2015 (7) TMI 110 - AT - Income Tax

Tribunal ruling on tax deductions and benefits under sections 10B and 92-C, emphasizing legislative intent

The Tribunal partly allowed the assessee's appeal, dismissing the Revenue's appeal and the assessee's cross-objection. It emphasized the legislative ... Enlargement of the scope of the order passed by the CIT - 1 under section 263 - Held that:- Admittedly in this case the original assessment was set aside by the CIT -1 vide his order dated 27-9-2007. We have carefully gone through the directions issued by the CIT-1 confirmed by the Tribunal. There is no dispute that the CIT-1 has issued directions firstly in respect of the claim of deduction u/s 10B of the Act keeping in mind the provisions of section 10B(3) of the Act and subsequently the CIT -1 directed the A.O. to refer the matter to the TPO. Considering the assessment order made by the A.O. pursuant to the directions of the CIT-1 u/s 263 of the Act, we have no hesitation to hold that the A.O. has enlarged the scope of the order of the CIT-1. The observation of the ld. CIT(A) that the power of the CIT(A) are plenary power and the CIT(A) can do what the A.O. can do is misplaced for the simple reason that the CIT(A) cannot do what the A.O. cannot do. In the case in hand, the A.O. cannot enlarge the scope of the directions of the CIT issued u/s 263 of the Act, therefore, the CIT(A) also cannot enlarge the same. We, accordingly, set aside the findings of the ld. CIT(A)- Decided in favour of assessee. Disallowance of deduction u/s 10B in respect of the addition suo motu made by the assessee u/s 92-C - Held that:- In our considered opinion and understanding of the law and the understanding of the legislative intention, we cannot permit the assessee to stretch the benevolent provision to avail the benefit which the legislature never intended to. In the case in hand, there is no dispute that the assessee has under priced its services to AE’s and therefore made transfer pricing adjustment suo moto. This peculiar conduct of the assessee, if allowed to claim deduction u/s 10B of the Act will go against the legislative intention. We, therefore, decline to interfere with the finding of the lower authorities. In our considered opinion, the assessee is not entitled for deduction u/s 10B in respect of the addition of ₹ 4,09,54,804/- suo moto made by the assessee as per Form 3CEB. The cases relied upon by the assessee have not considered the relevant provisions of the Act with legislative intent and are therefore distinguished from peculiar facts and modus operandi of the case in hand.- Decided against assessee. Computation of amount eligible for exemption u/s 10B of the Act by setting of the losses of non-STPI unit - Held that:- This issue is squarely covered in favour of the assesse and against the Revenue by the decision of the Hon’ble High Court of Bombay in the case of CIT vs. Black and Veatch Consulting Pvt. Ltd., [2012 (4) TMI 450 - BOMBAY HIGH COURT ] wherein held the deduction under section 10A has to be given at the stage when the profits and gains of business are computed in the first instance. The Tribunal was right in holding that the deduction under section 10A in respect of the allowable unit under section 10A has to be allowed before setting off brought forwarded losses of a non-section 10A unit - Decided in favour of assessee. Issues Involved:1. Enlargement of the scope of the order passed by the CIT under section 263 of the Income Tax Act, 1961.2. Disallowance of deduction under section 10B in respect of the addition suo motu made by the assessee under section 92-C of the Act.3. Computation of the amount eligible for exemption under section 10B of the Act by setting off the losses of non-STPI unit.4. Allowing interest under sections 234B and 234C of the Act.5. R&D expenses nexus with the business of the export unit of the assessee at Visakhapatnam.Issue-wise Detailed Analysis:1. Enlargement of the scope of the order passed by the CIT under section 263 of the Income Tax Act, 1961:The assessee argued that the Assessing Officer (A.O.) exceeded the directions given by the CIT under section 263. The CIT had directed the A.O. to refer the matter to the Transfer Pricing Officer (TPO) and finalize the assessment de novo. The CIT(A) noted that the A.O. should not have touched upon issues not directed by the CIT. However, the CIT(A) held that his powers are coterminous with that of the A.O. and can do what the A.O. can do. The Tribunal found that the A.O. had indeed enlarged the scope beyond the CIT's directions and set aside the findings of the CIT(A), allowing the assessee's appeal on this ground.2. Disallowance of deduction under section 10B in respect of the addition suo motu made by the assessee under section 92-C of the Act:The A.O. disallowed the deduction under section 10B for the amount added suo motu by the assessee under section 92-C, arguing that the increased profit was not brought into India in convertible foreign exchange. The Tribunal noted that the legislative intent of section 10B is to grant tax holidays only when foreign exchange is brought into India. Allowing the assessee to claim deduction under section 10B for suo motu adjustments would go against this intent. Consequently, the Tribunal upheld the lower authorities' decision to disallow the deduction.3. Computation of the amount eligible for exemption under section 10B of the Act by setting off the losses of non-STPI unit:The assessee contended that the amount eligible for deduction under section 10B should be computed without setting off brought forward losses. The Tribunal referred to the Bombay High Court's decision in CIT vs. Black and Veatch Consulting Pvt. Ltd., which held that the deduction under section 10A (similar to section 10B) should be given effect before setting off brought forward losses. Following this precedent, the Tribunal directed the A.O. to compute the eligible amount for deduction under section 10B without setting off the brought forward losses.4. Allowing interest under sections 234B and 234C of the Act:The Tribunal stated that the levy of interest under sections 234B and 234C is mandatory though consequential. The A.O. was directed to charge interest as per the provisions of law.5. R&D expenses nexus with the business of the export unit of the assessee at Visakhapatnam:The Revenue argued that the R&D expenses should not be set off against the export income. The Tribunal found that this issue was consequential and related to the outcome of the first issue, which was decided in favor of the assessee. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.Conclusion:The appeal filed by the assessee was partly allowed, while the appeal filed by the Revenue and the cross-objection filed by the assessee were dismissed. The Tribunal emphasized the legislative intent behind sections 10B and 92-C, ensuring that the provisions are not misused to claim undue benefits.