2011 (5) TMI 563 - HC - Income Tax

Exemption u/s 10B - 100% EOU - ITAT allowed the claim - Held that - All the documents which have been sought to be relied upon by the Tribunal were not before the AO. The AO has pointed out and rightly so the defects in the profits and loss account and the balance sheet and no clarification was furnished by the assessee. The way the Tribunal proceeded to rely upon the documents presented before it by the assessee without even caring for seeking their verification either at his level or that of AO it apparently appears the Tribunal acted to arrive at such a conclusion without any application of mind. It may be noted that merely because the assessee had been permitted to establish a new industrial undertaking for the manufacture of computer software as 100% EOU under the STP scheme was itself not enough to record a finding that the said unit had in fact been established and was entitled to claim the exemption as applicable under Section 10B - matter is being remitted to the AO for verification - Decided in the favour of the revenue by way of remand. Commission for sales enhancement - increase on comparison to previous year - Held that - CIT(A) recorded that the assessee had given full details of dealers commission in respect of Lucknow and Jungpura region for verification on test-check basis but no verification was done by the AO and AO did not find any dealer commission or any portion thereof to be bogus or excessive. This being a pure question of fact and particularly in view of the fact that the similar expenses had already been allowed deduction in the previous years disallowance is need to be deleted - in favour of assessee.

Summary

Issues:
1. Exemption under Section 10B of the Income Tax Act
2. Claim of commission under Section 37 of the Income Tax Act

Exemption under Section 10B:
The appeal concerned an assessment order under Section 143(3) of the Income Tax Act related to the assessment year 1997-98. The assessee, a company engaged in the business of manufacturing Xerox machines, claimed nil income in its return but showed income under Section 115JA. The Assessing Officer disallowed the exemption under Section 10B but allowed a commission of 3.27% under Section 37. The CIT(A) disallowed the claim under Section 10B but allowed the commission claim. The Tribunal upheld the assessee's entitlement to claim deduction under Section 10B, remanding the matter back to the Assessing Officer for fresh consideration. The Tribunal noted that the AO had not considered the bifurcation of accounts, directing the AO to allow the deduction under Section 10B based on the bifurcated accounts prepared by the assessee.

Claim of Commission under Section 37:
The AO disallowed a portion of the commission paid by the assessee for promoting product sales, adopting a method of reasonable commission at 3% instead of the claimed 3.27%. The CIT(A) found the AO's decision arbitrary and allowed the full commission claim after verifying details for specific regions. The Tribunal, agreeing with the CIT(A), noted that the commission was paid to outside parties not related to the assessee. The Tribunal found no reason to interfere with the findings of the CIT(A) and upheld the decision in favor of the assessee. The matter was remitted back to the AO to re-examine the claim under Section 10B, answering one question in favor of the Revenue and the other in favor of the assessee.

This judgment highlights the detailed examination of the issues related to the exemption under Section 10B and the claim of commission under Section 37, emphasizing the importance of proper documentation and factual verification in tax assessments.