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TMI Blog2014 (3) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... ng deduction u/s. 10A of the Act. 2. According to the Assessing Officer, the telecommunication charges and expenses incurred in foreign currency had to be reduced only from the export turnover and not from the total turnover. As a result of the aforesaid treatment given by the Assessing Officer, deduction u/s. 10A of the Act was restricted to Rs. 455.74 lakhs as against the claim made by the assessee at Rs. 1541.83 lakhs. The assessee preferred an appeal against the aforesaid order of the Assessing Officer Dt. 24.12.2010 passed u/s. 143(3) of the Act. The Commissioner of Income-tax (Appeals) by his order Dt. 24.12.2010 allowed the appeal of the assessee by following the decision of the Hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 : 21 taxmann.com 154. The Commissioner of Income-tax (Appeals) thus excluded telecommunication charges and expenses incurred in foreign currency both from export turnover as well as from the total turnover. 3. The CIT, in exercise of his powers u/s. 263 of the Act, was of the view that the order of the Assessing Officer Dt. 24.12.2010 passed u/s. 143(3) of the Act was erroneous and prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefit u/s. 10A was available to us till assessment year 2002-03. 6. An amendment was made to the provisions of section 10A(3) effective assessment year 1999-00 and after the amendment the provisions read as under: "10A(3) - The profits and gains referred to in sub-section (1) shall not be included in the total income of the assessee in respect of any ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things," Thus, the five consecutive years was converted into ten consecutive years. It was submitted by the Assessee that the ten consecutive years had to be worked out, from the assessment year 1998-99 as the provisions of section 10A remain a beneficial provision and has to be read liberally. It was argued that if the provisions of Sec. 10A are interpreted as 10 years from AY 1995-96, then the benefit would have been restricted to assessees who had opted for the later part of the eight years to less than 10 years. 7. The Assessee further pointed out that the pre-amended section had a Proviso. The Proviso restricted the benefit being extended beyond eig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, the units which are admitted within the period of 10 years from the date of beginning to manufacture should be allowed benefit of Sec. 10A of the Act. The argument placed by the assessee was that the benefit of section 10A is undertaking specific and not assessee specific. An undertaking should satisfy the conditions laid down u/s. 10A. One such condition is that an undertaking should be functioning in a software technology park. The Assessee pointed out that during the previous year the units specified at serial numbers 2, 3, 4, 8 and 9 in the annexure to this order have functioned in STPI though all these undertakings are functioning under a single STPI licence which was issued on 06.09.1994. Despite there being a single STPI licence, each of the units, started after September 1994, has the identity of an STPI unit. The regulations of the STPI permits an enterprises to obtain an STPI licence and obtain the permission to start multiple units under a single licence. Each of the units has the specific permission under the STPI regulations and separate bonding by the customs authorities. Separate bonding registers are maintained. Investments in each of these units, when started, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on interpretation of the period of ten consecutive years, the CIT was of the view that the history of section 10A as it existed at various points of time had to be looked into. The CIT found that in assessment year 1995-96 which was the first year in which the assessee commenced the manufacture of computer software, the provisions of section 10A provided that an assessee will be entitled to deduction u/s. 10A of the Act for five consecutive assessment years falling within the period of 8 years beginning with assessment year relevant to the assessment year in which the industrial undertaking begins to manufacture or produce articles or things specified by the assessee at its option. Proviso to Section 10A(2) clarified that the period of 8 years cannot be exceeded in any case. The CIT also referred to the provisions of section 10A(7) which enable an assessee to opt out of the provisions of section 10A of the Act for any relevant assessment year by giving a declaration in this regard, before the due date for furnishing of return of income u/s. 139(1) of the Act. Thereafter, the Commissioner of Income-tax (Appeals) concluded that the band of 8 years as far as the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be appreciated that the section talks about ten consecutive assessment years. It simply means that there cannot be a break for the purpose of extending the time period so far as ten assessment years are concerned. It also implies that the tax holiday period is available for a period of ten years and the benefit of tax holiday period cannot be extended to any number of years beyond ten assessment years. The simple meaning of the work 'consecutive' is falling continuously and in sequence. The purpose of the expression 'consecutive' is to limit the tax holiday period for ten continuous assessment years and this timeframe of ten assessment years cannot be extended even if one opts out of this benefit, for any reason, as laid down in sub-section (8) of section 10A of the Act. 14.1 It has been also laid down that if the assessee opts out for any particular assessment year/s, then the provisions of sub-section (8) of section 10 shall not apply to him for any of the relevant assessment years. The expression 'relevant assessment year' is defined in clause (vi) of Explanation 2 to Section 10A of the Act. The relevant assessment year means any assessment year fall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er consideration for the purpose of section 263 were not considered and were not decided by the learned CIT(A) at all. In fact, the assessee had not raised any such issue as the Assessing Officer had not passed any order unfavourable to the assessee on this count." In short the conclusion of the CIT(A) was that the powers of the Commissioner under Sec. 263 of the Act extends to such matters as had not been considered and decided in an appeal and the issue considered by CIT in the order u/s. 263 had not been considered and decided in an appeal by the CIT(A). 15-16. As far as the income derived from staffing is concerned, the CIT was of the view that while concluding the assessment the Assessing Officer did not make any enquiries with regard to the question as to the nature of staffing income and there was failure on the part of the Assessing Officer to make enquiries, which he ought to have made before completing the assessment and hence the order of assessment is erroneous and prejudicial to the interests of Revenue. Accordingly, the Commissioner of Income-tax (Appeals) set aside the order of the Assessing Officer on the issue of staffing income and gave the following directions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals) was satisfied with all aspects of deduction u/s. 10A. In that sense, according to the learned counsel for the assessee, the order of the Assessing Officer should be considered as having merged with the order of the Commissioner of Income-tax (Appeals) and therefore, beyond the scope of scrutiny by the CIT u/s. 263 of the Act. In this regard, the learned counsel for the assessee placed reliance on the following decisions wherein the proposition as canvassed by the learned counsel for the Assessee as above has been laid down: "* CIT v. Nirma Chemical Works (P.) Ltd. [2009] 309 ITR 67 : 182 Taxman 183 (Guj.); * M.S.P. Spices (P.) Ltd. v. CIT [1991] 188 ITR 491 : 59 Taxman 69 (Kar.); * CIT v. Shashi Theatre (P.) Ltd. [2001] 248 ITR 126 : 114 Taxman 274 (Guj.); * Fortaleza Developers v. CIT [2013] 141 ITD 133 : 30 taxmann.com 411 (Mum.); * K. Sera Sera Productions v. CIT [2012] 54 SOT 157 (URO) : 27 taxmann.com 36 (Mum.); * S.K. Jain v. CIT [2010] 127 ITD 217 (Agra) (TM); * Oil India Ltd. v. CIT [1982] 138 ITR 836 : 9 Taxman 262 (Cal.)" 19. The learned DR on the other hand placed reliance on the order of the CIT insofar as the period of deduction u/s. 10A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Commissioner of Income-tax (Appeals), so as to render the revision of the said order u/s. 263 of the Act, not appropriate. In this regard, we need to have a look at Explanation (c) to section 263(1) of the Act, which reads thus: "(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal, filed on or before or after the 1st day of June, 1988 the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal." Reading of the Explanation shows that two crucial expressions are used therein, namely (i) 'order referred to in sub-section (1) passed by the Assessing Officer has been the subject matter of any appeal'; and (ii) the power of the CIT u/s. 263 extending to such matters as had not been considered and decided in such appeal. Reading of the aforesaid provisions would clearly show that what is sought to be excluded is only matters considered and decided in such appeal. It cannot be extended to matters which should be deemed to have been considered and decided or ought to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-tax (Appeals) and therefore, the bar under Explanation (c) u/s. 263(1) of the Act would operate. Similar is the ruling in the case of Shashi Theatre (P.) Ltd. (supra), rendered in the context of section 32A of the Act, where investment allowance was allowed in part by the Assessing Officer and allowed in full by the Commissioner of Income-tax (Appeals). In exercise of powers u/s. 263 of the Act, the entire claim was sought to be disallowed. We are not making a reference to the other decision of the Andhra Pradesh High Court and other decisions of the Tribunal referred to before us as the ratio laid down therein is identical to the ratio laid down in the aforesaid High Court decisions. 22. In the case of M.S.P. Spices (P.) Ltd. (supra), the Hon'ble Karnataka High Court had to deal with a case where the Assessing Officer while completing an assessment disallowed certain expenses which was allowed by the Commissioner of Income-tax (Appeals) in an appeal by the assessee. Subsequently, the Commissioner issued notice u/s. 263 of the Act on the ground that sales-tax refund obtained by the assessee was omitted to be assessed. The question before the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious year relevant to AY 1995-96. Therefore the assessment year from which the Assessee in the case of Assessee will begin to get deduction u/s. 10A will be consecutive years commencing from AY 1995-96. The law as it existed prior to substitution of Sec. 10A of the Act w.e.f. 1-4-2001 was deduction was to be allowed for 5 consecutive assessment years falling within a period of 8 years from the assessment year in which the industrial undertaking begins to manufacture or produce articles or things. From AY 2001-02 instead of 5 consecutive assessment years out of 8 assessment years from the assessment year in which the industrial undertaking begins to manufacture or produce articles or things, deduction u/s. 10A of the Act was allowed for a period of 10 consecutive years from the assessment year in which the industrial undertaking begins to manufacture or produce articles or things. In the case of the Assessee for AYs 1995-96 to 1997-98 the Assessee could not get the benefit of deduction u/s. 10A of the Act, may be due to absence of profits or by exercise of its option to choose the following 5 years to claim deduction u/s. 10A as per the law as it existed then. According to the law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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