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TMI Blog2014 (11) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... er submission-clause (b) to clause (i) of section 10A(2) of the Act, where as section 10A(2) clearly enumerates that that this section applies to any undertaking which fulfills all the said conditions mentioned in clause (i) to (iii) which is not fulfilled by the undertaking. 3. On the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance u/s 10A of the IT. Act, 1961, where as the condition laid down u/s 10A(2) (ii) that it is not formed by the splitting up, or the reconstruction of a business already in existence is not fulfilled by the assessee as the copy of application for registration for STPI given and submitted to the Director and Chief Executive, Software Technology Park of India, Plot No. P-1, Pune InfoTech Park, Hinjwadi, Pune-27, which is annex to the assessment order as Annexure-1, which clearly shows that old plant and machinery are being utilized. 4. The appellant craves leave to add, amend, after any of the grounds of appeal". 2.1 Facts of the case, in brief, are that the assessee, an individual, is engaged in the business of development of computer software for export. Besides he is also undertaking computer job work etc. He file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provisions of section 10A(2) states as under: (i) It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year - (a) commencing on or after the 1st day of April, 1981, in any free trade zone, or (b) commencing on or after the 1st day of April, 1994, in any electronic hardware park or , as the case may, software technology park; (c) commencing on or after the 1st day of April, 2001, in any special economic zone; (ii) It is not formed by splitting up, or reconstruction, of a business already in existence; (iii) It is not formed by transfer to a new business of machinery or plant previously used for any purpose. 10. Thus, the assessee does not fulfil the basic requirements of section 10A(2). The assessee's argument that in previous year the deduction has been allowed by the Department will be not helpful to him as a wrong deduction allowed by my predecessor cannot be ground for allowing wrong deduction in earlier period. Here it is also pertinent to mention that in original assessment year the basic condition was not examined by the A.O. as is evident from the case records. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly. It is evident that the appellant is running a business activity of data processing of MSEB bills, which is totally different from the activity of manufacturing of ERP Software. Further, in the year under appeal the appellant has submitted bills as per which development of computer software and export thereof have been billed by the appellant in the name of Vaneera He-tech, whereas job work and data entry etc. bills were issued by the appellant in the name of Vaneera Info Services. In view of the above facts and discussion and detailed submission filed by the appellant, I am of the considered view that the appellant has carried out new line of business which is distinct and separate from the old business activity carried out prior to the year 2003-04 and the A.O. is not justified in holding that the undertaking is not newly established undertaking. 6.5 The appellant has raised a legal contention that the test as to whether an undertaking has been newly established or not can be undertaken only in the year of establishment or the year in which the undertaking is formed. The appellant has further pointed out that the claim of exemption u/s. 10A was accepted in scrutiny assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no new undertaking has been established and the new business is in fact a reconstruction and splitting up of the old. The reconstruction is of the business and not of a unit carrying on the activities. We have in the foregoing paragraphs describe at length the distinction between the old business and a new business and have demonstrated that in fact a new undertaking did come into existence. As to what constitutes an undertaking, splitting up and reconstruction has been explained at length in the course of assessment itself and we crave leave to refer to and rely on the said submissions. We also would crave leave referred to and rely on the following judgments to support our case that in fact a new undertaking did come into existence[H1] . Relevant .Judicial Pronouncements: * Nagardas Bechardas & Bros. P. Ltd. Vs. Commissioner of Income Tax (104 ITR 255) Gujarat High Court. * Commissioner Of Income Tax vs. Hindustan Motors Ltd (107 ITR 164) Calcutta High Court. * Commissioner of Income Tax vs. J.B. Kharwar & Sons (163 ITR 394) Gujarat High Court." 7.2 I have carefully considered the facts of the case and rival contentions in respect of the second contention ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial undertaking in terms of s.15C of the I.T. Act, 1922 and s. 84 (now 80J) of the Act, 1961. iii) Commissioner Of Income Tax vs. J.B. Kharwar & Sons (163 ITR 394) Gujarat High Court." In this case the issue about reconstruction of a business already in existence has been decided. It has been concluded that dyeing and printing grey cloth amounted to manufacture or production for purposes of s.80J(4)(iii) and there was no reconstruction of business where assessee previously dyeing and printing gray cloth of customers, started dyeing and printing its own grey cloth. The ratio laid down by the above mentioned decisions supports the above contention of the appellant and hence the same has been accepted. 8. The third contention of the A.O. mentioned above is that there is no master service agreement or statement of works with foreign clients. 8.1 In this regard the appellant has submitted as under: "We are not aware as to what provision of law is the learned assessing officer is adverting to. The Section 10 A requires an assessee to fulfill certain conditions for claiming a deduction under the said section. Neither in the section, nor in terms of any rules is there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ters which are set out by the Software Technology Park but the geographical location is not one of them. As per Explanation 2.to section 10A (iii) "electronic hardware technology park" means any park set up in accordance with the Electronic Hardware Technology Park (EHTP) Scheme notified- by the Government of India in the Ministry of Commerce and Industry; (vii) "software technology park" means any park set up in accordance with the Software Technology Park Scheme notified by the Government of India in the Ministry of Commerce and Industry; (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section; From the above explanation, the distinction between a technology park and a free trade zone is apparent. The free trade Zone needs to be at specified geographical area as specified by Central Government however the technology park / unit means any park set up in accordance with Notified scheme of the government. Thus the geographical location is immaterial and the scheme under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Ministry of Commerce and Industry;" Clause (v) of Explanation-2 to section 10A (v) "free trade zone" means the Kandla Free Trade Zone and the Santacruz Electronics Export Processing Zone and includes any other free trade zone which the Central Government may, by notification in the Official Gazette, specify for the purposes of this section;" Sub-clause (a), (b) & (c) of clause (i) to section 10A(2) "(2) This section applies to any undertaking which fulfils all the following conditions namely- (i) it has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year- (a) commencing on or after the 1st day of April, 1981, in any free trade zone, or (b) commencing on or after the 1st day of April, 1994 in any electronic hardware technology park or as the case may be software technology park. (c) commencing on or after the 1st day of April, 2011 in any special economic zone. (ii)........................................" The Hon'ble ITAT Delhi in the case of Xerox India Ltd. vs ACIT [(2010) 127 TTJ (Del)84] has held that there is no requirement in Notification No.30/(RE)/1992-97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit i.e. to say whether the same is not a new undertaking. The above legal position is supported by various judicial pronouncements which have been discussed in the following paragraphs: Relevant Judicial Pronouncements: 1. Saurashtra Cement and Chemical Industries Ltd. vs. CJT, (123 ITR 669) Gujarat High Court. 2. CIT vs. Paul Brothers, (216 ITR 548) Bombay High Court. 3. Western Outdoor Interactive v/s Commissioner of Income Tax, (286 ITR 309) Hon'ble Bombay High court held that if a claim under section 10A of the Act has been accepted earlier, such relief cannot be withdrawn in subsequent assessment years unless there is a change in the factual matrix. Relying on the above decisions, we submit that the factual matrix in the current case has remained unchanged from the initial year till the year under consideration and since the claim u/s 10A has been accepted by the department in the earlier years under scrutiny assessment u/s 143(3), the same cannot be withdrawn under factual matrix being same. It is pertinent to note that, by the undertaking is formed in the initial year and whether such formation satisfies all the tests contained in the deduction provision h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears is impermissible, unless deduction allowed u/s.10A for the first year is withdrawn. The concluding para of the above decision reads as under: "(6) We have considered the submissions. We find that the submissions made by Mr. Pardiwalla on the basis of the decision of this Court in the matter of Paul Brothers (supra) and Director Information Pvt. Ltd. (supra) merits acceptance. Therefore, in this case, it is not necessary for us to decide whether SEEPZ unit was set up/formed by splitting up of the first unit. In both the above decisions, this court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income-tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income-tax Officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted u/s. 10A of the Act to SEEPZ unit has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative strongly relied on the order of the AO. 7. The Ld. Counsel for the assessee at the outset referred to paper book pages 1 to 9 and drew the attention of the Bench to the computation of income for A.Yrs. 2004-05 to 2010-11 showing claim of deduction u/s.10A of the I.T. Act, 1961. Referring to paper book pages 10 to 29 he drew the attention of the Bench to the copies of the assessment orders passed u/s.143(3) for A.Yrs. 2005-06 to 2008-09 in which the deduction claimed u/s.10A has been allowed. He submitted that the assessment order for the impugned assessment year was passed on 21-02-2013 rejecting the claim of deduction u/s.10A of the I.T. Act. Referring to paper book pages 31 to 42 he drew the attention of the Bench to the copy of the reasons recorded for reopening of the assessment u/s.148 for A.Yrs. 2006-07 to 2008-09. Referring to paper book pages 43 to 45 he submitted that the re-assessment proceedings initiated u/s.147 of the I.T. Act by issue of notice u/s.148 has been dropped. Referring to the copy of the decision of the Hon'ble Bombay High Court in the case of CIT Vs. Western Outdoor Interactive Pvt. Ltd., reported in 349 ITR 309 (Bombay) he submitted that the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7th year, i.e. for the impugned assessment year. We find an identical issue had come up before the Hon'ble Bombay High Court in the case of Western Outdoor Interactive Pvt. Ltd., (Supra). The Hon'ble High Court held that unless deduction allowed u/s.10A for the first assessment year is withdrawn, denial of exemption u/s.10A for subsequent years is impermissible. The relevant facts and observations of the Hon'ble High Court are as under : "3) The facts are similar in all the three appeals. However, for the sake of convenience, we are setting out the facts stated in appeal No.1150 of 2010 pertaining to the assessment year 2002-03 as under: a) The respondent-assessee is engaged in the business of development of software for in-flight entertainment for aircrafts. The software developed by the respondent-assessee is exported to one M/s. MAS Ltd. USA. The respondent-assessee has two divisions one in Fort, Mumbai which commenced its operation in 1997-98 and the other at Santacruz Export Processing Zone(SEEPZ) which commenced operation during 2000-2001. b) In respect of its unit at SEEPZ, the respondent- assessee has claimed the benefit of Section 10A of the Act from assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was transferred to the new unit. Further there were separate books of accounts and bank accounts for both the units. The Tribunal also held that merely because the two units manufactured the same product it cannot lead to a conclusion that they are not two separate units. Thus, the grant of benefit of Section 10A of the Act was upheld. 4) Mr. Vimal Gupta, Counsel appearing for the revenue in support of the appeal submits that SEEPZ unit is formed by splitting up Fort unit as is evident from the fact that both units develop the same software product, export it to the same party and many a times common remittance is also received from the foreign party. It is his case that merely by opening a bank account, taking separate premises and purchasing of few computers would not result in an independent unit being set up. Mr. Gupta further submits that the Tribunal erred in proceeding on the basis that as the respondent-assessee had been granted benefit of Section 10A of the Act for assessment year 2000-01 and 2001-02, it is not open to take a contrary view for subsequent years. Mr. Gupta submits that each year is an independent year and there is no concept of res-judicata in tax matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up/formed by splitting up of the first unit. In both the above decisions, this Court has held that where a benefit of deduction is available for a particular number of years on satisfaction of certain conditions under the provisions of the Income Tax Act, then unless relief granted for the first assessment year in which the claim was made and accepted is withdrawn or set aside, the Income Tax officer cannot withdraw the relief for subsequent years. More particularly so, when the revenue has not even suggested that there was any change in the facts warranting a different view for subsequent years. In this case for the assessment years 2000-01 and 2001-02 the relief granted under Section 10A of the Act to SEEPZ unit has not been withdrawn. There is no change in the facts which were in existence during the assessment year 2000-01 vis a vis the claim to exemption under section 10A of the Act. Therefore, it is not open to the department to deny the benefit of Section 10A for subsequent assessment years i.e. assessment years 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the Commissioner of Income Tax (Appeals) and the Tribunal have recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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