TMI Blog2014 (11) TMI 1226X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. From the above chronology of events, it is crystal clear that the claim of deduction u/s.10A of the assessee from A.Yrs. 2004-05 to 2009-10 have been allowed. Whether after allowing the deduction for 6 years can the AO deny the benefit of deduction u/s.10A in the 7th year, i.e. for the impugned assessment year? - We find an identical issue had come up before the Hon ble Bombay High Court in the case of Western Outdoor Interactive Pvt. Ltd [2012 (8) TMI 709 - BOMBAY HIGH COURT ] held that unless deduction allowed u/s.10A for the first assessment year is withdrawn, denial of exemption u/s.10A for subsequent years is impermissible. Thus claim of deduction u/s.10A cannot be denied to the assessee for the A.Y. 2010-11 since such deduction has been allowed to the assessee from A.Yrs. 2004-05 to 2009-10 - Decided in favour of assessee. - ITA No. 1644/PN/2013 - - - Dated:- 28-11-2014 - Shri R.S. Padvekar, Judicial Member And Shri R.K. Panda, Accountant Member Assessee by: Shri Nikhil Pathak Department by: Shri Mazhar Akram ORDER R.K. Panda, AM : This appeal filed by the Revenue is directed against the order dated 18-06-2013 of the CIT(A)-II, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion u/s.10A. 2.2 From the various details furnished by the assessee, the AO noted that the assessee has developed and exported computer software and has received foreign exchange from Nostrum Pharmaceuticals LLC, Edison, New Jersy, NJ08837 and Nostrum Laboratories Inc, Kansa City, MO Missouri 64120, USA. The assessee has claimed exemption in respect of export income to the extent of ₹ 69,41,350/- u/s.10A of the I.T. Act. 3. The assessee filed a detailed reply justifying the claim of such exemption. However, the AO was not satisfied with the explanation of the assessee and rejected the same by observing as under : 8. The submission made by the assessee has been duly considered. It can be observed that, the business of software development was in existence as per application for registration as STP in which it is stated that, this unit was a SSI unit since 1993. There is no master service agreement MSA) or Statement of Works ( SOW) with Foreign client. 9. Thus the condition laid down u/s.10A(ii) that it is not formed by the splitting up, or the reconstruction of a business already in existence is not fulfilled by the assessee as the unit was a SSI Unit since 1993 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d rival contentions in respect of the first contention raised by the A.O. for rejecting the deduction u/s.10A of the Act. The A.O. has stated that the undertaking is not a newly established undertaking and the business of software development was in existence since the year 1993. On the other hand the appellant has claimed that the A.O. has probably not treated the undertaking of Vaneera Hi-tech engaged in development of computer software and export thereof as new undertaking since the assessee's proprietary concern is a SSI unit from the year 1993 ignoring the fact that the undertaking prior to the year 2003-04 was not engaged in the activity of development of computer software and export thereof. The appellant submitted that prior to the year 2003-04 the appellant was engaged in job work involving data entry of money receipts and MSEB meter reading and preparing bills etc. for MSEB which was done on monthly basis. 6.3 The appellant further pointed out that in view of the nature of work carried out prior to 2003-04 only 4 employees were employed, who were educated upto 12th standard, B.A. and B.Sc., and after 200304, 14 employees were employed, who were mainly B.E., MCM, MC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the ratio laid down by the decision of Hon'ble Bombay High Court in the case of Design and Automation Engineers (Bombay) Pvt. Ltd. 13 DTR 145. It has been noticed from the assessment orders u/s. 143(3) for A.Ys. 2005-06 to 2008-09 that the assessing officers have allowed the deduction u/s.10A to the appellant after scrutinizing the record and considering and verifying the documents and also the conditions laid down in-section 10A of the Act. Therefore, after considering the facts for the year under appeal which are similar in the earlier years, the contention of the appellant is accepted. However, the decision of Hon'ble Bombay High Court relied on by the appellant in this regard is related to the revision of original assessment u/s. 263 and the same is distinguishable on facts. 7. The second contention of the A.O. mentioned in earlier para is that the old machinery and plant has been used and no machinery has been purchased for establishing new undertaking. The assessee is carrying on another business namely Vaneera Info Services which provides the training MKCL which shows that old plant and machinery are being utilized. Therefore, the undertaking has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or establishing new undertaking; the assessee is carrying on another business namely Vaneera Info Services which provides the training MKCL which shows that old plant and machinery are being utilized; therefore the undertaking has been formed by transfer or use of old machinery and equipment. On perusal of the facts of the case it has been noticed that the appellant has purchased substantial new computer equipment after starting new line of business i.e. computer software development and export thereof. For the said business activity, human resources is a significant input which has also been newly employed by the appellant. Therefore, it cannot be said that the appellant has used old machinery and equipment for the purpose of the new business activity of computer software development and export thereof. Further, the appellant has relied on following decisions in support of the contention that on the facts of the case new undertaking has been established and the new business is not a reconstruction or splitting up of the old business. i) Nagardas Bechardas Bros. P. Ltd. Vs. Commissioner of Income Tax (104 ITR 255) Gujarat High Court. In this case the issue about reconstruct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology Park scheme, and such an undertaking is to export computer software, which results in earning of foreign exchange for the assessee. Once these conditions are satisfied the assessee is eligible for the claim. During the course of assessment the assessee had placed on the assessing officer's record the work orders of a foreign entity. Therefore while there is no requirement of a master services agreement as referred to by the level of assessing officer the terms and conditions under which the assessee earns foreign exchange has already been placed on the record. Therefore both in law and in fact the assessee has complied with a condition if any. 8.2 I have carefully considered the facts of the case and rival contentions in respect of the third contention raised by the A.O. for rejecting the deduction u/s. 10A of the Act. The A.O. has stated that there is no master service agreement or statement of works with foreign clients. The appellant has correctly pointed out that there is no specific requirement of master service agreement or statement of works with foreign clients for claiming deduction u/s.10A of the Act. It has also been noticed that the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... your record that a software technology unit can exist on a standalone basis in any area and there is absolutely no restriction in terms of a geographical location. The Reference to the Software Technology Parks Scheme, vide clause 2.2 of Notification No. 388(E) dated 30th April, 1995 was brought to the notice of the AO during the assessment proceedings. This fact will be apparent from a list of the units which are registered under the software technology Park scheme Pune. A cursory perusal will make it apparent, that the units are not located in one area but are spread all over Pune. In fact one of the units registered is located at Nagpur. By no stretch of imagination can Pune and Nagpur, fall in one software technology Park , as the learned assessing officer understands it. Consequently the learned assessing officer's contention that Jalgaon, is not notified as a software technology Park zone does not hold any water, for it is the scheme that is to be notified and not the Park. 9.2 I have carefully considered the facts of the case and rival contentions in respect of the fourth contention raised by the A.O. for rejecting the deduction u/s. 10A of the Act. The A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is notified as STP - In the instant case, assessee's unit located at Gurgaon has the approval of Government of India and declared as STP Hence, in view of the said notification assessee's unit is covered by cl. (vii) of Expln.2 to s.10A and assessee is entitled to exemption under s.10A. In view of the above facts and the above mentioned provisions of section 10A, the above contention of the appellant is accepted and that of the A.O. is rejected. ; 10. The fifth contention of the A.O. mentioned above is that the submission of the assessee that the deduction u/s.10A has been allowed in various assessments u/s. 143(3) of the Act cannot be the basis for claiming that the deduction should be allowed in the current year as the predecessor A.Os. have not verified the facts of the case and conditions required to be fulfilled for allowing deduction u.s.10A. 10.1 In respect of this contention of the A.O. the appellant has submitted as under: We appreciate that the principle of res-judicata does not apply to the tax proceedings, however one cannot rule out the consistency while considering the same factual matrix. The factual matrix which existed in the A.Y. 2004-05, AY 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deny the deduction for an alleged violation of the conditions. In fact the High Court is in no uncertain terms have set out this legal proposition. Therefore, it is not open to the department to deny the benefit of exemption u/s 10A for the subsequent years. 10.2 I have carefully considered the facts of the case and rival contentions in respect of the fifth contention raised by the A.O. for rejecting the deduction u/s. 10A of the Act. The A.O. has stated that the contention of the assessee that the deduction u/s.10A has been allowed in various assessments u/s. 143(3) of the Act cannot be the basis for claiming that the deduction should be allowed in the current year as the predecessor A.Os. have not verified the facts of the case and conditions required to be fulfilled for allowing deduction u.s.10A. The appellant has claimed that denial of exemption u/s.10A for subsequent years is impermissible, unless deduction allowed u/s.10A for the first year is withdrawn. In support of the above contention the appellant has relied on following decisions: i). Direct Information (P) Ltd. Vs. ITO (2011) 203 Taxman 70 (Bombay High Court )- In this case it has been laid down that the A.O. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis the claim to exemption u/s.10A of the Act. Therefore, it is not open to the department to deny the benefit of section 10A for subsequent assessment years i.e. A.Yrs. 2002-03 and 2003-04 and 2004-05. Besides that, on consideration of the facts involved both the CIT(A) and the Tribunal have recorded a finding of fact that the SEEPZ unit is not formed by splitting up of the first unit. In view of the ratio laid down by the above decision of Hon'ble Jurisdictional Bombay High Court, in the case of Western Outdoor Interactive v/s Commissioner of Income Tax, (349 ITR 309), the contention of the appellant that denial of exemption u/s.10A for subsequent years is impermissible, unless deduction allowed u/s.10A for the first year is withdrawn, is accepted. 11. It has been noticed from the CBDT circular No. 308 dated 29th June, 1981, subsequent amendments and explanatory notes that the provisions of section 10A have been introduced by the legislature to promote export and for bringing foreign exchange in the country. In the case under appeal it is undisputed fact that the appellant has developed computer software and has exported the same. The A.O. has stated in para 4 of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sible unless deduction allowed u/s.10A for first assessment year is withdrawn. He submitted that since the claim of deduction u/s.10A for A.Yrs. 2004-05 to 2009-10 has been allowed by the Revenue, therefore, in view of the decision of the Hon ble Bombay High Court, the Revenue cannot deny the claim of deduction u/s.10A for the impugned assessment year, i.e. A.Y. 2010-11. He accordingly submitted that this being a covered matter the grounds raised by the Revenue should be dismissed. 8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the decision of the Hon ble Bombay High Court cited before us by the Ld. Counsel for the assessee. There is no dispute to the fact that the claim of deduction u/s.10A by the assessee was allowed by the AO in the scrutiny assessments for A.Yrs. 2005-06 to 2008-09, copies of which are placed at pages 10 to 30 of the paper book. We find the claim of deduction u/s.10A was also allowed by the Revenue in summary assessment for the A.Y. 2004-05 and there was no scrutiny assessment u/s.143(3). There is also n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SEEPZ unit under Section 10A for the assessment year 200001,2001-02 and 2002-03. However, for the assessment year 2003-04 and 2004-05 the benefit of Section 10A of the Act was not extended to the SEEPZ unit on the ground that the same was formed by splitting of the Fort unit. c) Consequent to the above, the assessment for the assessment year 2002-03 was reopened under Section 147/148 of the Act. The Assessing officer by his order dated 24/7/2007 for the assessment year 2002-03 rejected the appellant's claim for exemption for SEEPZ unit under section 10A of the Act on the ground that it was formed by splitting the Fort unit as is evident from the fact that same kind of software is being exported by both units and export realization was received by single payment in many cases and many expenses like foreign travel expenses were incurred by the Fort unit and transferred to the SEEPZ unit. d) In appeal, the Commissioner of Income Tax (Appeals) by an order dated 24/3/2008 set aside the order dated 24/7/2007 for the assessment year 2002-03 disallowing the claim of exemption under Section 10A of the Act to SEEPZ unit. The order dated 24/3/2008 while holding that benefit of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year. 5) On the other hand, Mr. Percy Pardiwalla, Senior Counsel appearing on behalf of the respondent-assessee submitted that in view of the decision of this court in the matter of Commissioner of Income Tax v. Paul Brothers reported in 216 1TR 548 and M/s. Direct Information Private Ltd. v. ITO dated 29/9/2011 in Writ Petition No.1479/2011, the issue is no longer open to debate. In the above case, it is held that once a benefit of deduction was extended in respect of a provision for a particular number of years then unless the benefit is withdrawn for the first year it cannot be withdrawn for subsequent years, particularly, when there is no change in the facts. Therefore, he states that once a benefit of Section 10A was extended to the respondent-assessee for the assessment year 2000-01 and 2001-02 in respect of its claim for exemption under Section-10A of the Act and the same not having been withdrawn for those years it cannot be denied in the subsequent assessment years. This is for the reason that the benefit under Section 10A of the Act is available inter alia if the unit has not been formed by splitting up or reconstruction of business already in existence. This aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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