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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 ..... he deduction u/s 10A was claimed was converted from the existing unit and therefore, the business being already in existence, the assessee was not entitled for deduction u/s 10A of the Act for the Assessment Year under consideration. 2.b) Whether the Ld. CIT(A) has erred in not appreciating the fact that Hon'ble ITAT, in AY 2002-03, after duly considered the submission/arguments made by the assessee, had given a finding of fact that the unit for which STPI approval was received by the assessee was an existing unit and not a new unit. Though the Hon'ble ITAT, while restoring the matter to the AO for examination of the additional evidence in the year under consideration, had observed that the AO shall consider the same without being constrained by order of ITAT for A Y 2002-03, the said observation, by necessary implication, was limited to examining the effect of the some documents ( agreement with the foreign party, advance received from the said party, project report, resolution passed by the board of the assessee company etc.) and could not have been constructed as overturning the aforesaid finding of fact rendered in A Y 2002-03 by a co-ordinate bench, particularly sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was passed on 30/12/2010 at an income of Rs. 107,054,310/- wherein disallowance u/s 10 A of Rs. 49,709,121/- and disallowance of depreciation on computer necessary is of Rs. 519,042 was made. Against this order the assessee preferred an appeal before the learned CIT - (A) who passed an order dated 26/10/2012 rejecting the appeal of the assessee. The appeal of the assessee was filed before the coordinate bench against the order of the learned CIT- A. The coordinate bench passed an order in ITA number 6387/Del/2012 setting aside the matter back to the file of the learned assessing officer for fresh adjudication on the issue of deduction u/s 10 A. Consequent to that the order u/s 143 (3) read with Section 254 of the income tax act was passed by the learned assessing officer on 30/12/2017 wherein the learned assessing officer once again disallowed the deduction claimed u/s 10 A of Rs. 4 97,09,121/-. Accordingly the total income of the assessee was determined at Rs. 107,179,307/-. The learned assessing officer dealt with the above disallowance as Under:- "5. During the course of assessment proceedings, assessee was required to substantiate and file relevant details with regard to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loor of the same building. 14-17 8 Ledger A/c of Direct Credit Exchange (London) Advance was received by the assessee from Direct Credit Exchange Ltd, UK Company 18 9 Profit and Loss account and balance sheet for the year ended 31.03.2000 i) On page 139 of P.B Schedule of fixed assets for the year ended 31.03.00 shows that there is huge addition of computer equipments and furniture and fixtures which also supports the fact that new export unit was started in F.Y. 1999-00. ii) On page 141 of P.B. it can be seen that there is substantial increase in salaries since a new export unit was started by the assessee. 19-25 10 FAQ for STPI Scheme download from website of STPI This shows the condition of 50% of export sale of preceeding year and the domestic sale cannot be made from export unit. 26-29 11 Guidelines for sale of goods in Domestic Tariff Area (DTA) issued by STPI It states 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oor of the Karamyog Buildine. All the employees who were part of the domestic business along with their computers and machines were shifted to the Ground Floor. The company raised its First Export Invoice on Direct Credit Exchange Limited, London for GBP 100,000 as part of advance payment for commencement of Operation Software on successful completion of the Demonstrator Software. The income was not taken in March 2000 accounts on conservative accounting norms of revenue recognition as the partial work done and the same was not satisfactory and required major changes. The invoice was raised as it was pre-requisite and as per terms of the agreement for the customer to remit money. The amount was received in newly opened EEFC account on 7th Feb 2000 (Copy of invoice & FIRC attached as Annexure 7). The Company 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order passed u/s 143(3) (ii) of the Act for A.Y. 2001-02 as under: "The principal object of the provision of section 10A is to encourage setting up of new industrial undertakings by offering tax incentives. It is most essential to give fillip to trade and industry and this is the background for the enactment of these provisions. In the instant case, the principal object of section 10A is getting defeated as no new industrial undertaking has been set up, as the old industrial undertaking on which the assessee company was hitherto claiming deduction u/s 80HHE, has been used for the purpose of claim of section 10A, by taking undue advantage of the provisions/notification of the Act. " Sub-section (1) of 10A not satisfied: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed under this section, no deduction can be allowed for the same or any other year. Hence, the assessee was' provided an opportunity to show cause why the claim of deduction u/s 10A of the IT. Act should not be disallowed. The assessee repeated the arguments which were put up during the course of assessment proceedings for A.Y.2001-02. The arguments put forth have been considered but the same are not acceptable for the reasons discussed in the order of A. Y. 2001-02. Further, this is to be pointed that the claim of deduction u/s 10A of the IT Act is not bona fide for the reasons discussed below. Why switched over to deduction u/s 10A of the I.T. Act: d. The assessee had been claiming 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 purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A). The CIT (A)-XIV, New Delhi has confirmed the disallowance u/s 10A of the I.T. Act for AY 2001-02. 7. During the year under consideration the assessee claimed exemption u/s 10A of the Act of Rs. 4,97,09,121/- and during the assessment proceedings u/s 143(3) assessee did not furnished any evidence so as to deviate from the stand already taken by the Department on the issue. 8. Without prejudice to the above, the facts and the additional evidences as submitted by the assessee during the fresh assessment in hand which stated to have also filed before Hon'ble Tribunal is being considered and perused. In its submission, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officer in the first round of appeal dated 30/12/2010. He further referred to the order of the learned CIT - A passed in the first round of appeal on 26/10/2012. He further referred to the order of the coordinate bench dated 3/05/2016. He extensively referred to the paragraph number 7.2 of the order of the coordinate bench where the additional evidences were laid before the coordinate bench and therefore admitted and the matter was sent back to the file of the learned assessing officer. He further stated that the assessee is unit was recognized as STPI on 28th of March 2000. He referred to page number 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook where the year -wise breakup of the gross income with respect to the years 1996-97 to 2010-11 was provided. He submitted that the income of the export started from assessment year 2001-02. He further referred to page number 121 of the paper book, which is a database of employees as on 31st of March 2000 for export unit u/s 10A. He further referred to the designation of such employees and the salary structure. He further referred to page number 123 - 124 of the paper book, which is a separate database of employees of the domestic unit as on 31st of March 2000 therefore; he submitted that these are 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 lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion without any reasoning and basis to arrive at such conclusion is baseless. 6.1.11 I have independently considered the documents filed on record such as application form for approval of STPI; approval received from STPI authority; Project Report, Board resolution and power of attorney; Rent agreement for 2nd floor, Karmayog Building, Parsi Panchayat Road, Andheri (East), Mumbai; Rent agreement for Ground floor of the same building; NOC for custom bonding; Annual accounts for the year ending March 31, 2000; Auditors certificate in Form 56F for AY 2007-08; Audited spiitted financials 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed assets for export unit and domestic unit for the AY 2000-01 (i.e. FY 1999-2000). From the perusal of the fixed asset schedule, it is noted that the company has purchased new computer equipments for Rs. 41,10,608/- in FY 1999-2000. Further, I have also considered the financials for the current financial year, which also suggest that investment in fixed assets have been separately maintained for the STPI Unit, in furniture and fixture, office equipment's, electric fittings, computers etc. Total investment is to the tune of Rs. 5,73,53,657/- as on 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 Rs. 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 shifte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voice was also raised 18/01/2000 and foreign exchange and remittance was also received on 11/02/2000 and a good number of new employees were recruited in last three month of FY 1999-2000 and therefore deduction u/s 10A would initiate from AY 2000-2001. Accordingly, it is held that the unit was established in the FY 1999-2000 relevant to AY 2000-01, the assessee would be eligible for deduction under Section 10A of the Act for the current assessment year i.e. AY 2007-08, being within the prescribed period of 10 years for claiming the deduction. With the above observation and finding, addition amounting to Rs. 4,97,09,121/- on account of disallowance u/s 10A of the Act for the year under consideration is deleted. This ground of the assessee is allowed." 8. On careful consideration of the order passed by the learned CIT - A, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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