2015 (8) TMI 548 - HC - Income Tax

Entitlment to the benefit under Section 10A - two undertakings commenced in second and sixth floors of Golden Enclave situate in Software Technology Park - Held that - In the background of the law, if we look at the facts of the case, the assessee set up an undertaking in the third floor of the Golden Enclave which is a software technology park. It was commenced prior to 1993. It is enjoying the benefit under Section 80HHE of the Act. It is not eligible for the benefit under Section 10A of the Act as it was commenced prior to 01.04.1994. Assessee wanted to expand the business. Therefore, a request was made to the authorities for permission to expand the business. Permission was granted. As an expansion, the assessee has set up one unit in Kadugodi and two units in the second floor of the same building on 16.11.1995 and sixth floor on 30.07.1996. The material on record discloses that for setting up these two undertakings nothing from the existing undertaking is made use of. Fresh machinery and plant were purchased, fresh employees were recruited and it was running as an independent unit. Because it is an undertaking belonging to the assessee, only single account is maintained by the assessee. In the light of the aforesaid undisputed facts, it cannot be said that the assessee is not entitled for the benefit under Section 10A of the Act in respect of these two newly established undertakings which it satisfies all the conditions stipulated in Subsection 2 of Section 10A of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the reopening of assessment under Section 147 of the Income Tax Act is valid when proceedings under Section 263 were dropped on the same grounds.
2. Whether the assessee is entitled to the benefit under Section 10A of the Income Tax Act for two new undertakings established as an expansion of an existing unit.

Detailed Analysis:

Issue 1: Validity of Reopening Assessment under Section 147
The primary question was whether the appellate authorities were correct in holding that the reopening of assessment is bad in law because the Commissioner had dropped proceedings under Section 263 on the same grounds. The court clarified that the grounds for initiating proceedings under Section 263 and Section 147 are distinct. Section 263 allows the Commissioner to revise orders that are prejudicial to the interests of the revenue, while Section 147 permits the Assessing Officer to reassess income that has escaped assessment. The court concluded that dropping proceedings under Section 263 does not bar the Assessing Officer from initiating proceedings under Section 147 if there is a belief that income has escaped assessment. Thus, the appellate authorities' findings were unsustainable, and this question was answered in favor of the revenue.

Issue 2: Entitlement to Benefit under Section 10A
The second issue was whether the assessee is entitled to the benefit under Section 10A for two new undertakings commenced as an expansion. Section 10A provides tax exemptions for newly established undertakings in free trade zones, subject to certain conditions, including that the undertaking should not be formed by splitting up or reconstructing an existing business and should not use previously used machinery. The court noted that the assessee had set up new units with fresh machinery and employees, independent of the existing unit, and met all conditions under Section 10A. The court referenced Supreme Court judgments which held that new undertakings, even if part of an expansion, are eligible for tax benefits if they are separate and distinct from the existing business. Therefore, the assessee was entitled to the benefit under Section 10A for the new units, and this question was answered in favor of the assessee.

Conclusion:
The appeals were partly allowed, with the court ruling in favor of the revenue on the validity of reopening assessments under Section 147 and in favor of the assessee on the entitlement to benefits under Section 10A for the new undertakings.