TMI Blog2009 (9) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... Ward 17(3), New Delhi ( Assessing Officer for short), on 30-3-2006, it is found that the assessee filed nil return on 8-9-2003. The return was processed under section 143(1) on 17-9-2003. Thereafter, a notice under section 143(2) was issued and served on the assessee by registered post. In the course of the assessment proceedings, it was noticed that the assessee-company was incorporated on 7-11-2000. It was conducting business in the field of information technology and it offered high quality and cost effective products, customs made solutions and services to various clients in the areas of knowledge and management. It was further noticed that the assessee claimed deduction under section 80HHE at Rs. 5,61,437 for the period 1-4-2002 to 13-1-2003; and a deduction of Rs. 7,25,998 under section 10A for the period 14-1-2003 to 3 1-3-2003. It was also noticed that the assessee was registered with STPI, Noida, on 14-1-2003 and upon such registration, exemption was claimed under section 10A in respect of the profits from 14-1-2003 to 31-3-2003. For period up to 13-1-2003, the assessee claimed deduction under section 80HHE. The basis of claims under both the sections has been mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first time in assessment year 2003-04. The assessee had applied to the STPI for its registration, who issued a letter dated 26-3-2001 to the assessee, placed on pages 42 and 43 of the paper book, under which facilities and privileges admissible under the STP Scheme for setting up hundred per cent Export Oriented Unit in the State of Delhi for manufacture of computer software were extended to the assessee, subject to conditions mentioned therein. These conditions were listed in paragraph 2 of the aforesaid letter and the annexure appended thereto. The registration was valid for three years from the date of issue, during which the unit was required to be implemented and commercial production to be started. The assessee was also required to intimate the date of commercial production as soon as it started. The commercial production had started in assessment year 2001-02. Thus, a unit, carrying on the business of production of software, had come into existent in assessment year 2001-02. Therefore, no new unit had been set up in this year, which could be said to be entitled to deduction of its profits under section 10A. It was also submitted that although such a plea was not take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is calculated up to 13-1-2003 and thereafter deduction is claimed under section 10A. For this purpose, the export turnover has been taken on actuals and the expenses have been taken on appropriate allocation. 4.1 The argument of the ld. DR was that the assessee set up the unit in assessment year 2001-02 and deduction under section 80HHE was claimed for assessment years 2001-02, 2002-03 and for a part period of assessment year 2003-04. The registration of the unit for the purpose of claiming deduction under section 10A was obtained after setting up of the business of the unit. That is why, the profits of the previous year relevant to assessment year 2003-04 were split up into two periods, one prior to its registration and the other on registration and thereafter. Thus, it was not a case of setting up a new unit in assessment year 2003-04. It was merely a case of reconstruction of business in assessment year 2003-04. Thus, the conditions mentioned in section 10A(2) were not satisfied. That is why, the Assessing Officer did not allow deduction under section 10A but allowed deduction under section 80HHE on the profits of the whole of the period of the previous year. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een any question of reconstruction of the old business. It was further submitted that the question regarding the determination of initial year was not raised in the proceedings before the lower authorities. Since deduction under section 10A was granted for the first time in assessment year 2003-04, this year should be taken as initial year for the deduction. In this connection, reliance was placed on Board Circular No. 1/2005, dated 6-1-2005, issued under section 10B. In paragraph 4, it is mentioned that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subsequently converted into a EOU, shall be eligible for deduction under section 10B on getting approval as 100 per cent export oriented undertaking. Thus, it was argued that since sections 10A and 10B contain analogous law, the assessee will be entitled to deduction under section 10A in the year in which it had obtained approval as an 100 per cent export oriented unit. It was also submitted that the assessee was under the bona fide belief that without taking on record the agreement, deduction under section 10A can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals) did not accept the first line of argument by referring to the order of the Tribunal in the case of Legato Systems India (P.) Ltd. ( supra ). He did not accept the second line of argument also by observing that the assessee had set up only one unit. Although it was set up in previous year relevant to assessment year 2001-02, but the intention was to obtain deduction under section 10A right from the beginning, which becomes evident from in-principle approval obtained on 26-3-2001. Thus, he came to the conclusion that on obtaining approval, the assessee was entitled for deduction under section 10A from 14-1-2003 to 31-3-2003. From the facts narrated above, it is clear that the assessee had set up only one unit. Therefore, there is no question of reconstruction of a business already in existence. Sub-section (1) of section 10A contains a provision for deduction of profits and gains derived by an undertaking from the export of articles or things or computer software for a period of 10 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period 14-1-2003 to 31-3-2003. He allowed deduction under section 80HHE for the whole period and mentioned that sub-section (5) of section 80HHE came in the way of grant of deduction under both the provisions in the same year. We are of the view that this argument is not tenable. The principle of apportionment of income or expenditure is well entrenched in the taxation laws. The assessee computed profits for the two periods on a reasonable basis by taking receipt on actuals and expenditure on a proportionate basis. The Assessing Officer has not found any fault with the allocation of profit in the two periods. It is settled that in law, the profits of a business accrue on the last date of the previous year. However, that does not mean that allocation of profits of the year in two different periods is an impossibility because of the aforesaid principle of law. Such an apportionment was necessary as the assessee became entitled to deduction under two different provisions for the two periods. To our mind, the principle of accrual of profit does not come in the way of allocation of profit in the two periods. What can be done at best is to ensure that the allocation is made on a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see becomes entitled to get deduction under section 10A on getting approval as aforesaid, i.e., in respect of the profits of the undertaking for the period 14-1-2003 to 31-3-2003. 5.2 The question regarding the initial year of deduction under section 10A was also discussed in the course of hearing before us. The case of the ld. counsel was that deduction under section 10A was granted for the first time on the profits of assessment year 2003-04. Therefore, this is the initial year for deduction under section 10A. However, we find that the aforesaid circular of the Board under section 10B mentions that the deduction shall be available for the remaining period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software as a DTA unit. For the sake of ready reference, this paragraph is reproduced below: [[ "4. The matter has been examined and it is hereby clarified that an undertaking set up in Domestic Tariff Area (DTA) and deriving profit from export of articles or things or computer software manufactured or produced by it, which is subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,458, ignoring the provisions contained in section 80HHE(5) of the Income-tax Act, 1961. 6.1 The ground taken by the revenue in this year is narrower than the ground taken in assessment year 2003-04 in ITA No. 813 (Delhi)/2008 ( supra ). In that year, deductions under two different provisions were claimed in respect of profits of the undertaking of the two periods, necessitated by the approval of the undertaking by the STPI on 14-1-2003. In this year, exemption is claimed in respect of profits of the whole year under section 10A. The provision contained in sub-section (5) of section 80HHE is invoked, as such deduction under section 80HHE was claimed in assessment years 2001-02 to 2003-04. Looking to the discussion regard- ing the words "such profits" in the order for assessment year 2003-04 ( supra ), it becomes clear that it is not a case of deduction on same profits under two provisions. Relying on that order, it is held that the assessee was entitled to deduction under section 10A on the profits of the whole year, being the fourth year of the deduction. ITA No. 3456 (Delhi)/2008-A.Y. 2005-06 7. The ground taken in this year is similar to the ground taken in assessme ..... 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