2020 (7) TMI 625 - AT - Income Tax

Tribunal Partially Allows Appeals, Remits Claim for Reconsideration

M/s. Krythium Solutions Private Limited, C/o. Menon & Pai Advocates Versus The Asst. Commissioner of Income-tax, Circle 1 (2) Kochi.

The Tribunal partially allowed the appeals, remitting the alternative claim for deduction under Section 10A to the Assessing Officer for reconsideration. ... Deduction u/s 10B denied - alternative claim of deduction u/s 10A was not entertained by the CIT(A) primarily for the reason that the assessee had not claimed the same in original returns filed - audit report is not filed in Form No.56F along with the original return - HELD THAT:- The basis of denying the claim of deduction u/s 10B of the I.T.Act is on account of the dictum laid down by the Hon’ble Delhi High Court in the case of CIT v. Regency Creations Limited [2012 (9) TMI 627 - DELHI HIGH COURT] wherein it was held that the assessee not having got the necessary approval from the appropriate authority under the statute, was not entitled to deduction u/s 10B of the I.T.Act. However, the above said judgment of the Hon’ble Delhi High Court was modified in the Review Petition in the case of CIT v. Valiant Communications Ltd. [2012 (9) TMI 627 - DELHI HIGH COURT]wherein the matter was remitted to the Tribunal to consider the assessee’s alternative claim u/s 10A of the I.T.Act. In the instant case, the registration obtained by the assessee from the Director, STPI, Thiruvananthapuram constitutes as a valid approval for the purpose of deduction u/s 10A of the I.T.Act.The Delhi High Court in the case of CIT v. Technovate E Solutions P.Ltd. [2013 (3) TMI 372 - DELHI HIGH COURT] after considering the CBDT Instruction No.1 of 2006 dated 13.03.2006 and the letter issued by the Board dated 06.05.2009, held that when the EOU has obtained registration from the Director of STPI, the same is entitled to deduction u/s 10A of the I.T.Act. Therefore, the registration dated 23.03.2006 obtained by the assessee from the Director of STPI, Thiruvananthapuram is sufficient compliance for the purpose of claiming deduction u/s 10A of the I.T.Act. Deduction u/s 10B and 10A of the I.T.Act is pari materia. When claim u/s 10B of the I.T.Act was denied, the assessee made alternative claim u/s 10A of the I.T.Act. The alternative claim of deduction u/s 10A of the I.T.Act was not considered by the A.O. nor the CIT(A). In the interest of justice and equity, the issue of claim of deduction u/s 10A of the I.T.Act is restored to the A.O. The A.O. shall examine whether the assessee has satisfied the conditions mentioned for claiming deduction u/s 10A of the I.T.Act and accordingly grant deduction. The assessee had filed audit report in Form No.56F for claiming alternative claim of deduction u/s 10A of the I.T.Act. The provision regarding the filing of audit report along with the return of income is only directory and not mandatory. The audit report can be filed either during the course of assessment proceedings or during the appellate proceedings. We rely on the judgment of the Hon’ble Delhi High Court in the case of CIT v. Web Commerce (India) Private Limited [2008 (12) TMI 13 - HIGH DELHI COURT]. Therefore, even if the audit report is not filed in Form No.56F along with the original return, it is not fatal, provided the assessee subsequently files the same and satisfy all other conditions mentioned for claiming deduction u/s 10A of the I.T.Act. Appeals filed by the assessee are partly allowed for statistical purposes. Issues Involved:1. Validity of reopening of assessments for the assessment years 2007-2008 to 2009-2010.2. Denial of deduction under Section 10B of the I.T. Act.3. Alternative claim for deduction under Section 10A of the I.T. Act.Detailed Analysis:1. Validity of Reopening of Assessments:The assessee contested the reopening of assessments for the years 2007-2008 to 2009-2010. The original assessments were completed under Section 143(3) of the I.T. Act, accepting the deduction claimed under Section 10B. The assessments were reopened based on the judgment of the Hon'ble Delhi High Court in CIT v. Regency Creations Ltd., which held that the assessee did not fulfill the conditions for deduction under Section 10B. The CIT(A) upheld the reopening, stating that the assessee's initial claim was a mistake and the reopening was justified to tax income escaping assessment.2. Denial of Deduction under Section 10B:The Assessing Officer (A.O.) and the CIT(A) denied the deduction under Section 10B for the relevant assessment years, relying on the Delhi High Court's judgment in CIT v. Regency Creations Ltd. The judgment stated that the necessary approval from the appropriate authority was not obtained, making the assessee ineligible for the deduction under Section 10B.3. Alternative Claim for Deduction under Section 10A:The assessee made an alternative claim for deduction under Section 10A during the reassessment proceedings for the years 2007-2008 to 2009-2010 and before the first appellate authority for the year 2011-2012. The A.O. and CIT(A) rejected this claim, stating that it was not made in the original return of income and could not be entertained in reassessment proceedings. The CIT(A) also noted that his powers were limited to the assessment order and issues contained therein, and he could not entertain new claims not raised before the A.O.The Tribunal, however, found that the alternative claim under Section 10A should be considered. It noted that the conditions for deductions under Sections 10A and 10B are similar, except for the registration authorities. The Tribunal cited the Delhi High Court's modification in CIT v. Valiant Communications Ltd., which remitted the matter to consider the alternative claim under Section 10A. Additionally, the Tribunal referred to the jurisdictional High Court's decision in CIT v. Flytxt Technology P. Ltd., which supported considering the alternative claim even if not initially raised in the return of income.The Tribunal emphasized that the restriction on entertaining new claims through revised returns applies only to the assessing authority, not appellate authorities. It also referenced the CBDT Circular No.14 (XL-35) dated 11.04.1955, which clarifies that revenue should not take advantage of the assessee's ignorance and should assist in claiming legitimate allowances.The Tribunal concluded that the assessee's registration from the Director, STPI, Thiruvananthapuram, was valid for claiming deduction under Section 10A. It remitted the issue to the A.O. to examine the conditions for claiming deduction under Section 10A and grant it if satisfied. The Tribunal also noted that the audit report in Form No.56F, required for claiming deduction under Section 10A, can be filed during assessment or appellate proceedings, not necessarily with the original return.Conclusion:The Tribunal partially allowed the appeals for statistical purposes, remitting the alternative claim for deduction under Section 10A to the A.O. for reconsideration. The grounds regarding the validity of reopening assessments for the years 2007-2008 to 2009-2010 were not adjudicated due to the remittance of the main issue. The Tribunal's order emphasized the need for a fair assessment, considering the assessee's alternative claims and ensuring compliance with procedural requirements.