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2016 (2) TMI 790 - ITAT MUMBAI

2016 (2) TMI 790 - ITAT MUMBAI - [2016] 46 ITR (Trib) 438 - Reopening of assessment - Eligibility for deduction u/s 10A - Held that:- The proceedings u/s. 147 and 148 of the Act initiated against the assessee company need to be dropped as the same was not validly initiated and is merely a change of opinion by the AO based upon the audit objections and AO has not independently applied his mind before re-opening the proceedings u/s 147/148 of the Act against the assessee company while there is no .....

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ould not be said that it is formed by splitting up or reconstruction of business already in existence nor it is brought on records that there is transfer to a new business of machineries or plant previously used for any purpose. The circular no 1 of 2005 issued in context of Section 10B of the Act which is reproduced below supports the stand of the assessee company.

Thus, we hold that assessee company is duly entitled for exemption u/s. 10A of the Act and in our considered view, the a .....

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enue - Decided in favour of assessee - I.T.A. No. 3147/Mum/2014 - Dated:- 18-1-2016 - SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri Paras Savla, Shri Viraj Mehta and Shri Pratik Poddar For The Revenue : Shri C.W. Angolkar, DR ORDER PER RAMIT KOCHAR, ACCOUNTANT MEMBER : This appeal, filed by the assessee company, being ITA No. 3147/Mum/2014, is directed against the order dated 14-02-2014 passed by the learned Commissioner of Income T .....

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Act for assessment of alleged escapement of income. Without prejudice to the generality, the objections, so overruled, are as under: a) The reasons recorded for the re-opening of the assessment, initially framed under Section 143(3), beyond four years after the end of the relevant assessment year, do not allege that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. b) No specific finding has been given by the Assessing Officer (AO) that the asse .....

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n 147, the learned CIT(A) has erred in confirming the denial of deduction under Section 10A of the Act . 3. The brief facts of the case are that the assessee company is engaged in the business of providing civil structural designing and detailing services to its overseas affiliated US company. The return of income was filed by the assessee company on 29-11-2006 with the Revenue which was processed u/s. 143(1) of the Income Tax Act,1961 (Hereinafter called the Act ) . Thereafter, the assessment u .....

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sons for re-opening vide letter dated 10-04-2012 which were furnished to the assessee company by the AO vide letter dated 14-12-2012 along with notice u/s 143(2) of the Act. The assessee company vide letter dated 10-01- 2013 has objected to the reopening of assessment u/s. 147 of the Act, which has been disposed off by the AO vide orders dated 24-01-2013 passed u/s 147 of the Act disposing of the objections raised by the assessee company and upholding the validity of invoking the provisions of S .....

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m the Mumbai unit is already in existence since April, 2005 and the assessee company has also claimed depreciation on the fixed assets from 1st April 2005 onwards. The assessee company was asked to explain why deduction u/s.10A of the Act should not be disallowed as the undertaking at Mumbai and Nasik was set up for manufacture and export of software since April, 2005, while the Mumbai undertaking got letter of permission from STPI, Navi Mumbai on 19-09-2005 for 100% EOU at Mumbai u/s. 59 & .....

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nd the deduction u/s 10A of the Act should be disallowed. The assessee company submitted that there is no condition in Section 10A of the Act that deduction is eligible from date of approval from STPI. The assessee company submitted that Mumbai unit is a new unit for which the approval from STPI was received in this year on 19-09- 2005 and therefore, it is eligible for the deduction from this initial year. The AO rejected the contentions of the assessee company and held that company right from i .....

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ld established unit has continued with its usual business. Thus, the basic requirement for claiming deduction u/s.10A, that the undertaking should be new, is not satisfied on the first year of making the claim and claiming a deduction u/s.10A of the Act, the setting up of the New Unit and it s registration under STPI are the twin conditions which should be satisfied to be eligible for deduction u/s.10A of the Act. Hence, deduction of ₹ 47,13,192/- claimed by the assessee company u/s 10A wa .....

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)] and also relied on the decision of ITAT, Indore Bench in [302 ITR 42]. Ld. AR of the assessee company also contended that there is absence of sanction u/s. 151 of the Act and also absence of allegation in the recorded reasons that the assessee company did not disclose fully and truly all material facts necessary for the assessment. The AO has not pointed out the precise material facts which were not disclosed by the assessee company and mere change of opinion of the AO without any tangible ma .....

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off by the AO by passing a speaking order dated 24/01/2013 u/s 147 of the Act . The AO has clearly made a reference in his order DATED 24/1/2013 stating inter-alia that since the return of income was filed u/s. 139 of the Act and the assessee company has not disclosed fully and truly all material facts necessary for its assessment for that year, therefore, there is a prima facie evidence on record that the income has escaped assessment by reason of the omission or failure on the part of the ass .....

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ting proceedings u/s 147/148 of the Act. The CIT(A) observed that AO has brought on record that assessee company since its inception was rendering services to its A.E. M/s. Prothious INC, USA and continued its business operation with the same old establishment, same management, same employees, same clients and the old and used machinery which was previously used for the assessee company s business purpose, it was not eligible for any deduction u/s.10A of the Act. Thus, it proves that pre-registe .....

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nd the same old established company continued to do its business with the same clients and hence, the CIT(A) held that assessee company is claiming deduction u/s.10A of the Act which clearly envisages the setting up of new industrial unit which in this case is not the case and hence, the claim of deduction u/s.10 of the Act was denied to the assessee company by the CIT(A) vide orders dated 14-02-2014. 5. Aggrieved by the orders dated 14-02-2014 passed by the CIT(A), the assessee company filed ap .....

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d the assessment order u/s 143(3) of the Act was framed by the AO dated 28-11-2008, whereby the AO has duly considered the claim of the assessee company u/s. 10A of the Act on merits after application of mind as under: The assessee who commenced the activities in the previous year relevant to this assessment year itself, is engaged in the business of providing civil structural designing and detailing services to its overseas affiliate US company which is charged 85% of the service charges charge .....

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peration in the STP. The revenues and expenses have been bifurcated and allocated as per the basis adopted and stated in form no. 56 filed along with the return of income and accordingly, from the total income of ₹ 76,37,920/- the claim is made for exemption under section 10A of ₹ 47,43,192 being the profits and gains of part period of Mumbai STP undertaking . The Ld. Counsel of the assessee company submitted that the AO has duly applied his mind before framing original assessment or .....

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nly. The assessee company set up a new undertaking at Mumbai and Nashik and commenced operation from April, 2005. The assessee company made an application in the month of July, 2005 with the Software Technology Park, for which the permission was granted by STPI vide approval letter dated 19th September, 2005, which is placed in the Paper Book filed with the Tribunal. The assessee company submitted that it has claimed exemption u/s. 10A of the Act amounting to ₹ 47,43,192/- w.e.f. 1st Oct, .....

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005 having obtained STPI approval on 19-09-2005. Thus, Ld. Counsel of the assessee company submitted that the reopening has been done based on the audit objection after four years from the end of the relevant assessment year which is not tenable in law as the assessee company has disclosed fully and truly all the material facts and there is no failure on the part of the assessee company whereby the assessee company has truly and fully declare the facts in the return of income filed with the Reve .....

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Cycle has raised an objection that that assessee company was incorporated on 10-03-2005 and started rendering service to A.E. Prothious INC, USA. Assessee set up undertaking at Mumbai and Nashik and started manufacturing and export of software since April 2005 from both the undertakings. Further, it was observed that Mumbai undertaking got letter of permission from STPI, Navi Mumbai on 19-09-2005 for 100% Export Oriented Unit. Licence u/s. 59 & 65 of the Customs Act for Manufacture in Bond .....

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its Mumbai unit u/s. 10A is not in order and same should be disallowed. 3. The objection raised by the revenue audit is not acceptable. F.Y. 2005-06 is the first year of operation of the assessee company. It is pertinent to mention here that assessee has commenced business from April, 2005 as per the Registration Certificate of Establishment dated 05-04-2005 by the Sr. Inspector Shops & Estt. K/W. Bombay Shops and Establishments Act, 1948 wherein it can be seen that assessee has commenced bu .....

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ct. The Ld. Counsel submitted that the deduction has been denied u/s. 10A of the Act merely on the ground that assessee company has received the approval from STPI on 19th September, 2005 while it commenced operation from April, 2005. The Ld. Counsel also submitted that approvals from the CIT has been obtained by the AO on the same date of sending the proposal i.e. 30-03-2012 and the assesse company has placed on record in paper book the documents relating to the proposal dated 30-3-2012 sent by .....

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uto Forge Ltd., Vs. Add. CIT [(2014)365 ITR 318] (Mad); iii. CIT Vs. Foresee Information Systems (P) Ltd., [(2014)365 ITR 335] (Kar); iv. CIT Vs. Excel Softech Ltd [(2008)175 Taxman 257 (P&H-HC)]; v. CIT Vs. Quantum Coders Ltd [ITA No. 542 of 2013] (Del) 7. On the other hand, Ld.DR relied on the orders of the authorities below. 8. We have heard the rival contentions and perused the material on record. We have observed that the assessee company was incorporated on 10th March, 2005 and has com .....

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riginal assessment proceedings and on being satisfied, the assessment has been framed u/s. 143(3) of the Act by the AO vide orders dated 28-11-2008 whereby deduction of ₹ 47,43,192/- u/s 10A of the Act was duly granted to the assessee company by the AO. The assessee company has duly submitted form no 56F being report under Section 10A of the Act dated 10.10.2006 issued by auditors-chartered accountants of the assessee company certifying that the assessee company is entitled for deduction u .....

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y disclosed all the material facts in the return of income filed u/s 139 of the Act with the Revenue and also during assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act with respect to material and relevant facts concerning setting up and commencement of operations of new unit at Mumbai w.e.f. April 2005 and the registration/approval obtained from STPI dated 19-09- 2005 and its claim of deduction u/s 10A of ₹ 47,43,192/- w.e.f. 01-10-2005 , which has been duly .....

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pany need to be dropped as the same was not validly initiated and is merely a change of opinion by the AO based upon the audit objections and AO has not independently applied his mind before re-opening the proceedings u/s 147/148 of the Act against the assessee company while there is no failure on the part of the assessee company in truly and fully disclosing all material and relevant facts concerning the Mumbai unit, as the proceedings have been initiated after four years from the end of the re .....

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ant condition for grant of approval u/s 10A of the Act. It is not the case of the Revenue that the assessee company has utilized the old machinery/computers etc. while setting up the new undertaking in Mumbai in April 2005 rather the case of the Revenue is that the assessee company set up an undertaking in the month of April, 2005 while it applied for the permission from STPI in July 2005 and the permission was received on 19th September 2005 while the deduction u/s. 10A of the Act was claimed w .....

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g it ineligible for deduction u/s 10A of the Act as the same is hit by Section 10A(2) of the Act. However, in our considered view, the assessee company is not hit by the Section 10A(2) of the Act as it could not be said that it is formed by splitting up or reconstruction of business already in existence nor it is brought on records that there is transfer to a new business of machineries or plant previously used for any purpose. The circular no 1 of 2005 issued in context of Section 10B of the Ac .....

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nsecutive 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. However, no deduction under section 10B is available after assessment year 2009-10. 2. The deduction under section 10B is available to an undertaking which fulfils all the following conditions:- (i) it manufactures or produces any article or thing or computer software; (ii) it is not formed by the splitting .....

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ion 14 of the Industries (Development and Regulation) Act, 1951, is eligible for deduction under section10B of the Income-tax Act. 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 subsequently converted into a EOU, shall be eligible for deduction under section 10B of the IT Act, on getting approval as 100% export or .....

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ports, from and after the date of approval of the DTA unit as 100% EOU. Moreover, the deduction to such units in any case will not be available after assessment year 2009-10. 5. To clarify the above position, certain illustrations are given as under:- (i) Undertaking A is set up in Domestic Tariff Area and starts manufacture or production of computer software in Financial Year 1999-2000 relevant to assessment year 2000-01. It gets approval as 100% EOU on 10th September, 2004 in the financial yea .....

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e date of approval of the DTA unit as 100% EOU. (ii) Undertaking B set up in Domestic Tariff Area, begins to manufacture or produce computer software in financial year 1996-97 relevant to assessment year 1997-98. It gets approval as 100% EOU in financial year 2007-08 relevant to assessment year 2008-09. No deduction under section 10B shall be admissible to undertaking B as the period of 10 years expires in financial year 2005-06 relevant to assessment year 2006-07, prior to its approval as 100% .....

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