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2015 (8) TMI 916 - ITAT LUCKNOW

2015 (8) TMI 916 - ITAT LUCKNOW - TMI - Deduction u/s 10A - non maintaining separate books of account - CIT allowing the deduction - Held that:- There is no requirement of maintaining separate books of account u/s 10A and non maintenance of separate books of account cannot be basis for disallowing the claim of deduction u/s 10A of the Act. On this aspect, we do not find any infirmity in the order of learned CIT(A). See IBM India P. Ltd. v. Deputy Commissioner of Income Tax [2011 (6) TMI 735 - IT .....

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not a criteria to decide the eligibility of deduction under section 10A of the Act so long as the new unit is independent of the old existing unit. Hence, in our considered opinion, on this aspect also, there is no infirmity in the order of CIT (A).

Percentage of old plant & machinery used by new unit was more than 20% - Held that:- A clear finding is given by the learned CIT(A) that the Assessing Officer has not correctly appreciated the facts. He has also given a finding that the p .....

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Even out of new computers installed in the present year, 8 computers out of 10 computers were put to use on or before 27/09/2008 whereas the STPI approval has been granted on 16/10/2008 - Held that:- DTA unit can be converted into STP unit but even if the assessee did not choose to get its DTA unit converted into STP unit, the deduction is allowable to the assessee. In the present case also, the assessee has not chosen to convert its STP unit to DTA unit and some of the machinery were put to us .....

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ation of the provisions contained in section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 80I of the Act and therefore, the assessee is eligible for deduction u/s 10A of the Act. These categorical findings of learned CIT (A) could not be controverted by Learned D. R. of the Revenue and hence, we do not find any reason to interfere in the order of learned CIT(A) in both the years because in assessment year 2010 11, the order of Assessing Officer and CIT(A) are in line with the .....

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2/2013 for the assessment year 2009-10 and dated 04/09/2014 for the assessment year 2010-11. Since common issue is involved in both the appeals, these appeals were heard together and are being disposed of by this common order for the sake of convenience. 2. The grounds raised by the Revenue in assessment year 2009-10 are as under: 1. The learned CIT (A) has erred in law and on facts of the case in allowing the deduction of ₹ 59,44,003/- claimed u/s 10A without giving any opportunity to the .....

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rred in law and on facts of the case in allowing the deduction of ₹ 95,14,127/- claimed u/s 10A without passing the speaking order and only relying solely on the appellate order of the earlier year (2009-10). 2. The learned CIT(A) has failed to appreciate that the basic conditions for claiming deduction u/s 10A were not complied with by the assessee and the claim has been made in violation of provisions of section 10A. 4. Learned D. R. of the Revenue supported the assessment order. He also .....

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ware Technology Park of India (STPI) vide letter dated 16/10/2008 and therefore, it is accepted position by the assessee also that out of total 10 new computers purchased and put to use in the present year, 8 were put to use before coming into existence of the STP unit and therefore, the claim of the assessee that more than 20% of total assets are not old assets, is not correct and as a consequence, the assessee is not eligible for deduction u/s 10A of the Act. He submitted that under these fact .....

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Officer disallowed the claim of the assessee for deduction u/s 10A on the basis that the assessee has used the machinery previously used, which is more than 20% of the total plant & machinery and under these facts, the claim of the assessee was allowed by CIT (A) in that case and the order of CIT(A) was approved by the Tribunal and when the Revenue carried the matter in appeal before Hon'ble Karnataka High Court, Hon'ble Karnataka High Court has upheld the Tribunal order. He also sub .....

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mined the facts and circumstances of the case. I have considered the finding of the Assessing Officer in the assessment order and the submissions of the appellant. There is no dispute with regard to the basic fact that the assessee company is in existence since 1999 and during the year under consideration, it set up a unit for 100% export of computer software. For the said purpose approval was obtained by it from Software Technologies Park of India (hereinafter referred to as the STPI) and was a .....

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not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertakings as is referred to in section 33B, in the circumstances and within the period specified in that section; (iii) it Is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation. -The provisions of Explanation 1 and Explanation 2 to subsection (2) of section 80-1 shall appl .....

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ause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with. 4(4)(ii) The AO examined the claim of deduction under section 10A of the Act and found that- • On reference to the application submitted to the STPI it was noticed that the assessee was using point to point leased lines and internet leased lines of the existing unit. • Separate books of accounts were not maintained in respect of the new unit. • The report of the Income Tax In .....

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of above provisions and disallowed deduction of ₹ 59,44,003/- under section 10A of the Act. I proceed to examine the issue in light of the above observations of the AO and the submissions of the appellant. 4(5)(i) The first issue is the observations of the AO that separate books of accounts have not been maintained. A reference in this regard may be made to the paragraph (v) of the CBDT Circular No. 01/2013 dated 17.01.2013 issued vide F. No. 178/84/2012-ITA. I, which is as under - Subject .....

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r such details or information pertaining to different units to verify the claim and quantum of exemption, if so required. 4(5)(ii) The relevant circular clearly draws out the conclusion that there is no requirement in Section 10A of the Act to maintain separate books of accounts. The issue was also examined by the Bangalore Bench of Hon'ble ITAT in I. T. A No.1151Bang/2009 in the case of IBM India P. Ltd. v. Deputy Commissioner of Income Tax. The observations of the Hon'ble Court are as .....

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y paying reduced tax which could have been avoided. On this issue, the objection of the AO as is seen from the remand report and as noted by the CIT (A) was with regard to allocation of the overhead expenses in the ratio of turnover. The reason given by the learned CIT (A) for not accepting the reasoning of the AO was as the assessee has three units at different place, the only plausible manner available for allocation of expenditure is in the ratio of turnover which is possibly the only indicat .....

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ecall the words of Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 1 KB 64 (KB) at page 71, that: ".......... In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There, is no equity about a tax: There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." In view of the fact that the maintenance of separate books of account for STP Unit .....

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39;ble Court supra and the circular of CBDT on the subject it can be said that there is no requirement for maintenance of separate books of accounts under section 10A of the Act. Nonmaintenance of separate books of accounts could not therefore be a condition for disallowing the claim of deduction under section 10A of the Act. 4(6) The AO referred to the application made by the appellant to STPI to conclude from the submissions made in the column relating to communication requirements that the ne .....

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24.07.2008. Moreover payment of internet charges of ₹ 3,12,876/- has been shown to have been made by the appellant vide bank payment voucher numbers 199 and 205. The facts show that the new unit is using separate communication lines for internet usage. 4(7)(i) I find that the reliance of the AO on the report of the Income Tax Inspectors (hereinafter referred to as the ITI) is not justifiable as the report was not confronted to the appellant. Moreover, the Ill's conducted their spot in .....

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s any requirement that the new unit be set up at a new place or whether there is any requirement of physical separation between units for claiming deduction under section 10A of the Act. 4(7)(ii) A reference in this regard may be made to the paragraph (vii) of the CBDT Circular No. 01/2013 dated 17.01,2013 issued vide F. No. 178/84/2012-ITA. I, which is as under- (vii) WHETHER NEW UNITS/UNDERTAKINGS SET UP IN THE SAME LOCATION WHERE THERE IS AN EXISTING ELIGIBLE UNIT/UNDERTAKING WOULD AMOUNT TO .....

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ompetent authorities; has not been formed by splitting or reconstruction of an existing business; and fulfils all other conditions prescribed in the relevant provisions of law. 4(7)(iii) A similar issue was examined by Hon'ble ITAT, Pune in the case of ACIT Vs Symantec Software India P. Ltd [ITA No 787/PN/09 (AY 2004-05), dated 30th November 2011]. In that case the first unit had ceased to be eligible for exemption and a new unit was set up as an extension of the first unit after seeking nec .....

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ction 801 of the Act. 4(8)(i) The fixed assets schedule examined by the AO in the assessment order at page 4 is as under: S.No. Particulars Fixed assets as on 1/4/08 Fixed assets purchased for old unit Fixed assets purchased for new unit Fixed assets as on 31/3/2009 before claiming depreciation Percentage of old assets 1. Furniture fixture 7,81,336/- 36,800/- 2,38,585/- 10,56,721/- 73.93% 2. Office equipments 11,17,272/- 1,51,115/- 5,55,480/- 18,23,867/- 61.25% 3. Computers 44,16,979/- 6,42,263/ .....

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lant and machinery from old unit to the new unit. The total assets purchased for new unit is separately shown at ₹ 20,19,323/-. This is the investment made by the appellant of assets in new unit. These assets do not refer to assets transferred to new unit from the old unit. The conclusion of transfer of assets from old unit to the new unit has not been correctly drawn by the AO. 4(9) The provisions of section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 80I of the Act proh .....

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sets of the existing business are diverted and another, new business is set up from such splitting up of assets or that the two businesses were same and the one formed was an integral part of the earlier one. However, if the alterations or changes are substantial, there would be little scope of describing what emerges as a reconstruction of business. Hence, in these matters, one has to look at the substance of a transaction and not the form." 4(10) In the instant case, there is substantial .....

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as regards the principles laid down by Courts in relation to the claim of deduction under section 10A of the Act, it has been laid down that a new unit should be set up from new investments. The new unit must be set up for producing either the same commodities or some distinct commodities (Supreme Court in the case of Textile Machinery Corporation Vs CIT (107 ITR 195). Further, Even if some employees are common to the old and the new unit, it will not be a bar on eligibility or deduction (Madras .....

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igh court in the case of Premier Cotton Mills Ltd Vs CIT (240 ITR 434) 4(12) On the basis of my examination I find that there is nothing to prove that the new unit was formed by splitting up or reconstruction of an existing business or transfer of old plant and machinery of more than 20% to the new unit. There is no violation as such of the provisions contained in section 10A(2)(ii) and 10A(2)(iii) read with explanation 2 to section 80I of the Act. The AO is therefore not justified in disallowin .....

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Bangalore Bench of I. T. A. T. in the case of IBM India P. Ltd. v. Deputy Commissioner of Income Tax (supra) along with CBDT Circular No. 01 of 2013 dated 17/01/2013 and held that there is no requirement of maintaining separate books of account u/s 10A and non maintenance of separate books of account cannot be basis for disallowing the claim of deduction u/s 10A of the Act. On this aspect, we do not find any infirmity in the order of learned CIT(A) because his decision is in line with the Tribu .....

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al of STPI was made on 27/05/2008 and application for installation of leased line and internet line was made on 24/07/2008 and as per the bill of SIFY Technologies Ltd., the date mentioned is 24/07/2008. He has also given a finding that the payment of internet charges of ₹ 3,12,876/- has been shown to have been made by the assessee and therefore, it is seen that the new unit is using separate communication line for internet usage. He has also noted that the Assessing Officer has relied upo .....

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it was operated on the same place and there was no demarcation between new unit and old unit but as per the CBDT Circular No. 01 of 2013 and as per the Tribunal decision of the Pune Bench in the case of ACIT Vs Symantec Software India P. Ltd in ITA No. 787/PN/09 for assessment year 2004-05), dated 30th November 2011, it was held that physical demarcation is not a criteria to decide the eligibility of deduction under section 10A of the Act so long as the new unit is independent of the old existin .....

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al plant & machinery to new unit but in the present case, there is no transfer of plant & machinery from old unit to new unit. He has also given a finding that the total assets purchased is separately shown at ₹ 29,20,233/- and therefore, this confusion of the Assessing Officer regarding transfer of more than 20% of the total plant & machinery of old unit to new unit is not correct. 6.4 Regarding this objection of Learned D. R. of the Revenue that even out of new computers inst .....

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with effect from 04/08/2004. It is also noted by Hon'ble High Court that the assessee did not choose the available option of conversion of the DTA unit into STP unit and this was the basis of the objection of the Assessing Officer that when the assessee has used the machinery for DTA Unit and also for STP unit, such user of old plant & machinery is more than 20% and therefore, the assessee is not eligible for deduction. Under these facts, the issue was decided by Hon'ble High Court i .....

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s. CBDT Circular No. 1 of 2005, dated January 6, 2005, grants certain benefits under section 10B. Though the circular is in the context of section 10B, the ratio of the circular equally applies to section 10A also. In fact, the Commissioner of Income-tax (Appeals) has referred to various judgments on the point and had come to the conclusion that the benefit of section 10A would also be available even when an existing unit gets converted into a STPI unit. In fact, the material on record discloses .....

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unit but even if the assessee did not choose to get its DTA unit converted into STP unit, the deduction is allowable to the assessee. In the present case also, the assessee has not chosen to convert its STP unit to DTA unit and some of the machinery were put to use before the registration granted by STPI, but this factor alone cannot be a basis to deny the assessee deduction u/s 10A of the Act. 7. We also find that it is also noted by CIT(A) in Para 4(10) and 4(11) of his order that the assessee .....

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