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HCL Technologies Versus Assistant Commissioner of Income Tax

2015 (4) TMI 841 - DELHI HIGH COURT

Benefits under Section 10A - Software Technology Park (STP) - Whether in the event of an assessee’s failure to avail the benefits of a statutory provision, such as Section 10A of the Act, creates an estoppel precluding it from availing such benefits in future? - Held that:- The AO, DRP as well as the ITAT concurrently have rejected the appellant’s claims under its revised return primarily on the ground that the appellant itself did not treat all 31 units as separate undertakings previously, and .....

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d to the benefits under the Act, the mere circumstance that for the past 5 to 7 years, or even 10 years, it did not claim such benefit would not preclude it from availing it in the assessment year in question. What the appellant cannot resile from is the existence of a given set of facts which it has not challenged earlier. However, if, based on the same set of facts, it now seeks to claim deduction under Section 10A which it had foregone earlier, the appellant’s claim must be allowed, provided, .....

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the concurrent finding of fact of lower authorities wherein they have held the material on record to be insufficient to treat each of the 31 units as separate undertakings, this Court holds that no interference on this issue is warranted. Consequently, it is held that the 31 units cannot be treated as separate undertakings for the purposes of availing benefit under Section 10A of the Act. Thus, the second question on the merits of the rejection of the claim for deduction under Section 10-A is a .....

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nal (hereafter ITAT ) in ITA No.5623/Del/2010 for, the assessment year 2005-06 (AY). The ITAT by the impugned order disallowed the appellant s claim for certain deductions under Section 10A of the Income Tax Act, 1961 (hereafter referred to as the Act ). The following substantial questions of law are urged for this Court s determination in this appeal:- (1) Whether an assessee is estopped under law from availing the benefits under Section 10A of the Act in respect of units for which it had not a .....

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ogy Park (STP) in NOIDA and Chennai. During the relevant assessment year, the assessee/appellant had 31 independent software development units or undertakings set up at distinct locations. These were registered under 13 licenses with STP authorities. The appellant filed its original return of income on 31.10.2005, where gross business income of ₹ 2,58,17,15,909/- was shown and deduction under section 10A of the Act was claimed at ₹ 2,57,24,87,070/-, considering 13 mother licenses iss .....

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cordingly, revised showing income from business or profession at ₹ 2,58,77,95,991/- and claiming deduction under section 10A of the Act at ₹ 2,75,57,24,990/-, resulting in loss from business or profession of ₹ 16,79,29,000/-. The assessee had filed certificates in Form 56F in support of its claim of deduction under Section 10A of the Act, claimed in original as well as in the revised return. In the original return the assessee had claimed deduction under Section 10A only in res .....

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the existing units; there was no separate approval as a new unit by the STPI authorities; and that the claim that the units set up were independent and separate new units, was raised belatedly which could not be gone into at this late stage. The AO, therefore, restricted the assessee s claim of deduction under section 10A of the Act to 13 mother (original) licenses/ undertakings instead of 31 independent and eligible units. 5. The appellant challenged the AO‟s order before the Dispute Reso .....

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he Act claimed by the appellant in the revised return of income was not accepted. 6. The ITAT, by the impugned order, dismissed the appeal against the DRP‟s order and held that the appellant could not claim enhanced deduction under Section 10A by departing from its earlier position that the units in question were only extension or expansion of the pre-existing units and were not new units. The ITAT held that the fact that the STPI authorities endorsed on the existing licenses meant that th .....

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10A of the Act. Submissions made on behalf of the Assessee 7. Mr. Ajay Vohra, learned senior counsel appearing for the assessee, contended that the ITAT failed to appreciate that the mere fact that in the earlier years the appellant did not compute the deduction under section 10A of the Act by considering these 31 units as separate undertakings and instead computed deduction under that section on the basis of 13 STPI licenses, does not, in law, operate as an estoppel. It could not, said counsel .....

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HC), CIT v. Laxmi Metal Industries, 236 ITR 130 (Allahabad HC), CIT v. Seeyan Plywoods, 190 ITR 564 (Kerala HC), CIT v. Satellite Engineering Ltd, 113 ITR 208 (Gujarat HC) to contend that even if the assessee was to make a claim of deduction for the first time in a year subsequent to the initial assessment year, the claim could not be dismissed as a belated one. 8. Learned senior counsel submits that deduction under section 10A of the Act is available for a period of 10 assessment years followi .....

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me Tax v. VMRP Firm, 56 ITR 67 to contend that estoppel does not apply against a statute and that the assessee s entitlement to a deduction depends upon the statutory provision and not the assessee s view regarding the same. 9. Mr. Vohra submitted that to claim deduction in terms of clause (i)(b) of sub-section (2) of section 10A of the Act, the undertaking should have begun manufacture of the article or things or production of computer software in a Software Technology Park. The provision does .....

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/ registration with STPI authorities would not determine whether each of the 31 units qualify as an undertaking eligible for deduction under section 10A of the Act. 10. The assessee submits that the ITAT did not apply the ratio of the Supreme Court s decision in Textile Machinery Corporation Ltd. v. CIT, 107 ITR 195, which settled the principles regarding setting up of a new unit. Further, the ITAT did not deal with the various decisions of the co-ordinate benches of the ITAT which were relied u .....

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essee that to demonstrate that requisite conditions to claim deduction under section 10A of the Act are satisfied by each of the 31 undertakings, it (the appellant) had placed on record evidence, inter alia, in the form of application to the STPI authority, approval of the STPI authority, lease deed for new premises, list of additions of plant and machinery and list of imported plant and equipment made available by the customer(s) supported with necessary evidence, custom bond register, number o .....

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ings (which were existing as on 31/03/2001) had been made by the assessing officer. Therefore, the appellant prays that the impugned judgment be set aside and the appellant s claim for deduction of 31 units under Section 10A be allowed. Revenue s contentions 13. Mr. O.P. Sahni, learned counsel for the revenue, defends the impugned judgment and submits that given that the appellant resiled from its own assessment of the facts and its earlier position of availing the benefit under Section 10A only .....

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orrectly concluded against the appellant. The ITAT‟s order elaborately discussed the AO‟s findings; the ITAT also noted the contents of the order for the assessment year 1999-2000, -relied upon by the appellant to say that the 31 units were always treated as distinct undertakings. Mr. Sahni submitted that the ITAT had duly considered the relevant precedent on the submissions made by the appellant, including the decision in Textile Machinery Corporation Ltd., and rightly held that the .....

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self did not treat all 31 units as separate undertakings previously, and in fact, for the subject assessment year as well, it originally adopted its earlier approach. On an examination of the authorities relied upon by the appellant, this Court notices that they are overwhelmingly in its favour and therefore, this Court answers the first question in favour of the appellant. 16. The starting point for the discussion is the Supreme Court s decision in CIT v. C.Parakh & Co. (supra), where the C .....

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it, it was not entitled to go back upon it. and claim the amount as a deduction against the Indian profits. We do not see any force in this contention.Whether the respondent is entitled to a particular deduction or not will depend on the provision of law relating thereto, and not on the view which it might take of its rights, and consequently, if the whole of the commission is under the law liable to be deducted against the Indian profits, the respondent cannot be estopped from claiming the bene .....

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ision Bench of this Court in Bharat General Insurance (supra) noted: It is true that the assessee itself had included that dividend income in its return for the year in question but there is no estoppel in the Income tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it is incumbent on the inc .....

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ssee s claim made under a revised return, whereunder the asseessee had put forward a more favourable claim before the tax authorities. The Court also relied upon the Apex Court s decision in C. Parakh (supra) in this regard. 19. This Court notices that the approach of other High Courts on this issue is in consonance with the appellant s contention. For instance, the Allahabad High Court in Laxmi Metal Industries (supra) in the context of Section 80J of the Act held that the assessee s failure to .....

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l other conditions of section 80J stand satisfied. It has to be borne in mind that the provisions under consideration are relating to exemption and are, therefore, to be construed liberally. It is the settled rule of interpretation of statutes that expressions used therein should ordinarily be understood in a sense in which they best harmonise with the object of the statute and which effectuates the object of the legislation…At the cost of repetition it may be observed that according to t .....

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er Section 44BB of the Act cannot operate as an estoppel against it. 20. The impugned judgment erred in holding that the assessment would be guided by the appellant s treatment of its internal affairs‟ and that the assessee s claim must fail because it has consistently taken a decision as per facts exclusively available to it in its personal domain on the basis of which the assessee has chosen to treat the expanded units as part of the 13 units . The authorities quoted above unequivocally .....

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which it has not challenged earlier. However, if, based on the same set of facts, it now seeks to claim deduction under Section 10A which it had foregone earlier, the appellant s claim must be allowed, provided, of course, the requirements of Section 10A are satisfied. Therefore, in the instant case, in the event that the appellant establishes that the 31 units constitute separate undertakings for the purposes of Section 10A, it would be entitled to the claims made in the revised return. Accordi .....

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and should be set up in a STP. b) The unit should not be formed by splitting up/reconstruction of a business already in existence. c) The unit should not be formed by transfer to a new business of machinery or plant previously used for any purpose. d) The assessee must furnish a report of an accountant in the prescribed format certifying that the exemption has been properly claimed. This report should be submitted alongwith the return of income. 22. The appellant, as proof of the fact that each .....

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ld that there was no material on record to establish that the appellant had treated the 31 units as distinct undertakings. The AO, in this regard, noted in its draft assessment order dated 26.12.2008 as follows: As mentioned in the STPI regulations above, a unit to be registered under an approved STPI has to be granted a license by the respective STPL After having granted a license, the unit gets registered and is permitted to commence operations, Thereafter, the unit is permitted to expand its .....

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of the Chennai I STP wherein it has been stated that the company is eligible to expand its operations by setting up new undertakings. However, it is surprising that the same STPI authorities have actually not issued separate licenses but have merely treated the new premises as mere extensions. Hence it is not possible to treat the letter of the STPI Chennai I authorities as conclusive evidence that the assessee has set up new undertakings. The only inference which can be drawn from this letter .....

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lish that each and every unit had a separate bank account and held that the appellant had not been maintaining separate books of accounts for the 31 units. Further, the AO while looking at the concept of expansion of an undertaking under the relevant regulations, held that: the mere expansion of the undertaking does not lead to the formation of a new undertaking. In fact the term used in the STPI Regulations is the extension of the premises. Hence an undertaking established in a STPI is permitte .....

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ot been able to produce any documentary evidence to show that in the years in which the units were formed, there was a separate capital investment: No record of profits has been shown by the assessee from the year of inception thus clearly showing that the so called separate units did not exist prior to the current Assessment Year. No evidence has been provided that the new units were engaged in executing jobs which were distinct from the original units. Hence it is reasonable to assume that the .....

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y the AO. The ITAT rejected this contention after having examined the contents of the assessment order. Facially, the assessment order for the assessment year 1999-00, as extracted by the ITAT in the impugned judgment, indicates that contrary to the assessee s submission, unit-wise break-up of profits was not provided by it. The assessee contended that a complete copy of the assessment order was provided to the ITAT during the course of the hearing. However, this Court is inclined to reject this .....

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sessee has never placed on record the document seeking STPI permission either before the AO nor before the DRP and as observed has also not even been placed before us. In fact the assessee has never even pleaded that any such document was available with it despite the pointed arguments of the Revenue. It is curious to note that no attempt in the course of the hearings has been made on behalf of the assessee to either seek permission to place any such evidence on record or seek permission to file .....

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