2022 (10) TMI 1186 - HC - Income Tax

Deduction u/s 10A - benefit denied for subsequent years - ITAT s finding that condition stipulated in Section 10A(2)(iii) had not been satisfied in the first year of commencement of manufacture - HELD THAT - As combined reading of these two authorities in Sourashtra Cement 1979 (1) TMI 249 - GUJARAT HIGH COURT and Direct Information Pvt. Ltd. 2011 (9) TMI 137 - BOMBAY HIGH COURT make it clear that there cannot be uncertainty in the assessments for different years. Assessee sought deduction u/s 10A for the first time in A.Y. 1997-98 and the same has been allowed. Therefore without disturbing the relief granted in that year the AO could not have denied the benefit for subsequent years. For 1998-99 the learned Senior Advocate has explained that assessee did not challenge the said order because assessee had got relief under Section 80HHE. For the subsequent two years assessee has been given the relief. Therefore we are of the considered view that the AO s view is perverse and not sustainable. Resultantly this appeal merits consideration.

Summary

Issues:
Challenging common order by ITAT for Assessment years 2001-02, 2002-03, and 2005-06 regarding exemption under Section 10A of the Income Tax Act.

Detailed Analysis:

1. Background and Facts:
The appellant, a 100% Export Oriented Unit (EOU) in the software development business, had units in Mumbai, Trivandrum, and Bengaluru. The issue arose when the Assessing Officer disallowed the deduction under Section 10A of the IT Act for the Assessment Year 2001-02, claiming that the Mumbai unit was started in A.Y. 1991-92, making A.Y. 2000-2001 the last year for exemption under Section 10A.

2. Appellant's Argument:
The appellant contended that the shifting of machinery from Mumbai to Bengaluru did not constitute the shifting of the Mumbai unit. The CIT(A) and ITAT had previously accepted this argument, denying the benefit under Section 10A for A.Y. 1998-99. The appellant also highlighted the relief granted under Section 80HHE for subsequent years.

3. Respondent's Argument:
The respondent argued that the denial of benefit for A.Y. 1998-99 had attained finality as the appellant did not challenge it. They emphasized that each assessment year must be considered independently, citing relevant case law.

4. Judgment and Analysis:
The Court analyzed the ITAT's finding on the satisfaction of conditions under Section 10A(2)(iii) of the IT Act. The AO's assessment for A.Y. 1997-98 acknowledged the appellant's operations in Mumbai and granted benefits under Section 10A. The Court concluded that the denial of benefits for one year cannot set a precedent for subsequent years.

5. Legal Precedents:
Referring to case laws, the Court emphasized the need for consistency in tax adjudication across different assessment years. The appellant's eligibility for Section 10A deduction in A.Y. 1997-98 set a precedent for subsequent years, and the AO's denial of benefits for A.Y. 1998-99 was deemed unsustainable.

6. Final Order:
The Court allowed the appeals, answering the substantial question of law in favor of the assessee and against the Revenue. The second question was deemed infructuous, and no costs were awarded.

By thoroughly analyzing the facts, arguments, legal precedents, and the judgment, the Court provided a comprehensive decision in favor of the appellant regarding the exemption under Section 10A of the IT Act for the relevant assessment years.