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2021 (1) TMI 843 - HC - Income TaxClaim of deduction made u/s 10A and 10B - Denial of claim on the ground that an undertaking was formed by splitting up/reconstruction of the business already in existence - Reopening of assessment u/s 147 for AY 2000-01 and 2001-02 - For the Assessment Year 2002-03, the CIT, Chennai-II, passed an order under Section 263, setting aside the issue of deduction under Section 10A and directed the Assessing Officer to decide the issue de novo - HELD THAT - For the Assessment Year 2000-01, the assessee had filed its return of income on 29.11.2000. The assessee claimed that it was eligible for deduction under Section 10B. The return was processed on 28.03.2002. Subsequently, the Assessing Officer had reason to believe that income chargeable to tax had escaped assessment on account of the assessee Company being ineligible for deduction under Section 10A. Subsequently, a notice dated 22.03.2007 was issued under Section 148 and after giving an opportunity of hearing, the scrutiny assessment order was passed on 17.12.2007, disallowing the entire claim of deduction under Section 10B - expenditure incurred for the renovation and repairs of the rented premises of the assessee Company was disallowed by AO on the ground that such expenses were in the nature of capital expenditure. AO in his re-assessment order noted that in terms of Section 10B(ii) an undertaking in order to be eligible for deduction under Section 10B must not be formed by splitting up or reconstruction of a business already in existence. Further, the Assessing Officer held that deduction under Section 10B was not available to the assessee Company in view of the provisions of Section 10B(iii) which stipulate that eligible business is not formed by transfer to a new business of plant and machinery previously used for any purpose. AO found that the assessee had not complied with both these conditions, hence, it was not entitled to any deduction under Section 10B. In view of the judgment of the Hon'ble Division Bench of this Court 2019 (2) TMI 57 - MADRAS HIGH COURT it is clear that the applicability of Clauses (ii) and (iii) of Sub Clause (2) to Section 10B of the Act, the impugned order passed by the Income Tax Appellate Tribunal is proper. As the assessee Company would be entitled to deduction under Section 10A and disallowance made by the Assessing Officer was not correct. Since the order passed under Section 263 itself has been set aside, the cause of action for re-assessment does not survive. Levy of interest under Section 234D - Scope of amendment - HELD THAT - The amended provision shall come into force only after the commencement of the Assessment Year and cannot be applied retrospectively unless it is specifically mentioned. Therefore, the law to be applied is the law as on the date of commencement of the Assessment Year and not the change in law amended subsequent to that date. Section 234D having come into force only on 01.06.2003 (i.e.) after the commencement of the Assessment Year, interest could be levied only from 01.04.2004 (i.e.) from the Assessment Year 2004-05 and no interest under Section 234D could be chargeable prior to the Assessment Year 2004-05. Since all the three Assessment Years are prior to the Assessment Year 2004-05, the provisions of Section 234D cannot be applied. Following the judgment in Karimthuravi Tea Estate Ltd. Vs. State of Kerala 1965 (12) TMI 35 - SUPREME COURT we are of the considered view that the provisions of Section 234D cannot be applied to the case of the assessee in respect of the Assessment Years 2000-01, 2001-02 and 2002-03 which are prior to the insertion of Section 234D.
Issues Involved:
1. Entitlement to deduction under Section 10B for the Assessment Year 2000-01. 2. Entitlement to deduction under Section 10A for the Assessment Years 2001-02 and 2002-03. 3. Levy of interest under Section 234D for the Assessment Years 2000-01, 2001-02, and 2002-03. Issue-wise Detailed Analysis: 1. Entitlement to deduction under Section 10B for the Assessment Year 2000-01: The Assessing Officer disallowed the deduction under Section 10B on the grounds that the undertaking was formed by splitting up or reconstruction of an existing business and by transferring plant and machinery previously used. The assessee's appeal to the Commissioner of Income Tax (Appeals) was allowed, following the Tribunal’s earlier order. The Tribunal confirmed this decision, and the Department’s appeal was dismissed. The High Court upheld the Tribunal’s order, noting that the assessee was entitled to the deduction under Section 10B as the conditions stipulated in Section 10B(ii) and 10B(iii) were not violated merely by shifting the business location. 2. Entitlement to deduction under Section 10A for the Assessment Years 2001-02 and 2002-03: The Assessing Officer disallowed the deduction under Section 10A for similar reasons as in the 2000-01 assessment, stating that the undertaking was formed by splitting up or reconstruction of an existing business. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, and the Tribunal confirmed this decision, referencing its earlier order. The High Court upheld the Tribunal’s decision, referencing its own prior judgment, which confirmed that the transfer of business to a new location in a Software Technology Park did not violate the conditions of Section 10A(2)(ii) and (iii). 3. Levy of interest under Section 234D for the Assessment Years 2000-01, 2001-02, and 2002-03: The Assessing Officer levied interest under Section 234D. The Commissioner of Income Tax (Appeals) and the Tribunal both held that Section 234D, which came into effect on 01.06.2003, could not be applied retrospectively to assessment years prior to 2004-05. The High Court upheld this view, citing the absence of any express provision making Section 234D retrospective. It reiterated that the law applicable for assessment is the law as on the date of commencement of the assessment year, and amendments coming into force after that date cannot apply retrospectively. Consequently, interest under Section 234D could not be levied for the assessment years 2000-01, 2001-02, and 2002-03. Conclusion: The High Court dismissed the Department’s appeals, affirming the Tribunal's decisions. The assessee was entitled to deductions under Sections 10A and 10B for the respective assessment years, and interest under Section 234D could not be levied for the assessment years in question. The Court emphasized that any amendments to the Income Tax Act apply prospectively unless explicitly stated otherwise.
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