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TMI Blog2007 (6) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... at Trichy. During the course of scrutiny assessment, the Assessing Officer noted that the STPI Unit continued to have the same export clients like that of last year. The majority of the employees of the Chennai Unit were taken into the STPI Unit. The Assessing Officer further noted that there were huge losses in the domestic unit. The domestic unit in earlier years has been showing handsome profits from its business but substantially in this year has shown huge losses. The telephone, fax, internet and e-mail expenses of STPI Unit at Trichy were actually much less than those of the Chennai Unit. From these facts, the Assessing Officer came to the conclusion that export of software which is accomplished by the assessee through internet has been handled from Chennai and not from Trichy. Consequently, the Assessing Officer held that the unit at Trichy was established by splitting the earlier business and hence, was not eligible for section 10A rebate. 4. Upon assessee's appeal, the learned Commissioner of Income-tax (Appeals) asked for remand report from the Assessing Officer and concluded as under: "(i) Substantial fresh investment in Plant and Machinery exceeding Rs. 50 lakhs was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section." 7. Admittedly, it is revenue's case that assessee has not complied with clause 2(ii). In other words, the Assessing Officer has made up a case that the STPI Unit at Trichy was formed by splitting up or by reconstruction of the business already set up at Chennai. 8. The first objection of the Assessing Officer is with regard to the employees. It is the contention of the Assessing Officer that employees of the new unit basically came from the old unit. On this issue the learned Commissioner of Income-tax (Appeals) had obtained remand report from the Assessing Officer and following facts have emerged:- "The STP1 Unit had 86 employees in April, 2000 which were taken over from the existing unit at Trichy. However, 214 more employees were added during the financial year 2000-01 in the STP1 Unit. The assessee has also furnished a month-wise chart from April, 2000 to March, 2001 giving details of the number of employees at the beginning of the month, number of employees added during the month and number of employees resigned/deleted during the month. From this chart, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 39,88,695 for the financial year 2000-01, which resulted in a fall in the turnover to the extent of Rs. 2,20,59,823 which accounted for the serious fall in income resulting in a loss ultimately for the financial year 2000-01. The net income from Reliance Petroleum Ltd. projects was nearly 50 per cent of the gross receipts as the expenditure was to the order of Rs. 1,39,67,539. (d) After July 2000, the assessee got Reliance Engineering Associates (P.) Ltd. projects at Jam Nagar, Hyderabad, Bangalore, Chennai, Lucknow, Cochin and Calcutta and the receipts from the above projects amounted to Rs. 1,01,95,480 and but for these receipts the loss for the financial year 2000-01 would have been still higher. (e) The net income would be 7 per cent to 10 per cent from Reliance Engineering Associates (P.) Ltd. projects done during the financial year 2000-01, whereas the net income percentage was around 50 per cent during the financial year 1999-2000 from the projects of Reliance Petroleum Ltd." 12. The fifth objection raised by the Assessing Officer states that the expenditure on telephone, fax, internet and e-mail charges were more for Chennai Unit and less for STPI Unit at Trichy whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may produce the same commodities of the old business or it may produce some other distinct marketable products, even commodities which may feed the old business. These products may be consumed by the assessee in his old business or may be sold in the open market. One thing is certain that the new undertaking must be an integrated unit by itself wherein articles are produced and at least a minimum of ten persons with the aid of power and a minimum of twenty persons without the aid of power have been employed. Such a new industrially recognizable unit of an assessee cannot be said to be reconstruction of his old business since there is no transfer of any assets of the old business to the new undertaking which takes place when there is reconstruction of the old business. For the purpose of section 15C the industrial units set up must be new in the sense that new plants and machinery are erected for producing either the same commodities or some distinct commodities. In order to deny the benefit of section 15C the new undertaking must be formed by reconstruction of the old business. If an undertaking is not formed by the reconstruction of the old business that undertaking will not be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the learned counsel of the assessee submitted that this is factually wrong. He referred to Assessing Officer's finding in page number 3 of the assessment order where it is clearly mentioned that the STPI Unit commenced its commercial operation from April, 2001. The learned Departmental Representative did not dispute this finding. In this regard, we further find that Hon'ble jurisdictional High Court in the case of L.G. Balakrishnan & Bros. Ltd. v. CIT [1985] 151 ITR 270 (Mad.) has held that a new undertaking can be said to have been formed only when it is ready to commence the production of article for which the undertaking was established and the formation of company will not include the initial steps taken for its establishment. Considering the aforesaid, we find that this objection by the revenue is unfounded. 20. In the background of above discussion and case laws cited above, it is clear that it cannot be said that the STPI Unit at Trichy was established as a result of splitting up or reconstruction of the Unit at Chennai. Hence, we uphold the order of the learned Commissioner of Income-tax (Appeals) in this regard and decide the issue in favour of the assessee. 21. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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