TMI Blog2018 (11) TMI 1053X X X X Extracts X X X X X X X X Extracts X X X X ..... chapter VIA or under section 10AA or under section 35D then the adjusted total income would be total income before claim of those deductions and if the regular income tax payable is less than the MAT payable on such adjusted total income, the assessee would be liable to pay MAT. But, in the instant case, the deduction has been claimed by the assessee under section 10A and not under the sections specified above for computing adjusted total income, thus, the provisions of section 115JC are clearly not applicable. In view of the clear and unambiguous provisions of the law, the Ld. Assessing Officer was not required to enquired upon the applicability of section 115JC in the case of the assessee and thus accordingly, we reject the contention of the Ld. CIT that the Assessing Officer has not made any enquiry on this issue. Deduction in respect of the commission expenses disallowed - Held that:- CIT has observed that copy of the order of the Tribunal of the earlier year was not readily available or was not filed by the counsel of the assessee and therefore the issue required examination by the Assessing Officer. In our opinion, the CIT could have verified the order of the Tribunal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitiation of section 263 proceedings on the same is bad in law on the aspect of assumption of jurisdiction u/s 263 as well as on merits. 4. That on the facts and circumstances of the case and in the Law the provisions of section 115JC (Minimum Alternate Tax) are not applicable to assessee for the subject year and initiation of section 263 proceedings in this regard is bad in law on the aspect of assumption of jurisdiction u/s 263 as well as on merits. 5. That on the facts and circumstances of the case and in the Law the assessee is clearly entitled to deduction on account of commission expenses of ₹ 14, 51,442 which cannot be the subject matter of disallowance u/s 40(a)(i) and initiation of section 263 proceedings in this regard is bad in law on the aspect of assumption of jurisdiction u/s 263 as well as on merits being squarely a covered matter in assessee s own case for the preceding year. 6. That on the facts and circumstances of the case and in the Law the assessee is entitled to deduction u/s 10A on interest income of ₹ 66,68,296 as claimed and initiation of section 263 proceedings in this regard is bad in law on the aspect of assumption of jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. CIT has not pointed out any error in the order of the Assessing Officer, and thus according to him, the Ld. CIT is not justified in holding the order of the Assessing Officer as erroneous and prejudicial to the interest of the revenue. 3.1 As far as the first issue of deduction under section 10A of the Act is concerned, the Ld. counsel submitted that the assessee was granted approval by way of letter dated 12/03/2003 by the SEZ Authorities, Noida to commence production within one year of the said date. Thereafter, the assessee vide letter dated 21/05/2003, intimated to the SEZ Authorities that it had commenced trial production. Further, vide letter dated 26/05/2003, it was intimated that the assessee commenced regular production. According to the Ld. counsel, in view of the fact that production commenced during the previous year corresponding to the assessment year on or after 1st day of April 2003, i.e. AY: 2004-05, in the case of the assessee subsection (1A) of section 10A is applicable and the current assessment year being 2013-14 being the 10th year of claim, deduction was rightly allowed by the Assessing Officer after enquiry and verification. The Ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 8. Decision of Allahabad High Court in the case of CIT Vs Krishna Caobox (P.) Ltd 372 ITR 310 (All.); 9. Decision of Co-ordinate Bench of Delhi ITAT in the case of Prathma Bank Vs CIT (2016) 52 ITR (Trib.) 454 (ITAT Del.). 3.4 On the second issue of taxability under MAT provisions, the Ld. counsel submitted that under provisions of Alternative Minimum Tax (MAT) i.e. under section 115JC, relevant for partnership firms, the adjusted total income shall be the same as computed under the normal provisions except where any assessee is claiming deduction under section 10AA and chapter VIA of the Act. Thus, according to the Ld. counsel, the said section 115JC did not apply to the assessee for the simple reason that assessee has not made any such claim of deduction under section 10AA or chapter VIA. 3.5 On the third issue of disallowance under section 40(a)(i) of Act on payment commission to non-residents, the Ld. counsel submitted that the Assessing Officer vide query letter dated 28/10/2015, which is available on page 37 of the paper book, raised a specific query with respect to payment of commission to parties including evidence of services rendered, amount of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of business only. The Ld. counsel also submitted a copy of letter from Canara bank stating that fixed deposits were pledged against letter of credit, bank guarantees and limits as on 31/03/2013. In view of the above, the Ld. counsel submitted that adequate enquiry was made by the Assessing Officer on the issue during assessment proceedings. 3.10 The Ld. counsel submitted that assessee s claim of deduction under section 10A on interest income on fixed deposit is squarely covered by the Karnataka High Court decision in the case of CIT versus Motorola India Electronics Private Limited (2014)-TIOL-87-HC-KAR in assessee s favour, wherein it is held that interest income on fixed deposit qualify for deduction under section 10A in view of the specific language of the provisions of subsection (4) of section 10A. He further submitted that assesses claim of deduction under section 10A on interest income from FDR is supported from the full bench decision dated 30/10/2017 of the Hon ble Karnataka High Court in the case of CIT versus M/s Hewlett Packard Global Soft Ltd 2017-TIOL-2293-HC-KARLB and also decision of the Hon ble Delhi High Court in the case of Riveria Home Furnishing Vs A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction as per Auditor s Report in form No. 56F and which requires examination. On the issue related to deduction under section 10A on interest income of ₹ 66,68,296/- earned on various FDR s is concerned, the Ld. DR submitted that the Ld. CIT pointed out to the assessee that interest income earned on surplus fund parked or interest income earned on FDRs for availing credit cannot be said to be derived from business of export in view of the decision in the case of CIT versus Shriram Honda Power Equipment (supra). According to her the Assessing Officer has not looked into this aspect and allowed the excess deduction without any examination or verification, whereas he should have examined the source of interest from specific FDR and under what circumstances those FDR s were made. 4.1 She relied on the decision of the Hon ble Delhi High Court in the case of Gee Vee Enterprises versus Additional CIT, 99 ITR 375 (Del) wherein it is held that it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the Income-tax Officer. The Ld. DR also referred to the decision of the coordinate bench of the Tribunal in the case of NIIT Vs. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has been inserted w.e.f. 01/06/2015. In the instant case the order under section 263 has been passed on 29/03/2018, and thus in view of the Explanation-2, the Assessing Officer was required to carry out enquiry on the issues, which has ought to have been done in the facts and circumstances of the case. 7. In the instant case, the Ld. CIT has held that Assessing Officer has not carried out enquiries on four issues. Thus, we have to examine, whether the Assessing Officer was required to carry out enquiries in the facts and circumstances of the case on those four issues. 8. Regarding the first issue of allowing deduction under section 10A of the Act for the year under consideration, the Ld. CIT is of the view that according to the 4th proviso, no deduction is allowed under section 10A for the assessment year beginning on 1st day of April 2012 and subsequent years. The relevant subsection 10A(1) and the proviso are reproduced as under: Special provision in respect of newly established undertakings in free trade zone, etc. 10A. ( 1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to manufacture or produce articles or things or computer software during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2003, in any special economic zone, shall be,- ( i) hundred per cent of profits and gains derived from the export of such articles or things or computer software for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, and thereafter, fifty per cent of such profits and gains for further two consecutive assessment years, and thereafter; ( ii) for the next three consecutive assessment years, so much of the amount not exceeding fifty per cent of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account (to be called the Special Economic Zone Re-investment Allowance Reserve Account ) to be created and utilised for the purposes of the business of the assessee in the manner laid down in sub-section (1B): (Emphasis supplied e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come, thus, the provisions of section 115JC are clearly not applicable. In view of the clear and unambiguous provisions of the law, the Ld. Assessing Officer was not required to enquired upon the applicability of section 115JC in the case of the assessee and thus accordingly, we reject the contention of the Ld. CIT that the Assessing Officer has not made any enquiry on this issue. 13. On the third issue of allowing deduction in respect of the commission expenses disallowed by the Assessing Officer, the Ld. CIT has observed that copy of the order of the Tribunal of the earlier year was not readily available or was not filed by the counsel of the assessee and therefore the issue required examination by the Assessing Officer. In our opinion, the Ld. CIT could have verified the order of the Tribunal and then decided whether the examination was required in the case. We have seen the order of the Tribunal in ITA No. 5603 of 2014 for assessment year 2010-11, which is available on page 90-96 of the paper book. In the said order the Tribunal examined the applicability of deduction of tax at source on payment to agents for export commission and held that assessee was not liable to deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld qualify for hundred percent deduction. The relevant portion of the decision of the Hon ble High Court is reproduced as under: 35. The Scheme of Deductions under Chapter VIA in Sections 80- HH, 80-HHC, 80-IB, etc from the Gross Total Income of the Undertaking , which may arise from different specified activities in these provisions and other incomes may exclude interest income from the ambit of Deductions under these provisions, but exemption under Section 10-A and 10-B of the Act encompasses the entire income derived from the business of export of such eligible Undertakings including interest income derived from the temporary parking of funds by such Undertakings in Banks or even Staff loans. The dedicated nature of business or their special geographical locations in STPI or SEZs. etc. makes them a special category of assessees entitled to the incentive in the form of 100% Deduction under Section 10-A or 10-B of the Act, rather than it being a special character of income entitled to Deduction from Gross Total Income under Chapter VIA under Section 80-HH, etc. The computation of income entitled to exemption under Section 10-A or 10-B of the Act is done at the prior stage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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