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2013 (9) TMI 609 - AT - Income TaxRevision u/s 263 - Eligibility of deduction u/s 10B and 10A of the Income Tax Act - Assessee filed reply before Ld. CIT in the proceeding under section 263 of Income Tax Act dt. 21/02/2012 in which the assesse explained that the assessee company is registered under Software Technology Park of India being 100% export unit under Software Technology Park Scheme for developing / manufacturing of computer software / IT enabled services, copy of the certificate was also filed Held that - Deduction under both the provisions of section 10A and 10B are entitled to such undertaking who have begun or beginning the manufacturing or produce articles or things or Computer Softwares. There is further requirement to furnish audit report from the Chartered Accountant certifying claim of the assessee in Form 56 F under section 10A and report 56 G in case deduction has claimed under section 10B of the Income Tax Act - Report and balance sheet as certified by Chartered Accountant in Form No. 56 F was filed before AO and copy of the same was also filed before Ld. CIT. It was also explained that assessee company had claimed deduction under section 10A of the Income Tax Act and complied with provision of Law. The assessee further filed reply before Ld. CIT on dt. 12/03/2012 in which the assessee explained that complete books of accounts and all the material were furnished before AO at the assessment stage to claim deduction under section 10A of the Income Tax Act. Similar facts were explained that assessee claimed deduction under section 10A being the assessee company 100% EOU for Computer Software and is duly registered with Software Technology Park in India. Form No. 56 F was also filed before AO and the AO after examining the complete details and reply allowed the genuine claim of assessee of deduction under section 10A of the Income Tax Act. It was also explained that the AO examined the complete books of accounts and was satisfied with the explanations of assessee and profit earned out of said business. The AO was satisfied with reasonableness of the profit earned by the assessee - Therefore assessee was rightly granted deduction under section 10A of the Income-tax Act Decided in favor of Assessee. Assessee duly complied with the provisions of Section 10A, therefore the AO at the original assessment stage even if passed a cryptic order was justified in granting deduction in favour of the assessee in accordance with provision of Section 10A of the Income-tax Act. The Ld. CIT in proceeding under section 263 of the Income Tax Act also had all these details and material before him, but had not been able to point out defects conclusively in the material / evidences for arriving at a conclusion that exemption under section 10 A is not allowable in the case of the assessee. Therefore the revision order under section 263 of the Income tax Act cannot be sustained Reliance has been placed upon decision of Hon ble Gauhati High Court in case of Smt. Lila Choudhury Vs. Commissioner of Income-Tax And Others 2006 (3) TMI 112 - GAUHATI High Court When all the evidence and material on record clearly support the case / explanation of the assessee that assessee is entitled for deduction under section 10A of the Income-tax Act, the Ld. CIT should have examined the explanation of the assessee and passed the order of revision in accordance with law. Merely because AO passed a cryptic order or might have made inadequate enquiry would not be a ground to set aside the assessment order The order passed by the AO thus cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue. - Decided in favor of Assessee.
Issues Involved:
1. Validity of the order under section 263(1) of the Income Tax Act, 1961. 2. Whether the Commissioner of Income Tax (CIT) erred in canceling the assessment framed under section 143(3) and reopening the assessment under section 263. 3. Entitlement of the appellant to deduction under section 10A. 4. Applicability of provisions of Section 80IA(8) and 80IA(10). 5. Whether the profit shown by the assessee was duly verified by the Assessing Officer (AO) and if the assessment was erroneous or prejudicial to the interest of the revenue. Detailed Analysis: 1. Validity of the Order under Section 263(1) of the Income Tax Act, 1961: The appeal was directed against the order of the CIT-II, Chandigarh dated 20/03/2012, for the assessment year 2007-08. The CIT invoked jurisdiction under section 263, claiming the assessment order was erroneous and prejudicial to the interest of the revenue. The CIT found that the AO did not verify the eligibility of the assessee for exemption under section 10B and did not call for a mandatory report in Form No. 56G. The CIT also noted that the services provided by the assessee were not covered under "computer software" as per Explanation 2 of Section 10B, and the required approval from the Central Government was not furnished. 2. Error in Canceling the Assessment Framed under Section 143(3) and Reopening the Assessment under Section 263: The CIT issued a show-cause notice and, after considering the replies and material on record, set aside the assessment order dated 30/12/2009 and directed a fresh assessment. The CIT found that the AO did not make proper inquiries regarding the high net profit shown by the assessee and the applicability of Sections 80IA(8) and 80IA(10). The CIT concluded that the AO failed to gather facts and carry out proper investigations, rendering the assessment erroneous and prejudicial to the interest of the revenue. 3. Entitlement to Deduction under Section 10A: The assessee argued that the claim for deduction was made under section 10A, not 10B, and that the required audit report in Form 56F was submitted. The assessee was registered under the Software Technology Park of India (STPI) and claimed exemption under section 10A, which does not require Form 56G. The assessee contended that the AO examined the complete books of accounts and supporting documents and accepted the claim after due application of mind. 4. Applicability of Provisions of Section 80IA(8) and 80IA(10): The CIT noted that the AO did not examine the applicability of Sections 80IA(8) and 80IA(10) despite the high net profit shown by the assessee. The assessee argued that the AO verified the high profit margins and found them reasonable. The CIT, however, found no evidence in the assessment records that the AO had made necessary inquiries regarding these provisions. 5. Verification of Profit and Assessment's Validity: The assessee maintained that the AO verified the profit based on audited accounts and accepted the book results after due application of mind. The CIT, however, found that the AO did not verify the eligibility for exemption under section 10B or 10A and did not call for the mandatory report in Form 56G. The CIT also noted that the AO did not inquire about the high profitability or the applicability of Sections 80IA(8) and 80IA(10). Conclusion: The tribunal concluded that the assessee was entitled to deduction under section 10A, having complied with the statutory requirements, including registration under STPI and submission of Form 56F. The tribunal found that the AO made adequate inquiries and the assessment order was not erroneous or prejudicial to the interest of the revenue. The tribunal set aside the order under section 263 and restored the original assessment order dated 30/12/2009 under section 143(3). The appeal of the assessee was allowed.
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