AI Drafter 
TaxTMI 
TaxTMI 
2018 (2) TMI 293
X X X X Extracts X X X X
X X X X Extracts X X X X
....27 relating to profits derived by eligible SEZ unit of the Appellant from the export of IT-enabled services. 2.2. That, without prejudice, the Ld. AO/ DRP erred in not appreciating that the relevant conditions of section 10AA of the Act are to be examined in the year of formation of SEZ unit and that the deduction was allowed to the Appellant in the year of formation and in the subsequent year. 2.3. The Ld. AO/ DRP erred in holding that the SEZ unit has failed to comply with the requirements of Section 10AA (4) of the Act. 2.4 The Ld. AO/DRP erred in not appreciating that the principle of consistency is applicable on the facts of the present case. 2.5. The Ld. AO/ DRP erred in holding that the SEZ unit has been formed by splitting up and diversion of the existing business in the EOU unit considering the revenue and employee growth in SEZ unit vis-a-vis EOU unit. The addition is based on mere surmises and conjectures and without any material on record. 2.6. The Ld. AOI DRP erred in not appreciating that during the year under consideration, all conditions of Section 10AA are satisfied and hence Appellant is entitled to the benefit thereof.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....plitting and diversion of the existing business. iii) The assessee was asked to submit total number of the employees of the company and the employees hired for the new business and existing units and to submit year wise details of old and new employees from the date of set-up of new unit. The details of which have been incorporated in the said show cause notice itself. He required the assessee to submit, whether the employees added by the assessee are without compromising the existing business of the EOU Unit as there was an overall growth in the employee in hiring of SEZ business in financial year 2012-13 which was at 12%; and in the financial year 2009-10, it was at 112%, whereas employee hiring of SEZ business was 370% and 21% in these years. iv) Lastly, the assessee was required to submit year wise revenue billed to the customers. In response, the assessee filed detail submissions, which has been dealt by the AO in the following manner:- "4.3 The assessee vide reply dated 23.12.2016 has submitted the reply and which was placed on records. The assessee has submitted that MGSL set up a new unit under the SEZ legislation with projected employment of 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee has submitted the Instruction No. 17/2013 dated 17 January 2013 which provides that the Assessing Officer have to follow clarifications issued by CBDT by way of Circulars" 3. The Ld. AO rejected the assessee's contention and after analysing the issue in detail had observed as under:- "2. A specific question was asked from the assessee which is that to provide detail of existing business whether it was transferred or not. It is important to note the condition given in the section 10A/ 10B itself that no deduction under these sections shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years. This only was the reason the assessee company was formed SEZ unit on 21.06.2010 and commences its operation on 01.0 1.2011 nearing to the date of ending of deduction u/s 10A/ 10B of thee Act in order to taking the benefit of deduction u/s 10AA of the Act. In this case, the intention of the assessee is subject matter of question because the SEZ unit was formed by the assessee with intention of shifting of business of EOU unit to SEZ unit as soon as the group company of the assessee has reached to sun set clause of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as also failed to give copies of agreement with the customers how agreement in both units are different in terms of the nature of business and content of the agreement. On perusal of the above table it is clear that the overall growth in the case of business is 18% in FY 2012-13 and 97% in FY 2009-10. The growth in the taxable business is -3% and 7% in FY 2011-12 and 2012-13 respectively against overall growth in SEZ business is 1166% and 33% respectively.' It is beyond any imagination that how miserly the assessee has tried to defraud the provision of the Act. It is already substantiated the claim deduction u/s 10AA of the Act that business is done after splitting of the existing business which is taxable unit. Accordingly important condition of section-10AA has not been complied with by the assessee and there is splitting and diversion of the existing business. 4.7 Second test is employees of the assessee where the assessee has submitted reply the main issue for examination in this case is deduction u/s 10AA of the Act that employees which are alike assets for IT companies. That instruction No. 17/2013 dated 17th January 2013 which provides that the Assessing Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t they really are, and to refuse to give judicial benediction. In this case it is clearly visible that the new unit is formed by splitting or reconstruction of a business already in existence as. The assessee has relied upon many judgements without distinguishing the facts of the case. There are several judgment that in the scheme of the deduction or exemption provisions the intention of the Industrial policy and deductions provision made there under is to create new business and new emplacement and new foreign exchange reserve throughout the period of scheme and that each year is an independent assessment unit and requirements of incentive sections need to be examined every year during the tax holiday period without any failure and -breaking of continuity. The units were incorporated on 21.06.2010 which was nearby date of last year of 10B to gain the deduction u/s 10AA of the Act. 4.10 Now it is also important to counter the argument of the assessee company. 4.10.1 The assessee has set up a new unit under the SEZ legislation located at 15th Floor, Building No. 14, Tower-B, Cyber City, DLF Phase Ill, Gurgaon-122002, Haryana with projected employment of 225 people ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess. 4.11 In view of the above benefit of 10AA of Rs. 10,43,46,127/- is liable to be added to the income of the assessee. 4. The sum and substance of AO's contention was that, firstly, the only reason for assessee company to form 'SEZ Unit' on 21.6.2010 and came into operation on 1.1.2011 was on the background that deduction u/s 10A and 10B of the EOU unit would be no longer available due to sun set clause and therefore, assessee started to shift new business in the form of SEZ unit; secondly, he has taken note of the revenue growth of the EOU unit which according to him had declined since financial year 2010-11, whereas in the case of SEZ unit revenue had increased marginally; thirdly, the growth of employees has been reduced in the EOU unit, whereas in the SEZ unit there was a significant growth of hiring of employees; and lastly, assessee has failed to give details of employees and the skill test which was required by the assessee for the new unit and it had also failed to submit details of new and old employees ratio. 5. Before us, the Ld. Counsel for the assessee Shri Salil Kapoor after explaining the entire facts and background of the case, submitted that, admi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee as well as in the revenue of EOU unit since the inception of SEZ unit and in support he submitted the following chart:- FY Revenue from Taxable Business Growth % Revenue from SUnit EZ Growth % Total Revenue, Growth % 2009-10 48,93,15,919 - 48,93,15,919 2010-11 64,21,36,965 31% 3,61,10,980 67,82,47,945 39% 2011-12 62,32,14,978 -3% 45,72,63,241 1166% 1,08,04,78,220 59% 2012-13 66,95,57,158 7% 60,88,25,611 33% 1,27,83,82,769 18% 2013-14 73,08,34,134 9% 89,68,09,135 47% 16,27,64,32,69 27% 2014-15 88,07,79,281 21% 1,24,18,87,704 38% 2,12,26,66,985 30% 2015-16 103,00,00,296 17% 1,40,43,25,578 13% 2,43,43,25,874 15% Expansion Of EOU - Additional area Of 21817 sq. ft. taken for EOU 2016-17 141,96,91,400 38% 1,23,61,22,529 -12% 2,65,58,13,929 9% 8. So far as marginal decline of revenue of EOU in financial year 2011-12, Ld. Counsel submitted that this was on account of cost plus model followed by the assessee for recognising it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....30,27,383 AY 2013-14 1,17,98,477 AY 2014-15 68,03,912 AY 2015-16 7,07,50,865 AY 2016-17 1,84,17,609 AY 2017-18 1,11,58,442 Total Investment: Rs. 20,83,02,719 ii) Details of expansion and growth of revenue:- Financial year Assessment Year Revenue of Taxable Unit Expansion in area of EOU (sq.ft) Revenue of SEZ Unit Expansion in area of SEZ (sq.ft) Total Revenue of the Company Year on year growth in the revenue of the Company (%) 2007-08 2008-09 1,10,82,773 - 1,10,82,773 - 2008-09 2009-10 24,80,45,746 - 24,80,45,746 2138% 2009-10 2010-11 48,93,15,919 - 48,93,15,919 97% 2010-11 Expansion 2011-12 64,21,36,965 3,61,10,980 28,005 67,82,47,945 39% 2011-12 2012-13 62,32,14,978 45,72,63,242 1,08,04,78,220 59% 2012-13 2013-14 66,95,57,158 60,88,25,612 1,27,83,82,769 18% 2013-14 2014-15 73,08,34,134 89,68,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... hiring 28 50311 Gupta,Lokesh K Associate B Com New hiring 29 50418 Sharma,Akash Senior Associate B Com New hiring 30 50460 Vikas Pundora Associate MBA New hiring 12. On the other hand, Ld. CIT(DR) referred to the various observations made by the DRP as well as by the AO and submitted that the assessee has failed to give the details of the employees as required by the AO including the skill test of the employees and the most important fact was that the SEZ unit has been established when the EOU unit had reached to sun set period and only with a view to continue to enjoy 100% deduction, the assessee has started its new business and therefore, the AO has rightly observed that the said unit has been established after splitting up and reconstruction of existing business. He thus, strongly relied upon the order of the AO and DRP. As regards the Ld. Counsel's plea that the issue of deduction has already been allowed in the earlier two years, he submitted that the though the assessments have been completed under scrutiny proceedings, however AO has not dealt with this issue or examine this aspect in the assessment orders and therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovision of Act, then without withdrawing or setting aside the relief granted for the first assessment year in which claim was made and accepted, the AO cannot withdraw the relief for subsequent assessment years. This ratio was laid down in the context of section 10A. Once there is no change in the facts and circumstances of the case from the earlier years from the initial year when the claim has been accepted, then ostensibly deduction cannot be disallowed or denied in the subsequent years of claim This principle has been reiterated again in the case of CIT vs. Arts & Crafts Exports (Bombay) (supra); and CIT vs. Macbrout Engineering (P) Ltd. (supra) by the Hon'ble Bombay High Court. Hon'ble Jurisdictional High Court in the case of CIT vs. Tata Communication Internet Services Ltd. (supra) in the context of 80IA(3), concluded that bar as provided u/s 80IA(3) is to be considered only for the first year of claim for deduction u/s 80IA and not in the subsequent years. Here also in the case before the Hon'ble High Court, the AO has raked up the issue of splitting up or reconstruction of already existing business in the subsequent year, when in the first year of claim this issue was not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen it was formed, satisfied and duly fulfilled the requirements of the said clauses, as it was not formed by splitting up or reconstruction of a business already in existence. It was a new undertaking and there is no factual finding that at the time or establishment or formation of the undertaking, business already in existence was splitted or reconstructed. It is accepted that the plant and machinery procured at the time of formation was new." 15. Following the aforesaid proposition and the ratio laid down by the Hon'ble High Courts including that of jurisdictional High Court, we hold that, once the claim of deduction u/s 10AA has been accepted in the first year of the operations and also in the second year, then in the third year same cannot be withdrawn by examining the factors which were required to be seen in the first year of the claim. Thus, on this ground alone, we hold that the AO cannot deny the claim of deduction u/s 10AA with the assessee in this year and hence is directed to allow the same. 16. Even on the merits, we find that none of the allegation which has been made by the AO appears to be correct, because if he see the expansion and growth of revenue of EOU ....