2012 (8) TMI 432 - AT - Income Tax

Validity of revisionary order passed u/s 263 dis-allowing deduction u/s 10A, invoking sub section 9 of Section 10A on ground of change in ownership - I.T. enabled services and BPO - Tribunal in AY 03-04, upheld the order passed u/s 263 on same ground - assessee contending retrospective omission of Section 10A(9) - Held that - Purpose of Section 10A(9) was to curb the trading in incentives by shell companies, and to discourage unscrupulous shopping of EOUs and STPs. In the present case, in the year 2002, there was a change in the holding pattern by way of global re orginasation of the business and nothing has been brought on record that such a re orginazation was non genuine or was solely for the purpose of shopping of STP for claiming the exemption. Also, sub section 9 to section 10A, which has been omitted from the statute w.e.f. 1st April 2004, has to be read to be obliterated from the statute book or at least it will not have any effect from the year in which it was omitted. Thus, even if there was any change in the ownership through acquisition of shares in earlier year 2003 04, exemption u/s 10A, cannot be denied on this ground in the AY 2004 05. Further, in the present AY, no such provision was appearing in the statute and the AO was obliged to follow the law which was in force as on the first day of AY i.e., 1st April 2004; we hold that there was no error of law by the AO while allowing exemption u/s 10A in AY 2004 05 and the impugned order passed u/s 263 setting aside the assessment on the ground that deduction allowed u/s 10A is neither a correct finding nor correct in law. Order of Commissioner set aside - Decided in favor of assessee.

Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Applicability of section 10A(9) for the assessment year 2004-05.
3. Interpretation and effect of the omission of section 10A(9) from the statute.
4. Precedential value of the Tribunal's decision for the assessment year 2003-04.

Issue-wise Detailed Analysis:

1. Jurisdiction under section 263 of the Income Tax Act:
The assessee contested that the Commissioner erred in assuming jurisdiction under section 263, arguing that all details for the claim under section 10A were duly provided in the return of income, supported by the auditor's report in Form 56F. The Assessing Officer (AO) had considered these details and allowed the deduction. The assessee relied on the Supreme Court judgment in Malabar Industrial Co. Ltd. v/s CIT to argue that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

2. Applicability of section 10A(9) for the assessment year 2004-05:
The Commissioner held that due to a change in shareholding in the financial year 2002-03, the deduction allowed under section 10A for the assessment year 2004-05 was incorrect. The assessee argued that section 10A(9) was omitted effective from 1st April 2004 by the Finance Act, 2003, and thus should not apply to the assessment year 2004-05. The assessee cited the Finance Minister's speech and various judicial pronouncements to support that the omitted provision should have retrospective effect.

3. Interpretation and effect of the omission of section 10A(9) from the statute:
The Tribunal examined whether the omission of section 10A(9) should be considered retrospective. The Tribunal referred to the Finance Minister's speech, which indicated that denying exemption upon change in ownership was illogical, and thus the restriction was removed. The Tribunal also referenced the Supreme Court judgments in Rayala Corporation Pvt. Ltd. and Kolhapur Cane Sugar Works Ltd., which clarified that the omission of a provision without a saving clause implies it should be treated as if it never existed. Therefore, the Tribunal concluded that section 10A(9) should be read as having no effect from the year it was omitted.

4. Precedential value of the Tribunal's decision for the assessment year 2003-04:
The Tribunal noted that in the assessment year 2003-04, the Tribunal had upheld the Commissioner's order under section 263 on similar grounds. However, the Tribunal distinguished the present case because section 10A(9) was omitted from the statute for the assessment year 2004-05. Furthermore, the Tribunal considered the Bombay High Court's judgment in Zycus Infotech Pvt. Ltd., which clarified that section 10A(9) applied only to entities entitled to exemption from 1st April 2001 and not to those entitled before this date. Consequently, the Tribunal held that the earlier decision for the assessment year 2003-04 did not apply as a precedent for the assessment year 2004-05.

Conclusion:
The Tribunal concluded that the assessment order allowing the deduction under section 10A for the assessment year 2004-05 was not erroneous or prejudicial to the interests of the Revenue. The Tribunal set aside the Commissioner's order under section 263, thereby allowing the assessee's appeal. The decision emphasized the retrospective effect of the omission of section 10A(9) and affirmed the correct application of law by the AO for the relevant assessment year.

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