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.
Therefore tribunal was of the considered view that the Assessing Officer had proceeded to demolish the case of the assessee for the first two assessment years by initiating proceedings under section 147/148 and for the later three years under section 143(3) when he himself agreed to the fact that the assessee had been claiming deduction under section 80HHC of the Act being 100 % EOU. He would not have therefore distinguished the case of the assessee as if entitled for part relief under section 80HHC as deduction under Chapter VIA vis -a- vis income exempted under Chapter III section 10A in proportion to export turn over to the total turnover being 100% EOU.
Tribunal perused the assessment orders and the common orders of the first appellate authority for two different periods that elaborately considered the case of the Assessing Officer to conclude that the apprehension in the mind of Assessing Officer was misplaced. In the survey the application to the STPI was impounded and hypothetically considering the date of existence vis -a- vis registration applied for and the plant and machinery continuing existence only confused the application of facts by the Assessing Officer in compliance with the provisions of the Income Tax Act, 1961 in so far as having analysed the facts with a ratio of decisions and also considering the contents of the CBDT Circular Nos.308 and 657 as well as the CBDT Circular 1/2005 which establish beyond a shadow of doubt the deduction under section 10A was available to the existing units and secondly the conditions laid down in section 10A (2)(A)( i )(b) as well as section 10A (2)(ii) and (iii) are fulfilled.
Therefore there was no cause of alarm to interpolate the various facts available to the detriment of the assessee denying the exemption under section 10A for the later three years and also for initiating reassessment proceedings under section 147/148 for the earlier two years.
ITAT did not find any infirmity in the conclusion-reached on said findings of the CIT (A) from all angles.
In the result the Revenue appeals are dismissed.