Case Law Details
DCIT Vs Infrasoft Technologies Ltd. (ITAT Mumbai)
In a recent decision by the Income Tax Appellate Tribunal (ITAT) Mumbai, the appeal filed by the Revenue against Infrasoft Technologies Ltd. was dismissed. The dispute centered on the eligibility of the assessee for exemption under Section 10A of the Income-tax Act for Assessment Year 2006-07. The Revenue contested the allowance of exemption by the Commissioner of Income Tax (Appeals) [CIT(A)], citing that the new unit set up by Infrasoft Technologies Ltd. did not meet the criteria stipulated under Section 10A.
The primary contention of the Revenue was that the CIT(A) had erred in allowing the exemption claim under Section 10A, asserting that the unit in question was not genuinely a new establishment as per the statutory provisions. The ITAT Mumbai, however, upheld the CIT(A)’s decision, citing precedents and detailed examination of the facts presented.
During the proceedings, it was noted that there was a delay in filing the appeal before the Tribunal, which was subsequently condoned after the Revenue submitted explanations justifying the delay. The ITAT Mumbai considered the arguments presented by both parties and referred to similar cases, including decisions by the Co-ordinate Bench of ITAT Delhi in the assessee’s own case for previous assessment years.
In its decision, the ITAT Mumbai highlighted that Infrasoft Technologies Ltd. had adequately demonstrated the establishment of a new unit, distinct from its existing operations. The company had provided substantial evidence, including financial records, approvals from the Software Technology Parks of India (STPI), and investment in fixed assets specific to the new unit. These factors collectively supported the conclusion that the conditions for claiming deduction under Section 10A were fulfilled.
The ITAT Mumbai’s order emphasized the importance of documentary evidence and compliance with statutory requirements for claiming tax exemptions under Section 10A. It underscored that the establishment of a new unit under the STPI scheme involved specific criteria, all of which were satisfied by Infrasoft Technologies Ltd. in this case.
In conclusion, the appeal filed by the Revenue was dismissed by the ITAT Mumbai, affirming the CIT(A)’s decision to grant exemption under Section 10A to Infrasoft Technologies Ltd. for Assessment Year 2006-07.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the Revenue is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2024-25/1066108872(1), dated 27.06.2024 passed against the assessment order by the Assistant Commissioner of Income Tax, Circle 2(1)(1), Mumbai, u/s. 143(3) r.w.s. 254 of the Income-tax Act (hereinafter referred to as the “Act”), dated 30.09.2021 for Assessment Year 2006-07.
2. The solitary issue raised by the Revenue in this appeal is in respect of Ld. CIT(A) allowing the claim of exemption under section 10A by holding that the new unit was set up by the assessee on 28.03.2000.
3. At the outset, it is noted that there is a delay of 72 days noted by Registry in filing the present appeal before the Tribunal. In this respect, Revenue has placed on record an application seeking condonation of delay in filing the present appeal wherein it is stated that the scrutiny report for the purpose of filing this appeal could not be processed in time on account of certain clarifications sought by the approving authorities. We have perused the explanations furnished in the application seeking condonation of delay and find it appropriate to condone the said delay to take up the matter for adjudication.
4. Ld. Counsel for the assessee intervened to submit that the issue raised by the Revenue in this appeal is squarely covered by the decision of Co-ordinate Bench of ITAT, Delhi in assessee’s own case in ITA No. 1761/Del/2019 dated 25.11.2021 for AY 2007-08 which is the immediate subsequent year to the year under consideration in the present appeal.
5. Brief facts of the present case are that assessee filed its return of income on 27.11.2006 reporting total income at Rs. 78,49,428/- after claiming exemption under section 10A, amounting to Rs. 5,88,64,751/-. Assessment was completed under section 143(3) vide order dated 27.11.2009 with assessed total income at Rs. 12,88,13,800/- wherein disallowance under section 10A was made. Matter travelled before the Co-ordinate Bench of ITAT who after considering the decision in assessee’s own case in ITA No. 1987/Del/2014 for AY 2008-09 which in turn was the outcome of decision of Co-ordinate Bench in assessee’s own case for AY 2007-08, restored the issue to the file of AO for fresh proceedings. Pursuant to the set-aside order dated 23.05.2019, impugned assessment proceeding was taken up whereby the claim of exemption made under section 10A of Rs. 5,88,64,751/- was rejected.
6. Aggrieved, assessee went in appeal before the Ld. CIT(A) who by following the decision of Co-ordinate Bench of ITAT, Delhi in assessee’s own case for AY 2007-08 (supra) allowed the claim of exemption under section 10A of the Act.
7. In view of the above, it is pertinent to take note of the observations and findings arrived at by the Co-ordinate Bench in the decision for AY 2007-08 (supra). Brief facts as contained in para-3 of this order are reproduced as under:
“Brief facts of the case shows that assessee is a company engaged in the business of development, sale and maintenance of software products. It filed its return of income on 30/9/2015 declaring income of Rs. 5,182,846/–. The assessment u/s 143 (3) was passed on 30/12/2010 at an income of Rs. 107,054,310/– wherein disallowance u/s 10 A of Rs. 49,709,121/– and disallowance of depreciation on computer necessary is of Rs. 519,042 was made. Against this order the assessee preferred an appeal before the learned CIT – (A) who passed an order dated 26/10/2012 rejecting the appeal of the assessee. The appeal of the assessee was filed before the coordinate bench against the order of the learned CIT– A. The coordinate bench passed an order in ITA number 6387/Del/2012 setting aside the matter back to the file of the learned assessing officer for fresh adjudication on the issue of deduction u/s 10 A. Consequent to that the order u/s 143 (3) read with Section 254 of the income tax act was passed by the learned assessing officer on 30/12/2017 wherein the learned assessing officer once again disallowed the deduction claimed u/s 10 A of Rs. 4 97,09,121/–. Accordingly the total income of the assessee was determined at Rs. 107,179,307/–.”
7.1. It is important to note that there are no material change in the facts and circumstances of the present case as compared to the extracted facts stated above.
7.2. Co-ordinate Bench gave its findings in para-7 after taking into consideration the observations and findings of Ld. CIT(A). It was observed by the Co-ordinate Bench that assessee had set up a new unit which was in different premises, it had different staff, different nature of business, different service line. It was also noted that assessee had demonstrated with various details contained in financial records such as invoices, remittances, existence of domestic unit, etc. Assessee had also shown approval of STPI Unit dated 28.03.2000 which stated that there is specific reference to the Unit located at the new premise. Assessee had also demonstrated the investment made by it in the fixed assets separately maintained for STPI Unit. Thus, on careful consideration of the order of the Ld. CIT(A), Co-ordinate Bench did not find any infirmity in the same and held that conditions laid down for claiming deduction under section 10A were fulfilled by the assessee. Accordingly, order of the Ld. CIT(A) was upheld and exemption under section 10A claimed by the assessee was allowed. The relevant observations and findings contained in para 7 & 8 are extracted below:
“7. We have carefully considered the rival contention and perused the orders of the lower authorities. The learned assessing officer in the set-aside proceedings after considering the additional evidence submitted by the assessee following the order passed by him u/s 143 (3) of the act in earlier years as well as in assessment year 2007 – 08 denied the deduction to the assessee. The AO was of the view that though the approval for software technology Park has been taken however, the requisite condition as stipulated u/s 10A of the act for claiming exemption does not satisfy even after considering the facts and documentary evidences submitted during the flash assessment proceedings. He further noted that the assessee has converted an existing export unit to an STPI unit with the same office premises, computers, and staff. He further stated that mere purchase of new equipment, computers, and employing more staff will not prove the contentions that the new unit was set up. Accordingly he held that no new unit was set up by the assessee and therefore assessee is not eligible for deduction u/s 10 A of the act. However, on careful examination of the details furnished before us we find that the assessee has set up a new unit, which was in different premises, it has a different staff, different nature of business, different service line. The assessee has also shown the setting up of the new business by showing us the various detailed contained in the financial records of the assessee such as invoices, its remittances, the existence of domestic unit earlier et cetera. The assessee has also shown the approval of the STPI unit dated 28th of March 2000, which states that there is a specific reference to the unit located at the new premises. The assessee has also shown the investment in the fixed assets separately maintained for STPI unit. We find that the learned CIT – A has dealt with the issue as Under:-
“6.1.10 I have considered the finding of the AO, however, there is a flaw in the same. The aforesaid finding arrives at conclusion without any reasoning for the same. It is a trite law that the AO should provide proper reasoning on the basis of the documents filed on record for its conclusion. A conclusion without any reasoning and basis to arrive at such conclusion is baseless.
6.1.11 I have independently considered the documents filed on record such as application form for approval of STPI; approval received from STPI authority; Project Report, Board resolution and power of attorney; Rent agreement for 2nd floor, Karmayog Building, Parsi Panchayat Road, Andheri (East), Mumbai; Rent agreement for Ground floor of the same building; NOC for custom bonding; Annual accounts for the year ending March 31, 2000; Auditors certificate in Form 56F for AY 2007-08; Audited spitted financials for the year ended March 31, 2007; Details of fixed assets for the FY 1999-2000; FAQs issued for STPI scheme; Guidelines for sale of goods in DTA; Agreement with direct credit exchange limited, UK; first export invoice together with FIRC etc.
6.1.12 The board resolution submitted suggests that a resolution was passed on March 14, 2000 i.e. FY 1999-2000 for authorising the signing of the application and other documents in connection with the registration of the export unit with STPI. This resolution was also submitted before the concerned authorities as already held by the Hon’ble ITAT in its order admitting this as additional evidence. Further the rent agreement placed on record, suggests that a new-premises at the ground floor was taken on rent, even though the company already had an existing unit at the second floor of the same building. The appellant company submitted that the STPI permission was received for their premises at the second floor and hence, they shifted their domestic activities to the ground floor and the second floor which was already on rent was established as the STPI unit. The approval of the STPI unit dated March 28, 2000 states as under:
“With reference to the above mentioned application, Govt, is pleased to extend to you all the facilities and privileges admissible under STP scheme for the unit located at 2nd floor, Karmayog Building, Parsi Panchayat Road, Andheri (East), Mumbai 400069.”
6.1.13 Thus, when the company received the permission/ sanction for the first, time for STPI unit for second floor, there is no doubt that the same was established on March 28, 2000. Now the only concern is whether the said unit used all the assets/ employees and infrastructure of the old domestic unit or new equipment’s/ infrastructure was placed/ installed. If the company used the old assets/ employees/ equipment’s/ infrastructure of the domestic unit, then it is a clear case of conversion of domestic unit into STPI unit, but if the assets of the domestic unit were shifted to the ground floor and new equipment’s/ assets/ infrastructure was installed at the second floor alongwith permission for STPI unit by authorities concerned, then it is a new establishment.
6.1.14 Before me, the appellant in its submission has provided the text of the board resolution in detail, which provides that it was resolved that the domestic unit be shifted to the ground floor with all its assets/ equipment’s and a new STPI unit would be set up for the exports at the second floor for which the company already had the lease in its favour.
6.1.15 To substantiate the intention of the appellant company to establish a new export oriented unit registered with STPI along with the purchase of new plant and machinery at the second floor of the building, and to shift the present domestic operation from second floor to ground floor with its old plant and machinery used for domestic operations, the appellant company submitted separate schedule of fixed assets for export unit and domestic unit for the AY 2000-01 (i.e. FY 1999-2000). From the perusal of the fixed asset schedule, it is noted that the company has purchased new computer equipments for Rs.41,10,608/- in FY 1999-2000. Further, I have also considered the financials for the current financial year, which also suggest that investment in fixed assets have been separately maintained for the STPI Unit, in furniture and fixture, office equipment’s, electric fittings, computers etc. Total investment is to the tune of Rs. 5,73,53,657/- as on 31/03/2007.
6.1.16 Furthermore, the appellant drew my attention to the fact that for the year ended March 31, 2000 the appellant’s company share capital was increased by Rs. 3 crores to fund the establishment of the new STPI unit in FY 1999-2000.
6.1.17 Thus, from the perusal of all the documents furnished on record, I am of the view that the company applied for STPI unit, the STPI unit permission was received for second floor, the STPI unit was established at the Second floor, new investment was made at the second floor and all the investment/ assets which were already made at the second floor for domestic unit were shifted to the Infrasoft Technologies Ltd., AY 2006-07 ground floor of the building. Although, there is no direct evidence on record to prove the physical shifting of the assets of domestic unit from second floor to ground floor, however, the fact that a substantial amount was invested again and new equipment’s, furniture, computers etc. were purchased and fresh capital was pumped in, and the appellant also employed 28 new employees between 1.1.2000 and 31.3.2000 for the new export unit in FY 1999-2000, relevant AY 2000-01 suggests that a new unit was established.
6.1.18 The AO, however, in its order, gave a finding that the bonded warehouse certificate granted to the assessee by the Customs department was only for keeping the imported capital goods and was not for storing the goods manufactured by the STP unit. In this regard, the appellant company submitted that it had not imported any capital goods at all during the year. The appellant company further stated that custom bonding is mandatory for registration under the STP scheme and according the appellant has registered the premises on 2nd floor for custom bonding from where the development of software for export was carried out. The appellant relied on the FAQs of STP scheme, that were part of the additional evidence filed on record. From the perusal of the said FAQs the submission of the appellant is correct and there is no basis of the finding of the AO.
6.1.19 Thus, in view of the documents filed as additional evidence and on careful examination of the sequence of events and the documents and my finding above, I am of the view that a new unit was established for the purposes of export and the same was not made from exchange/relocation or reconstruction of the domestic unit. Just because the export unit was freshly set up at the same main address where the company was running the domestic unit should not be held against the appellant as the domestic operations in the said premises was wrapped up and shifted to the ground floor taken on rent and thus the second floor unit was independently established as per STPI permission and new assets, plant and machinery was installed and put to use.
6.1.20 Therefore since, the certificate for new STP unit was issued on 28/03/2000 and the appellant had already received advance for its export commitment in the FY 1999-2000 in pursuance of agreement with Direct Credit Exchange Limited on 23/09/1999, invoice was also raised 18/01/2000 and foreign exchange and remittance was also received on 11/02/2000 and a good number of new employees were recruited in last three month of FY 1999-2000 and therefore deduction u/s 10A would initiate from AY 2000-2001. Accordingly, it is held that the unit was established in the FY 19992000 relevant to AY 2000-01, the assessee would be eligible for deduction under Section 10A of the Act for the current assessment year i.e. AY 2007-08, being within the prescribed period of 10 years for claiming the deduction. With the above observation and finding, addition amounting to Rs 4,97,09,121/- on account of disallowance u/s 10A of the Act for the year under consideration is deleted. This ground of the assessee is allowed.”
8. On careful consideration of the order passed by the learned CIT – A, we find that the no infirmity is pointed out. The conditions laid down were also shown to have been fulfilled for claiming deduction u/s 10 A of the act by the assessee. In view of this, we do not find any merit in the solitary ground raised by the learned assessing officer. Accordingly we uphold the order of the learned CIT – A and grant deduction u/s 10 A of the income tax act to the assessee.”
8. Considering the above factual findings of the Co-ordinate Bench in assessee’s own case, on similar set of facts and circumstances, we allow the claim of assessee under section 10A in this appeal. Accordingly, ground raised by the Revenue in this appeal is dismissed.
9. In the result, appeal of the Revenue is dismissed.
Order is pronounced in the open court on 31 December, 2024
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