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TMI Blog2018 (2) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that after the sun set period the revenue of the EOU has gone down. The chart as submitted by the Ld. Counsel clearly vitiates the observation and the finding of the AO; and hence on the point that there is a less growth of revenue in EOU unit and therefore, presumption can be drawn for splitting up or reconstruction of EOU unit is incorrect and cannot be upheld. The assessee continued to make addition to the fixed assets in the SEZ unit independently and there is no iota of any material to show that the additions to the fixed assets has been by way of transfer from EOU units. Likewise from the perusal of the list of technical man power, we find that except for two or three employees out of 30 employees are newly hired and therefore, it is not a case where the old employees of EOU unit have been entirely shifted to SEZ unit which seems to be the allegation of the AO. Thus, all the issues raised by the AO does not hold ground on the facts and material placed before us and hence on factual matrix also we hold that assessee has not violated any of the conditions prescribed in section 10AA and therefore, it is entitled for claim of deduction u/s 10AA in this year. - Decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ef facts and background of the case are that the assessee company is a wholly owned subsidiary of 'Macquarie Global Services (Mauritius) Limited' and was set up in India in March, 2007. It is a captive contract service provider, engaged in the business of provision of back office support services to its associated enterprises (AE). For rendering such services, assessee is remunerated on a cost plus mark up basis. During the relevant financial year the assessee company was operating from two separate units' i.e., 'CN61D (EOU)' unit and 'SEZ unit'. The operations from the said SEZ unit had commenced during the financial year 2010-11; and accordingly, had claimed deduction u/s 10AA in the assessment year 2011-12 and also in assessment year 2012-13. During the year under consideration which was its third year of operation, the assessee had claimed deduction of ₹ 10,43,46,127/- u/s 10AA. The said claim was duly supported by audit report in Form No. 56F. During the course of the assessment proceedings the AO noted that assessee has been claiming deduction u/s 10B/ 10A in the earlier years from its EOU Unit and the last year of deduction was assessment year 2011-12, from which perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed under section 10AA of the Act is AY 2011-12. The assessee has submitted that the conditions prescribed above need to be fulfilled at the time "formation of SEZ unit" i.e. during the first year of commencement of operations. The SEZ unit commenced operations in FY 2010-11 and accordingly, relevant year for examination of formative conditions is AY 2011-12. In that year there is no dispute on satisfaction of formative conditions. 4.4 The assessee has further submitted that MGSPL has met all the conditions for claiming the deduction u/s 10AA of the Act. As alleged in the show cause on allowbility of deduction under section 10AA of the Act that it has begun or beings to manufacturing or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. It was submitted that the Assessee, during FY 2010-11, has set up an SEZ unit for providing ITES services duly approved by SEZ Authority vide letter of approval dated 21 June 2010. Further, the Assessee duly commenced commercial operations in nature of export of IT /ITES services from the SEZ Unit wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The facts patterns of the assessee business units are given below:- Year Revenue of CN61D (EOU) unit Year on year growth (%) Revenue of SEZ unit Year on year growth (%) Total revenue of the company Year on year growth in the revenue of the compan y (%) 2007-08 11082773 - - - 11082773 - 2008-09 248045746 2138% - - 248045746 2138% 2009-10 489315919 97% - - 489315919 97% 2010-11 642136965 31% 36110980 - 678247945 39% 2011-12 623214978 3% 457263242 1166% 1080478220 59% 2012-13 669557158 7% 608825612 33% 1278382769 18% Table of employee growth - Year Employ ee of CN61D (EOU) unit Year on year Growth (%) Employee of SEZ unit Year on year Growth (%) Total employee hired during the year by the company Year on year growth in the hiring of the company (%) 2006-07 8 - 0 - 8 - 2007-08 40 400% 0 - 40 400% 2008-09 99 148% 0 - 99 148% 2009-10 210 112% 0 - 210 112% 2010-11 269 28% 30 - 299 42% 2011-12 227 -16% 141 370% 368 23% 2012-13 239 5% 170 21% 409 11% 4.6 The assessee has intentionally tried to submit reply on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is splitting and diversion of the existing business. The assessee also failed to submit detail of new and old employee's ratio. The contents of tables clearly shows that the assessee company has been set up with specific motive of shifting the business from taxable zone to SEZ Zone in the newly set up SEZ unit by splitting of existing business in non-taxable area just to cheat the provisions of the section 10AA of the It Act. The assessee company which is evident from the facts that the SEZ unit of the assessee company have absorbing the growth of the business from taxable undertaking to SEZ unit which has increased drastically from normative business growth. 4.9 The assessee company as the assessee has failed to demonstrate that how many employees were recruited by the assessee for EOU UNITs which is taxable in subsequent years to the formation of SEZ UNIT. The constitution bench decision of the Supreme Court in McDowell and Co. Ltd. v. Commercial Tax Officer (154 ITR 148) is equally relevant. In the said decision, Supreme Court took a serious view of tax avoidance devices, and held that such devices will not stand the scrutiny of law if the object is only tax avoida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion of the Assessee that unit was set up during FY 2010-11 duly approved by NSEZ Authority is not relevant as SEZ authority is only to give approval of Unit and determination of the deduction u/s 10AA is subject matter of provision of the Act. 4.10.3 That the SEZ unit is a distinct identifiable unit which has operated independently and has contributes to the growth of revenue from MGSPL over the years keeping In view the growth of 39%, accordingly, there is no splitting up or reconstruction of revenue/ employee. The assessee is failed to substantiate the growth in the business of the EOU form the date of set up of new unit till FY 2015- 16. Based on limited information given in the table by the assessee, the contention of the assessee is supported by the facts and growth in the business in taxable business is far low as compare to SEZ business. 4.10.4 That instruction No. 17/2013 dated 17 January 2013 which provides that the Assessing Officer have to follow clarifications issued by CBDT by way of Circulars. The assessee is failed to give detail of employees and their skill set which were acquired by the assessee for new unit and thereafter hiring growth in taxable unit at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and claim. In support of this proposition, he strongly relied upon following judgments:- i) CIT vs. Western Outdoor Interactive (P) Ltd. (Bombay HC (349 ITR 309; ii) CIT vs. Tata Communication Internet Services Ltd. (Bombay HC) (232 Taxman 406); iii) CIT vs. Heartland Delhi Transcription Services (P.) Ltd. (Delhi HC) (270 CTR 373). 6. Mr Kapoor's second limb of argument was that, the expansion of business through a new and integrated undertaking does not tantamount to splitting or reconstruction of the existing business. He submitted that it is now well settled proposition by various judicial precedents that a new undertaking which satisfies the following conditions then it cannot be said to have been formed by splitting up or reconstruction of the existing business:- - Separate and distinct identity of the new undertaking; - Fresh investment in the undertaking; - Employment of requisite manpower therein; - Manufacture of articles or rendering of services from such undertaking; and - Earning of profits clearly attributable to said undertaking. 7. He pointed out that SEZ unit was established with the investment of ₹ 10 crores after seeking appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plitting up of the existing business in the instant case and in support of all his proposition as argued by him above, he relied upon the following judgments:- * Textile Machinery Corporation Ltd vs CIT (SC) (107 ITR 195)) * CIT vs Wipro GE Medical System Ltd (Kar HC) (391/392 - 2008) * ACIT vs Leo Fasteners (ITA No. 533 to 538 of 2010) (Madras HC) * CIT vs Ganga Sugar Corporation Ltd (Delhi HC) (92 ITR 173) * CIT vs Mahaan Foods Ltd (Delhi HC) (216 CTR 148) 11. During the course of the hearing, this bench required the Ld. Counsel to submit details of investment made in SEZ unit since inception; expansion and growth of revenue for EOU and SEZ unit; and list of technical manpower with their designation and technical qualification employed in the first year of formation and whether it was a new hiring or inter-unit transaction. In compliance thereof, the Ld. Counsel had submitted following details:- i) Details of investment:- - Assessment Year Additions to Fixed Assets in SEZ unit (Rs). 7,63,46,030 AY 2011-12 AY 2012-13 1,30,27,383 AY 2013-14 1,17,98,477 AY 2014-15 68,03,912 AY 2015-16 7,07,50,865 AY 2016-17 1,84,17,609 AY 2017-18 1,11,58,442 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hiring 23 39093 Mehta,Prasham Executive PGDBM Inter unit transfer 24 50191 Puri,Jatin Executive CA New hlring 25 50219 Singh,Manish K Senior Associate PGDBM New hiring 26 46064 Munjal,Meenu Manager CA Inter unit transfer 27 50305 Mahaian,Kunal Executive CA New hiring 28 50311 Gupta,Lokesh K Associate B Com New hiring 29 50418 Sharma,Akash Senior Associate B Com New hiring 30 50460 Vikas Pundora Associate MBA New hiring 12. On the other hand, Ld. CIT(DR) referred to the various observations made by the DRP as well as by the AO and submitted that the assessee has failed to give the details of the employees as required by the AO including the skill test of the employees and the most important fact was that the SEZ unit has been established when the EOU unit had reached to sun set period and only with a view to continue to enjoy 100% deduction, the assessee has started its new business and therefore, the AO has rightly observed that the said unit has been established after splitting up and reconstruction of existing business. He thus, strongly relied upon the order of the AO and DRP. As regards the Ld. Counsel's plea that the issue of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel. The Hon'ble Bombay High Court in the case of CIT vs. Western Outdoor Interactive Pvt. Ltd. (supra) has held that whether a benefit of deduction is available for a particular number of years on satisfaction of certain conditions and under the provision of Act, then without withdrawing or setting aside the relief granted for the first assessment year in which claim was made and accepted, the AO cannot withdraw the relief for subsequent assessment years. This ratio was laid down in the context of section 10A. Once there is no change in the facts and circumstances of the case from the earlier years from the initial year when the claim has been accepted, then ostensibly deduction cannot be disallowed or denied in the subsequent years of claim This principle has been reiterated again in the case of CIT vs. Arts & Crafts Exports (Bombay) (supra); and CIT vs. Macbrout Engineering (P) Ltd. (supra) by the Hon'ble Bombay High Court. Hon'ble Jurisdictional High Court in the case of CIT vs. Tata Communication Internet Services Ltd. (supra) in the context of 80IA(3), concluded that bar as provided u/s 80IA(3) is to be considered only for the first year of claim for deduction u/s 80IA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking was formed or created by HICS and there is no allegation or finding by the Assessing Officer that on the date of formation of the undertaking, there was violation of clause (ii) and (iii) to Section 10B(2). The undertaking, when it was formed, satisfied and duly fulfilled the requirements of the said clauses, as it was not formed by splitting up or reconstruction of a business already in existence. It was a new undertaking and there is no factual finding that at the time or establishment or formation of the undertaking, business already in existence was splitted or reconstructed. It is accepted that the plant and machinery procured at the time of formation was new." 15. Following the aforesaid proposition and the ratio laid down by the Hon'ble High Courts including that of jurisdictional High Court, we hold that, once the claim of deduction u/s 10AA has been accepted in the first year of the operations and also in the second year, then in the third year same cannot be withdrawn by examining the factors which were required to be seen in the first year of the claim. Thus, on this ground alone, we hold that the AO cannot deny the claim of deduction u/s 10AA with the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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