IT : Deduction under section 80HHC can be availed from total income
computed after setting off unabsorbed depreciation of earlier years
■■■
[2013] 31 taxmann.com 389 (Karnataka)
HIGH COURT OF KARNATAKA
J.K. Industries Ltd.
v.
Assistant Commissioner of Income-tax, Circle-1(1)*
D.V. Shylendra Kumar AND B. SREENIVASA GOWDA, JJ.
IT Appeal No. 1105 of 2006
FEBRUARY 19, 2013
Section 80HHC, read with section 32, of the Income-tax Act, 1961 -
Deductions - Exporters [Computation of deduction] - Assessment year
1997-98 - Whether deduction under section 80HHC is allowable to an
exporter only after adjustment of unabsorbed depreciation of earlier
years from current year profit - Held, yes [Para 35] [In favour of
revenue]
Words and Phrases : Expression 'total income' as occurring in section
80HHC of the Income-tax Act, 1961
FACTS
■ The assessee in respect of its export turnover claimed deduction
under section 80HHC from its total taxable income for the Assessment
year 1997-98. The Assessing Officer found that there was unabsorbed
accumulated depreciation of earlier years. He first reduced the same
against the total income offered by the assessee and found that in the
result there was no taxable income. Therefore, he did not allow the
claim of the assessee.
■ On appeal, the Commissioner (Appeals) allowed the claim of the
assessee. On revenue's appeal, the Tribunal disallowed the claim and
opined that unabsorbed depreciation of earlier years should be first
factored in, while arriving at the taxable income and against the
balance available, deduction under section 80HHC can be claimed.
■ On appeal :
HELD
■ In arriving at the income, in the sense, whether total income,
gross total income or taxable income, so long as the unabsorbed losses
of the earlier years permitted to be carried forward and unabsorbed
depreciation allowance of earlier years brought forward are permitted
to be set off against the profits of the year in question, that is
determinative of the question of availability or otherwise of the
income against which the assessee can claim a deduction under section
80HHC or for that matter, under any other section of Chapter VI-A of
the Act. [Para 29]
■ Section 32 deals with the manner of allowing depreciation
allowance and also provides for taking forward unabsorbed depreciation
allowance of any year. Whether such brought forward depreciation of
earlier years is treated as depreciation of the current year by
fiction of law and otherwise, is also permitted by the language of
section 32(2) is the case in the present situation. The net result is
that such amount is allowed as an allowance or reduction in arriving
at the taxable income of the assessee. [Para 30]
■ It is here that the concept of positive profit has significance
as the positive profit is only after providing for such allowance and
the losses as is enabled under section 72. Insofar as provisions of
section 80HHC is concerned, it is no doubt true that it is a
beneficial provision which provides for incentive benefit to an
assessee who has export business and of the nature as is mentioned in
the section. The only significance insofar as section 80HHC is
concerned, is said profits for computing the amount which qualifies
for benefit under section 80HHC. It is only for such exercise all the
provisions of section 80HHC (1), (2) and (3) exist. On the basis of
the Judgment of the Supreme Court, the provisions of section 32 has no
direct bearing on the provisions of section 80HHC. The effect in
claiming benefit is felt when the assessee's claim is made under
section 80HHC(1). In the context of computing total income of the
assessee and even in computation of the total income, the depreciation
allowance whether for the current year or unabsorbed depreciation of
earlier years necessarily is factored. It is only after making
adjustments against these carried forward losses or unabsorbed
depreciation allowance the true profits and positive profits can be
arrived at. [Para 31]
■ The expression 'total income' which occurs even in section 80HHC
is total income with reference to section 5 and as expressly defined
in section 2(45). In arriving at the total income even as per the
provisions of the Act, depreciation is a factor which is always to be
taken into consideration and is in no way regulated or controlled by
the provisions of section 80HHC. [Para 32]
■ In the present situation, the assessee had unabsorbed allowance
of the earlier three assessment years and the benefit of section 80HHC
can be claimed only against total income of the assessee for the
current year as determined after allowing for the absorption of
unabsorbed depreciation allowance of the earlier years against the
profits of the assessee for the year. [Para 33]
■ As per Supreme Court's Judgments deduction can be claimed only
against positive profits and positive profit necessarily implies the
adjustments and set off of the depreciation allowance of earlier years
and carried forward losses of earlier years. The benefit under section
80HHC can be claimed only after the unabsorbed depreciation of the
earlier years is adjusted against the profits of the current year and
then only the benefit extended under section 80HHC can be given effect
to. [Para 35]
CASE REVIEW
IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594 (SC)
(para 35) followed. CIT v. Shirke Construction Equipment Ltd. [2007]
291 ITR 380/161 Taxman 212 (SC) (para 29) distinguished.
CASES REFERRED TO
CIT v. Gogineni Tobacco Ltd.[1999] 238 ITR 970 (AP) (para 6), CIT v.
Tarun Udyog[1991] 191 ITR 688 (Ori.) (para 6), IPCA Laboratory Ltd. v.
Dy. CIT[2004] 266 ITR 521/135 Taxman 594 (SC) (para 7), Vippy Solvex
Products Ltd. v. CIT[2005] 273 ITR 107/144 Taxman 13 (MP) (para 7),
A.M. Moosa v. CIT[2007] 294 ITR 1/163 Taxman 741 (SC) (para 17), CIT
v. Shirke Construction Equipment Ltd.[2007] 291 ITR 380/161 Taxman 212
(SC) (para 19) and CIT v. Sharon Vaneers (P.) Ltd.[2007] 294 ITR
18/[2008] 168 Taxman 273 (Mad.) (para 20).
A. Shankar for the Appellant. E.R. Indrakumar and E.I. Sanmathi for
the Respondent.
JUDGMENT
Dr. Shylendra Kumar, J. - This appeal by the assessee under section
260-A of the Income Tax Act, 1961 [for short 'the Act'] in respect of
the Assessment Year 1997-98 seeking for determination of the following
substantial questions of law as arising out of the order of the
Tribunal.
"1. Whether on the facts of the case the Tribunal was justified in
law in holding that the benefit of deduction under section 80HHC of
the Act can be availed by the assessee only on the total income as
computed after setting off the unabsorbed depreciation of the earlier
years?
2. Whether the method of computation of deduction under section
80HHC as approved by the Tribunal is valid in law on the facts of the
present case?
3. Whether on the facts and circumstances of the case benefit of
section 80HHC of the Act can be claimed on the total income after
deduction of unabsorbed losses and unabsorbed depreciation or
otherwise?"
2. The assessee is a limited company and insofar as the present appeal
is concerned, is aggrieved by the order of the Tribunal in taking the
view that the Appellate Commissioner had committed an error in
allowing the appeal of the assessee and to hold that the benefit of
deduction claimed by the assessee under section 80HHC of the Act could
not have been allowed before setting off the accumulated unabsorbed
depreciation of the earlier years.
3. The brief facts insofar as the question in issue is concerned is
that the assessee had export business and manufacturer of tyres and
exports some part of its production. It is in respect of the export
turnover, the assessee had put forth a claim for deduction from out of
its assessable income under the provisions of section 80HHC of the
Act.
4. The assessee had quantified the benefit available to the assessee
under section 80HHC of the Act for the accounting period relevant for
the assessment year in a sum of Rs.7,52,92,016/- and this amount had
been reduced from its total taxable income for the year in question
which was at a sum of Rs. 11,80,40,798/-.
5. The Assessing Officer found that there was unabsorbed accumulated
depreciation of the earlier years in a sum of Rs. 11,95,60,654/-,
first set off the accumulated depreciation amount of the earlier years
against the available total income offered by the assessee, and found
that net result was there was no taxable income and therefore did not
allow the benefit claimed by the assessee under section 80HHC of the
Act as per his order at Annexure-B.
6. In the appeal of the assessee on this aspect of the matter, the
Appellate Commissioner was of the view that the Assessing Officer had
committed an error in following the decision of the Andhra Pradesh
High Court in the case of CIT v. Gogineni Tobacco Ltd.[1999] 238 ITR
970,did not agree with the view taken by the Assessing Officer; held
that the Assessing Officer had wrongly applied the provisions of
section 80AB of the Act and purporting to follow the view taken by the
Orissa High Court in the case of CIT v. Tarun Udyog[1991] 191 ITR 688,
allowed the appeal and directed the Assessing Officer to re-compute
the taxable income by first allowing the benefit under section 80HHC
of the Act before adjusting for unabsorbed carried forward
depreciation of earlier years.
7. As against this order, the revenue went up in appeal and met with
success before the Tribunal and the revenue noticing that the decision
of the Andhra Pradesh High Court was no more good law in the wake of
the decision of the Supreme Court in the case of IPCA Laboratory Ltd.
v. Dy. CIT[2004] 266 ITR521/135 Taxman 594 and this decision had been
followed by the Madhya Pradesh High Court in the case of VIPPY Solvex
Products Ltd. v. CIT[2005] 273 ITR 107/144 Taxman 13 opined that the
unabsorbed depreciation and carried forward losses of the earlier year
should be first factored in while arriving at the taxable income and
as against balance available, the benefit of deduction under section
80HHC of the Act can be claimed.
8. It is aggrieved by this decision of the Tribunal, the assessee is
in appeal and posing the questions as indicated earlier.
9. Mr. Shankar, learned counsel for the appellant -assessee has mainly
put forth two contentions. It is firstly submitted that the Judgment,
of the Supreme Court in the case of IPCA Laboratory Ltd. (supra) is
inapplicable to the facts of the present case; that the Judgment of
the Supreme Court was rendered in IPCA Laboratory Ltd.'s case (supra)
in the context of the assessee having two activities of export and as
to whether the assessee should set off the losses, if any, incurred in
one of the activity before arriving at the profit attributable to
exports for the purpose of deduction under section 80HHC of the Act.
10. It is submitted that in the present case, the assessee's activity
is only one and the assessee has made profit from out of its export
business and therefore the questions examined in IPCA Laboratory
Ltd.'s case (supra) really does not cover the case of the assessee.
11. Apart from this, Sri Shankar, learned counsel for the appellant -
assessee also submits with reference to the provisions of section 32
of the Act which provides for allowing depreciation allowance and also
provides for carry forward of unabsorbed depreciation in any given
year for want of commensurate profits to the assessee in that year and
that the section had undergone a change, in the sense, by Finance Act
No.2/1996 with effect from 1.4.1997, it has come to be amended.
12. It is submitted that this legal position held the field till
sub-section was again amended by Finance Act of 2000 with effect from
1.4.2001 and position ante was restored and as the assessment year in
question in this appeal is assessment year 1997-98, this statutory
provision governs the questions of carrying forward depreciation etc.,
and it is pointed out in this regard that on a perusal of section
32[2] of the Act as prevailed during the assessment year in question,
there was no deeming provision which was available earlier and it has
been brought back again after the year 2000 and therefore it makes a
material difference.
13. Submission is that when once the carried forward or brought
forward unabsorbed depreciation is not deemed to be depreciation of
the current year, then the profit for the purposes of section 80HHC of
the Act should be first assigned without factoring the carried forward
or unabsorbed depreciation of the earlier years, but it should be
otherwise determined independently and benefit under section 80HHC of
the Act should be given if otherwise profits were available for the
assessee should be of that year in view of the language of section
80HHC[1] of the Act and therefore submits that the view taken by the
Appellate Commissioner is fully justified on this statutory legal
position and the view taken by the Tribunal is not correct.
14. Mr. Shankar, learned counsel for the appellant - assessee points
out to the position in section 32[2] of the Act that for the
assessment year relevant for the purpose of this appeal, there was a
limit of eight years up to which unabsorbed depreciation can be taken
forward to the subsequent years and it was called unabsorbed
depreciation allowance of the earlier years whereas earlier by
fiction, it was being made depreciation allowance for the current year
and that made all the difference.
15. With reference to section 80AB of the Act, Mr. Shankar, learned
counsel for the appellant would draw our attention to the language of
this section and submits that there is no reference to the gross total
income in this section vis-à-vis section 80HHC of the Act and
therefore it is submitted that the computation of the amount
quantifying for deduction under section 80HHC of the Act should be
computed independently and not in relationship to the gross total
income of the assessee.
16. It is alternatively submitted that in the case of the assessee
though gross total income is brought down to 'Nil' because of the
brought forward unabsorbed depreciation of the earlier years for
arriving at this figure, profits attributable to exports having
already been factored, there is profit from export activity and
therefore the assessee is entitled for claiming deduction.
17. On the other hand, with reference to the Judgment of the Supreme
Court in the case of A M Moosa v. CIT [2007] 294 ITR 1/163 Taxman 741.
particularly to paragraph-12, submission is that the Supreme Court had
rejected the plea that the word 'profit' in section 80HHC[3][c] of the
Act would not include losses and if there are any losses, they are to
be ignored. On such premise, it is submitted that the losses cannot be
factored and on the same logic carried forward unabsorbed
depreciation, but only profit is to be ascertained and given benefit
as per section 80HHC of the Act.
18. On the other hand, appearing on behalf of the revenue, Sri E R
Indra Kumar, learned senior, counsel, would vehemently urge that the
questions are not res integra; that the Judgment of the Supreme Court
in IPCA Laboratory Ltd.'s case (supra) did cover the issue; that the
ratio of the decision in IPCA Laboratory Ltd.'s case (supra), did lay
the law that before giving the benefit of deduction under section
80HHC of the Act, the carried forward losses of the earlier years has
to be adjusted or set off and ratio equally holds good in respect of
unabsorbed depreciation allowance of the earlier years.
19. It is pointed out that the ratio laid down in IPCA Laboratory
Ltd.'s case (supra) has been followed by the Supreme Court in the case
of CIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380/161
Taxman 212 as is obvious on reading of paragraph-9 that overriding
effect of section 80AB of the Act is discussed and it does control
even the provisions of section 80HHC of the Act and the contrary view
taken by the Bombay High Court and Kerala High Court has been
disapproved and though this was the decision in the context of
carrying forward unabsorbed business losses of the earlier years, the
position is not any different in respect of unabsorbed depreciation of
the earlier years for the simple reason that it has been categorically
held in these two Judgments of the Supreme Court that benefit of
section 80HHC of the Act can be claimed only as against positive
profits earned by an exporter, in the sense, that there should be a
positive offer of profit after computing the profits as otherwise is
computed and if there is no positive profit there cannot be a benefit
claimed under Chapter VI-A in view of the provisions of section 80AB
of the Act.
20. It is also submitted by Sri Indra Kumar, learned senior counsel
appearing for the revenue that these two Judgments of the Supreme
Court has been followed by the Bench of the Madras High Court in the
case of CIT v. Sharon Vaneers (P.) Ltd.[2007] 294 ITR 18/[2008] 168
Taxman 273 and in this case, the Madras High Court had an occasion to
refer to the provisions of section 32 of the Act also in the context
of the amendment and did hold that section 80HHC of the Act cannot be
considered as forming a Code by itself, but is governed and controlled
by section 80AB of the Act; that the provisions of section 80AB of the
Act have a overriding effect on any other provisions in Chapter -VIA
of the Act and therefore section 80HHC of the Act is subject to the
limitation imposed in section 80AB of the Act.
21. The Madras High Court expressly reversed the view taken by the
Tribunal and as in the present case the Tribunal has taken the view
taken by the Madras High Court, namely, to hold that unabsorbed
depreciation, unabsorbed business loss and unabsorbed investment
allowance of the earlier years cannot be granted before deduction
under section 80HHC of the Act; that provisions of section 80AB of Act
cannot be applied while determining business profits under section
80HHC of the Act.
22. Sri Indra Kumar, learned senior counsel submits that the Madras
High Court having expressly reversed the finding of the Tribunal in
that case and present view being no different and applying the
Judgment and ratio of the Supreme Court in IPCA Laboratory Ltd.'s,
Shirke Construction Equipment Ltd.'s and A.M. Moosa's cases (supra),
and as applied by the Madras High Court, the present appeal of the
assessee should be dismissed.
23. However, Sri Shankar, learned counsel for the appellant - assessee
would point out that the decision of the Madras High Court related to
assessment year 1994-95 i.e., prior to the amendment by Finance Act,
1996 and therefore that decision cannot be applied to the present
case.
24. It is in this background and in the wake of the submissions made
by learned counsel for the assessee and the revenue, we are required
to examine the questions.
25. The questions though posed as many as three questions, in our
view, the only question that arises for our consideration is as to
whether the deduction claimed by the assessee under section 80HHC of
the Act should have been given first and then the adjustments of
unabsorbed depreciation should have been taken place as is held by the
Assessing Officer and the Tribunal, unabsorbed depreciation should be
adjusted first and benefit of deduction given to the assessee in terms
of section 80HHC of the Act.
26. Though Mr. Shankar, learned counsel for the appellant - assessee
has tried to distinguish the Judgment of the Supreme Court in IPCA
Laboratory Ltd.'s case (supra) and as we notice the fact which was not
exactly as in the present case and that was a case relating to interse
set off of losses between two sources of export business of the
assessee, what is held there is that the profit of the export business
for the purpose of section 80HHC of the Act has to be necessarily
arrived at by setting off the losses under one source of export
business against the profit earned from another source and it is only
thereafter profit attributable to export can be arrived at.
27. In the present case, no doubt that there are no two sources of
export, but there is only one export activity. More important aspect
is that the Supreme Court observed in IPCA Laboratory Ltd.'s case
(supra) and traced the history of section 80HHC of the Act and
examined the scope of the profit for the purpose of section 80HHC of
the Act.
28. However, the Supreme Court specifically rejected the contention on
behalf of the assessee in the context of understanding section
80HHC[3] of the Act and the ratio was that even in arriving at the
amount for the purpose of section 80HHC of the Act, both the profits
and losses will have to be taken into consideration and in this
background, did discuss significance of section 80AB of the Act and
did notice that the provisions of section 80AB of the Act does prevail
and also made a reference to Board Circular which had indicated that
only positive profit can be considered for the purpose of deduction
and therefore rejected the contentions urged on behalf of the assessee
and had dismissed the appeal of the assessee.
29. The concept of positive profit was reiterated in Shirke
Construction Equipment Ltd.'s and A.M. Moosa's cases (supra).; Though
Mr. Shankar, learned counsel for the appellant has taken us through
history of provision of section 32 of the Act i.e., providing for
depreciation and that as to how a deeming provision was not available
for the assessment year in question, we are of the view that this
really cannot have any bearing on the question that we are considering
for the simple reason that in arriving at the income, in the sense,
whether total income, gross total income or taxable income, so long as
the unabsorbed losses of the earlier years permitted to be carried
forward and unabsorbed depreciation allowance of earlier years brought
forward are permitted to be set off against the profits of the year in
question, that is determinative of the question of availability or
otherwise of the income against which the assessee can claim a
deduction under section 80HHC of the Act or for that matter, under any
other section of Chapter VI-A of the Act.
30. Section 32 of the Act deals with the manner of allowing
depreciation allowance and also provides for taking forward unabsorbed
depreciation allowance of any year. Whether such brought forward
depreciation of earlier years is treated as depreciation of the
current year by fiction of law and otherwise is also permitted by the
language of section 32[2] of the Act as is the case in the present
situation. The net result is that such amount is allowed as an
allowance or reduction in arriving at the taxable income of the
assessee. It is here the concept of 'positive profit' has its role to
play and if one should look at allowing depreciation allowance, it is
allowance provided for the capital invested in any business being worn
out over period of years and that capital reducing to 'Nil' which
should be factored in arriving at the true profits of the business. If
the depreciation is not allowed, then a part of the capital investment
is also being taxed over a period of time and it is a provision made
to bail out an assessee as otherwise income tax will be levied on par
with the capital also every year which gets diminished over a period
of time.
31. It is here that the concept of positive profit has significance as
the positive profit is only after providing for such allowance and the
losses as is enabled under section 72 of the Act. Insofar as
provisions of section 80HHC of the Act is concerned, it is no doubt
true that it is a beneficial provision which provides for incentive
benefit to an assessee who has export business and of the nature as is
mentioned in the section. The only significance insofar as section
80HHC of the Act is concerned, as we notice, is that said profits for
computing the amount which qualifies for benefit under section 80HHC
of the Act. It is only for such exercise all the provisions of section
80HHC [1], [2] and [3] exist. On the basis of the Judgment of the
Supreme Court referred to above, the provisions of section 32 has no
direct bearing on the provisions of section 80HHC of the Act. The
effect in claiming benefit is felt when the assessee's claim is made
under section 80HHC[1] of the Act in the context of computing total
income of the assessee and even in computation of the total income,
the depreciation allowance whether for the current year or unabsorbed
depreciation of earlier years necessarily is factored. It is only
after making adjustments against these carried forward losses or
unabsorbed depreciation allowance the true profits and positive
profits can be arrived at.
32. The expression 'total income' which occurs even in section 80HHC
of the Act is total income with reference to section 5 of the Act and
as expressly defined in section 2[45] of the Act. In arriving at the
total income even as per the provisions of the Act, depreciation is a
factor which is always to be taken into consideration and is in no way
regulated or controlled by the provisions of section 80HHC of the Act.
33. In the present situation, we find that the assessee did have
unabsorbed allowance of the earlier three assessment years and the
benefit of section 80HHC of the Act can be claimed only as against
total income of the assessee for the current year as determined after
allowing for the absorption of unabsorbed depreciation allowance of
the earlier years against the profits of the assessee for the year.
34. Though Sri Shankar, learned counsel for the appellant points out
to the language of section 80HHC[1] of the Act to submit that
deduction is allowable in computing the total income, it cannot be
said that section 80HHC[1] of the Act either control or regulate the
computation of total income, but can be a factor for claiming the
benefit under section 80HHC of the Act from out of the total income
and apart from this, the more important provision of section 80AB of
the Act which had come in for examination by the Supreme Court in the
above referred cases.
35. Though Sri Shankar, learned counsel for the appellant has put
forth argument that expression of such of that income has great
significance, we find that reference is to the sections which occur
under the heading - 'C' of Chapter VI-A of the Act, but more important
factor is by fiction for the purpose of deducting the benefit
available under any of the sections under the heading 'C' of Chapter
VI-A, that amount is restricted before making any deduction under this
chapter and for example in the present situation, the deduction
available under sub-section [1] of section 80HHC of the Act will be
limited to amount as determined under this section and not as
otherwise could have been determined. But, we having noticed the ratio
of the Supreme Court in the Judgments referred to above, that
deduction can be claimed only against positive profits and positive
profit necessarily implies the adjustments and set off of the
depreciation allowance of earlier years and carried forward losses of
earlier years and that Judgment having the binding effect on this
court, it has to be necessarily ruled that the benefit under section
80HHC of the Act can be claimed only after the unabsorbed depreciation
of the earlier years is adjusted against the profits of the current
year and then only the benefit extended under section 80HHC of the Act
can be given effect to.
36. In this view of the matter, we opine that the Tribunal was correct
in taking the view that the Appellate Commissioner was not justified
in reversing the view taken by the Assessing Officer and the order of
the Tribunal is proper, does not suffer from any error of law and
therefore we answer the questions posed in the affirmative to hold
that the Tribunal was correct in taking the view that the assessee was
not entitled to claim the benefit of deduction even before adjusting
unabsorbed depreciation of the earlier years.
37. In the result, the appeal is dismissed.
computed after setting off unabsorbed depreciation of earlier years
■■■
[2013] 31 taxmann.com 389 (Karnataka)
HIGH COURT OF KARNATAKA
J.K. Industries Ltd.
v.
Assistant Commissioner of Income-tax, Circle-1(1)*
D.V. Shylendra Kumar AND B. SREENIVASA GOWDA, JJ.
IT Appeal No. 1105 of 2006
FEBRUARY 19, 2013
Section 80HHC, read with section 32, of the Income-tax Act, 1961 -
Deductions - Exporters [Computation of deduction] - Assessment year
1997-98 - Whether deduction under section 80HHC is allowable to an
exporter only after adjustment of unabsorbed depreciation of earlier
years from current year profit - Held, yes [Para 35] [In favour of
revenue]
Words and Phrases : Expression 'total income' as occurring in section
80HHC of the Income-tax Act, 1961
FACTS
■ The assessee in respect of its export turnover claimed deduction
under section 80HHC from its total taxable income for the Assessment
year 1997-98. The Assessing Officer found that there was unabsorbed
accumulated depreciation of earlier years. He first reduced the same
against the total income offered by the assessee and found that in the
result there was no taxable income. Therefore, he did not allow the
claim of the assessee.
■ On appeal, the Commissioner (Appeals) allowed the claim of the
assessee. On revenue's appeal, the Tribunal disallowed the claim and
opined that unabsorbed depreciation of earlier years should be first
factored in, while arriving at the taxable income and against the
balance available, deduction under section 80HHC can be claimed.
■ On appeal :
HELD
■ In arriving at the income, in the sense, whether total income,
gross total income or taxable income, so long as the unabsorbed losses
of the earlier years permitted to be carried forward and unabsorbed
depreciation allowance of earlier years brought forward are permitted
to be set off against the profits of the year in question, that is
determinative of the question of availability or otherwise of the
income against which the assessee can claim a deduction under section
80HHC or for that matter, under any other section of Chapter VI-A of
the Act. [Para 29]
■ Section 32 deals with the manner of allowing depreciation
allowance and also provides for taking forward unabsorbed depreciation
allowance of any year. Whether such brought forward depreciation of
earlier years is treated as depreciation of the current year by
fiction of law and otherwise, is also permitted by the language of
section 32(2) is the case in the present situation. The net result is
that such amount is allowed as an allowance or reduction in arriving
at the taxable income of the assessee. [Para 30]
■ It is here that the concept of positive profit has significance
as the positive profit is only after providing for such allowance and
the losses as is enabled under section 72. Insofar as provisions of
section 80HHC is concerned, it is no doubt true that it is a
beneficial provision which provides for incentive benefit to an
assessee who has export business and of the nature as is mentioned in
the section. The only significance insofar as section 80HHC is
concerned, is said profits for computing the amount which qualifies
for benefit under section 80HHC. It is only for such exercise all the
provisions of section 80HHC (1), (2) and (3) exist. On the basis of
the Judgment of the Supreme Court, the provisions of section 32 has no
direct bearing on the provisions of section 80HHC. The effect in
claiming benefit is felt when the assessee's claim is made under
section 80HHC(1). In the context of computing total income of the
assessee and even in computation of the total income, the depreciation
allowance whether for the current year or unabsorbed depreciation of
earlier years necessarily is factored. It is only after making
adjustments against these carried forward losses or unabsorbed
depreciation allowance the true profits and positive profits can be
arrived at. [Para 31]
■ The expression 'total income' which occurs even in section 80HHC
is total income with reference to section 5 and as expressly defined
in section 2(45). In arriving at the total income even as per the
provisions of the Act, depreciation is a factor which is always to be
taken into consideration and is in no way regulated or controlled by
the provisions of section 80HHC. [Para 32]
■ In the present situation, the assessee had unabsorbed allowance
of the earlier three assessment years and the benefit of section 80HHC
can be claimed only against total income of the assessee for the
current year as determined after allowing for the absorption of
unabsorbed depreciation allowance of the earlier years against the
profits of the assessee for the year. [Para 33]
■ As per Supreme Court's Judgments deduction can be claimed only
against positive profits and positive profit necessarily implies the
adjustments and set off of the depreciation allowance of earlier years
and carried forward losses of earlier years. The benefit under section
80HHC can be claimed only after the unabsorbed depreciation of the
earlier years is adjusted against the profits of the current year and
then only the benefit extended under section 80HHC can be given effect
to. [Para 35]
CASE REVIEW
IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521/135 Taxman 594 (SC)
(para 35) followed. CIT v. Shirke Construction Equipment Ltd. [2007]
291 ITR 380/161 Taxman 212 (SC) (para 29) distinguished.
CASES REFERRED TO
CIT v. Gogineni Tobacco Ltd.[1999] 238 ITR 970 (AP) (para 6), CIT v.
Tarun Udyog[1991] 191 ITR 688 (Ori.) (para 6), IPCA Laboratory Ltd. v.
Dy. CIT[2004] 266 ITR 521/135 Taxman 594 (SC) (para 7), Vippy Solvex
Products Ltd. v. CIT[2005] 273 ITR 107/144 Taxman 13 (MP) (para 7),
A.M. Moosa v. CIT[2007] 294 ITR 1/163 Taxman 741 (SC) (para 17), CIT
v. Shirke Construction Equipment Ltd.[2007] 291 ITR 380/161 Taxman 212
(SC) (para 19) and CIT v. Sharon Vaneers (P.) Ltd.[2007] 294 ITR
18/[2008] 168 Taxman 273 (Mad.) (para 20).
A. Shankar for the Appellant. E.R. Indrakumar and E.I. Sanmathi for
the Respondent.
JUDGMENT
Dr. Shylendra Kumar, J. - This appeal by the assessee under section
260-A of the Income Tax Act, 1961 [for short 'the Act'] in respect of
the Assessment Year 1997-98 seeking for determination of the following
substantial questions of law as arising out of the order of the
Tribunal.
"1. Whether on the facts of the case the Tribunal was justified in
law in holding that the benefit of deduction under section 80HHC of
the Act can be availed by the assessee only on the total income as
computed after setting off the unabsorbed depreciation of the earlier
years?
2. Whether the method of computation of deduction under section
80HHC as approved by the Tribunal is valid in law on the facts of the
present case?
3. Whether on the facts and circumstances of the case benefit of
section 80HHC of the Act can be claimed on the total income after
deduction of unabsorbed losses and unabsorbed depreciation or
otherwise?"
2. The assessee is a limited company and insofar as the present appeal
is concerned, is aggrieved by the order of the Tribunal in taking the
view that the Appellate Commissioner had committed an error in
allowing the appeal of the assessee and to hold that the benefit of
deduction claimed by the assessee under section 80HHC of the Act could
not have been allowed before setting off the accumulated unabsorbed
depreciation of the earlier years.
3. The brief facts insofar as the question in issue is concerned is
that the assessee had export business and manufacturer of tyres and
exports some part of its production. It is in respect of the export
turnover, the assessee had put forth a claim for deduction from out of
its assessable income under the provisions of section 80HHC of the
Act.
4. The assessee had quantified the benefit available to the assessee
under section 80HHC of the Act for the accounting period relevant for
the assessment year in a sum of Rs.7,52,92,016/- and this amount had
been reduced from its total taxable income for the year in question
which was at a sum of Rs. 11,80,40,798/-.
5. The Assessing Officer found that there was unabsorbed accumulated
depreciation of the earlier years in a sum of Rs. 11,95,60,654/-,
first set off the accumulated depreciation amount of the earlier years
against the available total income offered by the assessee, and found
that net result was there was no taxable income and therefore did not
allow the benefit claimed by the assessee under section 80HHC of the
Act as per his order at Annexure-B.
6. In the appeal of the assessee on this aspect of the matter, the
Appellate Commissioner was of the view that the Assessing Officer had
committed an error in following the decision of the Andhra Pradesh
High Court in the case of CIT v. Gogineni Tobacco Ltd.[1999] 238 ITR
970,did not agree with the view taken by the Assessing Officer; held
that the Assessing Officer had wrongly applied the provisions of
section 80AB of the Act and purporting to follow the view taken by the
Orissa High Court in the case of CIT v. Tarun Udyog[1991] 191 ITR 688,
allowed the appeal and directed the Assessing Officer to re-compute
the taxable income by first allowing the benefit under section 80HHC
of the Act before adjusting for unabsorbed carried forward
depreciation of earlier years.
7. As against this order, the revenue went up in appeal and met with
success before the Tribunal and the revenue noticing that the decision
of the Andhra Pradesh High Court was no more good law in the wake of
the decision of the Supreme Court in the case of IPCA Laboratory Ltd.
v. Dy. CIT[2004] 266 ITR521/135 Taxman 594 and this decision had been
followed by the Madhya Pradesh High Court in the case of VIPPY Solvex
Products Ltd. v. CIT[2005] 273 ITR 107/144 Taxman 13 opined that the
unabsorbed depreciation and carried forward losses of the earlier year
should be first factored in while arriving at the taxable income and
as against balance available, the benefit of deduction under section
80HHC of the Act can be claimed.
8. It is aggrieved by this decision of the Tribunal, the assessee is
in appeal and posing the questions as indicated earlier.
9. Mr. Shankar, learned counsel for the appellant -assessee has mainly
put forth two contentions. It is firstly submitted that the Judgment,
of the Supreme Court in the case of IPCA Laboratory Ltd. (supra) is
inapplicable to the facts of the present case; that the Judgment of
the Supreme Court was rendered in IPCA Laboratory Ltd.'s case (supra)
in the context of the assessee having two activities of export and as
to whether the assessee should set off the losses, if any, incurred in
one of the activity before arriving at the profit attributable to
exports for the purpose of deduction under section 80HHC of the Act.
10. It is submitted that in the present case, the assessee's activity
is only one and the assessee has made profit from out of its export
business and therefore the questions examined in IPCA Laboratory
Ltd.'s case (supra) really does not cover the case of the assessee.
11. Apart from this, Sri Shankar, learned counsel for the appellant -
assessee also submits with reference to the provisions of section 32
of the Act which provides for allowing depreciation allowance and also
provides for carry forward of unabsorbed depreciation in any given
year for want of commensurate profits to the assessee in that year and
that the section had undergone a change, in the sense, by Finance Act
No.2/1996 with effect from 1.4.1997, it has come to be amended.
12. It is submitted that this legal position held the field till
sub-section was again amended by Finance Act of 2000 with effect from
1.4.2001 and position ante was restored and as the assessment year in
question in this appeal is assessment year 1997-98, this statutory
provision governs the questions of carrying forward depreciation etc.,
and it is pointed out in this regard that on a perusal of section
32[2] of the Act as prevailed during the assessment year in question,
there was no deeming provision which was available earlier and it has
been brought back again after the year 2000 and therefore it makes a
material difference.
13. Submission is that when once the carried forward or brought
forward unabsorbed depreciation is not deemed to be depreciation of
the current year, then the profit for the purposes of section 80HHC of
the Act should be first assigned without factoring the carried forward
or unabsorbed depreciation of the earlier years, but it should be
otherwise determined independently and benefit under section 80HHC of
the Act should be given if otherwise profits were available for the
assessee should be of that year in view of the language of section
80HHC[1] of the Act and therefore submits that the view taken by the
Appellate Commissioner is fully justified on this statutory legal
position and the view taken by the Tribunal is not correct.
14. Mr. Shankar, learned counsel for the appellant - assessee points
out to the position in section 32[2] of the Act that for the
assessment year relevant for the purpose of this appeal, there was a
limit of eight years up to which unabsorbed depreciation can be taken
forward to the subsequent years and it was called unabsorbed
depreciation allowance of the earlier years whereas earlier by
fiction, it was being made depreciation allowance for the current year
and that made all the difference.
15. With reference to section 80AB of the Act, Mr. Shankar, learned
counsel for the appellant would draw our attention to the language of
this section and submits that there is no reference to the gross total
income in this section vis-à-vis section 80HHC of the Act and
therefore it is submitted that the computation of the amount
quantifying for deduction under section 80HHC of the Act should be
computed independently and not in relationship to the gross total
income of the assessee.
16. It is alternatively submitted that in the case of the assessee
though gross total income is brought down to 'Nil' because of the
brought forward unabsorbed depreciation of the earlier years for
arriving at this figure, profits attributable to exports having
already been factored, there is profit from export activity and
therefore the assessee is entitled for claiming deduction.
17. On the other hand, with reference to the Judgment of the Supreme
Court in the case of A M Moosa v. CIT [2007] 294 ITR 1/163 Taxman 741.
particularly to paragraph-12, submission is that the Supreme Court had
rejected the plea that the word 'profit' in section 80HHC[3][c] of the
Act would not include losses and if there are any losses, they are to
be ignored. On such premise, it is submitted that the losses cannot be
factored and on the same logic carried forward unabsorbed
depreciation, but only profit is to be ascertained and given benefit
as per section 80HHC of the Act.
18. On the other hand, appearing on behalf of the revenue, Sri E R
Indra Kumar, learned senior, counsel, would vehemently urge that the
questions are not res integra; that the Judgment of the Supreme Court
in IPCA Laboratory Ltd.'s case (supra) did cover the issue; that the
ratio of the decision in IPCA Laboratory Ltd.'s case (supra), did lay
the law that before giving the benefit of deduction under section
80HHC of the Act, the carried forward losses of the earlier years has
to be adjusted or set off and ratio equally holds good in respect of
unabsorbed depreciation allowance of the earlier years.
19. It is pointed out that the ratio laid down in IPCA Laboratory
Ltd.'s case (supra) has been followed by the Supreme Court in the case
of CIT v. Shirke Construction Equipment Ltd. [2007] 291 ITR 380/161
Taxman 212 as is obvious on reading of paragraph-9 that overriding
effect of section 80AB of the Act is discussed and it does control
even the provisions of section 80HHC of the Act and the contrary view
taken by the Bombay High Court and Kerala High Court has been
disapproved and though this was the decision in the context of
carrying forward unabsorbed business losses of the earlier years, the
position is not any different in respect of unabsorbed depreciation of
the earlier years for the simple reason that it has been categorically
held in these two Judgments of the Supreme Court that benefit of
section 80HHC of the Act can be claimed only as against positive
profits earned by an exporter, in the sense, that there should be a
positive offer of profit after computing the profits as otherwise is
computed and if there is no positive profit there cannot be a benefit
claimed under Chapter VI-A in view of the provisions of section 80AB
of the Act.
20. It is also submitted by Sri Indra Kumar, learned senior counsel
appearing for the revenue that these two Judgments of the Supreme
Court has been followed by the Bench of the Madras High Court in the
case of CIT v. Sharon Vaneers (P.) Ltd.[2007] 294 ITR 18/[2008] 168
Taxman 273 and in this case, the Madras High Court had an occasion to
refer to the provisions of section 32 of the Act also in the context
of the amendment and did hold that section 80HHC of the Act cannot be
considered as forming a Code by itself, but is governed and controlled
by section 80AB of the Act; that the provisions of section 80AB of the
Act have a overriding effect on any other provisions in Chapter -VIA
of the Act and therefore section 80HHC of the Act is subject to the
limitation imposed in section 80AB of the Act.
21. The Madras High Court expressly reversed the view taken by the
Tribunal and as in the present case the Tribunal has taken the view
taken by the Madras High Court, namely, to hold that unabsorbed
depreciation, unabsorbed business loss and unabsorbed investment
allowance of the earlier years cannot be granted before deduction
under section 80HHC of the Act; that provisions of section 80AB of Act
cannot be applied while determining business profits under section
80HHC of the Act.
22. Sri Indra Kumar, learned senior counsel submits that the Madras
High Court having expressly reversed the finding of the Tribunal in
that case and present view being no different and applying the
Judgment and ratio of the Supreme Court in IPCA Laboratory Ltd.'s,
Shirke Construction Equipment Ltd.'s and A.M. Moosa's cases (supra),
and as applied by the Madras High Court, the present appeal of the
assessee should be dismissed.
23. However, Sri Shankar, learned counsel for the appellant - assessee
would point out that the decision of the Madras High Court related to
assessment year 1994-95 i.e., prior to the amendment by Finance Act,
1996 and therefore that decision cannot be applied to the present
case.
24. It is in this background and in the wake of the submissions made
by learned counsel for the assessee and the revenue, we are required
to examine the questions.
25. The questions though posed as many as three questions, in our
view, the only question that arises for our consideration is as to
whether the deduction claimed by the assessee under section 80HHC of
the Act should have been given first and then the adjustments of
unabsorbed depreciation should have been taken place as is held by the
Assessing Officer and the Tribunal, unabsorbed depreciation should be
adjusted first and benefit of deduction given to the assessee in terms
of section 80HHC of the Act.
26. Though Mr. Shankar, learned counsel for the appellant - assessee
has tried to distinguish the Judgment of the Supreme Court in IPCA
Laboratory Ltd.'s case (supra) and as we notice the fact which was not
exactly as in the present case and that was a case relating to interse
set off of losses between two sources of export business of the
assessee, what is held there is that the profit of the export business
for the purpose of section 80HHC of the Act has to be necessarily
arrived at by setting off the losses under one source of export
business against the profit earned from another source and it is only
thereafter profit attributable to export can be arrived at.
27. In the present case, no doubt that there are no two sources of
export, but there is only one export activity. More important aspect
is that the Supreme Court observed in IPCA Laboratory Ltd.'s case
(supra) and traced the history of section 80HHC of the Act and
examined the scope of the profit for the purpose of section 80HHC of
the Act.
28. However, the Supreme Court specifically rejected the contention on
behalf of the assessee in the context of understanding section
80HHC[3] of the Act and the ratio was that even in arriving at the
amount for the purpose of section 80HHC of the Act, both the profits
and losses will have to be taken into consideration and in this
background, did discuss significance of section 80AB of the Act and
did notice that the provisions of section 80AB of the Act does prevail
and also made a reference to Board Circular which had indicated that
only positive profit can be considered for the purpose of deduction
and therefore rejected the contentions urged on behalf of the assessee
and had dismissed the appeal of the assessee.
29. The concept of positive profit was reiterated in Shirke
Construction Equipment Ltd.'s and A.M. Moosa's cases (supra).; Though
Mr. Shankar, learned counsel for the appellant has taken us through
history of provision of section 32 of the Act i.e., providing for
depreciation and that as to how a deeming provision was not available
for the assessment year in question, we are of the view that this
really cannot have any bearing on the question that we are considering
for the simple reason that in arriving at the income, in the sense,
whether total income, gross total income or taxable income, so long as
the unabsorbed losses of the earlier years permitted to be carried
forward and unabsorbed depreciation allowance of earlier years brought
forward are permitted to be set off against the profits of the year in
question, that is determinative of the question of availability or
otherwise of the income against which the assessee can claim a
deduction under section 80HHC of the Act or for that matter, under any
other section of Chapter VI-A of the Act.
30. Section 32 of the Act deals with the manner of allowing
depreciation allowance and also provides for taking forward unabsorbed
depreciation allowance of any year. Whether such brought forward
depreciation of earlier years is treated as depreciation of the
current year by fiction of law and otherwise is also permitted by the
language of section 32[2] of the Act as is the case in the present
situation. The net result is that such amount is allowed as an
allowance or reduction in arriving at the taxable income of the
assessee. It is here the concept of 'positive profit' has its role to
play and if one should look at allowing depreciation allowance, it is
allowance provided for the capital invested in any business being worn
out over period of years and that capital reducing to 'Nil' which
should be factored in arriving at the true profits of the business. If
the depreciation is not allowed, then a part of the capital investment
is also being taxed over a period of time and it is a provision made
to bail out an assessee as otherwise income tax will be levied on par
with the capital also every year which gets diminished over a period
of time.
31. It is here that the concept of positive profit has significance as
the positive profit is only after providing for such allowance and the
losses as is enabled under section 72 of the Act. Insofar as
provisions of section 80HHC of the Act is concerned, it is no doubt
true that it is a beneficial provision which provides for incentive
benefit to an assessee who has export business and of the nature as is
mentioned in the section. The only significance insofar as section
80HHC of the Act is concerned, as we notice, is that said profits for
computing the amount which qualifies for benefit under section 80HHC
of the Act. It is only for such exercise all the provisions of section
80HHC [1], [2] and [3] exist. On the basis of the Judgment of the
Supreme Court referred to above, the provisions of section 32 has no
direct bearing on the provisions of section 80HHC of the Act. The
effect in claiming benefit is felt when the assessee's claim is made
under section 80HHC[1] of the Act in the context of computing total
income of the assessee and even in computation of the total income,
the depreciation allowance whether for the current year or unabsorbed
depreciation of earlier years necessarily is factored. It is only
after making adjustments against these carried forward losses or
unabsorbed depreciation allowance the true profits and positive
profits can be arrived at.
32. The expression 'total income' which occurs even in section 80HHC
of the Act is total income with reference to section 5 of the Act and
as expressly defined in section 2[45] of the Act. In arriving at the
total income even as per the provisions of the Act, depreciation is a
factor which is always to be taken into consideration and is in no way
regulated or controlled by the provisions of section 80HHC of the Act.
33. In the present situation, we find that the assessee did have
unabsorbed allowance of the earlier three assessment years and the
benefit of section 80HHC of the Act can be claimed only as against
total income of the assessee for the current year as determined after
allowing for the absorption of unabsorbed depreciation allowance of
the earlier years against the profits of the assessee for the year.
34. Though Sri Shankar, learned counsel for the appellant points out
to the language of section 80HHC[1] of the Act to submit that
deduction is allowable in computing the total income, it cannot be
said that section 80HHC[1] of the Act either control or regulate the
computation of total income, but can be a factor for claiming the
benefit under section 80HHC of the Act from out of the total income
and apart from this, the more important provision of section 80AB of
the Act which had come in for examination by the Supreme Court in the
above referred cases.
35. Though Sri Shankar, learned counsel for the appellant has put
forth argument that expression of such of that income has great
significance, we find that reference is to the sections which occur
under the heading - 'C' of Chapter VI-A of the Act, but more important
factor is by fiction for the purpose of deducting the benefit
available under any of the sections under the heading 'C' of Chapter
VI-A, that amount is restricted before making any deduction under this
chapter and for example in the present situation, the deduction
available under sub-section [1] of section 80HHC of the Act will be
limited to amount as determined under this section and not as
otherwise could have been determined. But, we having noticed the ratio
of the Supreme Court in the Judgments referred to above, that
deduction can be claimed only against positive profits and positive
profit necessarily implies the adjustments and set off of the
depreciation allowance of earlier years and carried forward losses of
earlier years and that Judgment having the binding effect on this
court, it has to be necessarily ruled that the benefit under section
80HHC of the Act can be claimed only after the unabsorbed depreciation
of the earlier years is adjusted against the profits of the current
year and then only the benefit extended under section 80HHC of the Act
can be given effect to.
36. In this view of the matter, we opine that the Tribunal was correct
in taking the view that the Appellate Commissioner was not justified
in reversing the view taken by the Assessing Officer and the order of
the Tribunal is proper, does not suffer from any error of law and
therefore we answer the questions posed in the affirmative to hold
that the Tribunal was correct in taking the view that the assessee was
not entitled to claim the benefit of deduction even before adjusting
unabsorbed depreciation of the earlier years.
37. In the result, the appeal is dismissed.
If you could share that letter ,with all the members i think everyone
of us will benefit.
On 03/04/2013, Kumar S <skumarirs@yahoo.com> wrote:
>
>
> This decision is applicable only for EOU units coming under Development
> Commissioner of SEZ. This Tax Appeal had two parties, Regency Creation,
> coming under SEZ and Valiant Communication, coming under STPI. The latter
> party has approached the court again for deduction u/s 10A and the court has
> directed ITAT to examine and allow the claim if found valid.
>
>
> This issue was raised by Audit and one of the Officers in Chennai had
> written to STPI seeking clarification on this issue. Ministry of Commerce
> has clarified that the IMSC meeting in 2006 has decided that all approvals
> granted by STPI Directors are deemed to have been approved by the Approval
> Committee and no other approval is required. Reply to audit is being sent
> on these lines requesting them to drop the objection. For EOU units, the
> Approval letters are apparently being issued individually and some of them
> produced the same before the Assessing Officers, who allowed the claim.
>
>
>
>
> ________________________________
> From: Pavan Singla <singlapavan@gmail.com>
> To:
> Sent: Wednesday, March 27, 2013 8:28 PM
> Subject: [IT Reporter] judgement on 10B for revenue favour
>
>
>
> IT : Eligibility of a 100 per cent EOU for deduction under section 10B is
> that it should be approved by Central Govt. through appropriate authority
> constituted under section 14 of Industries (Development and Regulation) Act;
> and if a 100 percent EOU is only approved by Director, STPI it would not be
> a valid approval
> ■■■
> [2012] 27 taxmann.com 322 (Delhi)
> HIGH COURT OF DELHI
> Commissioner of Income tax
> v.
> Regency Creations Ltd.*
> S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
> IT APPEAL NOS. 69 OF 2008, 783 OF 2009 & 1239 OF 2011
> SEPTEMBER 17, 2012
> Section 10B, read with section 10A, of the Income-tax Act, 1961 - Export
> oriented undertaking - Grant of approval - Assessment years 2003-04,
> 2004-05, 2006-07 and 2007-08 - Whether though considerations which apply for
> granting approval under sections 10-A and 10-B may to an extent, overlap,
> yet deliberate segregation of these two benefits by statute reflects
> Parliamentary intention, that to qualify for benefit under either, specific
> procedure enacted for that purpose has to be followed - Held, yes - Whether,
> therefore, approval granted to a 100 per cent EOU set up under Software
> Technology Park Scheme cannot be deemed to be an approval under section 10-B
> - Held, yes [Para 14] [In favour of revenue]
> Circulars and Notifications : Circular Nos. 1 of 2005, dated 6-1-2005,
> 149/194/2004/TPL, dated 6-1-2005, 200/20/2006, dated 31-3-2006 and 694,
> dated 23-11-1994; Instruction No. 1 of 2006, dated 6-1-2005
> FACTS
> Facts
> • Assessee was engaged in 100 per cent export of artware handicrafts, home
> furnishing and software exports and had three respective divisions.
> • It claimed deduction under section 10B in respect of its software export
> income.
> • The Assessing Officer, however, denied the claim on ground that the
> assessee should be a 100 per cent export oriented unit approved by the
> Central Government through its appropriate authority under section 14 of the
> Industries (Development and Regulation) Act, 1951, which it was not.
> • On appeal, the Commissioner (Appeals) held that the claim for exemption
> under section 10B was admissible to the assessee since it was registered
> with the Central Government i.e. Software Technology Park of India, (STPI).
> • The Tribunal confirmed the order of the Commissioner (Appeals) by relying
> upon Circular No. 149/194/2004/TPL dated 6-1-2005 and Circular No.
> 200/20/2006/Income tax Act, 1961-I, dated 31-3-2006, wherein it was directed
> that the grant of registration by STPI be treated as valid for the purposes
> of section 10B.
> • Being aggrieved, the revenue preferred instant appeals.
> Arguments of revenue
> • Benefit of deduction under section 10B is radically different from the one
> envisioned under section 10A.
> • None of the circulars or clarifications, as relied upon by the
> Commissioner (Appeals) or Tribunal, ever spelt out any misunderstanding on
> the part of the income tax authorities that approval by the Director, STPI
> could be deemed valid approval for the purpose of section 10-B.
> Arguments of the assessee
> • The rationale for granting approval to software technology park units was
> to augment export of services and products. The intention of section 10B has
> therefore, to be read into the context of the concerned scheme, i.e. STPI
> which was meant to permit growth of foreign trade in the sector, i.e.,
> computer software.
> • The Appellate Commissioner and the Tribunal were alive to the fact that
> the power to give approvals was initially with the Inter-Ministerial
> Standing Committee which was later delegated to the Director, STPI.
> Issues involved
> • Whether approval granted to start 100 per cent EOU under the STP scheme
> could be deemed to be one issued under section 10B.
> HELD
> Pre-conditions that govern units set up under STP scheme and units set up as
> 100 per cent EOUs are different, though certain other conditions does
> overlap :
> • The assessee had received approval to start 100 per cent EOU under STP
> scheme. The question is whether this approval can be deemed one under
> section 10-B. For that purpose a 100 per cent EOU is only that which is so
> approved by the Board appointed by Central Government in exercise of powers
> conferred under section 14 of IDAR Act, 1951. The preconditions that govern
> units set up under STP scheme are different from those that govern the units
> set up as 100 per cent EOUs and so approved by the Board. Some conditions
> may undoubtedly overlap yet, criteria, such as fulfilment of the employment
> criteria, foreign exchange, etc.,are not common. [Para 13]
> • The Interministerial Standing Committee set up for granting licences under
> STP scheme is also appointed by the Central Government in exercise of powers
> conferred under, section 14 of IDAR Act. However, the question is whether
> that part of the Board's function (under section 14 IDR Act) - to grant
> approval under section 10-B also stands delegated. For the Court to conclude
> that the Inter-ministerial Committee was authorized to issue approval under
> section 10-B and that its imprimatur or approval under section 10-A ought to
> be deemed as an approval under section 10-B, there ought to be more direct,
> or express authorization. [Para 14]
> • Section 10A extends the exemption to the units set up under STP scheme
> which start production of goods during the previous year relevant to the
> assessment year commencing on or after 1-4-1994. The assessee's plea about
> eligibility of a 100 per cent EOU STP eligible for exemption would render
> the amendment brought about by the Finance Act, 1993 (extending the benefit
> under section 10A to the STPs from 1-4-1994) superfluous. There is no reason
> for Parliament to amend the law, and extend benefits of section 10A to units
> under STP scheme and, restrict the benefits to those commencing their
> operations in the year of account relevant to the Assessment year 1994-95,
> if a STP unit is otherwise eligible for exemption under section 10B of the
> Act on the ground of its being 100 per cent EOU. [Para 15]
> Interpretation of statutes
> • It is a settled principle of law that unless there is express
> authorization, in terms of a statue, and an actual delegation of power, a
> statutory authority in whom jurisdiction or power is reposed, is alone
> vested with it, to the exclusion of others. In the absence of a statutory
> power to delegate, and, further, to that power, an actual delegation in
> accordance with law, such functions cannot be performed or deemed to have
> been performed by a third agency or authority. Another cardinal rule which
> binds the court to interpret statutes is that where power is given to do a
> certain thing in a certain way, the thing must be done in that way or not at
> all, and other methods of performance are necessarily forbidden. [Para 16]
> Conclusion
> • In the instant case, there is no notification or official document
> suggesting that either the Interministerial Committee, or any other officer
> or agency was nominated to perform the duties of the Board (constituted
> under section 14 of the IDR Act), for purposes of approvals under section
> 10-B. Though the considerations which apply for granting approval under
> sections 10-A and 10-B may to an extent, overlap, yet the deliberate
> segregation of these two benefits by the statute reflects Parliamentary
> intention that to qualify for benefit under either, the specific procedure
> enacted for that purpose has to be followed. There is nothing in any of the
> circulars or instructions relied on by the Tribunal in all the orders,
> implying that approval for purposes of an STP also entitled the unit to a
> benefit under section 10-B. The orders of the Tribunal are consequently,
> erroneous, and its reasoning, unsupportable. [Para 17]
> • In the light of the above discussion, the question of law framed is
> answered in favour of the revenue, and against the assessee; the appeals
> are, therefore, allowed. [Para 18]
> CASES REFERRED TO
> Radhasoami Satsangv. CIT [1992] 193 ITR 321/ 60 Taxman 248(SC) (para 7),
> CITv. Jagson International Ltd.[IT Appeal No. 75 of 2006, dated 14-11-2007]
> (para 7), Bajaj Tempo Ltd.v. CIT[1992] 196 ITR 188/ 62 Taxman 480(SC) (para
> 9), Hari Chand Aggarwalv. Batala Engineering Co. Ltd.AIR 1969 SC 483 (para
> 16), Ajaib Singh v. State of PunjabAIR 1965 SC 1619 (para 16) and Nazir
> Ahmedv. King Emperor[1936] ILR 17 Lah 629 (para 16).
> Ms. Rashmi Chopraand Harpeet Singh Ajmanifor the Appellant. Kuldip Singh,
> Harish Malhotraand Rajender Aggarwalfor the Respondent.
> JUDGMENT
> S. Ravindra Bhat, J.- These appeals have been preferred by the Revenue
> claiming to be aggrieved by the common orders of the Income Tax Appellate
> Tribunal (ITAT) in respect of the two assessees, i.e. M/s. Regency Creations
> Ltd. and Valiant Communications Ltd. The questions of law which arises in
> all the appeals is common, i.e.
> "Whether the Tribunal fell into error in holding that the claim of deduction
> under Section 10-B of the Income Tax Act in respect of the assessees' income
> derived from export of computer software was permissible."
> 2. The facts pertaining to the cases of Regency Creations Ltd. [IT Appeal
> Nos. 69/2008 and 783/2009] in respect of Assessment Years 2003-04 and
> 2004-05 are that it is engaged in 100% export of artware handicrafts, home
> furnishing and software exports. The assessee had three divisions
> respectively, in connection with the said three activities -i.e. artware
> handicrafts, home furnishing and software division, which was named M/s.
> Maxtech iSolution. The assessee claimed exemption under Section 10B in
> respect of its software export income. The Assessing Officer held that to
> qualify for such benefit, the assessee should be a 100% Export Oriented Unit
> (EOU) and approved by the Central Government through its appropriate
> authority under Section 14 of the Industries (Development and Regulation)
> Act, 1951 (IDR Act). The Assessing Officer concluded that the Assessee had
> no valid certificate for software export and had not mentioned in its
> Articles of Memorandum of
> Association that it could carry-out business in computer software and that
> M/s. Maxtech iSolution was not shown to be an undertaking of the assessee,
> in its Articles of Memorandum of Association. The assessees' appeal was
> allowed for academic years 2003-07; the Appellate Commissioner held that the
> claim for exemption under Section 10B was admissible since it was registered
> with the Central Government, i.e. Software Technology Park of India (STPI)
> and that the business activity of software export was permissible with the
> main and the ancillary object spelt-out in the Memorandum of Association.
> The CIT (Appeals) relied upon a Circular of the Central Board of Direct
> Taxes (CBDT). The Revenue appealed to the Tribunal, which dismissed the
> appeal, holding as follows:
> "5. We have considered the rival contentions and found from the record that
> the assessee had established a software division under the name and style of
> Maxtech iSolutions, which was approved and registered with the STPI, a unit
> of Ministry of Information and Technology. This is a nodal agency for grant
> of approval for establishment of 100% export oriented software. As per the
> permission letter dated 7th November, 2006, as placed on the record, we
> found that STPI had granted registration to the assessee vide letter dated
> 5.12.2000 for setting up a 100% EOU under Software Technology Park Scheme
> which was valid for 5 years. The assessee was granted extension to continue
> the operations under Software Technology Park Scheme up to 31.03.2009. CBDT
> in its Circular No. 149/194/2004/TPL dated 06.01.2005 and Circular No.
> 200/20/2006/Income Tax Act, 1961-I dated 31.3.2006 has directed to treat the
> grant of registration by STPI as valid agency for purposes of
> Section 10B.
> 6. In the instant case, the assessee has got approval from STPI, an
> organization of government duly authorized by CBDT Circular as stated above.
> Memorandum of Association of the Company in its main object clause clearly
> states the export of all kinds of goods all over the world. Goods thus
> includes computer software. Clause 11 of the Incidental objects as set out
> in memorandum empowers to set up any unit or division by the company for
> carrying on any business. Thus the setting up of Maxtech iSolution is one of
> the divisions of assessee is authorized by Memorandum. The details about
> branches and production units of assessee have been clearly informed to
> Assessee Officer during the assessment proceedings which he ought to have
> treated as sufficient compliance. The information about the places of
> business of assessee have been clearly mentioned in CA report which
> accompanies the return.
> 7. In view of the above, we do not find any infirmity in the order of the
> CIT (Appeals) for granting exemption under sec. 10-B to the assessee unit.
> The finding recorded by the CIT (Appeals) at pages 5 & 6 of his appellate
> order has not been controverted by the department by bringing any positive
> material on record."
> 3.For the assessment year 2004-05, the Assessing Officer disallowed the
> claim for deduction under Section 10B. The Appellate Commissioner accepted
> the assessees' argument following his previous order for the assessment year
> 2003-04 and also after observing that the appellant had exported computer
> software through proper banking channels and after duly complying with
> conditions for getting export invoices endorsed by the STPI, (the Central
> Government body which is also the nodal agency established for monitoring
> exports of computer software). The Revenue's appeal was allowed by the ITAT
> which followed its previous order.
> 4. For the assessment year 2007-08, the Assessing Officer and the Appellate
> Commissioner rejected the claim for benefit under Section 10B. The assessee
> in its appeal relied upon the previous two orders of the Tribunal. Before
> the Tribunal, the assessee relied upon Ex. No. 62 - Press Note 5 (1997
> Series) and Ex. No. 38 - Press Note 2 (1993 Series) and also the letter
> dated 31.03.2011 issued by the Ministry of Commerce and Industry. The
> Tribunal noticed that Press Notes 2 and 5 which had been relied upon clearly
> stated that the Inter-Ministerial Standing Committee for EHTPS and ESTPC was
> competent to grant approval for STPI units to claim 100 % benefits under EOU
> Scheme. On the basis of this interpretation placed upon the letter dated
> 09.03.1993 (which was disclosed through communication dated 31.03.2011), the
> Tribunal held that the assessee was entitled to benefit of deduction under
> Section 10B of the Act. The said communication/letter dated 31.03.2011
> reads as follows:
> "Please refer to your RTI application dated March 10, 2011 received on
> 17.03.2011) on the subject mentioned above and to inform that no
> approval/ratification of STPI approval is required from BOA formed by
> Ministry of Commerce by power conferred under Section 14 of IDR Act, 1951.
> Inter-Ministerial Standing Committee for EHTPs and ESTPs (IMSC) is competent
> in grant approval for STPI unit to claim all benefits under 100% EOU Scheme
> as per Press Note 2 of 1993 (copy enclosed)."
> 5. The facts in respect of M/s Valiant Communications (ITA 2002/2010 -
> Assessment Year 2005-06; ITA 438 to 441/2012 - Assessment Years 2003-04,
> 2004-05, 2006-07 and 2007-08) are that the assessee, like in the case of
> Regency claimed deduction under Section 10B. It is engaged in the business
> of manufacturing and export of telecom transmission equipment. It had a
> registered unit with the Software Technology Park of India as a 100% EOU
> under Electronic Hardware Technology Park (EHTP) Scheme. The Assessing
> Officer had rejected the claim, stating that approval from STPI cannot be
> equated with the approval of the Board appointed under Section 14 of the
> Industries (Development and Regulation) Act, 1951. The CIT (Appeals) had
> held that the assessee was entitled to the benefit. The Revenue's appeal
> before the Tribunal for the appeal year 2005-06 was rejected; the Tribunal
> had relied upon its ruling in the case of Regency Creations.
> 6.It is argued by the Revenue in all the appeals that the benefit of
> deduction under Section 10B of the Act is radically different from the one
> envisioned under Section 10A. It was held that the Press Note -2 and Press
> Note 5 which had been relied upon by the Tribunal merely indicated that the
> Inter-Ministerial Standing Committee had been set-up for considering
> applications to set-up units under EHTP Scheme and the STP Scheme. Such
> Inter-Ministerial committees were deemed to be for the purpose of Section
> 10A. This position was clarified by Circular No. 1 of 2005 relied upon
> during the course of Tribunal's orders. Similarly, Instruction No. 1 of 2006
> also underlined the fact that the Software Technology Park Scheme notified
> under Section 3 of the Foreign Trade Development (Regulations) Act,
> approvals received by the Inter-Ministerial Standing Committee qualified for
> deduction under Section 10A. It was submitted that neither of these
> circulars nor even the
> subsequent clarification dated 06.05.2009 ever spelt-out any
> misunderstanding on the part of the income tax authorities that approval by
> the Director STPI could be deemed valid approval for the purpose of Section
> 10-B.
> 7.Learned counsel for the assessees contended that the rationale for
> granting approval for Software Technology Park units was with the intention
> of their exporting services and products. The intention of Section 10B had
> to be, therefore, read in the context of the concerned Scheme, i.e. ETPI and
> STPI which was meant to permit growth of foreign trade in the sector, i.e.
> computer software. It was argued, besides, that the rule of consistency,
> enunciated by the Supreme Court in Radhasoami Satsang v. CIT[1992] 193 ITR
> 321/ 60 Taxman 248(SC) and followed by this Court in CITv. Jagson
> International Ltd. [IT Appeal No. 75 of 2006, Dated 14-11-2007], estopped
> the Revenue from contending that the assessee did not possess the requisite
> approval. It is also submitted that the Tribunal had correctly relied upon a
> clarification dated 31.03.2011 which put the matter beyond any shadow of
> doubt, i.e. that Press Notes 2 and 5 enured in favor of the assessee. They
> could
> clearly avail the benefit of deduction under Section 10B.
> 8. It is argued that the Appellate Commissioner and Tribunal were alive to
> the fact that the power to give approvals was initially with the
> Inter-Ministerial Standing Committee which was later delegated to the
> Director STP by the Note No. 5 (1997 Series). The assessee further relied
> upon the following extract of the CBDT circular dated (Notification under SO
> 388(E) dated 30.04.1995, which by para 2.10 stated as follows:
> "2.10 The provisions of paragraphs 96,104,109, 110 and 112 to 117 of Chapter
> IX of the Export and Import Policy (1992-97) applicable to export oriented
> units (EOUs) and units in Export Processing Zones (EPZs) shall also apply to
> the STP units subject to the following modifications:
> a. The word "STP" shall be substituted for the word "EOU/EPZ" "EOU" OR
> "EPZs" wherever they occur, in the paragraphs.
> b. The words "Development Commissioner" wherever they occur shall be
> substituted by the words "Chief Executive of the STP Society."
> c. The word "BOA" wherever it occurs, shall be substituted by the word
> "IMSC"."
> 9.Learned counsel for the assessee urged that the construction or
> interpretation to be adopted by the Court should be in consonance with the
> liberal interpretation of Parliament in promoting growth and development. In
> this regard judgment of the Supreme Court in Bajaj Tempo Ltd.v. CIT[1992]
> 196 ITR 188/ 62 Taxman 480was relied upon. The Supreme Court in that case
> had held as follows:
> "A provision in taxing statute granting incentive for promoting growth and
> development should be construed liberally, the restriction on it too has to
> be construed so as to advance objective of the provision and not to
> frustrate it."
> Provisions of Law
> 10. Before a discussion about the rival contentions regarding merits of the
> case, it would be necessary to extract the relevant provisions, i.e.sections
> 10-A and Section 10B. They read as follows:
> "Section 10A .Special Provision in Respect of Newly Established Industrial
> Undertakings in Free Trade Zones
> (1) Subject to the provisions of this section, any profits and gains derived
> by an assessee from an industrial undertaking to which this section applies
> shall not be included in the total income of the assessee.
> (2) This section applies to any industrial undertaking which fulfils all the
> following conditions, namely :-
> (i) It has begun or begins to manufacture or produce articles or things
> during the previous year relevant to the assessment year -
> (a) Commencing on or after the 1st day of April, 1981, in any free trade
> zone; or
> (b) Commencing on or after the 1st day of April, 1994, in any electronic
> hardware technology park or, as the case may be, software technology park;
> (ia) In relation to an undertaking which begins to manufacture or produce
> any article or thing on or after the 1st day of April, 1995, its exports of
> such articles or things are not less than seventy-five per cent of the total
> sales thereof during the previous year;
> (ii) It is not formed by the splitting up, or the reconstruction, of a
> business already in existence :
> Provided that this condition shall not apply in respect of any industrial
> undertaking which is formed as a result of the re-establishment,
> reconstruction or revival by the assessee of the business of any such
> industrial undertaking as is referred to in section 33B, in the
> circumstances and within the period specified in that section;
> (iii) It is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> Explanation : The provisions of Explanation 1 and Explanation 2 to
> sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
> of this sub-section as they apply for the purposes of clause (ii) of that
> sub-section.
> (3) The profits and gains referred to in sub-section (1) shall not be
> included in the total income of the assessee in respect of any five
> consecutive assessment years, falling within a period of eight years
> beginning with the assessment year relevant to the previous year in which
> the industrial undertaking begins to manufacture or produce articles or
> things specified by the assessee at his option
> Provided that nothing in this sub-section shall be construed to extend the
> aforesaid five assessment years to cover any period after the expiry of the
> said period of eight years……
> ** ** **
> Explanation : For the purposes of this section, -
> (i) "free trade zone" means the Kandla Free Trade Zone and the Santacruz
> Electronics Export Processing Zone and includes any other free trade zone
> which the Central Government may, by notification in the Official Gazette,
> specify 316 for the purposes of this section;
> (ii) "Relevant assessment years" means the five consecutive assessment years
> specified by the assessee at his option under sub-section (3);
> (iii) "Manufacture" includes any -
> (a) Process, or
> (b) Assembling, or
> (c) Recording of programmes on any disc, tape, perforated media or other
> information storage device.
> (iv) "Electronic hardware technology park" means any park set up in
> accordance with the Electronic Hardware Technology Park (EHTP) Scheme
> notified by the Government of India in the Ministry of Commerce 318b ;
> (v) "Software technology park" means any park set up in accordance with the
> Software Technology Park Scheme notified by the Government of India in the
> Ministry of Commerce;
> (vi) "Produce", in relation to articles or things referred to in clause (i)
> of sub-section (2), includes production of computer programmes…."
> "Section 10B. Special Provision in respect of Newly Established Hundred Per
> Cent Export-Oriented Undertakings.
> (1) Subject to the provisions of this section, any profits and gains derived
> by an assessee from a hundred per cent export- oriented undertaking
> (hereafter in this section referred to as the undertaking) to which this
> section applies shall not be included in the total income of the assessee.
> (2) This section applies to any undertaking which fulfils all the following
> conditions, namely :-
> (i) It manufactures or produces any article or thing;
> (ia) In relation to an undertaking which begins to manufacture or produce
> any article or thing on or after the 1st day of April, 1994, its exports of
> such articles and things are not less than seventy-five per cent of the
> total sales thereof during the previous year;
> (ii) It is not formed by the splitting up, or the reconstruction, of a
> business already in existence :
> Provided that this condition shall not apply in respect of any undertaking
> which is formed as a result of the re-establishment, reconstruction or
> revival by the assessee of the business of any such industrial undertaking
> as is referred to in section 33B, in the circumstances and within the period
> specified in that section;
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> Explanation : The provisions of Explanation 1 and Explanation 2 to
> sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
> of this sub-section as they apply for the purposes of clause (ii) of that
> sub-section.
> (3) The profits and gains referred to in sub-section (1) shall not be
> included in the total income of the assessee in respect of any consecutive
> assessment years, falling within a period of eight years beginning with the
> assessment year relevant to the previous year in which the undertaking
> begins to manufacture or produce articles or things, specified by the
> assessee at his option :
> Provided that nothing in this sub-section shall be construed to extend the
> aforesaid five assessment years to cover any period after the expiry of the
> said period of eight years……
> ** ** **
> Explanation : For the purposes of this section, -
> (i) "Hundred per cent export-oriented undertaking" means an undertaking
> which has been approved as a hundred per cent export-oriented undertaking by
> the Board appointed in this behalf by the Central Government in exercise of
> the powers conferred by section 14 of the Industries (Development and
> Regulation) Act, 1951 (65 of 1951), and the rules made under that Act…."
> Notifications, circulars and instructions referred to
> 11.During the proceedings in this case, the Tribunal as well as the assessee
> relied upon certain circulars to say that once a software technology park
> received approval to function as such, since the notified approval was in
> the Central Government's circulars, given by an Inter Ministerial Committee,
> which in turn had been delegated to the Director, the unit was also entitled
> to avail the benefit under Section 10-B. It would therefore, be relevant to
> notice the circulars; they are extracted below.
> 12.The Tribunal relied on a circular of 2005; it reads as follows:
> "CIRCULAR NO.1 OF 2005, DT. 6TH JAN., 2005
> Sub: Tax holiday under section 10B of the Income-tax Act to 100% Export
> Oriented Undertaking - Certain clarification - Reg
> 6/1/2005
> Exemptions
> Section 10B
> Section 10B of the Income-tax Act provides for 100% deduction of profits
> derived by a hundred per cent export oriented undertaking, form export of
> articles or things or computer software manufactured or produced by it. The
> deduction is available for a period of ten consecutive assessment years
> beginning with the assessment year relevant to the previous year in which
> the undertaking begins to manufacture or produce articles or things or
> computer software. However, no deduction under section 10B is available
> after assessment year 2009-10.
> 2. The deduction under section 10B is available to an undertaking which
> fulfils all the following conditions:
> (i) it manufacturers or produces any article or thing or computer software;
> (ii) it is not formed by the splitting up, or the reconstruction, of a
> business already in existence except in the circumstances specified under
> section 33B of the IT Act.
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> 3. Representations have been received from various quarters as to whether an
> undertaking set up in Domestic Tariff Area, which is subsequently approved
> as 100% EOU by the Board appointed by the Central Government in exercise of
> powers conferred under section 14 of the Industries (Development and
> Regulation) Act, 1951, is eligible for deduction under section 10B of the
> Income-tax Act.
> 4. The matter has been examined and it is hereby clarified that an
> undertaking set up in Domestic Tariff Area (DTA) and deriving profit from
> export of articles or things or computer software manufactured or produced
> by it, which is subsequently converted into a EOU, shall be eligible for
> deduction under section 10B of the IT Act, on getting approval as 100%
> export oriented undertaking. In such a case, the deduction shall be
> available only from the year in which it has got the approval as 100% EOU
> and shall be available only for the remaining period of ten consecutive
> assessment years, beginning with the assessment year relevant to the
> previous year in which the undertaking begins to manufacture or produce
> articles or things or computer software, as a DTA unit. Further, in the year
> of approval, the deduction shall be restricted to the profits derived from
> exports, from and after the date of approval of the DTA Unit as 100% EOU.
> Moreover, the deduction to
> such units in any case will not be available after assessment year 2009-10.
> 5. To clarify the above position, certain illustrations are given as under:
> (i) Undertaking 'A' is set up in Domestic Tariff Area and starts manufacture
> or production of computer software in financial year 1999-2000 relevant to
> assessment year 2000-01. It gets approval as 100% EOU on 10th September,
> 2004 in the financial year 2004-05 relevant to assessment year 2005-06.
> Accordingly, it shall be eligible for deduction under section 10B from
> assessment year 2005-06 i.e., the year in which it fulfills the basic
> condition of being a 100% EOU. Further, the deduction shall be available
> only for the remaining period of ten years i.e. from assessment year 2005-06
> to assessment year 2009-10. This deduction under section 10B for assessment
> year 2005-06 shall be restricted to the profits derived from exports, from
> and after the date of approval of the DTA unit as 100% EOU.
> (ii) Undertaking 'B' set up in Domestic Tariff Area, begins to manufacture
> or produce computer software in financial year 1996-97 relevant to
> assessment year 1997-98. It gets approval as 100% EOU in Financial year
> 2007-08 relevant to assessment year 2008-09. No deduction under section 10B
> shall be admissible to undertaking B as the period of 10 years expires in
> financial year 2005-06 relevant to assessment year 2006-07, prior to its
> approval as 100% EOU.
> (iii) Undertaking 'C' is set up in Domestic Tariff Area in the financial
> year 2000-01 relevant to assessment year 2001-02 and engaged in the business
> of providing computer related services, other than those notified by the
> Board for the purpose of section 10B. In financial year 2002-03, it acquires
> more than 20% of old plant and machinery and starts manufacturing computer
> software. It also gets approval as 100% EOU in financial year 2002-03.
> Undertaking 'C' shall not be eligible for deduction under section 10B, as
> there has been transfer of old plant and machinery.
> (iv) Undertaking 'D' is set up and starts producing computer software in
> financial year 2003-04 relevant to assessment year 2004-05. It gets approval
> as 100% EOU in financial year 2006-07 relevant to assessment year 2007-08.
> It shall be eligible for deduction under section 10B from assessment year
> 2007-08. However, the deduction shall not be available after assessment year
> 2009-10.
> (v) Undertaking 'E' is set up and starts producing computer software prior
> to 31st March, 1994. It gets approval as 100% EOU in financial year 2004-05
> relevant to assessment year 2005-06. Undertaking 'E' shall not be eligible
> for deduction under section 10B as the period of deduction of 10 years
> expires prior to assessment year 2005-06."
> The second document relied on were the Instructions of 2006, dated 31st
> March, 2006:
> "INSTRUCTIONS NO.1 OF 2006, DT. 31ST MARCH, 2006
> SUB: Deduction under Section 10A-Clarification-Reg.
> 31/3/2006
> EXEMPTIONS
> SECTION 10A
> 1. Section 10A of the Income-tax Act, 1961 provides for 100 per cent
> deduction of profits and gains derived by an undertaking from export of
> articles or things or computer software manufactured or produced by it. The
> deduction is available for a period of ten consecutive assessment years
> beginning with the assessment year relevant to the previous year in which
> the undertaking begins to manufacture or produce such articles or things or
> computer software. The tax benefit under section 10A is available to an
> undertaking which fulfils all the following conditions:
> (i) it has begun or begins to manufacture or produce articles or things or
> computer software during the previous year relevant to the assessment year -
> (a) commencing on or after 1st April, 1981, in any Free Trade Zone; or
> (b) commencing on or after 1st April, 1994, in any Electronic Hardware
> Technology Park or Software Technology Park; or
> (c) commencing on or after 1st April, 2001, in any Special Economic Zone;
> (ii) it is not formed by the splitting up or the reconstruction of a
> business already in existence except in the circumstances and within the
> period specified in section 33B of the Income-tax Act;
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> 2. 'Software Technology Park' has been defined to mean any park set up in
> accordance with the Software Technology Park Scheme notified by the
> Government of India in the Ministry of Commerce and Industry.
> 3. In exercise of the powers conferred by sub-section (1) of section 3 of
> the Foreign Trade (Development and Regulation) Act, 1992, the Ministry of
> Commerce notified the Software Technology Park Scheme wherein it was
> provided that a Software Technology Park may be set up by the Central
> Government, State Government, Public or Private Sector Undertakings or any
> combination thereof. An STP may be an individual unit by itself or it may be
> one of such units located in an area designated as STP Complex by the
> Department of Electronics. The scheme was required to be administered by the
> Department of Electronics, Government of India, through Directors of
> respective Software Technology Parks which form part of the Software
> Technology Parks of India (STPI), a society established by the Department of
> Electronics and registered under the Societies Registration Act, 1860. An
> application in the prescribed form for establishing a STP unit was required
> to be submitted
> to the Chief Executive of STP Complex along with the details of the
> Software project. Such application was to be considered by an
> Inter-Ministerial Standing Committee (IMSC) constituted under the
> Chairmanship of Secretary, Department of Electronics, Government of India.
> 4. Subsequently, vide Notification No. 4/(RE-95/92-97), dated 30th April,
> 1995 issued by the Director General (Foreign Trade), Ministry of Commerce,
> in exercise of powers conferred in sub-section (1) of section 3 of the
> Foreign Trade (Development and Regulation) Act, 1992, notified the amended
> STP Scheme. Para 2.3 of the aforesaid notification provides that the scheme
> is administered by the Department of Electronics, Government of India,
> through Directors of respective STPs which form part of the STPI, a society
> established by the Department of Electronics and registered under the
> Societies Registration Act, 1860. An application in the prescribed format
> for establishing a STP unit may be submitted to the Chief Executive of STP
> Complex along with the details of the software project. Such application
> will be considered by an Inter-Ministerial Standing Committee constituted
> under the Chairmanship of Secretary, Department of Electronics.
> 5. Instances have been brought to the notice of the Board that a large
> number of units registered/approved by the Directors of the STPI are
> claiming deduction under section 10A whereas the STP scheme requires
> approval by the Inter-Ministerial Standing Committee of the Department of
> Electronics. Accordingly, the cases of such claimants have been reopened by
> the field authorities.
> 6. The matter has been examined in consultation with the officers of the
> Department of Information Technology (earlier, Department of Electronics).
> In view of the ambiguity in the legal status of the approval by Director of
> STPs, the Inter-Ministerial Standing Committee will meet to consider the
> approvals by Director of STPs issued in the past. Therefore, with a view to
> avoid infructuous demand raised in assessment and reassessment of assessees
> claiming deduction under section 10A, it has been decided that the claim of
> deduction under section 10A of the Income-tax Act, shall not be denied to
> STP units only on the ground that the approval/registration to such units
> has been granted by the Directors of Software Technology Parks. However, it
> has to be ensured that all other conditions specified in section 10A are
> fully satisfied before allowing any such claim.
> 7. In cases where assessments/reassessments have already been completed, and
> the claim, under section 10A, has been disallowed only on the ground that
> the approval to the STP has not been granted by the Inter-Ministerial
> Standing Committee in accordance with the Scheme, the demand so arising
> should be kept in abeyance until further orders."
> 12.1It would also be relevant at this stage to notice that Circular No. 694,
> dated 23-11-1994, one of the earliest instructions issued by the Central
> Government, pertinently stated that:
> "….it is clarified that units in EPZs/EOUs which export software are as much
> eligible for availing of the five-year tax holiday under sections 10A and
> 10B as any other units in EPZ/EOU, even for the period prior to the previous
> year relevant to the assessment year 1994-95. The conditions stipulated in
> the provisions have, of course, to be fulfilled. The insertion of the
> Explanation of the term "produce" in 1993 should not be taken as a ground
> for denying the tax holiday to such units for earlier years. "
> Earlier, the Department of Industrial Development, Ministry of Industry had,
> by notification No. 117-E dated 22-2-1993 constituted a committee to perform
> the functions specifically delegated, including the grant of approval for
> EHTPs and STPs. The said Notification reads as follows:
> "Ministry of Industry
> (Department of Industrial Development)
> New Delhi, the 22nd Feb., 1993
> Notification
> S.O. No. 117(E)--In exercise of the powers conferred by Section 14 of
> Industries (Development and Regulation) Act, 1951 (65 of 1951), r/w Sub-rule
> (2) of Rule 10 of the Registration and Licensing of Industrial undertakings
> Rules, 1952 the Ministry of Industry, Department of Industrial Development,
> hereby appoints the following committee which shall perform the functions
> specified:
> Inter-Ministerial Standing Committee for units in the Electronic Hardware
> Technology Parks (EHTP) and Software Technology Parks (STP)
> Chairman
> 1. Secretary, Department of Electronics, or his nominee
> 2. Secretary, Department of Industrial Development, or his nominee
> 3. Secretary, Department of Science and Technology, or his nominee
> 4. Secretary, Ministry of Commerce, or his nominee
> 5. Chairman, Central Board of Excise and Customs, or his nominee
> 6. Secretary, Deptt. of Economic Affairs, Ministry of Finance, or his
> nominee
> 7. Secretary, Planning Commission, or his nominee
> 8. Economic Adviser, Department of Electronics
> 9. Secretary, Department of Small Scale Industries and Agro and Rural
> Industries or his nominee
> 10. Joint Secretary, Department of Electronics, Member- Secretary.
> Functions of the Inter-Ministerial Standing Committee :
> (i) The Committee shall consider all applications for setting up of units in
> the Electronic Hardware Technology Parks (EHTP) under the scheme of special
> facility (hereinafter referred to as the said scheme framed under the
> Government of India, Ministry of Commerce, Notification No. 42 (N-8)/1992-97
> dt. the 14th Sept., 1992). The Committee shall also consider all
> applications for setting up of units under Software Technology Park scheme
> operated under Customs Notification Nos. 138 and 140 dt. 22nd Oct., 1991.
> The Committee shall consider proposals for industrial licence, foreign
> technical collaboration agreements and import of capital goods. The
> Committee shall not consider applications involving foreign equity with or
> without any other industrial approvals.
> (ii) The Committee shall review the progress of implementation of letters of
> intent and industrial licences granted under the said scheme upto the stage
> of actual commissioning of capacity.
> (iii) The Committee shall consider and make a report on policy questions
> arising from applications received under the said scheme or from the
> implementation of individual proposals thereunder in accordance with the
> policy laid down by the Central Government from time to time.
> (iv) The Committee may refer any matter in its discretion for the
> consideration and decision of the Central Government in respect of matters
> falling within its competence".
> Analysis
> 13.There is no dispute about the essential facts. Both assesses had received
> approval to start 100 per cent EOU under STP scheme. The question is whether
> this approval can be deemed one under Section 10-B of the Act. For that
> purpose a 100 per cent EOU is only that which is so approved by the Board
> appointed by Central Government in exercise of powers conferred under
> Section 14 of IDAR Act, 1951. The pre-conditions that govern units set up
> under STP scheme are different from those that govern the units set up as
> 100 per cent EOUs and so approved by the Board. Some conditions may
> undoubtedly overlap yet, criteria, such as fulfilment of the employment
> criteria, foreign exchange, etc., are not common.
> 14.The Inter-Ministerial Standing Committee set up for granting licences
> under STP scheme is also appointed by the Central Government in exercise of
> powers conferred under, Section 14 of IDAR Act. However, the question is
> whether that part of the Board's function (under Section 14 IDR Act) - to
> grant approval under Section 10-B also stands delegated. The assesses submit
> that the Inter-Ministerial Standing Committee has been replaced by the Board
> on the basis of the contents of para 2 of the notification of the Ministry
> of Commerce dt. 22nd March, 1994, is unpersuasive. That notification states
> that for the purpose of paras 111 to 117 of Chapter IX of the Export and
> Import Policy (1992-97), Board of Approval shall be substituted by the
> Inter-Ministerial Standing Committee. Paras 111 to 117 of Chapter-DC of
> Export and Import Policy (1992-97) do not deal with that aspect, but other
> questions such as subcontracting by EOU/EPZ, Sale of imported materials,
> Disposal of scrap, Private bonded warehouses, period of bonding, and
> de-bonding. The notification therefore extended incentives to EOUs to set up
> units under the STP scheme. However, for the Court to conclude that the
> Interministerial Committee was authorized to issue approval under Section
> 10-B and that its imprimatur or approval under Section 10-A ought to be
> deemed as an approval under Section 10-B, there ought to be more direct, or
> express authorization.
> 15.Section 10A extends the exemption to the units set up under STP scheme
> which start production of goods during the previous year relevant to the
> assessment year commencing on or after 1st April, 1994. The assessee's plea
> about eligibility of a 100% EOU STP eligible for exemption would render the
> amendment brought about by the Finance Act, 1993 (extending the benefit
> under Section 10A of the Act to the STPs from 1st April, 1994) superfluous.
> There is no reason for Parliament to amend the law, and extend benefits of
> Section 10A to units under STP scheme and, restrict the benefits to those
> commencing their operations in the year of account relevant to the
> Assessment year 1994-95, if a STP unit is otherwise eligible for exemption
> under Section 10B of the Act on the ground of its being 100 per cent EOU.
> 16.It is a settled principle of law that unless there is express
> authorization, in terms of a statute, and an actual delegation of power, a
> statutory authority in whom jurisdiction or power is reposed, is alone
> vested with it, to the exclusion of others (Ref. Hari Chand Aggarwalv Batala
> Engineering Co. LtdAIR 1969 SC 483; and Ajaib Singhv. State of PunjabAIR
> 1965 SC 1619). In the absence of a statutory power to delegate, and further
> to that power, an actual delegation in accordance with law, such functions
> cannot be performed or deemed to have been performed by a third agency or
> authority. Another cardinal rule which binds the court to interpret statutes
> is that "where power is given to do a certain thing in a certain way, the
> thing must be done in that way or not at all, and other methods of
> performance are necessarily forbidden…" (See Nazir Ahmedv King Emperor[1936]
> I. L. R. 17 Lah 629).
> 17.In the present case, there is no notification or official document
> suggesting that either the Inter Ministerial Committee, or any other officer
> or agency was nominated to perform the duties of the Board (constituted
> under Section 14 of the IDR Act), for purposes of approvals under Section
> 10-B. Though the considerations which apply for granting approval under
> Sections 10-A and 10-B may to an extent, overlap, yet the deliberate
> segregation of these two benefits by the statute reflects Parliamentary
> intention that to qualify for benefit under either, the specific procedure
> enacted for that purpose has to be followed. There is nothing in any of the
> Circulars or instructions relied on by the Tribunal in all the orders,
> implying that approval for purposes of an STP also entitled the unit to a
> benefit under Section 10-B. The orders of the Tribunal are consequently
> erroneous, and its reasoning, unsupportable.
> 18. In the light of the above discussion, the question of law framed is
> answered in favour of the revenue, and against the assessee; the appeals are
> therefore allowed.
>
of us will benefit.
On 03/04/2013, Kumar S <skumarirs@yahoo.com> wrote:
>
>
> This decision is applicable only for EOU units coming under Development
> Commissioner of SEZ. This Tax Appeal had two parties, Regency Creation,
> coming under SEZ and Valiant Communication, coming under STPI. The latter
> party has approached the court again for deduction u/s 10A and the court has
> directed ITAT to examine and allow the claim if found valid.
>
>
> This issue was raised by Audit and one of the Officers in Chennai had
> written to STPI seeking clarification on this issue. Ministry of Commerce
> has clarified that the IMSC meeting in 2006 has decided that all approvals
> granted by STPI Directors are deemed to have been approved by the Approval
> Committee and no other approval is required. Reply to audit is being sent
> on these lines requesting them to drop the objection. For EOU units, the
> Approval letters are apparently being issued individually and some of them
> produced the same before the Assessing Officers, who allowed the claim.
>
>
>
>
> ________________________________
> From: Pavan Singla <singlapavan@gmail.com>
> To:
> Sent: Wednesday, March 27, 2013 8:28 PM
> Subject: [IT Reporter] judgement on 10B for revenue favour
>
>
>
> IT : Eligibility of a 100 per cent EOU for deduction under section 10B is
> that it should be approved by Central Govt. through appropriate authority
> constituted under section 14 of Industries (Development and Regulation) Act;
> and if a 100 percent EOU is only approved by Director, STPI it would not be
> a valid approval
> ■■■
> [2012] 27 taxmann.com 322 (Delhi)
> HIGH COURT OF DELHI
> Commissioner of Income tax
> v.
> Regency Creations Ltd.*
> S. RAVINDRA BHAT AND R.V. EASWAR, JJ.
> IT APPEAL NOS. 69 OF 2008, 783 OF 2009 & 1239 OF 2011
> SEPTEMBER 17, 2012
> Section 10B, read with section 10A, of the Income-tax Act, 1961 - Export
> oriented undertaking - Grant of approval - Assessment years 2003-04,
> 2004-05, 2006-07 and 2007-08 - Whether though considerations which apply for
> granting approval under sections 10-A and 10-B may to an extent, overlap,
> yet deliberate segregation of these two benefits by statute reflects
> Parliamentary intention, that to qualify for benefit under either, specific
> procedure enacted for that purpose has to be followed - Held, yes - Whether,
> therefore, approval granted to a 100 per cent EOU set up under Software
> Technology Park Scheme cannot be deemed to be an approval under section 10-B
> - Held, yes [Para 14] [In favour of revenue]
> Circulars and Notifications : Circular Nos. 1 of 2005, dated 6-1-2005,
> 149/194/2004/TPL, dated 6-1-2005, 200/20/2006, dated 31-3-2006 and 694,
> dated 23-11-1994; Instruction No. 1 of 2006, dated 6-1-2005
> FACTS
> Facts
> • Assessee was engaged in 100 per cent export of artware handicrafts, home
> furnishing and software exports and had three respective divisions.
> • It claimed deduction under section 10B in respect of its software export
> income.
> • The Assessing Officer, however, denied the claim on ground that the
> assessee should be a 100 per cent export oriented unit approved by the
> Central Government through its appropriate authority under section 14 of the
> Industries (Development and Regulation) Act, 1951, which it was not.
> • On appeal, the Commissioner (Appeals) held that the claim for exemption
> under section 10B was admissible to the assessee since it was registered
> with the Central Government i.e. Software Technology Park of India, (STPI).
> • The Tribunal confirmed the order of the Commissioner (Appeals) by relying
> upon Circular No. 149/194/2004/TPL dated 6-1-2005 and Circular No.
> 200/20/2006/Income tax Act, 1961-I, dated 31-3-2006, wherein it was directed
> that the grant of registration by STPI be treated as valid for the purposes
> of section 10B.
> • Being aggrieved, the revenue preferred instant appeals.
> Arguments of revenue
> • Benefit of deduction under section 10B is radically different from the one
> envisioned under section 10A.
> • None of the circulars or clarifications, as relied upon by the
> Commissioner (Appeals) or Tribunal, ever spelt out any misunderstanding on
> the part of the income tax authorities that approval by the Director, STPI
> could be deemed valid approval for the purpose of section 10-B.
> Arguments of the assessee
> • The rationale for granting approval to software technology park units was
> to augment export of services and products. The intention of section 10B has
> therefore, to be read into the context of the concerned scheme, i.e. STPI
> which was meant to permit growth of foreign trade in the sector, i.e.,
> computer software.
> • The Appellate Commissioner and the Tribunal were alive to the fact that
> the power to give approvals was initially with the Inter-Ministerial
> Standing Committee which was later delegated to the Director, STPI.
> Issues involved
> • Whether approval granted to start 100 per cent EOU under the STP scheme
> could be deemed to be one issued under section 10B.
> HELD
> Pre-conditions that govern units set up under STP scheme and units set up as
> 100 per cent EOUs are different, though certain other conditions does
> overlap :
> • The assessee had received approval to start 100 per cent EOU under STP
> scheme. The question is whether this approval can be deemed one under
> section 10-B. For that purpose a 100 per cent EOU is only that which is so
> approved by the Board appointed by Central Government in exercise of powers
> conferred under section 14 of IDAR Act, 1951. The preconditions that govern
> units set up under STP scheme are different from those that govern the units
> set up as 100 per cent EOUs and so approved by the Board. Some conditions
> may undoubtedly overlap yet, criteria, such as fulfilment of the employment
> criteria, foreign exchange, etc.,are not common. [Para 13]
> • The Interministerial Standing Committee set up for granting licences under
> STP scheme is also appointed by the Central Government in exercise of powers
> conferred under, section 14 of IDAR Act. However, the question is whether
> that part of the Board's function (under section 14 IDR Act) - to grant
> approval under section 10-B also stands delegated. For the Court to conclude
> that the Inter-ministerial Committee was authorized to issue approval under
> section 10-B and that its imprimatur or approval under section 10-A ought to
> be deemed as an approval under section 10-B, there ought to be more direct,
> or express authorization. [Para 14]
> • Section 10A extends the exemption to the units set up under STP scheme
> which start production of goods during the previous year relevant to the
> assessment year commencing on or after 1-4-1994. The assessee's plea about
> eligibility of a 100 per cent EOU STP eligible for exemption would render
> the amendment brought about by the Finance Act, 1993 (extending the benefit
> under section 10A to the STPs from 1-4-1994) superfluous. There is no reason
> for Parliament to amend the law, and extend benefits of section 10A to units
> under STP scheme and, restrict the benefits to those commencing their
> operations in the year of account relevant to the Assessment year 1994-95,
> if a STP unit is otherwise eligible for exemption under section 10B of the
> Act on the ground of its being 100 per cent EOU. [Para 15]
> Interpretation of statutes
> • It is a settled principle of law that unless there is express
> authorization, in terms of a statue, and an actual delegation of power, a
> statutory authority in whom jurisdiction or power is reposed, is alone
> vested with it, to the exclusion of others. In the absence of a statutory
> power to delegate, and, further, to that power, an actual delegation in
> accordance with law, such functions cannot be performed or deemed to have
> been performed by a third agency or authority. Another cardinal rule which
> binds the court to interpret statutes is that where power is given to do a
> certain thing in a certain way, the thing must be done in that way or not at
> all, and other methods of performance are necessarily forbidden. [Para 16]
> Conclusion
> • In the instant case, there is no notification or official document
> suggesting that either the Interministerial Committee, or any other officer
> or agency was nominated to perform the duties of the Board (constituted
> under section 14 of the IDR Act), for purposes of approvals under section
> 10-B. Though the considerations which apply for granting approval under
> sections 10-A and 10-B may to an extent, overlap, yet the deliberate
> segregation of these two benefits by the statute reflects Parliamentary
> intention that to qualify for benefit under either, the specific procedure
> enacted for that purpose has to be followed. There is nothing in any of the
> circulars or instructions relied on by the Tribunal in all the orders,
> implying that approval for purposes of an STP also entitled the unit to a
> benefit under section 10-B. The orders of the Tribunal are consequently,
> erroneous, and its reasoning, unsupportable. [Para 17]
> • In the light of the above discussion, the question of law framed is
> answered in favour of the revenue, and against the assessee; the appeals
> are, therefore, allowed. [Para 18]
> CASES REFERRED TO
> Radhasoami Satsangv. CIT [1992] 193 ITR 321/ 60 Taxman 248(SC) (para 7),
> CITv. Jagson International Ltd.[IT Appeal No. 75 of 2006, dated 14-11-2007]
> (para 7), Bajaj Tempo Ltd.v. CIT[1992] 196 ITR 188/ 62 Taxman 480(SC) (para
> 9), Hari Chand Aggarwalv. Batala Engineering Co. Ltd.AIR 1969 SC 483 (para
> 16), Ajaib Singh v. State of PunjabAIR 1965 SC 1619 (para 16) and Nazir
> Ahmedv. King Emperor[1936] ILR 17 Lah 629 (para 16).
> Ms. Rashmi Chopraand Harpeet Singh Ajmanifor the Appellant. Kuldip Singh,
> Harish Malhotraand Rajender Aggarwalfor the Respondent.
> JUDGMENT
> S. Ravindra Bhat, J.- These appeals have been preferred by the Revenue
> claiming to be aggrieved by the common orders of the Income Tax Appellate
> Tribunal (ITAT) in respect of the two assessees, i.e. M/s. Regency Creations
> Ltd. and Valiant Communications Ltd. The questions of law which arises in
> all the appeals is common, i.e.
> "Whether the Tribunal fell into error in holding that the claim of deduction
> under Section 10-B of the Income Tax Act in respect of the assessees' income
> derived from export of computer software was permissible."
> 2. The facts pertaining to the cases of Regency Creations Ltd. [IT Appeal
> Nos. 69/2008 and 783/2009] in respect of Assessment Years 2003-04 and
> 2004-05 are that it is engaged in 100% export of artware handicrafts, home
> furnishing and software exports. The assessee had three divisions
> respectively, in connection with the said three activities -i.e. artware
> handicrafts, home furnishing and software division, which was named M/s.
> Maxtech iSolution. The assessee claimed exemption under Section 10B in
> respect of its software export income. The Assessing Officer held that to
> qualify for such benefit, the assessee should be a 100% Export Oriented Unit
> (EOU) and approved by the Central Government through its appropriate
> authority under Section 14 of the Industries (Development and Regulation)
> Act, 1951 (IDR Act). The Assessing Officer concluded that the Assessee had
> no valid certificate for software export and had not mentioned in its
> Articles of Memorandum of
> Association that it could carry-out business in computer software and that
> M/s. Maxtech iSolution was not shown to be an undertaking of the assessee,
> in its Articles of Memorandum of Association. The assessees' appeal was
> allowed for academic years 2003-07; the Appellate Commissioner held that the
> claim for exemption under Section 10B was admissible since it was registered
> with the Central Government, i.e. Software Technology Park of India (STPI)
> and that the business activity of software export was permissible with the
> main and the ancillary object spelt-out in the Memorandum of Association.
> The CIT (Appeals) relied upon a Circular of the Central Board of Direct
> Taxes (CBDT). The Revenue appealed to the Tribunal, which dismissed the
> appeal, holding as follows:
> "5. We have considered the rival contentions and found from the record that
> the assessee had established a software division under the name and style of
> Maxtech iSolutions, which was approved and registered with the STPI, a unit
> of Ministry of Information and Technology. This is a nodal agency for grant
> of approval for establishment of 100% export oriented software. As per the
> permission letter dated 7th November, 2006, as placed on the record, we
> found that STPI had granted registration to the assessee vide letter dated
> 5.12.2000 for setting up a 100% EOU under Software Technology Park Scheme
> which was valid for 5 years. The assessee was granted extension to continue
> the operations under Software Technology Park Scheme up to 31.03.2009. CBDT
> in its Circular No. 149/194/2004/TPL dated 06.01.2005 and Circular No.
> 200/20/2006/Income Tax Act, 1961-I dated 31.3.2006 has directed to treat the
> grant of registration by STPI as valid agency for purposes of
> Section 10B.
> 6. In the instant case, the assessee has got approval from STPI, an
> organization of government duly authorized by CBDT Circular as stated above.
> Memorandum of Association of the Company in its main object clause clearly
> states the export of all kinds of goods all over the world. Goods thus
> includes computer software. Clause 11 of the Incidental objects as set out
> in memorandum empowers to set up any unit or division by the company for
> carrying on any business. Thus the setting up of Maxtech iSolution is one of
> the divisions of assessee is authorized by Memorandum. The details about
> branches and production units of assessee have been clearly informed to
> Assessee Officer during the assessment proceedings which he ought to have
> treated as sufficient compliance. The information about the places of
> business of assessee have been clearly mentioned in CA report which
> accompanies the return.
> 7. In view of the above, we do not find any infirmity in the order of the
> CIT (Appeals) for granting exemption under sec. 10-B to the assessee unit.
> The finding recorded by the CIT (Appeals) at pages 5 & 6 of his appellate
> order has not been controverted by the department by bringing any positive
> material on record."
> 3.For the assessment year 2004-05, the Assessing Officer disallowed the
> claim for deduction under Section 10B. The Appellate Commissioner accepted
> the assessees' argument following his previous order for the assessment year
> 2003-04 and also after observing that the appellant had exported computer
> software through proper banking channels and after duly complying with
> conditions for getting export invoices endorsed by the STPI, (the Central
> Government body which is also the nodal agency established for monitoring
> exports of computer software). The Revenue's appeal was allowed by the ITAT
> which followed its previous order.
> 4. For the assessment year 2007-08, the Assessing Officer and the Appellate
> Commissioner rejected the claim for benefit under Section 10B. The assessee
> in its appeal relied upon the previous two orders of the Tribunal. Before
> the Tribunal, the assessee relied upon Ex. No. 62 - Press Note 5 (1997
> Series) and Ex. No. 38 - Press Note 2 (1993 Series) and also the letter
> dated 31.03.2011 issued by the Ministry of Commerce and Industry. The
> Tribunal noticed that Press Notes 2 and 5 which had been relied upon clearly
> stated that the Inter-Ministerial Standing Committee for EHTPS and ESTPC was
> competent to grant approval for STPI units to claim 100 % benefits under EOU
> Scheme. On the basis of this interpretation placed upon the letter dated
> 09.03.1993 (which was disclosed through communication dated 31.03.2011), the
> Tribunal held that the assessee was entitled to benefit of deduction under
> Section 10B of the Act. The said communication/letter dated 31.03.2011
> reads as follows:
> "Please refer to your RTI application dated March 10, 2011 received on
> 17.03.2011) on the subject mentioned above and to inform that no
> approval/ratification of STPI approval is required from BOA formed by
> Ministry of Commerce by power conferred under Section 14 of IDR Act, 1951.
> Inter-Ministerial Standing Committee for EHTPs and ESTPs (IMSC) is competent
> in grant approval for STPI unit to claim all benefits under 100% EOU Scheme
> as per Press Note 2 of 1993 (copy enclosed)."
> 5. The facts in respect of M/s Valiant Communications (ITA 2002/2010 -
> Assessment Year 2005-06; ITA 438 to 441/2012 - Assessment Years 2003-04,
> 2004-05, 2006-07 and 2007-08) are that the assessee, like in the case of
> Regency claimed deduction under Section 10B. It is engaged in the business
> of manufacturing and export of telecom transmission equipment. It had a
> registered unit with the Software Technology Park of India as a 100% EOU
> under Electronic Hardware Technology Park (EHTP) Scheme. The Assessing
> Officer had rejected the claim, stating that approval from STPI cannot be
> equated with the approval of the Board appointed under Section 14 of the
> Industries (Development and Regulation) Act, 1951. The CIT (Appeals) had
> held that the assessee was entitled to the benefit. The Revenue's appeal
> before the Tribunal for the appeal year 2005-06 was rejected; the Tribunal
> had relied upon its ruling in the case of Regency Creations.
> 6.It is argued by the Revenue in all the appeals that the benefit of
> deduction under Section 10B of the Act is radically different from the one
> envisioned under Section 10A. It was held that the Press Note -2 and Press
> Note 5 which had been relied upon by the Tribunal merely indicated that the
> Inter-Ministerial Standing Committee had been set-up for considering
> applications to set-up units under EHTP Scheme and the STP Scheme. Such
> Inter-Ministerial committees were deemed to be for the purpose of Section
> 10A. This position was clarified by Circular No. 1 of 2005 relied upon
> during the course of Tribunal's orders. Similarly, Instruction No. 1 of 2006
> also underlined the fact that the Software Technology Park Scheme notified
> under Section 3 of the Foreign Trade Development (Regulations) Act,
> approvals received by the Inter-Ministerial Standing Committee qualified for
> deduction under Section 10A. It was submitted that neither of these
> circulars nor even the
> subsequent clarification dated 06.05.2009 ever spelt-out any
> misunderstanding on the part of the income tax authorities that approval by
> the Director STPI could be deemed valid approval for the purpose of Section
> 10-B.
> 7.Learned counsel for the assessees contended that the rationale for
> granting approval for Software Technology Park units was with the intention
> of their exporting services and products. The intention of Section 10B had
> to be, therefore, read in the context of the concerned Scheme, i.e. ETPI and
> STPI which was meant to permit growth of foreign trade in the sector, i.e.
> computer software. It was argued, besides, that the rule of consistency,
> enunciated by the Supreme Court in Radhasoami Satsang v. CIT[1992] 193 ITR
> 321/ 60 Taxman 248(SC) and followed by this Court in CITv. Jagson
> International Ltd. [IT Appeal No. 75 of 2006, Dated 14-11-2007], estopped
> the Revenue from contending that the assessee did not possess the requisite
> approval. It is also submitted that the Tribunal had correctly relied upon a
> clarification dated 31.03.2011 which put the matter beyond any shadow of
> doubt, i.e. that Press Notes 2 and 5 enured in favor of the assessee. They
> could
> clearly avail the benefit of deduction under Section 10B.
> 8. It is argued that the Appellate Commissioner and Tribunal were alive to
> the fact that the power to give approvals was initially with the
> Inter-Ministerial Standing Committee which was later delegated to the
> Director STP by the Note No. 5 (1997 Series). The assessee further relied
> upon the following extract of the CBDT circular dated (Notification under SO
> 388(E) dated 30.04.1995, which by para 2.10 stated as follows:
> "2.10 The provisions of paragraphs 96,104,109, 110 and 112 to 117 of Chapter
> IX of the Export and Import Policy (1992-97) applicable to export oriented
> units (EOUs) and units in Export Processing Zones (EPZs) shall also apply to
> the STP units subject to the following modifications:
> a. The word "STP" shall be substituted for the word "EOU/EPZ" "EOU" OR
> "EPZs" wherever they occur, in the paragraphs.
> b. The words "Development Commissioner" wherever they occur shall be
> substituted by the words "Chief Executive of the STP Society."
> c. The word "BOA" wherever it occurs, shall be substituted by the word
> "IMSC"."
> 9.Learned counsel for the assessee urged that the construction or
> interpretation to be adopted by the Court should be in consonance with the
> liberal interpretation of Parliament in promoting growth and development. In
> this regard judgment of the Supreme Court in Bajaj Tempo Ltd.v. CIT[1992]
> 196 ITR 188/ 62 Taxman 480was relied upon. The Supreme Court in that case
> had held as follows:
> "A provision in taxing statute granting incentive for promoting growth and
> development should be construed liberally, the restriction on it too has to
> be construed so as to advance objective of the provision and not to
> frustrate it."
> Provisions of Law
> 10. Before a discussion about the rival contentions regarding merits of the
> case, it would be necessary to extract the relevant provisions, i.e.sections
> 10-A and Section 10B. They read as follows:
> "Section 10A .Special Provision in Respect of Newly Established Industrial
> Undertakings in Free Trade Zones
> (1) Subject to the provisions of this section, any profits and gains derived
> by an assessee from an industrial undertaking to which this section applies
> shall not be included in the total income of the assessee.
> (2) This section applies to any industrial undertaking which fulfils all the
> following conditions, namely :-
> (i) It has begun or begins to manufacture or produce articles or things
> during the previous year relevant to the assessment year -
> (a) Commencing on or after the 1st day of April, 1981, in any free trade
> zone; or
> (b) Commencing on or after the 1st day of April, 1994, in any electronic
> hardware technology park or, as the case may be, software technology park;
> (ia) In relation to an undertaking which begins to manufacture or produce
> any article or thing on or after the 1st day of April, 1995, its exports of
> such articles or things are not less than seventy-five per cent of the total
> sales thereof during the previous year;
> (ii) It is not formed by the splitting up, or the reconstruction, of a
> business already in existence :
> Provided that this condition shall not apply in respect of any industrial
> undertaking which is formed as a result of the re-establishment,
> reconstruction or revival by the assessee of the business of any such
> industrial undertaking as is referred to in section 33B, in the
> circumstances and within the period specified in that section;
> (iii) It is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> Explanation : The provisions of Explanation 1 and Explanation 2 to
> sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
> of this sub-section as they apply for the purposes of clause (ii) of that
> sub-section.
> (3) The profits and gains referred to in sub-section (1) shall not be
> included in the total income of the assessee in respect of any five
> consecutive assessment years, falling within a period of eight years
> beginning with the assessment year relevant to the previous year in which
> the industrial undertaking begins to manufacture or produce articles or
> things specified by the assessee at his option
> Provided that nothing in this sub-section shall be construed to extend the
> aforesaid five assessment years to cover any period after the expiry of the
> said period of eight years……
> ** ** **
> Explanation : For the purposes of this section, -
> (i) "free trade zone" means the Kandla Free Trade Zone and the Santacruz
> Electronics Export Processing Zone and includes any other free trade zone
> which the Central Government may, by notification in the Official Gazette,
> specify 316 for the purposes of this section;
> (ii) "Relevant assessment years" means the five consecutive assessment years
> specified by the assessee at his option under sub-section (3);
> (iii) "Manufacture" includes any -
> (a) Process, or
> (b) Assembling, or
> (c) Recording of programmes on any disc, tape, perforated media or other
> information storage device.
> (iv) "Electronic hardware technology park" means any park set up in
> accordance with the Electronic Hardware Technology Park (EHTP) Scheme
> notified by the Government of India in the Ministry of Commerce 318b ;
> (v) "Software technology park" means any park set up in accordance with the
> Software Technology Park Scheme notified by the Government of India in the
> Ministry of Commerce;
> (vi) "Produce", in relation to articles or things referred to in clause (i)
> of sub-section (2), includes production of computer programmes…."
> "Section 10B. Special Provision in respect of Newly Established Hundred Per
> Cent Export-Oriented Undertakings.
> (1) Subject to the provisions of this section, any profits and gains derived
> by an assessee from a hundred per cent export- oriented undertaking
> (hereafter in this section referred to as the undertaking) to which this
> section applies shall not be included in the total income of the assessee.
> (2) This section applies to any undertaking which fulfils all the following
> conditions, namely :-
> (i) It manufactures or produces any article or thing;
> (ia) In relation to an undertaking which begins to manufacture or produce
> any article or thing on or after the 1st day of April, 1994, its exports of
> such articles and things are not less than seventy-five per cent of the
> total sales thereof during the previous year;
> (ii) It is not formed by the splitting up, or the reconstruction, of a
> business already in existence :
> Provided that this condition shall not apply in respect of any undertaking
> which is formed as a result of the re-establishment, reconstruction or
> revival by the assessee of the business of any such industrial undertaking
> as is referred to in section 33B, in the circumstances and within the period
> specified in that section;
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> Explanation : The provisions of Explanation 1 and Explanation 2 to
> sub-section (2) of section 80-I shall apply for the purposes of clause (iii)
> of this sub-section as they apply for the purposes of clause (ii) of that
> sub-section.
> (3) The profits and gains referred to in sub-section (1) shall not be
> included in the total income of the assessee in respect of any consecutive
> assessment years, falling within a period of eight years beginning with the
> assessment year relevant to the previous year in which the undertaking
> begins to manufacture or produce articles or things, specified by the
> assessee at his option :
> Provided that nothing in this sub-section shall be construed to extend the
> aforesaid five assessment years to cover any period after the expiry of the
> said period of eight years……
> ** ** **
> Explanation : For the purposes of this section, -
> (i) "Hundred per cent export-oriented undertaking" means an undertaking
> which has been approved as a hundred per cent export-oriented undertaking by
> the Board appointed in this behalf by the Central Government in exercise of
> the powers conferred by section 14 of the Industries (Development and
> Regulation) Act, 1951 (65 of 1951), and the rules made under that Act…."
> Notifications, circulars and instructions referred to
> 11.During the proceedings in this case, the Tribunal as well as the assessee
> relied upon certain circulars to say that once a software technology park
> received approval to function as such, since the notified approval was in
> the Central Government's circulars, given by an Inter Ministerial Committee,
> which in turn had been delegated to the Director, the unit was also entitled
> to avail the benefit under Section 10-B. It would therefore, be relevant to
> notice the circulars; they are extracted below.
> 12.The Tribunal relied on a circular of 2005; it reads as follows:
> "CIRCULAR NO.1 OF 2005, DT. 6TH JAN., 2005
> Sub: Tax holiday under section 10B of the Income-tax Act to 100% Export
> Oriented Undertaking - Certain clarification - Reg
> 6/1/2005
> Exemptions
> Section 10B
> Section 10B of the Income-tax Act provides for 100% deduction of profits
> derived by a hundred per cent export oriented undertaking, form export of
> articles or things or computer software manufactured or produced by it. The
> deduction is available for a period of ten consecutive assessment years
> beginning with the assessment year relevant to the previous year in which
> the undertaking begins to manufacture or produce articles or things or
> computer software. However, no deduction under section 10B is available
> after assessment year 2009-10.
> 2. The deduction under section 10B is available to an undertaking which
> fulfils all the following conditions:
> (i) it manufacturers or produces any article or thing or computer software;
> (ii) it is not formed by the splitting up, or the reconstruction, of a
> business already in existence except in the circumstances specified under
> section 33B of the IT Act.
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> 3. Representations have been received from various quarters as to whether an
> undertaking set up in Domestic Tariff Area, which is subsequently approved
> as 100% EOU by the Board appointed by the Central Government in exercise of
> powers conferred under section 14 of the Industries (Development and
> Regulation) Act, 1951, is eligible for deduction under section 10B of the
> Income-tax Act.
> 4. The matter has been examined and it is hereby clarified that an
> undertaking set up in Domestic Tariff Area (DTA) and deriving profit from
> export of articles or things or computer software manufactured or produced
> by it, which is subsequently converted into a EOU, shall be eligible for
> deduction under section 10B of the IT Act, on getting approval as 100%
> export oriented undertaking. In such a case, the deduction shall be
> available only from the year in which it has got the approval as 100% EOU
> and shall be available only for the remaining period of ten consecutive
> assessment years, beginning with the assessment year relevant to the
> previous year in which the undertaking begins to manufacture or produce
> articles or things or computer software, as a DTA unit. Further, in the year
> of approval, the deduction shall be restricted to the profits derived from
> exports, from and after the date of approval of the DTA Unit as 100% EOU.
> Moreover, the deduction to
> such units in any case will not be available after assessment year 2009-10.
> 5. To clarify the above position, certain illustrations are given as under:
> (i) Undertaking 'A' is set up in Domestic Tariff Area and starts manufacture
> or production of computer software in financial year 1999-2000 relevant to
> assessment year 2000-01. It gets approval as 100% EOU on 10th September,
> 2004 in the financial year 2004-05 relevant to assessment year 2005-06.
> Accordingly, it shall be eligible for deduction under section 10B from
> assessment year 2005-06 i.e., the year in which it fulfills the basic
> condition of being a 100% EOU. Further, the deduction shall be available
> only for the remaining period of ten years i.e. from assessment year 2005-06
> to assessment year 2009-10. This deduction under section 10B for assessment
> year 2005-06 shall be restricted to the profits derived from exports, from
> and after the date of approval of the DTA unit as 100% EOU.
> (ii) Undertaking 'B' set up in Domestic Tariff Area, begins to manufacture
> or produce computer software in financial year 1996-97 relevant to
> assessment year 1997-98. It gets approval as 100% EOU in Financial year
> 2007-08 relevant to assessment year 2008-09. No deduction under section 10B
> shall be admissible to undertaking B as the period of 10 years expires in
> financial year 2005-06 relevant to assessment year 2006-07, prior to its
> approval as 100% EOU.
> (iii) Undertaking 'C' is set up in Domestic Tariff Area in the financial
> year 2000-01 relevant to assessment year 2001-02 and engaged in the business
> of providing computer related services, other than those notified by the
> Board for the purpose of section 10B. In financial year 2002-03, it acquires
> more than 20% of old plant and machinery and starts manufacturing computer
> software. It also gets approval as 100% EOU in financial year 2002-03.
> Undertaking 'C' shall not be eligible for deduction under section 10B, as
> there has been transfer of old plant and machinery.
> (iv) Undertaking 'D' is set up and starts producing computer software in
> financial year 2003-04 relevant to assessment year 2004-05. It gets approval
> as 100% EOU in financial year 2006-07 relevant to assessment year 2007-08.
> It shall be eligible for deduction under section 10B from assessment year
> 2007-08. However, the deduction shall not be available after assessment year
> 2009-10.
> (v) Undertaking 'E' is set up and starts producing computer software prior
> to 31st March, 1994. It gets approval as 100% EOU in financial year 2004-05
> relevant to assessment year 2005-06. Undertaking 'E' shall not be eligible
> for deduction under section 10B as the period of deduction of 10 years
> expires prior to assessment year 2005-06."
> The second document relied on were the Instructions of 2006, dated 31st
> March, 2006:
> "INSTRUCTIONS NO.1 OF 2006, DT. 31ST MARCH, 2006
> SUB: Deduction under Section 10A-Clarification-Reg.
> 31/3/2006
> EXEMPTIONS
> SECTION 10A
> 1. Section 10A of the Income-tax Act, 1961 provides for 100 per cent
> deduction of profits and gains derived by an undertaking from export of
> articles or things or computer software manufactured or produced by it. The
> deduction is available for a period of ten consecutive assessment years
> beginning with the assessment year relevant to the previous year in which
> the undertaking begins to manufacture or produce such articles or things or
> computer software. The tax benefit under section 10A is available to an
> undertaking which fulfils all the following conditions:
> (i) it has begun or begins to manufacture or produce articles or things or
> computer software during the previous year relevant to the assessment year -
> (a) commencing on or after 1st April, 1981, in any Free Trade Zone; or
> (b) commencing on or after 1st April, 1994, in any Electronic Hardware
> Technology Park or Software Technology Park; or
> (c) commencing on or after 1st April, 2001, in any Special Economic Zone;
> (ii) it is not formed by the splitting up or the reconstruction of a
> business already in existence except in the circumstances and within the
> period specified in section 33B of the Income-tax Act;
> (iii) it is not formed by the transfer to a new business of machinery or
> plant previously used for any purpose.
> 2. 'Software Technology Park' has been defined to mean any park set up in
> accordance with the Software Technology Park Scheme notified by the
> Government of India in the Ministry of Commerce and Industry.
> 3. In exercise of the powers conferred by sub-section (1) of section 3 of
> the Foreign Trade (Development and Regulation) Act, 1992, the Ministry of
> Commerce notified the Software Technology Park Scheme wherein it was
> provided that a Software Technology Park may be set up by the Central
> Government, State Government, Public or Private Sector Undertakings or any
> combination thereof. An STP may be an individual unit by itself or it may be
> one of such units located in an area designated as STP Complex by the
> Department of Electronics. The scheme was required to be administered by the
> Department of Electronics, Government of India, through Directors of
> respective Software Technology Parks which form part of the Software
> Technology Parks of India (STPI), a society established by the Department of
> Electronics and registered under the Societies Registration Act, 1860. An
> application in the prescribed form for establishing a STP unit was required
> to be submitted
> to the Chief Executive of STP Complex along with the details of the
> Software project. Such application was to be considered by an
> Inter-Ministerial Standing Committee (IMSC) constituted under the
> Chairmanship of Secretary, Department of Electronics, Government of India.
> 4. Subsequently, vide Notification No. 4/(RE-95/92-97), dated 30th April,
> 1995 issued by the Director General (Foreign Trade), Ministry of Commerce,
> in exercise of powers conferred in sub-section (1) of section 3 of the
> Foreign Trade (Development and Regulation) Act, 1992, notified the amended
> STP Scheme. Para 2.3 of the aforesaid notification provides that the scheme
> is administered by the Department of Electronics, Government of India,
> through Directors of respective STPs which form part of the STPI, a society
> established by the Department of Electronics and registered under the
> Societies Registration Act, 1860. An application in the prescribed format
> for establishing a STP unit may be submitted to the Chief Executive of STP
> Complex along with the details of the software project. Such application
> will be considered by an Inter-Ministerial Standing Committee constituted
> under the Chairmanship of Secretary, Department of Electronics.
> 5. Instances have been brought to the notice of the Board that a large
> number of units registered/approved by the Directors of the STPI are
> claiming deduction under section 10A whereas the STP scheme requires
> approval by the Inter-Ministerial Standing Committee of the Department of
> Electronics. Accordingly, the cases of such claimants have been reopened by
> the field authorities.
> 6. The matter has been examined in consultation with the officers of the
> Department of Information Technology (earlier, Department of Electronics).
> In view of the ambiguity in the legal status of the approval by Director of
> STPs, the Inter-Ministerial Standing Committee will meet to consider the
> approvals by Director of STPs issued in the past. Therefore, with a view to
> avoid infructuous demand raised in assessment and reassessment of assessees
> claiming deduction under section 10A, it has been decided that the claim of
> deduction under section 10A of the Income-tax Act, shall not be denied to
> STP units only on the ground that the approval/registration to such units
> has been granted by the Directors of Software Technology Parks. However, it
> has to be ensured that all other conditions specified in section 10A are
> fully satisfied before allowing any such claim.
> 7. In cases where assessments/reassessments have already been completed, and
> the claim, under section 10A, has been disallowed only on the ground that
> the approval to the STP has not been granted by the Inter-Ministerial
> Standing Committee in accordance with the Scheme, the demand so arising
> should be kept in abeyance until further orders."
> 12.1It would also be relevant at this stage to notice that Circular No. 694,
> dated 23-11-1994, one of the earliest instructions issued by the Central
> Government, pertinently stated that:
> "….it is clarified that units in EPZs/EOUs which export software are as much
> eligible for availing of the five-year tax holiday under sections 10A and
> 10B as any other units in EPZ/EOU, even for the period prior to the previous
> year relevant to the assessment year 1994-95. The conditions stipulated in
> the provisions have, of course, to be fulfilled. The insertion of the
> Explanation of the term "produce" in 1993 should not be taken as a ground
> for denying the tax holiday to such units for earlier years. "
> Earlier, the Department of Industrial Development, Ministry of Industry had,
> by notification No. 117-E dated 22-2-1993 constituted a committee to perform
> the functions specifically delegated, including the grant of approval for
> EHTPs and STPs. The said Notification reads as follows:
> "Ministry of Industry
> (Department of Industrial Development)
> New Delhi, the 22nd Feb., 1993
> Notification
> S.O. No. 117(E)--In exercise of the powers conferred by Section 14 of
> Industries (Development and Regulation) Act, 1951 (65 of 1951), r/w Sub-rule
> (2) of Rule 10 of the Registration and Licensing of Industrial undertakings
> Rules, 1952 the Ministry of Industry, Department of Industrial Development,
> hereby appoints the following committee which shall perform the functions
> specified:
> Inter-Ministerial Standing Committee for units in the Electronic Hardware
> Technology Parks (EHTP) and Software Technology Parks (STP)
> Chairman
> 1. Secretary, Department of Electronics, or his nominee
> 2. Secretary, Department of Industrial Development, or his nominee
> 3. Secretary, Department of Science and Technology, or his nominee
> 4. Secretary, Ministry of Commerce, or his nominee
> 5. Chairman, Central Board of Excise and Customs, or his nominee
> 6. Secretary, Deptt. of Economic Affairs, Ministry of Finance, or his
> nominee
> 7. Secretary, Planning Commission, or his nominee
> 8. Economic Adviser, Department of Electronics
> 9. Secretary, Department of Small Scale Industries and Agro and Rural
> Industries or his nominee
> 10. Joint Secretary, Department of Electronics, Member- Secretary.
> Functions of the Inter-Ministerial Standing Committee :
> (i) The Committee shall consider all applications for setting up of units in
> the Electronic Hardware Technology Parks (EHTP) under the scheme of special
> facility (hereinafter referred to as the said scheme framed under the
> Government of India, Ministry of Commerce, Notification No. 42 (N-8)/1992-97
> dt. the 14th Sept., 1992). The Committee shall also consider all
> applications for setting up of units under Software Technology Park scheme
> operated under Customs Notification Nos. 138 and 140 dt. 22nd Oct., 1991.
> The Committee shall consider proposals for industrial licence, foreign
> technical collaboration agreements and import of capital goods. The
> Committee shall not consider applications involving foreign equity with or
> without any other industrial approvals.
> (ii) The Committee shall review the progress of implementation of letters of
> intent and industrial licences granted under the said scheme upto the stage
> of actual commissioning of capacity.
> (iii) The Committee shall consider and make a report on policy questions
> arising from applications received under the said scheme or from the
> implementation of individual proposals thereunder in accordance with the
> policy laid down by the Central Government from time to time.
> (iv) The Committee may refer any matter in its discretion for the
> consideration and decision of the Central Government in respect of matters
> falling within its competence".
> Analysis
> 13.There is no dispute about the essential facts. Both assesses had received
> approval to start 100 per cent EOU under STP scheme. The question is whether
> this approval can be deemed one under Section 10-B of the Act. For that
> purpose a 100 per cent EOU is only that which is so approved by the Board
> appointed by Central Government in exercise of powers conferred under
> Section 14 of IDAR Act, 1951. The pre-conditions that govern units set up
> under STP scheme are different from those that govern the units set up as
> 100 per cent EOUs and so approved by the Board. Some conditions may
> undoubtedly overlap yet, criteria, such as fulfilment of the employment
> criteria, foreign exchange, etc., are not common.
> 14.The Inter-Ministerial Standing Committee set up for granting licences
> under STP scheme is also appointed by the Central Government in exercise of
> powers conferred under, Section 14 of IDAR Act. However, the question is
> whether that part of the Board's function (under Section 14 IDR Act) - to
> grant approval under Section 10-B also stands delegated. The assesses submit
> that the Inter-Ministerial Standing Committee has been replaced by the Board
> on the basis of the contents of para 2 of the notification of the Ministry
> of Commerce dt. 22nd March, 1994, is unpersuasive. That notification states
> that for the purpose of paras 111 to 117 of Chapter IX of the Export and
> Import Policy (1992-97), Board of Approval shall be substituted by the
> Inter-Ministerial Standing Committee. Paras 111 to 117 of Chapter-DC of
> Export and Import Policy (1992-97) do not deal with that aspect, but other
> questions such as subcontracting by EOU/EPZ, Sale of imported materials,
> Disposal of scrap, Private bonded warehouses, period of bonding, and
> de-bonding. The notification therefore extended incentives to EOUs to set up
> units under the STP scheme. However, for the Court to conclude that the
> Interministerial Committee was authorized to issue approval under Section
> 10-B and that its imprimatur or approval under Section 10-A ought to be
> deemed as an approval under Section 10-B, there ought to be more direct, or
> express authorization.
> 15.Section 10A extends the exemption to the units set up under STP scheme
> which start production of goods during the previous year relevant to the
> assessment year commencing on or after 1st April, 1994. The assessee's plea
> about eligibility of a 100% EOU STP eligible for exemption would render the
> amendment brought about by the Finance Act, 1993 (extending the benefit
> under Section 10A of the Act to the STPs from 1st April, 1994) superfluous.
> There is no reason for Parliament to amend the law, and extend benefits of
> Section 10A to units under STP scheme and, restrict the benefits to those
> commencing their operations in the year of account relevant to the
> Assessment year 1994-95, if a STP unit is otherwise eligible for exemption
> under Section 10B of the Act on the ground of its being 100 per cent EOU.
> 16.It is a settled principle of law that unless there is express
> authorization, in terms of a statute, and an actual delegation of power, a
> statutory authority in whom jurisdiction or power is reposed, is alone
> vested with it, to the exclusion of others (Ref. Hari Chand Aggarwalv Batala
> Engineering Co. LtdAIR 1969 SC 483; and Ajaib Singhv. State of PunjabAIR
> 1965 SC 1619). In the absence of a statutory power to delegate, and further
> to that power, an actual delegation in accordance with law, such functions
> cannot be performed or deemed to have been performed by a third agency or
> authority. Another cardinal rule which binds the court to interpret statutes
> is that "where power is given to do a certain thing in a certain way, the
> thing must be done in that way or not at all, and other methods of
> performance are necessarily forbidden…" (See Nazir Ahmedv King Emperor[1936]
> I. L. R. 17 Lah 629).
> 17.In the present case, there is no notification or official document
> suggesting that either the Inter Ministerial Committee, or any other officer
> or agency was nominated to perform the duties of the Board (constituted
> under Section 14 of the IDR Act), for purposes of approvals under Section
> 10-B. Though the considerations which apply for granting approval under
> Sections 10-A and 10-B may to an extent, overlap, yet the deliberate
> segregation of these two benefits by the statute reflects Parliamentary
> intention that to qualify for benefit under either, the specific procedure
> enacted for that purpose has to be followed. There is nothing in any of the
> Circulars or instructions relied on by the Tribunal in all the orders,
> implying that approval for purposes of an STP also entitled the unit to a
> benefit under Section 10-B. The orders of the Tribunal are consequently
> erroneous, and its reasoning, unsupportable.
> 18. In the light of the above discussion, the question of law framed is
> answered in favour of the revenue, and against the assessee; the appeals are
> therefore allowed.
>
IT : An industrial undertaking recognised as an SSI and situated in an
'industrially backward State' will be eligible for deduction under
section 80-IB, even if it manufactures items specified in Eleventh
Schedule
■■■
[2013] 31 taxmann.com 387 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Deputy Commissioner of Income-tax, Circle-I, Pondicherry
v.
Eye Photonics India (P.) Ltd.*
N.S. SAINI, ACCOUNTANT MEMBER
AND Challa Nagendra Prasad, JUDICIAL MEMBER
IT Appeal NO. 1473 (Mds.) of 2012
[ASSESSMENT YEAR 2009-10]
JANUARY 30, 2013
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and
gains from industrial undertakings other than infrastructure
development undertakings [SSIs in backward areas] - Assessment year
2009-10 - Whether, where assessee's industrial undertaking was
recognized as small scale industry and it was located in an
industrially backward State, it would be eligible for deduction under
section 80-IB, even though it was manufacturing articles specified in
Eleventh Schedule - Held, yes [Para 8] [In favour of assessee]
FACTS
■ The assessee was engaged in manufacturing of ophthalmic
instruments and equipments included in the Eleventh Schedule. The
assessee's manufacturing unit was located in Pondicherry an
'Industrially backward state' and was registered as small scale
industry with the Directorate of Industries and Commerce Pondicherry.
It claimed deduction under section 80-IB.
■ The Assessing Officer held that as the item manufactured by the
assessee was an article specified in Schedule XI, it was not eligible
for deduction under section 80-IB.
■ The Commissioner (Appeals) allowed the claim of the assessee, on
the ground that an SSI or industrial undertaking situated in an
industrially backward state, is eligible for deduction under section
80-IB even if it manufactures items specified in Eleventh Schedule.
■ On second appeal :
HELD
■ The deduction under section 80-IB in the case of an industrial
undertaking an industrially backward State specified in the Eighth
Schedule is governed by the provisions of sub-section(4). The only
requirement in such cases is that the industrial undertaking should be
located in an industrially backward State. It makes no difference
whether such undertaking is a small scale industry or not. In other
words, once the industrial undertaking is located in an industrially
backward State, all units (whether SSI or non-SSI) are equally
eligible for deduction under section 80-IB of the Act.
■ On the other hand, all the Small Scale Industries (SSI) can also
take exception to clause (iii) of sub-section (2) of ssection 8O-IB,
i.e. from the words "not being any article or thing specified in the
list in the Eleventh Schedule", if they fulfil all the norms
prescribed under the SSI guidelines Industries (Development and
Regulation) Act, 1951. Once the requirements of SSI are fulfilled, the
assessee falls under the first limb of exceptions of proviso to clause
(iii). In such a case, the assessee is eligible for deduction even if
they manufacture items specified in 11th schedule. And they are
eligible for deduction irrespective of the location of the undertaking
i.e. whether located in an industrially backward State or other
states.
■ Thus, the assessees whose industrial undertakings are recognized
as "Small Scale Industries" or "located in an industrially backward
State" are eligible for deduction under section 80-IB of the Act, even
if they manufacture 'article or thing specified in the list in the
Eleventh Schedule'.
■ The exceptions specified in the proviso to clause (iii) i.e.
being "Small Scale Industries" or "located in an industrially backward
State" are independent of each order. The assessees need not fulfil
both of these two conditions. If anyone of these two requirements is
fulfilled the assessee is eligible for deduction, irrespective of the
fulfilment of the other condition.
■ Thus, in the instant case, the assessee is located in the State
of Pondicherry which is in an industrially backward State. There is no
dispute regarding this. Hence, the assessee is eligible for deduction
under sub-section (4) of section 80-IB of the Act, on all the
article/things (including those mentioned in 11th Schedule)
manufactured by it. It also make no difference whether the undertaking
is an SSI or not.
■ The Commissioner (Appeals) came to the conclusion that the
assessee was entitled to deduction under section 80-IB since the
assessee unit was located in an industrially backward State specified
in VIII Schedule and is governed by the provisions of sub-section (iv)
of section 80-IB of the IT Act. The Commissioner (Appeals), analyzing
the provisions of the Act held that the assessees, whose industrial
undertakings are recognized as 'Small Scale Industries' or located in
an industrially backward State are eligible for deduction under
section 80-IB even if they manufacture articles or things specified in
the list in XI Schedule.
■ The revenue could not rebut any of the findings of Commissioner
(Appeals) with any supporting material. Therefore, there is no good
and valid reason to interfere with the reasoning of the Commissioner
(Appeals). [Para 8]
T.N. Betgeri for the Appellant. G. Baskar for the Respondent.
ORDER
Challa Nagendra Prasad, Judicial Member - This is an appeal by the
Revenue against the order of Commissioner of Income Tax (Appeals)-XII,
Chennai dated 26.4.2012 in ITA No.310/2011-12 for the Asst. Year
2009-10.
2. The first issue in the grounds of appeal of the Revenue is that the
Commissioner of Income Tax (Appeals) erred in holding that the
assessee is entitled for deduction under sec.80IB of the Act.
3. The facts of the case are that the assessee is a company engaged in
the manufacture and sale of ophthalmic Instruments and equipments. The
assessee is located in Pondicherry and registered as a small scale
industry with the Directorate of Industries and Commerce, Pondicherry.
For the Asst. Year 2009-10, the assessee filed its return of income on
29.9.2009 declaring total income at Rs. 13,25,78,530/- after claiming
deduction under sec.80IB of the Act at Rs. 5,68,19,369/- The
assessment was completed under sec.143(3) of the Act on 14.12.2011 by
the Assessing Officer determining total income of the assessee at Rs.
19,01,41,030/-. While completing he assessment the Assessing Officer
denied deduction claimed by the assessee under sec.80IB of the Act.
While denying deduction claimed by the assessee, the Assessing Officer
held that the assessee is manufacturing ophthalmic equipment, an item
included in the XI Schedule of the Act. According to the Assessing
Officer, in order to classify an industry as a small scale industry,
the assessee should be engaged in manufacturing the items listed in
Schedule III of Industries (Development and Regulation Act, 1951 as
specified in Licensing Notification S.O.477(E) dated 25.7.1991. Since
the assessee is manufacturing item of ophthalmic equipment which is
not included in Schedule III of Industries (Development and Regulation
Act, 1951, the assessee could not be treated as small scale industry.
Therefore, the Assessing Officer felt that the assessee is not covered
within the definition of SSI and hence not eligible for deduction
under sec.80IB of the Act.
4. On appeal, the Commissioner of Income Tax (Appeals) did not agree
with the view of the Assessing Officer that the manufacturers of
things or articles specified in XI Schedule are not eligible for
deduction under sec.80IB of the Act. The Commissioner of Income Tax
(Appeals) held that there are exceptions to the said condition and the
exceptions are provided in proviso to clause (iii) of sub-sec.(2) of
sec.80IB of the Act and even if they are manufacturing items specified
in XI Schedule. Against this order of the Commissioner of Income Tax
(Appeals) the Revenue is in appeal before us.
5. The Counsel for the Assessee supported the order of the
Commissioner of Income Tax (Appeals) and submits that the assessee is
entitled for deduction under sec.80IB of the Act even though it is not
manufacturing an article or thing which is mentioned in Schedule XI of
the Act since the assessee is located in an industrially back-ward
area. He submits that, in fact, the item manufactured is not falling
under Schedule XI at all.
6. The Departmental Representative supported the order of Assessing Officer.
7. We have heard both sides, perused the material on record and the
orders of the lower authorities. The Commissioner of Income Tax
(Appeals) examined the provisions of sec.80IB of the Act in detail and
the applicability of such provisions to the assessee's case and held
that the assessee is entitled for deduction under sec.80IB of the Act
as the assessee complied with the provisions of sec.80IB of the Act.
While holding so, the Commissioner of Income Tax (Appeals) held as
under :-
"I have considered the assessee's submissions carefully. The deduction
u/s.80-IB is available for the assesses who being to manufacture or
produce things or article specified in the section and subject to the
conditions laid down therein. The provisions of sec.80-IB are:
Sec.80-IB. (1) Where the gross total income of an assessee includes
any profits and gains derived from any business referred to in
sub-sections (3) to (11) (such business being hereinafter referred to
as the eligible business), there shall, in accordance with and subject
to the provisions of this section, be allowed, in computing the total
income of the assessee, a deduction from such profits and gains of an
amount equal to such percentage and for such number of assessment
years as specified in this section.
(2) This section applies to any industrial undertaking which fulfils
all the following conditions, namely :- (i) It is not formed by
splitting up, or the reconstruction, of a business already in
existence :
Provided that this condition shall not apply in respect of an
industrial undertaking which is formed as a result of the
re-establishment, reconstruction or revival by the assessee of the
business of any such industrial undertaking as is referred to in
section 33B, in the circumstances and within the period specified in
that section;
(ii) It is not formed by the transfer to a new business of machinery
or plant previously used for any purpose;
(iii) It manufactures or produces any article or thing, not being any
article or thing specified in the list in the Eleventh Schedule, or
operates one or more cold storage plant or plants, in any part of
India :
Provided that the condition in this clause shall, in relation to a
small scale industrial undertaking or an industrial undertaking
referred to in sub-section (4) shall apply as if the words "not being
any article or thing specified in the list in the Eleventh Schedule"
had been omitted.
Explanation 1 : For the purposes of clause (ii), any machinery or
plant which was used outside India by any person other than the
assessee shall not be regarded as machinery or plant previously used
for any purpose, if the following conditions are fulfilled, namely :-
(a) Such machinery or plant was not, at any time previous to the
date of the installation by the assessee, used in India;
(b) Such machinery or plant is imported into India from any country
outside India; and
(c) No deduction on account of depreciation in respect of such
machinery or plant has been allowed or is allowable under the
provisions of this Act in computing the total income of any person for
any period prior to the date of the installation of the machinery or
plant by the assessee.
Explanation 2 : Where in the case of an industrial undertaking, any
machinery or plant or any part thereof previously used for any purpose
is transferred to a new business and the total value of the machinery
or plant or part so transferred does not exceed twenty per cent of the
total value of the machinery or plant used in the business, then, for
the purposes of clause (ii) of this sub-section, the condition
specified therein shall be deemed to have been complied with;
(iv) In a case where the industrial undertaking manufactures or
produces articles or things, the undertaking employs ten or more
workers in a manufacturing process carried on with the aid of power,
or employs twenty or more workers in a manufacturing process carried
on without the aid of power.
(3) The amount of deduction in the case of an industrial undertaking
shall be twenty-five per cent (or thirty per cent where the assessee
is a company), of the profits and gains derived from such industrial
undertaking for a period of ten consecutive assessment years (or
twelve consecutive assessment years where the assessee is a
co-operative society) beginning with the initial assessment year
subject to the fulfilment of the following conditions, namely :-
(i) It begins to manufacture or produce, articles or things or to
operate such plant or plants at any time during the period beginning
from the 1st day of April, 1991 and ending on the 31st day of March,
1995 or such further period as the Central Government may, by
notification in the Official Gazette, specify with reference to any
particular undertaking;
(ii) Where it is an industrial undertaking being a small scale
industrial undertaking, it begins to manufacture or produce articles
or things or to operate its cold storage plant not specified in
sub-section (4) or sub-section (5) at any time during the period
beginning on the 1st day of April, 1995 and ending on the 31st day of
March, 2000.
(4) The amount of deduction in the case of an industrial undertaking
in an industrially backward State specified in the Eighth Schedule
shall be hundred per cent of the profits and gains derived from such
industrial undertaking for five assessment years beginning with the
initial assessment year and thereafter twenty-five per cent (or thirty
per cent where the assessee is a company) of the profits and gains
derived from such industrial undertaking :
Provided that the total period of deduction does not exceed ten
consecutive assessment years (or twelve consecutive assessment years
where the assessee is a co-operative society) subject to fulfilment of
the condition that it begins to manufacture or produce articles or
things or to operate its cold storage plant or plants during the
period beginning on the 1st day of April, 1993 and ending on the 31st
day of March, 2004 :
Provided ………."
From the above provisions, it is clear that before claiming the
deductions, one has to fulfil the requirements laid down in
sub-section (2) of Sec.80-IB of the Act. Once the said conditions laid
down in the sub-section (2) are fulfilled the assesses are eligible
for deduction under various sub-sections (3) to (11B) of sec.80-IB of
the Act based on the activities carried out by them.
In the instant case, the following are the undisputed facts:
(a) The assessee's unit is engaged in manufacturing of ophthalmic
instruments and equipments,
(b) The assessee's manufacturing unit is located in the state of
Pondicherry. The state of Pondicherry is an 'industrially backward
state' (as included in 8th Schedule at Sl.No.16),
The assessee has been registered as a "Small Scale Industry'(SSI) vide
SSI Registration 34/02/00698 on 27.03.2004 by the Director of
Industries and Commerce, Pondicherry.
(a) The assessee's manufactured item 'ophthalmic instruments &
equipments' is included in the 11th Schedule of the IT Act.
Based on the above facts and the requirements of the sec .80-IB of the
Act let us examine whether the assessee is eligible for claiming the
deduction u/s.80-IB of the Act.
The first and foremost requirement is the fulfilment of four
conditions stipulated in sub-section (2) of sec.80-IB of the Act.
These conditions are -
(i) It is not formed by splitting up, or the reconstruction, of a
business already in existence ;
(ii) It is not formed by the transfer to a new business of machinery
or plant previously used for any purpose;
(iii) It manufactures or produces any article or thing, not being
any article or thing specified in the list in the Eleventh Schedule,
or operates one or more cold storage plant or plants, in any part of
India ;
(iv) In a case where the industrial undertaking manufactures or
produces articles or things, the undertaking employs ten or more
workers in a manufacturing process carried on with the aid of power,
or employs twenty or more workers in a manufacturing process carried
on without the aid of power.
The fulfilment of the conditions mentioned at clauses (i), (ii) and
(iv) above, are not under dispute. The only dispute is regarding the
fulfilment of condition in clause (iii) above, wherein the Assessing
Officer held that the item "ophthalmic instruments and equipments"
manufactured by the assessee is the thing or an article specified in
Schedule 11 of the IT Act and hence not eligible for deduction under
section 80-IB of the Act.
The above observation of the Assessing Officer that the manufacturer
of things or artic les specified in 11th Schedule are not eligible for
deduction u/s.80-IB, is not totally correct. As per the clause (iii)
above, only the assessees who manufacture things/articles, other than
those specified in 11th Schedule, are eligible for deduction
u/s.80-IB. However, this condition is not absolute and total. This
condition is embedded with certain exceptions, as provided in the
proviso. There is a proviso to the clause (iii) provided for certain
exceptions, as under :
Proviso to clause (iii) of sub-section (2) of sec.80-IB
Provided that the condition in this clause shall, in relation to a
small scale industrial undertaking or an industrial undertaking
referred to in sub-section (4) shall apply as if the words "not being
any article or thing specified in the list in the Eleventh Schedule"
had been omitted.
Thus, there are two exceptions to the conditions laid down in clause
(iii) above. One exception is the Small Scale Industries (SSI) and the
other exception is industrial undertaking referred to in sub-section
(4). The industrial undertaking referred to in sub-section (4) means
an industrial undertaking situated in an industrially backward State
specified in the Eighth Schedule.
Thus, in the case of a "SSI" or "industrial undertaking situated in an
industrially backward State", the assessees will be eligible for
deduction u/s.80-IB even if they are manufacturing items specified in
11th Schedule. This particularly so because the words "not being any
article or thing specified in the list in the Eleventh Schedule" are
to be omitted from the clause (iii) if it was a SSI or industrial
undertaking situated in an industrially backward State, as per the
proviso to the said clause.
Further, if either of these two (and not necessarily both) situations
are fulfilled, i.e. if it was SSI or if located in an industrially
backward State, the assessee is eligible for deduction u/s.80-IB of
the Act even on the items (manufactured) specified in 11th schedule.
The assessee claimed its deduction us/.80-IB(4) of the Act, the
provisions of which are as under :
Sec.80-IB : (4) The amount of deduction in the case of an industrial
undertaking in an industrially backward State specified in the Eighth
Schedule shall be hundred per cent of the profits and gains derived
from such industrial undertaking for five assessment years beginning
with the initial assessment year and thereafter twenty-five per cent
(or thirty per cent where the assessee is a company) of the profits
and gains derived from such industrial undertaking :
Now, let us examine the assessee case. The assessee's manufacturing
unit is located in the State of Pondicherry, which is an "industrially
backward State" as notified in 8th Schedule (at Sl.No.16). There is no
dispute regarding this position. Therefore, the assessee's case is
covered by the second limb of proviso to clause (iii) of sub-section
(2) of sec.80-IB of the Act. Hence, the words "not being any article
or thing specified in the list in the Eleventh Schedule" stands
omitted from the language of clause (iii) of the Act. Manufacturing of
any article or thing (including those specified in 11th Schedule) is
sufficient for claiming deduction u/s.80-IB of the Act in such a case.
On this account alone the instant assessee, being located in an
"industrially backward State" of Pondicherry, is eligible for
deduction u/s.80-IB of the Act.
The deduction u/s. SO-IB in the case of an industrial undertaking an
industrially backward State specified in the Eighth Schedule is
governed by the provisions of sub-sec.(4). The only requirement in
such cases is that the industrial undertaking should be located in an
industrially backward State. It makes no difference whether such
undertaking is a small scale industry or not. In other words, once the
industrial undertaking is located in an industrially backward State,
all units (whether SSI or non-SSI) are equally eligible for deduction
u/s.80-lB of the Act.
On the other hand, all the Small Scale Industries (SSI) can also take
exception to clause (iii) of sub-sec.(2) of sec.8O-lB, i.e. from the
words "not being any article or thing specified in the list in the
Eleventh Schedule", if they fulfil all the norms prescribed under the
SSI guidelines Industries (Development and Regulation) Act 1951. Once
the requirements of SSI are fulfilled, the assessee falls under the
first limb of exceptions of proviso to clause (iii). In such a case,
the assessee is eligible for deduction even if they manufacture items
specified in 11th schedule. And they are eligible for deduction
irrespective of the location of the undertaking i.e. whether located
in an industrially backward State or other states.
Thus, the assessees whose industrial undertakings are recognized as
"Small Scale Industries" or "located in an industrially backward
State" are eligible for deduction under section 80-IB of the Act, even
if they manufacture 'article or thing specified in the list in the
Eleventh Schedule'.
Further, as stated earlier, the exceptions specified in the proviso to
clause (iii) i.e. being "Small Scale Industries" or "located in an
industrially backward State" are independent of each order. The
assessees need not fulfil both of these two conditions. If anyone of
these two requirements is fulfilled the assessee is eligible for
deduction, irrespective of the fulfilment of the other condition.
Thus, in the instant case, the assessee is located in the State o
Pondicherry which is in an industrially backward State. There is no
dispute regarding this. Hence, the assessee is eligible for deduction
under the sub-section (4) of sec.80-IB of the Act,
On all the article/things (including those mentioned in 11th Schedule)
manufactured by it. In also make no difference whether the undertaking
is a SSI or not .
Once, the industrial undertaking is located in an industrially
backward State the assessee is eligible for deduction is s.80-IB(4) of
the Act. In such a situation there is no need to fulfil the
requirements of 'SSI' nature. If the assessee wants to claim deduction
u/s.80-IB of the Act, being in the nature of 'SSI' (i.e. if wants to
claim exception as per the first limb of proviso to clause (iii)),
then only the assessee has to prove that it is recognised as a SSI and
all the relevant conditions are fulfilled.
In the instant case, as the assessee's industrial undertaking is
'located in an industrially backward State of Pondicherry', there is
no need to fulfil the requirements of SSI. The assessee is eligible
for deduction vi ] s.80-IB(4) of the Act.
In view of the above, examination of assessee's recognition as SSI and
the fulfilment of the necessary conditions therein is of only academic
significance, as the fulfilment or non-fulfilment of this requirement
will not have any adverse impact on the eligibility of deduction under
sub-section (4) of sec.80-IB of the Act.
In any case and for the sake of academic discussion, the small scale
industries are defined at clause (g) of sub-section (14), which is
reproduced as under:
80-IB(14)(g) "small-scale industrial undertaking" means an industrial
undertaking which is, as on the last day of the previous year,
regarded as a small-scale industrial undertaking under section 11B of
the Industries (Development and Regulation) Act, 1951 (65 of 1951).
In the instant case, the assessee has been registered as a "Small
Scale Industry" (SSI) vide SSI Registration 34/02/00698 on 27.03.2004
by the Director of Industries and Commerce, Pondicherry. Once, the
assessee is recognised as a SSI by the concerned authorities, the
assessee is eligible for deduction even if it manufactures the things
or articles specified in 11th schedule. If the condition of
manufacturing the articles "included in schedule-HI" of the
notification in S.0.477(E) dated 25.07.1991, (of Industries
(Development and Regulation) Act, 1951) is to be taken in to
consideration, the very purpose of creating exception in the proviso
to clause (iii) of 80-IB(2) will be lost.
In any case, as the assessee is also eligible for deduction
u/s.80-IB(4) of the Act, being 'located in an industrially backward
State' of Pondicherry, there is no need to fulfil the requirements of
SSI."
8. On going through the order of the Commissioner of Income Tax
(Appeals), it can be seen that the Commissioner of Income Tax
(Appeals) came to the conclusion that the assessee is entitled to
deduction under sec.80IB of the Act since the assessee unit is located
in an industrially back-ward State specified in VIII Schedule and is
governed by the provisions of sub-sec. (iv) of Sec.80IB of the I.T.
Act. Further, the Commissioner of Income Tax (Appeals), by analyzing
the provisions of the Act held that the assessees, whose industrial
undertakings are recognized as "Small Scale Industries" or located in
an industrially back-ward state are eligible for deduction under
sec.80IB of the Act even if they manufacture articles or things
specified in the list in XI Schedule. The Revenue could not rebut any
of the findings of Commissioner of Income Tax (Appeals) with any
supporting material. In the circumstances, we feel that there is no
good and valid reason to interfere with the reasoning of the
Commissioner of Income Tax (Appeals) in allowing the claim of the
assessee under sec.80IB of the Act. Therefore, we confirm the order of
the Commissioner of Income Tax (Appeals) on this issue. The grounds
taken by the Revenue on this issue are rejected.
9. The next issue in the grounds of appeal of the Revenue is that the
Commissioner of Income Tax (Appeals) erred in deleting the
disallowance made under sec.40(a)(1a)of the Act.
10. At the time of hearing, the Counsel for the Assessee submits that
the Assessing Officer made disallowance under sec.40(a)(1a) on the
ground that the assessee has not deducted TDS on certain payments made
to various parties. The Counsel for the Assessee submits that the
assessee had deducted TDS and remitted the same into the Govt.,
account in subsequent Asst. Years and, therefore, he prays that a
direction be given to Assessing Officer to consider the claim in the
subsequent years. He, in fact, filed written submissions stating as
under :-
"Adverting to ground Nos.9 & 10 by the Department before this Hon'ble
Tribunal, I submit that tax had been fully deducted subsequently and
remitted to the Department, the details of which are as under :-
Payments made to Amount paid to TDS Deducted & remitted Rs.
Audit fee for F.Y. 2008-09 paid to M/s. V. Narayanasamy & Co., C/As.
3,30,900 33,090 on 27.04.2010
AFL (P.) Ltd. 1,50,860 3,108 on 5.10.2012
DSV Air&Sea Pvt. Ltd. 1,90,271 3,919 on 5.10.2012
Prasad Enterprises 71,000 1,463 on 5.10.2012
We pray that the order of the CIT(A) may be reversed and disallowed
sustained this year; subject however to a direction to the A.O. to
allow it in the respective years (audit fee in A.Y:2011-12 and other
payments in A.Y:2013-14). To sum up, we pray that the order of the
CIT(A) be confirmed in respect of the deduction u/s.80IB and reversed
in respect of disallowance u/s.40(a)(ia)."
11. In view of the above submissions made by the Counsel for the
Assessee we allow the grounds of appeal of the Revenue on this issue.
We also direct the Assessing Officer to consider the said payments
made to various parties as allowable expenses in the subsequent years
since the assessee has deducted TDS on the said amount and remitted
the same to the Govt. account, subject to verification.
12. In the result, the appeal of the Revenue is partly allowed
'industrially backward State' will be eligible for deduction under
section 80-IB, even if it manufactures items specified in Eleventh
Schedule
■■■
[2013] 31 taxmann.com 387 (Chennai - Trib.)
IN THE ITAT CHENNAI BENCH 'C'
Deputy Commissioner of Income-tax, Circle-I, Pondicherry
v.
Eye Photonics India (P.) Ltd.*
N.S. SAINI, ACCOUNTANT MEMBER
AND Challa Nagendra Prasad, JUDICIAL MEMBER
IT Appeal NO. 1473 (Mds.) of 2012
[ASSESSMENT YEAR 2009-10]
JANUARY 30, 2013
Section 80-IB of the Income-tax Act, 1961 - Deductions - Profits and
gains from industrial undertakings other than infrastructure
development undertakings [SSIs in backward areas] - Assessment year
2009-10 - Whether, where assessee's industrial undertaking was
recognized as small scale industry and it was located in an
industrially backward State, it would be eligible for deduction under
section 80-IB, even though it was manufacturing articles specified in
Eleventh Schedule - Held, yes [Para 8] [In favour of assessee]
FACTS
■ The assessee was engaged in manufacturing of ophthalmic
instruments and equipments included in the Eleventh Schedule. The
assessee's manufacturing unit was located in Pondicherry an
'Industrially backward state' and was registered as small scale
industry with the Directorate of Industries and Commerce Pondicherry.
It claimed deduction under section 80-IB.
■ The Assessing Officer held that as the item manufactured by the
assessee was an article specified in Schedule XI, it was not eligible
for deduction under section 80-IB.
■ The Commissioner (Appeals) allowed the claim of the assessee, on
the ground that an SSI or industrial undertaking situated in an
industrially backward state, is eligible for deduction under section
80-IB even if it manufactures items specified in Eleventh Schedule.
■ On second appeal :
HELD
■ The deduction under section 80-IB in the case of an industrial
undertaking an industrially backward State specified in the Eighth
Schedule is governed by the provisions of sub-section(4). The only
requirement in such cases is that the industrial undertaking should be
located in an industrially backward State. It makes no difference
whether such undertaking is a small scale industry or not. In other
words, once the industrial undertaking is located in an industrially
backward State, all units (whether SSI or non-SSI) are equally
eligible for deduction under section 80-IB of the Act.
■ On the other hand, all the Small Scale Industries (SSI) can also
take exception to clause (iii) of sub-section (2) of ssection 8O-IB,
i.e. from the words "not being any article or thing specified in the
list in the Eleventh Schedule", if they fulfil all the norms
prescribed under the SSI guidelines Industries (Development and
Regulation) Act, 1951. Once the requirements of SSI are fulfilled, the
assessee falls under the first limb of exceptions of proviso to clause
(iii). In such a case, the assessee is eligible for deduction even if
they manufacture items specified in 11th schedule. And they are
eligible for deduction irrespective of the location of the undertaking
i.e. whether located in an industrially backward State or other
states.
■ Thus, the assessees whose industrial undertakings are recognized
as "Small Scale Industries" or "located in an industrially backward
State" are eligible for deduction under section 80-IB of the Act, even
if they manufacture 'article or thing specified in the list in the
Eleventh Schedule'.
■ The exceptions specified in the proviso to clause (iii) i.e.
being "Small Scale Industries" or "located in an industrially backward
State" are independent of each order. The assessees need not fulfil
both of these two conditions. If anyone of these two requirements is
fulfilled the assessee is eligible for deduction, irrespective of the
fulfilment of the other condition.
■ Thus, in the instant case, the assessee is located in the State
of Pondicherry which is in an industrially backward State. There is no
dispute regarding this. Hence, the assessee is eligible for deduction
under sub-section (4) of section 80-IB of the Act, on all the
article/things (including those mentioned in 11th Schedule)
manufactured by it. It also make no difference whether the undertaking
is an SSI or not.
■ The Commissioner (Appeals) came to the conclusion that the
assessee was entitled to deduction under section 80-IB since the
assessee unit was located in an industrially backward State specified
in VIII Schedule and is governed by the provisions of sub-section (iv)
of section 80-IB of the IT Act. The Commissioner (Appeals), analyzing
the provisions of the Act held that the assessees, whose industrial
undertakings are recognized as 'Small Scale Industries' or located in
an industrially backward State are eligible for deduction under
section 80-IB even if they manufacture articles or things specified in
the list in XI Schedule.
■ The revenue could not rebut any of the findings of Commissioner
(Appeals) with any supporting material. Therefore, there is no good
and valid reason to interfere with the reasoning of the Commissioner
(Appeals). [Para 8]
T.N. Betgeri for the Appellant. G. Baskar for the Respondent.
ORDER
Challa Nagendra Prasad, Judicial Member - This is an appeal by the
Revenue against the order of Commissioner of Income Tax (Appeals)-XII,
Chennai dated 26.4.2012 in ITA No.310/2011-12 for the Asst. Year
2009-10.
2. The first issue in the grounds of appeal of the Revenue is that the
Commissioner of Income Tax (Appeals) erred in holding that the
assessee is entitled for deduction under sec.80IB of the Act.
3. The facts of the case are that the assessee is a company engaged in
the manufacture and sale of ophthalmic Instruments and equipments. The
assessee is located in Pondicherry and registered as a small scale
industry with the Directorate of Industries and Commerce, Pondicherry.
For the Asst. Year 2009-10, the assessee filed its return of income on
29.9.2009 declaring total income at Rs. 13,25,78,530/- after claiming
deduction under sec.80IB of the Act at Rs. 5,68,19,369/- The
assessment was completed under sec.143(3) of the Act on 14.12.2011 by
the Assessing Officer determining total income of the assessee at Rs.
19,01,41,030/-. While completing he assessment the Assessing Officer
denied deduction claimed by the assessee under sec.80IB of the Act.
While denying deduction claimed by the assessee, the Assessing Officer
held that the assessee is manufacturing ophthalmic equipment, an item
included in the XI Schedule of the Act. According to the Assessing
Officer, in order to classify an industry as a small scale industry,
the assessee should be engaged in manufacturing the items listed in
Schedule III of Industries (Development and Regulation Act, 1951 as
specified in Licensing Notification S.O.477(E) dated 25.7.1991. Since
the assessee is manufacturing item of ophthalmic equipment which is
not included in Schedule III of Industries (Development and Regulation
Act, 1951, the assessee could not be treated as small scale industry.
Therefore, the Assessing Officer felt that the assessee is not covered
within the definition of SSI and hence not eligible for deduction
under sec.80IB of the Act.
4. On appeal, the Commissioner of Income Tax (Appeals) did not agree
with the view of the Assessing Officer that the manufacturers of
things or articles specified in XI Schedule are not eligible for
deduction under sec.80IB of the Act. The Commissioner of Income Tax
(Appeals) held that there are exceptions to the said condition and the
exceptions are provided in proviso to clause (iii) of sub-sec.(2) of
sec.80IB of the Act and even if they are manufacturing items specified
in XI Schedule. Against this order of the Commissioner of Income Tax
(Appeals) the Revenue is in appeal before us.
5. The Counsel for the Assessee supported the order of the
Commissioner of Income Tax (Appeals) and submits that the assessee is
entitled for deduction under sec.80IB of the Act even though it is not
manufacturing an article or thing which is mentioned in Schedule XI of
the Act since the assessee is located in an industrially back-ward
area. He submits that, in fact, the item manufactured is not falling
under Schedule XI at all.
6. The Departmental Representative supported the order of Assessing Officer.
7. We have heard both sides, perused the material on record and the
orders of the lower authorities. The Commissioner of Income Tax
(Appeals) examined the provisions of sec.80IB of the Act in detail and
the applicability of such provisions to the assessee's case and held
that the assessee is entitled for deduction under sec.80IB of the Act
as the assessee complied with the provisions of sec.80IB of the Act.
While holding so, the Commissioner of Income Tax (Appeals) held as
under :-
"I have considered the assessee's submissions carefully. The deduction
u/s.80-IB is available for the assesses who being to manufacture or
produce things or article specified in the section and subject to the
conditions laid down therein. The provisions of sec.80-IB are:
Sec.80-IB. (1) Where the gross total income of an assessee includes
any profits and gains derived from any business referred to in
sub-sections (3) to (11) (such business being hereinafter referred to
as the eligible business), there shall, in accordance with and subject
to the provisions of this section, be allowed, in computing the total
income of the assessee, a deduction from such profits and gains of an
amount equal to such percentage and for such number of assessment
years as specified in this section.
(2) This section applies to any industrial undertaking which fulfils
all the following conditions, namely :- (i) It is not formed by
splitting up, or the reconstruction, of a business already in
existence :
Provided that this condition shall not apply in respect of an
industrial undertaking which is formed as a result of the
re-establishment, reconstruction or revival by the assessee of the
business of any such industrial undertaking as is referred to in
section 33B, in the circumstances and within the period specified in
that section;
(ii) It is not formed by the transfer to a new business of machinery
or plant previously used for any purpose;
(iii) It manufactures or produces any article or thing, not being any
article or thing specified in the list in the Eleventh Schedule, or
operates one or more cold storage plant or plants, in any part of
India :
Provided that the condition in this clause shall, in relation to a
small scale industrial undertaking or an industrial undertaking
referred to in sub-section (4) shall apply as if the words "not being
any article or thing specified in the list in the Eleventh Schedule"
had been omitted.
Explanation 1 : For the purposes of clause (ii), any machinery or
plant which was used outside India by any person other than the
assessee shall not be regarded as machinery or plant previously used
for any purpose, if the following conditions are fulfilled, namely :-
(a) Such machinery or plant was not, at any time previous to the
date of the installation by the assessee, used in India;
(b) Such machinery or plant is imported into India from any country
outside India; and
(c) No deduction on account of depreciation in respect of such
machinery or plant has been allowed or is allowable under the
provisions of this Act in computing the total income of any person for
any period prior to the date of the installation of the machinery or
plant by the assessee.
Explanation 2 : Where in the case of an industrial undertaking, any
machinery or plant or any part thereof previously used for any purpose
is transferred to a new business and the total value of the machinery
or plant or part so transferred does not exceed twenty per cent of the
total value of the machinery or plant used in the business, then, for
the purposes of clause (ii) of this sub-section, the condition
specified therein shall be deemed to have been complied with;
(iv) In a case where the industrial undertaking manufactures or
produces articles or things, the undertaking employs ten or more
workers in a manufacturing process carried on with the aid of power,
or employs twenty or more workers in a manufacturing process carried
on without the aid of power.
(3) The amount of deduction in the case of an industrial undertaking
shall be twenty-five per cent (or thirty per cent where the assessee
is a company), of the profits and gains derived from such industrial
undertaking for a period of ten consecutive assessment years (or
twelve consecutive assessment years where the assessee is a
co-operative society) beginning with the initial assessment year
subject to the fulfilment of the following conditions, namely :-
(i) It begins to manufacture or produce, articles or things or to
operate such plant or plants at any time during the period beginning
from the 1st day of April, 1991 and ending on the 31st day of March,
1995 or such further period as the Central Government may, by
notification in the Official Gazette, specify with reference to any
particular undertaking;
(ii) Where it is an industrial undertaking being a small scale
industrial undertaking, it begins to manufacture or produce articles
or things or to operate its cold storage plant not specified in
sub-section (4) or sub-section (5) at any time during the period
beginning on the 1st day of April, 1995 and ending on the 31st day of
March, 2000.
(4) The amount of deduction in the case of an industrial undertaking
in an industrially backward State specified in the Eighth Schedule
shall be hundred per cent of the profits and gains derived from such
industrial undertaking for five assessment years beginning with the
initial assessment year and thereafter twenty-five per cent (or thirty
per cent where the assessee is a company) of the profits and gains
derived from such industrial undertaking :
Provided that the total period of deduction does not exceed ten
consecutive assessment years (or twelve consecutive assessment years
where the assessee is a co-operative society) subject to fulfilment of
the condition that it begins to manufacture or produce articles or
things or to operate its cold storage plant or plants during the
period beginning on the 1st day of April, 1993 and ending on the 31st
day of March, 2004 :
Provided ………."
From the above provisions, it is clear that before claiming the
deductions, one has to fulfil the requirements laid down in
sub-section (2) of Sec.80-IB of the Act. Once the said conditions laid
down in the sub-section (2) are fulfilled the assesses are eligible
for deduction under various sub-sections (3) to (11B) of sec.80-IB of
the Act based on the activities carried out by them.
In the instant case, the following are the undisputed facts:
(a) The assessee's unit is engaged in manufacturing of ophthalmic
instruments and equipments,
(b) The assessee's manufacturing unit is located in the state of
Pondicherry. The state of Pondicherry is an 'industrially backward
state' (as included in 8th Schedule at Sl.No.16),
The assessee has been registered as a "Small Scale Industry'(SSI) vide
SSI Registration 34/02/00698 on 27.03.2004 by the Director of
Industries and Commerce, Pondicherry.
(a) The assessee's manufactured item 'ophthalmic instruments &
equipments' is included in the 11th Schedule of the IT Act.
Based on the above facts and the requirements of the sec .80-IB of the
Act let us examine whether the assessee is eligible for claiming the
deduction u/s.80-IB of the Act.
The first and foremost requirement is the fulfilment of four
conditions stipulated in sub-section (2) of sec.80-IB of the Act.
These conditions are -
(i) It is not formed by splitting up, or the reconstruction, of a
business already in existence ;
(ii) It is not formed by the transfer to a new business of machinery
or plant previously used for any purpose;
(iii) It manufactures or produces any article or thing, not being
any article or thing specified in the list in the Eleventh Schedule,
or operates one or more cold storage plant or plants, in any part of
India ;
(iv) In a case where the industrial undertaking manufactures or
produces articles or things, the undertaking employs ten or more
workers in a manufacturing process carried on with the aid of power,
or employs twenty or more workers in a manufacturing process carried
on without the aid of power.
The fulfilment of the conditions mentioned at clauses (i), (ii) and
(iv) above, are not under dispute. The only dispute is regarding the
fulfilment of condition in clause (iii) above, wherein the Assessing
Officer held that the item "ophthalmic instruments and equipments"
manufactured by the assessee is the thing or an article specified in
Schedule 11 of the IT Act and hence not eligible for deduction under
section 80-IB of the Act.
The above observation of the Assessing Officer that the manufacturer
of things or artic les specified in 11th Schedule are not eligible for
deduction u/s.80-IB, is not totally correct. As per the clause (iii)
above, only the assessees who manufacture things/articles, other than
those specified in 11th Schedule, are eligible for deduction
u/s.80-IB. However, this condition is not absolute and total. This
condition is embedded with certain exceptions, as provided in the
proviso. There is a proviso to the clause (iii) provided for certain
exceptions, as under :
Proviso to clause (iii) of sub-section (2) of sec.80-IB
Provided that the condition in this clause shall, in relation to a
small scale industrial undertaking or an industrial undertaking
referred to in sub-section (4) shall apply as if the words "not being
any article or thing specified in the list in the Eleventh Schedule"
had been omitted.
Thus, there are two exceptions to the conditions laid down in clause
(iii) above. One exception is the Small Scale Industries (SSI) and the
other exception is industrial undertaking referred to in sub-section
(4). The industrial undertaking referred to in sub-section (4) means
an industrial undertaking situated in an industrially backward State
specified in the Eighth Schedule.
Thus, in the case of a "SSI" or "industrial undertaking situated in an
industrially backward State", the assessees will be eligible for
deduction u/s.80-IB even if they are manufacturing items specified in
11th Schedule. This particularly so because the words "not being any
article or thing specified in the list in the Eleventh Schedule" are
to be omitted from the clause (iii) if it was a SSI or industrial
undertaking situated in an industrially backward State, as per the
proviso to the said clause.
Further, if either of these two (and not necessarily both) situations
are fulfilled, i.e. if it was SSI or if located in an industrially
backward State, the assessee is eligible for deduction u/s.80-IB of
the Act even on the items (manufactured) specified in 11th schedule.
The assessee claimed its deduction us/.80-IB(4) of the Act, the
provisions of which are as under :
Sec.80-IB : (4) The amount of deduction in the case of an industrial
undertaking in an industrially backward State specified in the Eighth
Schedule shall be hundred per cent of the profits and gains derived
from such industrial undertaking for five assessment years beginning
with the initial assessment year and thereafter twenty-five per cent
(or thirty per cent where the assessee is a company) of the profits
and gains derived from such industrial undertaking :
Now, let us examine the assessee case. The assessee's manufacturing
unit is located in the State of Pondicherry, which is an "industrially
backward State" as notified in 8th Schedule (at Sl.No.16). There is no
dispute regarding this position. Therefore, the assessee's case is
covered by the second limb of proviso to clause (iii) of sub-section
(2) of sec.80-IB of the Act. Hence, the words "not being any article
or thing specified in the list in the Eleventh Schedule" stands
omitted from the language of clause (iii) of the Act. Manufacturing of
any article or thing (including those specified in 11th Schedule) is
sufficient for claiming deduction u/s.80-IB of the Act in such a case.
On this account alone the instant assessee, being located in an
"industrially backward State" of Pondicherry, is eligible for
deduction u/s.80-IB of the Act.
The deduction u/s. SO-IB in the case of an industrial undertaking an
industrially backward State specified in the Eighth Schedule is
governed by the provisions of sub-sec.(4). The only requirement in
such cases is that the industrial undertaking should be located in an
industrially backward State. It makes no difference whether such
undertaking is a small scale industry or not. In other words, once the
industrial undertaking is located in an industrially backward State,
all units (whether SSI or non-SSI) are equally eligible for deduction
u/s.80-lB of the Act.
On the other hand, all the Small Scale Industries (SSI) can also take
exception to clause (iii) of sub-sec.(2) of sec.8O-lB, i.e. from the
words "not being any article or thing specified in the list in the
Eleventh Schedule", if they fulfil all the norms prescribed under the
SSI guidelines Industries (Development and Regulation) Act 1951. Once
the requirements of SSI are fulfilled, the assessee falls under the
first limb of exceptions of proviso to clause (iii). In such a case,
the assessee is eligible for deduction even if they manufacture items
specified in 11th schedule. And they are eligible for deduction
irrespective of the location of the undertaking i.e. whether located
in an industrially backward State or other states.
Thus, the assessees whose industrial undertakings are recognized as
"Small Scale Industries" or "located in an industrially backward
State" are eligible for deduction under section 80-IB of the Act, even
if they manufacture 'article or thing specified in the list in the
Eleventh Schedule'.
Further, as stated earlier, the exceptions specified in the proviso to
clause (iii) i.e. being "Small Scale Industries" or "located in an
industrially backward State" are independent of each order. The
assessees need not fulfil both of these two conditions. If anyone of
these two requirements is fulfilled the assessee is eligible for
deduction, irrespective of the fulfilment of the other condition.
Thus, in the instant case, the assessee is located in the State o
Pondicherry which is in an industrially backward State. There is no
dispute regarding this. Hence, the assessee is eligible for deduction
under the sub-section (4) of sec.80-IB of the Act,
On all the article/things (including those mentioned in 11th Schedule)
manufactured by it. In also make no difference whether the undertaking
is a SSI or not .
Once, the industrial undertaking is located in an industrially
backward State the assessee is eligible for deduction is s.80-IB(4) of
the Act. In such a situation there is no need to fulfil the
requirements of 'SSI' nature. If the assessee wants to claim deduction
u/s.80-IB of the Act, being in the nature of 'SSI' (i.e. if wants to
claim exception as per the first limb of proviso to clause (iii)),
then only the assessee has to prove that it is recognised as a SSI and
all the relevant conditions are fulfilled.
In the instant case, as the assessee's industrial undertaking is
'located in an industrially backward State of Pondicherry', there is
no need to fulfil the requirements of SSI. The assessee is eligible
for deduction vi ] s.80-IB(4) of the Act.
In view of the above, examination of assessee's recognition as SSI and
the fulfilment of the necessary conditions therein is of only academic
significance, as the fulfilment or non-fulfilment of this requirement
will not have any adverse impact on the eligibility of deduction under
sub-section (4) of sec.80-IB of the Act.
In any case and for the sake of academic discussion, the small scale
industries are defined at clause (g) of sub-section (14), which is
reproduced as under:
80-IB(14)(g) "small-scale industrial undertaking" means an industrial
undertaking which is, as on the last day of the previous year,
regarded as a small-scale industrial undertaking under section 11B of
the Industries (Development and Regulation) Act, 1951 (65 of 1951).
In the instant case, the assessee has been registered as a "Small
Scale Industry" (SSI) vide SSI Registration 34/02/00698 on 27.03.2004
by the Director of Industries and Commerce, Pondicherry. Once, the
assessee is recognised as a SSI by the concerned authorities, the
assessee is eligible for deduction even if it manufactures the things
or articles specified in 11th schedule. If the condition of
manufacturing the articles "included in schedule-HI" of the
notification in S.0.477(E) dated 25.07.1991, (of Industries
(Development and Regulation) Act, 1951) is to be taken in to
consideration, the very purpose of creating exception in the proviso
to clause (iii) of 80-IB(2) will be lost.
In any case, as the assessee is also eligible for deduction
u/s.80-IB(4) of the Act, being 'located in an industrially backward
State' of Pondicherry, there is no need to fulfil the requirements of
SSI."
8. On going through the order of the Commissioner of Income Tax
(Appeals), it can be seen that the Commissioner of Income Tax
(Appeals) came to the conclusion that the assessee is entitled to
deduction under sec.80IB of the Act since the assessee unit is located
in an industrially back-ward State specified in VIII Schedule and is
governed by the provisions of sub-sec. (iv) of Sec.80IB of the I.T.
Act. Further, the Commissioner of Income Tax (Appeals), by analyzing
the provisions of the Act held that the assessees, whose industrial
undertakings are recognized as "Small Scale Industries" or located in
an industrially back-ward state are eligible for deduction under
sec.80IB of the Act even if they manufacture articles or things
specified in the list in XI Schedule. The Revenue could not rebut any
of the findings of Commissioner of Income Tax (Appeals) with any
supporting material. In the circumstances, we feel that there is no
good and valid reason to interfere with the reasoning of the
Commissioner of Income Tax (Appeals) in allowing the claim of the
assessee under sec.80IB of the Act. Therefore, we confirm the order of
the Commissioner of Income Tax (Appeals) on this issue. The grounds
taken by the Revenue on this issue are rejected.
9. The next issue in the grounds of appeal of the Revenue is that the
Commissioner of Income Tax (Appeals) erred in deleting the
disallowance made under sec.40(a)(1a)of the Act.
10. At the time of hearing, the Counsel for the Assessee submits that
the Assessing Officer made disallowance under sec.40(a)(1a) on the
ground that the assessee has not deducted TDS on certain payments made
to various parties. The Counsel for the Assessee submits that the
assessee had deducted TDS and remitted the same into the Govt.,
account in subsequent Asst. Years and, therefore, he prays that a
direction be given to Assessing Officer to consider the claim in the
subsequent years. He, in fact, filed written submissions stating as
under :-
"Adverting to ground Nos.9 & 10 by the Department before this Hon'ble
Tribunal, I submit that tax had been fully deducted subsequently and
remitted to the Department, the details of which are as under :-
Payments made to Amount paid to TDS Deducted & remitted Rs.
Audit fee for F.Y. 2008-09 paid to M/s. V. Narayanasamy & Co., C/As.
3,30,900 33,090 on 27.04.2010
AFL (P.) Ltd. 1,50,860 3,108 on 5.10.2012
DSV Air&Sea Pvt. Ltd. 1,90,271 3,919 on 5.10.2012
Prasad Enterprises 71,000 1,463 on 5.10.2012
We pray that the order of the CIT(A) may be reversed and disallowed
sustained this year; subject however to a direction to the A.O. to
allow it in the respective years (audit fee in A.Y:2011-12 and other
payments in A.Y:2013-14). To sum up, we pray that the order of the
CIT(A) be confirmed in respect of the deduction u/s.80IB and reversed
in respect of disallowance u/s.40(a)(ia)."
11. In view of the above submissions made by the Counsel for the
Assessee we allow the grounds of appeal of the Revenue on this issue.
We also direct the Assessing Officer to consider the said payments
made to various parties as allowable expenses in the subsequent years
since the assessee has deducted TDS on the said amount and remitted
the same to the Govt. account, subject to verification.
12. In the result, the appeal of the Revenue is partly allowed
2013-TIOL-192-HC-MAD-IT
IN THE HIGH COURT OF MADRAS
T C (A) No.233 of 2010
THE COMMISSIONER OF INCOME TAX, TRICHY
Vs
SHRI P BALASUBRAMANIAN
AA/25/3, ANNA NAGAR, THENNUR, TRICHY
R Banumathi And K Ravichandra Baabu, JJ
Dated: March 6, 2013
Appellant Rep by: Mr J Narayanasamy, Standing Counsel for Income-tax
Respondent Rep by: Mr M P Senthilkumar
Income Tax - Sections 132, 132(4), 133A, 143(1), 143(2), 148, 158BB -
Whether the material collected and the statement recorded during the
survey operation under Section 133A has any evidentiary value -
Whether the statement recorded during search u/s 133A and 132(4) can
be taken as interchangeable - Whether the Income Tax officer has the
authority to examine a person on oath u/s 133A - Whether the statement
u/s 132(4) gives power to an authorised officer to examine a person on
oath and any such statement can also be used in evidence under the Act
- Whether the material found in the course of survey proceeding could
be used as a basis for making addition in the block assessment.
Assessee, an individual is doing business of manufacture of gold
jewels for others on job work basis. There was a survey at the
premises of the assessee, in which gold jewels weighing 900 grams were
available at the premises of the assessee. Also a sworn statement u/s
133A sub-section 3(iii) was recorded from the assessee. The assessee
had filed his ROI admitting an income of Rs.2,97,410/- and the return
was processed u/s 143(1). A notice u/s 148 was issued on 27.10.2004.
In response to the said notice, the assessee had filed ROI on
16.11.2004 admitting income of Rs.2,97,410/- and the same was taken up
for scrutiny and notice u/s 143(2) was issued. While recording his
statement during survey, the assessee was requested to state the
investment in the gold business being in the form of jewellery to
which he had stated that he had 3 kilos of gold jewellery and that 900
grams of jewellery was found in the premises during survey and
inventorised and that the balance of stock was given for making
jewellery, to the goldsmiths. During scrutiny, the assessee was asked
to explain the source for investment in the above jewellery, against
which it was explained that he had to furnish source only for the
jewellery as per the inventory of jewellery found on the date of
survey. It was submitted that the total jewellery admitted by the
assessee and his wife is at 1802 gms and 15 Cts of Diamond. The total
jewellery stated to had been invested by the assessee in his statement
was 3000 gms. The total jewellery physically found on the date of
survey was 840 gms and 12 Cts of diamond. The Investigating Officers
had not verified with the so called persons with whom the assessee was
stated to have handed over the jewellery of 2200 gms. Assuming but not
conceding that the assessee had to explain the quantity of jewellery
stated by him before the investigating officers (3000 gms) assessee
submitted that the quantity remaining to be explained was 1198 gms
only (3000-1802) after taking into account the declared quantity of
jewellery by the assessee and his wife at 1802 gms as above and
adopting the MV at 400 per gm (501 x 80%), the value of the same comes
to Rs.4,79,200/. On the basis of above explanation, the unexplained
investment in gold jewellery of 1802 gms was taken at Rs.4,79,200/-
and the AO added the same to Rs.2,97,410 - the income returned and
calculated total income as Rs.7,76,610/- and completed the assessment.
On appeal, the CIT(A) had after issuing the notice for enhancement,
dismissed the appeal preferred by the assessee and made addtions on
discovery of 900 gms of gold jewellery by the survey team which
clearly showed that the assessee was doing unaccounted business of
gold jewellery and made an addition of Rs.8,70,800/- over and above
the addition of Rs.4,79,200/-; in respect of unaccounted cash found
during the course of survey, enhancement was made to the tune of
Rs.2,49,770/-; addition of Rs.1,10,000/- towards interest earned on
Rs.5.00 lakhs as unaccounted investment in money lending business, and
initiation of penalty proceedings. The CIT(A) accordingly dismissed
the appeal making an enhancement of Rs.17,30,570/- made to the income
determined by the AO. On further appeal, Tribunal had partly allowed
the appeal.
Before HC, the Revenue's counsel had submitted that the assessee
himself had admitted in the statement that he was having 3000 gms of
gold and admitted to offer Rs.13.50 lakhs as undisclosed income
towards investment in gold. It was also contended that having so
admitted, the assessee had not discharged the burden of explaining the
source of 3000 gms of gold and while so Tribunal was not right in
holding that addition has to be confined only to the extent of 900 gms
of gold found at the time of survey. It was further submitted that in
his statement when the assessee himself had admitted unexplained cash
of Rs.2,49,770/-, the Tribunal was not right in issuing direction to
verify the unaccounted cash to the tune of Rs.2,49,770/-, the Tribunal
was not right in issuing direction to verify the unaccounted cash to
the tune of Rs.2,49,770/-. On the other hand, the assessee's counsel
had submitted that Section 133A does not empower ITO to examine any
person on oath and the statement recorded u/s 133A does not have
evidentiary value. It was further submitted that in the absence of
other materials or information, the CIT(A) was not right in enhancing
the interest income on the alleged money lending business and the
Tribunal rightly allowed the assessee's appeal.
Held that:
++ there is a clear distinction between the statement recorded under
Section 132(4) and 133A. The statement of assessee was recorded u/s
133A(3)(iii) during the survey operation. Since statement recorded u/s
133A was not recorded on oath, such statement recorded u/s 133A was
not at par with the statement recorded u/s 132(4) and did not have any
evidentiary value. According to the assessee, the statement recorded
u/s 133A during survey can hardly be the basis for any assessment. A
power to examine a person on oath is specifically conferred on the
authorities only under Section 132(4) in the course of any search or
seizure. Wherever it thought fit and necessary to confer such power to
examine a person on oath, the Income-tax Act has expressly provided
for it. Whereas Section 133A does not empower any Income Tax Officer
to examine any person on oath. Thus, in contradistinction to the power
u/s 133A, Section 132(4) enables the authorised officer to examine a
person on oath and any statement made by such person during such
examination can also be used in evidence under the Income Tax Act. On
the other hand, whatever statement recorded under Section 133A of the
Act is not given an evidentiary value;
++ in the case of Paul Mathews and Sons v. CIT, the assessee contended
that the statement recorded during survey u/s 133A cannot be put
against the assessee as the same has no evidentiary value. Accepting
the stand taken by the assessee, the Division Bench of the Kerala HC
has held that the power to examine a person on oath is specifically
conferred on the authorised officer only u/s 132(4) in the course of
any search or seizure. Thus, the Income Tax Act, whenever it thought
fit and necessary to confer such power to examine a person on oath,
the same has been expressly provided whereas Section 133A does not
empower any ITO to examine any person on oath. Thus, in
contradistinction to the power u/s 133A, Section 132(4) enables the
authorised officer to examine a person on oath and any statement made
by such person during such examination can also be used in evidence
under the Income Tax Act. On the other hand, whatever statement is
recorded u/s 133A it is not given any evidentary value obviously for
the reason that the officer is not authorised to administer oath and
to take any sworn statement which alone has evidentiary value as
contemplated under law. Therefore, the statement elicited during the
survey operation has no evidentiary value and the ITO was well aware
of this;
++ the Division Bench of HC in the case of CIT Vs S KHADER KHAN SON,
(2008) 300 ITR 157 (MAD) has summarised that an admission is extremely
an important piece of evidence but it cannot be said that it is
conclusive and it is open to the person who made the admission to show
that it is incorrect and that the assessee should be given a proper
opportunity to show that the books of accounts do not correctly
disclose the correct state of facts, vide decision of the Apex Court
in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, [1973] 91
ITR 18; in contradistinction to the power u/s 133A, Section 132(4)
enables the authorised officer to examine a person on oath and any
statement made by such person during such examination can also be used
in evidence under the Income Tax Act. On the other hand, whatever
statement is recorded u/s 133A it is not given any evidentiary value
obviously for the reason that the officer is not authorised to
administer oath and to take any sworn statement which alone has
evidentiary value as contemplated under law, vide Paul Mathews and
Sons v. CIT (2003) 263 ITR 101 (Ker); The material or information
found in the course of survey proceeding could not be a basis for
making any addition in the block assessment, vide decision of this
Court in T.C. (A) No. 2620 of 2006 between CIT v. S. Ajit Kumar. In
CIT VS. DHINGRA METAL WORKS, (2010-TIOL-693-HC-DEL-IT), the Delhi HC
held that while Section 132(4) specifically authorises an Officer to
examine a person on oath, Section 133A did not permit the same. The
Delhi HC further held that the word "may" used in Section 133A(3)(iii)
clarifies beyond doubt that the material collected and the statement
recorded during the survey was not a conclusive piece of evidence by
itself and that AO could not have made the addition solely on the
basis of the statement made on behalf of the assessee during the
course of survey;
++ the SC in Pullangode Rubber Produce Co.Ltd. vs. State of Kerala,
(1973) 91 ITR 18 held that an admission is extremely an important
piece of evidence but it cannot be said that it is conclusive and it
is open to the person who made the admission to show that it is
incorrect. Any statement recorded under Section 133A would have
evidentiary value only if supported with materials and form the basis
for assessment. In his explanation, the assessee stated that he has
been doing job work and the remaining 2100 gms had been given to 3
Asaris. The Officers had not verified whether the gold was available
with the said Asaris nor chosen to examine the said Asaris. The
statement recorded during survey operation u/s 133A may be a relevant
material. But in the absence of further materials to substantiate the
same, such statement recorded u/s 133A can hardly be the basis for
assessment. During the survey, 900 gms of gold was found in the
premises of the assessee and the statement of the assessee was
supported only to the extent of actual seizure of 900 gms. Since the
statement of assessee in respect of the remaining gold was not
substantiated, the Tribunal rightly set aside the addition in respect
of the gold;
++ in so far as unaccounted cash of Rs.2,49,770/-, the assessee tried
to explain the cash by stating that he has sold the land at Kodaikanal
for Rs.2,80,000/- and the same was deposited in Bank on 5.10.2002 and
the amount was withdrawn from the Bank on 17.10.2002 and during the
course of survey, the Department came across the said cash. The survey
was on 29.10.2002 and the drawal of money from the Bank was a few days
before search. Even though the said amount of Rs.2,49,770/- was not
disclosed in his books, the assessee tried to explain the same. The
Tribunal rightly set aside the addition and remitted to the AO to
verify whether the cash balance as per the books of accounts has
emanated from the cash withdrawn from the Bank on 17.10.2002. We do
not find any error or infirmity in the order of the Tribunal directing
the AO to afford an opportunity to the assessee and verify the
correctness of assessee's statement. Insofar as addition of interest
earned Rs.1,10,000/- on the unaccounted investment of Rs.5.00 lakhs in
money lending business, here again, the enhancement is based only on
the statement recorded from the assessee. No other material or
information was available that the assessee invested Rs.5.00 lakhs in
money lending business and earned interest. We are of the view that
the addition of Rs.5.00 lakhs as unaccounted investment in money
lending business and addition of interest earned is based on only
rough estimate and the Tribunal rightly deleted the addition on the
interest of money lending business, household expenses and creditors.
So far as levy of penalty u/s 271(1C), since the Tribunal deleted the
addition and ordered expunging the initiation of penalty proceedings
u/s 271(1C), we do not find any reason to interfere with the finding
of the Tribunal. Since the order of CIT(A) making enhancement to the
income determined by the AO is based on the unsworn statement obtained
under Section 133A, in the absence of other materials, the Tribunal
rightly set aside the order of CIT(A) and we do not find any reason to
interfere with the order of the Tribunal. No substantial question of
law arise for consideration and the Tax Case Appeal stands dismissed.
Revenue's appeal dismissed
Case followed:
Paul Mathews and Sons v. CIT (2003) 263 ITR 101(Ker)
CIT v. S. Ajit Kumar (2006-TIOL-400-HC-MAD-IT)
JUDGEMENT
Per: R Banumathi:
The Tax case Appeal is at the instance of the revenue against the
Order dated 31.1.2008 in I.T.A.No.1279/ Mds/2006 on the file of
Income-tax Appellate Tribunal 'D' Bench, Chennai, in and by which the
Tribunal held that addition should be confined to materials during the
course of survey only and also deleting the other additions towards
interest on money lending business, household expenses and creditors
and expunging the levy of penalty. The assessment year relates to
2003-2004.
2. The Tax Case Appeal is admitted on the following substantial
questions of law:
"(a) Whether the Tribunal was right in not considering the fact that
the assessee himself had admitted the unexplained investment made in
gold and cash which was not disclosed in the book of accounts?
(b) Whether on the facts and in the circumstances of the case, the
Tribunal was right in cancelling penalty under Section 271(1)(c) of
the Income-tax Act?
And
(c) Whether the direction of the Tribunal is to be construed as a
mandatory direction to reopen or a direction to exercise discretion
whether to reopen the Assessment order?"
3. Brief facts:- The assessee is doing business of manufacture of gold
jewels for others on job work basis. There was a survey at the
premises of the assessee on 29.10.2002. During survey, it was noticed
that gold jewels weighing 900 grams were available at the premises of
the assessee. During survey, a sworn statement under Section 133A
sub-section 3(iii) was recorded from the assessee on 29.10.2002. The
assessee filed his return of income on 21.07.2003 admitting an income
of Rs.2,97,410/- and the return was processed under Section 143(1). As
this is survey case, a notice under Section 148 was issued on
27.10.2004. In response to the said notice, the assessee filed return
of income on 16.11.2004 admitting income of Rs.2,97,410/- and the same
was taken up for scrutiny and notice under Section 143(2) was issued.
While recording his statement during survey, the assessee was
requested to state the investment in the gold business being in the
form of jewellery to which he has stated that he has 3 kilos of gold
jewellery and that 900 grams of jewellery was found in the premises
during survey and inventorised and that the balance of stock was given
for making jewellery, to the following three goldsmiths (i) Murali
Krishnan; (ii) Balan and (iii) Ravi.
4. During scrutiny, the assessee was asked to explain the source for
investment in the above jewellery. stated to have been owned by the
assessee, at the time of survey. The assessee explained that he has to
furnish source only for the jewellery as per the inventory of
jewellery found on the date of survey. The assessee was asked to
explain the source of investment for 900 gms of gold found in the
premises as well as the quantity of gold stated by the assessee.
During the course of hearing, the assessee in the letter filed on
13.3.2005 is said to have stated as under:
"The total jewellery admitted by the assessee and his wife is at 1802
gms and 15 Cts of Diamond. The total jewellery stated to have been
invested by the assessee in his statement dt.29.10.2002 is 3000 gms.
The total jewellery physically found on the date of survey was 840 gms
and 12 Cts of diamond. The Investigating Officers have not verified
with the so called persons with whom the assessee is stated to have
handed over the jewellery of 2200 gms. Assuming but not conceding that
the assessee has to explain the quantity of jewellery stated by him
before the investigating officers (3000 gms) we submit that the
quantity remaining to be explained is 1198 gms only (3000-1802) after
taking into account the declared quantity of jewellery by the assessee
and his wife at 1802 gms as above and adopting the market value at 400
per gm (501 x 80%), the value of the same comes to Rs.4,79,200/."
5. The above explanation was considered and after giving allowance for
the jewellery already admitted, the unexplained investment in gold
jewellery of 1802 gms is taken at Rs.4,79,200/- and the Assessing
Officer added the same to Rs.2,97,410 - the income returned and
calculated total income as Rs.7,76,610/- and completed the assessment.
6. The assessee preferred appeal to Commissioner of Income-tax
(Appeals). After issuing notice for enhancement, Commissioner of
Income-tax (Appeals) dismissed the appeal preferred by the assessee
and making additions as under:-
(i) discovery of 900 gms of gold jewellery by the survey team clearly
shows that the assessee was doing unaccounted business of gold
jewellery and made an addition of Rs.8,70,800/- over and above the
addition of Rs.4,79,200/-;
(ii) in respect of unaccounted cash found during the course of survey,
enhancement was made to the tune of Rs.2,49,770/-;
(iii) addition of Rs.1,10,000/- towards interest earned on Rs.5.00
lakhs as unaccounted investment in money lending business, and
(iv)initiation of penalty proceedings.
The Commissioner of Income-tax (Appeals) accordingly dismissed the
appeal making an enhancement of Rs.17,30,570/- made to the income
determined by the Assessing Officer.
7. The appeal preferred by the assessee was partly allowed by the Tribunal:-
(i) to confine the addition in respect of gold only to the extent of
900 gms of gold found at the time of survey;
(ii) so far as unaccounted cash, addition of Rs.2,49,770/- was set
aside with a direction to the Assessing Officer to verify whether cash
balance as per the book of accounts has emanated from the cash
withdrawn from the Bank on 17.10.2002;
(iii) deleted the addition made towards interest on money lending business; and
(iv) penalty proceedings under Section 271(1C) was expunged.
8. Learned counsel for revenue submitted that the assessee himself had
admitted in the statement that he was having 3000 gms of gold and
admitted to offer Rs.13.50 lakhs as undisclosed income towards
investment in gold. The learned counsel contended that having so
admitted, the assessee had not discharged the burden of explaining the
source of 3000 gms of gold and while so Tribunal was not right in
holding that addition has to be confined only to the extent of 900 gms
of gold found at the time of survey. Learned counsel further submitted
that in his statement when the assessee himself had admitted
unexplained cash of Rs.2,49,770/-, the Tribunal was not right in
issuing direction to verify the unaccounted cash to the tune of
Rs.2,49,770/-, the Tribunal was not right in issuing direction to
verify the unaccounted cash to the tune of Rs.2,49,770/-.
9. Learned counsel for assessee submitted that Section 133A does not
empower Income-tax Officer to examine any person on oath and the
statement recorded under Section 133A of the Act does not have
evidentiary value. The learned counsel further submitted that in the
absence of other materials or information, the Commissioner of
Income-tax (Appeals) was not right in enhancing the interest income on
the alleged money lending business and the Tribunal rightly allowed
the assessee's appeal.
10. The assessee is doing business of manufacture of jewels for others
on job work basis. The survey operation was conducted in the premises
of the assessee on 29.10.2002. Survey authority noticed gold jewels
weighing 900 gms were available at the premises of the assessee. The
assessee on his own explained that remaining 2100 gms had been given
to Asaris viz., (i) Muralikrishnan; (ii) Balan and (iii) Ravi. In the
statement recorded under Section 133A, the assessee is said to have
agreed that the value of the investment in the gold was around
Rs.13.50 lakhs. It is the case of revenue that the assessee having
admitted the investment in 3000 gms of gold, burden lies upon the
assessee to explain the source of his income and the assessee had not
discharged his burden of explaining source of his income for
investment in the gold.
11. The substantial questions of law raised by the revenue revolve on
the question whether material collected and the statement recorded
during the survey operation under Section 133A of the Act has any
evidentiary value. There is a clear distinction between the statement
recorded under Section 132(4) and 133A. It is apt to refer to Sections
132(4) and 133A of the Act, which read as under:-
132. Search and Seizure.
(1)...
(2)...
(3)...
(4) The authorised officer may, during the course of the search or
seizure, examine on oath any person who is found to be in possession
or control of any books of account, documents, money, bullion,
jewellery or other valuable article or thing and any statement made by
such person during such examination may thereafter be used in evidence
in any proceeding under the Indian Income Tax Act, 1922 (11 of 1922),
or under this Act.
Explanation. - For the removal of doubts, it is hereby declared that
the examination of any person under this sub-section may be not merely
in respect of any books of account, other documents or assets found as
a result of the search, but also in respect of all matters relevant
for the purpose of any investigation connected with any proceeding
under the Indian Income Tax Act, 1922 (11 of 1922), or under this
Act."
"133A. Power of survey. - (1) Notwithstanding anything contained in
any other provision of this Act, an Income Tax authority may enter-
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises
jurisdiction, or
(c) any place in respect of which he is authorised for the purposes of
this section by such Income Tax authority, who is assigned the area
within which such place is situated or who exercises jurisdiction in
respect of any person occupying such place, at which a business or
profession is carried on, whether such place be the principal place or
not of such business or profession, and require any proprietor,
employee or any other person who may at that time and place be
attending in any manner to, or helping in, the carrying on of such
business or profession-
(i) to afford him the necessary facility to inspect such books of
account or other documents as he may require and which may be
available at such place,
(ii) to afford him the necessary facility to check or verify the cash,
stock or other valuable article or thing which may be found therein,
and
(iii) to furnish such information as he may require as to any matter
which may be useful for, or relevant to, any proceeding under this Act
Explanation. -......
(2).....
(3) An Income Tax authority acting under this section may,-
(i) if he so deems necessary, place marks of identification on the
books of account or other documents inspected by him and make or cause
to be made extracts or copies therefrom,
(ii) make an inventory of any cash, stock or other valuable article or
thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or
relevant to, any proceeding under this Act.
(4) An Income Tax authority acting under this section shall, on no
account, remove or cause to be removed from the place wherein he has
entered, any books of account or other documents or any cash, stock or
other valuable article or thing.
(5).....
(6)..... "
12. The statement of assessee was recorded under Section 133A(3)(iii)
during the survey operation. Since statement recorded under Section
133A was not recorded on oath, such statement recorded under Section
133A was not at par with the statement recorded under Section 132(4)
and did not have any evidentiary value. According to the assessee, the
statement recorded under Section 133A during survey can hardly be the
basis for any assessment.
13. A power to examine a person on oath is specifically conferred on
the authorities only under Section 132(4) of the Act in the course of
any search or seizure. Wherever it thought fit and necessary to confer
such power to examine a person on oath, the Income-tax Act has
expressly provided for it. Whereas Section 133A does not empower any
Income Tax Officer to examine any person on oath. Thus, in
contradistinction to the power under Section 133A, Section 132(4) of
the Income Tax Act enables the authorised officer to examine a person
on oath and any statement made by such person during such examination
can also be used in evidence under the Income Tax Act. On the other
hand, whatever statement recorded under Section 133A of the Act is not
given an evidentiary value.
14. The scope of Sections 132(4) and 133A came up for consideration
before the Kerala High Court in Paul Mathews and Sons v. CIT (2003)
263 ITR 101(Ker). In the said case, the assessee contended that the
statement recorded during survey under Section 133A cannot be put
against the assessee as the same has no evidentiary value. Accepting
the stand taken by the assessee, the Division Bench of the Kerala High
Court has held as under:-
"... we find that the power to examine a person on oath is
specifically conferred on the authorised officer only under Section
132(4) of the Income Tax Act in the course of any search or seizure.
Thus, the Income Tax Act, whenever it thought fit and necessary to
confer such power to examine a person on oath, the same has been
expressly provided whereas Section 133A does not empower any Income
Tax Officer to examine any person on oath. Thus, in contradistinction
to the power under Section 133A, Section 132(4) of the Income Tax Act
enables the authorised officer to examine a person on oath and any
statement made by such person during such examination can also be used
in evidence under the Income Tax Act. On the other hand, whatever
statement is recorded under Section 133A of the Income Tax Act it is
not given any evidentiary value obviously for the reason that the
officer is not authorised to administer oath and to take any sworn
statement which alone has evidentiary value as contemplated under
law...
Therefore, the statement elicited during the survey operation has no
evidentiary value and the Income Tax Officer was well aware of this.
(emphasis supplied)"
15. After elaborately referring to the decisions of Paul Mathews and
Sons v. CIT (2003) 263 ITR 101(Ker); CIT VS. Senniappan (G.K.) (2006)
284 ITR 220 (MAD) and CIT VS. Ajit Kumar (s.) (2008) 300 ITR 152 (MAD)
= (2006-TIOL-400-HC-MAD-IT) and the Circular of the Central Board of
Direct Taxes dated March 10, 2003 with regard to confession statement
of additional income during the course of search and seizure and
survey operations, the Division Bench of this Court in CIT Vs S KHADER
KHAN SON, (2008) 300 ITR 157 (MAD) has summarised the principles as
under:
(i) An admission is extremely an important piece of evidence but it
cannot be said that it is conclusive and it is open to the person who
made the admission to show that it is incorrect and that the assessee
should be given a proper opportunity to show that the books of
accounts do not correctly disclose the correct state of facts, vide
decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v.
State of Kerala, [1973] 91 ITR 18;
(ii) In contradistinction to the power under Section 133A, Section
132(4) of the Income Tax Act enables the authorised officer to examine
a person on oath and any statement made by such person during such
examination can also be used in evidence under the Income Tax Act. On
the other hand, whatever statement is recorded under Section 133A of
the Income Tax Act it is not given any evidentiary value obviously for
the reason that the officer is not authorised to administer oath and
to take any sworn statement which alone has evidentiary value as
contemplated under law, vide Paul Mathews and Sons v. CIT (2003) 263
ITR 101 (Ker);
(iii) The expression "such other materials or information as are
available with the Assessing Officer" contained in Section 158BB of
the Income Tax Act, 1961, would include the materials gathered during
the survey operation under Section 133A, vide CIT Vs. G.K.Senniappan,
[2006] 284 ITR 220 (Mad)];
(iv) The material or information found in the course of survey
proceeding could not be a basis for making any addition in the block
assessment, vide decision of this Court in T.C. (A) No. 2620 of 2006
between Commissioner of Income Tax v. S. Ajit Kumar (2008) 300 ITR 152
(Mad) = (2006-TIOL-400-HC-MAD-IT);
(v) Finally, the word "may" used in Section 133A(3)(iii) of the Act,
viz., "record the statement of any person which may be useful for, or
relevant to, any proceeding under this Act, as already extracted
above, makes it clear that the materials collected and the statement
recorded during the survey under Section 133A are not conclusive piece
of evidence by itself."
In CIT VS. DHINGRA METAL WORKS, (2010) 328 ITR 384 (Delhi) =
(2010-TIOL-693-HC-DEL-IT), the Delhi High Court held that while
Section 132(4) of the Act specifically authorises an Officer to
examine a person on oath, Section 133A did not permit the same. The
Delhi High Court further held that the word "may" used in Section
133A(3)(iii) of the Act clarifies beyond doubt that the material
collected and the statement recorded during the survey was not a
conclusive piece of evidence by itself and that Assessing Officer
could not have made the addition solely on the basis of the statement
made on behalf of the assessee during the course of survey.
16. Mr.Narayanaswami, learned counsel appearing for the revenue
submitted that even though statement under Section 133A was not at par
with the statement under Section 132(4), such statement recorded under
Section 133A cannot be held to be irrelevant material and in the
absence of any explanation by the assessee, the Commissioner of
Income-tax (Appeals) rightly made enhancement. In support of his
contention, the learned counsel placed reliance upon a decision of
Punjab and Haryana High Court in Bachittar Singh Vs. CIT and another,
(2010) 328 ITR 400 (P&H).
17. The Punjab and Haryana High Court held that even if the statement
under section 133A was not at par with the statement under section
132(4) and did not have that evidentiary value, such statement cannot
be held to be irrelevant material so as to be ruled out of
consideration in totality of facts, particularly in the absence of
regular books of account. In the facts and circumstances of the case
that the assessee failed to produce books of accounts, which may have
been maintained during the regular course of business or any other
authentic contemporaneous evidence of agricultural income, the Punjab
& Haryana High Court held that the statement under Section 133A cannot
be held to be irrelevant material. In our considered view, in the
factual matrix of present case, the above decision of Punjab & Haryana
High Court is not applicable.
18. The Hon'ble Supreme Court in Pullangode Rubber Produce Co.Ltd. vs.
State of Kerala, (1973) 91 ITR 18 held that an admission is extremely
an important piece of evidence but it cannot be said that it is
conclusive and it is open to the person who made the admission to show
that it is incorrect. Any statement recorded under Section 133A would
have evidentiary value only if supported with materials and form the
basis for assessment. In his explanation, the assessee stated that he
has been doing job work and the remaining 2100 gms had been given to 3
Asaris. The Officers had not verified whether the gold was available
with the said Asaris nor chosen to examine the said Asaris. The
statement recorded during survey operation under Section 133A may be a
relevant material. But in the absence of further materials to
substantiate the same, such statement recorded under Section 133A can
hardly be the basis for assessment. During the survey, 900 gms of gold
was found in the premises of the assessee and the statement of the
assessee was supported only to the extent of actual seizure of 900
gms. Since the statement of assessee in respect of the remaining gold
was not substantiated, the Tribunal rightly set aside the addition in
respect of the gold.
19. In so far as unaccounted cash of Rs.2,49,770/-, the assessee tried
to explain the cash by stating that he has sold the land at Kodaikanal
for Rs.2,80,000/- and the same was deposited in Bank on 5.10.2002 and
the amount was withdrawn from the Bank on 17.10.2002 and during the
course of survey, the Department came across the said cash. The survey
was on 29.10.2002 and the drawal of money from the Bank was a few days
before search. Even though the said amount of Rs.2,49,770/- was not
disclosed in his books, the assessee tried to explain the same. The
Tribunal rightly set aside the addition and remitted to the Assessing
Officer to verify whether the cash balance as per the books of
accounts has emanated from the cash withdrawn from the Bank on
17.10.2002. We do not find any error or infirmity in the order of the
Tribunal directing the Assessing Officer to afford an opportunity to
the assessee and verify the correctness of assessee's statement.
20. Insofar as addition of interest earned Rs.1,10,000/- on the
unaccounted investment of Rs.5.00 lakhs in money lending business,
here again, the enhancement is based only on the statement recorded
from the assessee. No other material or information was available that
the assessee invested Rs.5.00 lakhs in money lending business and
earned interest. We are of the view that the addition of Rs.5.00 lakhs
as unaccounted investment in money lending business and addition of
interest earned is based on only rough estimate and the Tribunal
rightly deleted the addition on the interest of money lending
business, household expenses and creditors.
21. So far as levy of penalty under Section 271(1C), since the
Tribunal deleted the addition and ordered expunging the initiation of
penalty proceedings under Section 271(1C), we do not find any reason
to interfere with the finding of the Tribunal.
22. Since the order of Commissioner of Income-tax (Appeals) making
enhancement to the income determined by the Assessing Officer is based
on the unsworn statement obtained under Section 133A, in the absence
of other materials, the Tribunal rightly set aside the order of
Commissioner of Income-tax (Appeals) and we do not find any reason to
interfere with the order of the Tribunal. No substantial question of
law arise for consideration and the Tax Case Appeal stands dismissed.
--
Regards,
*Pawan Singla*
*BA (Hon's), LLB*
*Audit Officer*
IN THE HIGH COURT OF MADRAS
T C (A) No.233 of 2010
THE COMMISSIONER OF INCOME TAX, TRICHY
Vs
SHRI P BALASUBRAMANIAN
AA/25/3, ANNA NAGAR, THENNUR, TRICHY
R Banumathi And K Ravichandra Baabu, JJ
Dated: March 6, 2013
Appellant Rep by: Mr J Narayanasamy, Standing Counsel for Income-tax
Respondent Rep by: Mr M P Senthilkumar
Income Tax - Sections 132, 132(4), 133A, 143(1), 143(2), 148, 158BB -
Whether the material collected and the statement recorded during the
survey operation under Section 133A has any evidentiary value -
Whether the statement recorded during search u/s 133A and 132(4) can
be taken as interchangeable - Whether the Income Tax officer has the
authority to examine a person on oath u/s 133A - Whether the statement
u/s 132(4) gives power to an authorised officer to examine a person on
oath and any such statement can also be used in evidence under the Act
- Whether the material found in the course of survey proceeding could
be used as a basis for making addition in the block assessment.
Assessee, an individual is doing business of manufacture of gold
jewels for others on job work basis. There was a survey at the
premises of the assessee, in which gold jewels weighing 900 grams were
available at the premises of the assessee. Also a sworn statement u/s
133A sub-section 3(iii) was recorded from the assessee. The assessee
had filed his ROI admitting an income of Rs.2,97,410/- and the return
was processed u/s 143(1). A notice u/s 148 was issued on 27.10.2004.
In response to the said notice, the assessee had filed ROI on
16.11.2004 admitting income of Rs.2,97,410/- and the same was taken up
for scrutiny and notice u/s 143(2) was issued. While recording his
statement during survey, the assessee was requested to state the
investment in the gold business being in the form of jewellery to
which he had stated that he had 3 kilos of gold jewellery and that 900
grams of jewellery was found in the premises during survey and
inventorised and that the balance of stock was given for making
jewellery, to the goldsmiths. During scrutiny, the assessee was asked
to explain the source for investment in the above jewellery, against
which it was explained that he had to furnish source only for the
jewellery as per the inventory of jewellery found on the date of
survey. It was submitted that the total jewellery admitted by the
assessee and his wife is at 1802 gms and 15 Cts of Diamond. The total
jewellery stated to had been invested by the assessee in his statement
was 3000 gms. The total jewellery physically found on the date of
survey was 840 gms and 12 Cts of diamond. The Investigating Officers
had not verified with the so called persons with whom the assessee was
stated to have handed over the jewellery of 2200 gms. Assuming but not
conceding that the assessee had to explain the quantity of jewellery
stated by him before the investigating officers (3000 gms) assessee
submitted that the quantity remaining to be explained was 1198 gms
only (3000-1802) after taking into account the declared quantity of
jewellery by the assessee and his wife at 1802 gms as above and
adopting the MV at 400 per gm (501 x 80%), the value of the same comes
to Rs.4,79,200/. On the basis of above explanation, the unexplained
investment in gold jewellery of 1802 gms was taken at Rs.4,79,200/-
and the AO added the same to Rs.2,97,410 - the income returned and
calculated total income as Rs.7,76,610/- and completed the assessment.
On appeal, the CIT(A) had after issuing the notice for enhancement,
dismissed the appeal preferred by the assessee and made addtions on
discovery of 900 gms of gold jewellery by the survey team which
clearly showed that the assessee was doing unaccounted business of
gold jewellery and made an addition of Rs.8,70,800/- over and above
the addition of Rs.4,79,200/-; in respect of unaccounted cash found
during the course of survey, enhancement was made to the tune of
Rs.2,49,770/-; addition of Rs.1,10,000/- towards interest earned on
Rs.5.00 lakhs as unaccounted investment in money lending business, and
initiation of penalty proceedings. The CIT(A) accordingly dismissed
the appeal making an enhancement of Rs.17,30,570/- made to the income
determined by the AO. On further appeal, Tribunal had partly allowed
the appeal.
Before HC, the Revenue's counsel had submitted that the assessee
himself had admitted in the statement that he was having 3000 gms of
gold and admitted to offer Rs.13.50 lakhs as undisclosed income
towards investment in gold. It was also contended that having so
admitted, the assessee had not discharged the burden of explaining the
source of 3000 gms of gold and while so Tribunal was not right in
holding that addition has to be confined only to the extent of 900 gms
of gold found at the time of survey. It was further submitted that in
his statement when the assessee himself had admitted unexplained cash
of Rs.2,49,770/-, the Tribunal was not right in issuing direction to
verify the unaccounted cash to the tune of Rs.2,49,770/-, the Tribunal
was not right in issuing direction to verify the unaccounted cash to
the tune of Rs.2,49,770/-. On the other hand, the assessee's counsel
had submitted that Section 133A does not empower ITO to examine any
person on oath and the statement recorded u/s 133A does not have
evidentiary value. It was further submitted that in the absence of
other materials or information, the CIT(A) was not right in enhancing
the interest income on the alleged money lending business and the
Tribunal rightly allowed the assessee's appeal.
Held that:
++ there is a clear distinction between the statement recorded under
Section 132(4) and 133A. The statement of assessee was recorded u/s
133A(3)(iii) during the survey operation. Since statement recorded u/s
133A was not recorded on oath, such statement recorded u/s 133A was
not at par with the statement recorded u/s 132(4) and did not have any
evidentiary value. According to the assessee, the statement recorded
u/s 133A during survey can hardly be the basis for any assessment. A
power to examine a person on oath is specifically conferred on the
authorities only under Section 132(4) in the course of any search or
seizure. Wherever it thought fit and necessary to confer such power to
examine a person on oath, the Income-tax Act has expressly provided
for it. Whereas Section 133A does not empower any Income Tax Officer
to examine any person on oath. Thus, in contradistinction to the power
u/s 133A, Section 132(4) enables the authorised officer to examine a
person on oath and any statement made by such person during such
examination can also be used in evidence under the Income Tax Act. On
the other hand, whatever statement recorded under Section 133A of the
Act is not given an evidentiary value;
++ in the case of Paul Mathews and Sons v. CIT, the assessee contended
that the statement recorded during survey u/s 133A cannot be put
against the assessee as the same has no evidentiary value. Accepting
the stand taken by the assessee, the Division Bench of the Kerala HC
has held that the power to examine a person on oath is specifically
conferred on the authorised officer only u/s 132(4) in the course of
any search or seizure. Thus, the Income Tax Act, whenever it thought
fit and necessary to confer such power to examine a person on oath,
the same has been expressly provided whereas Section 133A does not
empower any ITO to examine any person on oath. Thus, in
contradistinction to the power u/s 133A, Section 132(4) enables the
authorised officer to examine a person on oath and any statement made
by such person during such examination can also be used in evidence
under the Income Tax Act. On the other hand, whatever statement is
recorded u/s 133A it is not given any evidentary value obviously for
the reason that the officer is not authorised to administer oath and
to take any sworn statement which alone has evidentiary value as
contemplated under law. Therefore, the statement elicited during the
survey operation has no evidentiary value and the ITO was well aware
of this;
++ the Division Bench of HC in the case of CIT Vs S KHADER KHAN SON,
(2008) 300 ITR 157 (MAD) has summarised that an admission is extremely
an important piece of evidence but it cannot be said that it is
conclusive and it is open to the person who made the admission to show
that it is incorrect and that the assessee should be given a proper
opportunity to show that the books of accounts do not correctly
disclose the correct state of facts, vide decision of the Apex Court
in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, [1973] 91
ITR 18; in contradistinction to the power u/s 133A, Section 132(4)
enables the authorised officer to examine a person on oath and any
statement made by such person during such examination can also be used
in evidence under the Income Tax Act. On the other hand, whatever
statement is recorded u/s 133A it is not given any evidentiary value
obviously for the reason that the officer is not authorised to
administer oath and to take any sworn statement which alone has
evidentiary value as contemplated under law, vide Paul Mathews and
Sons v. CIT (2003) 263 ITR 101 (Ker); The material or information
found in the course of survey proceeding could not be a basis for
making any addition in the block assessment, vide decision of this
Court in T.C. (A) No. 2620 of 2006 between CIT v. S. Ajit Kumar. In
CIT VS. DHINGRA METAL WORKS, (2010-TIOL-693-HC-DEL-IT), the Delhi HC
held that while Section 132(4) specifically authorises an Officer to
examine a person on oath, Section 133A did not permit the same. The
Delhi HC further held that the word "may" used in Section 133A(3)(iii)
clarifies beyond doubt that the material collected and the statement
recorded during the survey was not a conclusive piece of evidence by
itself and that AO could not have made the addition solely on the
basis of the statement made on behalf of the assessee during the
course of survey;
++ the SC in Pullangode Rubber Produce Co.Ltd. vs. State of Kerala,
(1973) 91 ITR 18 held that an admission is extremely an important
piece of evidence but it cannot be said that it is conclusive and it
is open to the person who made the admission to show that it is
incorrect. Any statement recorded under Section 133A would have
evidentiary value only if supported with materials and form the basis
for assessment. In his explanation, the assessee stated that he has
been doing job work and the remaining 2100 gms had been given to 3
Asaris. The Officers had not verified whether the gold was available
with the said Asaris nor chosen to examine the said Asaris. The
statement recorded during survey operation u/s 133A may be a relevant
material. But in the absence of further materials to substantiate the
same, such statement recorded u/s 133A can hardly be the basis for
assessment. During the survey, 900 gms of gold was found in the
premises of the assessee and the statement of the assessee was
supported only to the extent of actual seizure of 900 gms. Since the
statement of assessee in respect of the remaining gold was not
substantiated, the Tribunal rightly set aside the addition in respect
of the gold;
++ in so far as unaccounted cash of Rs.2,49,770/-, the assessee tried
to explain the cash by stating that he has sold the land at Kodaikanal
for Rs.2,80,000/- and the same was deposited in Bank on 5.10.2002 and
the amount was withdrawn from the Bank on 17.10.2002 and during the
course of survey, the Department came across the said cash. The survey
was on 29.10.2002 and the drawal of money from the Bank was a few days
before search. Even though the said amount of Rs.2,49,770/- was not
disclosed in his books, the assessee tried to explain the same. The
Tribunal rightly set aside the addition and remitted to the AO to
verify whether the cash balance as per the books of accounts has
emanated from the cash withdrawn from the Bank on 17.10.2002. We do
not find any error or infirmity in the order of the Tribunal directing
the AO to afford an opportunity to the assessee and verify the
correctness of assessee's statement. Insofar as addition of interest
earned Rs.1,10,000/- on the unaccounted investment of Rs.5.00 lakhs in
money lending business, here again, the enhancement is based only on
the statement recorded from the assessee. No other material or
information was available that the assessee invested Rs.5.00 lakhs in
money lending business and earned interest. We are of the view that
the addition of Rs.5.00 lakhs as unaccounted investment in money
lending business and addition of interest earned is based on only
rough estimate and the Tribunal rightly deleted the addition on the
interest of money lending business, household expenses and creditors.
So far as levy of penalty u/s 271(1C), since the Tribunal deleted the
addition and ordered expunging the initiation of penalty proceedings
u/s 271(1C), we do not find any reason to interfere with the finding
of the Tribunal. Since the order of CIT(A) making enhancement to the
income determined by the AO is based on the unsworn statement obtained
under Section 133A, in the absence of other materials, the Tribunal
rightly set aside the order of CIT(A) and we do not find any reason to
interfere with the order of the Tribunal. No substantial question of
law arise for consideration and the Tax Case Appeal stands dismissed.
Revenue's appeal dismissed
Case followed:
Paul Mathews and Sons v. CIT (2003) 263 ITR 101(Ker)
CIT v. S. Ajit Kumar (2006-TIOL-400-HC-MAD-IT)
JUDGEMENT
Per: R Banumathi:
The Tax case Appeal is at the instance of the revenue against the
Order dated 31.1.2008 in I.T.A.No.1279/ Mds/2006 on the file of
Income-tax Appellate Tribunal 'D' Bench, Chennai, in and by which the
Tribunal held that addition should be confined to materials during the
course of survey only and also deleting the other additions towards
interest on money lending business, household expenses and creditors
and expunging the levy of penalty. The assessment year relates to
2003-2004.
2. The Tax Case Appeal is admitted on the following substantial
questions of law:
"(a) Whether the Tribunal was right in not considering the fact that
the assessee himself had admitted the unexplained investment made in
gold and cash which was not disclosed in the book of accounts?
(b) Whether on the facts and in the circumstances of the case, the
Tribunal was right in cancelling penalty under Section 271(1)(c) of
the Income-tax Act?
And
(c) Whether the direction of the Tribunal is to be construed as a
mandatory direction to reopen or a direction to exercise discretion
whether to reopen the Assessment order?"
3. Brief facts:- The assessee is doing business of manufacture of gold
jewels for others on job work basis. There was a survey at the
premises of the assessee on 29.10.2002. During survey, it was noticed
that gold jewels weighing 900 grams were available at the premises of
the assessee. During survey, a sworn statement under Section 133A
sub-section 3(iii) was recorded from the assessee on 29.10.2002. The
assessee filed his return of income on 21.07.2003 admitting an income
of Rs.2,97,410/- and the return was processed under Section 143(1). As
this is survey case, a notice under Section 148 was issued on
27.10.2004. In response to the said notice, the assessee filed return
of income on 16.11.2004 admitting income of Rs.2,97,410/- and the same
was taken up for scrutiny and notice under Section 143(2) was issued.
While recording his statement during survey, the assessee was
requested to state the investment in the gold business being in the
form of jewellery to which he has stated that he has 3 kilos of gold
jewellery and that 900 grams of jewellery was found in the premises
during survey and inventorised and that the balance of stock was given
for making jewellery, to the following three goldsmiths (i) Murali
Krishnan; (ii) Balan and (iii) Ravi.
4. During scrutiny, the assessee was asked to explain the source for
investment in the above jewellery. stated to have been owned by the
assessee, at the time of survey. The assessee explained that he has to
furnish source only for the jewellery as per the inventory of
jewellery found on the date of survey. The assessee was asked to
explain the source of investment for 900 gms of gold found in the
premises as well as the quantity of gold stated by the assessee.
During the course of hearing, the assessee in the letter filed on
13.3.2005 is said to have stated as under:
"The total jewellery admitted by the assessee and his wife is at 1802
gms and 15 Cts of Diamond. The total jewellery stated to have been
invested by the assessee in his statement dt.29.10.2002 is 3000 gms.
The total jewellery physically found on the date of survey was 840 gms
and 12 Cts of diamond. The Investigating Officers have not verified
with the so called persons with whom the assessee is stated to have
handed over the jewellery of 2200 gms. Assuming but not conceding that
the assessee has to explain the quantity of jewellery stated by him
before the investigating officers (3000 gms) we submit that the
quantity remaining to be explained is 1198 gms only (3000-1802) after
taking into account the declared quantity of jewellery by the assessee
and his wife at 1802 gms as above and adopting the market value at 400
per gm (501 x 80%), the value of the same comes to Rs.4,79,200/."
5. The above explanation was considered and after giving allowance for
the jewellery already admitted, the unexplained investment in gold
jewellery of 1802 gms is taken at Rs.4,79,200/- and the Assessing
Officer added the same to Rs.2,97,410 - the income returned and
calculated total income as Rs.7,76,610/- and completed the assessment.
6. The assessee preferred appeal to Commissioner of Income-tax
(Appeals). After issuing notice for enhancement, Commissioner of
Income-tax (Appeals) dismissed the appeal preferred by the assessee
and making additions as under:-
(i) discovery of 900 gms of gold jewellery by the survey team clearly
shows that the assessee was doing unaccounted business of gold
jewellery and made an addition of Rs.8,70,800/- over and above the
addition of Rs.4,79,200/-;
(ii) in respect of unaccounted cash found during the course of survey,
enhancement was made to the tune of Rs.2,49,770/-;
(iii) addition of Rs.1,10,000/- towards interest earned on Rs.5.00
lakhs as unaccounted investment in money lending business, and
(iv)initiation of penalty proceedings.
The Commissioner of Income-tax (Appeals) accordingly dismissed the
appeal making an enhancement of Rs.17,30,570/- made to the income
determined by the Assessing Officer.
7. The appeal preferred by the assessee was partly allowed by the Tribunal:-
(i) to confine the addition in respect of gold only to the extent of
900 gms of gold found at the time of survey;
(ii) so far as unaccounted cash, addition of Rs.2,49,770/- was set
aside with a direction to the Assessing Officer to verify whether cash
balance as per the book of accounts has emanated from the cash
withdrawn from the Bank on 17.10.2002;
(iii) deleted the addition made towards interest on money lending business; and
(iv) penalty proceedings under Section 271(1C) was expunged.
8. Learned counsel for revenue submitted that the assessee himself had
admitted in the statement that he was having 3000 gms of gold and
admitted to offer Rs.13.50 lakhs as undisclosed income towards
investment in gold. The learned counsel contended that having so
admitted, the assessee had not discharged the burden of explaining the
source of 3000 gms of gold and while so Tribunal was not right in
holding that addition has to be confined only to the extent of 900 gms
of gold found at the time of survey. Learned counsel further submitted
that in his statement when the assessee himself had admitted
unexplained cash of Rs.2,49,770/-, the Tribunal was not right in
issuing direction to verify the unaccounted cash to the tune of
Rs.2,49,770/-, the Tribunal was not right in issuing direction to
verify the unaccounted cash to the tune of Rs.2,49,770/-.
9. Learned counsel for assessee submitted that Section 133A does not
empower Income-tax Officer to examine any person on oath and the
statement recorded under Section 133A of the Act does not have
evidentiary value. The learned counsel further submitted that in the
absence of other materials or information, the Commissioner of
Income-tax (Appeals) was not right in enhancing the interest income on
the alleged money lending business and the Tribunal rightly allowed
the assessee's appeal.
10. The assessee is doing business of manufacture of jewels for others
on job work basis. The survey operation was conducted in the premises
of the assessee on 29.10.2002. Survey authority noticed gold jewels
weighing 900 gms were available at the premises of the assessee. The
assessee on his own explained that remaining 2100 gms had been given
to Asaris viz., (i) Muralikrishnan; (ii) Balan and (iii) Ravi. In the
statement recorded under Section 133A, the assessee is said to have
agreed that the value of the investment in the gold was around
Rs.13.50 lakhs. It is the case of revenue that the assessee having
admitted the investment in 3000 gms of gold, burden lies upon the
assessee to explain the source of his income and the assessee had not
discharged his burden of explaining source of his income for
investment in the gold.
11. The substantial questions of law raised by the revenue revolve on
the question whether material collected and the statement recorded
during the survey operation under Section 133A of the Act has any
evidentiary value. There is a clear distinction between the statement
recorded under Section 132(4) and 133A. It is apt to refer to Sections
132(4) and 133A of the Act, which read as under:-
132. Search and Seizure.
(1)...
(2)...
(3)...
(4) The authorised officer may, during the course of the search or
seizure, examine on oath any person who is found to be in possession
or control of any books of account, documents, money, bullion,
jewellery or other valuable article or thing and any statement made by
such person during such examination may thereafter be used in evidence
in any proceeding under the Indian Income Tax Act, 1922 (11 of 1922),
or under this Act.
Explanation. - For the removal of doubts, it is hereby declared that
the examination of any person under this sub-section may be not merely
in respect of any books of account, other documents or assets found as
a result of the search, but also in respect of all matters relevant
for the purpose of any investigation connected with any proceeding
under the Indian Income Tax Act, 1922 (11 of 1922), or under this
Act."
"133A. Power of survey. - (1) Notwithstanding anything contained in
any other provision of this Act, an Income Tax authority may enter-
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises
jurisdiction, or
(c) any place in respect of which he is authorised for the purposes of
this section by such Income Tax authority, who is assigned the area
within which such place is situated or who exercises jurisdiction in
respect of any person occupying such place, at which a business or
profession is carried on, whether such place be the principal place or
not of such business or profession, and require any proprietor,
employee or any other person who may at that time and place be
attending in any manner to, or helping in, the carrying on of such
business or profession-
(i) to afford him the necessary facility to inspect such books of
account or other documents as he may require and which may be
available at such place,
(ii) to afford him the necessary facility to check or verify the cash,
stock or other valuable article or thing which may be found therein,
and
(iii) to furnish such information as he may require as to any matter
which may be useful for, or relevant to, any proceeding under this Act
Explanation. -......
(2).....
(3) An Income Tax authority acting under this section may,-
(i) if he so deems necessary, place marks of identification on the
books of account or other documents inspected by him and make or cause
to be made extracts or copies therefrom,
(ii) make an inventory of any cash, stock or other valuable article or
thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or
relevant to, any proceeding under this Act.
(4) An Income Tax authority acting under this section shall, on no
account, remove or cause to be removed from the place wherein he has
entered, any books of account or other documents or any cash, stock or
other valuable article or thing.
(5).....
(6)..... "
12. The statement of assessee was recorded under Section 133A(3)(iii)
during the survey operation. Since statement recorded under Section
133A was not recorded on oath, such statement recorded under Section
133A was not at par with the statement recorded under Section 132(4)
and did not have any evidentiary value. According to the assessee, the
statement recorded under Section 133A during survey can hardly be the
basis for any assessment.
13. A power to examine a person on oath is specifically conferred on
the authorities only under Section 132(4) of the Act in the course of
any search or seizure. Wherever it thought fit and necessary to confer
such power to examine a person on oath, the Income-tax Act has
expressly provided for it. Whereas Section 133A does not empower any
Income Tax Officer to examine any person on oath. Thus, in
contradistinction to the power under Section 133A, Section 132(4) of
the Income Tax Act enables the authorised officer to examine a person
on oath and any statement made by such person during such examination
can also be used in evidence under the Income Tax Act. On the other
hand, whatever statement recorded under Section 133A of the Act is not
given an evidentiary value.
14. The scope of Sections 132(4) and 133A came up for consideration
before the Kerala High Court in Paul Mathews and Sons v. CIT (2003)
263 ITR 101(Ker). In the said case, the assessee contended that the
statement recorded during survey under Section 133A cannot be put
against the assessee as the same has no evidentiary value. Accepting
the stand taken by the assessee, the Division Bench of the Kerala High
Court has held as under:-
"... we find that the power to examine a person on oath is
specifically conferred on the authorised officer only under Section
132(4) of the Income Tax Act in the course of any search or seizure.
Thus, the Income Tax Act, whenever it thought fit and necessary to
confer such power to examine a person on oath, the same has been
expressly provided whereas Section 133A does not empower any Income
Tax Officer to examine any person on oath. Thus, in contradistinction
to the power under Section 133A, Section 132(4) of the Income Tax Act
enables the authorised officer to examine a person on oath and any
statement made by such person during such examination can also be used
in evidence under the Income Tax Act. On the other hand, whatever
statement is recorded under Section 133A of the Income Tax Act it is
not given any evidentiary value obviously for the reason that the
officer is not authorised to administer oath and to take any sworn
statement which alone has evidentiary value as contemplated under
law...
Therefore, the statement elicited during the survey operation has no
evidentiary value and the Income Tax Officer was well aware of this.
(emphasis supplied)"
15. After elaborately referring to the decisions of Paul Mathews and
Sons v. CIT (2003) 263 ITR 101(Ker); CIT VS. Senniappan (G.K.) (2006)
284 ITR 220 (MAD) and CIT VS. Ajit Kumar (s.) (2008) 300 ITR 152 (MAD)
= (2006-TIOL-400-HC-MAD-IT) and the Circular of the Central Board of
Direct Taxes dated March 10, 2003 with regard to confession statement
of additional income during the course of search and seizure and
survey operations, the Division Bench of this Court in CIT Vs S KHADER
KHAN SON, (2008) 300 ITR 157 (MAD) has summarised the principles as
under:
(i) An admission is extremely an important piece of evidence but it
cannot be said that it is conclusive and it is open to the person who
made the admission to show that it is incorrect and that the assessee
should be given a proper opportunity to show that the books of
accounts do not correctly disclose the correct state of facts, vide
decision of the Apex Court in Pullangode Rubber Produce Co. Ltd. v.
State of Kerala, [1973] 91 ITR 18;
(ii) In contradistinction to the power under Section 133A, Section
132(4) of the Income Tax Act enables the authorised officer to examine
a person on oath and any statement made by such person during such
examination can also be used in evidence under the Income Tax Act. On
the other hand, whatever statement is recorded under Section 133A of
the Income Tax Act it is not given any evidentiary value obviously for
the reason that the officer is not authorised to administer oath and
to take any sworn statement which alone has evidentiary value as
contemplated under law, vide Paul Mathews and Sons v. CIT (2003) 263
ITR 101 (Ker);
(iii) The expression "such other materials or information as are
available with the Assessing Officer" contained in Section 158BB of
the Income Tax Act, 1961, would include the materials gathered during
the survey operation under Section 133A, vide CIT Vs. G.K.Senniappan,
[2006] 284 ITR 220 (Mad)];
(iv) The material or information found in the course of survey
proceeding could not be a basis for making any addition in the block
assessment, vide decision of this Court in T.C. (A) No. 2620 of 2006
between Commissioner of Income Tax v. S. Ajit Kumar (2008) 300 ITR 152
(Mad) = (2006-TIOL-400-HC-MAD-IT);
(v) Finally, the word "may" used in Section 133A(3)(iii) of the Act,
viz., "record the statement of any person which may be useful for, or
relevant to, any proceeding under this Act, as already extracted
above, makes it clear that the materials collected and the statement
recorded during the survey under Section 133A are not conclusive piece
of evidence by itself."
In CIT VS. DHINGRA METAL WORKS, (2010) 328 ITR 384 (Delhi) =
(2010-TIOL-693-HC-DEL-IT), the Delhi High Court held that while
Section 132(4) of the Act specifically authorises an Officer to
examine a person on oath, Section 133A did not permit the same. The
Delhi High Court further held that the word "may" used in Section
133A(3)(iii) of the Act clarifies beyond doubt that the material
collected and the statement recorded during the survey was not a
conclusive piece of evidence by itself and that Assessing Officer
could not have made the addition solely on the basis of the statement
made on behalf of the assessee during the course of survey.
16. Mr.Narayanaswami, learned counsel appearing for the revenue
submitted that even though statement under Section 133A was not at par
with the statement under Section 132(4), such statement recorded under
Section 133A cannot be held to be irrelevant material and in the
absence of any explanation by the assessee, the Commissioner of
Income-tax (Appeals) rightly made enhancement. In support of his
contention, the learned counsel placed reliance upon a decision of
Punjab and Haryana High Court in Bachittar Singh Vs. CIT and another,
(2010) 328 ITR 400 (P&H).
17. The Punjab and Haryana High Court held that even if the statement
under section 133A was not at par with the statement under section
132(4) and did not have that evidentiary value, such statement cannot
be held to be irrelevant material so as to be ruled out of
consideration in totality of facts, particularly in the absence of
regular books of account. In the facts and circumstances of the case
that the assessee failed to produce books of accounts, which may have
been maintained during the regular course of business or any other
authentic contemporaneous evidence of agricultural income, the Punjab
& Haryana High Court held that the statement under Section 133A cannot
be held to be irrelevant material. In our considered view, in the
factual matrix of present case, the above decision of Punjab & Haryana
High Court is not applicable.
18. The Hon'ble Supreme Court in Pullangode Rubber Produce Co.Ltd. vs.
State of Kerala, (1973) 91 ITR 18 held that an admission is extremely
an important piece of evidence but it cannot be said that it is
conclusive and it is open to the person who made the admission to show
that it is incorrect. Any statement recorded under Section 133A would
have evidentiary value only if supported with materials and form the
basis for assessment. In his explanation, the assessee stated that he
has been doing job work and the remaining 2100 gms had been given to 3
Asaris. The Officers had not verified whether the gold was available
with the said Asaris nor chosen to examine the said Asaris. The
statement recorded during survey operation under Section 133A may be a
relevant material. But in the absence of further materials to
substantiate the same, such statement recorded under Section 133A can
hardly be the basis for assessment. During the survey, 900 gms of gold
was found in the premises of the assessee and the statement of the
assessee was supported only to the extent of actual seizure of 900
gms. Since the statement of assessee in respect of the remaining gold
was not substantiated, the Tribunal rightly set aside the addition in
respect of the gold.
19. In so far as unaccounted cash of Rs.2,49,770/-, the assessee tried
to explain the cash by stating that he has sold the land at Kodaikanal
for Rs.2,80,000/- and the same was deposited in Bank on 5.10.2002 and
the amount was withdrawn from the Bank on 17.10.2002 and during the
course of survey, the Department came across the said cash. The survey
was on 29.10.2002 and the drawal of money from the Bank was a few days
before search. Even though the said amount of Rs.2,49,770/- was not
disclosed in his books, the assessee tried to explain the same. The
Tribunal rightly set aside the addition and remitted to the Assessing
Officer to verify whether the cash balance as per the books of
accounts has emanated from the cash withdrawn from the Bank on
17.10.2002. We do not find any error or infirmity in the order of the
Tribunal directing the Assessing Officer to afford an opportunity to
the assessee and verify the correctness of assessee's statement.
20. Insofar as addition of interest earned Rs.1,10,000/- on the
unaccounted investment of Rs.5.00 lakhs in money lending business,
here again, the enhancement is based only on the statement recorded
from the assessee. No other material or information was available that
the assessee invested Rs.5.00 lakhs in money lending business and
earned interest. We are of the view that the addition of Rs.5.00 lakhs
as unaccounted investment in money lending business and addition of
interest earned is based on only rough estimate and the Tribunal
rightly deleted the addition on the interest of money lending
business, household expenses and creditors.
21. So far as levy of penalty under Section 271(1C), since the
Tribunal deleted the addition and ordered expunging the initiation of
penalty proceedings under Section 271(1C), we do not find any reason
to interfere with the finding of the Tribunal.
22. Since the order of Commissioner of Income-tax (Appeals) making
enhancement to the income determined by the Assessing Officer is based
on the unsworn statement obtained under Section 133A, in the absence
of other materials, the Tribunal rightly set aside the order of
Commissioner of Income-tax (Appeals) and we do not find any reason to
interfere with the order of the Tribunal. No substantial question of
law arise for consideration and the Tax Case Appeal stands dismissed.
--
Regards,
*Pawan Singla*
*BA (Hon's), LLB*
*Audit Officer*
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