ITAT Upholds Section 10A Deduction Despite Wrong Section 10B Claim in Return

ACIT Vs Hi-Tech Outsourcing Services (ITAT Ahmedabad)

The case involves an appeal filed by the Revenue and a cross-objection by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for Assessment Year (A.Y.) 2011–12. The assessment was completed under Section 143(3) of the Income Tax Act.

The assessee, a partnership firm engaged in data entry and processing services for foreign clients, filed its return declaring income of ₹17,39,370. During assessment, it claimed deduction of ₹4,93,30,648 under Section 10B but failed to furnish the required audit report in Form 56G. Instead, it submitted Form 56F relating to deduction under Section 10A. Consequently, the Assessing Officer (AO) denied the deduction under Section 10B and made additional additions relating to income from mutual funds and interest on income-tax refund, completing the assessment at ₹5,12,94,550.

On appeal, the CIT(A) allowed the assessee’s alternate claim for deduction under Section 10A. The Revenue challenged this decision, arguing that the assessee had not fulfilled the conditions for deduction under Section 10B and had not originally claimed deduction under Section 10A in the return of income. It was further contended that since the assessee had claimed deduction under Section 10B in earlier years, the alternate claim under Section 10A should not have been accepted.

The Tribunal examined the facts and found that the assessee had three units located in Ahmedabad, Cochin, and Chandkheda. Initially, deductions under Section 10B were allowed for A.Ys. 2002–03 to 2008–09. However, from A.Y. 2009–10 onwards, the assessee claimed deduction under Section 10A and furnished Form 56F. The Department had accepted and allowed these claims for A.Ys. 2009–10 and 2010–11 after scrutiny assessments.

The Tribunal observed that there was no evidence on record to suggest that the allowance of deduction under Section 10A in earlier years was incorrect or had been revised. Therefore, once the Department had accepted the eligibility of the assessee for deduction under Section 10A in earlier years, it could not deny the same in A.Y. 2011–12 without any change in facts or circumstances.

The findings of the CIT(A) were also examined. The CIT(A) had concluded that the assessee had a valid claim for deduction under Section 10A, supported by its STPI registration and audited accounts. It was also noted that Form 56F had been submitted during assessment proceedings. The CIT(A) relied on judicial precedents to hold that an alternate claim can be considered even if not made in the original return and that appellate proceedings are a continuation of assessment proceedings.

The Tribunal noted that the Revenue failed to controvert the findings of the CIT(A) or establish that the assessee was not eligible for deduction under Section 10A. It also observed that the issue of eligibility had already been examined in earlier assessment years, where the deduction was allowed after scrutiny.

Accordingly, the Tribunal found no reason to interfere with the order of the CIT(A) and rejected all grounds raised by the Revenue.

Regarding the cross-objection filed by the assessee, it was noted that only legal grounds challenging the jurisdiction of the AO were raised. However, the assessee failed to provide evidence to support its claim of lack of jurisdiction. The Revenue, on the other hand, produced the jurisdiction order under Section 120 of the Act. Since the assessee did not raise any grounds on the merits and had no grievance with the CIT(A)’s order, the Tribunal found no merit in the cross-objection and dismissed it.

In conclusion, both the Revenue’s appeal and the assessee’s cross-objection were dismissed, and the order of the CIT(A) allowing deduction under Section 10A was upheld.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

This appeal filed by the Department and the Cross Objection of the assessee, is directed against the order dated 21.09.2015 passed by the Commissioner of Income Tax (Appeals) — 3, Ahmedabad (in short “CIT(A)”) for the Assessment Year (A.Y.) 2011-12 in the proceeding u/s. 143(3) of the Income Tax Act [hereinafter referred to as the ‘Act].

2. The brief facts of the case are that the assessee had filed its return of income for A.Y. 2011-12 on 29.09.2011 declaring total income of Rs.17,39,370/-. The case was selected for scrutiny under CASS. The assessee had claimed deduction u/s. 10B of the IT Act but no report in Form No. 56G was filed by the assessee. In the course of assessment proceeding the assessee has furnished the report in Form No. 56F pertaining to deduction u/s. 10A of the Act. Therefore, the claim for deduction of Rs. 4,93,30,648 made by the assessee u/s. 10B of the Act, was denied by the AO. Further certain other additions on account income earned on investment in mutual funds and interest on income-tax refund were also made. The assessment was completed u/s. 143(3) on 10.03.2014 at total income of Rs. 5,12,94,550/-.

3. Aggrieved with the order of the AO, the assessee had filed an appeal before the first appellate authority, which was decided by the learned CIT(A) vide the impugned order and the assessee’s alternate claim to allow deduction u/s. 10A of the Act was allowed.

4. Now the Revenue is in appeal before us. The following grounds have been taken in this appeal:

1. The Id. CIT(A) has erred in law and on facts in deleting the disallowance of exemption u/s. 10B of the Act of Rs. 4,93,30,648/-.

2. The Id. CIT(A) has erred in law and on facts by not appreciating that the assessee had failed to fulfil the conditions laid down for exemption u/s 10B of the Act and as such not eligible for exemption.

3. The Id. CIT(A) has erred in law and on facts in holding that the assessee is eligible for exemption u/s 10A of the Act; though no such claim was made in the return of income.

4. On the facts and circumstances of the case, the Ld. Commissioner of Income tax (A) ought to have upheld the order of the Assessing Officer.

5. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set-aside and that of the Assessing Officer be restored.

5. Shri Abhijit the Ld. SR-DR, submitted that the assessee is a partnership firm providing data entry and processing services to foreign clients and had claimed deduction u/s 10B of the Act in the return of income, in respect of its export profit. The assessee had not submitted form No. 56G, necessary for claiming deduction u/s 10B of the Act. However, the assessee had filed Form 56F before the AO which was in respect of deduction u/s 10A of the Act. The Ld. Sr. DR submitted that since the assessee had claimed deduction u/s 10B of the Act in the past years, the claim for deduction u/s. 10A of the Act as made by the assessee before the AO, was not correct. Therefore, the AO has rightly disallowed the claim for deductions as made by the assessee. The Ld. Sr. DR submitted that the Ld. CIT(A) was not correct in allowing the alternate claim of deduction u/s. 10A of the Act, considering the fact that the assessee had claimed deduction u/s. 10B of the Act in the earlier years.

6. Per Contra, Shri Kishor Goya!, the Ld. AR of the assessee supported the order of the Ld. CIT(A).

7. We have considered rival submissions. It is found that the assessee had three units at Ahmedabad, Cochin and Chandkheda. According to the AO the assessee had claimed deduction u/s. 10B of the Act, in respect of these units. However, during the assessment proceeding for the A.Y. 2009-10 onwards the assessee had claimed deduction u/s. 10A and furnished Form No. 56F, even though in the return of income it had claimed deduction u/s. 10B of the Act. The deduction claimed u/s. 10A/10B of the Act by the assessee and as allowed by the Department is found reproduced in the assessment order in the table as under:

8. It thus transpires that the assessee was initially allowed deduction u/s. 10B for the A.Ys. 2002-03 to 2008-09. The alternate claim of deduction u/s. 10A of the Act was also allowed by the Department in the A.Ys. 2009-10 and 2010-11 and the assessment for both the years were completed under scrutiny. Thus, the Department had allowed the claim for deduction u/s. 10A of the Act in respect of income of three units of the assessee in the A.Ys. 2009-10 and 2010-11, after due scrutiny of fulfilment of the conditions. It is not the case of the Revenue that the deduction u/s. 10A of the Act was wrongly allowed in the A.Ys. 2009-10 and 2010-11. No evidence for any subsequent revision of those assessments have been brought on record. Once having allowed the deduction u/s. 10A of the Act in the A. Y. 2009-10 and 2010-11, the Revenue cannot take a plea in the subsequent A.Y. 2011-12 that deduction u/s. 10A was not admissible to the assessee. It is found that the Ld. CIT(A) had carefully examined the facts of the case and also the judicial pronouncements on this issue and thereafter given the following findings:

4.2 The appellant has a strong case for getting exemption u/s.10A of the IT Act, 1961. The appellant is having STPI registration certificate and is on record. In addition to judgments (supra) I rely on Hon’ble Karnataka High Court in the case of CIT Vs. American Data Solution India Pvt. Ltd. 45 Taxmann.com 379 (Kar) wherein it is held, “The appellate authority was duty bound to take note of Audit Report (Form 54F) and grant benefit u/s. 10A, though Audit report was first produced at appellate state as proceedings before First Appellate Authority being continuation of assessment process” and CIT Vs. Forsee Information System (P) Lt. 366 ITR 335 (Kar) wherein it is held, “Even existing DTA units which get converted into STP unit could get benefit w/s. 10A where the assessee company was not formed by splitting up and reconstruction of existing business”. It is noteworthy to mention that the exemption was allowed in earlier year and reliance is placed in the case of CIT Vs. Relco Pvt. Ltd. 359 ITR 291(Mad) wherein it is held “where exemption u/s 10B was allowed to assessee in previous assessment year, in absence of any violation of condition of license, exemption was to be granted for subsequent year also.” Also the ratio in the case of CIT Vs. Rajasthan Fasteners Pvt. Ltd. 363 ITR 271 (Raj) is relevant wherein it is held, “when facts and circumstances revealed that assessee was eligible for exemption u/s. 10B and it has been in order except that instead of mentioning exemption w/s. JOB, while e-filing return, it was wrongly on account of typographical error mentioned as section 80-IB, it could be said to be such a mistake by which exemption could not be disallowed outrightly”. I also rely on Supreme Court judgment in the case of National Thermal Power Co. Ltd. vs. CIT 157 229 ITR 383 (SC) wherein it is observed that “the purpose of an assessment proceeding is to assess correctly the tax liability of the appellant in accordance with law.” Reliance is also placed on the ratio of Hon’ble Delhi High Court judgment dated 02.09.2015 in the case of Fast Booking (1) Pvt. Ltd. Vs. DCIT wherein a similar issue has been decided in favour of appellant, wherein it has been held,

5. The following question is framed:

Whether the ITAT was correct in law in not examining the assessee’s cross objections?

11.- The application contends that the CIT(A) and the Tribunal had in the present case not gone into the merits of the alternative claim for entitlement under Section 10A. This fact is apparent from a reading of the order of CIT(A) as well as that of the Tribunal in the order impugned.

………….. there should have been no difficult for the ITAT to have examined the Appellant assessee’s cross objections.

Consequently, the question framed is answered in the negative, ie in favour of the Assessee and against the Revenue… “

As can be seen above, the appellant who could not raise the ground to get the alternative exemption u/s 10A at the level of first and second appellate authority was allowed to do so to get the remedy in case exemption u/s 10B is denied.

4.3. The A.O. in instant cases has accepted that Form No. 56F was filed during assessment proceedings for claim u/s. 10A wherein STPI registration is subsisting, the appellant’s claim is as per Audited Books of Accounts, therefore, the appellant is eligible to get exemption u/s. 10A of the IT Act, 1961. Therefore, the appellant’s ground No. 4 and 6 allowed”.

9. The Revenue has been unable to controvert the findings of Ld. CIT(A). Further the Revenue has also been unable to establish that the assessee was not eligible for claim of deduction u/s. 10A of the Act. Rather this aspect was examined by the AO in the course of assessment proceeding for A.Y. 2009-10 and 2010-11 and the claim for deduction u/s. 10A of the Act, was duly allowed to the assessee. Under the circumstances, we do not find any reason to interfere with the order of the Ld. CIT(A) on this issue. Accordingly, all the grounds taken by the Revenue are rejected.

10. In the result, the appeal of the Revenue is dismissed.

11. In the Cross-objection filed by the assessee, only certain legal grounds have been raised challenging the jurisdiction of the AO. The assessee has been unable to adduce any evidence as to how the order of the AO was illegal and without jurisdiction. On the other hand, the Revenue has brought on record the jurisdiction order u/s. 120 of the Act. The assessee, in the cross-objection, has not raised any ground on the merits of addition and as such it has no grievance with the order of Ld. CIT(A). As the appeal of the Revenue has been dismissed, we do not deem it necessary to deal with the grounds raised by the cross-objection in detail. Prima facie, we do not find any merit in the cross-objection of the assessee and, therefore, the same is dismissed.

12. In the result, the appeal of the Revenue and the cross-objection of the assessee, both are dismissed.

Order pronounced in the Court on 16/04/2026 at Ahmedabad.