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TMI Blog2022 (10) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - 1464/PUN/2017, 25/PUN/2019, 2348/PUN/2017 - - - Dated:- 30-8-2022 - SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI S. S. VISWANETHRA RAVI, JUDICIAL MEMBER Revenue by : Shri Abhinay Kumbhar Shri S. P. Walimbe Revenue by : Shri Percy Jal Pardiwalla ORDER PER INTURI RAMA RAO, AM: These are five appeals under consideration. The appeals being ITA No.1464/PUN/2017 for A.Y. 2010-11, ITA No.2348/PUN/2017 for A.Y. 2011-12 are filed by the Revenue against the respective orders of ld. Commissioner of Income Tax (Appeals), Pune for the respective assessment years on record. The Cross Objection being C.O. No.25/PUN/2019 for A.Y. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the show-cause notice, the assessee company made detailed submissions vide his letter dated 25.03.2014 denying that it arranged its affairs with its AE entities to earn more than ordinary profits. It is further submitted that the average profit of the comparable determined as required under transfer pricing regulation cannot be regarded as the ordinary profits, and it is further contended that the TPO held that the transactions with its AEs are at arm s length, the profits earned by the assessee company should be accepted as ordinary profits. Rejecting the above submissions, the Assessing Officer held that the assessee company earned more than ordinary profits from transactions entered into with its AEs considering the average profits earned by the comparable companies is 22.31% as the ordinary profits, the balance was held to be extraordinary profit invoking the provisions of section 10B(7) r.w.s. 80IA(10) of the Act and proceeded to make disallowance of Rs.85,40,85,549/-. 7. Being aggrieved by the order of assessment, an appeal was filed before the ld. CIT(A) challenging the action of the Assessing Officer invoking the provisions of sub-section (7) of section 10B r.w.s. 80I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e unit at Pune was granted approval by the Director, STPI as 100% EOU vide approval letter dated March, 26, 2002 whereas unit at Hyderabad was granted approval by the Director, STPI as 100% EOU vide approval letter dated May 16, 2006. Therefore, the unit at Pune has been claiming the deduction u/s 10B of the Act since A.Y. 2003-04 and unit at Hyderabad has been claiming deduction u/s 10B of the Act since A.Y. 2007-08. The provisions of section 10B provides for exemption of income in the case of 100% EOU subject to prescribed conditions. The Explanation (2)(iv) below the said section defines 100% EOU, as approved by the Board appointed in this behalf by the Central Government u/s 14A of Industrial Development and Regulation Act, 1951. The assessee company was of the opinion that the registration with STPI is equivalent to an approval envisaged under the above said Explanation. The Assessing Officer, during the course of assessment proceedings, examined the claim and satisfied himself as to fulfilment of the conditions precedent for claiming deduction u/s 10B, had allowed the deduction u/s 10B of the Act. During the course of proceedings before the ld. CIT(A), the ld. CIT(A) held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Act. This issue was dealt by the Ahmedabad Bench of the Tribunal in the case of M/s Hitech Infosoft (supra) as follows :- This issue has been further clarified by Inter Ministerial Committee Communication dated 23.03.2006 issued by Secretary, Ministry of Telecommunications and Technologies. The salient features of this communication dated 23.03.2006 are reproduced as under:- 1. Software Technology Park of India (STPI) is a society owned and f administered by the Govt. of India and therefore is state under Article 12 of the Constitution of India. 2. The STPI Directors are duly authorized and fully empowered to issue approvals as 100% EOUs to the unit under the STP Scheme under delegated po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome academic. Therefore, grounds of appeal no.1 to 6 raised by the Revenue stands dismissed. 18. Ground of appeal no.7 challenges the decision of the ld. CIT(A) deleting the addition made by the Assessing Officer u/s 10B(7) r.w.s. 80IA(10) of the Act. During the course of assessment proceedings, the Assessing Officer noticed that the assessee company rendered software services to its AEs. The assessee company renders the software services from two software STPI units situated at Pune and Hyderbad. The assessee company had claimed the exemption of the profits derived from STPI under the provisions of section 10B of the Act. The Assessing Officer also observed that by virtue of arrangement entered into between the assessee company and its AEs, the assessee company made profits more than ordinary profits. In coming to this conclusion, the Assessing Officer observed that the assessee company reported profit margin of 44.29% as compared to 32.31% earned by the comparable companies in the TP study report submitted by the assessee company. Therefore, the Assessing Officer formed an opinion that the provisions of section 10B r.w.s. 80IA(10) are squarely applicable and, accordingly, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80IA(10) are applicable only in respect of profits earned in India with domestic entities. He also submits that the Assessing Officer had failed to prove the existence of any arrangement between the assessee company and its AEs, as a result of which, the assessee company made more than ordinary profits. He also placed reliance on the decision of the Hon ble Karnataka High Court in the case of CIT vs. H.P. Global Soft Ltd., 342 ITR 263 (Kar.) He further submitted that in the absence of any material on record to indicate that the course of business is so arranged, to inflate profits, the Assessing Officer was not justified in invoking the provisions of section 10(7) of the Act. He also submitted that in the absence of any material on record to show that the profits derived by the assessee company are more than the ordinary business, the abnormal high profits were due to the extraordinary arrangement between the assessee and its foreign AEs, the provisions of section 10(7) cannot be invoked. Mere extraordinary profits cannot lead to the conclusion that there is an arrangement between the assessee company and its AEs. 23. We have heard the rival contentions and perused the materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). 24. Further, 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. The Hon ble Karnataka High Court in the case of CIT vs. HP Global Soft Ltd. 342 ITR 263 (Kar) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on the facts and in the circumstances of the case and in law in allowing alternate claim of the assessee for deduction u/s. 10A of the Act ignoring decision of the Hon. Supreme Court in the case of CIT vs Shelly Products reported in 129 Taxmann 271 wherein it has been held that the assessing authority may grant relief to an assessee if an assessee by mistake or inadvertence or on account of ignorance, included in his income any amount, which is exempted from payment of income-tax, or is not income within the contemplation of law, which is clearly not established in this case. 6. On the facts circumstance of the case, the learned Commissioner of Income Tax (Appeals) grossly erred in ignoring the section 10A(5) of the Act as per which deduction u/s 10A cannot be allowed unless report of an accountant is furnished in prescribed From No.56F certifying that deduction has been correctly claimed as per law in this case, Form No.56F has been filed on 26/10/2016 which is beyond the prescribed date as From No.56F was not filed with the Return of Income. Claiming deduction u/s. 10B in original return by filing Form No. 56G and making alternate claim u/s. 10A by filing Form No. 56F ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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