TMI Blog2014 (3) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax (Appeals) in an appeal against the order of assessment has powers of enhancement and that power can be exercised to tax income which the Assessing Officer has expressly or by clear implication considered and held to be not taxable. The language used in Explanation (c) to section 263(1) is power shall extend to such matters as had not been considered and decided in such appeal . If either in the normal course or in exercise of powers of enhancement by the Commissioner of Income-tax (Appeals), in an appeal against the order of assessment, a matter has not been considered or decided, then the power of CIT u/s. 263 shall extend to such matters. There can be no question of the merger of the order of the Assessing Officer with that of the Commissioner of Income-tax (Appeals) so as to bar exercise of jurisdiction by the CIT u/s. 263 of the Act. The decisions relied upon by the learned DR support the plea that different facets of a deduction in particular provisions of the Act can be considered in proceedings u/s. 263 of the Act as long as they had not been considered by the Assessing Officer or the Commissioner of Income-tax (Appeals). According to us, the prepond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as given in the annexure to this order. This submission is without any basis as the Assessee has always been treating the units as one industrial undertaking and claiming deduction. Whether income from staffing can be said to be income eligible for deduction u/s. 10A of the Act.? - The question of examining the same in our view would be academic as the Assessee is found to be not entitled to deduction u/s. 10A. Nevertheless, we find that the AO while concluding the assessment made no enquiries whatsoever on this aspect. Therefore exercise of jurisdiction u/s. 263 of the Act was justified. The further direction to the AO to examine the agreements and thereafter decide the issue afresh, in our view, is also a fair direction, calling for no interference. - Thus we uphold the order u/s. 263 of the Act and dismiss the appeal by the Assessee. - IT Appeal No. 379/Bang/2013 - - - Dated:- 14-3-2014 - N.V. Vasudevan, Member (J) and Jason P. Boaz, Member (A) For the Appellant : D. Devaraj. For the Respondents : Paul George. ORDER N.V. Vasudevan, Member (J) 1. This is an appeal by the assessee against the order dt 23.01.2013 of the CIT, Bangalore- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer while completing the assessment did not examine this aspect of the case that the assessee was not entitled to deduction at all u/s. 10A of the Act for A.Y. 2008-09. (ii) According to the CIT, the assessee was deriving revenue from staffing from the STPI unit in which deduction u/s. 10A had been claimed and allowed. The income derived from human resources deployment, according to the CIT cannot be considered as being engaged in the business of export of computer software. According to the CIT this aspect was also not examined by the Assessing Officer while considering the assessment u/s. 143(3). 4. The CIT accordingly issued show cause notice Dt. 16.07.2012 to the assessee. The assessee vide its reply Dt. 04.09.2012, on the issue of period of ten years for claiming deduction u/s. 10A of the Act, submitted that it started its activity as STP unit for and from the assessment year 1995-96 and gave a complete list of the claim made by it u/s. 10A of the Act from assessment year 1995-96. The same was as follows: 5. The assessee further submitted that Section 10A as existing for the assessment year 1995-96, so far as relating to the period of deduction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, in the case of the assessee, on and from the AY 1998-99. Significantly, it did not have a restriction on the maximum period of benefit similar to the Proviso in the pre-amended section. Thus, the absence of a similar provision similar to the Proviso emphasized that an assessee should be entitled to enjoy the full benefit of section 10A for a total period of 10 assessment years. 8. The Assessee pointed out that for the assessment years 2002-03 to 2004-05, it opted out of the benefit as provided u/s. 10A(8) which read as follows: 10(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. It was argued that Sec. 10A(8) starts with a non-obstante clause and will therefore have overriding effect. Once an assessee exercises to opt out of the benefit, then it provides that the provisions of section 10A sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opment. In its business of ITES the assessee was providing expert technical personnel and providing software solutions for Microsoft users across the globe. According to the assessee, providing qualified and experienced personnel to various customers outside India was part of its business strategy of providing customers the technical competence. According to the assessee, such services also qualifies to be computer software within the meaning of section 10B Explanation 2(i) of the Act. The assessee pointed out that vide Notification issued by the CBDT Dt. 20.09.2000 explaining the meaning of computer software as given in clause (b) to Explanation 2(i) below Section 10B of the Act as including Human Resource Services which is also classified as computer software. The assessee also brought to the notice of the CIT, Explanation 3 to Section 10A which was enacted to remove doubts regarding profits and gains derived from on site development of computer software including services for development of software outside India, which are deemed to be profits and gains derived from export of computer software outside India. 11. The assessee also further took a legal stand that when it p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduction in the previous year relevant to assessment year 1995-96 and therefore the band of 8 years in the case of the assessee would last up to and including assessment year 2002-03. (2) The CIT found that w.e.f. 01.04.2001, the amended provisions gave a period of ten consecutive 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. Going by the amended provisions, the CIT was of the view that the assessee would be entitled to claim deduction u/s. 10A from assessment year 1995-96 and the period of 10 years would expire with the end of assessment year 2004-05. Section 10A(1) proviso introduced by the Finance Act, 2000, w.e.f. 01.04.2001 clearly laid down that existing undertaking as on the date of the amendment would be entitled to deduction under sub-section (1) of section 10A only for the unexpired period of the aforesaid ten consecutive years. The CIT therefore concluded that ten assessment years in the case of the assessee would be from 1995-96 to 2004-05. The unexpired period of ten consecutive years in the case of the assessee as on the date of the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the CIT concluded that the action of the Assessing Officer in allowing deduction u/s. 10A of the Act was erroneous and prejudicial to the interests of Revenue. 13. With regard to the argument of the assessee that the order of the Assessing Officer has merged with the order of the Commissioner of Income-tax (Appeals) and was no longer amenable to revision u/s. 263 of the Act, the CIT held as follows: 16.1 It has been argued by the assessee that the assessment order has got merged with the order of the Commissioner of Income-tax (Appeals). That the assessment order did not merge with the order of the Commissioner of Income-tax (Appeals) was made clear to the assessee in the show cause notice itself wherein it was mentioned that the matter/issue having regard to which action u/s. 263 is proposed, was not subject matter of appeal before the Commissioner of Income-tax (Appeals) and the CIT(A) did not consider these issues while deciding the appeal. Besides, it is seen from the grounds of appeal taken by the assessee before the CIT(A) that the assessee had taken three grounds of appeal. Ground No. 1 in appeal is general in nature. Ground No. 3 in appeal was withdrawn. In gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee under the caption human resources services , as per Notification No. 11521 Dt. 26.09.2000. The Assessing Officer is also directed to examine the facts and take a view with reference to the latest clarifications issued by the CBDT vide Circular No. 01 of 2013, dated 17th January 2013 in F. No. 178/84/2012-13 ITA-1. 16. Aggrieved by the order of the CIT u/s. 263 of the Act, the assessee has preferred an appeal before the Tribunal. 17. We have heard the submissions of the learned counsel for the Assessee and the learned CIT-DR. The learned counsel for the assessee reiterated the submissions as were made before the CIT insofar as it relates to the period of deduction u/s. 10A of the Act and the issue with regard to income from staffing. 18. On the question whether the order of the Assessing Officer got merged with the order of the Commissioner of Income-tax (Appeals), the learned counsel for the assessee submitted before us that the issue of deduction u/s. 10A of the Act was considered by the Assessing Officer while completing the assessment. It was submitted by him that while completing the assessment, no doubt the only one aspect of deduction u/s. 10A consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of issues sought to be revised in proceedings u/s. 263 was different and therefore, there was no question of the order of the Assessing Officer getting merged with that of the order of the Commissioner of Income-tax (Appeals). In this regard, it was firstly submitted by him that a controversy existed as to whether the entire order of the Assessing Officer would merge with the order of the Commissioner of Income-tax (Appeals) when an order of assessment is subject to appeal before the Commissioner of Income-tax (Appeals) by an assessee. Different courts took different view on the issue and the Parliament thereafter enacted Explanation (c) to section 263(1) of the Act by the Finance Act of 1988 with retrospective effect from 01.06.1988. According to him, after insertion of the aforesaid Explanation, what has to be seen is that the matters which have been considered and decided in an appeal before the Commissioner of Income-tax (Appeals), and not matters which could have been or should have been considered and decided in an appeal before the Commissioner of Income-tax (Appeals). In this regard, our attention was drawn to the following decisions, wherein the view as canvassed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer. Even the question as to whether the income from staffing was to be regarded as eligible for deduction u/s. 10A of the Act, was not a matter of consideration and decision in the appeal before the Commissioner of Income-tax (Appeals). The Legislature was fully conscious of the fact that the Commissioner of Income-tax (Appeals) in an appeal against the order of assessment has powers of enhancement and that power can be exercised to tax income which the Assessing Officer has expressly or by clear implication considered and held to be not taxable. The language used in Explanation (c) to section 263(1) is power shall extend to such matters as had not been considered and decided in such appeal . If either in the normal course or in exercise of powers of enhancement by the Commissioner of Income-tax (Appeals), in an appeal against the order of assessment, a matter has not been considered or decided, then the power of CIT u/s. 263 shall extend to such matters. There can be no question of the merger of the order of the Assessing Officer with that of the Commissioner of Income-tax (Appeals) so as to bar exercise of jurisdiction by the CIT u/s. 263 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Karnataka High Court which was rendered on 04.01.1991, on a writ petition filed in the year 1998. The amended provisions of the law were not considered by the Hon'ble High Court and the Hon'ble High Court based its conclusions on its own decision rendered in the case of CIT v. Hindustan Aeronautics Ltd. [1986] 157 ITR 315 : 27 Taxman 75 (Kar.). It has to be remembered that these decisions no longer hold the field consequent to the amendment to section 263(1) of the Act by insertion of Explanation (c) and the later decision rendered by the Hon'ble Supreme Court in the case of Shri Arbuda Mills Ltd. (supra). The decisions cited by the learned counsel for the assessee proceed on the reasoning that in appeal against an order of assessment, the CIT could have in exercise of powers of enhancement considered issues which were being considered in exercise of powers u/s. 263 of the Act. As already stated, these decisions no longer hold the field. 23. On the other hand, the decisions relied upon by the learned DR support the plea that different facets of a deduction in particular provisions of the Act can be considered in proceedings u/s. 263 of the Act as long as they had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sec. 10A of the Act by virtue of the provisions of Sec. 10A(8) of the Act which gives such opting out to an Assessee for AYs 2002-03 to 2004-05. In the case of the Assessee, the band of 10 years as per the amended law would be from 1995-96 to 2004-05 only. As rightly held by the CIT opting out of the provisions of Sec. 10A will not have the effect of extending the band period of 10 years. This would be clear from the proviso to Sec. 10A(1) inserted w.e.f. 1-4-2001 which provides: Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by application of the provisions of this section as it stood immediately before its substitution by the Finance Act, 2000, the undertaking shall be entitled to deduction referred to in this sub-section only for the unexpired period of the aforesaid ten consecutive assessment years: The Assessee could thus get the benefit of the amended law applicable from AY 2001-02 only for 2 more years viz,, A.Ys. 2003-04 2004-05. As rightly held by the CIT in the impugned order, the amendment, in the case of the Assessee, had the effect of only extending the period by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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