2014 (5) TMI 932 - AT - Income Tax

Tribunal upholds CIT(A)'s order allowing deduction under Section 10A

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order allowing the deduction under Section 10A. It was held that the CBDT Circular No. ... Allowability of deduction u/s 10A of the Act - Whether the CBDT’s Circular no. 1/2005 dated 6.01.2005 with reference to S.10B is equally applicable to S.10A of the Act – Held that:- The assessee was originally carrying on business in the domestic tariff area - Later it had shifted to STPI area and was granted registration for the period of 5 years from 20th July,2008 – Relying upon Commissioner of Income Tax & Others Versus Maxim India Integrated [2011 (7) TMI 518 - Karnataka High Court] - CBDT Circular no. 1/2005 dated 06.01.2005 grants certain benefits u/s 10B, though the circular is in the context of section 10B, the ratio of the circular equally applies to section 10A also - the benefit of section 10A would also be available even when an existing unit get converted into a STPII unit - no export of computer software was made before the 04.08.2004 - The export commenced only after 4.8.2004 - CIT(A) has rightly allowed the claim of the assessee – Decided against Revenue. Reconstruction of business – Held that:- CIT(A) rightly was of the view that the claim of the assessee for the Assessment Year was in order and this claim is directed to be allowed - the appellant would be eligible for deduction on the export profits of the year, earned by it after it was granted registration by the STPII and moreover this deduction would be available only up to AY 2012-13, as per third proviso to s.10A(1) – Decided against Revenue. Issues Involved:1. Applicability of CBDT Circular No. 1/2005 to Section 10A.2. Determination of whether there was a reconstruction of business.Detailed Analysis:Issue 1: Applicability of CBDT Circular No. 1/2005 to Section 10AThe primary issue in this case is whether the CBDT Circular No. 1/2005, which pertains to Section 10B, is equally applicable to Section 10A of the Income Tax Act. The assessee, a company engaged in computer application services, filed its return of income declaring a net taxable income after claiming a deduction under Section 10A. The Assessing Officer (AO) denied this deduction, leading to an appeal.The Commissioner of Income Tax (Appeals) [CIT(A)] applied the CBDT Circular No. 1/2005, which clarifies the tax holiday under Section 10B, and held that it is equally applicable to Section 10A. The Revenue contested this, arguing that the circular specifically references Section 10B and does not apply to cases involving the reconstruction of an existing business.The Tribunal, after considering the facts and circumstances, held that a plain reading of Section 10A does not bar a business unit operating in a domestic tariff area from shifting to an STPI area as an export unit. The Tribunal referenced the Hon'ble Karnataka High Court's judgment in the case of CIT vs. Maxim India Integrated Circuit Design Pvt. Ltd., which stated that the CBDT Circular No. 1/2005 applies equally to Section 10A. The Tribunal agreed with the CIT(A)'s application of this decision, thereby supporting the assessee's claim for deduction under Section 10A.Issue 2: Determination of Whether There Was a Reconstruction of BusinessThe second issue is whether the assessee's business was reconstructed, which would disqualify it from claiming the deduction under Section 10A. The AO argued that since the assessee had acquired all fixed assets before shifting to the STPI area, it constituted a reconstruction of the business. The CIT(A) disagreed, stating that the assessee provided sufficient evidence, including the STPI registration, auditor's report, and shareholder/director lists, to prove that there was no reconstruction.The Tribunal reviewed these submissions and the CIT(A)'s findings, which included the fact that no assets were disposed of during the year and there were additions to the fixed assets. The Tribunal upheld the CIT(A)'s decision, stating that the assessee was eligible for the deduction under Section 10A, limited to the export profits earned after the STPI registration and only up to the assessment year 2012-13.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order allowing the deduction under Section 10A. The Tribunal agreed that the CBDT Circular No. 1/2005 applies to Section 10A and found no evidence of business reconstruction. The appeal of the Revenue was thus dismissed, and the findings of the CIT(A) were upheld.