Section 10A deduction available to an existing unit converted into an STPI export undertaking after approval and commencement of exports.

An existing domestic unit later approved as an STPI/export-oriented unit can qualify for deduction under section 10A if export activity begins after approval and the statutory conditions are otherwise satisfied. The analysis treated CBDT Circular No. 1/2005, though issued in the context of section 10B, as applicable to section 10A because both provisions are pari materia. On the facts, the undertaking's turnover arose from export business after STPI approval, and the objection based on alleged splitting up, reconstruction, or transfer of old machinery was rejected. The deduction was therefore allowed and the disallowance deleted.

---

---

Issues: Whether the assessee was entitled to deduction under section 10A of the Income-tax Act, 1961 in respect of profits from the STP unit, when the unit had earlier carried on business from the same establishment and was later approved as an STPI unit.

Analysis: The assessee had been in existence since 01.04.2006 and obtained STPI approval on 26.03.2009. The unit commenced export activity only after such approval and the material on record showed that the turnover of the undertaking was from export business. The disallowance was made on the premise that the STP unit was formed by splitting up or reconstruction of an existing business and by transfer of old machinery. The statutory scheme and CBDT Circular No. 1/2005, though framed in the context of section 10B, were treated as applicable to section 10A as well because the two provisions are pari materia. The circular recognizes eligibility where a DTA unit is subsequently converted into an export-oriented unit. The reasoning in the Karnataka High Court decision relied upon supported the view that an existing unit converted into an STPI unit can still qualify for deduction under section 10A, provided exports commence after the relevant approval.

Conclusion: The assessee was held entitled to deduction under section 10A, and the disallowance was deleted.

Ratio Decidendi: An existing domestic unit subsequently converted into an STPI/export-oriented unit is eligible for deduction under section 10A where export activity begins after the approval and the statutory conditions are otherwise satisfied.

---