Case Law Details
The agitation by the revenue is that the assessee company was not entitled to deduction under section 10A as the CIT (A) failed to appreciate the fact that the assessee had commenced manufacture, production of software prior to its registration as STPI and the STPI authorities had granted approval on 18.3.2000 for setting up a new undertaking and not for the existing unit and therefore the company was not entitled to benefit of the deduction under section 10A of the Income Tax Act, 1961.
The fact that in the assessee’s case, a survey was conducted. The materials found in the course of survey have revealed that the assessee has been accorded approval for setting up a new unit and not for conversion from DTA to STP . In the said assessment orders, deduction u/s 10A was denied for the reason that the assessee company is not a newly established undertaking because the company was already in existence, and the newly formed unit was using assets which were already put to use in India by the firm. This means to say that 100 per cent of the plant & machinery installed in the new unit comprises of the plant & machinery used in the old unit as against 20 per cent permitted as per section 10A. The same stand was rightly taken for the assessment completed for the assessment years 2004-05 to 2006-07. The Circular No.1 dated 6.1.2005 of the CBDT was issued in respect of DTA units which have been converted into 100% EOUs in respect of claims u/s 10B. However, in the instant case there is no such conversion from DTA to STP, but a new unit has been set up.
The deduction claimed is u/s 10A and not u/s 10B of IT Act, 1961. Thus the Board’s Circular No. 1/2005 would not apply squarely in this case and hence was not considered. In the case of the assessee, the STPI Authorities have granted approval on 18.3.2000 for setting up a new undertaking and not for the existing unit which fact was also confirmed by the assessee. Further there was no addition to assets after 29.3.2000. The entire plant & machinery of the old unit as on 26.3.2000 was transferred and put to use in the new unit w.e.f 29.3.2000 and this fact has been confirmed by Shri Anand Saraf , Director of the assessee company in his reply to Q.No.30 of the statement recorded u/ s.133A on 11.8.2004.
The ITAT perused the application for registration as a STPI unit wherein the application as submitted by the Departmental Representative indicates copy of the assessee’s application found at the time of survey the proposal for establishment of a STPI unit as against the application documented by the assessee indicated the proposal for conversion from domestic tariff area to STPI unit. Not that these mistakes were found on account of survey as against the documented application available to STPI would make any difference but the fact remains that law acknowledges conversion from domestic tariff area to STPI for the purpose of entitlement of claiming exemption under section. 10A.
The Assessing Officer apparently had stretched this mistake to the extent of continuing analyzing the clarification so given by the CBDT vide their circular No. 1/2005 date 6.1.2005 with respect to the deduction under section 10B that also clarifies that the transformation from a domestic tariff area to STPI as not a hindrance for claiming deduction under section 10A . Tribunal found force in the submission of the counsel that the whole exercise by the Assessing Officer and the Departmental Representative as of now appears to be distinguishing the facts in the line of CIT (A) trying to weigh the facts of the assessee’s case in the ratio of decision of the ITAT, Bangalore Bench in the case of Foresee Information System Pvt. Ltd. This decision invariably has found a confirmation of sort by the decision of the Hon’ble Punjab and Haryana High Court in the case of Mahaveer Spinning Mills Ltd.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
