PCIT Vs Mahindra Engineering Services Limited (Bombay High Court)
The Bombay High Court dismissed the appeal filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) which had allowed deduction under Section 10A of the Income-tax Act, 1961 to the assessee. The Revenue contended that the assessee’s Software Technology Park (STP) unit was formed by splitting up or reconstruction of an existing business and therefore did not satisfy the conditions prescribed under Section 10A(2).
The assessee had filed its return of income declaring nil income, which was initially processed under Section 143(1). Subsequently, the case was selected for scrutiny, and the Assessing Officer passed an order under Section 143(3) denying the deduction under Section 10A. The Assessing Officer concluded that the STP unit was not a new undertaking but a continuation of the existing business.
On appeal, the Commissioner of Income Tax (Appeals) allowed the deduction under Section 10A, holding that the setting up of the STP unit at Pune did not amount to reconstruction or splitting up of an existing business. This conclusion was reached after examining the nature and scope of the work, the scale of operations, the investments made, and the infrastructure created for the STP unit. The CIT(A) observed that the Assessing Officer’s conclusion was primarily based on a purchase order dated 15 October 2004 and the similarity of services rendered by the STP and non-STP units. However, the CIT(A) found this approach inadequate.
