2014 (3) TMI 1200 - AT - Income Tax

Tribunal upholds CIT's order on deduction period, remands staffing income assessment to AO

The Tribunal dismissed the appeal, upholding the CIT's order under Section 263. It affirmed that the ten-year deduction period under Section 10A should ... Revision u/s 263 by CIT - Deduction u/s 10A - full benefit of section 10A for a total period of 10 assessment years - Assessee submitted that the period of 8 years, as applicable to it, commenced from assessment year 1995-96. Thus, under the normal circumstances, the benefit u/s. 10A was available to us till assessment year 2002-03 - Argument of the assessee that the order of the Assessing Officer has merged with the order of the Commissioner of Income-tax (Appeals) and was no longer amenable to revision u/s. 263 - HELD THAT:- In the present case admittedly, the question as to the number of years for which the assessee was entitled for deduction u/s. 10A was not a matter that was considered and decided in the appeal preferred by the assessee against the order of the Assessing Officer. Even the question as to whether the income from staffing was to be regarded as eligible for deduction u/s. 10A of the Act, was not a matter of consideration and decision in the appeal before the Commissioner of Income-tax (Appeals). The Legislature was fully conscious of the fact that the Commissioner of Income-tax (Appeals) in an appeal against the order of assessment has powers of enhancement and that power can be exercised to tax income which the Assessing Officer has expressly or by clear implication considered and held to be not taxable. The language used in Explanation (c) to section 263(1) is 'power shall extend to such matters as had not been considered and decided in such appeal'. If either in the normal course or in exercise of powers of enhancement by the Commissioner of Income-tax (Appeals), in an appeal against the order of assessment, a matter has not been considered or decided, then the power of CIT u/s. 263 shall extend to such matters. There can be no question of the merger of the order of the Assessing Officer with that of the Commissioner of Income-tax (Appeals) so as to bar exercise of jurisdiction by the CIT u/s. 263 of the Act. The decisions relied upon by the learned DR support the plea that different facets of a deduction in particular provisions of the Act can be considered in proceedings u/s. 263 of the Act as long as they had not been considered by the Assessing Officer or the Commissioner of Income-tax (Appeals). According to us, the preponderance of judicial opinion is in favour of the stand taken by the Revenue. We may also hold that the powers u/s. 263 is to safeguard the interests of Revenue. It is a supervisory power which is coupled with fulfilment of two conditions for exercise of such power, namely erroneous order and such order being prejudicial to the interests of Revenue. Any interpretation placed on the section has to be to further the purpose for which it is enacted. How to reckon the period of 10 consecutive assessment years in the case of the Assessee? - In the case of the Assessee for AYs 1995-96 to 1997-98 the Assessee could not get the benefit of deduction u/s. 10A of the Act, may be due to absence of profits or by exercise of its option to choose the following 5 years to claim deduction u/s. 10A as per the law as it existed then. According to the law as it existed upto AY 2000-01 the Assessee could have claimed deduction only upto AY 2002-03 the end of the 8 year period from 1995-96. The Assessee claimed deduction u/s. 10A for AYs 1998-99 to 2001-02. The Assessee opted out of the provisions of Sec. 10A of the Act by virtue of the provisions of Sec. 10A(8) of the Act which gives such opting out to an Assessee for AYs 2002-03 to 2004-05. In the case of the Assessee, the band of 10 years as per the amended law would be from 1995-96 to 2004-05 only. As rightly held by the CIT opting out of the provisions of Sec. 10A will not have the effect of extending the band period of 10 years. Assessee could thus get the benefit of the amended law applicable from AY 2001-02 only for 2 more years viz,, A.Ys. 2003-04 & 2004-05. As rightly held by the CIT in the impugned order, the amendment, in the case of the Assessee, had the effect of only extending the period by 2 more years. As rightly held by the CIT the provision for opting out of the provisions of Sec. 10A of the Act is intended to facilitate an Assessee who can get more benefit under any other provisions of the deduction under Chapter VIA of the Act. That provision cannot extend the period of benefit beyond 10 years from the previous year relevant to Assessment year in which the Assessee begins to manufacture or produce articles or things. We also find that the CIT has not dealt with the argument of the Assessee that the period of 10 years have to be reckoned by considering the 10 different units of the STPI of the Assessee as given in the annexure to this order. This submission is without any basis as the Assessee has always been treating the units as one industrial undertaking and claiming deduction. Whether income from staffing can be said to be income eligible for deduction u/s. 10A of the Act.? - The question of examining the same in our view would be academic as the Assessee is found to be not entitled to deduction u/s. 10A. Nevertheless, we find that the AO while concluding the assessment made no enquiries whatsoever on this aspect. Therefore exercise of jurisdiction u/s. 263 of the Act was justified. The further direction to the AO to examine the agreements and thereafter decide the issue afresh, in our view, is also a fair direction, calling for no interference. - Thus we uphold the order u/s. 263 of the Act and dismiss the appeal by the Assessee. Issues Involved:1. Interpretation of the period of ten consecutive years for claiming deduction under Section 10A of the Act.2. Eligibility of income derived from staffing for deduction under Section 10A.3. Whether the order of the Assessing Officer (AO) merged with that of the Commissioner of Income-tax (Appeals) (CIT(A)).Issue-wise Detailed Analysis:1. Interpretation of the Period of Ten Consecutive Years for Claiming Deduction under Section 10A:The CIT, in its order, questioned whether the assessee was entitled to deduction under Section 10A for the Assessment Year (AY) 2008-09. The CIT argued that the assessee began manufacturing in AY 1998-99, and thus the ten-year period expired with AY 2007-08. The assessee contended that the ten-year period should start from AY 1998-99 due to an amendment effective from AY 1999-00, which extended the deduction period from five to ten years. The CIT rejected this, stating that the period of ten consecutive years should be reckoned from the year the assessee began manufacturing (AY 1995-96), thus ending in AY 2004-05.The Tribunal upheld the CIT's view, affirming that the ten-year period is fixed and cannot be extended by opting out of the provisions for certain years. The period of ten consecutive years must be calculated from the year the assessee began manufacturing, which in this case was AY 1995-96, thus ending in AY 2004-05.2. Eligibility of Income Derived from Staffing for Deduction under Section 10A:The CIT also argued that the income derived from staffing services did not qualify for deduction under Section 10A, as it was not considered income from the export of computer software. The assessee contended that its staffing services were part of its Information Technology Enabled Services (ITES) and should qualify for deduction under Section 10A, citing a CBDT notification that included 'Human Resource Services' within the definition of computer software.The Tribunal found that the AO had not made any inquiries regarding the nature of the staffing income during the assessment. Therefore, the CIT's direction to the AO to re-examine the nature of the staffing income was justified. The Tribunal upheld the CIT's order, directing the AO to examine the agreements and decide the issue afresh.3. Whether the Order of the AO Merged with that of the CIT(A):The assessee argued that the order of the AO had merged with the order of the CIT(A) and was thus beyond the scope of revision under Section 263. The CIT(A) had only considered the issue of proper determination of export turnover and total turnover for availing deduction under Section 10A, not the period of deduction or the nature of staffing income.The Tribunal found that the issues raised by the CIT in the revision order were not considered and decided by the CIT(A). According to Explanation (c) to Section 263(1), the CIT's powers extend to matters not considered and decided in an appeal. Therefore, the Tribunal concluded that the order of the AO had not merged with that of the CIT(A), allowing the CIT to exercise jurisdiction under Section 263.Conclusion:The Tribunal dismissed the appeal by the assessee, upholding the CIT's order under Section 263. The Tribunal affirmed that the period of ten consecutive years for claiming deduction under Section 10A should be reckoned from the year the assessee began manufacturing, and the income from staffing services required further examination by the AO. The Tribunal also concluded that the order of the AO had not merged with that of the CIT(A), allowing the CIT to revise the AO's order under Section 263.