TaxTMI 
TaxTMI 
2015 (6) TMI 669
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.... which revealed from the record are as under. The assessee firm is carrying out the business of information technology services - ERP Consulting. The assessee filed the return of income for the A.Y. 2010-11 on 31-08-2010 declaring total income of Rs. 13,53,140/-. The assessment of the assessee has been completed u/s. 143(3) of the Income-tax Act in which the Assessing Officer has rejected the claim of the assessee for deduction u/s. 10A of the Act to the extent of Rs. 1,02,52,181/-. During the course of assessment proceedings the Assessing Officer has noticed that though the assessee firm had claimed to be in the business of software development, however, has not shown any asset in the balance sheet for the relevant year. An explanation in this regard was sought and after considering the submission given by the assessee firm, the Assessing Officer examined the eligibility of the assessee's claim of deduction u/s. 10A of the Act. The Assessing Officer observed that as per the provision of clause (iii) of Sub-sec. (2) of Sec. 10A, an STP in which machinery or plant previously used has been transferred of value exceeding 25% of the total value of the plant and machinery, such STP's ar....
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.... disallowed. 3. The assessee challenged the action of the Assessing Officer before the Ld. CIT(A) but did not find favour. The Ld. CIT(A) confirmed the order of the Assessing Officer on the issue of deduction u/s. 10A and dismissed the appeal filed by the assessee. The reasons given by the Ld. CIT(A) are as under: "3.4. I have considered the submission made by the appellant and perused material on record. The appellant is a firm engaged in the business of information & technology services i.e. ERP consultancy. The software development fees were accounted for at Rs. 1,26,02,998/- and the net profit declared thereon was of Rs. 1,11,47,522/- and the claim u/s 10A was at Rs. 1,02,52,181/-. The appellant-firm had made a claim of deduction u/s 10A and the audit report in form 56F was also filed by the appellant. The appellant-firm has submitted that the assessment year under appeal is the first year of operation of its STP unit. The A.O. however, has observed that despite the claim made by the appellant to be engaged in software development including maintenance, support, customization of ERP system, the appellant-firm had not shown any asset in the balance-sheet. The A.O. held that th....
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.... been able to bring any such material on record to show that the aforesaid condition as stipulated under clauses (ii) & (iii):of section 10A(2) have been fulfilled. The facts of the case law relied upon by the appellant-firm in the case of CIT Vs. Expert Outsource (P) Ltd (2011) 59 DTR 86 (Kar), related to a case of conversion of an existing unit into an STPI unit; whereas the present case is of a new undertaking altogether. Further, in that case relied upon there was no export of computer software prior to the registration rather it commenced 'only after the unit was registered whereas in the present case the material on record indicates the commencement of the business prior to its registration on 07.09.2009. Thus the appellant's claim that the STP scheme is an independent code and the same does not recognize the conditions envisaged by section 10A(2) is also not correct as the said scheme prescribes the conditions and criteria and the manner of carrying out the business and does not define the manner in which the tax exemption would be granted. The legislature has prescribed section 10A for the purpose which details the conditions which are required to be fulfilled befor....
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.... by the partner of the firm Shri Arvind V. Patel through his bank account with HDFC Bank as the assessee did not have the bank account which was only opened on 20-04-2009. He referred to Page No. 15 of the Compilation where the copy of the HDFC Bank account is placed. He submits that the assessee has not used any secondhand laptops which were earlier used in some other business. He argues that otherwise also no dispute about the fact that the assessee's unit is registered as STP on 07-09-2009 and on the erroneous assumption, the Assessing Officer held that from the date of purchase of the two laptops and a printer on 03-04-2009 till the date of registration of the assessee firm as STP on 07-09-2009, those laptops and printer were used not in the business of the assessee firm. He argues that due to the oversight as the payment has gone through the partner's bank account, the same was remained to be taken in the balance sheet of the assessee firm. He submits that both the partners of the assessee firm have not having any income other than the profits and remuneration from the assessee firm. He pleaded for allowing the deduction u/s. 10A of the Act. Per contra, the Ld .DR supported th....
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....01-04-2009 but the STP registration was granted on 04-08-2009 (both authorities below mentioned date of grant of registration as 07-09-2009 but as per copy of permission letter Page No. 12 of the Compilation, correct date is 04-08- 2009) and in the opinion of the Assessing Officer that amounts to violation of clause (ii) of Sub-sec. (2) of Sec. 10A. We fail to understand how the said condition applies to the assessee's case? merely because the STP registration is granted sometime after assessee firm was formed and started it's business. From the wording of clause (ii) of Sec. 10A(2) with no stretch of imagination it can be said that the assessee firm is formed by the splitting of or reconstruction of a business already in existence. Nothing is there on record to suggest that the said ERP business of the assessee firm was carried on by other entity including the partners in individual capacity and subsequently the business of the said entity was splitted or there was a reconstruction. To our understanding, applying clause (ii) to Sec. 10A(2) of the Act to the case of the assessee is totally erroneous. The Assessing Officer has also observed that clause (iii) of Sec. 10A(2) is also v....