2018 (11) TMI 1053 - AT - Income Tax

Revision u/s 263 - issue of deduction u/s 10A - Special provision in respect of newly established undertakings in free trade zone, etc. - Held that - Deduction u/s 10A(1A) is allowable notwithstanding anything contained in subsection (1) of section 10A. The fourth proviso being relevant to subsection (1), it was not applicable in case of the deductions eligible under subsection 1A of section 10A of the Act. The observation of the CIT that assessee is not entitled for deduction under section 10A for the year under consideration in view of the 4th proviso to subsection (1), is incorrect appreciation of law. In view of the clear provisions, the Assessing Officer was not required to examine applicability of 4th proviso to subsection (1) of section 10A of the Act. Accordingly, the contention of the Ld. CIT that no enquiry has been conducted by the Assessing Officer on the applicability of the 4th proviso, is hereby rejected. Applicability of MAT provisions on adjusted income - Special provisions for payment of tax by certain persons other than a company - Held that - If the deduction is claimed under chapter VIA or under section 10AA or under section 35D then the adjusted total income would be total income before claim of those deductions and if the regular income tax payable is less than the MAT payable on such adjusted total income, the assessee would be liable to pay MAT. But, in the instant case, the deduction has been claimed by the assessee under section 10A and not under the sections specified above for computing adjusted total income, thus, the provisions of section 115JC are clearly not applicable. In view of the clear and unambiguous provisions of the law, the Ld. Assessing Officer was not required to enquired upon the applicability of section 115JC in the case of the assessee and thus accordingly, we reject the contention of the Ld. CIT that the Assessing Officer has not made any enquiry on this issue. Deduction in respect of the commission expenses disallowed - Held that - CIT has observed that copy of the order of the Tribunal of the earlier year was not readily available or was not filed by the counsel of the assessee and therefore the issue required examination by the Assessing Officer. In our opinion, the CIT could have verified the order of the Tribunal and then decided whether the examination was required in the case. Deduction on interest income earned on various FDR - Interest income in the case of the assessee earned on FDR s with the bank is also eligible for deduction under section 10A. We also find that Assessing Officer asked for the details of the said interest income and assessee has duly filed reply giving detail of the said income. In such facts and circumstances, we are of the opinion that the Assessing Officer has correctly applied the law after carrying out the enquiries, which he ought to have done. Accordingly, we reject the contention of the Ld. CIT that the Assessing Officer has wrongly allowed the deduction on interest income earned on various FDR. We are of the opinion that finding of the CIT that the AO ought to have done enquiries on the four issues is not correct and thus action of the Ld. CIT for holding the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue, cannot be sustained. Accordingly, we cancel the order of the Ld. CIT(A) passed under section 263 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Assumption of jurisdiction under section 263 by the CIT.
2. Entitlement to deduction under section 10A.
3. Applicability of Minimum Alternate Tax (MAT) under section 115JC.
4. Deduction on account of commission expenses under section 40(a)(i).
5. Deduction under section 10A on interest income from FDRs.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 263 by the CIT:
The CIT assumed jurisdiction under section 263, holding the assessment order as erroneous and prejudicial to the interest of the Revenue. The Tribunal examined whether the Assessing Officer (AO) made adequate inquiries and verifications on the issues raised by the CIT. The Tribunal emphasized that the Explanation-2 to section 263, effective from 01/06/2015, deems an order as erroneous if it is passed without necessary inquiries or verification. However, the Tribunal found that the AO had conducted sufficient inquiries on the relevant issues, thus rejecting the CIT's assumption of jurisdiction.

2. Entitlement to Deduction under Section 10A:
The CIT argued that the deduction under section 10A was not allowable for the assessment year 2013-14 due to the 4th proviso to subsection (1). The assessee contended that the deduction was claimed under section 10A(1A), which has a non-obstante clause overriding subsection (1). The Tribunal agreed with the assessee, noting that the 4th proviso applies only to subsection (1) and not to subsection (1A). Therefore, the AO's allowance of the deduction under section 10A was correct, and the CIT's contention was rejected.

3. Applicability of Minimum Alternate Tax (MAT) under Section 115JC:
The CIT contended that the AO failed to examine the applicability of MAT provisions under section 115JC. The Tribunal found that section 115JC applies to deductions under section 10AA and Chapter VIA, not to section 10A. Since the assessee claimed deductions under section 10A, the MAT provisions were not applicable. The Tribunal concluded that the AO was not required to inquire about the applicability of section 115JC, thus rejecting the CIT's contention.

4. Deduction on Account of Commission Expenses under Section 40(a)(i):
The CIT argued that the AO allowed excess deduction for commission expenses paid to non-residents without TDS, contrary to the auditor's report. The Tribunal noted that the AO had raised specific queries and received detailed responses from the assessee. Additionally, the Tribunal's decision in the assessee's case for the preceding year held that no TDS was required on such payments. Therefore, the AO's allowance of the deduction was correct, and the CIT's contention was rejected.

5. Deduction under Section 10A on Interest Income from FDRs:
The CIT held that interest income from FDRs was not derived from the business of export and thus not eligible for deduction under section 10A. The Tribunal referred to the Karnataka High Court's decision in CIT vs. Hewlett Packard Global Soft Ltd., which allowed deduction under section 10A for interest income from FDRs used for business purposes. The Tribunal found that the AO had inquired about the nature of the interest income and received satisfactory explanations from the assessee. Therefore, the AO's allowance of the deduction was correct, and the CIT's contention was rejected.

Conclusion:
The Tribunal concluded that the AO conducted adequate inquiries and correctly applied the law on all four issues raised by the CIT. Consequently, the Tribunal canceled the CIT's order under section 263 and allowed the appeal of the assessee.

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