Income Tax Appellate Tribunal - Ahmedabad
Income Tax Officer,Ward-4(2),, ... vs Kjww Engineering India Pvt. Ltd., ... on 25 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER
AND SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA No.1188/Ahd/2014 with C.O. No.228/Ahd/2014 & ITA
No.1189/Ahd/14
(Assessment Year:2009-10)
The Income tax Officer,
Ward-4(2), Ahmedabad Appellant
Vs.
KJWW Engineering India Pvt. Ltd.,
Hitech House, B/h V Murti Complex,
Nr. Gurukul Tower, Gurukul,
Ahmedabad - 380009 Respondent/Cross Objector
PAN: AADCK2950R
राज व क ओर से/By Revenue : Shri James Kurian, Sr. D.R.
आवेदक क ओर से/By Assessee : Shri Ankit M Talsania, Adv.
सन
ु वाई क तार ख/Date of Hearing : 17.01.2017
घोषणा क तार ख/Date of
Pronouncement : 25.01.2017
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This batch of three cases pertains to assessment year 2009-10. The Revenue's former appeal and assessee's cross objection thereto arise against CIT(A)-VIII, Ahmedabad's order dated 30.01.2014 in appeal no. CIT(A)- VIII/ACIT/R.4/23/12-13, in proceedings u/s. 143(3) of the Income Tax Act, 1961; in short "the Act". Its latter appeal emanates from the very CIT(A)'s ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -2- order of the same date reversing Assessing Officer's action imposing penalty of Rs.24,93,500/- u/s.271(1)(c) of the Act.
2. We come to quantum cases first. The Revenue's former appeal challenges correctness of the CIT(A)'s order inter alia condoning delay of 134 days in filing of assessee's appeal, admitting its additional evidence in violation of Rule 46A of the Income Tax Rules thereby partly allowing its Section 10B deduction claim of Rs.80,69,579/- on proportionate basis w.e.f. from the date of its STPI registration from 18.02.2009; respectively. The assessee's cross objection on the other hand plead that the lower appellate authority ought to have held it entitled for the above deduction claim in entirety.
3. We advert to relevant facts now. The assessee company is in knowledge process outsourcing business. It filed return on 29.09.2009 stating income of Rs.76,06,815/- followed by its revised return dated 22.03.2011 declaring nil income. It claimed Section 10B deduction to the tune of Rs.80,69,579/- of the Act. The Assessing Officer sought for necessary details for the said purpose. The assessee's Authorized Representative appears to have submitted on its behalf on 14.12.2011 that the assessee had not been accorded an STPI unit certification so as to fulfill the above deduction's necessary conditions. The Assessing Officer thus framed the regular assessment in question dated 15.12.2011 making the impugned disallowance of Section 10B deduction. He further initiated Section 271(1)(c) penalty proceedings against the assessee.
4. The assessee seems to have filed its appeal on 11.06.2012 instead of the due date coming on 28.01.2012 resulting in delay of 134 days. It pleaded in its condonation petition that it could not communicate and send the necessary records to its Authorized Representative at Ahmedabad because of ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -3- over sight mistake and inadvertence. Its case accordingly was that it could only do the needful after realizing its above mistake. The assessee stated to have forwarded all necessary details and file its appeal after delay of 134 days. The CIT(A) treated it as a case of bonafide mistake to admit assessee's appeal for adjudication on merits.
5. The assessee thereafter filed additional submissions/evidence in the lower appellate proceedings pleading therein that although the assessment order dated 14.12.2011 had recorded its Authorized Representative's statement that it had not been accorded STPI registration certificate, it rushed to the Assessing Officer along with STPI registration certificate as well as its audit report forming foundation of its revised return claiming Section 10B deduction. The assessee accordingly submitted that it came to know about the impugned assessment order already passed by then on 15.12.2011. It thus sought to make out a case of admission of above additional evidence. The CIT(A) sought for remand report. The same came on 06.12.2013. The Assessing Officer first of all stated that he had granted all necessary opportunities to the assessee in order to produce the relevant details of Section 10B deduction claim and therefore, there was no violation of natural justice principles in his assessment order. We notice as page 14 of the order that the Assessing Officer himself did not dispute on merits that the assessee had been able to procure its STPI certification dated 18.02.2009 as well as its rectification communication from STPI, Gandhinagar dated 09.07.2013 which found a necessary condition for the impugned relief as per Board's circular dated 18.10.2011. The CIT(A) thereafter holds the assessee entitled for the impugned Section 10B deduction claim as under:
"I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The issue in brief is that the appellant is engaged in the business of Knowledge Process Outsourcing. It filed a return claiming the deduction under section 10 B of the Act. During the course of scrutiny the AR of the appellant informed the AO that it was not registered with STPI, which was mandatory for claiming the deduction. Accordingly the AO disallowed ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -4- the deduction claimed by the appellant. The appellant later on discovered that it was registered with STPI with effect from 18/02/2009. It accordingly filed an appeal bringing the correct facts on record and reiterated the claim of deduction under section 10 B. The written submission given by the appellant was forwarded to the AO and his comments have also been obtained. It has been submitted by the AO that since this information was not furnished earlier it should not, be admitted now. He has further submitted that even if the claim of the appellant under section 10 B is admitted the deduction should be given only from the date from which it has been registered with STPI.
I have carefully considered the submission given by the appellant regarding the new evidence and also the report of the AO. It is noted that the certificate was there with the appellant since February 2009 but due to ignorance of the Chartered Accountant during the course of assessment proceedings it could not be submitted before the AO. The evidence which has now been produced by the appellant is contemporary and there is no attempt to back-date any information or furnish any fabricated evidence. In view of these facts the evidences submitted are admitted for consideration and disposal of appeal.
The issue now is whether the appellant is entitled for deduction under section 10 B. The details on record to show that the appellant is registered with STPI. The registration certificate issued by the local authority at Ahmedabad has also been endorsed by inter-ministerial standing committee constituted by Department of Industrial Policy and Promotion, Ministry of Commerce and industry of Software Technology Park held on 20/01/2010. The appellant has earned all its income from export and the export proceeds have been received in foreign exchange during the prescribed time. It is also submitted relevant certificate from a chartered accountant in form 56G, which is prescribed as per the provisions of section 10 B. Therefore, the appellant company satisfies ail the conditions related to grant of deduction under section 10 B and accordingly it is held that it is entitled for deduction under section 10 B. Now the issue which is to be further decided is that from what date the appellant would be entitled for deduction. The appellant has been doing this business from 23/01/2008. The records show that there is no local sale or domestic business. Whatever income has been earned by the appellant is from the export of software however the appellant did not apply for registration with STPI, it applied for the registration on 16/02/2009 and was accorded registration on 18/02/2009. The basic condition of claim of deduction is the registration with STPI and since the appellant was registered by STPI on 18/02/2009 the deduction would be available from that date, Accordingly if is held that the deduction under section 10 B would be available from the date from which it has been registered with the STPI that is 18/ 02/2009. The AO is Accordingly directed to work out the proportionate profit on the basis of receipts of business done after 18/02/2009 and work out the profit entitled for deduction under section 10 B. The another issue which is also required to be adjudicated is that the has apparently not furnished form 56G with the return of income as it did not have the ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -5- report at that time. The appellant has submitted that since the returns are now being e-filed the requirement of furnishing the report with the return has been waived by Rule 12. It has also relied upon certain judgements which deal with similar Issues of furnishing the report along with the return for claiming the deduction. On consideration of totality of the circumstances and the issue involved it is noted that the appellant has otherwise fulfilled ail the requirements of allowance of claim under section 10 B. The only disqualification for making the claim is the non furnishing of form 56G with the return. The report of the chartered accountant form 56G, that has been given by the appellant during the course of appellate proceedings, is apparently obtained after the1 due date of filing of return as it does not contain the date on which the report was issued. On examining the judicial opinion about the issue, especially the decisions that have been mentioned by the appellant, if is noted that the requirement of filing the report is a procedural one and not mandatory. In case the appellant does not file it with the return of income it can be filed later. In some of the cases the courts have even held that if the claim is correct on the basis of figures available with the appellant the report of the chartered accountant is only a tool to verify the correctness of the claim. In the present case the appellant has correctly mentioned the figures of export and accordingly has claimed the deduction. The report submitted by the chartered accountant also verifies the quantum of claim made by the appellant. It would also be useful to refer to the Gist of the decisions which have been relied by the appellant in the written submission.
In the case of CIT vs. Hardeodas Agarwalla Trust 198 ITR 511 (Cal.), the return of income was furnished on 16/12/1983 claiming deduction u/s 11 of the Act alongwith Balance Sheet and Income - Expenditure account, however without furnishing the Auditor's report in Form No.10B. In the said case, the Audit Report in Form No. 108 was signed by the CA on 20/02/1985, much after the date of furnishing return of income. The Calcutta High Court, after analyzing the various High Court decisions and the intention of the Legislature, held that (a) the certificate / audit report only affirms the statement contained in the balance-sheet and income-expenditure account; the assessing officer can rely on the certificate / audit report for allowing the benefit of exemption; this is procedural matter for the purpose of enabling the assessing officer to complete the assessment on the basis of the certificate of the auditor without even asking the assesses to furnish supporting documents in support of the claim, (b) it cannot be said that the Legislature intended that, even where the assessee has got its accounts audited and the certificate is obtained in Form No.10B, merely because such report could not be furnished in the course of assessment proceedings, it would deprive a trust of getting the exemption if it is otherwise entitled to it in law, (c) where the audit report could not have been furnished before AO, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit report and direct the AO to redo the assessment.
In the case of Monarch Foods (P.) Ltd. vs. ACIT 86 Taxman 126 (Ahd.), Return of Income was filed on 29/12/89 declaring total income at Nil after setting- off unabsorbed loss of earlier years. However, as a result of order passed for the immediate preceding year, the loss was absorbed in that immediate preceding year only. As a result of which, the income of the year under consideration was assessed at positive figure. Therefore, during the course of assessment proceedings only, the assessee claimed deduction u/s 80HHC. The assessee did not file Audit ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -6- Report u/s 80HHC in Form No.10CCAC alongwith the ROI nor created any export reserve. Thereafter, the assessee filed revised return of income claiming deduction u/s 80HHC and furnishing audit report in Form No.10CCAC. However, the assessing officer denied the claim on two grounds vis-a-vis (a) revised return is time barred and (b) since the assessee had not furnished audit report in Form No. 10CCAC alonwith return of income, deduction u/s 80HHC cannot be allowed. The Hon'ble Tribunal, after following the decisions of various high court including the Gujarat High Court decision in the case of Gujarat Oil & Allied Industries and Calcutta High Court in the case of Hardeodas Agarwalla Trust held that the requirement of furnishing of audit report alongwith the return of income cannot be regarded as mandatory requirement and the furnishing of audit report before the authority is sufficient compliance of the relevant provisions of law and accordingly direction was given to the AO to decide the claim of the assessee for grant of deduction u/s 80HHC on the basis of merits.
In the case of CIT vs. Berger Paints (India) Ltd. 254 ITR 503 (Calcutta), the assessee had claimed deduction u/s 32AB and 80HHC of the Act, however, the Audit Report in Form No.3AA and 10CCAC was not furnished alongwith the return of income. The case of the revenue was that since this Form from the auditor was tendered by the assessee at a date much later than the filing of return, the assessee lost its right of claiming the benefit. Hon'ble High Court followed earlier decision in the case of Hardeodas Agarwalla Trust. The law reiterated that the audit report can be furnished even after filing of return of income and it will be sufficient compliance if the same is furnished before the authority examining the claim.
In the case of CIT vs. Valli Cotton Traders (P) Ltd. 171 Taxman 279 (Mad.), the return of income was filed declaring loss and the original assessment came to be framed u/s 143(3) of the Act accepting the returned .....Thereafter, reassessment was framed u/s 147 of the Act after making disallowance which resulted into positive assessed income. Since the assessee had not filed Form No.10CCAC, which ought to have been filed along with the return, to claim deduction u/s 80HHC, as he claimed only loss in his original return, the assessee claimed deduction u/s 80HHC based on the audit report by filing Form No.10CCAC before the CIT(A). However, the Tribunal allowed the appeal and directed the assessing officer to examine the issue after considering the audit report in Form No.10CCAC, The Madras High Court taking into cognizance of various authorities confirmed the finding of the Tribunal and in substance held that merely on account of technical reason of non-furnishing of audit report along with R01, deduction cannot be denied to the assessee. Similar view was expressed in the case of WIPRO Ltd. vs. DCIT 5 SOT 805 (Bang.) and CIT vs. Gupta FABS 274 ITR 620 (P&H).
Therefore, considering ihe preponderant judicial opinion and the facts of the case of the appellant all ingredients related to the claim of deduction under section 10 B have been fulfilled by the appellant.
In view of the above discussion, the claim of deduction under section 10 B is allowed with effect from the date from which the appellant company was registered with STPI Authority. The AO is directed accordingly.
ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -7- This leaves both the parties aggrieved to the extent indicated in their respective pleadings. The Revenue's case seeks to challenge the lower appellate order condoning delay, admitting additional evidence on assessee's pretext thereby holding it partly entitled for the impugned deduction claimed. The assessee's cross objection however pleads that the CIT(A) ought to have granted it entire deduction relief then that in part hereinabove.
6. We have heard both the parties. Case file perused. Shri Kurian strongly reiterates Revenue's pleadings on first two technical aspect on condonation of delay of 134 days in assessee's filing of lower appeal as well as admission of additional evidence. We have already indicated that the assessee's case seeking condonation of delay of 134 days in filing of its appeal was that it could not supply the relevant record alongwith assessment order's copy to its Authorized Representative due to over sight and inadvertence. There is no material before us to dispute all these solemn averments. Be that as it may, the assessee has sufficiently proved its bonafides that the above stated delay was neither intentional nor deliberate. We thus conclude the CIT(A) to have rightly condoned the above stated delay in assessee's appeal. The Revenue's first substantive argument is accordingly rejected.
7. We now deal with Revenue's second argument that the CIT(A) has erred in admitting assessee's additional evidence in violation of Rule 46A of the Income Tax Rules. There is hardly any dispute that the assessee claimed its 10B deduction relief by way of filing a revised return. The Assessing Officer however recorded its Auditor's statement on 14.12.2011 that the assessee had not been accorded STPI registration till then which resulted in the impugned disallowance being made in assessment order dated 15.12.2011. This above registration fact turned out to be factually incorrect the assessee duly proved by way of additional evidence that the STPI ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -8- certification stood granted on 18.02.2009 by way of a communication of ratification from the STPI, Gandhinagar vide letter dated 09.07.2013 i.e. during the pendency of the lower appellate proceedings. The Revenue fails to rebut this clinching factual position. We accordingly observe that the learned CIT(A) had rightly admitted assessee's additional evidence. And more so when the Assessing Officer himself did not dispute all these facts in his remand report dated 06.12.2013. This is accordingly also not a case of a failure on the CIT(A)'s part in not affording opportunity of hearing to the assessing authority. We thus find no fault in lower appellate authorities' order admitting assessee's additional evidence.
8. We now proceed to deal with both parties' common grievance that the CIT(A) has erred in not upholding Assessing Officer's action making complete disallowance of the impugned Section 10B deduction claim and vise versa. The case file already indicates that the assessee has been granted an STPI registration on 18.02.2009. Learned CIT(A) has thus held it entitled for the impugned deduction w.e.f. the said date on proportionate basis. We afforded adequate opportunity of hearing to both the parties. The Revenue fails in disputing assessee's above certification w.e.f. 18.02.2009 so as to deny it Section 10B deduction relief. The latter party has also not been able to repel the CIT(A)'s conclusion holding it entitled for Section 10B deduction only w.e.f. the date of certification i.e. 18.02.2009 instead of the entire relevant previous year. We accordingly find no reason to interfere in well reasoned CIT(A)'s order under challenge in Revenue's appeal and assessee's cross objection ITA No.1188 & C.O. No.228/Ahd/2014. The same are accordingly declined.
9. This leaves us with Revenues latter appeal ITA No.1189/Ahd/2014 seeking to revive Section 271(1)(c) penalty of Rs.24,93,500/- as imposed by the Assessing Officer vide order dated 22.06.2012 qua the above quantum ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 -9- disallowance of Section 10B deduction as dealt with in preceding paragraph. The Assessing Officer levied the impugned penalty by terming assessee's deduction claim to be a false one lacking bonafides. He heavily relied upon quantum developments to impose the penalty in question.
10. The CIT(A) reverses Assessing Officer's action as under:
"The remaining grounds of appeal are interlinked and are in respect of levy of penalty of Rs. 24,93,500/- under section 271(1)(c) of the Act. The issue is decided in the subsequent paragraphs.
The facts, which are relevant for decision, are that the appellant is engaged in the business of Knowledge Process Outsourcing, It filed a return claiming the deduction under section 10 B of the Act. During the course of scrutiny the AR of the appellant informed the AO that it was not registered with STPI, which was mandatory for claiming the deduction. Accordingly the AO disallowed the deduction claimed by the appellant. The appellant later on discovered that it was registered with STPI with effect from 18/02/2009. If accordingly filed an appeal against the assessment order, bringing the correct facts on record and reiterated the claim of deduction under section 10 B. In the meantime the AO proceeded with the penalty proceedings and imposed the penalty of concealment. It was held by the AO that the appellant knew that it was not entitled for the deduction and claimed the deduction despite that. He accordingly held that the claim was false.
The appellant has submitted that it was under bona fide belief that it could start claiming deduction for a period of 10 consecutive assessment year beginning with the assessment year relevant to the previous year in which the undertaking has begun its operations. It satisfies all the conditions related to the claim. It is further been submitted by the appellant that under the scheme of the Act deduction for exports of goods or articles or things has been provided under various provisions of the Act such as 10 A/10 BA/80HHC, and the deduction is allowed from the year in which the operation of export has been started. It has also placed reliance on certain judgements in which it was held that the deduction could be allowed for the whole year irrespective of the date of approval.
After considering all the facts it is observed that the appellant-had a certificate of registration with STPI with it during the course of assessment proceedings also. However due to the ignorance of the chartered accountant, appearing during the course of assessment proceedings, a statement was given that there was no certificate and the unit was not registered. Accordingly the claim was disallowed. The fact that it had the certificate, which was issued in the month of February 2009, has been duly established by the appellant during the course of appellate proceedings. The appellant has earned all its profit from the exports. There is no domestic sale or business which has been done by the appellant during the year. Alt the proceeds of sale have also been received in the foreign currency. The appellant had also furnished all the relevant certificates regarding receipt of export proceeds during the course of assessment proceedings. The conditions for claim of deduction under section 10 B have also been satisfied. It has also ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 - 10 -
produced a certificate showing that the approval was rectified by the inter- ministerial committee also. Therefore, the claim under section 10 B made by the appellant in the return of income was bond fide.
The only issue which requires further consideration, is that the appellant made a claim of deduction in respect of the income of the total year, whereas it was accorded registration during the month- of -February, Therefore, if should have made a claim of 10B in respect of the income for two months only. The appellant has submitted that it was under bona fide belief that the deduction is available for the entire year as the registration was granted during the year. It is noted from the language of section 10B that the deduction is available to 100% export-oriented undertaking from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or thing or computer software, as the case' may be. It is noted that the appellant had begun the activity from January 2008. It made the claim of deduction during the year and it was the first year of claim, The appellant has rightly placed reliance on the judgement of Delhi ITAT in the case of ML outsourcing services Pvt Ltd ITA number 01/02/2004/Del/2011.
I have also decided the quantum appeal in the case of the appellant for the same year and it has been held that the appeiiant can also submit the report in form 56G later on also. It was held by me that it is a procedural requirement and not mandatory. Accordingly the claim of deduction under section 10 B has been allowed from the date of registration.
In view of the above discussion and considering the totality of facts and circumstances it is seen that the appellant made the misrepresentation regarding claim under section 10B as the chartered accountant who was representing the case of the appellant before the AO made a wrong statement that there was no certificate of registration with STPI. It Is also noted that the appellant has earned all its income through software export and the proceeds have been realised in foreign exchange after following the due procedure. All the details regarding receipt of foreign exchange were also furnished at the time of assessment proceedings. There is no furnishing of inaccurate particulars regarding receipt of income from exports. Therefore, in my considered opinion no penalty of concealment is exigible on the appellant in these circumstances. The appellant has committed these errors due to mistakes committed by it started accountant. The appellant has explained its bona fide and the same have been found to be in order. Reliance is placed on the judgement of honourable Supreme Court in the case of Reliance Petro Products Private Limited 322 ITR 158. Accordingly, the penalty imposed by AO under section 271 (1 )(c) is directed to be deleted."
11. We have heard both the parties. Case file perused. The Revenue's sole contention strongly supports Assessing Officer's action imposing the impugned penalty on the ground that assessee's Section 10B deduction claim raised in its revised return (supra) was not found to be a bonafide one since lacking STPI certification. There is hardly any dispute in view of our findings ITA No. 1188 & 1189/Ahd/2014 & C.O. No.228/Ahd/2014 (KJWW Engineering India Pvt. Ltd.) A.Y. 2009-10 - 11 -
on quantum issue that the assessee's auditor's statement about its non STPI certification allegedly made in the course of assessment was factually incorrect as the assessee's certification stood proved w.e.f. 18.02.2009 (supra) as concluded in the above quantum proceedings. We thus observe that the learned CIT(A) has rightly quoted hon'ble apex court's decision in a Reliance Petroproducts case to conclude that the assessee's bonafides are very much in order and each and every disallowance/addition made in the course of quantum proceedings does not necessarily resulting in Section 271(1)(c) penalty in question. We thus reject Revenue's latter appeal ITA No.1189/Ahd/2014 as well.
12. These two Revenue's appeals and assessee's cross objection are dismissed.
[Pronounced in the open Court on this the 25th day of January, 2017.] Sd/- Sd/-
(MANISH BORAD) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 25/01/2017
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आय!
ु त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।