2021 (1) TMI 1007 - HC - Income Tax

Revision u/s 263 - assessee is not eligible to claim deduction under Section 10A for Assessment Year 2008-09 as the period of 10 years in the case of assessee expired with Assessment Year 2007-08 and the Assessment Year in case of assessee has to be reckoned from Assessment Year 1998-99 - HELD THAT - In the instant case, the period of 10 consecutive years would start from Assessment Year 1995-96 and would end with Assessment Year 2008-09. It is pertinent to mention here that the period of 10 year commences from 1995-96 irrespective of the fact that whether or not the assessee has claimed benefit in between the Assessment Years and the period of 10 consecutive years therefore, in view of the plain language of the enactment cannot be extended. The Assessing Officer without examining the aforesaid aspect of the matter granted the benefit of deduction Section 10A of the Act to the assessee. The view taken by the Assessing Officer cannot but be said to be erroneous and prejudicial to the interest of the revenue. The view taken by the AO cannot be said to be a plausible view. It is also pertinent to mention here that no reasons have been assigned by the Assessing Officer for holding the assessee eligible for benefit of deduction under Section 10A - Since, the issue with regard to eligibility of the assessee for deduction under Section 10A of the Act for Assessment Year 2008-09 beyond a period of 10 consecutive years was not subject matter of order of assessment itself. Therefore, the same could not have been the subject matter of the appeal before the Commissioner of Income Tax (Appeals) and thus, in the fact situation of the case there was no bar in invoking the powers under Section 263 - The income of the assessee from staffing, which was not an income from export of computer software was also allowed by the Assessing Officer without any application of mind and without any enquiry. Therefore, the Commissioner of Income Tax has rightly invoked the powers under Section 263 of the Act in the fact situation of the case. - Decided against assessee.

Issues Involved:
1. Invocation of Section 263 of the IT Act.
2. Initiation of proceedings under Section 263 for an order merged with a consequential order under Section 143(3).
3. Correctness of the Assessing Officer's action in allowing tax holiday under Section 10A.
4. Lack of enquiry by the Assessing Officer.
5. Denial of benefit of Section 10A for AY 2008-09.
6. Treatment of each unit as a separate undertaking for Section 10A purposes.
7. Denial of benefit under Section 10A for income from staffing activity.

Issue-wise Detailed Analysis:

1. Invocation of Section 263 of the IT Act:
The court examined whether the ITAT was correct in upholding the invocation of Section 263, even though the matter was under appeal before the CIT(A) and ITAT. It was concluded that the twin conditions for exercising revisional jurisdiction under Section 263—erroneous order and prejudice to the revenue—were met. The court cited the Supreme Court's rulings in 'Malabar Industrial Company vs. CIT' and 'CIT vs. Max India Ltd.' to support its conclusion that the order by the Assessing Officer was erroneous and prejudicial to the revenue's interest.

2. Initiation of Proceedings under Section 263 for an Order Merged with a Consequential Order under Section 143(3):
The court held that since the issue of eligibility for deduction under Section 10A for AY 2008-09 was not part of the assessment order, it could not have been the subject of appeal before the CIT(A). Therefore, invoking Section 263 was justified.

3. Correctness of the Assessing Officer's Action in Allowing Tax Holiday under Section 10A:
The court found that the Assessing Officer did not properly examine whether the assessee was eligible for the tax holiday under Section 10A. The period of 10 consecutive years for claiming the benefit had expired in AY 2004-05, and the benefit could not be extended beyond this period. The court held that the Assessing Officer's view was incorrect and prejudicial to the revenue.

4. Lack of Enquiry by the Assessing Officer:
The court observed that the Assessing Officer allowed the deduction under Section 10A without proper enquiry or application of mind, particularly concerning the income from staffing activities, which was not from the export of computer software. This justified the invocation of Section 263.

5. Denial of Benefit of Section 10A for AY 2008-09:
The court upheld the denial of the benefit under Section 10A for AY 2008-09, stating that the period of 10 consecutive years for claiming the benefit had already expired. The court emphasized that the period starts from the year the undertaking begins production, regardless of whether the benefit was claimed in the intervening years.

6. Treatment of Each Unit as a Separate Undertaking for Section 10A Purposes:
The court did not find merit in the assessee's claim to treat each unit as a separate undertaking for the purpose of Section 10A. It upheld the view that the period of 10 consecutive years applies to the entire undertaking and not individual units.

7. Denial of Benefit under Section 10A for Income from Staffing Activity:
The court agreed with the CIT's decision to deny the benefit under Section 10A for income derived from staffing activities. It held that the Assessing Officer had allowed this without proper enquiry, and such income did not qualify as income from the export of computer software.

Conclusion:
The court answered all substantial questions of law against the assessee and in favor of the revenue. It upheld the invocation of Section 263 and dismissed the appeal, finding no merit in the assessee's arguments.

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