Conclusion: Deduction under section 10B could not be denied on the ground that the approval of STPI units of the assessee was not ratified by the Board of approvals as mandated u/s 10B.
Held: In the instant case, the exemption claimed by the assessee u/s 10B of the Act was denied by the AO on the ground that the approval of STPI units of the assessee was not ratified by the Board of approvals as mandated u/s 10B. It was held that approval by Software Technology Parks of India comes under the Ministry of Communication & Information Technology & was a competent authority to grant approval to such units for claiming benefits u/s 10B as 100% Export Oriented Undertaking and the same was possessed by assessee and also looking to the facts of the case of assessee wherein assessee had been allowed deductions u/s 10B consistently, assessee’s claim of deduction under section 10B was justified.
FULL TEXT OF THE ITAT JUDGMENT
This is an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals)-3, Ahmedabad, vide Appeal No.CIT(A)-3/Cir.3(3)/26/15-16 dtd. 07.04.2016 for the Assessment Year (AY) 2007-08.
2. The revenue has raised the following grounds of appeal:
“1. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of exemption u/s. 10B of the Act of Rs.1,27,84,850/-
2. The ld. CIT(A) has erred in law and on facts by not appreciating that the assessee had failed to fulfill the conditions laid down for exemption u/s 10B of the Act and as such not eligible for exemption.
3. The Ld, CIT(A) has erred in law and on facts by not appreciating that the approval granted to the unit by the STPI, Gandhinagar has not been ratified by the BOA as required under clause (iv) of Explanation 2 of section 10B of the Act.
4. The ld. 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.
5. 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.
6. 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.”
3. The revenue has raised as many as six grounds of appeal but the issue involved is that ld CIT(A) erred in granting the exemption to the assessee u/s 10B of the Act though the specified conditions were not fulfilled.
4. Briefly stated facts are that the assessee is a partnership firm and 100% Export Oriented Unit (EOU) registered under Software Technology Parks of India (STPI). The assessee has claimed deduction u/s 10B of the Act amounting to Rs. 1,27,84,850/- only. The AO during the assessment proceedings observed that the STPI unit of the assessee was not approved by the Board of Approvals as required u/s 10B of the Act. Accordingly, the AO sought an explanation from the assessee.
4.1 The assessee before the AO submitted that the ld. CIT(A) has granted exemption u/s 10B of the Act in the A.Y. 2009-10 vide order dated 25.05.2013 in Appeal No.CIT(A)-XI/366/WD-6(2)/11-12.
4.2 The unit was approved as STPI which is sufficient enough to meet the requirement of approval as specified u/s 10B of the Act.
4.3 The assessee in support of his claim also relied on various instructions/circulars issued by the CBDT.
4.4 However, the AO disagreed with the submission of the assessee and disallowed the exemption claimed by it u/s 10B of the Act after having reliance on various CBDT circulars / instructions and on the judgments of Delhi High Court in the case of CIT vs. Regency Creation Ltd. reported in 27 taxmann.com 322.
5. Aggrieved, assessee preferred an appeal to ld CIT(A). The assessee before the ld CIT(A) submitted that there was no provisions prescribed under the Act for taking the approval from the Board of approvals for STPI registered units. Thus, the units approved by the STPI are eligible for deduction u/s 10B of the Act. The assessee in support of his claim relied on the order of Pune Tribunal in the case of Cat Labs Pvt. Ltd. vs. DCIT in ITA No.131/PN/2013 pertaining to the A.Y. 2009-10 vide order dated 20.02.2014.
5.1 The assessee in support of his claim also relied on various instructions/notifications issued by the CBDT.
5.2 The ld CIT(A) after considering the submission of the assessee allowed exemption u/s 10B of the Act by observing as under:
5.2 I have gone through the observations made by the assessing officer in the assessment order and the submission filed by the appellant. The facts submitted by appellant are that the exports are certified by STPI Gandhi Nagar and Reserve Bank of India, Ahmedabad. The firm has not done any domestic business or sales. The accounts of the firm are audited by qualified Chartered Accountant (CA) who has verified the accounts and certified that whole of the income declared by the Appellant is exempt u/s 10B of the IT Act. Data processing was done mainly for SNL financial, Charlottesville, Virginia, USA, College Source USA Software and animation work were executed for various clients of US, UK and Australia. All the payment were received through banking channel transfer from international clients and duly certified by RBI and STPI. The appellant has claimed that necessary approvals have been taken from requisite authorities and Form 56G dated 18.10.2007 from CA has been filed alongwith return of income on 27.10.2007. The appellant is of the view that CBDT has clarified the matter of exemption u/s10A and STPI is the authority under law for such registration and claim and the same instructions also apply in case of deduction u/s.10B. It is submitted that for all practical purposes the STPI is the Development Commissioner as envisaged in law.
As per CBDT in its Circular No. 149/194/2004/TPL dated 06.01.2005 and Circular No. 200/20/2006/Income Tax Act, 1961-1 dated 31.3.2006 it has been directed to treat the grant of registration by STPI as valid agency for purposes of Section 10B. Form No.56G says that the appellant (STPI) has got registration certificate on 29.11.2004. The appellant relied on the order of the ITAT in case of Cat Labs P. Ltd, Pune vs Department of Income Tax delivered on 20 February, 2014 in the Income Tax Appellate Tribunal Pune Bench “A”, Pune ITA.No.131/PN/2013 (Assessment Year 2009-10) where in the approval by STPI is found to be proper approval for deduction u/s 10B. Further appellant relied on the order of the High Court of Punjab and Haryana in case of M/s Excel Softech Ltd, Chandigarh vs Commissioner Of Income Tax delivered on 24 July, 2008, ITA No. 156 of 2007 wherein the approval by STPI is found to be proper approval for granting deduction u/s. 10B.
The appellant relies on the following instructions and case laws:
i. Circular no. 684 dated 10.06.94 issued by CBDT
ii Notification of CBDT no. SO 890(E) dated 26.09.2000
iii Circular no 01/2005 dated 6th Jan. 2005 issued by Ministry of Finance Govt. of India Instruction no. 1/2006 file
200/20/2006/ATA-I date 37.03.2006
v. ITO V/s Secunderabad Software Services Hyderabad Pvt. Ltd-Secunderabad ITATB bench Hyderabad ITA no. 1501/Hyd/2011.
vi. CIT V/s Excel Softech Ltd. Chandigarh decided by the High Court of Punjab and Harayana – R. No 156 of 2007
vii. ITO Pune v/s Cat Labs. Pvt. Ltd. Pune ITA No. 131,PN/2013 Ass. Year 2009-10
viii. Order of the CIT(A) XI dated 22.05.2013
ix. ITAT B bench Ahmedabad Quality BPO services Pvt. Ltd. v/s ACIT Circle 5 ITA no. 120/ahd/2012 where in the judgement of Delhi High Court in Regency Creation Ltd. referred by the learned DCIT is also dealt
The documents submitted by appellant are examined. The Auditor/CA Shri Kishor Goyal has signed Form 56G on 18.10.2007 for claim u/s.10B before the due date of filing of return of income and the return has been filed on 27.10.2007. Perusal of the assessment order reveals that the A.O. had disallowed deduction claimed u/s.10B of the I.T. Act of Rs.1,27,84,850/- as the appellant was not having proper approval from Board of approvals (BoA) as mandated, by explanation 2(iv) of Sec.10B of the I.T. Act. In addition to discussing procedural aspect pertaining to the issue, the AO has heavily relied on the ratio of Delhi High Court in the case of CIT Vs. Regency Creations Ltd.
In this regard it is observed that the CBDT vide circular No.684 dated 10.06.94 has specifically enlarged the operation of Sec.10B to include 100% export oriented units established in approval Electronic Hardware Technology Parks (EHTP) or Software Technology Parks (STPJ7 This makes it abundantly clear that the appellant is eligible to claim deduction u/s 10B of the I.T. act as the appellant is having 100% export oriented unit in Software Technology Park, Gandhinagar. The CBDT vide notification No.SO 890(E) dated 26.09.2000 further clarified that Chapter-IX of Export and Import Policy (1992 – 97) applicable to export oriented units (EOUs) and units of Export Processing Zones (EPZs) 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”.
Therefore, it is clear that STP units are treated at par with units established in export oriented units and export processing zones. Secondly, for the purposes of section 10B, such units require approval from IMSC instead of BOA. This issue has been further clarified by Inter Ministerial Committee Communication dated 23.03.2006 issued by Secretary, Ministry of Telecommunications and Technologies. The salient features of this communication dated 23.03.2006 are reproduced as under:-
1. Software Technology Park of India (STPI) is a society owned and f administered by the Govt. of India and therefore is state under Article 12 of the Constitution of India.
2. The STPI Directors are duly authorized and fully empowered to issue approvals as 100% EOUs to the unit under the STP Scheme under delegated powers granted as per para 9.36 of the Handbook of Procedures (Vol.1) 1997-2002.
3. All he approvals issued by the STPI Directors have the authority of Inter-Ministerial Standing Committee (IMSC). The IMSC has periodically reviewed the various approvals granted by the STPI Directors in accordance with the Govt. of India guidelines/notifications. All the current approvals granted by the STPI Directors are therefore, deemed to be valid.”
Perusal of above communication makes it clear that all approvals issued by STPI Directors have the authority of Inter Ministerial Standing Committee (IMSC). Therefore, it is absolutely clear that approvals issued by STPI Director are having BOA approval as required by the provisions of explanation 2(iv) of Section 10B. The case of Delhi High Court of Regency Creations Ltd. which was relied by AO has been considered by Hon’ble ITAT, Ahmedabad in the case of Quality BPO Services Pvt. Ltd. Vs. CIT dated 04.11.2015 before deciding similar issue of allowing deduction u/s.10B of IT Act, 1961. My predecessor in appellant’s own case for A.Y.2009-10 vide order No.CIT(A)-XI/366/Wd-6(2)/11-12 dated 22.05.2013) has allowed the deduction u/s.10B of IT Act. It is noteworthy to mention that the Deduction 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 assesses in previous assessment year, in absence of any violation of condition of license, exemption was to be granted for subsequent year also”. The fact and substance as emerged from above is that the deduction u/s.10B has been allowed in earlier as well as in subsequent year. Therefore, is is not the new issue, the principle of consistency required to be followed as has held in following case laws:
(i) DCIT Vs. Sulabh International Social Service Organisation [350 ITR 189 (Patna)]
(ii) CIT Vs. Ranganathar & Co. [316 ITR 252 (Mad)]
(iii) Gopal Purohit Vs. Jt. CIT [334 ITR 308 (SC]
In view of above narratives, I am inclined to agree with the contentions of A.R. for intermittent F.Y.2006-07 (A.Y.2007-08). Accordingly, the AO is directed to allow deduction u/s.10B of Rs.1,27,84,850/-. The ground No. 7, 8, 9, 10, 11 & 12 of appeal are allowed.
6. In the result, the appeal is partly allowed.”
Being aggrieved by the order of ld CIT(A) Revenue is in appeal before us.
6. Ld DR before us vehemently supported the order of authorities below.
7. On the other hand, ld AR submitted as under:
“The appeal filed by the Revenue is prima facie not tenable and deserves to be dismissed as the grounds of appeal are settled in favor of the assessee by the Income Tax Department in earlier and subsequent years. Honourable ITAT has also upheld the allowability of exemption u/s 10B under the STPI approval scheme.
In the earlier years and in the subsequent years, the claim of the assessee u/s 10 B are allowed by the Department on the identical facts in the case of the assessee himself.
In the year under consideration also the claim was allowed by the Department, but with the change of the assessing officer the case was reopened u/s 147 without any reason. The case was reopened only on the basis of misinterpretation of facts and without understanding the procedure laid down by Govt. of India in implementing the law relating to exemption u/s 10B Of the IT Act.
The matter was explained before the CIT (A) by the assessee and the learned CIT (A) allowed the claim of the assessee after examining all the relevant facts. The CBDT has also issued instructions as per circular no. 149/194/2004/TPL dated 06.01.2005 and circular no. 200/20//2006 dated.31/03/2006 to allow such claim.
We rely on the order of the CIT (A) under appeal.
In the circumstances it is submitted that the appeal filed by the revenue may be dismissed.”
8. We have heard the rival contentions and perused the materials available on record. In the instant case, the exemption claimed by the assessee u/s 10B of the Act was denied by the AO on the ground that the approval of STPI units of the assessee was not ratified by the Board of approvals as mandated u/s 10B of the Act. However, the ld CIT(A) reversed the order of AO by observing that the approval from STPI is sufficient enough to meet the requirements as specified u/s 10B of the Act.
8.1 Now the controversy before us is that whether the approval from STPI without having the same ratified by the Board of approval is sufficient to claim the deduction u/s 10B of the Act. In this regard, we note that the Hon’ble ITAT, Pune Bench in the case of Cat Lab Pvt. Ltd. (supra) in the identical facts and circumstance held that there is no need to take separate approval from the BOA for claiming the deduction u/s 10B of the Act. The relevant extract is reproduced below:
“The Tribunals have in the judgments relied upon by the appellant, after 2006 have come to the conclusion that the registration granted by STPI should be considered as enough for the fulfillment of this condition. The Tribunals have also considered the Minutes of the Industrial Ministerial Communication vide letter dated 23.3.2006 issued by Ministry of Communication &Technology, as discussed in detail in the case of DCIT Vs. Vallient Communications Ltd. In Regency Creation Ltd. judgment given in ITA No. 1588/Del/2010/ A.Y. 2007-08, the Hon’ble ITAT also relied on a clarification obtained under RTI, which had stated that no approval / ratification of STPI approval is required from BOA formed by Ministry of Commerce u/s 14 of Industries (Development & Regulation) Act, 1951. For the above reason, the Tribunals have found that the decision of Infotech Enterprises Ltd., 85 ITD 325 (Hyd) will not be applicable after 2006. In view of the discussions made above, from which it is apparent that the overwhelming view of the Tribunals have been to treat the approval granted by the STPI to be enough for the fulfillment of condition prescribed in sec. 10B for approval of the EOU unit under sec. 14 of Industries (Development & Regulation) Act, 1951 and on this ground the benefit cannot be denied has to be accepted despite the fact that the sec. 10B specifically talks of only registration u/s.14 of Industries (Development & Regulation) Act, 1951. Since the Assessing Officer in this case has only raised this issue, the same has to be not allowed in view of the discussions made above. Ground No. 1 therefore, is allowed. The Tribunal in the above relied cases have also allowed the benefit on the ‘principle of consistency’, which is applicable in this case also. It was demonstrated by the AR that similar benefit u/s 10B was allowed by AO in earlier assessment years and no action to J withdraw the same has been taken. Thus on this basis also Ground No. 1 is required to be allowed.”
8.2 We also note that the ITAT Ahmedabad Bench has also decided the similar issue in favour of the assessee in the case of Quality BPO Services Pvt. Ltd. vs. ACIT in ITA No.120/Ahd/2012 for Asst. Year 2008-09 vide order dated 04.11.2015 after considering the judgment of Delhi High Court in the case of Regency Creation Ltd (supra). The relevant extract of the order is reproduced as under:
“We have considered the rival submissions and perused the material available on record. We find that it is admitted fact that the assessee has obtained the approval from STPI, Hyderabad as 100% EOU. The CIT’s finding is that the assessee is not eligible for relief under Asst. Year 2008-09 section 10B of the Act only on the ground that 100% EOU under STPI Scheme cannot be equated with the 100% EOU approved by the Board. Since we have already held in the case of Sudharani (supra) that the approval of 100% EOU by the Board and STPI is one and the same and hence the assessee is eligible for exemption under section 10B of the Act. It is to be noted that the validity of an order under section 263of the Act has to be tested with regard to the position of law as it exists on the date on which such an order is passed by the CIT. In the case under consideration, it is clear that on the date, when the CIT passed his order under section 263 of the Act, the view taken by the Tribunal in the case of Sudharani (supra). It is settled law that when two views are possible on the date of the order passed by the Commissioner, the CIT should agree with the view taken by the assessing officer was in consonance with view taken by this Tribunal, even if there has been a loss of revenue. Hence, powers under section 263 of the Act cannot be exercised by the CIT. Our view is fortified by the judgment of Delhi High Court in the case of CIT vs. Honda Siel Power Products Pvt. Ltd. in ITA Nos.1376/2009 and 1382/2009 dated 5.7.2010. In view of the above, we reverse the order of the CIT and allow the appeal filed by the assessee.
7. In the light of decisions of Co-ordinate Bench as well as other Benches of the Tribunal, wherein it has been categorically held that approval by Software Technology Parks of India comes under the Ministry of Communication & Information Technology & is a competent authority to grant approval to such units for claiming benefits u/s 10B as 100% Export Oriented Undertaking and the same is possessed by assessee and also looking to the facts of the case of assessee wherein assessee has been allowed deductions u/s 10B in Asst. Years 2007-08, 2010-11 & 2011-12 consistently, we are of the considered view that the assessee’s claim of deduction under section 10B at Rs.67,08,733/- is justified and accordingly the order of CIT(A) is quashed and the appeal of assessee is allowed.”
8.3 In addition to the above, we also note that the ld CIT(A) in the own case of the assessee for the Asst. Year 2009-10 allowed the exemption u/s 10B of the Act after due verification. Against the order of ld CIT(A) for Asst. Year 2009-10, the Revenue has not preferred any appeal which implies that the order of the ld CIT(A) has reached to its finality. Learned DR has also not disputed the fact that the appeal was not preferred by the Revenue against the order of ld CIT(A) for the A.Y. 2009-10 on the issue of exemption u/s 10B of the Act. In such circumstances we are of the view that no appeal can be filed by the revenue, once, the order of ld. CIT(A) in any of the year has reached to its finality. In this regard, we find support and guidance from the judgment of Hon’ble Supreme Court in the case of Union of India and others vs. Kaumudini Narayan Dalal and another reported in 249 ITR 219 wherein, it was held as under:
1. The order under challenge in this appeal by the revenue followed the earlier judgment of the same High Court in the case of Pradip Ramanlal Sheth v. Union of India  204 ITR 866 (Guj.). The learned counsel for the revenue states that the papers before us suggest that a special leave petition was preferred against that judgment but he has no information as to what happened thereafter. The learned counsel for the respondents states that their enquiries with the Registry reveal that no appeal against that judgment was preferred by the revenue.
2. If the revenue did not accept the correctness of the judgment in the case of Pradip Ramanlal Sheth (supra), it should have preferred an appeal thereagainst and instructed counsel as to what the fate of that appeal was or why no appeal was filed. It is not open to the revenue to accept that judgment in the case of the assessee in that case and challenge its correctness in the case of other assessee without just cause. For this reason, we decline to consider the correctness of the decision of the High Court in this matter and dismiss the civil appeal.
8.4 We also draw support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT vs. Shivsagar Estate reported in 257 ITR 59 wherein, it was held as under:
“Having regard to the fact that no appeal had been carried against the orders of identical assessments for previous year, the civil appeals and the special leave petitions prepared by the department were to be dismissed.”
8.5 After having regard to the facts in totality we are of the view that the assessee is eligible for exemption u/s 10B of the Act as the same was allowed by the AO in other years as well as by the ld CIT(A) as discussed above. Thus, we find no reason to interfere in the order of ld CIT(A). Hence, the ground of appeal of the Revenue is dismissed.
9. In the result, appeal of the revenue is dismissed.