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2014 (4) TMI 1147 - HC - Income TaxAddition u/s.10B - whether the nature of services rendered by the assessee can be said to be data processing and content development falling within the Notification issued u/s. 10A - Held that - The term data processing would be wide enough to cover the services rendered by the assessee. The CIT(Appeals) has only approved the findings of the AO and has not given his independent view on the issue. We therefore hold that the Assessee was engaged in the business manufacture of computer software as envisaged in Sec.10A/10B of the Act. Admittedly the Assessee did not have the required approval as envisaged u/s.10B of the Act. The Assessee however claims it has the required approval for allowing deduction u/s.10A of the Act. With regard to the question as to whether the assessee can be allowed to shift the claim for deduction from section 10B to section 10A of the Act, we have already seen that in the past the assessee had been claiming deduction u/s. 10A of the Act. Thus the claim of the assessee should be directed to be examined in the light of the provisions of section 10A of the Act and for this purpose the report of the auditor in Form 56F of the Act filed before the CIT(A) is admitted as additional evidence. We are of the view that, in the interest of justice, the issue should be directed to be examined by the Assessing Officer afresh u/s. 10A of the Act in the light of the observations made by us in the earlier part of this order. Accordingly, we set aside the order of the CIT(Appeals) and remand the issue to the Assessing Officer for fresh consideration claim of the Assessee for deduction u/s.10A of the Act. The Assessing Officer will decide the issue afresh after affording the assessee opportunity of being heard.
Issues Involved:
1. Eligibility for deduction under Section 10B of the Income Tax Act. 2. Nature of services rendered by the assessee. 3. Alternative claim for deduction under Section 10A of the Income Tax Act. 4. Approval requirements for 100% Export Oriented Unit (EOU). Detailed Analysis: 1. Eligibility for Deduction under Section 10B: The assessee, a company engaged in the distribution of journals, CD ROMs, databases, and electronic data, claimed a deduction under Section 10B for the assessment year 2009-10. The assessee had set up a Software Technology Park (STP) unit approved by the STPI authorities. The Assessing Officer (AO) examined the nature of services rendered by the assessee and concluded that the services provided were technical in nature and not eligible for exemption under Section 10B. The AO held that the assessee was not in the business of software development or IT-enabled services but was providing technical services to clients. 2. Nature of Services Rendered: The AO analyzed various services provided by the assessee: - Abstracting and Indexing Services: The AO concluded that these services were not in the nature of software development or IT-enabled services but were technical services. - Directory Compilation and Updating Services: The AO held that these services were client-specific technical services. - Data Conversion Services: The AO considered these services as technical services and not eligible for exemption. - Metadata Compilation and Updating Services: The AO viewed these services as technical services similar to data about data. The AO's conclusion was that the assessee was providing technical services and not involved in the manufacture or production of articles or things or computer software, thereby rejecting the claim for deduction under Section 10B. 3. Alternative Claim for Deduction under Section 10A: The assessee raised an alternative claim for deduction under Section 10A before the CIT(A), submitting the required auditor's report in Form 56F. However, the CIT(A) rejected this claim on the grounds that the report was not filed along with the return of income or before the completion of the assessment. The CIT(A) also held that it was not possible to shift the claim from Section 10B to Section 10A as the conditions for both sections are different. 4. Approval Requirements for 100% EOU: The CIT(A) confirmed the AO's findings and added that for a claim under Section 10B, the EOU should be approved by a competent authority. The CIT(A) referred to the requirement that a 100% EOU must be approved by the Board appointed by the Central Government under Section 14 of the IDAR Act, 1951. The CIT(A) cited the decisions of the ITAT Hyderabad and the Delhi High Court to support this view. Tribunal's Decision: The Tribunal considered the rival submissions and noted that the assessee had been claiming and was allowed deductions under Section 10A in the past. The Tribunal observed that the AO had not properly examined whether the services rendered by the assessee fell within the scope of data processing and content development as per the CBDT Notification No. S.O. 890(E) dated 26.9.2000. The Tribunal held that the services such as abstracting and indexing, directory compilation, data conversion, and metadata compilation could be considered as data processing or content development. The Tribunal also referred to the ITAT Bangalore decision in the case of ANSR Source India Pvt. Ltd., which allowed the assessee to shift the claim from Section 10B to Section 10A. The Tribunal directed the AO to examine the claim for deduction under Section 10A afresh, admitting the auditor's report in Form 56F as additional evidence. Conclusion: The Tribunal set aside the order of the CIT(A) and remanded the issue to the AO for fresh consideration of the assessee's claim for deduction under Section 10A of the Income Tax Act. The AO was instructed to decide the issue after affording the assessee an opportunity of being heard. The appeal was treated as allowed for statistical purposes.
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