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TMI Blog2012 (6) TMI 632X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10A(2) - Decided in favor of assessee. For the purpose of computation of deduction u/s. 10A, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. - ITA No.399/Bang/2012 - - - Dated:- 13-4-2012 - N K Saini, P Madhavi Devi, JJ. For Appellant: Shri K.R. Pradeep, C.A. For Respondent: Shri S K Ambastha, CIT-I (DR) ORDER Per: N K Saini: This appeal is by the assessee against the order dated 14.3.2012 of the CIT(Appeals)-III, Bangalore. 2. The following grounds have been raised in this appeal: 1. That the order of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, equity and all other known principles of law. 2. That the total income computed and the total tax computed is hereby disputed. 3. That the Learned CIT-A /AO erred in denying the claim for deduction u/s 10A of the I T Act of ₹ 23,17,32,627/-. 4. That the Learned CIT-A /AO erred in holding the transfer of undertaking as reconstruction within the meaning of section 10A(2) of the Act and thereby denying the claim for deduction u/s 10A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the sole owner of its branch office entered into a business transfer agreement with the assessee company on 5.9.05 for transfer of business of the branch office by way of slump sale as a going concern together with all its rights, properties and assets of the business. It was also stated that deduction u/s. 10A had been claimed by the branch office for the A.Ys. 1999-2000 to 2006-07 (upto Nov. 2005) and after its transfer, the STPI had given its no objection for the transfer of the unit from the branch office to the assessee company w.e.f. 1.12.2005. In view of the slump sale, the STPI unit now transferred to the assessee is claimed to be eligible for benefit of deduction u/s. 10A of the Act. 6. The AO asked the assessee to explain specific provisions in section 10A of the Act under which it was eligible for deduction in respect of an undertaking stated to be purchased on a slump sale basis. The assessee furnished copy of business transfer agreement and explained as to how it was eligible for deduction u/s. 10A of the Act. The assessee also furnished RBI s permission for transfer of assets of Indian branch office of SECL to the assessee which was the Indian subsidiary of SEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second hand assets insofar as the buyer is concerned. The AO also observed that the assessee had been enabled to run a new business under STPI scheme only by way of transfer of plant machinery earlier used by the branch office, therefore the condition of forming a unit by way of acquired plant machinery other than that of previously used had not been satisfied. 8. The AO also pointed out that sub-clause (7A) of section 10A which provides for eligibility of claim to the amalgamated company or the resulting company in the situations of transfer of eligible undertakings by amalgamating or demerged company in a scheme of amalgamation or demerger, but the situation of transfer of old plant machinery through slump sale had not been provided in the section. He therefore did not accept this plea of the assessee that change in ownership would not take away the benefit of section 10A of the Act attached to an undertaking. As regards to the decisions of the ITAT relied by the assessee, the AO stated that those decisions had not been accepted by the department and the appeal u/s. 260A of the Act had been filed. He accordingly rejected the claim of the assessee amounting to ₹ 23, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the hands of the subsidiary. 11. As regards to the recognition given by the STPI authority to the assessee, the ld. CIT(A) observed that the authority had transferred its STP operations themselves i.e., business of the assessee from one entity to the other and that both operations did not continue to exist simultaneously. He therefore did not accept this claim of the assessee that the STPI authority merely endorsed the transfer by changing the name of the operating agency. He further observed that new sub-section (7A) was inserted w.e.f. 1.4.2004 in section 10A of the Act and sub-sections (9) (9A) to the said section were deleted, the new sub-section (7A) allowed for the benefit to be continued specifically for the amalgamated entity in case of operation of a scheme of amalgamation or demerger. The ld. CIT(A) agreed with the view taken by the AO that the law as it stands at present does not differentiate a so-called slump sale from the transfer of assets machinery from an existing business and that the intention of the law is that apart from cases of amalgamation and demerger, any transfer of existing business, assets and infrastructure is not accorded exemption from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, the assessee undertaking existed in the same place, form and substance and did carry on the same business before and after the change in the legal character of the form of the organization. Formerly it was a branch establishment of a non-resident company/foreign company, but later on it was converted into a subsidiary company. However, for the above change of organization status, same unit continued to function throughout the time and even Software Technology Parks of India (STPI) authority vide letter dated 05.12.2005 gave the approval for transfer of STP activities of M/s. SECL to the assessee w.e.f. 01.12.2005. Therefore a mere organizational change was not a ground for the AO to hold that the assessee was not entitled for deduction u/s. 10A of the Act within the meaning of section 10A(2) of the Act. Thus, in view of the above and respectfully following the aforesaid referred to earlier order of the coordinate Bench, we set aside the impugned order passed by the ld. CIT(A) and direct the AO to allow the claim of the assessee for deduction u/s. 10A of the Act. 16. For the aforesaid view, we are also fortified by the decision of this Bench of the Tribunal in the case of IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relates to the expenditure incurred in foreign currency amounting to ₹ 47,89,64,483 which had been excluded from the export turnover and not from the total turnover. 19. The facts leading to this issue in brief are that the AO during the course of assessment proceedings noticed that the assessee had incurred following expenses in foreign currency in connection with computer software development: Salaries, wages and bonus ₹ 2,67,70,432 Travel Conveyance Rs.22,67,56,748 Sub contracting Software Development Rs.22,54,37,303 Communication ₹ 1,62,64,726 Others ₹ 2,65,860 The AO was of the view that exclusion of those expenses incurred in foreign currency from export turnover was called for in computation of deduction u/s. 10A, however he did not make any adjustment since the claim of the assessee for deduction u/s. 10A was rejected. 20. The assessee carried the matter to the ld. CIT(A), who confirmed the action of the AO by observing that when the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of export turnover cannot form part of the total turnover since the receipts by way of recovery of such expenses cannot be said to represent consideration for the goods exported since total turnover is nothing but the aggregate of the domestic turnover and the export turnover. In the formula prescribed by section 10B(4) the figure of export turnover has to be the same both in the numerator and in the denominator of the formula. It follows that the total turnover cannot include the two items of expenses recovered by the assessee and referred to in the definition of export turnover . 24. The aforesaid decision had been considered and affirmed by the Hon ble jurisdictional High Court in the case of CIT vs. Tata Elxsi Ltd. Ors. wherein it has been held that for the purpose of computation of deduction u/s. 10A of the Act, if any expenditure is excluded from the export turnover, the same has to be excluded from the total turnover also. A similar view has also been taken by the Hon ble Bombay High Court in the case of Gem Plus Jewellery India Ltd .. 25. We, therefore, by considering the totality of the facts as discussed hereinabove, are of the view that the ld. CIT(App ..... X X X X Extracts X X X X X X X X Extracts X X X X
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