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TMI Blog2015 (8) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... ing unit. Hence, in our considered opinion, on this aspect also, there is no infirmity in the order of CIT (A). Percentage of old plant & machinery used by new unit was more than 20% - Held that:- A clear finding is given by the learned CIT(A) that the Assessing Officer has not correctly appreciated the facts. He has also given a finding that the provision of explanation 2 to section 80I of the Act prohibits transfer of more than 20% of old total plant & machinery to new unit but in the present case, there is no transfer of plant & machinery from old unit to new unit. He has also given a finding that the total assets purchased is separately shown at ₹ 29,20,233/- and therefore, this confusion of the Assessing Officer regarding transfer of more than 20% of the total plant & machinery of old unit to new unit is not correct. Even out of new computers installed in the present year, 8 computers out of 10 computers were put to use on or before 27/09/2008 whereas the STPI approval has been granted on 16/10/2008 - Held that:- DTA unit can be converted into STP unit but even if the assessee did not choose to get its DTA unit converted into STP unit, the deduction is allowable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Shri S. C. Agarwal, Advocate Date of hearing 01/07/2015 Date of pronouncement 14/08/2015 machinery of its existing unit in violation of provisions of section 10A. 3. The grounds raised by the Revenue in assessment year 2010-11 are as under: 1. The learned CIT(A) has erred in law and on facts of the case in allowing the deduction of ₹ 95,14,127/- claimed u/s 10A without passing the speaking order and only relying solely on the appellate order of the earlier year (2009-10). 2. The learned CIT(A) has failed to appreciate that the basic conditions for claiming deduction u/s 10A were not complied with by the assessee and the claim has been made in violation of provisions of section 10A. 4. Learned D. R. of the Revenue supported the assessment order. He also submitted that on page No. 42 of the paper book submitted by the assessee, is a calculation chart of depreciation as per Income Tax Rules and from the same, it can be seen that even out of 10 computers installed by the assessee in the present year, 8 computers were to put to use by 27th September, 2008 and the assessee claimed depreciation on these 8 computers on the basis that these computers were used for m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it set up a unit for 100% export of computer software. For the said purpose approval was obtained by it from Software Technologies Park of India (hereinafter referred to as the STPI) and was allowed such approval with effect from 16.10.2008. The claim of the appellant to deduction was examined by the AO in light of provisions of section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 801 of the Act. The provisions lay down as under 10A (2) This section applies to any undertaking which fulfils all the following conditions, namely : - (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence : Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it Is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. -The provisions of Explanation 1 and Explanation 2 to subsection (2) of section 80-1 sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, since the deductions under these sections are available only to the eligible units, the Assessing Officer may call for such details or information pertaining to different units to verify the claim and quantum of exemption, if so required. 4(5)(ii) The relevant circular clearly draws out the conclusion that there is no requirement in Section 10A of the Act to maintain separate books of accounts. The issue was also examined by the Bangalore Bench of Hon'ble ITAT in I. T. A No.1151Bang/2009 in the case of IBM India P. Ltd. v. Deputy Commissioner of Income Tax. The observations of the Hon'ble Court are as under- Considering the second objection of the AO, namely, that separate books of account have not been maintained for the STP Units, his observation was that the objection of the AO arose on the premise that part of the expenditure which could be related to the exempted income which is not allowable to the assessee by virtue of the provisions contained in section 14A of the Act which could be disguised and allowed to be set off against taxable income and, thus, the assessee would be benefited by paying reduced tax which could have been avoided. On this issue, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unication requirements that the new unit was using the point to point leased lines and internet leased lines of the existing unit. I find that the conclusion has been drawn by the AO without providing opportunity to the appellant to explain the issue. I find that the application for the approval of STPI was made on 25.07.2008 and application for installation of leased lines and internet leased circuits was made to Sify Technologies Limited on 24.07.2008. The bills of Sify Technologies Limited show the customers reference date as 24.07.2008. Moreover payment of internet charges of ₹ 3,12,876/- has been shown to have been made by the appellant vide bank payment voucher numbers 199 and 205. The facts show that the new unit is using separate communication lines for internet usage. 4(7)(i) I find that the reliance of the AO on the report of the Income Tax Inspectors (hereinafter referred to as the ITI) is not justifiable as the report was not confronted to the appellant. Moreover, the Ill's conducted their spot inquiries on 26.12.2011 whereas the unit claiming deduction under section 10A of the Act was functional only till 31.03.2011. In other words on the date on which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s schedule examined by the AO in the assessment order at page 4 is as under: S.No. Particulars Fixed assets as on 1/4/08 Fixed assets purchased for old unit Fixed assets purchased for new unit Fixed assets as on 31/3/2009 before claiming depreciation Percentage of old assets 1. Furniture fixture 7,81,336/- 36,800/- 2,38,585/- 10,56,721/- 73.93% 2. Office equipments 11,17,272/- 1,51,115/- 5,55,480/- 18,23,867/- 61.25% 3. Computers 44,16,979/- 6,42,263/- 12,25,258/- 62,84,500/- 62,84,500/- Total assets purchased for new unit 20,19,323/- 4(8)(ii) On the basis of above schedule the AO concluded that the percentage of old plant and machinery was more than 20% of the total plant and machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting business 17,21,408/- Export turnover of new unit 4,27,05,973/- 4,44,27,381/- 6,19,46,558/- 4(11) Now as regards the principles laid down by Courts in relation to the claim of deduction under section 10A of the Act, it has been laid down that a new unit should be set up from new investments. The new unit must be set up for producing either the same commodities or some distinct commodities (Supreme Court in the case of Textile Machinery Corporation Vs CIT (107 ITR 195). Further, Even if some employees are common to the old and the new unit, it will not be a bar on eligibility or deduction (Madras High court in the case of Metropolitan springs (P) Ltd Vs CIT (191 ITR 288). Again, even if the new unit manufactures the same commodity as the old unit, it will be an eligible undertaking (Supreme Court in the case of Indian Aluminum Company Ltd Vs CIT (108 ITR 367). Finally, while deciding whether there is splitting up or reconstruction of an undertaking, it is not necessary to see whether the new undertaking has produced a different article than that produced by the Old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the new unit is using separate communication line for internet usage. He has also noted that the Assessing Officer has relied upon the report of Income Tax Inspector but it is not justifiable because the report was not confronted to the assessee. He has also noted that the Income Tax Inspector has conducted enquiry on 26/06/2011 whereas the unit is claiming deduction u/s 10A only till 31/03/2011 and therefore, on the date on which the enquiry was conducted, the unit in respect of which the enquiry was conducted, was not in operation. He has also observed that the report of the Income Tax Inspector outlines that the new unit was operated on the same place and there was no demarcation between new unit and old unit but as per the CBDT Circular No. 01 of 2013 and as per the Tribunal decision of the Pune Bench in the case of ACIT Vs Symantec Software India P. Ltd in ITA No. 787/PN/09 for assessment year 2004-05), dated 30th November 2011, it was held that physical demarcation is not a criteria to decide the eligibility of deduction under section 10A of the Act so long as the new unit is independent of the old existing unit. Hence, in our considered opinion, on this aspect also, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... good for tax purposes. CBDT Circular No. 1 of 2005, dated January 6, 2005, grants certain benefits under section 10B. Though the circular is in the context of section 10B, the ratio of the circular equally applies to section 10A also. In fact, the Commissioner of Income-tax (Appeals) has referred to various judgments on the point and had come to the conclusion that the benefit of section 10A would also be available even when an existing unit gets converted into a STPI unit. In fact, the material on record discloses that no export of computer software was made before August 4, 2004. The export commenced only after August 4, 2004. The invoices produced in the case clearly establish the said fact. In these circumstances, the appellate authority as well as the Tribunal were justified in extending the benefit of section 10A to the unit in question. 6.4.1 As per the judgment of Hon'ble Karnataka High Court, the relevant Para of which is reproduced above, it is seen that a DTA unit can be converted into STP unit but even if the assessee did not choose to get its DTA unit converted into STP unit, the deduction is allowable to the assessee. In the present case also, the assessee ha ..... 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