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TMI Blog2014 (11) TMI 141X X X X Extracts X X X X X X X X Extracts X X X X ..... roversy in the present case, thus, so far as the action of the lower authorities in holding that the 100% EOU of the assessee was not entitled for the benefit of section 10B of the Act is concerned is upheld – Decided against assessee. Alternate claim to allow deduction u/s 10A – Held that:- In the past years assessee has been allowed the claim of deduction u/s 10B of the Act - the stand of the Revenue that assessee cannot be allowed the benefits of section 10A of the Act merely because the prescribed Audit Report in Form No.56F was not filed in the return of income, is quite erroneous - Pertinently, after denial of deduction u/s 10B of the Act in the assessment order, the earliest opportunity for the assessee to stake claim for deduction u/s 10A of the Act was before the CIT(A) - section 10A of the Act provides a deduction of such profits and gains derived by an undertaking from export of articles or things or computer software manufactured or produced by it - The assessee claimed that it has undertaken export of computer software manufactured by it and its unit is registered with Director, STPI - The approval granted by Director, STPI has been held to be a sufficient compliance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit (EOU). The undertaking was granted approval by the Director, STPI as 100% EOU on 26.05.2004. The profits derived by the undertaking from development of software and export thereof were claimed as exempt as per the provisions of section 10B of the Income Tax Act, 1962 (in short "the Act"). The exemption relating to the profit derived from export of software development is the substantive dispute in the appeals before us. In assessment year 2010-11, the Assessing Officer denied claim made by the assessee for exemption u/s 10B of the Act on the ground that the assessee's undertaking was not approved by the Board appointed in this behalf by the Central Government u/s 14 of the Industries (Development and Regulation) Act, 1951 whereas the assessee was granted approval by Director, STPI only. The aforesaid stand of the Assessing Officer was based on the judgement of the Hon'ble Delhi High Court in the case of CIT vs. Regency Creations Ltd., (2012) 27 taxmann.com 322 (Del). However, the aforesaid objection was not raised by the Assessing Officer in the immediately preceding assessment year of 2009-10 wherein the Assessing Officer allowed the claim of exemption u/s 10B of the Act in-pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer that the unit of the assessee was registered with Directorate of Software Technology Park of India (STPI) and therefore, according to him, it was not eligible for the benefits of section 10B of the Act following the ratio of the judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). The primary objection of the Assessing Officer was that in order to be eligible for the benefits of section 10B of the Act, the undertaking of the assessee ought to be a 100% EOU as specified in Explanation 2(iv) below section 10B of the Act, which defines a "hundred percent export oriented undertaking" as an undertaking so approved by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951). The Assessing Officer pointed out that subsequent to the delegation of this power by the Ministry of Commerce and Industries to the Development Commissioners, such approvals to 100% EOUs are to be granted by the Development commissioners which are later ratified by the Board of approval. In this background, according to the Assessing Officer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the concerned units. However, the Central Government introduced certain changes in the Foreign Trade Policy/Exim Policy from time to time with respect to the grant of approvals. Subsequently, in the Exim Policy of 2004-2009, it is stipulated that an EOU granted approval under paragraph 6.12(a) shall enjoy the benefits of deduction u/s 10B of the Act. The learned Representative submitted that the aforesaid aspect of the matter has not been considered in the judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). The point made by the assessee is that on a conjoint reading of paragraphs 6.12 and 6.26 of the Foreign Trade Policy of 2004- 2009, it becomes clear that an entity granted approval under paragraph 6.26 of the said Policy is expressly given the benefit of deduction u/s 10B of the Act and such intendment is expressly contained in paragraphs 6.12(a) of the Policy. Therefore, it has been sought to be canvassed that the aforesaid judgement of the Hon'ble Delhi High Court be not followed in order to deny the assessee's claim for deduction u/s 10B of the Act. 9. On the other hand, the learned CIT-DR has defended the action of the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct has been specifically negated by the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). The other aspect raised by the learned Representative for the assessee to the effect that a conjoint reading of the Exim Policy/Foreign Trade Policy entitles the assessee to the benefits of section 10B of the Act, once the unit is approved as per the Exim Policy. No doubt, such a plea is not found to have been urged before the Hon'ble Delhi High Court, so however, having regard to the judicial discipline, the Tribunal being inferior to the High Court, cannot disregard the judgement of the High Court in the manner sought to be canvassed before us. The judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra) is a solitary decision of a High Court on this issue and squarely covers the controversy before us. Therefore, we are unable to find any fault in the action of the lower authorities in denying the claim of the assessee for deduction u/s 10B of the Act, based on the judgement of the Hon'ble Delhi High Court in the case of Regency Creations Ltd. (supra). 11. Before parting, we may also refer to the judgement of the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the Assessing Officer disallowed it during assessment proceedings. In this context, it is pointed out that assessee fulfills all the conditions laid down in section 10A of the Act and hence it is eligible for the claim of deduction u/s 10A of the Act. The learned counsel also relied upon the judgement of the Hon'ble Delhi High Court in the case of CIT vs. Valiant Communication Ltd. in ITA Nos.440 - 441/2012 dated 04.01.2013 in support that alternate claim for deduction u/s 10A of the Act is required to be examined if assessee was not held entitled to the benefits of section 10B of the Act. In this context, reliance has also been placed on the judgement of the Hon'ble Madras High Court in the case M/s Heartland KG Information Limited vs. CIT, (2013) 39 taxmann.com 132 (Madras). Reliance has also been placed on the following decisions of the Tribunal in the case of Cloud Softech India Pvt. Ltd. vs. ITO vide ITA No.483/HYD/2013 and ACIT vs. Yashwant Kanetkar vide ITA No.150/Nag/2012, wherein in similar situations it has been held that after rejection of claim u/s 10B of the Act, an assessee is entitled to raise the alternate claim for deduction u/s 10A of the Act, and, the income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot filed in the return of income, is quite erroneous. Pertinently, after denial of deduction u/s 10B of the Act in the assessment order, the earliest opportunity for the assessee to stake claim for deduction u/s 10A of the Act was before the CIT(A); and, the assessee made the claim before the CIT(A) along with the prescribed Audit Report in Form No.56F. The Hon'ble Delhi High Court in the case of Valiant Communications (supra) in similar circumstances held that the claim of the assessee for deduction u/s 10A of the Act is required to be examined in accordance with law. Pertinently, even in that case assessee had claimed deduction u/s 10B of the Act in the return of income, which was not allowed ultimately in the absence of the unit being approved by the Board appointed by the Central Government, whereas the unit was only registered with the STPI. The Hon'ble Delhi High Court directed the lower authorities to consider the claim of deduction u/s 10A of the Act in accordance with law. In the present case also, we find no reason to deny the assessee an opportunity to put-forth its claim for deduction u/s 10A of the Act with regard the profits of its STPI unit, subject of-course to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enter. As per the Assessing Officer, only the Pune Center was registered as a STPI Unit. The Assessing Officer noted that assessee had initially started its activity at Pune with prior approval of STPI authority. Subsequently, it started software development centers at Bangalore on 11.07.2006 and at Ahmedabad on 01.05.2008. The assessee was required to explain the different activities carried out at different centers. From the detail of activities carried out at different centers, the Assessing Officer noted that activities for development of software and other services was divided amongst all the three units of the assessee located at Pune, Ahmedabad and Bangalore. As per the Assessing Officer, assessee-company carried out various software development related works at Ahmedabad and Bangalore units but delivered the product or services from its Pune unit which is registered under STPI. It was also noticed that the units at Bangalore and Ahmedabad were not approved under STPI scheme and there was no export from units at Ahmedabad or Bangalore. It was also noted that assessee was not maintaining separate books of account in respect of the three units; nor the turnover or expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee u/s 10B of the Act. 19. Against the aforesaid, assessee is in appeal before us by way of raising the following Additional Ground of Appeal :- "The Ld. CIT((A) has erred on facts and in law in holding that the profit of ₹ 67,77,213/- is a markup of 20% on the expenditure attributable to Bangalore and Ahmedabad units and the same will not be eligible for deduction u/s 10B or 10A in respect of the profits." 20. The learned counsel submitted that the aforesaid Additional Ground emanates from the impugned order of the CIT(A) but it was not raised while filing the Memo of Appeal on the ground that since the deductions u/s 10A as well as under section 10B of the Act were disallowed by the CIT(A), the question of proportionate disallowance was inconsequential. So however, it is pointed out that the said ground is germane to the controversy and is relevant in order to determine the ultimate tax liability of the assessee. Therefore, on the basis of the judgement of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT, (1998) 229 ITR 383 (SC), it is submitted that the said Additional Ground be admitted for adjudication. 21. On the other hand, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services] held for the purposes of the eligible business are transferred to any other business carried on by the assessee, or where any goods [or services] held for the purposes of any other business carried on by the assessee are transferred to the eligible business and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the eligible business does not correspond to the market value of such goods [or services] as on the date of the transfer, then, for the purposes of the deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods [or services] as on that date : Provided that where, in the opinion of the Assessing Officer, the computation of the profits and gains of the eligible business in the manner hereinbefore specified presents exceptional difficulties, the Assessing Officer may compute such profits and gains on such reasonable basis as he may deem fit. [Explanation.--For the purposes of this sub-section, "market value", in relation to any goods or services, means the price that such goods or services would ordinarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be allowed in respect of profits attributable to Bangalore and Ahmedabad undertakings." 26. The moot point is as to whether the CIT(A) is justified in invoking section 10B(7)/10A(7) r.w.s. 80-IA(8) of the Act in the present case. In the present case, the business of the assessee is development of software and export thereof. The undertaking of the assessee at Pune is registered with STPI. There is no dispute that the exports are effectuated from the STPI unit at Pune. As per the assessee, the Bangalore and Ahmedabad centers are only support centers and are not distinct or separate units. The CIT(A) disagreed with the assessee and concluded that the Bangalore and Ahmedabad centers are distinct undertakings even though according to him, the specific jobs being executed by these centers were "inseparable part of software exported by Pune unit". 27. In this connection, the activities being carried out at different centers were detailed by the assessee before the lower authorities, and in particular the same has been extracted by the CIT(A) in para 3.4 of his order, which reads as under :- "Teams Used: From Pune: Delivery Team - Service Delivery Manager (SDM), Team Leader, Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on an eligible business as well as any other business. In this background, one is required to examine as to whether the Ahmedabad and Bangalore centers can be considered to be "any other business" being carried out by the assessee so as to fall within the meaning of section 80-IA(8) of the Act. 29. The factual matrix noted above does not suggest that the support centers at Ahmedabad and Bangalore carry out any other business. The activities being carried out can, at best be, considered as supporting activities to the activity of software development and exports effectuated from the STPI unit at Pune. The finding of the CIT(A) that the specific jobs being executed by the Ahmedabad and Bangalore centers are inseparable part of software development and export unit at Pune coupled with the findings of the Assessing Officer that the Bangalore and Ahmedabad centers do not have separate account books, expenditure or turnover reflects that the two centers cannot be said to be any other 'businesses' being run by the assessee. Therefore, considering the entirety of facts and circumstances, we are unable to concur with the Revenue that there exists "any other business" within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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