Vasavi Prosoft Transcription Ltd., Hyd, Hyderabad V. ITO, Ward-3(2),Hyd, Hyderabad

ITA 988/HYD/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2377 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 05-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Keywords: Depreciation; Opportunity of being heard; Additional evidence; Competent authority
• Section: 142(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1726/HYD/2014, 987 & 988/H/16 ASSESSMENT YEAR: 2009-10, 2010-11 & 2011-12 VASAVI PROSOFT TRANSCRIPTION LTD., HYDERABAD. PAN AABCV 4564 E VS. INCOME-TAX OFFICER, WARD 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMRIT KUMAR KOTA REVENUE BY : SMT. N. SWAPNA DATE OF HEARING : 08-06-2017 DATE OF PRONOUNCEMENT : 21-06-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: THESE APPEALS FILED BY ASSESSEE ARE DIRECTED AGAI NST THE ORDERS OF CIT(A)-IV, HYDERABAD, ALL DATED, 05/09/20 14. AS IDENTICAL ISSUE IS INVOLVED IN THESE APPEALS, THE SAME WERE C LUBBED AND HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED F OR THE SAKE OF CONVENIENCE. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM AY 2009-10. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE COMPANY IS ENGAGED IN THE BUSINESS OF MEDICAL TRANSCRIPTION SE RVICES. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE AY 2009-10 ON 23/09/2009 DECLARING INCOME AT RS. 1,855/- AFTER CL AIMING EXEMPTION U/S 10B OF THE ACT AMOUNTING TO RS. 29,83,701/-. TH E RETURN OF INCOME 2 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. WAS PROCESSED U/S 143(1) OF THE ACT ON 09/12/2010. THE CASE WAS TAKEN UP FOR SCRUTINY FOR WHICH NOTICES U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT THE ASSESSEE COMPANY IS A 100% EOU REGISTERED WITH STPI, HYDERABAD AND THAT THE ASSESSEE COMPANY WAS INTO TH E BUSINESS OF MEDICAL TRANSCRIPTION. AS PER THE INFORMATION ON RE CORD, THE ASSESSEE COMPANY IS CONTRACTED WITH M/S PROSOFT SYSTEMS INC. , USA TO PROVIDE STANDARD SUPPORT FOR GEHC DATABASES. AS SEEN FROM T HE INFORMATION ON RECORD, THE ASSESSEE COMPANY HAD A NET PROFIT OF RS. 29,83,701/- FROM THESE OPERATIONS AS PER THE PROFIT & LOSS A/C. AFTER CLAIMING THE DEPRECIATION OF RS. 13,04,181/- ON THE FIXED ASSETS , THE GROSS TOTAL INCOME OF THE ASSESSEE WAS RS. 29,85,631/-. THE ASS ESSEE CLAIMED A DEDUCTION OF RS. 29,83,701/- U/S 10B OF THE ACT ON THE SAID GROSS TOTAL INCOME AND OFFERED TO TAX A TOTAL INCOME OF RS. 1,8 60/-. 3.2 IN SUPPORT OF ITS CLAIM VIS-A-VIS IT BEING APP ROVED AS A 100% EOU UNDER THE STP SCHEME FOR THE DEVELOPMENT OF COM PUTER SOFTWARE AT ITS PREMISES AT 6-3-712/135, BADETI'S M ANSION, PANJAGUTTA COLONY, HYDERABAD, THE AUTHORIZED REPRESENTATIVE FI LED BEFORE AO, A COPY OF THE LETTER ISSUED BY THE DIRECTOR, SOFTWARE TECHNOLOGY PARKS OF INDIA (STPI), HYDERABAD DATED 14.11.2007. THE IT EMS OF PRODUCTION WERE 'MEDICAL TRANSCRIPTION'. THIS BEING THE CASE, THE ASSESSEE COMPANY CLAIMED AN AMOUNT OF RS. 29,83,701/- DERIVE D FROM THIS UNIT AS DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961. 3.3. AS PER THE INFORMATION FILED BY THE ASSESSEE B EFORE AO, THE ASSESSEE HAD RAISED 88 INVOICES FOR A TOTAL AMOUNT OF US $ 7,88,800.49/- TRANSLATING TO RS. 3,42,93,574/-. THE INDIAN OVERSEAS BANK ACCOUNT EXTRACT WAS SUBMITTED IN SUPPORT OF TH E CLAIM. 3 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. 3.4. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS AND VIDE NOTICE U/S 142(1) OF THE INCOME TAX ACT, 1961, DATE D 14-07-2011 AND 19-10-2011, THE ASSESSEE COMPANY WAS ASKED TO SUBS TANTIATE ITS CLAIM IN RESPECT OF THE DEDUCTION U/S 10B OF THE IN COME TAX ACT, 1961, WITH NECESSARY DOCUMENTARY EVIDENCES IN RESPECT OF ITS ELIGIBILITY FOR THE DEDUCTION. THE ASSESSEE WAS ASKED THE DETAILS O F THE FOREIGN REMITTANCES ALONG WITH THE COPY OF THE APPROVAL OF THE BOARD APPOINTED BY CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND RE GULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT AC T., IN ACCORDANCE WITH THE PROVISIONS OF CLAUSE IV TO EXPLANATION 2 T O SECTION 10B. 3.5. THE AO ASKED THE ASSESSEE COMPANY TO SUBMIT T HE RATIFICATION BY INTER MINISTERIAL STANDING COMMITTEE (BOARD) APP OINTED BY THE MINISTRY OF INDUSTRY, DEPARTMENT OF INDUSTRIAL DEVE LOPMENT AS ENVISAGED IN CLAUSE-IV TO EXPLANATION 2 TO SECTION 10B FOR ALLOWING THE CLAIM U/S 10B OF THE INCOME TAX ACT, 1961. THE ASSESSEE COMPANY VIDE ITS REPLY DATED 24/10/2011, SUBMITTED A COPY OF THE STPI REGISTRATION APPROVAL, COPIES OF SOFTEX FORMS ALONG WITH INVOICES AND COPIES OF FIRCS. THE AO NOTED THAT HOW EVER THE ASSESSEE COMPANY DID NOT FILE THE NECESSARY APPROVA L OF THE BOARD OR RATIFICATION OF THE DECISION OF THE DEVELOPMENT COM MISSIONER AS REQUIRED AS PER EXPLANATION 2(IV) TO SECTION 10B OF THE INCOME TAX ACT, 1961. THE AO OBSERVED THAT THOUGH SEVERAL OPPO RTUNITIES WERE AFFORDED TO THE ASSESSEE COMPANY TO FILE THE DOCUME NTARY EVIDENCE VIS-A-VIS EXPLANATION 2(IV) TO SECTION 10B OF THE A CT, THE ASSESSEE COMPANY FAILED TO FURNISH NECESSARY APPROVAL FROM T HE BOARD APPOINTED BY CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CONFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND RE GULATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT AC T. IT HAS THEREFORE FAILED TO FULFILL THE CONDITIONS LAID DOWN U/S 10B OF THE INCOME TAX ACT, 1961, AND JUSTIFY ITS ELIGIBILITY IN RESPECT OF THE CLAIM FOR THE SAID DEDUCTION. 4 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. 3.6. THE ASSESSEE COMPANY VIDE ITS LETTER DATED 10- 08-2012 FILED A COPY OF THE CLARIFICATION DATED 22.11.2011 ISSUED BY THE DEPUTY DIRECTOR, S.T.P.I, HYDERABAD, TO SUBSTANTIATE ITS C LAIM THAT IT IS ELIGIBLE FOR THE DEDUCTION U/S 10B OF THE INCOME TAX ACT, 19 61, AND THAT THE SAID CLAIM WAS ALLOWED IN THE EARLIER YEARS ALSO. T HE ASSESSEE COMPANY ALSO QUOTED INSTRUCTION NO.1/2006 DATED 31- 03-2006, WHICH PERTAINS TO CLAIM U/S 10A AND NOT 10B OF THE INCOME TAX ACT, 1961. IN CONCLUSION, THE AUTHORIZED REPRESENTATIVE STATED TH AT THE STPI IS DULY AUTHORIZED ON BEHALF OF INTER MINISTERIAL STANDING COMMITTEE TO GRANT REGISTRATION OF THE UNITS UNDER THE SCHEME OF STPI AND THAT THE BENEFIT U/S 10B SHOULD NOT BE DENIED TO THE ASSESSEE ONLY O N THE GROUND THAT REGISTRATION HAS BEEN GRANTED BY THE DIRECTORS OF S TPI. THE AUTHORIZED REPRESENTATIVE ENCLOSED A COPY OF THE CL ARIFICATION ISSUED BY THE DEPUTY DIRECTOR, S.T.P.I. 3.7. THE AO OBSERVED THAT AS SEEN FROM THE LETTER I SSUED BY THE DEPUTY DIRECTOR, STPI, HYDERABAD THAT EVEN THIS LE TTER MENTIONS ABOUT THE POWERS OF S.T.P.I. TO GRANT APPROVAL FOR SETTING UP OF S.T.P. UNITS UNDER THE S.T.P. SCHEME AND THAT THE S.T.P. S CHEME POLICY TERMS AND CONDITIONS ARE APPLICABLE TO THE S.T.P. U NITS REGISTERED UNDER THE S.T.P. SCHEME. IT IS NEVER IN DOUBT THAT THE S.T.P.I. HAS THE POWERS TO RECOGNIZE/APPROVE UNITS AS 100% EOU UNDER THE PROVISIONS OF STP SCHEME. HOWEVER, AS REQUIRED UNDER THE PROVI SIONS OF EXPLANATION 2(IV) TO SEC. 10B OF THE INCOME TAX ACT , 1961, THE SAID DECISION HAS TO BE APPROVED BY THE BOARD APPOINTED IN THIS BEHALF BY THE CENTRAL GOVERNMENT IN EXERCISE OF THE POWERS CO NFERRED BY SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGUL ATION) ACT, 1951 (65 OF 1951), AND THE RULES MADE UNDER THAT ACT, TO TREAT AN UNDERTAKING AS A HUNDRED PER CENT EXPORT-ORIENTED U NDERTAKING FOR ALLOWING THE DEDUCTION U/S 10B OF THE INCOME TAX AC T, 1961. 5 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. 3.8. THE AO OBSERVED THAT ACCEPTING FOR A MOMENT W ITHOUT CONCEDING TO THE CONTENTION OF THE ASSESSEE COMPANY THAT SINCE IT HAS BEEN APPROVED BY THE S.T.P.I. AS 100% EOU UNDER THE STP SCHEME AND THAT THE DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961, HAS TO BE ALLOWED, THE EXPLANATION GIVEN IN THE ACT BECOMES REDUNDANT AND WILL BE LEFT WITH NO RELEVANCE. THE L EGISLATIVE INTENTION BEHIND THE EXPLANATION IS TO MAKE THE ISSUE MORE CL EAR AND LEAVE NO AMBIGUITY IN INTERPRETING THE SECTION. ALLOWING THE DEDUCTION WITHOUT COMPLYING TO THE PROVISIONS OF SEC. 10B IN TOTO, WO ULD RENDER THE EXPLANATION REDUNDANT AND ALLOWING THE DEDUCTION IN CORRECT AS PER LAW. 3.9. IN VIEW OF THE ABOVE OBSERVATIONS, THE AO HELD THAT THE SUBMISSIONS MADE BY THE ASSESSEE COMPANY VIDE LETTE R DATED ABOVE, DO NOT FULFIL THE CONDITIONS LAID DOWN BY THE INCOM E TAX ACT AS PER EXPLANATION 2(IV) TO SECTION 10B OF THE INCOME TAX ACT, 1961, FOR ALLOWING THE CLAIM AS SUCH. THEREFORE, IT IS CLEAR THAT THE ASSESSEE HAS FAILED TO ESTABLISH FULFILLING THE LEGAL OBLIGA TIONS VIS-A-VIS ITS ELIGIBILITY FOR DEDUCTION U/S 10B OF THE INCOME TAX ACT, 1961, WITH NECESSARY DOCUMENTATION AS REQUIRED IN ACCORDANCE W ITH THE PROVISIONS OF THE INCOME TAX ACT, 1961 AND, HENCE, THE DEDUCTION CLAIMED U/S 10B OF THE INCOME TAX ACT, 1961, IS DIS ALLOWED, WHICH IS RS. 47,87,048/-. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE P REFERRED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) FOLLOWING T HE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VAL IANT COMMUNICATIONS LTD. 353 ITR 326 CONFIRMED THE DISAL LOWANCE MADE BY THE AO. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 6 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. THE LD. CIT(A) ERRED IN DISALLOWING EXEMPTION U/S 1 0B OF ACT BY RELYING ON THE JUDGMENT OF DELHI HIGH COURT IN THE CASE OF VALIANT COMMUNICATION LTD. 5.1 THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONA L GROUND: IT IS UNJUSTIFIABLY ERRED IN DISALLOWING THE DEDUCT ION U/S 10B OF THE IT ACT, 1961 FOR NO FAULT OF THE ASSESSEE. SINC E THE COMPANY IS IN THE BUSINESS OF SOFTWARE AND IS A 100 % EOU, THE ASSESSEE COMPANY CAN CLAIM DEDUCTION U/S 10A OF THE ACT, 1961 ALSO. HENCE, ALTERNATIVELY THE DEDUCTION U/S 1 0A BE GIVEN. 6. BEFORE US THE LD. AR OF THE ASSSSEE SUBMITTED TH AT THE ASSESSEE COMPANY IS IN THE BUSINESS OF SOFTWARE AND 100% EOU AND THE ASSESSEE COMPANY HAS FULFILLED ALL THE REQU IREMENTS AND CONDITIONS AS STIPULATED BY THE DIRECTOR OF SOFTWAR E TECHNOLOGY PARKS OF INDIA. HE SUBMITTED THAT THE COMPANY IS ELIGIBLE TO CLAIM DEDUCTION U/S 10B AND ALSO ALTERNATIVELY U/S 10A OF THE INCOM E TAX ACT. 1961. HE SUBMITTED THAT THE APPROVAL BY SOFTWARE TECHNOLO GY PARKS OF INDIA COMES UNDER THE MINISTRY OF COMMUNICATION & INFORMA TION TECHNOLOGY WHICH IS A COMPETENT AUTHORITY TO GRANT APPROVAL TO SUCH UNITS FOR CLAIMING BENEFITS U/S 10A & 10B AS 100% EOU. HE SUB MITTED THAT THE DISALLOWANCE OF DEDUCTION U/S 10B IS UNJUSTIFIED FO R NO FAULT OF THE ASSESSEE. HE SUBMITTED THAT SINCE THE ASSESSEE HAS FULFILLED THE REQUIREMENT FOR DEDUCTION, DEDUCTION 10A MAY BE ALL OWED ALTERNATIVELY AS PER THE PRONOUNCEMENTS GIVEN BY TH E VARIOUS TRIBUNALS INCLUDING HYDERABAD INCOME TAX APPELLATE TRIBUNAL. THE ASSESSEE HAS FILED ADDITIONAL EVIDENCE BEFORE US CL AIMING DEDUCTION U/S 10A. ASSESSEE HAS FILED FORM 56F DULY CERTIFIED BY A CHARTERED ACCOUNTANT. 7. LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS O F REVENUE AUTHORITIES. 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD AS WELL AS THE ORDERS OF REVENUE AUTHORIT IES. THE ASSESSEE HAS CLAIMED DEDUCTION U/S 10B BUT FAILED TO FOLLOW THE PROCEDURE AS 7 ITA NO. 1726/H/14 AND 987 & 988/H/16 VASAVI PROSOFT TRANSCRIPTION LTD. LAID DOWN IN THE SECTION 10B, PARTICULARLY, EXPLANA TION 2(IV) TO SECTION 10B. HOWEVER, ALTERNATIVELY ASSESSEE CAN CLAIM DEDU CTION U/S 10A BY FILING PROPER FORM AS PER THE PROVISIONS AS LAID DO WN BY THE VARIOUS JUDICIAL PRECEDENTS IN THIS MATTER. BEFORE US, ASSE SSEE HAS FILED ADDITIONAL EVIDENCE BY FILING FORM 56F DULY CERTIFI ED. WE ARE INCLINED TO REMIT THIS MATTER BACK TO THE FILE OF THE AO TO VERIFY THE CLAIM OF THE ASSESSEE AND, IF, FOUND PROPER AND RECORDS ARE IN O RDER, THE DEDUCTION U/S 10A CAN BE GRANTED. THE ASSESSEE MAY BE GIVEN P ROPER OPPORTUNITY OF BEING HEARD. 9. AS THE GROUNDS AND FACTS ARE MATERIALLY IDENTICA L IN ITA NOS. 987 & 988/HYD/2016 FOR AY 2010-11 & 2011-12 TO THAT OF ITA NO. 1726/HYD/2014, FOLLOWING THE CONCLUSIONS DRAWN THER EIN, WE REMIT THE GROUNDS RAISED IN THESE APPEALS TO THE FILE OF THE AO WITH IDENTICAL DIRECTIONS. 10. IN THE RESULT, ALL THE APPEALS UNDER CONSIDERAT ION ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RA HMAN) JUDICIAL MEMBER AC COUNTANT MEMBER HYDERABAD, DATED: 21 ST JUNE, 2017. KV COPY TO:- 1) VASAVI PROSOFT TRANSCRIPTION LTD., HOUSE NO. 6-3 -712/135, BADETIS MANSION, PUNJAGUTTA COLONY, HYDERABAD 500 082. 2) ITO, WARD 3(2), AAYAKAR BHAVAN, HYDERABAD. 3) CIT(A) - IV, HYDERABAD 4) CIT - III, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE