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ITAT Upholds Assessee’s Eligibility For Deduction u/s 10(B)

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Aggrieved by the order dated 1.1.2019 passed by the Learned Commissioner of the Income Tax, an appeal was filed where the tribunal rejected the argument advanced by Ld. counsel for the Assessee and uphold that Assesses is eligible for deduction under Section10(B) for the entire period of assessment year under consideration.


The Assessee in the question was a partnership firm registered as a 100% Export-Oriented Undertaking (EOU) with the Software Technology Park (Noida) for the Development/Manufacture and Export of Computer Software/IT-enabled services vide Letter of Permission No. STPIN/APP/1152020/201299/70562 dated 15.01.2010. Foreign Trade Policy, an agreement dated 26.03.2010 was entered between the appellant and the President of India acting through the Director, STPI Noida while marking a copy of such agreement to the Dy Commissioner Customs & Central Excise, New Delhi.

The Assessee was allowed with some deduction in the income tax under section 10 (B) of the Act and recorded a finding of fact that the assessee failed to specify necessary evidence to the effect that the approval granted by the Development Commissioner of STPI was ratified by the board of approval for EOU scheme.

Since, this was a crucial requirement envisaged under section 10 B of the Act, he disallowed the entire claim of deduction under section 10B of the Act. Learned Assessing Officer further observed that though the assessee provided details of the subsequent receipts of the foreign currency, there was no documentary evidence. 


It is the argument of the Ld. AR that initially at the time of the insertion of section 10(B) of the Act in the statute given the prevailing regulatory mechanism in respect of the industries by way of Industries (Development Regulation) Act, 1951, the change in the industrial policy of the government and the consequent March of law in respect of the revelations under the IDRA are not reflected promptly in the Income Tax Act, more particularly in clause (iv) of explanation 2 to section 10 B of the Act.

However, later the tribunal considered an alternative claim for the entitlement. Ld. DR objected to the submissions made by the Ld. Counsel regarding the amount that qualifies for deduction under section 10.  There was also no dispute available in the IT Act of 100% export orientation. 2 clauses of section 10(B) were also stated, firstly manufacturer of article or computer software secondly it was not transferred by the previously used machinery. 

Court’s Observation

Here, the tribunal observed that there is no allegation by the authorities below regarding the activity of export of computer software by assessee and date of application made by the assessee to STPI. As on the date of application as well as the date on which the approval was sought, Ld. AO had also not alleged that the assessee’s violated any of the conditions specified in Section 10(B).

The tribunal also held that equity and income tax have been described as strangers. The Act from the very nature of things cannot be cast upon logic. It is to be read and understood according to its language. A provision for deduction, exemption or, relief should be construed reasonably and in favor of the assessee. Consequently, the building which has not been specifically defined to include the road in the Act must be given a legal sense. 

Court’s Decision

The tribunal decided to reject the argument advanced by the Ld. Counsel for the assessee and uphold that assessee was eligible for the deduction under 10(B) for the entire year and the appeal of the assessee was sanctioned.

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