2017 (12) TMI 1330 - AT - Income Tax

Disallowance of exemption u/s 10A - claim for the year - Held that - Identical issue has also come up before the coordinate Bench of the Tribunal in case cited as Sandvik Asia Pvt. Ltd. vs. JCIT 2015 (12) TMI 1742 - ITAT PUNE wherein it is held that, the assessee is at liberty to claim deduction u/s 10B of the Act from end of the year of his choice. When the assessee company itself has not claimed exemption for AY 2000-01, incubatory period, cannot be considered as production period merely on the basis of token invoice issued for trial verification of its cost. Even otherwise, the letter issued by the assessee company dated 30.04.2000 to Assistant Director, STPI, Noida intimating date of commencement for production of sale in global market as 30.04.2000 has not been disputed by the Revenue rather entire assessment has been made on the basis of token invoice dated 31.03.2000 issued for trial verification by the assessee company. Furthermore, section 10B of the Act is categoric enough to provide liberty to the assessee company to choose the claim of deduction u/s 10A in respect of newly established 100% export oriented unit. So, we are of the considered view that when the assessee company has only issued the first token invoice of US 1050 as cost for trial verification and has opted to avail of the exemption u/s 10A in AY 2001-02 when production for global market was commenced on 30.04.2000, the year under assessment i.e. AY 2010-11 is the 10th year of exemption available to the assessee company.

Summary

Issues:
1. Disallowance of exemption u/s 10A of ? 49,94,913
2. Direction to allow credit for brought forward losses for past assessment years AY 2004-05 & AY 2005-06

Disallowed Exemption u/s 10A:
The appellant, a company, sought to set aside the order confirming the disallowance of exemption u/s 10A of ? 49,94,913 as made by the AO. The company claimed exemption under section 10A of the Income-tax Act for the assessment year 2010-11. The AO concluded that the last year of exemption would be AY 2009-10 and not AY 2010-11 as claimed by the company, thereby disallowing the exemption. The CIT (A) confirmed the addition, leading the company to appeal before the Tribunal.

Credit for Brought Forward Losses:
The company also contended that the CIT (A) erred in not directing the AO to allow the credit for brought forward losses for past assessment years AY 2004-05 & AY 2005-06 as a legal entitlement of the company u/s 72 of the Act. The Tribunal analyzed the facts, including the company's incorporation date, commencement of business, and claim for exemption under section 10A.

Analysis:
The company was incorporated on 26.10.1999 and set up a software technology unit registered with STPI, claiming exemption under section 10A. The AO considered the first assessment year as AY 2000-01, disallowing the claimed exemption for AY 2010-11. The Tribunal deliberated on whether the company commenced manufacture or production on 30.03.2000, as stated by the AO/CIT (A).

The Tribunal noted that the company did not claim exemption for AY 2000-01 and issued its first invoice on 31.03.2000. The Tribunal considered the distinction between trial production and commercial production, citing relevant case law. It was argued that the production for the global market commenced on 30.04.2000, not on 30.03.2000 as claimed by the Revenue.

Referring to section 10B of the Act, the Tribunal emphasized the company's liberty to choose the claim of deduction u/s 10A for a newly established export-oriented unit. Relying on precedents and legal provisions, the Tribunal held that the disallowance of exemption u/s 10A was erroneous. Therefore, the appeal by the company was allowed, overturning the decisions of the lower authorities.

In conclusion, the Tribunal found in favor of the company, allowing the appeal and setting aside the disallowance of exemption u/s 10A. The Tribunal's decision highlighted the importance of correctly determining the commencement of production for claiming tax exemptions under the Income-tax Act.