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Income tax - Sections 10A, 10B benefits cannot be denied when same have been allowed in previous AYs - Approval of SPTI Director sufficient to claim benefits: ITAT

By TIOL News Service

NEW DELHI, AUG 20, 2010: THE issue before the Tribunal is - Whether Revenue can deny Sec 10B benefits particularly when benefits have been allowed in the previous AYs and Whether Section 10B requires that for the purpose of establishing a STP unit, approval is required to be sought from the Board appointed by the central government u/s 14 of the Industries (Development & Regulation) Act, 1951. And the verdict has gone against the Revenue.

Facts of the case

The AO noted in the assessment order that the assessee has claimed deduction u/s 10B in the present year to the extent of Rs.170.17 lakhs. It is noted by the AO that in assessment year 2001-02 and 2002-03 no such deduction was claimed u/s 10B because there was business loss. In AY 03-04 & 2004- 05, the assessee has claimed deduction u/s 10B to the extent of Rs.159.44 lakhs and Rs.403.54 lakhs respectively. The AO has referred to Explanation –2 (iv) to section 10B as per which 100% EOU has been defined which are required to be approved as a 100% EOU by the Board appointed in this behalf by the Central Govt. in exercise of the powers conferred by section 14 of the Industries (Development & Regulation) Act, 1951 and the rules made under that Act. The AO asked the assessee to furnish a copy of statutory approval as 100% EOU. In reply, the assessee has submitted a copy of acknowledgement dated 27.10.1994 of filing the memorandum for the manufacturing of certain items canvassing it to be a Board approval. It is further noted by the AO that the assessee has filed a copy of approval dated 16.11.1998 granted within the meaning 100% EOU under EHTP Scheme issued by the Dy. Director (Tech.) of STPI (an Autonomous Body), Department of Electronics, Govt. of India, Noida. The AO has referred to a Tribunal decision rendered in the case of Infotech Enterprises Ltd. v. JCIT wherein it was held that STP unit cannot automatically be regarded as a 100% EOU.

By following this Tribunal decision, it was held by the AO that in the absence of specific approval by the Board within section 10B, Explanation-2 (iv) of the Act, the claim of deduction u/s 10B is not allowable to the assessee company and on this basis, he rejected the claim of the assessee for deduction u/s 10B of the Act. An alternative claim was also made before the AO for allowing deduction u/s 10A but the same was also rejected by the AO on the basis that the assessee company’s approval under EHTP Scheme, is dated 16.11.1998 whereas as per the requirement of section 10A, the assessee was required to commence manufacturing or producing computer software on or after 1.4.1994. Being aggrieved, the assessee carried the matter in appeal before CIT(A) who has decided the issue regarding allowing of deduction u/s 10B in favour of the assessee and the revenue is in appeal against the order of  CIT(A).

The revenue contended that since there is no approval from Board as required as per Explanation 2(iv) to section 10B, deduction is not allowable to the assessee u/s 10B.

Having heard both the parties the Tribunal held that,

++ as per the order of CIT(A), this issue has been decided on the basis of Instruction No.1 dated 31.3.2006 issued by CBDT and Minutes of Industrial Ministerial Communication vide letter dated 23.3.2006 issued by the Ministry of Communication and Technology. Vide Notification No.4 (RE-95/92-97) dated 30.4.1995, issued by the Director General (Foreign Trade), Ministry of Commence, in exercise of powers conferred in sub section (1) of section 3 of Foreign Trade (Development and Regulation) Act, 1992 notified the amended STP Scheme provides that the scheme is administered by the Department of Electronics, Govt. of India, through Directors of respective STPs which form part of the STPI, a society 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.

++ copy of registration papers of the appellant filed before the AO clearly shows that STPI is duly authorized authority on behalf of Inter Ministerial Standing Committee to grant registration of the units under the scheme of STPI. Copy of clarification obtained from STPI in this connection has also been perused. It shows that the registration has been granted by Director, STPI on behalf of Inter Ministerial Standing Committee. The CBDT has issued instruction No.1/2006 dated 31.3.2006 on this issue that benefit u/s 10A should not be denied to the assessee only on the ground that registration has been granted by Directors of Software Technology Parks;

++ reliance was placed on the Tribunal decision rendered in the case of ITO v. Regancy Cresations Ltd. Where it was held that registration granted by STPI for setting up of 100% EOU under Software Technology Park Scheme is valid for allowing deduction u/s 10B;

++ Since the facts are identical in the present case, this Tribunal decision rendered in the case of regency Creations Ltd. is directly applicable in the present case and the STIP registration granted to the assessee on 16.11.1998 is valid for allowing deduction to the assessee u/s 10B and hence the order of the CIT(A) on this issue is upheld;

++ in an earlier year i.e. assessment year 2004-05, the AO himself has allowed deduction u/s 10B to the assessee in a scrutiny assessment. It is also not brought on record by the revenue that this order is revised u/s 263 or reopened u/s 147. Under these facts, having decided in AY 2004-05 that the assessee is eligible for deduction u/s 10B, it cannot be denied in this subsequent year on the basis that the assessee is not a 100% EOU for the reason that necessary approval is not with the assessee. This is against the rule of consistency. For this reason also, there is no need to interfere in the order of CIT (A).

Revenue’s appeal dismissed.

(See 2010-TIOL-452-ITAT-DEL in 'Income Tax')


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