2016 (3) TMI 740 - AT - Income Tax

Appeal partially allowed, remanded for reconsideration of alternative claim, focus on procedural fairness

The Tribunal partly allowed the appeal, denying the deduction under section 10B but remanding the case for reconsideration of the alternative claim under ... Deduction under section 10B - - STPI unit - Held that:- Admittedly, the assessee before us is 100% EOU unit and has been set up under the STPI Scheme and has requisite approval from STPI. However, for availing deduction under section 10B of the Act, the assessee should be 100% EOU set up as specified under Explanation 2(iv) below section 10B of the Act, which defines 100% EOU as an undertaking so approved by the Board appointed in this behalf by the Central Government under section 14 of the Industries Development and Regulation Act, 1951. The assessee admittedly is not so registered or approved by the Development Commissioner, which are ratified by Board of approval. In view of the ratio laid down by the Hon'ble Delhi High Court in CIT Vs. Regency Creations Ltd. (2012 (9) TMI 627 - DELHI HIGH COURT) we hold that the assessee is not entitled to the said claim of deduction under section 10B - Decided against assessee Alternate plea of the assessee in respect of allowability of deduction under section 10A of the Act in place of section 10B - Held that:- The issue before us is identical to the issue before the Tribunal in Clarion Technologies (P.) Ltd. Vs. DCIT (2014 (11) TMI 141 - ITAT PUNE) and following the same parity of reasoning, we deem it fit to remand the issue back to the file of Assessing Officer to verify the claim of the assessee for deduction under section 10A of the Act in accordance with law. - Decided in favour of assessee for statistical purposes. Issues Involved:1. Claim of deduction under section 10B of the Income-tax Act, 1961.2. Alternative claim of deduction under section 10A of the Income-tax Act, 1961.Detailed Analysis:1. Claim of Deduction under Section 10B of the Income-tax Act:The primary issue in the appeal was the assessee's claim for deduction under section 10B of the Income-tax Act, 1961. The assessee, a 100% Export Oriented Unit (EOU) engaged in software development, declared a total income of NIL after claiming a deduction of Rs. 69,68,017 under section 10B. The Assessing Officer (AO) denied this claim, stating that the assessee did not fulfill the conditions for a 100% EOU as it was not approved by the Board appointed by the Central Government under section 14 of the Industries Development and Regulation Act, 1951. The AO referred to the Hon'ble Delhi High Court's decision in CIT Vs. Regency Creations Ltd., which held that only units approved by the Board qualify as 100% EOUs under section 10B. Consequently, the AO disallowed the deduction under section 10B.Upon appeal, the CIT(A) upheld the AO's decision, reiterating that the assessee did not meet the requirements of section 10B as it lacked the necessary approval from the Development Commissioner. The Tribunal, following the precedent set by the Hon'ble Delhi High Court in CIT Vs. Regency Creations Ltd. and the Pune Bench of Tribunal in Clarion Technologies (P.) Ltd. Vs. DCIT, affirmed that the assessee was not entitled to the deduction under section 10B.2. Alternative Claim of Deduction under Section 10A of the Income-tax Act:The assessee made an alternative plea for deduction under section 10A, which was also denied by the AO and CIT(A) on the grounds that the assessee did not fulfill the procedural requirements, such as claiming the deduction in the return of income and furnishing the specified audit report.The Tribunal, however, took a different view. It referred to the Pune Bench of Tribunal's decision in Clarion Technologies (P.) Ltd. Vs. DCIT, which allowed an alternate plea for deduction under section 10A even if the procedural requirements were not initially met, provided the claim was substantiated later. The Tribunal noted that the assessee's unit was approved under the STPI scheme and thus prima facie eligible for deduction under section 10A, subject to fulfilling other conditions.The Tribunal remanded the matter back to the AO to verify the claim for deduction under section 10A, allowing the assessee to furnish the necessary documents and evidence. The AO was instructed to provide a reasonable opportunity of hearing to the assessee and adjudicate the claim in accordance with the law.Conclusion:The Tribunal partly allowed the appeal, denying the deduction under section 10B but remanding the case for reconsideration of the alternative claim under section 10A. The decision emphasized adherence to procedural requirements while also ensuring that genuine claims are not dismissed on technical grounds alone. The order was pronounced on 30.12.2015.