2019 (3) TMI 1156 - AT - Income Tax

Eligibility of claim of deduction u/s 10B - eligibility of alternative claim u/s 10A - assessee is a 100% Export Oriented Unit (EOU) - AO denied the claim on the ground that it is not a 100% EOU as defined in section 10B, since approval under the STPI scheme cannot be considered sufficient for granting the benefits of section 10B - HELD THAT - Referring to judgment of REGENCY CREATIONS LTD., VALIANT COMMUNICATIONS LTD. 2012 (9) TMI 627 - DELHI HIGH COURT approval as 100 per cent Export Oriented Undertaking under Software Technology Park of India (STPI) scheme cannot be considered sufficient for granting benefit of section 10B of the Income Tax Act.1961. The facts of the case in above decision of the Hon ble Delhi High Court apply squarely in this case. Accordingly, the assessee, not being approved by the Board appointed by the Central Government in exercise of powers conferred u/s 14 of the Industries (Development and Regulation) Act, 1951, is not eligible for exemption u/s 10B of the I.T.Act. Alternative claim of deduction u/s 10A - Assessee had made a claim by furnishing a certificate in Form No.56F before the assessment order was finalized - HELD THAT - To claim deduction u/s 10A the assessee is required to file audit report in Form No.56F. Even if the certificate as required u/s 10A was not filed along with the return of income, the provision regarding filing of audit report is only directory and not mandatory and the audit report can be filed during the course of assessment proceedings. In the instant case, the audit report was filed in the course of assessment proceedings and there is no error in granting deduction u/s 10A We are of the view that the assessee is not entitled to deduction u/s 10B of the I.T.Act, whereas, the alternative claim of deduction u/s 10A of the I.T.Act, the claim should be granted to the assessee provided that necessary pre-condition for satisfaction of the same are qualified in assessee s case - Decided partly in favour of assessee.

Summary

Issues:
- Eligibility of claim of deduction u/s 10B of the I.T.Act
- Eligibility of alternative claim u/s 10A of the I.T.Act

Eligibility of Claim of Deduction u/s 10B of the I.T.Act:
The appeal revolved around the eligibility of the appellant for the claim of deduction under section 10B of the Income Tax Act, 1961. The appellant, a 100% Export Oriented Unit (EOU), located in Infopark, Kakkanad, Cochin, claimed a deduction of ?91,80,145 for the assessment year 2011-2012. The Assessing Officer denied the claim, stating that the appellant did not qualify as a 100% EOU as defined in section 10B of the I.T.Act. The denial was based on the premise that approval under the STPI scheme was insufficient to grant the benefits of section 10B. The CIT(A) allowed the claim, but the Department appealed, arguing that the approval under STPI scheme did not equate to approval as a 100% EOU by the Board appointed by the Central Government under the Industries (Development and Regulation) Act, 1951. The Tribunal, citing a judgment of the Delhi High Court, concurred that approval under the STPI scheme was not adequate for claiming benefits under section 10B. Consequently, the appellant was deemed ineligible for the deduction under section 10B.

Eligibility of Alternative Claim u/s 10A of the I.T.Act:
The appellant also made an alternative claim for deduction under section 10A of the I.T.Act by filing a certificate in Form No.56F during the assessment proceedings. The Assessing Officer rejected this claim initially, citing non-filing of the claim with the return of income. However, the CIT(A) entertained the alternative claim and allowed the deduction under section 10A. The Department contested this decision, but the Tribunal upheld the CIT(A)'s ruling. The Tribunal emphasized that the provision regarding filing of the audit report for claiming deduction under section 10A was directory, not mandatory. Citing various judicial pronouncements, the Tribunal concluded that the alternative claim for deduction under section 10A should be granted to the appellant, provided the necessary pre-conditions were met. Therefore, while the appellant was not eligible for deduction under section 10B, the alternative claim under section 10A was allowed.

In conclusion, the Department's appeal was partly allowed, with the Tribunal ruling in favor of the Department regarding the deduction under section 10B but upholding the CIT(A)'s decision on the alternative claim under section 10A.