2015 (6) TMI 669 - AT - Income Tax

Denial of claim of the assessee u/s. 10A - the business is already in existence and thus condition in section 10A 2(ii) has been violated - Held that - In the instant case the assessee has produced the evidence to show that two laptops and a printer were purchased by the partner of the assessee firm Shri Arvind V. Patel on behalf of the assessee firm and payment was also made by the said partner from his Bank A/c. The assessee has produced the copy of the HDFC Bank Account of the assessee firm and as per the said statement it is seen that the said bank account was opened on 20-04-2009 whereas the laptops and printer were purchased by the assessee on 03-04-2009. We have asked the assessee to file the copies of the partner s return of income for A.Y. 2010-11 and as per the directions of the Bench the assessee has filed the copies which are placed on record. On perusal of the copies of the partner s returns it is seen that except the share of profits from the assessee firm and the remuneration, there is no income which can be said to have earned by using two laptops. We fail to understand how the Assessing Officer has held that the assessee has used the secondhand laptops which are in the nature of plant and machinery. On perusal of the assessment order we find that all these facts were put on record by the assessee in his explanation dated 13-12-2012. Admittedly the laptops and printer are newly purchased may be on account of partner which are used for the business of the assessee firm. Nothing is there on record to support the case of the Assessing Officer that those laptops and printer were used earlier for some other business by the partner. In our opinion, the conclusion of the Assessing Officer in respect of the alleged violation of clause (iii) to Sec. 10A(2) is also erroneous. Accordingly Assessing Officer is directed to allow the deduction claimed by the assessee u/s. 10A - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of claim under section 10A due to the belief that plant and machinery used by the STP unit were second-hand.
2. Denial of claim under section 10A based on the belief that the business was already in existence, violating section 10A(2)(ii).

Issue-wise Detailed Analysis:

1. Denial of claim under section 10A due to second-hand plant and machinery:
The Assessing Officer (AO) observed that the assessee firm, engaged in ERP Consulting, did not show any assets in its balance sheet for the relevant year. The AO noted that the laptops and printer were purchased by a partner on 03-04-2009, while the STP registration was obtained on 07-09-2009. The AO inferred that these items were second-hand assets, violating section 10A(2)(iii), which disallows deductions if machinery or plant previously used exceeds 25% of the total value. The assessee argued that the laptops and printer were purchased for the firm, and the payment was made by the partner because the firm did not have a bank account at that time. The Tax Invoice was in the firm's name, and the assets were new, not second-hand. The Tribunal found that the assessee provided sufficient evidence, including the Tax Invoice and bank statements, proving that the assets were new and purchased for the firm's business.

2. Denial of claim under section 10A based on the business being already in existence:
The AO also held that the business was already in existence before the STP registration, violating section 10A(2)(ii), which disallows deductions for businesses formed by splitting up or reconstructing an existing business. The AO noted that the firm had receipts prior to the registration date and that the laptops and printer were not shown as assets in the financial statements. The assessee contended that the business was new, and the assets were purchased specifically for it. The Tribunal agreed with the assessee, stating that there was no evidence to suggest that the business was a reconstruction or splitting up of an existing business. The Tribunal emphasized that section 10A(2)(ii) did not apply as the business was newly formed and not a continuation of a previous entity.

Conclusion:
The Tribunal concluded that the assessee did not violate any conditions under section 10A(2)(ii) or (iii). The assets were new and purchased for the firm's business, and the business was not a reconstruction or splitting up of an existing one. The appeal was allowed, and the AO was directed to grant the deduction claimed under section 10A.