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2014 (10) TMI 318 - AT - Income TaxEligibility to claim deduction u/s 10A Software Technology Park (STPI) Unit Held that - Following the decision in Nagesh Chundur Vs. CIT 2013 (9) TMI 883 - MADRAS HIGH COURT - The assessee took advantage of the scheme notified by the Government of India in the Ministry of Commerce and Industry of the software technology park and sought for registration as STPI on 2002 - In order to claim deduction, an undertaking in hardware technology park or software technology park must be in existence commencing its production on or after the 1st day of April, 1994 - the assessee is not formed by splitting up or transfer to a new business and got registration even since 2002, the fact that it has been in existence ever since 1999, does not militate against the applicability of Section 10A of the Act - Section 10A(2)(i) of the Act shows that it has relevance to industry that has begun to manufacture or produce articles or things or computer software on or after the 1st day of April, 1994. The moment the assessee satisfies this clause and it goes for the second requirement namely, registration as a Software Technology Park in accordance with the scheme of Government of India, the assessee stands benefited by the provisions of Section 10A of the Act -Decided against revenue. Amount spent on Work in Progress deleted - Held that - CIT(A) did not adjudicate any such issue in those years - CIT(A) has accepted the contentions of the assessee that the work is normally completed within 12 years without causing any verification of the claim - it is also the contention of the assessee before CIT(A) that the AO has made the addition without providing an opportunity to the assessee the matter is to be remitted back to the AO for fresh adjudication Decided in favour of revenue.
Issues Involved:
1. Eligibility of the assessee to claim deduction under Section 10A of the Income Tax Act. 2. Deletion of the addition related to Work in Progress for the Assessment Year 2008-09. Detailed Analysis: 1. Eligibility of the Assessee to Claim Deduction under Section 10A of the Income Tax Act: The primary issue in all four appeals is whether the assessee is eligible for deduction under Section 10A of the Income Tax Act. The assessee company, incorporated on 24.4.2000, is engaged in digitalizing and converting documents into electronic format. It obtained Software Technology Park (STP) registration on 16.6.2004 and began claiming deduction under Section 10A from the assessment year 2005-06 onwards. The Assessing Officer (AO) rejected the deduction claim for several reasons, including: - The assessee was not a new undertaking and had been operating since AY 2001-02. - No separate or new unit was set up after STP registration. - The unit was supposed to be 100% export-oriented but did not set up a separate new unit. - Merely registering with STP does not entitle the assessee to the deduction. - The assessee did not demarcate eligible and non-eligible undertakings. - Utilized old plant and machinery exceeding 20% of the total. - Did not bring total sales proceeds in convertible foreign exchange before the deadline. The Commissioner of Income Tax (Appeals) [CIT(A)] reversed the AO's decision, allowing the deduction under Section 10A, relying on CBDT Circular No. 1 of 2005, which clarified that an existing unit converted into an Export Oriented Unit (EOU) is eligible for deduction from the year of approval. The Tribunal upheld the CIT(A)'s decision, referencing several case laws, including: - CIT Vs. EDS Electronics Data Systems (India) (P) Ltd - Nagesh Chundur Vs. CIT - CIT Vs. Maxim India Integrated Circuit Design (P) Ltd - CIT Vs. Expert Outsource (P) Ltd The Tribunal noted that the facts of the case were identical to those in Nagesh Chundur Vs. CIT, where the Madras High Court upheld the deduction under Section 10A for an existing unit converted into an STP unit. The Tribunal agreed with this reasoning, emphasizing that the purpose of the STP scheme is to encourage exports and earn foreign exchange, and thus, the assessee's prior existence should not disqualify it from the benefits of Section 10A. 2. Deletion of the Addition Related to Work in Progress for AY 2008-09: For the assessment year 2008-09, the revenue contested the deletion of an addition of Rs. 29,75,853 related to Work in Progress. The AO had added this amount, noting that the assessee did not disclose any Work in Progress in its Profit and Loss account despite significant operating expenses and invoices raised in the subsequent financial year. The CIT(A) accepted the assessee's contention that the digitization work typically does not extend beyond 12 hours and directed the deletion of the addition, noting that similar issues in AY 2006-07 and 2007-08 were resolved in favor of the assessee. The Tribunal, however, found merit in the revenue's contention that no such addition was made or adjudicated in AY 2006-07 and 2007-08. The Tribunal noted that the CIT(A) accepted the assessee's claims without verification and that the AO did not provide an opportunity for the assessee to explain. Consequently, the Tribunal set aside the CIT(A)'s order on this issue and remanded it back to the AO for fresh examination, with instructions to provide the assessee an opportunity to be heard and to decide in accordance with the law. Conclusion: - The appeals filed by the revenue for AY 2005-06 to 2007-08 are dismissed, upholding the CIT(A)'s decision allowing the deduction under Section 10A. - The appeal for AY 2008-09 is partly allowed for statistical purposes, with the issue of Work in Progress remanded back to the AO for fresh examination. The order was pronounced in the open court on 12.9.2014.
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