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TMI Blog2018 (8) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... in allowing exemption u/s. 10B to the assessee, even though it was the case of splitting/reconstruction of an existing business." 3. The brief facts of the case are that the assessee is engaged in the business of providing diet, health, fitness and wellness information to consumers through network of websites, internet portals, print and all other forms of media, and content writing, web design and search engine optimization solutions. The assessee filed return of income with Revenue claiming deduction u/s. 10B of the 1961 Act amounting to Rs. 90, 73, 767/- for the year under consideration. The assessee filed with learned AO copies of registration with Software Technology Park of India (STPI). On verification of the details and STPI documents, It was observed by the AO that the business is already in existence prior to setting up of new STP unit for the purpose of claim u/s. 10B of the 1961 Act. The assessee was show caused by the AO vide notice u/s 142(1) dated 29.01.2014 as to why deduction u/s 10B of the 1961 Act should not be disallowed due to reasons cited below:- 'On verification of the documentary evidence filed by you in support of your claim u/s 10B, you are her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Forgings Ltd (1991) 191 ITR 70 (Patna HC) f) CIT v. Gaekar Foam & Rubber Co Ltd (1959) 35 ITR 662 (Bom. HC) g) CIT v. Devson Ltd (1975) 98 ITR 311 (J&K HC) The AO rejected the contentions of the assessee and denied the benefit of exemption u/s 10B of the 1961 Act to the assessee, by an assessment order dated 12.02.2014 passed by the AO u/s. 143(3) of the 1961 Act, by holding as under:- " 4.9 The facts of the case are that the assessee company was incorporated on May, 2008 as a 100% subsidiary of Waterfront Media Inc., USA now known as Everyday Health Inc., USA. The assessee company established the software unit in the year 2008 at Karmayog building, 2nd floor, Parsi Panchayat Road, Andheri(E), Murnbai-400069. The assessee's business is development of 'software', viz. providing software development, content writing, web-design and search engine optimization solutions. The assessee has started developing software immediately after setting up the unit in the year 2008 by recruiting the software personnel who were the intellectual property of the assessee company in this line of business and has shown total turnover from the business of development of software of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the employees who executed the software development work in respect of the new STPI Unit set up after 11.09.2009 were recruited before the new unit came into existence. It is seen that the software personnel who were the intellectual property in this line of business who have been working in the existing business had been transferred to the new unit. As per the list of 62 employees furnished by the assessee, it is noticed that 36 employees have been recruited prior to set up of new unit w.e.f. 11.09.2009, which consisted of 26 employees recruited in the year 2008-09 and another 10 employees recruited during the period from April, 2009 to 11th sept., 2009, prior to establishing of new unit and the employees employed after the new unit came into existence w.e.f 11.09.2009 and upto the period 31.3.2009 were only 12. The assessee's employee details show that most of the. staff who executed software development work in respect of the new STP unit were recruited before the new unit came into existence. The above facts show that the assessee company was thus trying to shift the business from the old unit to the new STP unit to take advantage of tax exemption. 4.12 Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any as the facts, of those cases are distinguishable from the facts of this case as in this case the same existing business has been done in the new unit by the existing staff taken from the old unit which means the business itself has been diverted to the new unit and the business of both unit remain the same, whereas the facts in the above mentioned judicial cases are different from the facts of this case and hence, the above cited judicial decisions cannot be applied to the facts of this case. Needless to mention here that each case has to be evaluated on its own facts to determine whether it is a case of splitting up of existing business or not. In the assessee's case, the business itself has been shifted to the new STP unit, and the business of both the unit remain the same. 4.15 In view of the foregoing discussion, I am of the view that the new STP unit had been set up by splitting up/reconstruction of the existing business and is thus not eligible for deduction u/s 10B of the I.T. Act." 4. Aggrieved by an assessment order dated 12.02.2014 passed by the AO u/s. 143(3) of the 1961 Act , the assessee filed an appeal before ld. CIT(A) who allowed the appeal of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 3.11.2009 has granted permission to manufacture computer software and IT enables services in Bond under section 65 of the Customs Act, 1962 read with supplementary Regulations under the Manufacture and Other Operations in the Warehouse Regulations, 1966. The Act does not allow 10B deduction to any undertaking w.e.f. AY 2012-13. The relevant proviso is as under : "Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, [2012] and subsequent years." As the appellant company has obtained permission to relocate the existing unit at Karmayog Bldg., 2nd floor, Parsi Panchayat Road, Andheri (East), Mumbai 400 069 to 102B, Akruti Trade Centre, 1st floor, Road no. 7, MIDC, Andheri (East), Mumbai 400 093 and also approval letter dated 11.09.2009 from Software Technology Parks of India, I am of the opinion that the appellant is eligible for deduction u/s. 10B of the I.T. Act. I, therefore, direct the AO to allow such deduction. 4. In the result, the appeal is allowed." 5. Aggrieved by the appellate order dated 29.01.2016 passed by learned CIT(A), the Revenue has come in an appeal before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year in which it was claimed and allowed u/s. 10B of the Act by Revenue, no disturbance can be made in the assessment year 2011-12 keeping in view principal of consistency . The assessee placed reliance on the decision of Hon'ble Bombay High Court in the case of CIT v. Western Outdoor Interactive P. Ltd., (2012) 349 ITR 309(Bom.) , which decision of Hon'ble Bombay high Court is placed in the paper book filed by the assessee.The reliance is also placed on the decision of ITAT-Mumbai in the case of Aditya Birla Nuvo Ltd. v. ACIT , reported in (2015) 56 taxmann.com 168 (Mumbai-trib.). Reliance is also placed on CBDT circular no. 1/2005 dated 06.01.2005 . On merits it was submitted that first year for claim of deduction u/s 10B of the 1961 Act was the assessment year 2010-11. It was submitted that the AO allowed the deduction u/s 10B of the 1961 Act for AY 2010-11 after detailed discussion in assessment order passed u/s 143(3) of the 1961 Act, detailed as under:- " 4. It is seen from the financial statements and audit reports submitted by the assessee that the assessee is 100 % Export Oriented Unit and claiming exemption u/s. 10B of the Income Tax, 1961 for the first year of Rs. 16, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/2015 dated 06.01.2005. Reliance is placed on the decision of Hon'ble Madras High Court in the case of Nagesh Chundur v. CIT, (2013) 358 ITR 521 (Madras-HC), Mumbai-tribunal decision in the case of Prothious Engineering Services P. Ltd. v. ITO reported in (2016) 46 ITR(T) 438(Mum-trib.). 6. We have considered rival contentions and perused the material on record including cited case laws. We have observed that the assessee is engaged in the business of providing diet, health, fitness and wellness information to consumers through network of websites, interest portals, print and all other forms of media, and content writing, web design and search engine optimization solutions. The assessee unit was setup in the month of August 2008 at Karmayog Building , 2nd Floor, Parsi Panchayat Road, Andheri(East), Mumbai-400069. The said unit was not registered as STPI unit under STPI scheme. The assessee did not claimed any deduction u/s 10B of the 1961 Act for AY 2009-10 as its unit was not registered as STPI unit. In the month of August, 2009, the assessee applied to STPI for registration as STPI unit being 100% EOU under the STPI scheme for the development and export of computer software/ITE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, accordingly allowed to the assessee of Rs. 16, 38, 470/- as per assessee's claim in the return of income. The learned CIT(A) has elaborately discussed the issue and granted relief to the assessee for AY 2011-12 vide appellate order dated 29.01.2016. The relevant extract of learned CIT(A) order dated 29.01.2016 for AY 2011-12 are reproduced hereunder: " 3.2. I have gone through the assessment order dated 12.02.2014 wherein the AO is of the opinion that the appellant is running the same business using the same employees from the existing business by setting up of new unit by change of location and the appellant company is not eligible to claim deduction 10B of the I.T. Act. On the other hand, the AR of the appellant argues that the appellant's company was not formed by splitting up or reconstruction of appellant's existing business and has fulfilled all the conditions as per section 10B of the I.T. Act and therefore, the deduction should be allowed to the appellant company. In support of this, the appellant company filed a copy of the letter issued by the Software Technology Parks of India, Mumbai, Ref. No. STPI/MUM/ VIII(A)(1527)/ 2009(09)/ PM/9380 dated 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that the appellant is eligible for deduction u/s. 10B of the I.T. Act. I, therefore, direct the AO to allow such deduction. 4. In the result, the appeal is allowed." We have also observed that there is no splitting or reconstruction of the unit and it is only that the unit was first setup in Domestic Tariff Area(DTA) which was later approved as 100% EOU STPI unit and later on the unit was relocated to a new location as 100% EOU unit for which requisite permissions were also obtained by the assessee from the relevant authorities. We have observed that the assessee has not split or reconstructed its business and the same business is continuing which was earlier located in DTA which was later approved as 100% EOU STPI unit and thereafter shifting of unit to a new place/location took place with the approval of authorities. We have observed that there is no evidence on record that the assessee used old plant and machinery or it violated any of the conditions stipulated under STPI scheme r.w.s. 10B of the 1961 Act . We have also observed that CBDT circular no. 1/2005 dated 06.01.2005 allowed the relief u/s 10B of the 1961 Act in the cases of subsequent conversion of uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10. 5. To clarify the above position, certain illustrations are given as under:- (i) Undertaking „A‟ is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial Year 1999-2000 relevant to assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the financial year 2004-05 relevant to assessment year 2005-06. Accordingly, it shall be eligible for deduction under section 10B from assessment year 2005-06 i.e., the year in which it fulfils the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17] 88 taxmann.com 47(Mum-Trib)} 4. ACIT v. Metal Alloys Corporation {[2015] 59 taxmann.com 370 (Rajkot- Trib}} 5. CIT v. Sasken Communication Tech Ltd {[2012] 347 ITR 362 (Karanataka-HC)} In the case of Prothious Engineering Services P. Ltd. (supra), the Accountant Member was part of the Division Bench of Mumbai-tribunal who passed the said order , wherein the tribunal held in favour of taxpayer by holding as under:- " 8. ............Even alternatively otherwise on the merits of the appeal, we have observed that assessee company has set up a new undertaking in the month of April, 2005 and obtained permission from STPI w.e.f. 19th September, 2005 by making an application in the month of July, 2005 which is one of the important condition for grant of approval u/s 10A of the Act. It is not the case of the Revenue that the assessee company has utilized the old machinery/computers etc. while setting up the new undertaking in Mumbai in April 2005 rather the case of the Revenue is that the assessee company set up an undertaking in the month of April, 2005 while it applied for the permission from STPI in July 2005 and the permission was received on 19th September 2005 while the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction under section10B of the Income-tax Act. 4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction under section 10B of the IT Act, on getting approval as 100% export oriented undertaking. In such a case, the deduction shall be available only from the year in which it has got the approval as 100% EOU and shall be available only for the remaining period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as a DTA unit. Further, in the year of approval, the deduction shall be restricted to the profits derived from exports, from and after the date of appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2007-08. However, the deduction shall not be available after assessment year 2009-10. (v) Undertaking „E‟ is set up and starts producing computer software prior to 31-3-1994. It gets approval as 100% EOU in financial year 2004-05 relevant to assessment year 2005-06. Undertaking „E‟ shall not be eligible for deduction under section 10B as the period of deduction of 10 years expires prior to assessment year 2005-06." The following case laws also support the stand and contentions of the assessee company: i. Nagesh Chundur Vs. CIT [(2013) 358 ITR 521] (Mad); ii. Super Auto Forge Ltd., Vs. Add. CIT [(2014)365 ITR 318] (Mad); iii. CIT Vs. Foresee Information Systems (P) Ltd., [(2014)365 ITR 335] (Kar); iv. CIT Vs. Excel Softech Ltd [(2008)175 Taxman 257 (P&H-HC)]; v. CIT Vs. Quantum Coders Ltd [ITA No. 542 of 2013] (Del) Thus, we hold that assessee company is duly entitled for exemption u/s. 10A of the Act and in our considered view, the assessee company has rightly claimed deduction of Rs. 47, 13, 192/- u/s. 10A of the Act w.e.f. 1st October , 2005 which the assessee company is duly entitled for the said deduction of Rs. 47, 13, 192/- u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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