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2007 (6) TMI 265 - AT - Income TaxDeduction claimed u/s 10B denied on the basis of established by splitting the earlier business - Free Trade Zone - development of software both for export and local market - New STPI Unit at Trichy - HELD THAT:- We find that in this case there is a clear establishment of new unit by substantial investment in Plant and Machinery. The new unit though, took some of the old unit's employees but during the financial year itself the substantial expansion led to almost threefold increase in the number of employees. There was substantial addition to the nature and type of services rendered to the clients and also in the volume of business. Furthermore, there was good increase in the number of customers also. The old unit's incurring losses has been duly explained as mainly due to completion of Reliance Petroleum Ltd., Jam Nagar Project which led to substantial reduction in assessee's business. Another objection raised by the revenue is that the ld CIT (A) failed to note that in the earlier year the assessee had claimed relief u/s 80HHE which profits/receipts from Trichy Unit also and hence, as per section 80HHE(5), the assessee is not permitted to claim relief u/s 10A. In this regard the learned counsel of the assessee submitted that this is factually wrong. He referred to Assessing Officer's finding in the assessment order where it is clearly mentioned that the STPI Unit commenced its commercial operation from April, 2001. The ld DR did not dispute this finding. In this regard, we further find that Hon'ble jurisdictional High Court in the case of L.G. Balakrishnan & Bros. Ltd. v. CIT[1983 (9) TMI 32 - MADRAS HIGH COURT] held that a new undertaking can be said to have been formed only when it is ready to commence the production of article for which the undertaking was established and the formation of company will not include the initial steps taken for its establishment. Thus, we find that this objection by the revenue is unfounded.
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