2012 (2) TMI 187 - AT - Income Tax

Deduction under 10A - Conditions unfulfilled - transfer of more than 20% of the plant and machinery from the old unit to the new unit - Held That - We remit the issue of deduction u/s 10A of the Income-tax Act to the Assessing Officer with a direction to verify if the plant and machinery transferred from the Rajajinagar unit to the Whitefield unit is less than 20% as demonstrated by the assessee and also to verify as to whether the assessee satisfies the conditions under the CBDT Circular No. 1 of 2005. Allowed for statistical purposes.

Summary

Issues involved:
- Denial of benefit u/s 10A of the Income-tax Act
- Transfer of plant and machinery from old unit to new unit
- Applicability of CBDT Circular for deduction u/s 10A

Analysis:

Issue 1: Denial of benefit u/s 10A of the Income-tax Act
The appellant filed appeals against the Commissioner of Income-tax (Appeals) order denying the benefit u/s 10A of the Income-tax Act. The appellant, engaged in software development, claimed deduction u/s 10A for the first time in the assessment year 2001-02. The claim was rejected as it was deemed that the new unit was not set up by the appellant but was a result of transferring machinery from the old unit. The ITAT previously remitted the case to the AO for reevaluation, which resulted in the denial of the deduction again. The appellant contended that the transferred machinery was below the stipulated 20% and cited the CBDT Circular for eligibility.

Issue 2: Transfer of plant and machinery from old unit to new unit
The appellant argued that even if the entire old unit's machinery was shifted to the new unit, it was below the 20% threshold specified by sec. 10A. The appellant relied on the Board Circular, stating that the DTA unit's subsequent conversion to an STPI unit entitled them to the deduction u/s 10A. The appellant presented precedents supporting the Circular's applicability to sec. 10A units, emphasizing compliance with the conditions of sec. 10A.

Issue 3: Applicability of CBDT Circular for deduction u/s 10A
The appellant contended that the CIT(A) did not consider the details provided, including the percentage of machinery transfer and the Board Circular's relevance. The ITAT acknowledged the need for verification by the AO regarding the machinery transfer percentage and compliance with the Board Circular. The case was remitted to the AO for thorough examination, with directions to grant the deduction if the conditions were met, ensuring a fair hearing for the appellant.

In conclusion, the appeals were allowed for statistical purposes, emphasizing the importance of verifying compliance with sec. 10A conditions and the CBDT Circular for entitlement to the deduction.