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TMI Blog2019 (1) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... wo units: One unit was located in a non-STPI zone and hence its income was taxable. The other unit was located in a STPI zone in Gurgaon and its income was exempted under Section 10-A of the Act. The STPI unit was engaged in the business of development and support of its parent company in US/sister concerns worldwide as well as their customers. Separate Books of accounts were maintained for the exempted and non-exempted units. 4. The respondent-assessee had declared exempt income of Rs. 1,48,89,090/- from the business operations of the STPI unit eligible under Section 10A of the Act. The Assessing Officer, though unable to point out any defect, deficiency or wrong entry in the books for the exempt and nonexempt unit, drew a table of income earned and expenses incurred under different heads as per the books relatable to the exempt and non-exempt unit. He observed that there was substantial difference between the turnover and the expenses in the exempt and non-exempt unit, though they were operating with same infrastructure under the same management. The net profit of the software division, which was exempt, was 15.63 per cent. The net profit in the unallocated segment was a loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers through adoptive e-business information system, implementation & customization services and a comprehensive end user training & worldwide 24x7, support services on all the products it sells. The assessee is also eligible for exemption u/s 10A of the Act, as a STPI Unit & during the year under consideration, it had claimed u/s 10A of the Act of Rs. 1,48,89,090/-. The appellant company is also maintaining regular books of accounts for its STPI unit & non STPI Units. However, the AO denied the deduction u/s 10A of the of Rs. 1,48,89,090/- to the appellant company by reallocating the expenses to STPI unit & not adjusting Brought Forward unabsorbed depreciation of Rs. 35,15,609/-, against the current years income. The AO therefore, discarded the segment wise Profit & Loss Account of the assessee for the year ended 31.03.2008 (AY 2008-09), based on separate sets of books of account maintained by the assessee for its STPI & Non STPI units (marketing & Unallocated), by inter-alia, observing that there is a huge difference between turnover and expenses under various heads claimed by the assessee for its eligible & ineligible units, though operating under same infrastructure and manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convertible foreign exchange, within a period of six months from the end of the previous year or within such further period as the Competent Authority (RBI) allow in this behalf. It is also conditioned that the exemption should not be admissible for any assessment year i.e. 2001-02 or thereafter, unless the assessee furnishes in the prescribed form (Form No. 56F), along with the return of income, the report of a Chartered Accountant certifying that the deduction has been correctly claimed in accordance with the provisions of Section 10A. 4.1.3 While it is true that there did exist a close connection between the assessee company carrying on eligible business to which section 80IA(10) applies and its ineligible business, the other requirements such as the nature of arrangement & the manner of rejection of the profit margin in effect, due to export sales as inflated profits attributable to export activities, have not been disclosed by the AO. The AO stated that the course of business appears to be so arranged regarding the business transaction between two units e.g. eligible & ineligible of the assessee, that it has shifted huge expenses to the unallocated segment arbitrarily to hoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consistency & the method of accounting followed by the assessee, wherein no deviation noted vis-a-vis method accounting employed in the immediately preceding previous year. 5.1.4. However, the appellant is still not eligible for deduction u/s 10A of the Act as it has credited an amount of Rs. 16.59 crores in its Profit & Loss Account that was not earned by the assessee by any manufacturing or production activity or export of software, the proceeds there of are receivable or received in convertible foreign exchange as provided under section 10A of the Act i.e. the amount is not earned by the assessee by way of its main activities i.e. software development activity but the same is a deemed income arose to the assessee by way of remission or cessation of liability u/s 41(1) of the Act, by way of writing back the liability, no longer needed. Further against the income, not otherwise eligible u/s 10A, only the corresponding inventory amounting to Rs. 13.74 crore was written off. Moreover, on other income of Interest on Fixed Deposits etc, the same is required to be charged to the Income Tax, under the Head 'Income from Other Sources' & are also not eligible as they are not receivable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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