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TMI Blog2013 (11) TMI 1784X X X X Extracts X X X X X X X X Extracts X X X X ..... Siruseri . The assessee-company reported its profits on the basis of the income generated in the above stated STPI units. As the entire income was generated out of the operations carried out by the two STPI units, the assessee claimed deduction under Section 10A in the return of income filed by it. 3. The assessee-company filed its return of income for the impugned assessment year on 28.9.2009 admitting an income of ₹ 1,64,63,800/-. This is after claiming deduction available under Section 10A. But, the Assessing Officer rejected the income returned by the assessee and determined the income in the hands of the assessee-company at ₹ 7,17,98,546/-. The Assessing Officer held that the STPI unit set up by the assessee at Siruseri is not an altogether a new unit, but it is only a split-up and reconstruction of already existing Adyar unit. Therefore, he was of the opinion that the income reported from Siruseri unit is not eligible for deduction provided under Section 10A. The Assessing Officer denied the exemption under Section 10A in respect of the profits reported in the accounts of Siruseri unit. It is how he has assessed the income at ₹ 7,17,98,546/-. 4. In fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifted from the Adyar unit to Siruseri unit. 2.4 The CIT(A) ought to have appreciated the fact that the Adyar unit was finally closed by 31/03/2009 which proves to the satisfaction that the Siruseri unit was formed out of reconstruction of the assets however partially from the Adyar unit and there is no continuity of the business on by both the undertakings. 2.5 The CIT(A) ought to have further appreciated that the Siruseri unit is not an expansion of the existing undertaking but a new undertaking which absorbed business and manpower of the old undertaking and ought to have held that it does not fulfill the condtions laid down in 10A(2)(ii) 10A(2)(iii). 7. So also, among other things, the assessing authority has excluded foreign currency expenses incurred by the assessee from the export turnover considered for deduction under Section 10A. The foreign currency expenses related to foreign travel, foreign Branch, application hosting and development consulting. In first appeal, the Commissioner of Income Tax (Appeals) held that in view of the decision of ITAT, Chennai, Special Bench in the case of Income Tax Officer v. Sak Soft Ltd. (30 SOT 55) (Chennai) (SB), it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nit with independent and separate functional status. The entire infrastructure of Siruseri unit has been set up anew for that unit and nothing has been brought from Adyar unit by splitting-up. The Assessing Officer himself has confirmed the fact that the entire infrastructure of Siruseri unit is independent of the Adyar unit. (2) Regarding manpower deployment, 40% of the technical personnel of Siruseri unit were recruited by that unit independently. As on 31st March, 2009, there were 221 technical manpower at Siruseri unit, out of which, 88 persons were recruited by the said unit separately in the earlier years. The balance of 133 persons were recruited in the previous year relevant to impugned assessment year and they came from Adyar unit of the assessee. Adyar unit had 235 technical personnel. Only 133 persons have joined Siruseri unit. The balance of the personnel left the service of the assessee-company for ever. The turnover of technical manpower in this line of software industry is very high and therefore, there is nothing new for technical personnel coming and going to and from different STPI units. The observation of the Assessing Officer that entire manpower of the Adya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting-up the existing Adyar unit and Siruseri unit is only a case of reconstruction. We have no hesitation to hold that the above finding of the Assessing Officer is against the facts of the case. The Hon ble Supreme Court in the case of Textile Machinery Corporation Ltd. v. Commissioner of Income Tax (107 ITR 195) has held that in the reconstruction of a company, there is an element of transfer of assets and of some change, however partial or restricted it may be, of ownership of the assets. The transfer, however, need not be of all the assets, it is nonetheless imperative that there should be continuity and preservation of the old undertaking though in an altered form. The concept of reconstruction of business would not be attracted when a company which is already running one industrial unit sets up another industrial unit. 14. In the present case, the facts speak for themselves to lead to the conclusion that the assessee-company has set up a new STPI unit at Siruseri while it was running its existing unit at Adyar. Therefore, the Commissioner of Income Tax (Appeals) is justified in relying on the judgment of the Hon ble Supreme Court in the case of Textile Machinery Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from Siruseri unit. We uphold the order of Commissioner of Income Tax (Appeals) on this issue. The relevant grounds are accordingly dismissed. 18. From another point of view, the whole controversy built up by the Revenue is just technical. It should be seen that assessee is having only two STPI units one at Adyar and the other at Siruseri. Both the units are independently registered as a separate STPI unit. Both the units are carrying on software activities and generating income from exports. The assessee is not having any other unit, which is not entitled for the benefits conferred to the STPI units. If Siruseri unit is not treated as an independent, new unit, the said unit should be treated as an extension or part of Adyar unit. Siruseri unit has worked during the previous year and made exports of software. Therefore, we cannot ignore those operations carried at Siruseri unit. If the Siruseri unit is not treated as independent, according to the argument of the Assessing Officer itself, Siruseri unit becomes part of Adyar unit. If so, the entire turnover of export generated by the assessee should be accounted in the hands of Adyar unit. The entire income arising out of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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