Case Law Details
E2 Solutions India Pvt. Ltd. Vs ITO- Learned CIT(A) has passed a very detailed order in the assessment year 2002-03 and rightly came to the conclusion that the assessee is entitled to exemption u/s 10A of the IT Act. From the assessment order, we find that according to the AO, it is not a new undertaking for the purpose of exemption u/s 10A of the IT Act. Factually, it is also correct that the undertaking was already engaged in exporting software before it became a STP unit. The STP was notified in March, 1993 but not in Software Technology Park. In the year 2001, a company was formed by conversion of the firm and it started production in STP unit after getting approval.
Thereafter only the undertaking claimed exemption u/s 10A of the IT Act. The claim of the assessee is supported by 8oard Circular No.1/2005, where it has been clearly held that undertaking set up in Domestic Tariff Area (DTA), which is subsequently approved as 100 % export oriented, is entitled to relief u/s 108 of the IT Act provided the undertaking shall get relief only for the remaining period of ten consecutive years beginning with assessment year in which the undertaking begins to manufacture computer software as a DTA unit’.
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH ‘A’
ITA No. 555/Bang/2010
(Assessment year 2005- 06)
M/s E2 Solutions India Pvt. Ltd. Vs The Income Tax Officer
ORDER
PER GEORGE GEORGE K:
This appeal inst1tuted by the assessee is directed against the order of learned CIT(A)-I, Bangalore dated 15/01/2010. The asst. year concerned is 2005-06.
2. Ground nos.1.1 and 5.1 are general in nature and no adjudication is called for. Hence, the same are dismissed.
3. Ground Nos.3.1 and 4.1 relate to levy of interest u/s 234B and 234C of the I T Act.
3.1 Levy of interest u/s 234B and 234C are mandatory and consequential in nature. Therefore, the same are dismissed.
4. In other grounds, namely, 2.1 to 2.5, the prayer of the assessee is that the deduction u/s 10A is to be granted as claimed.
5. Briefly stated the facts are as follows:–
The assessee is a company. It is engaged in the business of providing software services. For the concernedl asst. year return of income was filed on 21.10.2005 declaring an income of Rs.1,25,590/-, after claiming a deduction of Rs.2,60,801/- u/s 10A of the Act. The claim of deduction u/s 10A was made for the first time during the concerned asst.year. The claim was supported by enclosing Form 56F along with the return of income. The AO in the course of scrutiny assessment, proposed to disallow the assessee~s claim of deduction u/s 10A on the following grounds:–
i) The company was incorporated on 20.10.2000 and carrying on the business in an area not covered under any EHTP or STP or Special Economic Zone. In view of this, the condition laid down u/s 10A(2)(1)(b) & (c) of the I T Act are not satisfied.
ii) The company has obtained STPI approval for establishment of a STPI unit on 12.7.2004. Subsequently, the plant and machinery previously used for the business have been transferred to the STP unit to the extent of Rs.37,81,309/- which is more than 20% of the total plant and machinery of STP unit. Thus, the condition laid down u/s 10A(2) of the I T Act are not satisfied.
6. The assessee, in his reply relied on Circular No.1 of 2005 dated 6.1.2005 and also the order of ITAT in the case of ITO v Foresee Information Systems Pvt. Ltd. dated 16.3.2007 and ITO v American bata Solutions India Pvt. Ltd. dated 9.3.2007. The objection of the assessee was rejected by the AO and claim of deduction u/s 10A was disallowed while completing the scrutiny assessment u/s 143(3) vide order dated 3/12/2007. The AO was of the view that the Circular no.1/2005 deal with exemption to be granted to unit u/s 10B and therefore, it has no application to section 10A. The AO held that since STPI approval is dated 12/7/2004, it is a case of establishment of a new undertaking. He further held that if it is to be taken that the assessee has set up a new unit, the assessee would not be satisfying the condition laid down in section 10A(2)(iii). The AO also rejected the contention of the assessee that the existing unit was converted into STP unit and therefore, it was entitled to deduction u/s 10A. The Tribunal order cited before the AO was not followed since according to him, the same had not attained finality and appeal before the Hon’ble High Court is pending consideration.
7. Aggrieved by the assessment completed, the assessee carried the matter in appeal before the first appellate authority.
8. Elaborate submissions were filed before the Commissioner, which are reiterated at pages 2 to 10 and also from pages 13 to 17 of the impugned order of the CIT(A). The CIT(A), for his reasons mentioned in para 4.2, 5.1. 5.2 and 6.1, dismissed the appeal of the assessee and confirmed the action of the AO in disallowing the deduction u/s 10A of the Act.
9. The assessee, being aggrieved, is in appeal before us.
10. The learned AR submitted that the issue in question as to whether the existing unit can be converted into STP Unit and thereby is eligible for deduction u/s 10A of the Act is concluded in favour of assessee by the following judgements of the Hon’ble Punjab and Haryana High Court and the orders of the Tribunal:-
• CIT v Excel Softech Ltd. ITA No.156/07 dt. 24.7.2008 (PdH);
• CIT v Mahavir Spinning Mills Ltd. (2008) 303 ITR 353 (PdH);
• ITO v Foresee Information Systems P Ltd. 2008-TIOL¬456-ITAT-Ban;
• ITO v ignext Solutions India P. Ltd. 2009-TIOL-658- ITAT-Bang;
• ACITv E4E Application Services P Ltd. 2009-TIOL-744- ITAT-Bang;
• ITO v iQura Technologies P Ltd. 2010-TIOL-03-ITAT¬Bang;
• ITO v Expert Outsource P Ltd. ITA Nos.896 cf 897/Bang/09 dt. 17.3.2010 (Bang. ITAT); d
• Inatech Info solutions P. Ltd. v DCIT ITA No. 527/Bang/2010 dt. 12.11.2010 (Bang. ITAT).
10.1 He also relied on the CBbT Circular No.1/2005 dated 6/1/2005 (272 ITR (St.) 6). It was submitted that in the following cases, it has been held that there is no requirement to maintain separate books of accounts as a necessary precondition for claiming the benefit of relief u/s 10A of the Act:-
• Deputy Commissioner of Income-tax v Arabian Exports Ltd. (2007)109 TTT(Mumbai) 440;
• Punjab Tractors Ltd. v by. CIT(2004) 89 TTT (Chd) 439;
• CITv Hindustan Malleables & Forgings Ltd. (1991)191 ITR 70 (Pat.);
• CIT v Sree Krishna Pulversing Mills (2000) 163 CTR (AP) 151 : (2000)241 ITR 262 (AP);
• Mahindra Sintered Products Ltd. v CIT 177 ITR 111 (Bom.) &
• fCIT v ebbs Info tech Ltd. (2010) Tax Corp. (A.T.) 22873 (Mum.)
11. The learned bR on the other hand, strongly supported the
impugned orders of the Income Tax authorities.
12. We have heard the rival submission and perused the material on record. An identical issue had cropped up before this Tribunal in which one of us was party, in ITA Nos.896 & 897/Bang/2009 dated 17/03/2010 in the case of M/s Expert Outsource (P) Ltd. In that case, the AO has disallowed the claim u/s 10A of the Act for the following reasons:-
i) The company was incorporated and started business activities prior to obtaining approval of STPI. Hence, the conditions laid down u/s 10A(2)(1)(b) and (c) of the I T Act, 1961 are not satisf1ed.
ii) In view of the fact that the application of the assessee sought permission from STPI authorities for establishment of a new STP unit and did not choose the available option of conversion of the DTA unit to STP unit, and based on the approval of the STPI authorities to set up a new STP unit, it is to be treated that the assessee has established a new unit. The plant and machinery previously used for the business having been transferred to the STP unit to the extent of Rs.2,80,154/- wh1ch is more than 20% of the total plant and mach1nery, the cond1t1on laid down u/s 10A(2)(iii) of the I T Act are not satisfied.
iii) The deduction u/s 10A cannot be granted even if it is held that the assessee did not set up a new unit on securing STP registration because, as stated in the marginal heading of section
10A, the deduction is available for undertakings newly established in Free Trade Zone, etc. It cannot be said that on obtaining registration from STPI authorities, the assessee’s unit has been newly set up.
After hearing both the departmental representative and the authorized representative of the assessee, the Tribunal in the case of Expert Outsource (P) Ltd. (supra), held as follows:-
“We have heard the rival contentions and perused the material available on record. The Hon’ble Punjab d Haryana High Court in the case of Mahavir Spinning Mills Ltd. (supra), held that deduction u/s 108 would be available on conversion of existing unit into an export oriented unit (EOLJ). The contentions of the revenue authorities that provisions of section 108(2) were not fulfilled on conversion of existing unit into EOU were negative by the High Court. The Tribunal, in the case of M/s Foresee Information Systems (P) ~td. (supra) had held the benefit of section 10A would be available even when an existing unit gets converted into a STP Unit. Relevant portion of the order of the Tribunal is reproduced below:-
“6. We have heard both the sides. It appeals that learned CIT(A) has passed a very detailed order in the assessment year 2002-03 and rightly came to the conclusion that the assessee is entitled to exemption u/s 10A of the IT Act. From the assessment order, we find that according to the AO, it is not a new undertaking for the purpose of exemption u/s 10A of the IT Act. Factually, it is also correct that the undertaking was already engaged in exporting software before it became a STP unit. The STP was notified in March, 1993 but not in Software Technology Park. In the year 2001, a company was formed by conversion of the firm and it started production in STP unit after getting approval. Thereafter only the undertaking claimed exemption u/s 10A of the IT Act. The claim of the assessee is supported by 8oard Circular No.1/2005, where it has been clearly held that undertaking set up in Domestic Tariff Area (DTA), which is subsequently approved as 100 % export oriented, is entitled to relief u/s 108 of the IT Act provided the undertaking shall get relief only for the remaining period of ten consecutive years beginning with assessment year in which the undertaking begins to manufacture computer software as a DTA unit’.
Respectfully following the judgement of the Punjab and Haryana High Court in the case of Mahavir Spinning Mills Ltd. (supra) and the order of the co-ordinate Bench of the Tribunal in the case of M/s Foresee Information Systems (P) Ltd. (supra), we reject the grounds raised by the revenue ‘.
12.1 In the light of the above reasoning and the judgements cited supra, we hold that the assessee is entitled to deduction u/s 10A of the Act.
13. In the result, the appeal filed by the assessee is allowed.
The order pronounced on Friday, the 28th day of February, 2011 at Bangalore.
