2021 (12) TMI 803 - AT - Income Tax

Deduction u/s 10A - Proof of new unit to set up - AO was of the view that though the approval for software technology Park has been taken however, the requisite condition as stipulated u/s 10A for claiming exemption does not satisfy even after considering the facts and documentary evidences submitted during the flash assessment proceedings - assessee has converted an existing export unit to an STPI unit with the same office premises, computers, and staff and mere purchase of new equipment, computers, and employing more staff will not prove the contentions that the new unit was set up - HELD THAT - On careful examination of the details furnished before us we find that the assessee has set up a new unit, which was in different premises, it has a different staff, different nature of business, different service line. The assessee has also shown the setting up of the new business by showing us the various detailed contained in the financial records of the assessee such as invoices, its remittances, the existence of domestic unit earlier et cetera. The assessee has also shown the approval of the STPI unit dated 28th of March 2000, which states that there is a specific reference to the unit located at the new premises - The assessee has also shown the investment in the fixed assets separately maintained for STPI unit. We find that the no infirmity is pointed out. The conditions laid down were also shown to have been fulfilled for claiming deduction u/s 10 A of the act by the assessee. In view of this, we do not find any merit in the solitary ground raised by the learned assessing officer. Accordingly we uphold the order of the learned CIT A and grant deduction u/s 10 A of the income tax act to the assessee. - Decided against revenue.

Issues Involved:

1. Whether the CIT(A) erred in deleting the addition made by the AO by disallowing the assessee's claim of deduction u/s 10A of the Income Tax Act, 1961.
2. Whether the CIT(A) erred in holding that a new independent undertaking eligible for benefit u/s 10A had been set up by the assessee.
3. Whether the CIT(A) failed to appreciate the facts and findings of the ITAT in AY 2002-03 regarding the conversion of an existing unit to an STPI unit.
4. Whether the CIT(A) was correct in holding that the export unit was freshly set up despite the lack of direct evidence of physical shifting of assets.
5. Whether the CIT(A) failed to appreciate the incorrect contentions and concealment of material facts related to the assessment history by the assessee.

Comprehensive, Issue-Wise Detailed Analysis:

1. Deletion of Addition by CIT(A):

The CIT(A) deleted the addition of ?4,97,09,121/- made by the AO by disallowing the assessee's claim of deduction u/s 10A. The AO initially disallowed the deduction on the grounds that the unit for which the deduction was claimed was converted from an existing unit and not a new independent undertaking. The CIT(A) found that the assessee had set up a new unit, which was in different premises, with different staff and nature of business, and had shown the setting up of the new business through various financial records and documents.

2. New Independent Undertaking:

The CIT(A) held that a new independent undertaking eligible for benefit u/s 10A had been set up by the assessee on 28.03.2000. The CIT(A) examined documents such as the application form for STPI approval, project report, board resolutions, rent agreements, and financial records. The CIT(A) concluded that the new unit was established at the second floor of the premises, while the domestic unit was shifted to the ground floor, supported by substantial investments in new equipment and infrastructure.

3. Findings of ITAT in AY 2002-03:

The CIT(A) did not fully appreciate the findings of the ITAT in AY 2002-03, which had held that the unit for which STPI approval was received was an existing unit and not a new unit. However, the CIT(A) noted that the ITAT had allowed the AO to reconsider the additional evidence without being constrained by the previous order. The CIT(A) independently assessed the new evidence and concluded that a new unit was indeed established.

4. Fresh Setup of Export Unit:

The CIT(A) held that the export unit was freshly set up at the second floor of the premises, despite admitting that there was no direct evidence to prove the physical shifting of assets. The CIT(A) relied on the substantial investments in new equipment, the increase in share capital, and the employment of new staff to support the conclusion that a new unit was established.

5. Incorrect Contentions and Concealment of Material Facts:

The CIT(A) addressed the AO's concerns regarding incorrect contentions and concealment of material facts by the assessee. The CIT(A) found that the assessee had provided sufficient evidence to support the claim of setting up a new unit, including separate financial records, investment in new assets, and compliance with STPI regulations. The CIT(A) concluded that the assessee was eligible for deduction u/s 10A for the assessment year under consideration.

Conclusion:

The CIT(A) allowed the assessee's claim of deduction u/s 10A, finding that the assessee had set up a new independent undertaking eligible for the benefit. The CIT(A) examined the additional evidence and concluded that the new unit was established with substantial investments and separate infrastructure. The AO's appeal was dismissed, and the order of the CIT(A) was upheld.

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