Tribunal upholds denial of exemption under section 10B but allows deduction under section 10A for software export profits.

Clarion Technologies Pvt. Ltd. Versus Dy. Commissioner of Income Tax

Clarion Technologies Pvt. Ltd. Versus Dy. Commissioner of Income Tax - TMI Issues Involved:
1. Eligibility for exemption under section 10B of the Income Tax Act.
2. Alternate claim for deduction under section 10A of the Income Tax Act.
3. Quantum of deduction under section 10B.
4. Disallowance under section 14A of the Income Tax Act.

Detailed Analysis:

1. Eligibility for Exemption under Section 10B:

The primary issue revolves around the eligibility of the assessee for exemption under section 10B of the Income Tax Act. The assessee's unit was registered with the Software Technology Park of India (STPI) and claimed exemption under section 10B. The Assessing Officer denied this claim based on the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Regency Creations Ltd., which held that approval by the STPI is not sufficient for section 10B benefits; the approval must come from the Board appointed by the Central Government under section 14 of the Industries (Development and Regulation) Act, 1951. The CIT(A) concurred with the Assessing Officer. The Tribunal upheld this view, stating that the approval by the Director, STPI, does not meet the requirement specified in Explanation 2(iv) below section 10B of the Act.

2. Alternate Claim for Deduction under Section 10A:

The assessee raised an alternate plea for deduction under section 10A of the Act, which was also denied by the CIT(A) on the grounds that the assessee did not demonstrate compliance with all the requirements, including furnishing the specified Audit Report in Form No.56F. The Tribunal found merit in the assessee's argument that the claim for section 10A was made after the disallowance of section 10B and directed the Assessing Officer to verify the claim for deduction under section 10A, considering the Form No.56F furnished by the assessee and any other relevant material.

3. Quantum of Deduction under Section 10B:

The Assessing Officer limited the deduction under section 10B to the profits of the Pune unit only, as the units at Bangalore and Ahmedabad were not registered under STPI. The CIT(A) upheld this view but re-computed the profits of the non-STPI units with a markup of 20% on their expenditure. The Tribunal disagreed with the CIT(A), stating that the activities at Bangalore and Ahmedabad were inseparable parts of the software exported from the Pune unit and did not constitute "any other business" within the meaning of section 80-IA(8). Thus, the Tribunal held that the entire profits from the software development and export should be eligible for deduction under section 10B or 10A, as applicable.

4. Disallowance under Section 14A:

The assessee did not press the ground regarding the disallowance of Rs. 1,29,852/- under section 14A of the Act, and the Tribunal dismissed this ground accordingly.

Conclusion:

The Tribunal upheld the denial of exemption under section 10B based on the requirement for approval by the Board appointed by the Central Government. However, the Tribunal directed the Assessing Officer to consider the alternate claim for deduction under section 10A, subject to verification of compliance with the prescribed conditions. The Tribunal also ruled that the entire profits from the software development and export should be eligible for deduction, rejecting the proportionate disallowance applied by the lower authorities. The disallowance under section 14A was dismissed as not pressed.