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2022 (10) TMI 1 - AT - Income TaxDeduction u/s 10B - whether or not the benefit of exemption u/s 10B can be granted to an assessee, registered under STPI as 100% EOU in respect of profits derived from business of development of software and sale to the HSBC subsidiary companies? - HELD THAT - It is undisputed fact that both the units of the assessee company are registered under STPI as 100% EOU. There is also no dispute that all other necessary conditions precedent for availing benefit u/s 10B were complied with by the assessee company. The dispute is only with regard to whether a mere registration with STPI as 100% EOU is sufficient enough for claiming deduction u/s 10B of the Act. We find that this issue was examined by the CBDT and the CBDT issued a clarification dated 09.03.2009 as corrected by Corrigendum No.178 dated 08.05.2009, to clarify that the Board of Approval to grant the approval u/s 14 of Industrial Development and Regulations Act, 1951 has been delegated to Development Commissioner and, therefore, the same shall be considered valid for the purpose of exemption u/s 10B. Approvals issued by STPI directors having Board of approvals satisfied the conditions of approval as envisaged under Explanation 2(iv) of section 10B of the Act. The decision of the Hon ble Delhi High Court in the case of CIT vs. Regency Creations Ltd. 2012 (9) TMI 627 - DELHI HIGH COURT was held to be incorrect by the Ahmedabad Bench of the Tribunal in the case of M/s Hitech Infosoft 2018 (10) TMI 1099 - ITAT AHMEDABAD and the recently the Hon ble Calcutta High Court in the case of PCIT vs. Wizard Enterprises (P.) Ltd 2022 (1) TMI 794 - CALCUTTA HIGH COURT after referring to the CBDT s clarification dated 09.03.2009 had upheld the exemption u/s 10B even in the absence of approval from Board of Approvals u/s 14 of Industrial Development and Regulations Act, 1951. In the above circumstances, we are of the considered opinion that the assessee is entitled for deduction u/s 10B of the Act, on registration with STPI as 100% EOU. Accordingly, the order of the ld. CIT(A) on this issue is reversed. Deduction u/s 10A though no such claim was made in the return of income claiming exemption under the provisions of section 80IA(10) - HELD THAT - The provisions of section 80IA(8) and 80IA(10) have been bodily lifted and incorporated into the body of provisions of section 10B(7) of the Act. The provisions of section 80IA(8) and 80IA(10) have application only in respect of domestic transactions involving transfer of goods and services of eligible business for transfer of any business carried on by the assessee and vice-versa. When the provisions of a particular section of the same Statute are incorporated in the provisions of another section, all that we have to do is to read the provisions plainly and apply the interpretation, if any ambiguity exists. In the present case, as stated supra, the provisions of section 80IA(8) and 80IA(10) have application only in respect of domestic transactions and the language of the provisions of section 80IA(8) and 80IA(10) is very clear and offer no ambiguity as to scope of operating of said provisions, therefore, the provisions of section 10B(7) of the Act have application only in respect of domestic transactions. In the present case, admittedly there is no domestic transactions attracting the provisions of section 80IA(8) and 80IA(10). We find that the AO had not brought on record any material to demonstrate that the assessee company had indulged in an arrangement with its foreign AE to produce the assessee more profits than ordinarily, what profit the assessee might have earned arising out of such business, and the AO had not indicated any material evidence to disclose any such arrangement between the assessee company and its AE. In the case of CIT vs. HP Global Soft Ltd. 2012 (4) TMI 397 - KARNATAKA HIGH COURT held that in the absence of any material indicating existence of an arrangement, the AO was not justified in invoking the provisions of section 80IA(9) analogous to provisions of sections 80IA(8) and 80IA(10). Therefore, upshot of the above discussion is that in the absence of any material demonstrating the existence of any arrangement between the assessee and its foreign AE to produce the assessee more profits than ordinarily, what profit the assessee might have expected to arise out of such business and resort to provisions of section 10B(7) of the Act cannot be made to restrict the amount of deduction u/s 10B(7) and also provisions of section 10B have no application in respect of international transactions entered into between the assessee and its foreign AE. In the present case, the AO had not brought any material indicating the existence of an arrangement between the assessee company and its foreign AE, as a result of which more profits than ordinarily have been produced to the assessee company and therefore, the provisions of section 10B(7) r.w.s. 80IA have no application to the present case - CIT(A) has rightly deleted the addition made by the Assessing Officer, we do not find any illegality or perversity in the findings of CIT(A). Accordingly, the appeal filed by the Revenue stands dismissed.
Issues Involved:
1. Eligibility for deduction under Section 10B of the Income Tax Act. 2. Application of Section 10A as an alternative deduction. 3. Validity of disallowance under Section 10B(7) read with Section 80IA(10). 4. Procedural compliance for claiming deductions under Sections 10A and 10B. Detailed Analysis: 1. Eligibility for Deduction under Section 10B: The primary issue was whether the assessee, a company engaged in software development and IT solutions, was eligible for deduction under Section 10B of the Income Tax Act. The assessee claimed exemption under Section 10B, but the Assessing Officer (AO) disallowed it, stating that the company did not have the necessary approval from the Board appointed by the Central Government under Section 14 of the Industrial Development and Regulations Act, 1951. The Commissioner of Income Tax (Appeals) [CIT(A)] also denied the benefit of Section 10B but allowed deduction under Section 10A. The tribunal observed that the assessee's units were registered with the Software Technology Park of India (STPI) as 100% Export Oriented Units (EOUs) and held that such registration suffices for claiming deduction under Section 10B, based on CBDT clarifications and relevant judicial precedents. Consequently, the tribunal reversed the CIT(A)'s decision and allowed the deduction under Section 10B. 2. Application of Section 10A as an Alternative Deduction: The Revenue contested the CIT(A)'s decision to allow the deduction under Section 10A when the assessee had not claimed it in the return of income. The tribunal noted that since the assessee was entitled to deduction under Section 10B, the issue of Section 10A became academic and dismissed the Revenue's grounds on this matter. 3. Validity of Disallowance under Section 10B(7) read with Section 80IA(10): The AO had made a disallowance of Rs. 85,40,85,549 under Section 10B(7) read with Section 80IA(10), arguing that the assessee earned more than ordinary profits due to an arrangement with its Associated Enterprises (AEs). The CIT(A) deleted this addition, stating that the AO had not demonstrated any arrangement leading to extraordinary profits. The tribunal upheld the CIT(A)'s decision, emphasizing that the AO failed to bring any material evidence of such an arrangement. The tribunal also noted that the provisions of Section 80IA(8) and 80IA(10) apply only to domestic transactions and not to international transactions, as was the case here. 4. Procedural Compliance for Claiming Deductions under Sections 10A and 10B: The Revenue argued that the assessee did not comply with procedural requirements, such as filing the necessary forms within the prescribed time. The tribunal found that the assessee had complied with all necessary conditions for claiming deduction under Section 10B and that procedural lapses, if any, did not warrant denial of the substantive benefit. The tribunal cited CBDT clarifications and judicial precedents to support its conclusion that the approvals granted by STPI directors were valid for the purpose of Section 10B. Conclusion: The tribunal allowed the assessee's cross-objection, granting the deduction under Section 10B, and dismissed the Revenue's appeals, upholding the CIT(A)'s decisions where they favored the assessee. The tribunal emphasized the importance of substantive compliance over procedural formalities and the necessity of concrete evidence to support claims of extraordinary profits due to arrangements between related parties.
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