADE IN THE RETURN OF INCOME AND THE REVENUE WAS GRANTING THE DEDUCTION U/S 10B OF THE ACT IN THE PREVIOUS ASSESSMENT YEARS. ONLY WHEN THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF REGENCY CREATIONS LTD, CITED SUPRA, WAS PRONOUNCED, THE CLAIM OF DEDUCTION U/S 10B WAS DENIED IN THE ASSESSMENT CONCLUDED. WHEN THE CLAIM OF DEDUCTION U/S 10B WAS DENIED, THE AO OUGHT TO HAVE EXAMINED WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. THE CBDT CIRCULAR NO.14 (XL - 35) DATED 11.4.1955 HAS CLARIFIED THAT THE REVENUE SHALL NOT TAKE ADVANTAGE OF IGNORANCE OF THE ASSESSEE AS TO HIS RIGHTS AND THE OFFICERS ARE DU TY BOUND TO GRANT DEDUCTION LEGALLY AVAILABLE TO THE ASSESSEE. THE CIT(A) ALSO RELIED THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS TECHNOVATE E SOLUTION P LTD REPORTED IN 354 ITR 110 WHEREIN IT WAS HELD THAT REGISTRATION WITH SOFTWA RE TECHNOLOGY PARKS OF INDIA IS SUFFICIENT TO ALLOW DEDUCTION U/S 10A OF THE ACT .THE COPIES OF THE CERTIFICATE OF REGISTRATION ISSUED BY STPI AND THE CERTIFICATE OF THE ITA NO . 542/COCH/2015 6 CHARTERED ACCOUNTANT IN FORM 56F WERE EXAMINED BY THE CIT(A) AND NO DEFECT WAS POINTE D OUT BEFORE US. THEREFORE, WE ARE OF THE VIEW THAT THE CIT(A) IS JUSTIFIED IN ALLOWING THE ALTERNATIVE CLAIM OF DEDUCTION U/S 10A OF THE ACT. IT IS ORDERED ACCORDINGLY. 4.1 THE CLAIM OF DEDUCTION U/S 10A AND 10B IS MORE OR LESS PARA - MATERIA EXCEPT TH AT REGISTRATION U/S 10B & 10A ARE WITH DIFFERENT AUTHORITIES AND ALSO CLAIM IS TO BE MADE IN FORM 56G AND 56F RESPECTIVELY. THE BASIS FOR INVOKING THE REVISIONARY JURISDICTION BY THE CIT U/S 263 IS THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF REGENCY CREATIONS LTD REPORTED IN 255 CTR 63 , WHEREIN IT WAS HELD THAT THE ASSESSEE , HAVING NOT GOT THE NECESSARY APPROVAL FROM THE APPROPRIATE AUTHORITY, UNDER THE STATUTE, WAS NOT ENTITLED TO CLAIM DEDUCTION U/S 10B OF THE A CT. HOWEVER , THE ABOVE SAID JUDGMENT OF THE HONBLE DELHI HIGH COURT WAS MODIFIED IN THE REVIEW PETITION IN THE CASE OF CIT VS VALLANT COMMISSIONS LTD IN ITA 2002 OF 2010(ORDER DATED 4.1.2013), WHEREIN THE MATTER WAS REMANDED TO THE TRIBUNAL TO CONSIDER THE ASSESSEES ALTERN ATIVE CLAIM U/S 10A OF THE ACT. 4.2 IN THE INSTANT CASE, THE CIT DIRECTED THE AO TO RE - DO THE ASSESSMENT. THE CIT , IN HIS ORDER U/S 263 SPECIFICALLY STATED THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM 10A OF THE ACT , SINCE IT HAD NOT CLAIMED 10A DEDUCTION IN THE RETURN OF INCOME. THIS OBSERVATION OF THE CIT IS UNWARRANTED IN VIEW OF THE JUDICIAL PRONOUNCEMENT CITED BY THE ASSESSEE. THE JUDICIAL PRONOUNCEMENT, CITED SUPRA, HAS CLEARLY HELD THAT ALTERNATIVE CLAIM U/S 10A CAN BE ENTERTAINED EVEN ITA NO . 542/COCH/2015 7 BEFORE APPELLA TE FORUM. THE ASSESSEE , DURING THE COURSE OF REVISIONARY PROCEEDING , CONTENDED THAT EVEN IF IT IS NOT ENTITLED TO DEDUCTION U/S 10B, THEN ALTERNATIVE CLAIM U/S 10A OF THE ACT MAY BE CONSIDERED. THE ASSESSEE ALSO FURNISHED FORM 56F BEFORE THE CIT FOR CLAIMI NG DEDUCTION U/S 10A (A COPY OF THE SAME IS PLACED ON RECORD AT PAGE 17 OF THE PAPER BOOK FILED BY THE ASSESSEE) OF THE ACT. THE CIT OUGHT TO HAVE DIRECTED THE AO TO CONSIDER THE ASESSEES CLAIM U/S 10A ALSO. THEREFORE, WE DIRECT THE AO TO COMPLETE THE ASS ESSMENT, DE - HORS THE OBSERVATION OF THE CIT THAT THE ASSESSEE IS NOT ENTITLE TO DEDUCTION U/S 10A OF THE ACT FOR THE REASON THAT NO CLAIM OF DEDUCTION U/S 10A WAS MADE IN THE RETURN OF INCOME. THE AO SHALL CONSIDER THE CLAIM OF DEDUCTION U/S 10A OF THE ACT A ND IF THE ASSESSEE HAD SATISFIED THE CONDITIONS MENTIONED U/S 10A FOR CLAIMING DEDUCTION U/ 10A OF THE ACT, THE SAME SHALL GRANTED TO IT. IT IS ORDERED ACCORDINGLY. 5 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PU RPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH , DAY OF MA Y 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 24 TH , M AY 2016 RAJ* ITA NO . 542/COCH/2015 8 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN