2017 (5) TMI 832 - AT - Income Tax

Disallowance of claim of deduction u/s. 10A - profit earned by the assessee from its STP unit - Held that - The Hon ble Karnataka High Court in the case of Commissioner of Income Tax Vs. Expert Outsource (P.) Ltd. (2011 (3) TMI 1428 - Karnataka High Court) has held that where the assessee has began operation prior to date of registration with STPI but export of goods commenced after registration with STPI the assessee was eligible for deduction u/s. 10A and the ratio of CBDT Circular No. 1/2005 equally applies to the provisions of section 10A of the Act. The documents on record show that the entire turnover of the undertaking is from export. The ld. AR of the assessee has stated at the Bar that the STP unit commenced its business activities after relocating its office at new premises in May 2009. During the financial year 2009-10 except for export turnover there was no other generation of income from STP unit. For the applicability of the circular after assessment year 2009-10 is concerned we find that proviso to sections 10A and 10B have been amended from time to time and the date of allowability of deduction has been extended. Finance (No. 2) Act 2009 has made amendment with retrospective effect from 01-04-2009 by substituting the year 2011 with 2012. Although corresponding amendment has not been made in the circular however in view of amendment made to the provisions of section 10A the circular would apply to the assessment year under appeal as well. - Decided in favour of assessee.

Summary

Issues:
Disallowance of claim of deduction under section 10A of the Income Tax Act, 1961.

Analysis:
The appeal involved the disallowance of a deduction claimed by the assessee under section 10A of the Income Tax Act, 1961. The assessee, a partnership firm engaged in Computer Software Testing Services, had received permission under the STP Scheme and relocated its office premises. The Assessing Officer disallowed the deduction claimed by the assessee, citing reasons such as setting up the STP unit with old machinery, splitting up or reconstruction of an existing business, meager capital investment in the export division, and continuity in business activities. The Commissioner of Income Tax (Appeals) upheld the decision, leading the assessee to appeal before the Tribunal.

The assessee argued that the STP unit was not formed by splitting up an existing business but was the same unit where business activities were carried out from the beginning. The assessee relied on a CBDT Circular stating that an undertaking in the Domestic Tariff Area converted into an EOU is eligible for deduction under section 10B, which equally applies to section 10A. The assessee also referenced a decision by the Karnataka High Court to support their claim.

The Department contended that the circular was not applicable to the assessee as it was not a 100% export-oriented unit, as its export activities commenced after May 2009. However, the assessee pointed out that its entire turnover was from exports, supporting its claim for the deduction.

The Tribunal analyzed the circular and legal precedents, concluding that the circular's provisions applied to both sections 10A and 10B. Relying on the Karnataka High Court's decision, the Tribunal found merit in the assessee's appeal. It noted that the unit's turnover was solely from exports and that the circular's applicability extended to the assessment year in question, leading to the allowance of the assessee's appeal.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the applicability of the circular, legal precedents, and the nature of the business activities carried out by the assessee.