2014 (7) TMI 430 - AT - Income Tax

Claim of deduction u/s 10A where assessee originally claimed exemption u/s 10B and found not eligible Specific approval by Board not obtained Held that - The decision in COMMISSIONER OF INCOME TAX, DELHI (CENTRAL) I Versus CONTIMETERS ELECTRICALS PVT. LTD. 2008 (12) TMI 4 - HIGH COURT DELHI followed - the assessee made a claim of deduction u/s 10A during assessment proceedings and also filed the audit report - the assessee s case is in a better footing because in the return of income, the assessee had claimed deduction u/s 10B - deduction u/s 10A was only an alternative claim which assessee made only when the AO disputed the assessee s eligibility to deduction u/s 10B - the assessee could not have claimed deduction u/s 10B and 10A both in the return of income - the Revenue s objection that the assessee is not entitled to deduction u/s 10A only because it was not claimed in the return of income cannot be accepted. Claim of deduction u/s 10A of the Act Manufacture or production not began in EHTP or STP but in DTA - Held that - The assessee produced the certificate issued by the Government of India, Department of Electronics, Electronics Hardware Technology Park Secretariat dated 16th November, 1998 - on the assessee s application for setting up 100% export oriented unit in EHTP scheme, the Government of India was pleased to extend all facilities and privileges admissible under the EHTP scheme for conversion of assessee s DTA unit into EHTP unit - assessee has claimed to have filed the above letter before the AO the letter has not been considered by the AO - the matter needs re-examination in the light of the letter issued by the Government of India wherein the assessee was permitted to convert its DTA unit into EHTP unit thus, the matter is remitted back to the AO for re-examination of the assessee s eligibility for deduction u/s 10A in the light of letter of the Government of India. Non-receipt of sale proceeds in convertible foreign exchange Held that - Assessee contended that all the sale proceeds were received in convertible foreign exchange and assessee had duly furnished the evidence - The auditor s certificate was also furnished certifying the details - as the matter is remitted back to the AO for examination of assessee s claim u/s 10A afresh in the light of letter of Electronics Hardware Technology Park Secretariat - the AO is directed to examine this aspect also Decided in favour of Revenue.

Summary

Issues Involved:
1. Deduction under Section 10B of the Income-tax Act, 1961.
2. Alternative claim for deduction under Section 10A.
3. Eligibility criteria for deduction under Section 10A.
4. Receipt of sale proceeds in convertible foreign exchange.
5. Non-claiming of deduction in the return of income.

Issue-wise Detailed Analysis:

1. Deduction under Section 10B:
The assessee initially claimed a deduction under Section 10B, which was disallowed by the Assessing Officer (AO) on the grounds that the assessee did not obtain specific approval from the Board, a requirement for claiming this deduction. The CIT(A) allowed the deduction under Section 10B, which was upheld by the ITAT, citing that the STIP registration granted to the assessee was valid for allowing the deduction. The ITAT also noted that the AO had allowed the deduction under Section 10B in a previous year (AY 2004-05) and did not revise or reopen it, invoking the rule of consistency.

2. Alternative Claim for Deduction under Section 10A:
The assessee made an alternative claim for deduction under Section 10A during the assessment proceedings. This claim was rejected by the AO on three grounds: (i) it was not made in the return of income, (ii) the unit was not newly set up in EHTP/STP but was an old DTA unit, and (iii) the sale proceeds were not received in convertible foreign exchange. The CIT(A) did not adjudicate this alternative claim as the primary claim under Section 10B was allowed.

3. Eligibility Criteria for Deduction under Section 10A:
The Hon'ble Jurisdictional High Court directed the ITAT to consider the assessee's claim under Section 10A. The assessee argued that the original claim under Section 10B was made in the return of income, and the alternative claim under Section 10A arose only when the AO raised doubts about the eligibility under Section 10B. The assessee furnished the required audit report under Section 10A and cited a certificate from the Electronics Hardware Technology Park Secretariat, which allowed the conversion of the DTA unit to an EHTP unit, thus making the unit eligible for benefits under Section 10A.

4. Receipt of Sale Proceeds in Convertible Foreign Exchange:
The assessee contended that all sale proceeds were received in convertible foreign exchange and provided evidence, including an auditor's certificate. The ITAT directed the AO to re-examine this aspect during the reassessment, noting that this requirement is equally applicable to deductions under Section 10B and 10A.

5. Non-claiming of Deduction in the Return of Income:
The ITAT referenced the decision of the Hon'ble Jurisdictional High Court in the case of Contimeters Electricals P. Ltd., which held that filing the audit report along with the return is directory, not mandatory. Thus, the assessee's alternative claim under Section 10A during the assessment proceedings was valid as the audit report was filed before the assessment was framed.

Conclusion:
The ITAT set aside the orders of the lower authorities and directed the AO to re-examine the assessee's eligibility for deduction under Section 10A, considering the certificate from the Electronics Hardware Technology Park Secretariat and the evidence of receipt of sale proceeds in convertible foreign exchange. The AO was instructed to allow adequate opportunity for the assessee to present their case. The appeals of the Revenue were deemed allowed for statistical purposes.