TMI Blog2018 (2) TMI 293X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Ld. Counsel clearly vitiates the observation and the finding of the AO; and hence on the point that there is a less growth of revenue in EOU unit and therefore, presumption can be drawn for splitting up or reconstruction of EOU unit is incorrect and cannot be upheld. The assessee continued to make addition to the fixed assets in the SEZ unit independently and there is no iota of any material to show that the additions to the fixed assets has been by way of transfer from EOU units. Likewise from the perusal of the list of technical man power, we find that except for two or three employees out of 30 employees are newly hired and therefore, it is not a case where the old employees of EOU unit have been entirely shifted to SEZ unit which seems to be the allegation of the AO. Thus, all the issues raised by the AO does not hold ground on the facts and material placed before us and hence on factual matrix also we hold that assessee has not violated any of the conditions prescribed in section 10AA and therefore, it is entitled for claim of deduction u/s 10AA in this year. - Decided in favour of assessee - ITA No.:-6794/Del/2017 - - - Dated:- 23-1-2018 - SHRI AMIT SHUKLA, JUDIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Brief facts and background of the case are that the assessee company is a wholly owned subsidiary of Macquarie Global Services (Mauritius) Limited and was set up in India in March, 2007. It is a captive contract service provider, engaged in the business of provision of back office support services to its associated enterprises (AE). For rendering such services, assessee is remunerated on a cost plus mark up basis. During the relevant financial year the assessee company was operating from two separate units i.e., CN61D (EOU) unit and SEZ unit . The operations from the said SEZ unit had commenced during the financial year 2010-11; and accordingly, had claimed deduction u/s 10AA in the assessment year 2011-12 and also in assessment year 2012-13. During the year under consideration which was its third year of operation, the assessee had claimed deduction of ₹ 10,43,46,127/- u/s 10AA. The said claim was duly supported by audit report in Form No. 56F. During the course of the assessment proceedings the AO noted that assessee has been claiming deduction u/s 10B/ 10A in the earlier years from its EOU Unit and the last year of deduction was assessment year 2011-12, from wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year of tax holiday claimed under section 10AA of the Act is AY 2011-12. The assessee has submitted that the conditions prescribed above need to be fulfilled at the time formation of SEZ unit i.e. during the first year of commencement of operations. The SEZ unit commenced operations in FY 2010-11 and accordingly, relevant year for examination of formative conditions is AY 2011-12. In that year there is no dispute on satisfaction of formative conditions. 4.4 The assessee has further submitted that MGSPL has met all the conditions for claiming the deduction u/s 10AA of the Act. As alleged in the show cause on allowbility of deduction under section 10AA of the Act that it has begun or beings to manufacturing or produce articles or things or provide services during the previous year relevant to the assessment year commencing on or after the 1st day of April, 2006 in any Special Economic Zone. It was submitted that the Assessee, during FY 2010-11, has set up an SEZ unit for providing ITES services duly approved by SEZ Authority vide letter of approval dated 21 June 2010. Further, the Assessee duly commenced commercial operations in nature of export of IT /ITES services from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss growth in this company by entering into new contract with its customer which are only its AEs and such shifting of business in SEZ unit where deduction u/s 10AA is available which is against sprit of the law laid down in the regard. The facts patterns of the assessee business units are given below:- Year Revenue of CN61D (EOU) unit Year on year growth (%) Revenue of SEZ unit Year on year growth (%) Total revenue of the company Year on year growth in the revenue of the compan y (%) 2007-08 11082773 - - - 11082773 - 2008-09 248045746 2138% - - 248045746 2138% 2009-10 489315919 97% - - 489315919 97% 2010-11 642136965 31% 36110980 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. On perusal of the above table it is clear that the overall growth in the case of business is 18% in FY 2012-13 and 97% in FY 2009-10. The growth in the taxable business is -3% and 7% in FY 2011-12 and 2012-13 respectively against overall growth in SEZ business is 1166% and 33% respectively.' It is beyond any imagination that how miserly the assessee has tried to defraud the provision of the Act. It is already substantiated the claim deduction u/s 10AA of the Act that business is done after splitting of the existing business which is taxable unit. Accordingly important condition of section-10AA has not been complied with by the assessee and there is splitting and diversion of the existing business. 4.7 Second test is employees of the assessee where the assessee has submitted reply the main issue for examination in this case is deduction u/s 10AA of the Act that employees which are alike assets for IT companies. That instruction No. 17/2013 dated 17th January 2013 which provides that the Assessing Officer have to follow clarifications issued by CBDT by way of Circulars. The assessee is failed to give detail of employees and their skill set which were acquired by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s already in existence as. The assessee has relied upon many judgements without distinguishing the facts of the case. There are several judgment that in the scheme of the deduction or exemption provisions the intention of the Industrial policy and deductions provision made there under is to create new business and new emplacement and new foreign exchange reserve throughout the period of scheme and that each year is an independent assessment unit and requirements of incentive sections need to be examined every year during the tax holiday period without any failure and -breaking of continuity. The units were incorporated on 21.06.2010 which was nearby date of last year of 10B to gain the deduction u/s 10AA of the Act. 4.10 Now it is also important to counter the argument of the assessee company. 4.10.1 The assessee has set up a new unit under the SEZ legislation located at 15th Floor, Building No. 14, Tower-B, Cyber City, DLF Phase Ill, Gurgaon-122002, Haryana with projected employment of 225 people and projected investment of INR 1,005 lakhs. For the purpose of new SEZ unit, additional area of 28,008 square feet was taken on lease. The Assessee commenced operations from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at, firstly, the only reason for assessee company to form SEZ Unit on 21.6.2010 and came into operation on 1.1.2011 was on the background that deduction u/s 10A and 10B of the EOU unit would be no longer available due to sun set clause and therefore, assessee started to shift new business in the form of SEZ unit; secondly, he has taken note of the revenue growth of the EOU unit which according to him had declined since financial year 2010-11, whereas in the case of SEZ unit revenue had increased marginally; thirdly, the growth of employees has been reduced in the EOU unit, whereas in the SEZ unit there was a significant growth of hiring of employees; and lastly, assessee has failed to give details of employees and the skill test which was required by the assessee for the new unit and it had also failed to submit details of new and old employees ratio. 5. Before us, the Ld. Counsel for the assessee Shri Salil Kapoor after explaining the entire facts and background of the case, submitted that, admittedly here in this case it was neither the first year of operations of SEZ unit nor the deduction was claimed for the first time. Albeit this was the third year of the claim of deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o m T axa bl e B u s ine ss G rowth % Revenue fr o m S Unit EZ Gr o wth % Total Revenue , Growth % 2009-10 48,93,15,919 - 48,93,15,919 2010-11 64,21,36,965 31% 3,61,10,980 67,82,47,945 39% 2011-12 62,32,14,978 -3% 45,72,63,241 1166% 1,08,04,78,220 59% 2012-13 66,95,57,158 7% 60,88,25,611 33% 1,27,83,82,769 18% 2013-14 73,08,34,134 9% 89,68,09,135 47% 16,27,64,32,69 27% 2014-15 88,07,79,281 21% 1,24,18,87,704 38% 2,12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91/392 - 2008) * ACIT vs Leo Fasteners (ITA No. 533 to 538 of 2010) (Madras HC) * CIT vs Ganga Sugar Corporation Ltd (Delhi HC) (92 ITR 173) * CIT vs Mahaan Foods Ltd (Delhi HC) (216 CTR 148) 11. During the course of the hearing, this bench required the Ld. Counsel to submit details of investment made in SEZ unit since inception; expansion and growth of revenue for EOU and SEZ unit; and list of technical manpower with their designation and technical qualification employed in the first year of formation and whether it was a new hiring or inter-unit transaction. In compliance thereof, the Ld. Counsel had submitted following details:- i) Details of investment:- - Assessment Year Additions to Fixed Assets in SEZ unit (Rs). 7,63,46,030 AY 2011-12 AY 2012-13 1,30,27,383 AY 2013-14 1,17,98,477 AY 2014-15 68,03,912 AY 2015-16 7,07,50,865 AY 2016-17 1,84,17,609 AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 1,23,61,22,529 2,65,58,13,929 9% iii. List of technical manpower: - S.No. Emp lD Name - Designation Technical Qualification Remark 1 48438 Bindal,Saurabh Executive CA New hiring 2 49005 Aorawal, Kushal Finance Manaoement Trainee CA New hiring 3 49485 Garq.Ashish Executive CA New hiring 4 49611 Sharma,Yogesh Executive CA New hiring 5 49666 Kumar,Raian Associate M Com New hiring 6 49722 Bhardwai,Arun Senior Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Senior Associate MBA New hiring 23 39093 Mehta,Prasham Executive PGDBM Inter unit transfer 24 50191 Puri,Jatin Executive CA New hlring 25 50219 Singh,Manish K Senior Associate PGDBM New hiring 26 46064 Munjal,Meenu Manager CA Inter unit transfer 27 50305 Mahaian,Kunal Executive CA New hiring 28 50311 Gupta,Lokesh K Associate B Com New hiring 29 50418 Sharma,Akash Senior Associate B Com New hiring 30 50460 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of deduction on the ground that there is some kind of splitting up or reconstruction of the old business in terms of clause (ii) of sub section (4) section 10AA. The conditions laid down in section 10AA (4) has to be seen on the date of formation, whether the undertaking has violated any conditions prescribed therein or not. If the conditions stipulated in the section has been accepted, that is, once the eligibility of deduction u/s 10A or 10B or 10AA has been accepted in the initial assessment year, then it cannot be withdrawn in the subsequent years for a breach of certain conditions which are required to be seen or examined in the first year of claim. Now it is a well settled propositions laid down in various judgments of the Hon ble High Courts including that of the Jurisdictional High Courts as referred by the Ld. Counsel. The Hon ble Bombay High Court in the case of CIT vs. Western Outdoor Interactive Pvt. Ltd. (supra) has held that whether a benefit of deduction is available for a particular number of years on satisfaction of certain conditions and under the provision of Act, then without withdrawing or setting aside the relief granted for the first assessment year in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out violation of clause (ii) to Section 10B(2). Clause (ii) to Section 10B(2) does not apply to the period, post formation of the undertaking, covered under sub- section (1), when the undertaking which at the time of formation meets the requirements of clause (ii) to Section 10B(2). The undertaking, of course meet the requirements and fulfil the condition that it manufactures or produces articles, things or computer software during the assessment year. The proviso equally supports the said interpretation as it also refers to the date of formation of the undertaking, for seeking benefit under Section 10B(I). The requirements under clauses (ii) and (iii) in this manner do not relate to the subsequent period, i.e. post or after formation. 11. We have already noted the factual position. It is an accepted and admitted fact that the undertaking was formed or created by HICS and there is no allegation or finding by the Assessing Officer that on the date of formation of the undertaking, there was violation of clause (ii) and (iii) to Section 10B(2). The undertaking, when it was formed, satisfied and duly fulfilled the requirements of the said clauses, as it was not formed by splittin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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