TaxTMI 
TaxTMI 
2014 (10) TMI 356
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....and in law in arbitrarily denying deduction claimed in the revised return of income under Section 10A of the Act in respect of the profits derived from the various undertakings owned by the appellant in the complete disregard of actual facts and circumstances. 3.1. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the eligibility of the various undertakings owned by the appellant, for the purpose of claiming deduction under Section 10A of the Act without considering all the documentary evidence placed on record in support of the claim. 3.2. That the Assessing Officer erred on facts and in law in denying deduction under Section 10A of the Act in respect of the profits derived from the various undertakings owned by the appellant alleging that (a) the original 13 undertakings (as per the original return of income) were split into 31 undertakings by the appellant in the revised return of income (b) no separate license was obtained by the appellant from STPI Authorities in respect of these undertakings (c) that deduction in respect of these undertakings was deliberately not claimed by the appellant in the initial years and (d) no book....
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....vestment. 3.9. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the fulfillment of condition of setting up of each undertaking with substantial new investment without considering the details of capital investment made by each undertaking and the necessary evidence in support thereof fled by the appellant in the course of impugned assessment proceedings. 3.10. That the Assessing Officer erred on facts and in law in concluding that the undertakings owned by the appellant do not represent new undertakings despite the fact that these undertakings have separate identifiable work force. 3.11. That the Assessing Officer erred on facts and in law in concluding that the undertakings owned by the appellant do not represent new undertakings despite the fact that these undertakings were clearly engaged in newer and different technology areas. 3.12. That the Assessing Officer erred on facts and in law in drawing an adverse inference regarding the newer nature of the projects executed by each undertaking in the complete disregard of facts and circumstances and even without considering the evidence filed by the appellant in the course of impugned ....
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....That the assessing officer erred on facts and in law in making the reduction of link charges incurred by the appellant from "export turnover" without making the corresponding adjustment from "total turnover" following the assessment order for assessment year 2004-05, without appreciating that the said issue has already been decided by the Hon'ble ITAT in favor of the appellant for theAssessmentYear2004- 05 and even the departmental appeal against the said order of the ITAT has been rejected by the Hon'ble Delhi High Court. 5.2. That the Hon'ble DRP erred on facts and in law in upholding the proposed action of the learned AO of reduction of expenses incurred by the appellant from "export turnover" for computing deduction under section 10A of the Act without making the corresponding adjustment from the "total turnover" by merely observing that the said issue is under litigation. 6. That the assessing officer erred on facts and in law in enhancing the expenditure disallowable under section 14A of the Act to Rs.l,05,07,741 from Rs,44,55,082 disallowed by the assessee in respect of exempt income applying rule 80 of the Income-tax Rules. 6.1. Without prejudice that the Assessi....
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....wn at Rs. 16,79,29,000/-. Taking into consideration the fact that both the claims u/s 10A in the original return and also in the revised return were supported by 13 and 31 separate Forms 56F respectively duly certified by a Chartered Accountant, he was of the view that in the said background the basic question which arose for consideration was whether the units for whom separate Form 56F had been filed in the revised return could be treated as a separate unit for the purposes of section 10A or not. 2.2. Referring to the fact that till the filing of the revised return, the assessee had all along claimed benefit u/s 10A on the basis of license which were now sought to be changed, he was of the view that the additional units had been formed after the splitting up of the existing 13 units into different units for which fresh and new Form-56F were being filed. The position was summarized by way of a chart by the AO in para 4.3 in the following manner:- Name of the Unit (as per the Original Return) No. of units split into Chennai 1 8 Chennai 2 5 Chennai 3 4 Chennai 4 Not Split Noida 1 6 Noida 2 Not in the Revised Return Noida 3 Not Split Noida 4 Not Split Kolkata Not....
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....ur, Chennai-58 7th J-16, Anna Nagar, Chennai-102 10th No.-50-53, Greams Road, Chennai 6 9th PM Towers, No.-37, Greams Road, hennai-6 5th Sapna Trade Centre, 110 P.H.Road, Chennai-84. 5th 2.7 The AO held that this action not only impacted the result by extending the benefit of the tax holiday, but also impacted the amount of claim. It was observed that the amount of claim under the original return was Rs. 257.25 crores odd which went up to Rs. 275.57 crores odd. This increase was found to be mainly on account of the split up of the units. He took note of the fact that as a result of splitting the units the losses of the individual units were ignored and this accounted for an increase of deduction claimed of Rs. 16.75 crores odd. 2.8. The AO further observed that those units which were in their last year of the tax holiday period, were the ones, which earned the maximum profits for the assessee as out of the total claim made by the assessee under section 10A, 65% belonged to the units which were in the last year of their tax holiday period. The claim u/s 10A of Chenani-1 and Noida-1 which added up to Rs. 170.20 crores the AO found totaled to 65% of the total....
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....imed. This report should be submitted alongwith the return of income." 2.12. Considering the case law relied upon by the assessee in its reply submitted the AO relying on the judgment of the Karnataka High Court in Nippon Electronics (India) Pvt. Ltd. (181 ITR 518) (KAR.) was of the view that the Court had examined therein the argument whether the requirement of formation had to be seen in the year of set-up or, could it be seen even in subsequent years also and on examining the said question it had been held that the term "formed" has been interpreted to imply 'which needs to be seen at the initial year of tax holiday and not during subsequent years'. Reliance was also placed on the decision of the Madras High Court in case of L.G. Balakrishnan and Bros Ltd. (151 ITR 270) wherein the High Court examined as to whether transfer of machinery took place before formation. He also took note of the fact that in some of the judgements namely CIT v. Gopal Plastics (P) Limited (1995) 215 ITR 136 (Mad.) CIT v. Seeyan Plywoods (1991) 190 ITR 564 (ker.), the High Courts have also held that this condition would be applicable on a year-to-year basis. Accordingly, he was of the view that complia....
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....m and relying on I-Gate Global Solutions Ltd. vs ACIT (2007) 112 TTJ (BANG.) 1002; Videsh Sanchar Nigam Ltd. vs. CIT, City-I, Mumbai [2008] 111 ITD 190 (MUM.) (SB)/[2007] 110 TTJ 948 he was of the view that the following legal position emerged which was summed up by him in the following manner:- "6.10. In all those decisions, certain distinguishing features are apparent. An existing unit may start new units; the new units may produce the same articles produced by the old unit; the items produced by the new units may be consumed by the existing unit; there is no quarrel on these factual aspects. But apart from the above common features, the Courts have also held that the new units set up by the existing business houses should be independent units engaged in a distinguishable commercial activity and capable of surviving independent of the existing business. The above features apparent in all the judicial pronouncements endorse the principal view of an "undertaking" as construed in commercial and business circles. An undertaking is not an abstract piece of idea. It is not a concept as such, it can have its own physical identity by land, building, plant and machinery; it can have its ....
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....n a period of 3 years from the issue of the letter of approval (LOP) given for the establishment of the unit under the Scheme, the LOPLAPSES automatically after the expiry of the said 3 years. 3. The nit shall be a net foreign exchange (NFE) earner and NFE should be positive over the period of 5 years. 4. The unit shall realize the amounts due for the exports made within 180 days from the date of export, or the due date under the contract, whichever is earlier. 5. If the unit fails to fulfill the export and other obligations under the scheme, it will be liable to pay the customs duty and excise duty on the goods procured and such other penalties and liquidated damages as may be decided by the Government. 6. In case external commercial borrowings are resorted to, necessary permission from Ministry of finance to be obtained. 7. In case of import of US controlled items, please comply with the relevant provision vide S.No.9 of the standard condition attached to the letter of approval fro 100% EOU. 8. Maintain separate accounts for the operation under the scheme. 9. Maintain prescribed records and document. 10. Apply to STPI for clearance in the following cases: * For any chang....
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....sted to this designated bank branch. The proof of this bank account has to be submitted along with the application for registration under the STP Scheme. 8. Customs Bonding: The premises of STP unit have to be mandatory Custom Bonded, irrespective of whether such unit avails the benefit of customs duty/ excise duty exemption. The custom bonding is to be renewed on a yearly basis for STP units which in the normal course expire on 31st December each year. 9. Certain filing requirements 9.1. "Softex Declaration form As per current regulation a Software Export Declaration (Softex) form is to be filed with STPI authorities within six months of the invoice date. This is a mandatory requirement under the Exchange Control Regulations issued by the Reserve Bank of India. This is filed for declaration of Software Exports through data-communication links and receipt of Royalty on the Software Packages/Products exported. 9.2. Periodical Returns Monthly progress report has to be submitted in Form 14 and should be submitted by the 10th of the next month. Quarterly Progress report has to be submitted in Form 15 to the Designated Officer and to the Ministry of Information and Technology expl....
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.... to be granted a license by the respective STPL After having granted a license, the unit gets registered and is permitted to commence operations, Thereafter, the unit is permitted to expand its area of operation by seeking permission for expansion, At the time of seeking the permission for expansion, it is logical that the assessee will have to execute lease deeds for separate premises and will also have to approach the customs authorities for bonding certificate. Hence the mere existence of these documents does not establish that each expansion is a new undertaking. 3.6. Further considering the reliance placed by the assessee on letter dated 24th October 2008 of STP, Chennai-I he was further of the view that it did not help the assessee. We extract the relevant portion from the assessment order itself :- 12.3. The assessee, as an example has furnished a letter from STP Chennai authorities dated 24th October 2008 in respect of the Chennai I STP wherein it has been stated that the company is eligible to expand its operations by setting up new undertakings. However, it is surprising that the same STPI authorities have actually not issued separate licenses but have merely treated th....
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....te identified work force and in support of the same has presented sample, attendance sheets. This information is not a deciding factor in the debate over a separate undertaking and hence is being considered as being irrelevant. 15. New Technology:-The assessee has further contended that each of these undertaking are addressing newer and different technology areas. This is difficult to verify and further the Mumbai Tribunal in the case of VSNL referred to above has held that the mere fact that new unit has been added by adopting contemporary and appropriate technology will not qualify the new unit as a separate undertaking for tax holiday purposes. 16. Separate Customers:-The assessee has further contended that each and every unit is executing independent computer software projects. On a test check basis it was found that the units at 49-50, Nelson Manickam Chennai and at 158 Arcot Road, Chennai both registered under the Chennai-I STP were servicing the customer CISCO. Further, in a number of cases it was observed that the ultimate customer of the assessee is a group company situated outside the country. Hence not only is the contention of the assessee difficult to verify but is a....
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....llowing manner:- STP License License No. & Date Chennai 1 STPI/IMSC/94/2111 26 Dec 1994 Chennai 2 STPIC/MSC/1999-2000/2589& 2590 07 Mar 2000 Chennai 3 STPIC/IMSC/2002-2003 1287 & 1288 13 Mar 2003 Chennai 4 Noida 1 5(4)/94/57 2796 26 Dec 1994 Noida 2 PCMG/PSE/05/025/STPIN/5524 14 Mar 2000 Noida 3 STPIN/APP/8282003/200228/18766 28 August 2003 Banglore 1 EIG/HCL-Technologies/GEN/19225& 26 30 October 2003 PSO-Chennai 1 STPB/IMSC/93/665 7 June 1996 PSO-Chennai 2 STPIC/IMSC/93/665 7 June 1996 PSO-Noida March 16, 1995 PSO-Kolkata EIC:90:96-97:071 7 June 1996 3.9. Carrying on the examination further he also found that even the second condition that the unit should not be formed by the splitting up of an already existing business was also not fulfilled. 3.10. Further considering the fact that there was no direct judicial precedent for Section 10A and taking cognizance of the fact that the Courts have interpreted similar provision in cases dealing with Section 80IA and 80J of the Income Tax Act 1961 and Section 15C of the Income Tax Act 1922 and the judgment of the Apex Court in the case of Textile Machinery Corporation Ltd. vs. CIT (107 I....
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....nation as to why this mandatory condition has not been followed in the earlier years. Hence going by this condition it is clear that the assessee has not been meeting the fourth condition as stated in Section 10A. 24. Conclusion: Based on the above analysis the following conclusions are reached: * I restrict the claim u/s 10A with respect to the amount as computed under the Original Return of income and ignore the claim made under the Revised Return of Income: and * The time period for the claim u/s 10A will be computed as per the Form 56F submitted along with the original Return only. Consequently this is the last year of tax holiday for the following units including their extensions and these units will not be eligible for claim of benefit u/s10A from the subsequent AY" º Chennai_1; º Noida-1; and º PSO Noida 3.11. Thus a perusal of the above extract from the assessment order shows that considering the third condition which the assessee was required to meet namely that the unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose the AO was of the view that it was a factual condition which was to be verifie....
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....sessee and various arguments advance by the Ld. ARs in support of the claim. We, however find that the claim of the assessee cannot be accepted. The registration granted to the separate software development centres by the STPIs and by the Custom Authorities in no way satisfies the condition that each software development centre is a separate undertaking. These registrations are granted for different purposes. The registration granted by the STPI, is only a certificate that the entire production of that software development centre will be exported. Similarly, the registration granted by the custom authority is also for this purpose and for the additional purpose that the said software development centre will be held as bonded premises for removal of the software manufactured in the premises. That is the only reason for getting these registrations wherever a new development centre is added to the existing development centre running under a license already granted. The software development center added under each license is only an extension of the original undertaking set off under the license granted by the STPI authorities. Therefore the development centers, added subsequent ....
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....s 10A. 5.2. Referring to the material available on record it was submitted that in fact there were 28 undertakings in the previous year + 6 new undertakings out of which 2 undertakings did not have operation and one unit at PSO, Chennai-1 became taxable in the next year. It was submitted referring to the Synopsis dated 01.02.2012 filed that in the revised return of income deduction u/s 10A was computed at Rs. 275.57 crores as against Rs. 257.24 crores computed in the original return of income which was further clarified by the following chart:- Particulars Rupees Amount of deduction claimed u/s 10A of the Act as per the original return of income 2,572,487,070/- Add: Increase in the amount of deduction claimed u/s10A due to increase in the amount of profits of profit making undertakings in the revised return by the reason of separate treatment of losses of loss making undertakings and by the reason of certain disallowances omitted to be made in the original return and subsequently made in the revised return of income. 173,119,409/- Add: Increase in the amount of deduction claimed u/s 10A of the Act on account of adjustment which was done in the original return of i....
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....ows Road, Chennai 13 299, Arcot Road, Vadapalani, Chennai. 600026 3 STPI Chennai-3 4 14 No. 78, South Phase, Ambattur Industrial Estate, Ambattur, Chennai-600058 15 No. 402, Tidel Park, Taramani, Chennai- 600113 16 64, 65 Second Main Road, Ambattur Industrial Estate, Ambattur, Chennai-600058 17 No. 35, South Phase, developed Estate, Guindy, Chennai-60032 4 STPI Chennai-4 1 18 Plot No. 94, South Phase, Ambattur Industrial Estate, Ambattur, Chennai-600058 5 STPI Noida-1 6 19 3, Udyog Vihar, Phase1, Gurgaon. 20 A11-Sector 16, Noida 21 A1CD, Ssector 16, Noida 22 244, Udyog Vihar, Phase 1, Gurgaon. 23 A-5, Sector 24, Noida 24 A10-11, Sector-3, Noida 6 STPI Noida-2 1 25 445, Udyog Vihar, Phase 11, Noida 7 STPI Noida-3 1 26 567, Udhyog Vihar, Phases IV 8 STPI Noida-4 1 27 Sector-60, Noida 9 STPI Kolkata 1 28 14th Floor, Infinity Tower-II, Plot A- 3, Block GP, Sector-V, Kolkata 10 STPI Bangalore 2 29 No. 8 & 9 G B ....
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....ollowing steps were taken by the appellant: 1. Separate premises were taken by the appellant on lease/outright purchase by executing a lease/sale deed; ii. A separate approval was obtained from the STPI Authorities (however, instead of seeking a fresh mother license every time, the appellant had sought the approval by the virtue of seeking endorsements to the existing mother STPI licenses in certain cases); iii. A separate approval was obtained from the Customs Authorities and a separate Customs Bond was executed by the appellant; iv. Separate Bond Registers are maintained contemporaneously by each of the undertakings for the procurement of imported and indigenous capital goods (every time, an item of capital goods-either imported or indigenous-was procured by any of the SPTI Units, the relevant invoice was first signed and stamped by the concerned Customs Officer and then the capital goods was entered into the bonded premises of the concerned STPI Unit); v. Whenever any capital goods is supplied by any of the customers on loan basis for the execution of a project to a STPI Unit, the same is also recorded in the Customs Bond Register maintained by the undertaking; 5.5. It was ....
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....puted the deduction u/s 10A in respect of which each undertaking on the basis of Profit & Loss Account prepared by considering the revenues and expenses both direct and indirect expenses on the basis thereof which it has been duly certified by the Chartered Accountant in Form 56F. Accordingly it was his contention that each undertaking is an independent and separate undertaking registered with STPI and is eligible for deduction u/s 10A in as much as:- "i. Each undertaking was et up with substantial capital investment, new business and new models; ii. The undertaking had identified workforce; iii. Each undertaking is situated in a separate identifiable premises bounded by custom authorities and registered with STPI; and iv. Each undertaking is independently executing computer software projects. 5.9. It was further submitted that on the request of the assessee Chennai STPI Authorities had clarified the position available on record vide Certificate reference No-"STPIC/A-111/2008-09/A-5419 dated 24.10.2008 the nature of permission granted for setting up of the undertaking . The relevant portion thereof is extracted from the written submission Page 20 hereunder:- " Approval h....
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....y defined in the dictionaries, law lexicon, encyclopedia etc. For ready reference we extract from the assessee's written synopsis on record: " The term "undertaking" has not been defined in Section 10A of the Act. However, Clause (19AA) of Section 2 of the Act, which defines 'demerger', defines for the purpose of that clause an 'undertaking' to "include any part of an undertaking, or a unit or division of an undertaking or a business activity as a whole but does not include individual assets or liabilities or any consideration thereof not constituting a business activity." The meaning of the term "undertaking", as provided in the various dictionaries, is extracted as under: Webster's 3rd new International Dictionary-Vol-3,Pg. 2491 A business work project in which one engages in or attempts" Dictionary.com A task, enterprise, etc., undertaken. Law Lexicon-Second Edition "The word 'undertaking' must be defined as "any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade." Black's Law Dictionary "A promise, pledge, or engagement". Illustrated Oxford Dictionary "work, etc., undertaken, as enterprise". Webster's Ency....
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....ustrial undertaking" occurring in Section 54D of the Income-tax Act, a Bench of this court in P. Alikunju, M. A. Nazeer Cahsew Industires V. CIT [1987] 166 ITR 804 807 stated thus: "What then is an 'industrial undertaking'. The Income-tax Act does not define what is ' an undertaking' or what is an 'industrial undertaking'. It has, therefore, become necessary to construe these words. Words used in a statute dealing with matters relating to the general public are presumed to have been used in their popular rather than their narrow, legal or technical sense. Loquitur ut vulgus, that is, according to the common understanding and acceptation of the terms, is the doctrine tht should be applied in construing the words used in "It is not the manufacture or production of articles by the company but the manufacture or production by the undertaking, which is different from the company, that is contemplated under the sub-section. A company may own or run many undertakings some of which may be entitled to the benefit of section 84 and others may not be so entitled. It is not, therefore, possible to equate the undertaking with the company. When a company owns more than one undertaking the appli....
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....ery Corporation the Revenue's argument before the Tribunal that there was only one license was not accepted by the Tribunal. Reliance was also placed upon the decision of the Tribunal in the case of Birla Software Ltd. 2003-04 assessment year in ITA 3812 and 3919/Del/2006 wherein it was held that the new unit (GPC Unit) which was set up by the assessee with substantial investment and as an independent viable undertaking was capable of doing business of its own, the same would be eligible for deduction u/s10A. 5.16. Accordingly the arguments were concluded as under:- " It is submitted that for the purpose of claim of deduction u/s 10A of the Act, the requirement as per sub section (2) thereof is that the undertaking should be set up for manufacture and export of computer software and such undertaking should be registered with STP. The test for construing whether a unit is to be regarded as independent viable undertaking has been laid down by the Supreme Court and position in this regard is no more res integra. In order to constitute an independent viable undertaking, the undertaking is to be formed by investment in new plant and machinery, should have separate identified workforc....
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....projects and each undertaking is an independent, viable undertaking executing and executing separate software projects." 5.17. It was also contended that the reliance placed by the AO on Videsh Sanchar Nagar Nigam 1`00 TTJ 948 (Mum) (SB) is misplaced as the issue in the said decision was distinguishable on facts. The objections of the AO that the conditions as provided in sub-Section (2) of Section 10A in relation to the formation of the unit in as much as that it should not be formed by splitting up or reconstruction of business already in existence or the unit should not be formed by transfer of a new business plant and machinery previously used etc has to be seen in the initial year is based on the presumption that the investment in the initial year has not been examined. It was submitted that in case of the appellant, each of the undertakings (software development centre) are set up as an independent viable unit independently executing computer software development project. Each of the undertakings it was argued satisfies the test of being an independent undertaking for the purpose of claiming deduction u/s10A of the Act, in as much as, each undertaking has identifiable ....
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....ar of formation of such undertaking." 5.19. Since the hearing in the present appeal was spread over on different dates as a part-heard matter, the Ld. AR was required to summarize his arguments referred to for our consideration so as to ensure that the arguments which were advanced in parts on different dates are not missed out. In terms of the said direction both the sides were directed to exchange the summary of arguments advanced respectively and thereafter file the same with the Bench. In view of the fact that the parties filed their written submissions on different dates the hearing was fixed for clarification so as to address the fact whether the respective submissions were available to both the sides. Subsequently, it was further found that the various orders and documents relied upon by the parties during the course of the hearing were found to be placed haphazardly and not compiled in any logical manner, consequently were not readily available on the files as either they were missing in both and/or either set as they had not been tagged by the Registry after the hearings, the parties were accordingly directed to ensure that the documents relied upon are properly tag....
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....ing, and (5) above all, a separate and distinct identity of the industrial unit set up." 5.21. It has further been submitted that applying the principles laid down by the Apex Court in the said judgment, the Courts and Tribunals have held that the expansion of business resulted in "setting up"/ "coming into existence" of new industrial undertaking entitled to the tax holiday benefit under the relevant Sections) even in the absence of separate license cannot be denied. The following decisions were relied upon:- "-Maral Overseas Ltd. Vs. ACIT: ITA Nos. 777 & 900 of 2004 & 295 & 356 of 2006 (ITAT Indore Special Bench) -Patni Computer Systems Ltd. Vs. DCIT (ITa Nos. 426 & 1131/PN/06), approved by the Mumbai High Court vide order dated 28 February 2013 in ITA No. 1148 of 2012 reported in 215 Taxman 109\8. -ACIT Vs. Symantec Software India (P) Ltd. (ITA Nos. 787 & 805/PN/09) -Jayant Agro Organics Ltd., Akhandanad, Mumbai Vs. Jt. CIT (ITA Nos. 5439/Mum/01 dated 3/3/2006, 5.22. It has also been summarized that the deduction u/s 10A is available for a period of 10 years following the initial assessment year in which the undertaking begins to produce computer software. It was submitte....
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....tted has been issued by NOIDA STPI Authorities clarifying the nature of permission granted for setting up of the undertaking. 5.25 In this background it has been submitted that the deduction u/s 10A claimed in respect of 31 undertakings deserves to be allowed as there is no dispute about the units/undertakings fulfills the other conditions in sub-section (2) of Section 10A of the Act as such is entitled to claim deduction thereunder as each undertaking is a separate and distinct undertaking capable of existing independent of the other already set up units and the following criteria is fulfilled: i. Separate physical location- premises, electric connection , etc (as demonstrated with reference to the photo album on record); ii. Separate work force iii. New plant and machinery iv. Separate set of customers v. Independent and separate organizational hierarchy vi. Independently executing computer software development project vii. Separate identifiable revenues/costs and profits. 6. The arguments in support of the orders on behalf of the Revenue were equally emphatic. The Special Counsel appointed by the Revenue Shri G. C. Srivastava also carried us through in detail through th....
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....ubmissions which were to be placed on record after mutually exchanging the submissions with the other side. Pursuant to this written submissions dated 23/7/2013 which contains the gist of the submissions of the revenue was subsequently filed and the appeal was fixed for clarification so as to ensure that the other side also had the benefit of the written submissions and thereafter the hearings were fixed for sorting the various documents on record on which the parties had relied which direction was complied with by the parties. Accordingly while referring to the arguments advanced by the Revenue in the hearing orally reference wherever necessary will be made also to the written submission filed on record. 6.3. In the light of the material available on record and the arguments advanced on behalf of the assessee. Ld. Special Counsel appearing for the Revenue has contended that the core question in the appeal is whether these units operating at different locations were infact set up as separate independent undertakings or had these units been set up as integral part of the existing units and represented merely expanded locations of the existing units. It was his submission that....
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....al units which were as per assessee's accepted stand were only expanded locations of the existing undertakings they cannot now become separate undertakings at assessee's convenience. It was his submission that the endeavor is not to argue that the validity of the revised return is in dispute the thrust of the submission is that revised return by itself is of no consequence in determining the true nature and status of these units which will need to be determined in the light of the para meters stated above. 6.5. It was his submission that when an assessee proposes to expand the capacity of his business or to go into a different product line or service he has the option of either expanding the existing business or set up an independent and separate unit as an independent viable unit. This choice it was submitted has to be exercised by the assessee and it will determining whether the unit is a dependent unit or an independent and separate unit. The determination of the status of the unit will depend upon the fulfillment of the conditions set out in this regard. In the said background, it was his submission that it needs to be examined whether the additional units for which the ....
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....ns), these were never regarded by the assessee himself as independent or separate undertaking. The AO has also treated these as mere new locations forming integral part of the existing units. In fact, there has been no dispute between the Revenue and the assessee in this regard in all these years. This is evident from the following a. From the inception till date, these : new locations and bonded premises were regarded as part of the existing units in each of the assessment year preceding the year under appeal. This comes out very clearly from the fact that the claim of deduction was made and allowed by taking all such locations as part of the existing units. b. The financial statements and the books of accounts for all these years were drawn on that basis. The question is not whether the assessee maintained separate books of accounts or the accounts were maintained in a manner or system which permitted the assessee to draw a separate Profit and Loss account for each unit. The vital fact which deserves consideration that the assessee company did in fact draw P & L account taking the additional units as an integral part of the existing units. The financial statements for all these....
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....e used to alter the factual matrix. If these additional units were not set up as independent and separate new units by the assessee, these cannot be regarded as such based on the strength of case laws. These case laws deal with situations where the facts were not in dispute and the claim was disallowed by the Revenue on one ground or the other. 12) In a converse situation, Revenue would never be permitted to alter the factual determination after examining a claim of deduction for five or six consecutive years. The same principle holds good for the assessee company as well." (emphasis provided by the Bench) 6.6 Accordingly a reproduction of the brief , succinct and concise arguments placed on record by way of gist of submission advanced fully encapsulates the thrust of the departmental stand on the basis of which the vehement plea has been that in the facts of the present cases the assessee's claim has rightly been rejected by the AO and the DRP and the consistent stand on facts deserves to be upheld. 7. We have heard the rival submissions and perused the material available on record. The decisions relied upon before us along with the judgments and decisions referred to in the or....
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....ary paper book page no-826 to 831 specific page 827 which is a photocopy of the assessment order for 1999-2000 A.year. A perusal of the same shows that it is an incomplete copy of the assessment order. Referring to the said page it has been claimed that setting up of these new units was in the knowledge of the department. The Ld. Special Counsel for the Revenue referring to the very same page emphasized that nothing much turns on this as the AO has given a finding that unit-wise computation derived from these was not provided by the assessee. For ready-reference we extract the relevant portions from the paper book page-826 and 827 of the assessment order:- INCOME TAX DEPARTMENT Name and address of assessee : M/s HCL Technologies Ltd. 806-808, Sidhartha 96, Nehru Place, New Delhi. Assessment Year : 1999-00 PAN/GIR No. : AAACH0435P Status : Company Circle : 12(1) Residential Status : Resident P.Y. ending : 31.3.1999 Dates of Hearing : 19.02.02, 11.03.02, 21.03.02 & 23.03.02 Date of Order : 28.03.2002 Section in which order passed : 143(3) "Return of income was filed on 31.12.1999 declaring income of "NIL" after claim of exemption under section 10A for its ent....
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.... claim of exemption under section 10A is required to be made." (This portion has been emphasized by the Revenue) 7.1. On behalf of the Revenue referring to the above extract and also the categoric finding recorded in the assessment order it has been argued that unit wise computation of these extended units has never been provided. Referring to the record it has been argued that it is an admitted fact that for these extended units the assessee claimed deduction qua these extended units and never claimed that these were newly set up undertakings and not extended units . It is also an admitted fact that accepting the past settled position in regard to the status of these units as extended units of the specific undertakings original return was filed. It is also an accepted fact that only by way of a revised return for the very first time it has been claimed that these extended units at different locations were in fact fully meeting the criteria of being designated as an independent undertaking as enumerated by various judgements and orders. On the basis of which considering the provisions it has been argued by the assessee that the requirements are fully met. The reliance placed on l....
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.... by itself establish a new undertaking being set up as it is required even for expansion. It has been submitted that only the assessee knows whether it was expansion or a new undertaking and having led the department to accept that it is an expansion it cannot now be allowed to insist that it should now be treated as a fresh undertaking having been set up 7 or 10 years ago as this would be a travesty of justice. On examination and consideration of facts, documents, provisions and judgements, we find ourselves in concurrence with the departmental stand. The Revenue has also argued as has been set out in the earlier part of this order in greater detail while referring to the assessment order and on consideration of the decisions and judgement cited, we also find ourselves in agreement with the submission of the department as it would not only be against legal ethics and contrary to settled facts but would also amount to travesty of justice. In the circumstances the claim put forth by way of a revised claim we find has rightly been disallowed. 7.2. While arriving at the said conclusion we have taken into consideration the decisions cited. It may be appropriate to refer to judge....
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...., the High Court held that the change of producing one's own goods systematically used in the existing business instead of buying them from outside would only be a reconstruction of an existing business within the meaning of section 15C (2)(i). On appeal to the Supreme Court: Held, reversing the decision of the High Court , that the steel foundry division and the jute mill division were not formed by the reconstruction of the business already in existence within the meaning of Section 15C (2)(i) and that, therefore, the appellant was entitled to the exemption claimed. For the reconstruction of an existing business there must be transfer of the assets of the existing business to the new industrial undertaking. A new activity launched by the assessee by establishing new plants and machinery by investing substantial funds may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein artic....
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....s own conduct has opted and exercised its rights in such a manner that it has presented these expanded locations as expansions over the years and now in the fag end would want to redesignate them as independent units which claim by very flux of time is not capable of being examined in the fag end of the period. Accordingly on facts we hold the claim has rightly been rejected. Similarly it has been emphasized that in order to meet the STPI regulations even expanded units need to be custom bonded. On consideration we find ourselves in agreement with the submission advanced on behalf of the Revenue that placing reliance on decisions where introduction of fresh capital has been laid down as a relevant criteria and where the increased work force has been considered to be a relevant criteria etc. would in the facts of the present case be of no assistance to hold that the 31 units were viable independent undertaking within the meaning of the Act and the relevant provisions as by assessee's own choice they have been treated over the years as part of existing undertakings and in the fag end of the period for claiming deduction their status cannot be changed by selectively reading the princi....
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....w is not always logical at all." 7.4. In the circumstances we find no hesitation in agreeing with the contention of the Ld. Special Counsel for the Revenue who has contended at the cost of repetition that firstly by way of the revised return, the assessee has attempted to seek exclusion of the units which were loss making units as a result of which the assessee has now sought to claim deduction of 275.56 crore odd instead of 257.24 crore odd which was originally claimed. The said argument cannot be faulted with. It has also been his stand that the claim of the assessee is not genuine. Apart from the other reasons which are available in the orders on which heavy reliance has been placed by the Revenue and on consideration we find the reasons cogent, relevant and acceptable, it has also been his stand that having separate locations for the unit does not mean these separate expanded locations become separate undertaking as an undertaking in the STPI Zone even for expansion purpose can expand only if permission is granted by the STPI authorities which has been granted over the years and the assessee over the years has treated these expanded locations as expansions and only now in some....
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....made the authorities and the parties act on the arrangements made and simply because after a few years a study is done which shows how the affairs could have been better arranged as per experts advise then the arrangement cannot be upset because it does not suit the assessee relying on precedents even if it is demonstrated that had the expansion been claimed as setting up a new undertaking then the re-arrangement would have been more beneficial and profitable or tax saving to the assessee as settled facts cannot be unsettled only because they with hindsight did not prove to be more suitable. As observed it is not only against legal norms and ethics it would tantamount to a situation where it would lead to travesty of justice. The reports, study have their own role and relevance however adjudication necessitates marshalling the accepted facts and not unsettling the settled facts. The revised return based on legal advise in the peculiar facts and circumstances of the present case cannot unsettle the settled facts and neither can reliance placed on legal precedents and case law in entirely different context warrant such an action. It has also been canvassed that it is for the AO....
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.... same lay down a precedent based on which the assessee can resile from its stated position. The stated position being referred to herein does not refer to the filing of returns in one of two years but at times for 10 years; and 7 years and 5 years or so. Accordingly for the detailed reason given hereinabove the grounds raised by the assessee qua the issue is dismissed. 8. On a perusal of Ground No-4 to 4.4 agitated by the assessee it is seen that the assessee has assailed the action of the AO in calculating the amount of deduction allowable u/s 10A of the activity by reducing the expenses incurred in foreign currency for providing technical services. The draft order on this point was confirmed by the DRP leading to the passing of the order under challenge. It is seen that the issue had been decided in assessee's favour by the Tribunal in the immediately preceding assessment year which was not unsettled by the Hon'ble High Court. Only because SLP filing was under consideration the issue was kept alive by the AO. In the afore-mentioned peculiar facts and circumstances the reliance by the assessee on the order dated 23.01.2009 in ITA Nos.-3199 & 3144/Del/07) which view was also taken....
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....2007-08 A. Years and the year under consideration is 2005-06 A.Year accordingly the issue is restored to the AO to re-determine the same in the light of the directions given by the Jurisdictional High Court in para 42 of the said judgement. Ground No.-6 to 6.2 are accordingly statistically allowed. 11. Qua the Ground No-7 to 7.1, it is found that the assessee has assailed the action of the AO in allowing depreciation @ 15% instead of 25% as applicable to plant & machinery on various items of electrical installation. The issue was challenged before the DRP who directed the AO to allow the claim after verification as to whether or not the items of electrical installation are part of the plant & machinery. A perusal of the record shows that the said direction has not been followed accordingly we restore the issue back to the AO with the direction to decide the same in accordance with law after giving the assessee a reasonable opportunity of being heard. 12. Qua the next issue agitated by the assessee vide Ground No-8, it is found that the assessee by way of its revised return of income has claimed deduction of Rs. 6,20,012/- on account of expenditure incurred for the purpose of earn....