TMI Blog2010 (10) TMI 1083X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be carried forward or set-off where such loss relates to any of the relevant Assessment Years. There is no ambiguity in the Act and it is also an undisputed fact that the appellant was entitled to deduction u/s 10A which it had been allowed in the A.Y. 2001-02 and which it allegedly did not claim in the A.Y. 2002-03. It is also not in dispute by the A.O. that the appellant had not made a declaration as required u/s 10A(8) of the Act for not claiming deduction u/s 10A - appellant has pointed out to the declaration vide letter dated 08.10.2002 In view of the above facts and circumstances of the case, the stand of the A.O. not allowing the set-off of carry forward loss incurred during the A.Y. 2002- 03 cannot be sustained. - Ground No.1 of the Revenue is dismissed. Claim u/s. 10B - on-site development of computer software at the site of customers abroad - Employees who have worked onsite had left India for USA, before the date of setting up of SEEPZ Unit - HELD THAT:- From the facts it is clear that the finding of the AO that the employees do not belong to the Company is incorrect. All the employees belong to the company. They are the employees of M/s Geebs Software Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at this decision is in line with the judgment of the jurisdictional High Court in the case of CIT vs. Penwalt India Ltd.[ 1991 (4) TMI 33 - BOMBAY HIGH COURT] . This ground of the Revenue is dismissed. Deduction u/s 10B disallowed - restructure of the unit - Out of 5000 sq.ft. premises, 2,000 sq.ft. was earmarked for the new unit, which received permission from the Development Commissioner on 17-11-2001. Thus he concluded that the SEEPZ unit was a restructuring of an existing unit - HELD THAT:- As carefully examined the order of the AO and have taken into account the various details filed by the appellant pertaining to the assets in question which exclusively belongs to the STPI Unit which was situated outside the SEEPZ-SEZ area and the Unit which was situated within the SEEPZ SEZ and conclude that the AO erred on facts. The Schedule of assets as per Schedule E shows additions to the opening balances - further, the ledger account of Computers purchased during the year 2003-04 along with the copies of the invoices, bills and challans clearly supports the view of the appellant that the Unit situated outside the SEEPZ Unit i.e. the STPI Unit which was itself eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt of ₹ 3,60,04,610/- without appreciating the facts of the case. 3. On the facts and in the circumstances of the case and in law, the CIT (A) erred in not upholding the action of the Assessing Officer in not allowing deduction under Section 10B of the Act on proportionate amount worked out at ₹ 1,74,34,738/-. 3. The facts in brief are that the assessee is a private Ltd. Company engaged in the business of 100% export of computer software services and software development, mainly to USA and other countries. Initially the assessee company was incorporated in 1985 in the name and style of M/s.Gebbs Micro systems Pvt. Ltd. and was in the business of manufacturing computer monitors only. From the year 1999, its name was changed to M/s.Gebbs Infotech Ltd. and it started developing software, for exports. Further, the promoters incorporated another company viz., Gebbs Data Products Pvt. Ltd. in 1986, which was non-functional. In the year 1997, its name was changed to Gibs Software International Pvt. Ltd. In the year 1999, both the M/s.Gebbs Infotech Ltd. Gibs Software International Pvt. Ltd. were amalgamated into Gebbs Infotech Ltd. Prior to the amalgamation, the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for A.Y. 2002-03. Since, no deduction u/s.10A of the Act was claimed for A.Y. 2002-03, the loss can be set off against the profits determined as taxable in the subsequent years. He contended that w.e.f. 1/4/2001, section 10A is a deduction provision and not an exemption provision. To support his claim, the learned counsel relied on the decision of Honeywell International (India) P. Ltd. Vs. DCIT [2007] 108 TTJ 924 (Del.) for the proposition that the retrospective amendment by Finance Act 2003, w.e.f. 1/4/2001 to section 10A(6) does away with restriction of carry forward and set off of losses. 7. We have heard rival contentions. Section 10A(6)(ii) reads as follows : Notwithstanding anything contained in any other provision of this Act, in computing the total income of the assessee of the previous year relevant to the assessment year immediately succeeding the last of the relevant assessment years, or of any previous year, relevant to any subsequent year,- (i) - - - - - - - - - - - - - - - (ii) No loss referred to in sub-section (1) of section 72 or sub-section (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on balance profits. On appeal, the CIT (A) allowed the claim of deduction u/s. 10B of the Act. Aggrieved by the same the Revenue is in appeal before us. 10. The learned DR submitted that in the case of the assessee, none of the employees who were working, onsite, left India after the date of set up of SEEPZ and SEZ Unit. He drew the attention of the Bench to para 5.3.5 to 5.3.9 of the assessment order at pages 3 and 4. He vehemently contended that this is a case where child is born before the mother is born for the reason that the employees were born before the assessee has come into existence. He vehemently contended that these employees had already gone abroad as employees of another Company. He also alleged that the payments are not made at arm s length price. 11. The learned counsel for the assessee, on the other hand, submitted that these persons were employees of the assessee company and they were earlier working for the different unit of the same company. He pointed out that the assessee is having two units, one which is located in SEEPZ i.e. SEZ and one which is outside the SEZ and which is a STPI unit on which the assessee has claimed deduction u/s 10A in the earlie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They are the employees of M/s Geebs Software International P. Ltd. which has amalgamated to the assessee company. Just because the employees were allocated to an other unit of the company which is exempt u/s 10A in the earlier years, and because these employees were assigned duties of the SEZ units in the impugned assessment year, it does not lead to a conclusion that the assessee cannot claim exemption u/s 10B. The AO has granted exemption u/s 80HHE. The allegation that the payments not made are at arm s length is also not correct because for the assessment year 2003-04 the Transfer Pricing Officer has passed an order u/s 92CA(3) upholding the price paid by the assessee as that which is an another employee. On these facts, we uphold the following finding of the CIT(Appeals); There is merit in the case of the appellant, in as much as, it is a fact that the A.O. has indeed allowed deduction u/s 80HHE of the Act and has also allowed deduction u/s 10B of the I.T. Act albeit in part. Further, deductions under sections 10A/10B is granted to a unit which satisfies various parameters which however, does not include the employees of the appellant company who are involved in the creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n job work basis. He contended that the software development cycle consists of more than 20 different facts and only part of the software development was outsourced. He relied on the decision of Hon ble Bombay High Court in the case of CIT vs. Penwalt India Ltd. 196 ITR 813 (Bom.) as well as on the decision of the Hon ble Bombay High court in the case of CIT vs. New Pharma Private Ltd. 137 ITR 879 (Bom.). Similarly he relied on the decision in the case of CIT vs. Anglo French Drug Co. (Eastern) Ltd. 191 ITR 92 (Bom.). 17. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we are of the considered opinion that the order of the first appellate authority on this issue has to be upheld for the following reasons. 18. Nowhere in the assessment order, the AO has given a finding, that what is got by the assessee from the job work contractors is a product by itself. The assessee had in fact contended before AO that only a part work was done through job work contracts. The AO, in our considered view, was wrong in coming to a conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction u/s 10B while filing a return of income on 31-10-2004. 90% of the profit was claimed as a deduction u/s 10B and the balance amount was set off against brought forward losses of the year 2001- 02. The AO disallowed the claim u/s 10B on the following grounds : a) Out of 5000 sq.ft. premises, 2,000 sq.ft. was earmarked for the new unit, which received permission from the Development Commissioner on 17-11-2001. Thus he concluded that the SEEPZ unit was a restructuring of an existing unit. b) The employees who has done onsite development were not appointed by SEEPZ unit. c) Part of the software was done by outsourcing the job on job work basis. The first appellate authority considered the submissions of the assessee and at pages 8, 9 and 10 of the order followed his decision for the assessment year 2003-04. While doing so, he observed that during the current year, in addition to the points raised by the AO in the earlier assessment year, one more issue has been taken and i.e. there is restructure of the unit . The first appellate authority held that the AO had erred on facts. At pages 8 , 9 and 10 of his order he held as under : I have carefully examined the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located in the SEEPZ-SEZ area and the old assets had been utilized in this particular Unit. The two units continued to be exclusive and distinct unit during the year and the Schedule of assets clearly shows that there was no restructuring. The stand of the AO cannot be upheld. To conclude, in view of the above discussion and in view of the appellate order dated 09.02.2007 in the case of the appellant itself, I am of the view that the AO erred in disallowing the claim of the appellant u/s 10B, which in my view, is held to be in order. Ground Nos. 1, 2 3 are accordingly allowed in favour of the assessee. We are in agreement with these findings. The assessee in this case had started a new line of business i.e. software programming and services, after closing down the earlier business of manufacturing colour monitors in the year 1997. Initially the assessee carried out activities at MIDC, Nelor which is a STIP unit and a claim for deduction u/s 10A was allowed to this unit for one year. The SEEPZ unit got permission on 17-11-2001 to start commercial production. The submission of the assessee that the opening balance of assets of about ₹ 1.39 crores belong to the company fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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