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TMI Blog2020 (1) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... ns such as separate custom bonded warehouse licenses, separate annual reports filed with STPI, separate monthly reports submitted to Superintendent of Customs for Unit I and Unit II further confirm that Unit II is separate and independent from Unit I. These facts were not disputed by the Ld. DR before us. Thus we are of the considered view that Unit II of the assessee company is absolutely a new and separate unit and independent from Unit I. Therefore, the Ld. CIT(Appeals) was justified in holding that the assessee is eligible to claim of deduction u/s.10A of the Act on the profits of Unit II separate from deduction u/s.10A of the Act on profits of Unit I. Thus, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee by the Ld. CIT(Appeals) is hereby sustained. Computation of deduction u/s 10A - as per CIT-A exemption u/s.10A of the Act should be computed after excluding communication expenses, insurance and travel expenses from the total turnover - HELD THAT:- As relying on HCL TECHNOLOGIES LTD. [ 2018 (5) TMI 357 - SUPREME COURT] CIT(Appeals) was correct in directing the Assessing Officer to calculate deduction u/s.10A o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal on record: 1. The Ld. CIT(A) erred on facts and circumstances of the case in law in allowing deduction u/s.10A for unit II as a separate eligible unit, even though the stipulated conditions for availing such benefit were not satisfied in this case and in not considering the order of DRP in AYs. 2010-11 and 2011-12 on this issue. 2. The Ld. CIT(A) erred on facts and circumstances of the case in holding that the exemption u/s.10A of the Act should be computed after excluding communication expenses, insurance and travel expenses from the total turnover relying on the decision of the Hon‟ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. whereas the Department has not accepted the decision of Bombay High Court and filed SLP before the Hon‟ble Supreme Court. 3. The Ld. CIT(A) erred on the facts and circumstances of the case in holding that the interest income is eligible for deduction u/s.10A denying the facts of the case that the interest was earned on bank deposits kept in the normal course of business. 4. The Ld. CIT(A) erred on the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) The assessee has to furnish a return of his income on or before the due date specified u/s.139(1) of the Act. (ii) It has begun or begins to manufacture or produce articles or things or computer software, in any electronic hardware technology park or as the case may be, software Technology Park. (iii) It is not formed by the splitting up or the reconstruction of a business already in existence. (iv) It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. According to the Assessing Officer, these conditions should be mandatorily followed by the assessee and these conditions have to be verified when an assessee starts a new unit. 3.1 Thereafter, the Assessing Officer worked out the chronology of events and derived findings that claim of deduction which was not made in the previous year was not an inadvertent mistake on the part of the assessee but it was an afterthought. The Assessing Officer vide Para 4.5.6, 4.5.7, 4.5.8 and 4.5.9 of the assessment order has observed that the claim of deduction u/s.10A of the Act should not be allowed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s fact has also been accepted by the AO in his remand report submitted to this office. Thus, I hold the Appellant to be eligible to claim deduction u/s.10A on the profits of Unit II separate from deduction u/s.10A on profits of Unit I. I therefore hold that the addition made by the AO on this account was not justified and the same is hereby deleted. Ground No.1 raised by the appellant is accordingly allowed. 5. At the time of hearing, the Ld. DR vehemently argued that the assessee should have made a claim of deduction u/s.10A of the Act in the previous year i.e. A.Y. 2008-09. However, in the scrutiny assessment proceedings, for A.Y. 2008-09, the assessee had no where mentioned about another unit of the assessee company. The Ld. DR further invited our attention Para 4.5.7 of Assessing Officer‟s order wherein the Assessing Officer observed that vide letter dated 25.04.2007, the STPI had given approval only for expansion as sought for by the assessee. That further, the assessee has not furnished any separate Master Service Agreement and statement of work which would have necessitated the purposes/work assignment of Unit II. This Agreement was not furnished bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The AR claimed that the main reason given by the AO to hold that Unit 2 is part of Unit 1 and not a separate and independent unit is reference given by STPI in the approval dated 5 February 2008 to its approval dated 25 April 2007 for expansion of Unit 1. The AR has contended that since the letter dated 5 February 2008 was again rectified by the STPI on 10 June 2008, wherein the STPI has categorically mentioned that the approval is for expansion for Unit 2. 9. The assessee has further submitted various documents/ returns such as separate custom bonded warehouse licenses, separate annual reports filed with STPI, separate monthly reports submitted to Superintendent of Customs for Unit 1 and Unit 2 to support its contention that Unit 2 is separate and independent from Unit 1 and its separate existence is acknowledged by various government authorities. The evidences have been placed on record. Therefore, the Ld. AR of the assessee submitted that STPI itself has confirmed that Unit II exists separate and independent of Unit 1 and the Assessing Officer categorically states in the said remand report that he has perused the approval given by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is mentioned by the First Appellate Authority that various documents/returns such as separate custom bonded warehouse licenses, separate annual reports filed with STPI, separate monthly reports submitted to Superintendent of Customs for Unit I and Unit II further confirm that Unit II is separate and independent from Unit I. These facts were not disputed by the Ld. DR before us. 8. In view of the examination of facts on record, we are of the considered view that Unit II of the assessee company is absolutely a new and separate unit and independent from Unit I. Therefore, the Ld. CIT(Appeals) was justified in holding that the assessee is eligible to claim of deduction u/s.10A of the Act on the profits of Unit II separate from deduction u/s.10A of the Act on profits of Unit I. Thus, we do not find any infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee by the Ld. CIT(Appeals) is hereby sustained. Thus, ground No.1 raised in appeal by the Revenue is dismissed. 9. With regard to Ground No.2, the contentions of the Revenue is that the Ld. CIT(Appeals) had erred in holding that the exemption u/s.10A of the Act should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0A after reducing the expenses which are reduced from export turnover, from total turnover as well. Ground No.4 raised by the appellant is accordingly allowed. 12. The Ld. AR of the assessee placed strong reliance on the findings of the Ld. CIT(Appeals) and also submitted that this issue is covered by the decision of the Hon‟ble Supreme Court of India in the case of CIT Vs. HCL Technologies Ltd. 404 ITR 719 wherein the Hon‟ble Apex Court has held that when object of formula in section 10A for computation of deduction is to arrive at profit from export business, expenses excluded from export turnover have to be excluded from total turnover also; otherwise, any other interpretation makes formula unworkable and absurd and hence, such deduction shall be allowed from total turnover in same proportion as well. The decision is rendered in favour of the assessee. 13. We take guidance from the decision of the Hon‟ble Supreme Court as referred above and respectfully, following this decision, we are of the considered view that the Ld. CIT(Appeals) was correct in directing the Assessing Officer to calculate deduction u/s.10A of the Act af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Karnataka High Court in the case of CIT Anrs. Vs. Motorola India Electronics P. Ltd. (265 CTR 94) (2014) where the assessee had earned interest income on account of deposits with EFFC account and inter corporate advances. The Hon‟ble High Court held as follows: There is a direct nexus between this income and the income of the business of the undertaking. Though it does not partake the character of a profit and gains from the sale of an article, it is the income which is derived from the consideration realized by export of articles. In view of the definition of Income from profits and gains‟ incorporated in the sub section (4) the assessee is entitled to the benefit of exemption of the said amount as contemplated u/s.10B of the Act. The aforesaid judgment of Karnataka High Court has been followed by the Bangalore Tribunal in assessee‟s own case wherein the Tribunal allowed deduction u/s.10A of the Act on interest income. The Ld. CIT(Appeals) on this issue has held as follows: DECISION: I have perused the assessment order and the submissions made by the appellant as above carefully. After consideri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the tune of ₹ 3,38,14,625/- which was not forming part of profit of the undertaking. The Hon‟ble Supreme Court while considering the legislative intent behind the use of the word derived from‟ in the case of Pandian Chemicals Limited Vs. CIT( 262 ITR 78) had affirmed that what is eligible for the deduction is strictly the income derived by the undertaking and not any other income that may be incidental or attributable to, even though such income is computed under the head business . Further the Hon‟ble Supreme Court had considered the legislative intent behind the use of the word derived from in the case of Liberty India and Others Vs. CIT (317 ITR 218) and reaffirmed that the word derived from are narrower in connotation as compared to the words attributable to . In other words by using the expression derived from , the Parliament intended to cover sources not beyond the first degree. Hence, the said amount of ₹ 3,38,14,625/- was reduced from the profit of the undertaking and the eligible profit of the undertaking was arrived at ₹ 15,03,20,847/-. Accordingly, after exclusion of the said other income, the profit of the undertaking wou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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