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TMI Blog2012 (10) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... le accepting that the new unit was formed by reconstruction of the old unit and income of old unit was not eligible for exemption u/s 10A pertaining to the contracts taken by the assessee upto the date on which the new unit was established when he has accepted that the new unit was established by way of reconstruction of the old unit the income of which become taxable from the F.Y. 1998-99. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in appreciating the provisions of law that in order to be eligible for exemption u/s 10A, the undertaking should not be established by splitting up / reconstruction of the existing business of the assessee. 2. The relevant undisputed facts narrated by the Ld CIT(A) in para Nos. 2.1 to 2.4 of the first appellate order are being reproduced hereunder : 2.1 The facts of the case as discussed in the assessment order are that Persistent Systems Pvt. Ltd. (Persistent) commenced its operations during March, 1991 from the Software Technology Park located at Electronic Sadan, MIDC Bhosari, Pune. The appellant claimed that during the year 2000, it had set up a new undertaking called a STP Unit- 2. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n up to the F.Y. 1999-2000 claiming deduction under section 80HHE of the Act. In May, 2000 the appellant made fresh application to the STPI for registration of a new unit to cater to the substantial increase in the customers for which new building, namely Bhageerath was purchased, where the operation was started in the Assessment Year 2001-02. The appellant also took a new building on rent, namely Corporate Plaza, income wherefrom was shown to be pertaining to the existing unit and offered for taxation, except treating a small part of the income for the F.Ys. 2000-01 2001-02 as part of the new unit and exemption was claimed on the same. 2.2. The appellant filed an intimation to STPI stating that it was closing its first unit vide letter dated 26-3-2002, to claim that the entire income for the F.Y. 2002-03 was only income from the 2nd unit operating from Bhagirath building as exempt under section 10A of the Act. According to the Assessing Officer, the appellant made the said application to STPI to treat the existing Panini building of unit-1 as part of new unit 2. The Assessing Officer noted that as the new unit started in F.Y. 2000-01, the income was treated as arising from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant had not kept separate asset register to these units. The Assessing Officer noted that the appellant had transferred substantial assets of old unit to the new unit as noted in order sheet entry dated 8-2-2006, where around 284 items in the form of computers, UPS purchased for old unit in F.Y. 1999-2000 and as appearing in the asset register as on 31-3-2003 of the new unit have been mentioned. The Assessing Officer has also given a chart on pages-9 10 of the assessment order showing details of assets transferred from old unit to new unit as per detailed submitted by the appellant. According to the Assessing Officer, the most important thing was that the appellant started unit-1 in F.Y. 2000-2001 from rented buildings, namely Panini Corporate Plaza and own building Kapilvastu and started unit-2 in Panini building after its renovation in F.Y. 2002-03, the operations in rented building Corporate Plaza had been stopped and thus, the entire premises of the old unit were used for the new unit started in the F.Y. 2002-03. The Assessing Officer also referred to the cumulative position of the assets transferred as on 31-3-2003 as submitted by the appellant on page-11 of the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s who were of the earlier unit were shifted to the new unit on consideration of the importance of manpower in software business. The Assessing Officer observed that the Panini building was also used by the new unit besides other assets which were belonging to the earlier unit in the proportion of 9.5% of the total assets. 3. The ld CIT(A) has given part relief by restricting the disallowance u/s. 10A in respect of turnover of Rs.4,62,95,445/- instead of Rs.9,87,88,632/-as held by the A.O. The revenue has questioned the relief given by the Ld CIT(A) on the above grounds of the present appeal whereas the assessee has questioned the first appellate order whereby the Ld CIT(A) has sustained the disallowance u/s. 10A in respect of turnover of Rs.4,62,95,445/- vide grounds of the appeal filed by it (ITA No. 33/PN/2009). Thus, the issue involved in the grounds of the appeals preferred by the party is as to whether A.O was justified in disallowing the deduction claimed u/s. 10A in respect of Rs.9,87,88,632/-. 4. In support of the grounds of the appeal preferred by the Revenue, the Ld. D.R. has basically placed reliance on the assessment order. His main argument remained that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.2 to 11.5 of the assessment order with this submission that the A.O has reduced the claimed deduction on the basis that assessee has arranged its affairs in a manner to extend the exemption u/s. 10A of the Act as significant part of the income claimed as part of the new unit at Bhageerath is nothing but the income from same customers that are in the same domain of work that was being carried out at Panini. He worked out a sales of Rs.9.87 crores as in respect of the earlier unit and the earlier business. He has accordingly disallowed claimed deduction u/s. 10A of the Act on the sales of Rs.9,87,88,632/-. The Ld CIT(A) has restricted the disallowance of the deduction upto sales turnover of Rs.4,62,95,445/-. While doing so, the authorities below had failed to appreciate that for consideration of deduction u/s. 10A of the Act, the test was as to which unit had executed the work under the contract. He submitted that contract is received by assessee and not by unit-1 or unit-2 as the customer does not know unit-1 or unit-2. The execution of work by the eligible unit is important ignoring the old contract/old customers. The Ld. A.R. asserted that the assessee had not claimed deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act received by the old unit or the customers of the old unit. Under these circumstances, we while setting aside the orders of the authorities below, direct the A.O to allow the claimed deduction on the turnover of sales of the goods/works executed by the new unit. The issue is thus decided in favour of the assessee. Ground Nos. 1 2 of the appeal preferred by the revenue are thus rejected and thus ground Nos. 1 2 of the appeal preferred by the assessee are allowed. 8. In result, appeal is dismissed. ITA No.33/PN/2009 9. The assessee questioned first appellate order on the following grounds : 1. The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the learned assessing officer in denying the claim under section 10 A in respect of revenues of Rs.4,62,95,445/- on the ground that the contracts with the customers from whom these revenues were earned were entered in to prior to the commencement of the new unit. 2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the contracts entered into were only master services agreements containing the broad terms of engagement, and the actual work from which the revenue of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Exchange gain Rs. 4,532/- The A.O. held that the interest of Rs.10,90,243/- was not income derived from the undertaking of the assessee of software export and having nothing to do with the export business of the assessee, he treated the interest income other sources and excluded the same from the purview of Sec. 10A. The assessee contended that while making the exclusion, one must exclude income and not gross receipts. It was submitted that the assessee had kept investment of its surplus funds in deposits on which it earned interest of Rs.10,90,243/- but at the same time, it had paid interest to the extent of Rs.6,17,433/-. It was contended that had the surplus funds not been kept by the assessee in interest bearing deposits, then they would have undoubtedly been utilized to reduce the interest burden. They tried to submit that gross interest of Rs.10,90,243/- has got nexus with interest paid at Rs.6,17,433/- suggesting that the interest received needs to be netted while computing the deduction available u/s. 10A of the Act. The authorities below did not agree with the submission of the assessee. 18. We have considered the arguments advanced by the parties and h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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