Vilas Bhalchandra Wibhandik, Nashik vs Department Of Income Tax

Income Tax Officer, Ward 1(4), Nashik. .... Appellant

Vs.

Shri Vilas Bhalchandra Wibhandik, ASC-55, Swapnagandha, Ashwin Nagar, Near Sambhaji Stadium, Cidco, Nashik - 422 009. PAN : AANPW8506A .... Respondent

Department by : Shri Rajesh Damor Assessee by : Shri S. L. Ratnaparkhi Date of hearing : 23-12-2014 Date of pronouncement : 12-01-2015

ORDER

PER G. S. PANNU, AM

The captioned appeal by the Revenue is directed against an order of

the Commissioner of Income Tax (Appeals)-I, Nashik dated 15.04.2013 which,

in turn, has arisen from an order dated 08.12.2011 passed by the Assessing

Officer u/s 143(3) of the Income-tax Act, 1961 (in short "the Act") pertaining to

the assessment year 2009-10.

2. By way of the present appeal, Revenue has raised the following

Grounds of Appeal :-

"01. On the facts and in the circumstances of the case the learned CIT(A) is not justified in deleting additions of Rs.18,27,127/-, relating to period prior to the date of registration with the STPI.

02. On the facts and in the circumstances of the case the order passed by the learned CIT(A) may be set-aside."

3. Briefly put, the controversy in the present appeal relates to a claim for

deduction u/s 10A of the Act amounting to Rs.18,27,127/- made by the

assessee in his return of income. The assessee is an individual, who is 2 ITA No.1338/PN/2013

engaged in the business of providing services in the field Information

Technology and such business is carried out under the name and style

'SKSOFTSERV Consultants'. The unit of the assessee is registered as a

100% Export Oriented Unit (EOU) with Software Technology Parks of India

(STPI) for computer software and IT enabled services. For the assessment

year 2009-10, assessee filed a return of income declaring total income of

Rs.51,771/- which, inter-alia, included the claim of deduction u/s 10A of the

Act amounting to Rs.37,53,878/-. The Assessing Officer noted that assessee

was granted approval by the STPI on 02.09.2008. Therefore, according to

him, the sale proceeds earned by the assessee prior to this date were not

eligible for deduction u/s 10A of the Act since registration under the STPI was

a condition precedent for allowance of deduction u/s 10A of the Act.

Therefore, he restricted assessee's claim for deduction u/s 10A of the Act to

Rs.19,26,751/- as against a claim of Rs.37,58,878/- made in the return of

income. The aforesaid dispute was carried in appeal before the CIT(A). The

CIT(A) has dealt with the issue in the following manner :-

"5.3 I have carefully considered the facts of the case, the assessment order and the submissions of the appellant. The limited issue before me is whether the entire profits from exports qualify for deduction under section 10AA in the first year or is to be allowed on a proportionate basis from the date of granting of approval by the Development Commissioner, STPI. The AO has allowed deduction u/s 10AA from 01/09/2008 by observing that the assessee has got registration with STPI by paying registration fees on 01/09/2008 and also noting that the license issued to the assessee by the Central Excise and Customs Authority as per the letter of permission No.STP/NSK-VIII(A)/(021)/2008/978 is dated 02/09/2008. The Id. AO, however, did not carefully examine the contents of the above mentioned letter of permission. In the point No.11 of the said letter, it has been mentioned that "This letter of permission/approval shall be valid for the period of 5 years from the date of commencement of production". It is an undisputed fact that the appellant has started the production during the previous year relevant to the assessment year under appeal and has exported computer software of Rs.46,95,750/- as per column 14 of Annexure A to Form No.56A duly certified by the Chartered Accountant which has been filed by the appellant on the record of the AO. In view of the above facts it is evident that as per the letter of permission the assessee is entitled to claim deduction u/s 10AA for the period of 5 years from the date of commencement of production. Therefore, the AO is not justified in disallowing part of the claim of the appellant on the basis of letter of permission dated 02/09/2008 because as per the said letter the appellant is entitled to claim the deduction for the period of 5 years from the year in which the production has been commenced.

3 ITA No.1338/PN/2013 5.3.1 In my considered views, the appellant has begun to provide services from his unit during the previous year relevant to the assessment year, a fact which cannot be denied. The Appellant has also satisfied all the conditions for claiming deduction under section 10AA of the Act. The section nowhere provides that the deduction under section 10AA for the first year will be available to an entrepreneur from and after the date of getting approval from the Development Commissioner, STPI. The Section provides that the deduction for the first year is available in the assessment year relevant to the previous year in which the unit begins to manufacture or produce articles or things or provide services. Since the Appellant has set up the unit in an approved SEZ area and has been engaged in the business of providing services in the field of Information Technology only for exports and has also got the necessary approval from the Development Commissioner, STPI during the year, the Appellant is entitled to claim the entire export profits for the year as a deduction under section 10AA of the Act in computing the income from business.

5.3.2 The appellant has contended that since all the conditions specified for claiming deduction u/s 10A have been fulfilled, he is entitled to full deduction u/s 10A as claimed in the return of income. The contention of the appellant is found to be correct. In view of the above facts and in the circumstances of the case, the part disallowance of the claim made u/s 10AA by the Assessing Officer is unjustified and is directed to allow full claim of deduction of Rs.37,53,878/- as against Rs.19,26,751/- allowed by the AO. The Assessing Officer is directed to allow the balance amount of Rs.18,27,127/-. This ground of appeal is allowed."

4. A perusal of the aforesaid operative part of the order of the CIT(A)

reveals that he has considered the dispute in the context of section 10AA of

the Act instead of the claim made by the assessee made in the return of

income, which was u/s 10A of the Act. In-fact, in the return of income, claim of

the assessee was that his profits and gains derived from export of software

was exempt in terms of section 10A of the Act as his unit was recognized as

an STPI unit. The discussion by the CIT(A), on the other hand, reveals that he

has considered the dispute in the context of section 10AA of the Act which

essentially deals with newly established units in Special Economic Zones.

Though, in the concluding para 5.3.2, CIT(A) has referred to section 10A of the

Act, but the entire discussion in the earlier part of the order is in the context of

section 10AA of the Act. In-fact, in the impugned order, CIT(A) has referred to

the definition of 'Entrepreneur' in section 2(j) of the SEZ Act, 2005 which is

relevant in the context of a claim u/s 10AA of the Act and not u/s 10A of the

Act. Be that as it may, when the aforesaid position was pointed out to the Ld.

Representative for the assessee, he fairly conceded that the appellate 4 ITA No.1338/PN/2013

proceedings before the CIT(A) were not in correct prospective inasmuch as

the claim of the assessee was u/s 10A of the Act and not u/s 10AA of the Act.

5. In this background, it would be in the fitness of things that the matter is

re-visited by the CIT(A) in its correct prospective. Therefore, we set-aside the

impugned order and direct the CIT(A) to consider the claim of the assessee in

the context of the return of income filed which was subject to assessment by

the Assessing Officer wherein the dispute pertained only to assessee's claim

for deduction u/s 10A of the Act. We may also observe that we have not

considered the merits of the issue, and therefore our decision to remand the

matter back to the CIT(A) should not be taken as any reflection on the merits

of the issue, which shall be dealt with by the CIT(A) as per law. Needless to

say, the CIT(A) shall allow the assessee a reasonable opportunity of being

heard before passing an order afresh in accordance with law.

6. In the result, for statistical purposes the appeal of the Revenue is

treated as allowed, as above.

Order pronounced in the open Court on 12 th January, 2015.

Sd/- Sd/- (SUSHMA CHOWLA) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER

Pune, Dated: 12 th January, 2015. Sujeet

Copy of the order is forwarded to: - 1) The Assessee; 2) The Department; 3) The CIT(A)-I, Nashik; 4) The CIT-I, Nashik; 5) The DR "A" Bench, I.T.A.T., Pune; 6) Guard File.

By Order //True Copy// Assistant Registrar I.T.A.T., Pune