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TMI Blog2021 (12) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... e approval of the STPI unit dated 28th of March 2000, which states that there is a specific reference to the unit located at the new premises - The assessee has also shown the investment in the fixed assets separately maintained for STPI unit. We find that the no infirmity is pointed out. The conditions laid down were also shown to have been fulfilled for claiming deduction u/s 10 A of the act by the assessee. In view of this, we do not find any merit in the solitary ground raised by the learned assessing officer. Accordingly we uphold the order of the learned CIT A and grant deduction u/s 10 A of the income tax act to the assessee. - Decided against revenue. - ITA No. 1761/Del/2019 - - - Dated:- 25-11-2021 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Revenue : Shri Ramesh Kumar, Sr. DR For the Assessee : Shri Vijay Mehta, CA ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the learned Commissioner of income tax, Circle 12 (1), New Delhi (the learned AO) against order passed by the Commissioner of income tax (appeals) 4, New Delhi dated 28/12/2018 for assessment year 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to artificially extend the duration of deduction beyond 10 years of account of phasing out of the benefits u/s 80HHE etc.) 1.b) Whether the Ld. CIT(A) was correct in holding that the export unit had been freshly set at the second floor of the premise unit and that the said existing /domestic unit at the second floor was wrapped up and shifted to the ground floor, despite categorically admitting himself in para 6.1.17 that there was no direct evidence to prove physical shifting of the assets from second floor to the ground floor. 1.c) Whether the Ld CIT(A) has failed to appreciate that the following contentions made by the assessee before him [ reproduced at page 27 of Ld CIT(A)'s order ] were factually incorrect or amounted to concealment of material facts related to the assessment history of the case: i) assessee's contention to the effect that the assessee's claim for deduction u/s 10A had been allowed in A Y 2004-05 was factually incorrect as the deduction in the said year was allowed on alternative ground, viz. that even if the unit is held to have been converted from existing domestic unit to an STPI unit, it would still be eligible for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chart showing bifurcation of income of various years i) STPI authorities permit domestic sales only to the extent of 50% of export sale cannot be made from export unit. This chart demonstrated that the assessee has made domestic sales exceeding the said limit from its domestic unit. If department s view about conversion of domestic sale beyond permissible limit and violated STPI condition. This is not correct, ii) In the STPI application form the assessee has ticked the option of conversion of existing export unit to STPI. There was no export in F.Y. 1999-00. It is mitted that existing domestic it was not converted to STPI unit. 1 2 Covering letter of application filed with STPI Covering letter filed along with the application to demonstrate the total documents filed with the STPI application in addition to the application form. 2 3 Project report for setting up STPI unit It is evident from project that the assessee wanted to set up a new export unit and is taking all steps to make its mark in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es that if a STPI unit wants to make domestic sales, an application has to be submitted prior to making such sale. The assessee has not requested for any such permission. This strengthens the argument of the assessee that local sales were being made from a separate domestic unit and the new export unit was set up and approval was obtained from STPI for the export unit. 30-32 Further, it has been claimed by the assessee that the documents mentioned in the table e stablishes the fact that a new establishment has been set up and registered with Software Technology Park of India (hereinafter STPI). 5.3 In the submission filed on 20.12.2017 the assessee has given a brief overview of the company from its inception regarding its nature of business and journey towards expansion of business. With regard to relevant justification regarding its claim for allowance u/s 10A of the Act it has been stated as under: .. Infrasofttech for its newly ventured line of export business of Services wanted to set up a STP unit. The Company reviewed the conditions for setting up a STP unit which in addition to the application and project report wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any received approval from STPI for setting up 100% Export Oriented Unit vide letter no STPl/MUM/VIII(A)(214)/20000(03)/2868 dated March 28,2000. The company received approval of Custmos and the agreement. Infusion of equity capital of ₹ 3 crores during the period October 1999 to March 2000. From the above details it is clear that the company is satisfying all the norms which entitle it to claim the exemption under section 10A of the Income Tax Act on the exports of new unit. The STP unit was set up at 2nd Floor Karmayog building, Parsi Panchayat Road, Andheri (E) Mumbai which is a separate unit itself. The said unit was Custom Bonded. The unit was set up after the receipt of export order in hand. The unit has started its development of software and received the advance amount in Feb 2000, but the final invoice was not raised because the development was still in trail phase. The work done in the newly settled unit was exported and was not sold in the domestic market. Separate Bank Account is maintained. Separate books of account is maintained in the sense that the profitability of the units can be worked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied: It would be pertinent to reproduce here the provisions of section 10A (1), which are as under :- Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten export of articles or things or computer software for a 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 such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. Sub-section (1) clearly provides that deduction is for 10 consecutive years, beginning from the assessment year, when manufacturing was started. In the instant case, manufacturing started in AY 1996-97, hence the claim of deduction u/s 10A should have been made from AY 1996-97 itself Since, the assessee company did not claim deduction u/s 10A in AY 1996-97, hence, it is not permitted to claim deduction u/s 10A in any subsequent year also, as sub-section (1) clearly provides that deduction u/s 10A is to commence from the very first year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction u/s 80HHE of the I. T. Act upto A. Y. 2000-01 i.e. upto six years from the establishment of the company. Sub-section (IB) was introduced by the Finance Act, 2000 to Section 80HKE w.ef 1.4.2001 wherein the extent of deduction out of profit of the business was to be reduced from 100% and no deduction shall be allowable in respect of the assessment year beginning on 1st day of April, 2005. For sake of proper appreciation the relevant sub-section is reproduced as below: For the purposes of sub-sections (1) and (1A), the extent of deduction of profits shall be an amount equal to I. eighty per cent of such profits for an assessment year beginning on the 1st day of April, 2001; II. seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; III. fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; IV. thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004. e. Simultaneously, the provision of section 10A of the l.T. Act were amended to the effect that deduction would be available for 10 assessment years. With the introduction of said sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, assessee has tried to justify that it was in the process of set up of a new export unit and it had got the contract order from Direct Credit Exchange Ltd. and got approval from STPI authority in the FY 2000-01. Subsequently, started to export its services overseas from FY 2000-01 onwards. Revenue from export sen/ices has been shown from the FY 2001-02. However, it is evident from the facts discussed in the order passed u/s 143(3) of the Act in earlier years as well as in the AY 2007-08 on 30,12.2010 that all the above contention of the assessee stands covered and hence for the sake of convenience the same is not produced . here. Further, from the above it emerged out that though the approval for STPI has been taken however, the requisite conditions as stipulated u/s 10A of the Act for claiming exemption does not satisfy even after considering the facts and documentary evidences submitted during the fresh assessment. Further, on perusal of the details submitted by the assessee it is evident from the application form for STP registration, assessee converted an existing export unit to SIP unit with the same office premises, computers and staff. The bonded warehouse certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 73 74 of the paper book and stated that the entire hundred percent productions shall be exported against the hard currency except the sales in the domestic tariff area admissible as per the entitlement. He further stated that the only issue involved in this appeal is whether it is a setting up of a new unit or it was splitting up or reconstruction of the already existing unit. He further submitted that up to assessment year 1996 97 assessee is in the business catering to the domestic client. He further took us to the rent agreement in respect of the second floor of the building dated 20/3/1998 placed at page number 27 36 of the paper book and submitted that assessee has acquired a new premises admeasuring 4548 ft . He further referred to the resolution of the board of directors of the company dated 14/3/2000 placed at page number 67 of the paper book wherein there was an authority given for signature of an application document in connection with the registration of the export unit with software technology Parks of India. He further referred to page number 38 of the paper book which is been of the meeting of the board of directors dated 6 August 1999 wherein as per serial n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinct employees then the employees employed by the export unit. He submitted that in the domestic unit there were 89 employees employed. He further referred to the distinct business segment of the existing unit as well as the new unit. He further referred to the decision of the honourable Bombay High Court in case of Hinduja ventures Ltd and Patni computers Ltd. He extensively relied on the decision of the learned CIT A. Accordingly he is argument was the denial of deduction u/s 10 A of the income tax act to the assessee by the learned assessing officer is unjustified and the learned CIT A after careful consideration of all the facts and circumstances of the case has granted the deduction to the assessee and there is no infirmity in his order. 7. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer in the set-aside proceedings after considering the additional evidence submitted by the assessee following the order passed by him u/s 143 (3) of the act in earlier years as well as in assessment year 2007 08 denied the deduction to the assessee. The AO was of the view that though the approval for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the year ended March 31, 2007; Details of fixed assets for the FY 1999-2000; FAQs issued for STPI scheme; Guidelines for sale of goods in DTA; Agreement with direct credit exchange limited, UK; first export invoice together with FIRC etc. 6.1.12 The board resolution submitted suggests that a resolution was passed on March 14, 2000 i.e. FY 1999-2000 for authorising the signing of the application and other documents in connection with the registration of the export unit with STPI. This resolution was also submitted before the concerned authorities as already held by the Hon'ble ITAT in its order admitting this as additional evidence. Further the rent agreement placed on record, suggests that a new-premises at the ground floor was taken on rent, even though the company already had an existing unit at the second floor of the same building. The appellant company submitted that the STPI permission was received for their premises at the second floor and hence, they shifted their domestic activities to the ground floor and the second floor which was already on rent was established as the STPI unit. The approval of the STPI unit dated March 28, 2000 states as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31/03/2007. 6.1.16 Furthermore, the appellant drew my attention to the fact that for the year ended March 31, 2000 the appellant's company share capital was increased by ₹ 3 crores to fund the establishment of the new STPI unit in FY 1999-2000. 6.1.17 Thus, from the perusal of all the documents furnished on record, I am of the view that the company applied for STPI unit, the STPI unit permission was received for second floor, the STPI unit was established at the Second floor, new investment was made at the second floor and all the investment/ assets which were already made at the second floor for domestic unit were shifted to the ground floor of the building. Although, there is no direct evidence on record to prove the physical shifting of the assets of domestic unit from second floor to ground floor, however, the fact that a substantial amount was invested again and new equipment's, furniture, computers etc. were purchased and fresh capital was pumped in, and the appellant also employed 28 new employees between 1.1.2000 and 31.3.2000 for the new export unit in FY 1999-2000, relevant AY 2000-01 suggests that a new unit was established. 6.1.18 The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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