2021 (7) TMI 244 - AT - Income Tax

Deduction u/s 10A - Software Technology Parks of India (STPI) Unit - splitting up or reconstruction of the existing business - voilation of the conditions stipulated u/s. 10A - HELD THAT - We find that the Tribunal had extensively examined the issue in its order placing reliance on the decision in the case of CIT vs. Expert Outsource (P) Ltd. 2011 (3) TMI 1428 - KARNATAKA HIGH COURT and had also analyzed the CBDT Circular No. 1/2005 and thereafter, had provided relief to the assessee. In fact, the Hon'ble Karnataka High Court in its decision (supra.) itself has analyzed the applicability of CBDT Circular No. 1/2005 dated 06.01.2005 and that it had granted certain benefits u/s. 10B of the Act and though the circular was in the context of section 10B, the ratio of the circular equally applies to Section 10A - Appeal of the Revenue is dismissed.

Issues:
1. Disallowance under section 10A of the Income Tax Act for STPI unit formed by splitting up or reconstruction.
2. Disallowance based on conditions stipulated under section 10A of the Act.
3. Claim of deduction under section 10A for the assessment year 2011-12.
4. Applicability of Circular No. 1/2005 dated 06.01.2005 for deduction under section 10A.
5. Relief provided to the assessee by the Ld. CIT(Appeal) and its sustainability.

Issue 1: Disallowance under section 10A for STPI unit formation:
The Revenue appealed against the deletion of addition by the Ld. CIT(Appeal) concerning disallowance under section 10A of the Income Tax Act for the STPI unit formed by splitting up or reconstruction. The Revenue contended that the conditions stipulated under section 10A had been violated.

Issue 2: Disallowance based on Act's conditions:
The Assessing Officer disallowed the deduction claimed under section 10A for the STPI unit, stating that it was formed by splitting up and reconstruction of the existing business, similar to the disallowance made in the previous assessment year. The Ld. CIT(Appeal) relied on the Pune Tribunal's decision for the assessment year 2010-11, providing relief to the assessee based on identical facts and circumstances.

Issue 3: Claim of deduction for assessment year 2011-12:
The assessee, engaged in providing computer software testing services, filed its return for the assessment year 2011-12, claiming a deduction under section 10A. The Assessing Officer disallowed the claim, leading to the appeal by the Revenue.

Issue 4: Applicability of Circular No. 1/2005 for deduction under section 10A:
The Ld. CIT(Appeal) relied on Circular No. 1/2005 dated 06.01.2005, pertaining to undertakings set up in the Domestic Tariff Area (DTA) and their conversion into Export Oriented Undertakings (EOU) for deduction under section 10A. The Revenue argued that the circular did not apply to the present case due to differences in the nature of the earlier undertaking.

Issue 5: Relief provided by Ld. CIT(Appeal) and its sustainability:
The Tribunal, after reviewing the case records and the earlier decision for the assessment year 2010-11, upheld the relief provided to the assessee by the Ld. CIT(Appeal). The Tribunal emphasized the applicability of the decision of the Hon'ble Karnataka High Court and the CBDT Circular No. 1/2005, concluding that the relief granted to the assessee was justified.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the relief provided to the assessee by the Ld. CIT(Appeal) regarding the disallowance under section 10A for the STPI unit. The decision was based on the consistent application of legal principles and precedents, ensuring fairness and adherence to the provisions of the Income Tax Act.

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