By AJAY R. SINGH
Advocate
Assessee a 100% EOU is engaged in
the business of software development and export of software. In its return of
income, Assessee had claimed benefit of exemption u/s. 10B of the Act in
respect of its 100% EOU. The assessment was completed on 29th March,
2006 u/s. 143 (3) of the Act.
The CIT passed an revision order
u/s. 263 of the Act, holding that the
assessment order was erroneous and prejudicial to the interest of Revenue. This
to the extent exemption was allowed u/s. 10B of the Act in respect of non
receipt of foreign exchange within six months of exports and on the issue of
International Transactions in respect of Transfer Pricing of International
Transactions with Associated Enterprises (AE), not being referred to the
Transfer Pricing Officer (TPO) in terms of section 92CA of the Act. In the
light of the above, the CIT directed the A.O to finalise the assessment denovo,
on the above issues.
Consequent to the above order of
the CIT, the A.O proceeded to pass a fresh order. However, in the fresh order,
the A.O not only dealt with issue of exemption u/s. 10B of the Act in relation
to delay in realisation of foreign exchange and referred the matter to the TPO
but also dealt with the issue of reallocation of R & D Expenses for
claiming deduction u/s. 10B of the Act.
Being aggrieved by the order of
A.O, the Assessee carried the matter in appeal to the CIT(A). The CIT(A) by an
order, accepted the contention of the assessee that, the A.O had gone beyond
the issue which were directed to be considered denovo by the CIT in its
order u/s.263 of the Act. Therefore, to that extent, the order was without
jurisdiction. Notwithstanding the above finding, the CIT(A) proceeded further
to decide the issue, inter alia, with regard to R & D expenses on
merits, held that assessee is entitled to set off R & D expenses with the
profits of STIP units as the R & D expenses have a direct nexus with the
export business of the STIP unit.
Being aggrieved with the order of
the CIT(A), both the Revenue as well as assessee filed the Appeal to the
Tribunal. The Revenue in its appeal before the Tribunal, did not challenge the
finding of the CIT(A) that the order of the assessing officer dated 24th
December, 2009, was beyond the directions contained in the order dated 27th
September, 2007 passed by the CIT u/s. 263 of the Act and, therefore, without
jurisdiction. Nor did it urge this issue at the hearing before the Tribunal.
The Revenue’s only challenge was on the issue of allowing the set off of R
& D Expenses incurred in a non STIP Unit with STIP unit of the Respondent .
The Appellant’s basic contention
was that once the CIT(A) had by its order dated 12th January, 2011
had accepted the fact that the Assessment Order dated 24th December,
2009 had gone beyond a scope of directions of the CIT u/s. 263 of the Act,
there was no occasion for him to touch upon the merits of the issue. This as it
was beyond the scope of the directions of the CIT i.e. to the extent of set off
of R & D Expenses. The ITAT upheld the contention of the assessee.
Being aggrieved with the order of
the ITAT, the Revenue filed the Appeal before the High Court. The Court
observed that the Revenue has not challenged the finding of the CIT(A) that the
A.O has gone beyond the scope of directions given by the CIT(A) in its order
u/s. 263 of the Act. The issue now being urged by the Revenue in appeal. As
this was not an issue urged by them before the Tribunal, this question does not
arise from the order of the Tribunal.
Further the question as urged, is
beyond the issue raised before the Tribunal and cannot be urged before this
Court as held by this Court in CIT vs. Tata Chemicals 256 ITR 395. In
any case, it may be pointed out that the earlier Assessment Order dated 29th
March, 2006 has not been cancelled by the order of CIT u/s. 263 of the Act, for
passing a fresh Assessment Order. Once it is not disputed by the Revenue before
the Tribunal that, the order of the A.O on set off of R & D Expenses was
beyond the scope of the directions given by the CIT in exercise of its power
u/s. 263 of the Act, the occasion to examine the correctness of the same, would
not arise. Accordingly, the Appeal
was dismissed.
