AI Drafter 
TaxTMI 
TaxTMI 
2015 (8) TMI 916
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....reated by transferring more than 20% of plant Appellant by Smt. Swati Ratna, D. R. Respondent by Shri S. C. Agarwal, Advocate Date of hearing 01/07/2015 Date of pronouncement 14/08/2015 & machinery of its existing unit in violation of provisions of section 10A." 3. The grounds raised by the Revenue in assessment year 2010-11 are as under: "1. The learned CIT(A) has erred in law and on facts of the case in allowing the deduction of Rs. 95,14,127/- claimed u/s 10A without passing the speaking order and only relying solely on the appellate order of the earlier year (2009-10). 2. The learned CIT(A) has failed to appreciate that the basic conditions for claiming deduction u/s 10A were not complied with by the assessee and the claim has been made in violation of provisions of section 10A." 4. Learned D. R. of the Revenue supported the assessment order. He also submitted that on page No. 42 of the paper book submitted by the assessee, is a calculation chart of depreciation as per Income Tax Rules and from the same, it can be seen that even out of 10 computers installed by the assessee in the present year, 8 computers were to put to use by 27th September, 2008 and the assessee ....
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....at the assessee company is in existence since 1999 and during the year under consideration, it set up a unit for 100% export of computer software. For the said purpose approval was obtained by it from Software Technologies Park of India (hereinafter referred to as the STPI) and was allowed such approval with effect from 16.10.2008. The claim of the appellant to deduction was examined by the AO in light of provisions of section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 801 of the Act. The provisions lay down as under - 10A (2) This section applies to any undertaking which fulfils all the following conditions, namely : - (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it Is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanati....
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....ment in law to maintain separate books of account, the same cannot be insisted upon. However, since the deductions under these sections are available only to the eligible units, the Assessing Officer may call for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required. 4(5)(ii) The relevant circular clearly draws out the conclusion that there is no requirement in Section 10A of the Act to maintain separate books of accounts. The issue was also examined by the Bangalore Bench of Hon'ble ITAT in I. T. A No.1151Bang/2009 in the case of IBM India P. Ltd. v. Deputy Commissioner of Income Tax. The observations of the Hon'ble Court are as under- "Considering the second objection of the AO, namely, that separate books of account have not been maintained for the STP Units, his observation was that the objection of the AO arose on the premise that part of the expenditure which could be related to the exempted income which is not allowable to the assessee by virtue of the provisions contained in section 14A of the Act which could be disguised and allowed to be set off against taxable income and, thus, the assessee wo....
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.... appellant to STPI to conclude from the submissions made in the column relating to communication requirements that the new unit was using the point to point leased lines and internet leased lines of the existing unit. I find that the conclusion has been drawn by the AO without providing opportunity to the appellant to explain the issue. I find that the application for the approval of STPI was made on 25.07.2008 and application for installation of leased lines and internet leased circuits was made to Sify Technologies Limited on 24.07.2008. The bills of Sify Technologies Limited show the customers reference date as 24.07.2008. Moreover payment of internet charges of Rs. 3,12,876/- has been shown to have been made by the appellant vide bank payment voucher numbers 199 and 205. The facts show that the new unit is using separate communication lines for internet usage. 4(7)(i) I find that the reliance of the AO on the report of the Income Tax Inspectors (hereinafter referred to as the ITI) is not justifiable as the report was not confronted to the appellant. Moreover, the Ill's conducted their spot inquiries on 26.12.2011 whereas the unit claiming deduction under section 10A of t....
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....(iii) read with explanation 2 to section 801 of the Act. 4(8)(i) The fixed assets schedule examined by the AO in the assessment order at page 4 is as under: S.No. Particulars Fixed assets as on 1/4/08 Fixed assets purchased for old unit Fixed assets purchased for new unit Fixed assets as on 31/3/2009 before claiming depreciation Percentage of old assets 1. Furniture fixture 7,81,336/- 36,800/- 2,38,585/- 10,56,721/- 73.93% 2. Office equipments 11,17,272/- 1,51,115/- 5,55,480/- 18,23,867/- 61.25% 3. Computers 44,16,979/- 6,42,263/- 12,25,258/- 62,84,500/- 62,84,500/- Total assets purchased for new unit 20,19,323/- 4(8)(ii) On the basis of above schedule the AO concluded that the percentage of old plant and machinery was more than 20% of the total plant and machinery. I find that the AO has not correctly appreciated the facts. The provisions of explanation 2 to section 80I of the Act prohibit transfer of more than 20% of the old plant and machinery to the new unit. In the instant case there is no transfer as such of any plant and machinery from old unit to the new unit. The total....
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....on Vs CIT (107 ITR 195). Further, Even if some employees are common to the old and the new unit, it will not be a bar on eligibility or deduction (Madras High court in the case of Metropolitan springs (P) Ltd Vs CIT (191 ITR 288). Again, even if the new unit manufactures the same commodity as the old unit, it will be an eligible undertaking (Supreme Court in the case of Indian Aluminum Company Ltd Vs CIT (108 ITR 367). Finally, while deciding whether there is splitting up or reconstruction of an undertaking, it is not necessary to see whether the new undertaking has produced a different article than that produced by the Old undertaking (Madras High court in the case of Premier Cotton Mills Ltd Vs CIT (240 ITR 434) 4(12) On the basis of my examination I find that there is nothing to prove that the new unit was formed by splitting up or reconstruction of an existing business or transfer of old plant and machinery of more than 20% to the new unit. There is no violation as such of the provisions contained in section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 80I of the Act. The AO is therefore not justified in disallowing the deduction claimed by the appellant und....
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....rt of the Income Tax Inspector outlines that the new unit was operated on the same place and there was no demarcation between new unit and old unit but as per the CBDT Circular No. 01 of 2013 and as per the Tribunal decision of the Pune Bench in the case of ACIT Vs Symantec Software India P. Ltd in ITA No. 787/PN/09 for assessment year 2004-05), dated 30th November 2011, it was held that physical demarcation is not a criteria to decide the eligibility of deduction under section 10A of the Act so long as the new unit is independent of the old existing unit. Hence, in our considered opinion, on this aspect also, there is no infirmity in the order of CIT (A). 6.3 Regarding this objection of the Assessing Officer that the percentage of old plant & machinery used by new unit was more than 20%, a clear finding is given by the learned CIT(A) that the Assessing Officer has not correctly appreciated the facts. He has also given a finding that the provision of explanation 2 to section 80I of the Act prohibits transfer of more than 20% of old total plant & machinery to new unit but in the present case, there is no transfer of plant & machinery from old unit to new unit. He has also given a....
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.... 4, 2004. The export commenced only after August 4, 2004. The invoices produced in the case clearly establish the said fact. In these circumstances, the appellate authority as well as the Tribunal were justified in extending the benefit of section 10A to the unit in question." 6.4.1 As per the judgment of Hon'ble Karnataka High Court, the relevant Para of which is reproduced above, it is seen that a DTA unit can be converted into STP unit but even if the assessee did not choose to get its DTA unit converted into STP unit, the deduction is allowable to the assessee. In the present case also, the assessee has not chosen to convert its STP unit to DTA unit and some of the machinery were put to use before the registration granted by STPI, but this factor alone cannot be a basis to deny the assessee deduction u/s 10A of the Act. 7. We also find that it is also noted by CIT(A) in Para 4(10) and 4(11) of his order that the assessee was having export turnover of Rs. 149.52 lac for the period upto 15/10/2008 and the export turnover after 16/10/2008 was Rs. 427.05 lac and as per the certificate of the Chartered Accountant in Form No. 56 as required u/s 10A, the calculation for dedu....