2019 (6) TMI 1514 - HC - Income Tax

Exemption u/s 10A - total turnover for the purpose of Section 10A - Tribunal held that the expenditure incurred in foreign exchange which have even specifically excluded from export turnover by explanation 2(iv) to Section 10A would also not form part of the total turnover for the purpose of Section 10A - HELD THAT - Issue covered against the Revenue in the light of the decision of HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT . Accordingly, substantial question of law decided against the Revenue. Entitlement of deduction u/s 10A - Nodistinguish between STPI and non-STPI as the employees with both the units are same, the products and services are also same and the infrastructure is also similar - HELD THAT - CIT(A) after going through the entire factual matrix, held that the assessee has furnished sufficient material to show that there is a separate and distinct STPI formed which has engaged itself in export and development of software involving substantial investment in infrastructure including computers and software and employees and the Assessing Officer's conclusion that there is a splitting up of the existing unit is not correct and such finding has been given without analysing and appreciating all the relevant facts. CIT(A) proceeds to elaborately take note of the factual position, the profit and loss account, the amount of expenditure incurred etc., and record the factual finding that there is no splitting up of existing business and the assessee has fulfilled the relevant conditions under Section 10A Tribunal once again does a fact finding exercise and concludes that the case that same machinery as that of the old unit were used by the STPI is only based upon suspicion and not tenable as the assessee has acquired total assets worth ₹ 1.43 Crores for the STPI Unit for the financial year 2000-01. This order passed by the Tribunal was followed for the assessment year 2002-03. Following fact finding exercise was done by CIT(A) by assigning independent reasons and thus, we find that there is no question of law much less substantial question of law arising for consideration in these appeals - Decided against revenue.

Summary

Issues:
1. Interpretation of Section 10A of the Income Tax Act, 1961 regarding eligibility for exemption.
2. Treatment of expenditure in foreign exchange for the purpose of Section 10A.

Analysis:
1. The Tax Case Appeals were filed by the Revenue challenging the orders of the Income Tax Appellate Tribunal related to the assessment years 2001-02 and 2002-03. The substantial questions of law raised included the entitlement of the assessee to the benefit of Section 10A for its STPI unit despite similarities with other units in terms of products, employees, and infrastructure. The Court noted that the second substantial question of law was covered against the Revenue based on a Supreme Court decision, leaving the first question for consideration.

2. The assessee claimed exemption under Section 10A for its STPI unit for the relevant assessment years. The Assessing Officer disallowed the claim, stating that there was no clear distinction between the STPI and non-STPI units in terms of employees, products, and infrastructure. However, the CIT(A) allowed the appeal, finding that the STPI unit was separate and distinct, engaging in software export and development with substantial investment. The Tribunal also supported this view, emphasizing the substantial assets acquired specifically for the STPI unit.

3. The Court observed that the CIT(A) had conducted a detailed fact-finding exercise, providing independent reasons to support the conclusion that there was no splitting up of the existing business and that the assessee met the conditions under Section 10A. As a result, the Court dismissed the appeals, stating that no substantial question of law arose for consideration based on the thorough factual analysis conducted by the CIT(A).

4. The judgment highlighted the importance of factual findings and independent reasoning in tax matters, emphasizing the need for a clear demonstration of eligibility criteria under relevant tax provisions. The decision underscored the significance of substantial evidence and compliance with statutory requirements to support claims for tax exemptions, ultimately leading to the dismissal of the Revenue's appeals in this case.