2009 (9) TMI 689 - AT - Income Tax

Summary

Issues Involved:

1. Deduction u/s 80HHE and 10A for the same assessment year.
2. Validity of the claim for deduction u/s 10A for a unit registered mid-year.
3. Determination of the initial year for deduction u/s 10A.

Summary:

Issue 1: Deduction u/s 80HHE and 10A for the same assessment year

The primary issue was whether the assessee could claim deductions u/s 80HHE and 10A for different periods within the same assessment year. The Assessing Officer (AO) denied the deduction u/s 10A, arguing that profits accrue at the end of the accounting year and thus cannot be split for different deductions. The CIT (Appeals) allowed the split, referencing the Tribunal's decision in Legato Systems India (P.) Ltd. v. ITO, which supported the claim of deductions under different sections for different periods. The Tribunal upheld the CIT (Appeals) decision, stating that the principle of apportionment of income is well entrenched in taxation laws, and the profits for the two periods were different, not the same.

Issue 2: Validity of the claim for deduction u/s 10A for a unit registered mid-year

The AO argued that since the unit was set up in the financial year 2000-01 and not in the year of registration (2003), it was a case of reconstruction of an existing business, thus not satisfying the conditions of section 10A. The Tribunal found that the assessee had set up only one unit, which started production in the financial year 2000-01, and there was no reconstruction of an existing business. The delay in registration was due to procedural lapses, and the approval obtained on 14-1-2003 was valid. Therefore, the assessee was entitled to deduction u/s 10A from 14-1-2003 to 31-3-2003.

Issue 3: Determination of the initial year for deduction u/s 10A

The Tribunal discussed whether the initial year for deduction u/s 10A should be the year of setting up the unit or the year of obtaining STPI approval. The Tribunal referred to Board Circular No. 1/2005, which clarified that the deduction shall be available from the year of approval as a 100% EOU and for the remaining period of ten consecutive assessment years. Thus, the initial year was determined to be the year the unit began production (assessment year 2001-02), making the year at hand the third year of deduction u/s 10A.

Subsequent Years:

For assessment years 2004-05 and 2005-06, the Tribunal upheld the CIT (Appeals) decision allowing deduction u/s 10A for the entire year, as it was not a case of claiming deductions on the same profits under two provisions. The Tribunal dismissed the revenue's appeals for these years, confirming the assessee's entitlement to deductions u/s 10A for the fourth and fifth years, respectively.