If assessee opts not to claim exemption under s 10A(8) in one year, it cannot be denied exemption in future provided it fulfils all the conditions of s 10A

Asstt. Commissioner of Income-tax, Vs. M/s. Headstrong Services India Pvt. Ltd. (Formerly known as Techspan India Pvt. Ltd.)
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `C’: NEW DELHI
I.T. A. No. 519/Del/2011
Assessment Year : 2005-06

O R D E R

PER C.L. SETHI, JUDICIAL MEMBER:

The revenue is in appeal against the order dated 01.11.2010 passed by the learned Commissioner of Income-tax (Appeals), pertaining to the Assessment Year 2005-06.

2.   The grounds raised by the revenue are as under:-

“1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the Assessing Officer to allow deduction under section 10A of the I.T. Act, 1961.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in directing the Assessing Officer to examine the issue in the light of the directions of the Hon’ble ITAT for the earlier years, ignoring that, the powers of the Ld. CIT(A) to set aside issues decided in scrutiny assessment have been curtailed with effect form 1.6.2001.”

3. The assessee is a company incorporated under the Companies Act, 1956. It is engaged in the business of development and export of computer software. The assessee company commenced its business by setting up unit in Noida which is registered with Software Technology Park of India (STPI). The approval from STPI authorities was granted vide letter dated December 9, 1998. Further, the assessee started a new STPI unit in Bangalore under the permission granted by STPI vide letter dated November 6, 2002.

4. The assessee’s claim of deduction under sec. 10A was denied by the Assessing Officer. The reasons given by the AO in denying deduction under sec. 10A have been reproduced by the CIT(A) in his order in Para 3, as under:-

“As per certificate in Form 56F enclosed with the return the assessee has claimed exemption u/s 10A of the Income-tax, 1961 as per the following details:

	Noida	Bangalore	Total Amount
Deduction u/s 10A (as per certificate in form 56F)	62,894,332	41,537,554	104,431,886

According to the clause 7 of the certificate, commencement of manufacture/production in Noida and Bangalore unit was started in December 1999 and January 2003, respectively. Further the clause 8 clarifies the number of the consecutive year for which the deduction is claimed as under:

i) Noida Unit                  5th Year

ii) Bangalore Unit          3rd Years

It may be mentioned here that assessee ’s claim for deduction u/s 10A of the Income-tax Act, 1961 can only be allowed, if non-exercising of option under sub-section (8) of section 10A of the Income-tax Act, 1961.

“(8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.”

During the course of proceeding under the Act, it was noticed that in the Assessment Year 2000-01, Assessee has exercised the option provided under erstwhile sub-section 7 of section 10A of the Act and has not claimed exemption under section 10A with the following remark:

“The assessee company is registered as a 100% Export Oriented Unit (EOU) for manufacture & export of computer software for export purposes. The assessee being eligible for 100% tax holiday u/s 10A of the Income Tax Act, 1961, has exercised this option not to claim this exemption for this year in accordance with provision of sub section 7 of section 10A of the Act.”

The reference to sub-section 7 of section 10A of the Income-tax Act, 1961 here, was actually to sub-section 8 of section 10A of the Income-tax Act. As per section 10A(8) of the Income-tax Act, 1961 once the assessee has opted not to claim the benefit of exemption, the provision of this section shall not apply to him for the any subsequent assessment years. It may also be noted that provision of sub-section 8 of section 10A of the Income-tax Act applies to the “assessee” and not to any particular undertaking or unit. As such exemption u/s 10A is not allowable to the assessee. In view of the option exercised by the assessee, the deduction claimed u/s 10A of the Income-tax Act, 1961 is hereby allowed.”

5. The assessee filed written submissions before the CIT(A), which has been reproduced in Para 4 of the CIT(A)’s order.

6. After considering the AO’s order and assessee’ s submissions, and in the light of appellate orders of first appellate authority passed in earlier years, and the order of the Tribunal passed in earlier years, the CIT(A decided the issue in favour of the assessee by observing and holding as under:-

“5. I have gone through the assessment order, appellate orders of CIT(A) for earlier years, order of Hon ’ble ITAT and the detailed written submissions filed by the AR in this regard.

6.1 During the AY under consideration, the business activities were being carried out by the Appellant from the undertakings situated at Noida and Bangalore. Both the units were set up in accordance with the Software Technology Park (‘STP’) Scheme notified by the Government of India in the Ministry of Commerce and Industry.

6.2 For the impugned assessment year, the assessee filed its return of income on 31.10.2005 declaring a total income of Rs.1,60,00,991/- after claiming deduction under section 10A if Rs. 10,44,31,886/-.

6.3 The AO has disallowed the deduction claimed u/s 10A in the impugned assessment year in respect of both the units (Noida Unit and Bangalore unit) on the ground that the appellant had exercised an option of not claiming deduction under section 10A of the Act in AY 2000-01 by invoking provisions of S. 10A(8).

6.4 The issue has been decided by the Hon’ble ITAT in favour of the assessee vide its order dated 31.03.2010. The observations and decision of the Hon ’ble ITAT are as under:

“6.6 Now we have to examine the present case on the anvil of the aforesaid case law. We find that in A. Y. 2000-01 is not before us for adjudication. Hence whether the assessee has exercised any option for A.Y. 2000-01 is not before us for adjudication. However, as it is evident from the decision of the Tribunal in the case of Legato Systems India (P) Ltd. (supra) declaration required to be made u/s 10A sub-section (8) is in respect of that year only for which assessee does not desire application of the provisions of this section. It is not the case before us that for the assessment years before us, the assessee has exercised any such option. Hence, AO ’s ground of denial exemption u/s10A that assessee has exercised the option not to claim exemption u/s 10A is not tenable for the assessment year before us in the light of the above Tribunal’s decision. No contrary decision in this regard has been brought before our notice. Hence in the present case also we, are of the opinion that the AO ’s ground of denial of deduction u/s 10A for A. Y. 2000-01 by invoking the provisions of section 10A(8) cannot be sustained provided, all the other requisites of getting exemption u/s 10A are fulfilled in these assessment years. However we find that in the orders of the authorities below the primary discussion has been the applicability of sub-section (8) of section 10A. Other aspects as to whether the requisites of sub-section 10(A) have been complied with or not, have not been gone through. Respectfully following the precedent from the aforesaid Tribunal’s decision and also the Jurisdictional High Court decision, we remit the issue to the files of the AO with the directions to allow exemption u/s 10A in all the assessment years in this regard, if the assessee is found to be satisfying all other requisites envisaged in the scheme of section 10A of the Act In case the exemption u/s. 10A cannot be allowed for the reasons of not satisfying the requisites the claim of deduction u/s 80HHE shall be allowed after providing opportunity to meet the requisites. Needless to add assessee shall be granted adequate opportunity of being heard.”

6.5 Facts and the issue being the same, the AO is hereby directed to examine the issue in the light of the directions of the Hon ’ble ITAT for the earlier years as stated above, for this impugned assessment year also.

Accordingly, Ground Nos. 2 to 7 are allowed in principle as indicated above.”

7. Hence, the department is in appeal before us.

8. We have heard both the parties and have carefully gone through the orders of the authorities below.9. In the course of hearing, both the parties have admitted the fact that the issue is covered by the decision of the Tribunal dated 3 1.03.2010 pertaining to the Assessment Years 2001-02, 2003-04 and 2004-05. However, the learned DR submitted that the Tribunal’s observations to the effect that if exemption under sec. 10A cannot be allowed for the reasons of not satisfying the requisite, the claim of deduction under sec. 80HHE shall be allowed after providing opportunity for meeting the requisites shall not be applied in the present Assessment Year inasmuch as provisions of sec. 80HHE are not in force in the Assessment Year 2005-06.

10. We have gone through the order of the Tribunal dated 31.03.2010 pertaining to the Assessment Years 2001-02, 2002-03, 2003-04 and 2004-05 in ITA Nos. 4673, 2656, 2657 & 3406/Del/2007. In this order, the Tribunal has decided the issue, vide Para 6.3 to 6.6 as under:

6.3 We have heard both the counsels and perused the records. We may gainfully refer here to Section 10A(8), which reads as under:

“10A(8). Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.”

6.4 We find that the Tribunal in the case of Legato Systems India (P) Ltd. vs. ITO 93 TTJ 828 had the occasion to analyse sub-section (8) of section 10A and the Tribunal has expounded as under:-

“Perusal of sub-s. (8) of S. 10A reveals that the declaration required to be made is in respect of that year only for which the assessee does not desire application of provision of this section. In case the assessee did not file any such declaration in the first assessment year in which it was eligible to the exemption, the same cannot be a criteria to deny the exemption for the successive years. The principle of estoppels is not applicable in tax proceedings to the successive assessment as has also been laid down by the Hon ’ble High Court of Delhi in CWT vs. Meatless (P) Ltd. (1984) 43 CTR (Del) 281 : (1985) 156 ITR 569 (Del) and also by Gujarat High Court in Anant Mills Ltd. Vs. CIT (1993) 109 CTR (Guj) 231 : (1994) 206 ITR 582 (Guj) and Bombay High Court in Kantilal Chimanlal Shah vs. CIT (1954) 26 ITR 303 (Bom).”

6.5 In the aforesaid case the Tribunal after evaluating the facts and circumstances of the case had restored the matter to the files of the AO to allow exemption u/s. 10A, if the assessee is found to have satisfied requisites envisaged in section 10A of the Act. In case the exemption u/s 10A was not allowed for the reasons by not satisfying the requisites the claim u/s 80HHE was to be allowed, after providing opportunity to meet the requisites. This decision of the Tribunal was the subject matter of the adjudication by the Hon ’ble Jurisdictional High Court in the case of 203 CTR 101. The order of the Court is as under:-

The Tribunal has recorded a finding of fact that the respondent-assessee was not an old unit already in existence so as to be disentitled to the benefit of exemption under s. 10 A of the IT Act, 1961. It has, on that finding, remitted the matter back to the AO with the following directions:

“We, therefore, set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with a direction to allow exemption under s. 10A in both the years in case the assessee is found to have satisfied all other requisites envisaged in the scheme of s. 10 A of the Act. In case the exemption under s.10A cannot be allowed for the reasons of not satisfying the requisites, the claim of deduction under s. 80HHE shall be allowed after providing opportunity to meet the requisites.”

The above direction is, in our view, just and proper hence does not call for any interference especially when the question (whether the assessee) satisfies the pre­requisites stipulated for the purpose of getting benefit under s. 10A is a matter left to be determined by the AO. So also the entitlement of the assessee to seek deduction under s. 80HHE having been left to be determined by the AO, subject to assessee ’s satisfying the pre-requisites stipulated for the grant of such a benefit under the said provision. No question of law much less a substantial question of law arises for our consideration in this appeal to warrant its admission.

The appeal is accordingly dismissed in limine.

6.6 Now we have to examine the present case on the anvil of the aforesaid case law. We find that in A. Y. 2000-01 is not before us for adjudication. Hence whether the assessee has exercised any option for A. Y. 2000-01 is not before us for adjudication. However, as it is evident from the decision of the Tribunal in the case of Legato Systems India (P) Ltd. (supra) declaration required to be made u/s 10A sub-section (8) is in respect of that year only for which assessee does not desire application of the provisions of this section. It is not the case before us that for the assessment years before us, the assessee has exercised any such option. Hence, AO ’s ground of denial exemption u/s10A that assessee has exercised the option not to claim exemption u/s 10A is not tenable for the assessment year before us in the light of the above Tribunal’s decision. No contrary decision in this regard has been brought before our notice. Hence in the present case also we, are of the opinion that the AO ’s ground of denial of deduction u/s 10A for A. Y. 2000-01 by invoking the provisions of section 10A(8) cannot be sustained provided, all the other requisites of getting exemption u/s 10A are fulfilled in these assessment years. However we find that in the orders of the authorities below the primary discussion has been the applicability of sub-section (8) of section 10A. Other aspects as to whether the requisites of sub-section 10(A) have been complied with or not, have not been gone through. Respectfully following the precedent from the aforesaid Tribunal’s decision and also the Jurisdictional High Court decision, we remit the issue to the files of the AO with the directions to allow exemption u/s 10A in all the assessment years in this regard, if the assessee is found to be satisfying all other requisites envisaged in the scheme of section 10A of the Act In case the exemption u/s. 10A cannot be allowed for the reasons of not satisfying the requisites the claim of deduction u/s 80HHE shall be allowed after providing opportunity to meet the requisites. Needless to add assessee shall be granted adequate opportunity of being heard.”

11. The aforesaid order of the Tribunal was appealed against by the revenue before the Hon’ble High Court of Delhi at New Delhi vide ITA Nos. 2003, 2004, 2025 and 2027 of 2010, and the Hon’ble High Court vide order dated January 27, 2011 has confirmed the Tribunal’s order and the appeals filed by the revenue were dismissed, by observing and holding as under:-

“In three appeals, one common issue which is raised and pertains to the assessment year, 2001-02, 2003-04 and 2004-05 is as follows:-

“Whether the ITAT was correct in law while concluding that the deduction under section 10A would be allowable to the assessee in the subsequent years even though the assessee had exercised its option under Section 10A(7) for the non applicability of the provisions of Section 10A?”

The assessee on the premise that it is in the business of development and export of computer software and human resources services claimed benefit of Section 10A of the Income-Tax Act, 1961 (hereinafter referred to as “Act”), in the assessment year 2001-02. The Assessing Officer disallowed the said benefit invoking the provisions of sub Section (7) of Section 10A of the Act on the ground that in the previous assessment year i.e. 2000-01 the assessee had opted for not claiming the deduction under this provision. The CIT(A), however, allowed the said benefit and ITAT has confirmed the same. The Tribunal has, in its consolidated order in respect of all these three years, has relied upon the decision in the case of Legato Systems India (P) Ltd. Vs. ITO 93 TTJ 828 holding that the declaration as required to be made under Section 10A of the Act is only for the year in which the assessee does not desire application of provision of Section 10A of the Act. The Tribunal also recorded a finding of fact that in the year under consideration the assessee had not made any such declaration and, therefore, the reason given by the Assessing Officer for denying exemption was permissible. Under Section 10A of the Act, tax holiday period of ten years is granted and once the option is exercised by an assessee who fulfils the conditions laid down therein, for successive ten years, the benefit of Section 10A is to be given to the assessee.

It is pointed out by Shri C.S. Aggarwal, learned Sr. Counsel appearing for the respondent/assessee that the assessee was given the benefit under Section 10A of the Act in the very next assessment year i.e. 2002-03 and even from 2004-05, 2006-0 7, 2007-08. This benefit is allowed to the assessee. He has also produced the copy of return filed by the assessee in the assessment year 2000-0 1 and perusal thereof show that a specific note was appended by the assessee stating as under:-

“1. The assessee company is registered as a 100% Export Oriented Unit (EOU) for manufacture and export of computer software for export purposes. The assessee being eligible for 100% tax holiday u/s 10A of the Income Tax Act, 1961, has exercised this option not to claim this exemption for this year in accordance with provision of sub Section 7 to Section 10A of the Act.”