TaxTMI 
TaxTMI 
2014 (11) TMI 1226
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.... erred in Holding that the case of appellant falls under submission-clause (b) to clause (i) of section 10A(2) of the Act, where as section 10A(2) clearly enumerates that that this section applies to any undertaking which fulfills all the said conditions mentioned in clause (i) to (iii) which is not fulfilled by the undertaking. 3. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance u/s 10A of the IT. Act, 1961, where as the condition laid down u/s 10A(2) (ii) that it is not formed by the splitting up, or the reconstruction of a business already in existence is not fulfilled by the assessee as the copy of application for registration for STPI given and submitted to the Director and Chief Executive, Software Technology Park of India, Plot No. P-1, Pune InfoTech Park, Hinjwadi, Pune-27, which is annex to the assessment order as Annexure-1, which clearly shows that old plant and machinery are being utilized. 4. The appellant craves leave to add, amend, after any of the grounds of appeal". 2.1 Facts of the case, in brief, are that the assessee, an individual, is engaged in the business of development of computer software for....
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....es the training MKCL which clearly shows that the old plant and machinery are being utilized. The provisions of section 10A(2) states as under: (i) It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year - (a) commencing on or after the 1st day of April, 1981, in any free trade zone, or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware park or , as the case may, software technology park; (c) commencing on or after the 1st day of April, 2001, in any special economic zone; (ii) It is not formed by splitting up, or reconstruction, of a business already in existence; (iii) It is not formed by transfer to a new business of machinery or plant previously used for any purpose. 10. Thus, the assessee does not fulfil the basic requirements of section 10A(2). The assessee's argument that in previous year the deduction has been allowed by the Department will be not helpful to him as a wrong deduction allowed by my predecessor cannot be ground for allowing wrong deduction in earlier period. Here it i....
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....ith skilled and experienced staff and fresh equipment; the old business and new business are distinct undertakings as the old business and new business could exist independently. It is evident that the appellant is running a business activity of data processing of MSEB bills, which is totally different from the activity of manufacturing of ERP Software. Further, in the year under appeal the appellant has submitted bills as per which development of computer software and export thereof have been billed by the appellant in the name of Vaneera He-tech, whereas job work and data entry etc. bills were issued by the appellant in the name of Vaneera Info Services. In view of the above facts and discussion and detailed submission filed by the appellant, I am of the considered view that the appellant has carried out new line of business which is distinct and separate from the old business activity carried out prior to the year 2003-04 and the A.O. is not justified in holding that the undertaking is not newly established undertaking. 6.5 The appellant has raised a legal contention that the test as to whether an undertaking has been newly established or not can be undertaken only in t....
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....F.Y.20062007 F.Y.20072008 F.Y.2008-2009 F.Y.20092010 Computer Equipment 62,600 47,150 4,20,426 5,04,015 1,97,300 23,500 98,100 C: Judicial Pronouncements: The learned assessing officer has taken a view that no new undertaking has been established and the new business is in fact a reconstruction and splitting up of the old. The reconstruction is of the business and not of a unit carrying on the activities. We have in the foregoing paragraphs describe at length the distinction between the old business and a new business and have demonstrated that in fact a new undertaking did come into existence. As to what constitutes an undertaking, splitting up and reconstruction has been explained at length in the course of assessment itself and we crave leave to refer to and rely on the said submissions. We also would crave leave referred to and rely on the following judgments to support our case that in fact a new undertaking did come into existence[H1] . Relevant .Judicial Pronouncements: * Nagardas Bechardas & Bros. P. Ltd. Vs. Commissioner of Income Tax (104 ITR 255) Gujarat High Court. ....
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....oncluded that where the assessee sets up a unit for manufacturing essential intermediate components which are used in the manufacture of the main article which it used to purchase previously from the market it cannot be said that the unit was formed by splitting up or reconstruction of business already in existence and the unit is a new industrial undertaking in terms of s.15C of the I.T. Act, 1922 and s. 84 (now 80J) of the Act, 1961. iii) Commissioner Of Income Tax vs. J.B. Kharwar & Sons (163 ITR 394) Gujarat High Court." In this case the issue about reconstruction of a business already in existence has been decided. It has been concluded that dyeing and printing grey cloth amounted to manufacture or production for purposes of s.80J(4)(iii) and there was no reconstruction of business where assessee previously dyeing and printing gray cloth of customers, started dyeing and printing its own grey cloth. The ratio laid down by the above mentioned decisions supports the above contention of the appellant and hence the same has been accepted. 8. The third contention of the A.O. mentioned above is that there is no master service agreement or statement....
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....himself. It appears to us that the learned assessing officer is confused between a free-trade zone, or a special economic zone and a unit in a software technology Park. Nowhere in the scheme, which is notified, it is required that a software technology unit which is approved and gets recognition under the software technology Park scheme has to be located in a particular area. Undoubtedly the unit has to satisfy certain parameters which are set out by the Software Technology Park but the geographical location is not one of them. As per Explanation 2.to section 10A (iii) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified- by the Government of India in the Ministry of Commerce and Industry; (vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by noti....
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....cases referred to in clause (v) to Explanation-2 to section 10A of the Act and referred to in sub-clause (a) & (c), clause (i) to section 10A(2) of the Act. The case of the appellant falls under sub-clause(b) to clause (i) of section 10A(2) of the Act. The above referred provisions are reproduced below: Clause (vii) of Explanation-2 to section 10A (vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry;" Clause (v) of Explanation-2 to section 10A (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section;" Sub-clause (a), (b) & (c) of clause (i) to section 10A(2) "(2) This section applies to any undertaking which fulfils all the following conditions namely- (i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the as....
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....bsequent year when there is no change in the facts warranting a different view for subsequent years. In the current case, there is no change in the fact matrix vis. a vis. the claim of deduction u/s 10A of the Act. Hence we reiterate that whether the new undertaking is formed by reconstruction of the old undertaking can be questioned in the very first year of its formation. On the background of acceptance of appellant's claim of deduction u/s 10A from A.Y. 2003-04 till A.Y. 200910, without change in the factual matrix, the revenue cannot question whether the unit was formed by reconstruction of old unit i.e. to say whether the same is not a new undertaking. The above legal position is supported by various judicial pronouncements which have been discussed in the following paragraphs: Relevant Judicial Pronouncements: 1. Saurashtra Cement and Chemical Industries Ltd. vs. CJT, (123 ITR 669) Gujarat High Court. 2. CIT vs. Paul Brothers, (216 ITR 548) Bombay High Court. 3. Western Outdoor Interactive v/s Commissioner of Income Tax, (286 ITR 309) Hon'ble Bombay High court held that if a claim under section 10A of the Act has been accep....
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....ted u/s.80J cannot be withdrawn in subsequent year without disturbing the relief granted in the earlier year. iii) CIT vs. Paul Brothers, (216 ITR 548) Bombay High Court. In this case it has been laid down that since the assessment order had merged in the appellate order, and the Assessing Officer's order was based on a binding decision of the High Court it could not be interfered with in revisional jurisdiction particularly when similar deduction was allowed in earlier year and has not been withdrawn. iv) Western Outdoor Interactive v/s Commissioner of Income Tax, (349 ITR 309)(Bom-HC) In this case it has been laid down that denial of exemption u/s.10A for subsequent years is impermissible, unless deduction allowed u/s.10A for the first year is withdrawn. The concluding para of the above decision reads as under: "(6) We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed....
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....e intention of the legislature has been fulfilled. It is also settled law that the beneficial provisions are to be construed liberally. 12. In view of the above facts and discussion, I am of the considered view that the A.O. is not justified in disallowing deduction of Rs. 69,41,350/- u/s.10A of the Act, by raising various contentions which have been rejected in the earlier paragraphs after considering the facts of the case and the provisions of section 10A of the Act. The addition of Rs. 69,41,350/- on account of disallowance of deduction u/s.10A is therefore deleted. The A.O. is directed accordingly." 5. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 6. The Ld. Departmental Representative strongly relied on the order of the AO. 7. The Ld. Counsel for the assessee at the outset referred to paper book pages 1 to 9 and drew the attention of the Bench to the computation of income for A.Yrs. 2004-05 to 2010-11 showing claim of deduction u/s.10A of the I.T. Act, 1961. Referring to paper book pages 10 to 29 he drew the attention of the Bench to the copies of the assessment orders passed u/s.143(3) for A.Yrs. 2005-06 to 2008-09 in which the ....
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....of the AO for A.Y. 2010-11. However, we find the AO vide order dated 28-03-2014 has dropped such 147 proceedings for the above 3 years by observing as under : "ASSESSMENT ORDER u/s.143 OF THE I.T.ACT., 1961 The assessment proceeding initiated u/s.147 of the I.T. Act, 1961 vide notice issued u/s.148 of the I.T. Act, 1961 dated 25-03-2013 is hereby dropped". Identical orders have been passed for A.Yrs. 2007-08 & 2008-09. 8.1 From the above chronology of events, it is crystal clear that the claim of deduction u/s.10A of the assessee from A.Yrs. 2004-05 to 2009-10 have been allowed. 8.2 Now the question that arises is as to whether after allowing the deduction for 6 years can the AO deny the benefit of deduction u/s.10A in the 7th year, i.e. for the impugned assessment year. We find an identical issue had come up before the Hon'ble Bombay High Court in the case of Western Outdoor Interactive Pvt. Ltd., (Supra). The Hon'ble High Court held that unless deduction allowed u/s.10A for the first assessment year is withdrawn, denial of exemption u/s.10A for subsequent years is impermissible. The relevant facts and observations of the Hon'ble High Court are as under ....
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.... in respect of its SEEPZ unit. e) Being aggrieved, the revenue filed an appeal before the Tribunal. The Tribunal by its common order dated 12/8/2009 dismissed the revenue's appeal for the assessment years 2002-03, 2003-04 and 200405 by holding that the respondent's SEEPZ unit is entitled on merits to the benefit of Section 10A of the Act. The Tribunal records a finding that for the assessment year 2000-01 and 2001-02 the claim of the respondent under Section-10A of SEEPZ unit was allowed in scrutiny assessment under Section 143(3) of the Act. Further, on merits, it was held that two units were functioning at different location and were functioning independently. Further, nothing has been brought on record to suggest that any plant, machinery or equipment of the existing unit was transferred to the new unit. Further there were separate books of accounts and bank accounts for both the units. The Tribunal also held that merely because the two units manufactured the same product it cannot lead to a conclusion that they are not two separate units. Thus, the grant of benefit of Section 10A of the Act was upheld. 4) Mr. Vimal Gupta, Counsel appearing for the reve....
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....en to the respondentassessee under Section-10A is for the period of 10 consecutive assessment years beginning with the assessment year in which the undertaking begins to export computer software. Besides the above, he submitted that both Commissioner of Income Tax (Appeals) and the Tribunal have concluded on examination of evidence that SEEPZ unit was an independent unit not formed by splitting up of the Fort unit. Therefore, this Court should not interfere with this finding of fact. 6) We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director of Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set a....