TMI Blog2018 (8) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 Act - Benefit of deduction allowed - Decided in favor of assessee. - I.T.A. No.2936/Mum/2016 - - - Dated:- 10-8-2018 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri V.Justin, DR For The Assessee : Shri. Vipul Joshi And Ms. Dinkle Hariya ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by Revenue, being ITA No. 2936/Mum/2016, is directed against appellate order dated 29.01.2016 passed by learned Commissioner of Income Tax (Appeals)-2, Mumbai (hereinafter called the CIT(A) ), for assessment year 2011-12, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 12.02.2014 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ) for AY 2011-12. 2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in allowing exemption u/s. 10B to the assessee, even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the profits should be derived by an EOU. Further, a unit would become an EOU when it so approved . It would , therefore, follow that profits derived from the Unit prior to its approval by STPI would not be profits derived by a hundred percent export-oriented undertaking‟. Accordingly , the profits of the Unit would qualify for exemption only from the date of approval of unit as an EOU. The said CA s also opined that shifting of the units of the assessee to a new location after commencement of its business would not result in splitting up or reconstruction of a business already in existence or the shifting of the unit would not result in transfer to a new business of previously used machinery or plant as contemplated in Section 10B of the 1961 Act. The assessee relied upon following judicial precedents as under:- a) Kerala State Cashew Development Corp. v. CIT -205 ITR 19 (Kerala HC) b) CIT v. Hindustan General Inds. Ltd (1982) 137 ITR 851 (Delhi HC) c) CIT v. Batala Engg Co. ltd (1979) 120 ITR 683 (P H HC) d) CIT v. Electric Lamp Mfrs (India) P Ltd (1987) 165 ITR 115 (Cal. HC) e) CIT v. Hindustan Malleables Forgings Ltd (1991) 191 ITR 70 (Patna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sstt. Commissioner of Customs, 100% EOU, Mumbai vide letter dated 3.11.2009 has granted permission to manufacture computer software and IT enabled services in Bond under section 65 of the Customs Act, 1962 read with supplementary Regulations under the Manufacture and Other Operations in the Warehouse Regulations, 1966. It is further noted that the assessee company vide letter dated 09.11.2009 has intimated the STPI that it has commenced the commercial production as a customs bonded STP unit on and with effect from 5.11.2009, pursuant to clause 10 of the letter of permission. Thereafter, the assessee company relocated its STP unit at 102/B, Akruti Centre, 1st Floor, MIDC, Andheri(E), Mumbai-69 w.e.f 19.12.2009 as per the permission granted by the STPI. It is pertinent to note here that there is no commencement of any new commercial production as claimed above by the assessee in its letter to the Customs Department but only the continuation of the same existing business of development of software with the same employees of the existing unit. 4.11 Further, on verification of the details of the employees furnished by the assessee, it is noticed that mostly all the employees who e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re development work in respect of the new unit were recruited before the new unit came into existence. Hence, in this case, the business itself i.e. the software development activity has been diverted to the new unit and the business of both units remain the same. The assessee company was thus trying to shift the business from the old unit to the new unit to take advantage of tax exemption. Thus it is a case of the same people doing the same business, the only difference being that the people have been shifted to the new office. The existing business of the assessee was development of software and in the new unit also, the assessee has done the same business of software development using the same employees and, therefore, it cannot be a case of the new unit being a separate and independent unit. Since the software development activity in the new unit had been carried out mainly by the employees of existing unit, it is a mere case of splitting/reconstruction of existing business. In view of the above, the exemption u/s 10B is not allowable to the assessee company. 4.14 The judicial decisions relied upon by the assessee will not help the case of the assessee company as the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding permission to relocate operation in another location. This office has issued approval letter no. STP/MUM/VHI(A)/(1527)/2009(09)/SKA/6783 dated 11.09.2009, for the STP unit M/s. Everyday Health India Private Limited. Existing STP Unit Location : Karmayog Building, 2nd floor, Parsi Panchayat Road, ANdheri (East), Mumbai 400 069 We have noted that the company has taken mentioned below location for relocate their operations in one place i.e. New STP location : 102B, Akruti trade centre, 1st floor, Road no. 7, MIDC, ANdheri (East), Mumbai 400 093 The case has been examined by this and it may be noted that unit is relocating their operations as per letter dated 04.12.2009, In view of above we have No Objection in M/s. Everyday Health India Private Limited to relocate their operation at location :102 B, Akruti Trade Centre, 1st Floor, Road no. 7, MIDC, ANdheri (East), Mumbai 400 093. With regard to AY 2010-11, it is understood that Section 10B deduction has already been granted by the AO being the first year if claim. For the AY 2011-12, AO has not granted Section 10B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness from registered office at 102-B. Akruti Trade Centre, Road No. 7, MIDC, Andheri(E), Mumbai 400 093 and engaged in the export of computer software during the year ended on 31st march, 2010. It is also submitted that the assessee claiming exemption u/s. 10 first time in the 9th year out of 10 consecutive assessment years as provided in Section 10B Section 10B of the Income Tax Act, 1961. 4.1 The assessee company has been registered as Export Oriented Unit . The details of foreign remittance have been filed. In support of the claim of exemption of ₹ 16, 38, 470/- u/s. 10B of the I.T. Act, the A.R. of the assessee produced the Auditor's certificate in Form No. 56G enclosing Annexure-A and as per Annexure A to Form No. 56G, the deduction / exemption u/s. 10B of the I.T. Act, 1961 is found to be allowed and therefore, accordingly allowed to the assessee of ₹ 16, 38, 470/- as per assessee's claim in the return of income. The said assessment order passed by the AO for AY 2010-11 u/s 143(3) of the 1961 Act is placed in paper book/page 96-98. Our attention was also drawn to page no. 217 to 219 / paper book wherein written submission made before learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and as per Annexure A to Form No. 56G, the deduction / exemption u/s. 10B of the I.T. Act, 1961 is found to be allowed and therefore, accordingly allowed to the assessee of ₹ 16, 38, 470/- as per assessee's claim in the return of income. Our attention was drawn to page no. 93-98 of paper book filed with tribunal wherein assessment order dated 21.02.2013 passed u/s 143(3) of the 1961 Act for AY 2010-11 is placed. It was submitted that the business activity was setup in financial year 2008-09 in the month of August 2008. The assessee was not registered as 100% EOU with STPI for financial year 2008-09 and hence no deduction was claimed u/s 10B of the 1961 Act for AY 2009-10. It was submitted that the assessee applied for registration under Software Technology Park of India as 100% EOU in the month of August 2009 for which approval was granted by STPI in the month of September 2009 in favour of assessee . It was submitted that in the month of December 2009, the assessee relocated its unit to another location for which NOC was received from STPI approving relocation of the unit. It was submitted that the first year for claiming deduction u/s 10B of the 1961 Act was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en from the financial statements and audit reports submitted by the assessee that the assessee is 100 % Export Oriented Unit and claiming exemption u/s. 10B of the Income Tax, 1961 for the first year of ₹ 16, 38, 470/- in respect of Export Turnover of ₹ 6, 36, 32, 138/-. In this regard, the assessee company filed Report under section 10B of the Income Tax Act 1961 in Form No. 56G dated 12/07/2010 in which has stated that the assessee company is registered as EOU in Software Technology Park of India w.e.f. 11/09/2009 and doing the business from registered office at 102-B. Akruti Trade Centre, Road No. 7, MIDC, Andheri(E), Mumbai 400 093 and engaged in the export of computer software during the year ended on 31st march, 2010. It is also submitted that the assessee claiming exemption u/s. 10 first time in the 9th year out of 10 consecutive assessment years as provided in Section 10B Section 10B of the Income Tax Act, 1961. 4.1 The assessee company has been registered as Export Oriented Unit . The details of foreign remittance have been filed. In support of the claim of exemption of ₹ 16, 38, 470/- u/s. 10B of the I.T. Act, the A.R. of the assessee produced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by this and it may be noted that unit is relocating their operations as per letter dated 04.12.2009, In view of above we have No Objection in M/s. Everyday Health India Private Limited to relocate their operation at location :102 B, Akruti Trade Centre, 1st Floor, Road no. 7, MIDC, ANdheri (East), Mumbai 400 093. With regard to AY 2010-11, it is understood that Section 10B deduction has already been granted by the AO being the first year if claim. For the AY 2011-12, AO has not granted Section 10B deduction. Further AO himself mentions that The Asst. Commissioner of Customs, 100% EOU, Mumbai vide letter dated 3.11.2009 has granted permission to manufacture computer software and IT enables services in Bond under section 65 of the Customs Act, 1962 read with supplementary Regulations under the Manufacture and Other Operations in the Warehouse Regulations, 1966. The Act does not allow 10B deduction to any undertaking w.e.f. AY 2012-13. The relevant proviso is as under : Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, [2012] and subsequent years. As the appellant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 up, or the reconstruction, of a business already in existence except in the circumstances specified under section 33B of the IT Act. (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. 3. Representations have been received from various quarters as to whether an undertaking set up in Domestic Tariff Area, which is subsequently approved as 100% EOU by the Board appointed by the Central Government in exercise of powers conferred under section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purposes of section 10B. In financial year 2002-03, it acquires more than 20% of old plant and machinery and starts manufacturing computer software. It also gets approval as 100% EOU in financial year 2002-03. Undertaking C‟ shall not be eligible for deduction under section 10B, as there has been transfer of old plant and machinery. (iv) Undertaking D‟ is set up and starts producing computer software in financial year 2003-04 relevant to assessment year 2004-05. It gets approval as 100% EOU in financial year 2006-07 relevant to assessment year 2007-08. It shall be eligible for deduction under section 10B from assessment year 2007-08. However, the deduction shall not be available after assessment year 2009-10. (v) Undertaking E‟ is set up and starts producing computer software prior to 31-3-1994. It gets approval as 100% EOU in financial year 2004-05 relevant to assessment year 2005-06. Undertaking E‟ shall not be eligible for deduction under section 10B as the period of deduction of 10 years expires prior to assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 Act which is reproduced below supports the stand of the assessee company : Certain clarification regarding Tax holiday under section 10B of the Income-tax Act to 100% Export Oriented Undertaking CIRCULAR NO. 1/2005, DATED 6-1-2005 1. Section 10B of the Income-tax Act provides for 100% deduction of profits derived by a hundred per cent Export Oriented Undertaking, from export of articles or things or computer software manufactured or produced by it. The deduction is available for a period of ten consecutive 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2005-06 i.e., the year in which it fulfils the basic condition of being a 100% EOU. Further, the deduction shall be available only for the remaining period of ten years i.e. from assessment year 2005-06 to assessment year 2009-10. This deduction under section 10B for assessment year 2005-06 shall be restricted to the profits derived from exports, from and after the 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% EOU. (iii) Undertaking C‟ is set up in Domestic Tariff Area in the financial year 2000-01 relevant to assessment year 2001-02 and engaged in the business of providing computer related services, other than those notified by the Board for the purposes of section 10B. In financial year 2002- 03, it acquires m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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