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IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI
BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM)
.. , ,
./I.T.A. No.4485 and 4486/Mum/2011
( / Assessment Year : 2006-07 and 2007-08)
Income Tax Officer 1(1)(2) / M/s Digitise IT (India) Pvt. Ltd.,
Room No.579, Aayakar Bhavan, Vs. 6, St. James Court,
M K Road, Mumbai-400020. 206, Marine Drive,
Mumbai-400002
( /Appellant) .. ( / Respondent)
./I.T.A. No.6875 and 6877/Mum/2011
( / Assessment Years : 2005-06 & 2008-09)
Asstt. Commissioner of Income / M/s Digitise IT (India) Pvt. Ltd.,
Tax-1(1), Vs. 6, St. James Court, 206, Marine Drive,
Room No.579, Aayakar Bhavan, Mumbai-400002
M K Road, Mumbai-400020.
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. : AABCD1860F
/ Revenue by : Shri Durga Dutt
/Assessee by : Shri Niraj Sheth
/ Date of Hearing
: 17.7.2014
/Date of Pronouncement : 12.9.2014
/ O R D E R
Per B.R.BASKARAN, Accountant Member:
All the four appeals, filed at the instance of the Revenue, are directed
against the orders passed by Ld CIT(A)-I, Mumbai and they relate to the
assessment years 2005-06 to 2008-09. Since identical issues are agitated in
these appeals, they were heard together and are being disposed of by this
common order, for the sake of convenience.
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2. The common issue urged in all the four appeals relates to the eligibility of
the assessee to claim deduction u/s 10A of the Act.
3. The facts relating to the above said issue are discussed in brief. The
assessee company was incorporated on 24.4.2000 and is engaged in the
business of Scanning, converting, digitalizing, collating, storing, transferring,
sorting and modifying documents /data/ drawings into electronic format. It
obtained Software Technology Part (STP) registration from 16.6.2004. Hence,
the assessee company started claiming deduction u/s 10A of the Act from
assessment year 2005-06 onwards, i.e., from the year in which it obtained
registration as STP. The AO held that the assessee is not eligible for deduction
u/s 10A of the Act for the following reasons:-
(a) The assessee is not a new undertaking, i.e., the assessee is
carrying out its activity since AY 2001-02.
(b) It has not set up any separate or new unit after getting
registration as Software Technology Park. It has continued to use
old business set up after getting STP registration also.
(c) As per the agreement entered with STP authorities, the unit
was supposed to be 100% export oriented unit. But the assessee
has not set up any separate NEW unit.
(d) Merely registering with Software Technology Park does not
entitle the assessee to get deduction u/s 10A.
(e) Assessee has not demarcated the eligible undertaking and
non-eligible undertaking.
(f) Assessee has utilized old plant and machinery, which were
used previously, in excess of 20% of the total plant and machinery
used in the business.
(g) The assessee has not brought into India the total sales
proceeds in convertible foreign exchange on or before 30.09 of the
relevant year.
Accordingly, the AO rejected the claim of deduction u/s 10A of the Act made by
the assessee in all the four years under consideration.
4. In the appellate proceedings, the Ld CIT(A) held that the assessee is
eligible for deduction u/s 10A of the Act and accordingly reversed the decision of
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the AO in all the four years. Aggrieved, the revenue has filed these appeals
before us.
5. We have heard the parties and perused the record. The main reason on
which the AO has rejected the claim for deduction u/s 10A was that the assessee
has not set up a new unit after obtaining registration as Software Technology
Park. Since the assessee has obtained STP registration for the existing unit, it
amounts to using of old Plant and machinery. We notice that the Ld CIT(A) has
placed reliance on the Circular No. 1 of 2005 issued by the CBDT in the context
of deduction u/s 10B of the Act, wherein it was clarified that an undertaking set
up in Domestic Tariff Area (DTA) and deriving profit from export of Computer
Software manufactured or produced by it, which is subsequently converted into
EOU, shall be eligible for deduction u/s 10B of the Act on getting approval as
100% Export Oriented Undertaking. It was further clarified that the deduction, in
such type of cases, shall be available only from the year in which it has got the
approval as 100% EOU and shall be available only for the remaining period.
6. According to the assessee herein, it has started claiming deduction u/s
10A of the Act only for the period commencing from the date of approval as STP.
The Ld CIT(A) has accepted the contention of the assessee that the ratio of the
Circular No.1 of 2005 (referred supra) shall equally apply to the deduction
claimed u/s 10A of the Act. However, the contention of the Ld D.R is that the
Circular (referred supra) was issued in the context of deduction allowable u/s 10B
of the Act and hence the said circular shall not have application to the deduction
claimed u/s 10A of the Act.
7. Thus, the contentions of the Ld D.R are that the assessee, in order to
become eligible for deduction u/s 10A of the Act, should have set up a NEW unit
and should not have brought in old Plant and Machinery in excess of 20% of total
value. Since the assessee has continued to carry on the business in the existing
unit, according to Ld D.R the assessee is not eligible for deduction u/s 10A of the
Act.
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8. Before us, the Ld A.R placed reliance on the following case law to contend
that the deduction u/s 10A is available to the existing unit also from the date of
obtaining approval as STP.
(a) CIT Vs. EDS Electronics Data Systems (India) (P) Ltd (2013)
(89 DTR (Del) 182)
(b) Nagesh Chundur Vs. CIT (2013)(358 ITR 521)(Mad)
(c) CIT Vs. Maxim India Integrated Circuit Design (P) Ltd
(2011)(202 Taxman365)(Kar)
(d) CIT Vs. Expert Outsource (P) Ltd (2011)(59 DTR 86).
9. We have gone through the above said decisions. We notice that the facts
prevailing in the instant case are identical with the facts prevailing in the case of
Nagesh Chundur (supra) considered by Hon'ble Madras High Court. In the said
case, the assessee therein was in business from 1994 onwards. It was approved
as STP by Government of India (as 100% Export oriented unit for computer
software) on 27.3.2002. The assessee claimed deduction u/s 10A of the Act for
AY 2003-04. The ITAT allowed the claim of the assessee by following the
decision of Hon'ble Karnataka High Court in the case of Expert Outsource (P) Ltd
(supra). The Hon'ble Madras High Court upheld the view taken by the Tribunal
with the following observations:-
"11. Leaving this aside, in considering the claim of the assessee, the
Income Tax Appellate Tribunal pointed out to the decision of the
Karnataka High Court in the case of CIT v. Expert Outsource (P.) Ltd.
[2012] 20 taxmann.com 481, wherein, the Karnataka High Court held that
the purpose of the Software Technology Park scheme was to encourage
exports and gain valuable foreign exchange for the country; even though
the assessee had begun operations on 17.12.2003, it had its registration
on 04.08.2004; that the Software Technology Park authorities could also
permit the conversion of an existing unit into a STPI unit. Thus, based on
the decision of the Karnataka High Court, the Income Tax Appellate
Tribunal allowed the assessee's claim, that, the fact of the assessee being
in the business prior to the date of the registration of the STPI would not
stand in the way of granting relief to the assessee.
12. Learned Standing counsel appearing for the Revenue took us through
the provisions under Section 10A of the Act and Section 10B of the Act
and submitted that the reliance placed on by the assessee on the decision
of the Karnataka High Court has no relevance, because it operated on a
different field; the relief under Section 10A of the Act has to be seen in the
context of the provisions contained therein.
13. Reiterating the stand taken before the Income Tax Appellate Tribunal
as well as the order passed against the assessee in the course of
assessment proceedings, learned Standing counsel appearing for the
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Revenue submitted that the admitted fact is that the assessee
commenced its business even before the date of registration i.e., on
27.03.2002 and when the Section contemplates deduction only in respect
of industries which have commenced production after the dates mentioned
in Section 10A(2) of the Act and registered as Technology Park from
therein, the claim of the assessee could not be sustained as per the
provisions contained in Section 10A of the Act.
14. In short, the contention of the Revenue is that the assessee, which is
already in existence cannot take the benefit of Section 10A of the Act and
only such of those assessees, who have commenced production with the
registration as Software Technology Park as given therein under Section
10A(2) of the Act alone can claim to benefit of Section 10A of the Act.
Consequently, according to the learned Standing counsel appearing for
the Revenue, the Income Tax Appellate Tribunal committed serious error
in applying the decision of the Karnataka High Court in the case of Expert
Outsource (P) Ltd. (supra).
15. We do not agree with the said line of reasoning of learned Standing
counsel appearing for the Revenue. At the outset, we may say that we are
in respectful agreement with the Karnataka High Court decision in the
case of Expert Outsource (P) Ltd. (supra). Pointing out to the purpose of
the STP scheme to encourage exports and gain valuable foreign
exchange for the country, the Karnataka High Court held that "The STP
scheme provides the benefit of converting a DTA unit into a STPI unit and
the same should also hold good for tax purposes." Referring to Circular
No.1 of 2005 dated 06.01.2005, the Karnataka High Court pointed out that
the said Circular grants certain benefits under Section 10B of the Act;
though this was in the context of Section 10B of the Act, the ratio of the
Circular No.1 of 2005 dated 06.01.2005 would apply to Section 10A of the
Act too. Thus it held that the mere fact that the assessee was in existence
prior to its date of registration on 04.08.2004 as Software Technology Park
would not disentitle the assessee from claiming deduction under Section
10A of the Act.
16. As far as the present case is concerned, there is no denial of the fact
that the assessee is in business right from 1999-2000. It got its registration
as STPI on 27.03.2002. The Department accepted the claim of the
assessee for two assessment years 2003-04 and 2004-05 and the
assessment had become final. It is not as though the facts relating to the
assessee's existence prior to its registration on 27.03.2002 is not a fact
that the Department did not know and by mistake it allowed the benefit for
the year 2003-04 and 2004-2005.
In the circumstances, with the orders thus becoming final, principally
stating, we do not find any justifiable ground for the Revenue to question
the claim of the assessee from the assessment year 2005-06.
17. Even otherwise, we find that the claim of the Revenue could not be
sustained. The provisions contained in Section 10A of the Act grants
100% deduction on profits and gains derived by an undertaking from the
export of articles or things or computer software for a period of ten
consecutive assessment years beginning with the assessment year
relevant to the previous year in which the undertaking begins to
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manufacture or produce such articles or things or computer software.
Section 10A(2) of the Act refers to the undertaking which are entitled to
the benefit of Section 10A of the Act. The Section reads as under:--
"Section 10A(2):-- This Section applies to any undertaking which
fulfils all the following conditions, namely :--
(i) it has begun or begins to manufacture or produce articles or things or
computer software during the previous year relevant to the assessment
year --
(a) commencing on or after the 1st day of April, 1981, in any free
trade zone; or
(b) commencing on or after the 1st day of April, 1994,
in any electronic hardware technology park, or, as
the case may be, software technology park;
(c) commencing on or after the 1st day of April, 2001
in any special economic zone;
(ii) it is not formed by the splitting up, or the reconstruction, of a business
already in existence :
Provided that this condition shall not apply in respect of any undertaking
which is formed as a result of the re-establishment, reconstruction or
revival by the assessee of the business of any such undertakings as is
referred to in section 33B, in the circumstances and within the period
specified in that section;
(iii) it is not formed by the transfer to a new business of machinery or plant
previously used for any purpose."
Explanation 2-(vii) defines Software Technology Park as follows:--
"(vii) "software technology park" means any park set up in accordance with
the Software Technology Park Scheme notified by the Government of
India in the Ministry of Commerce and Industry."
A reading of the provisions referred to above point out that the Section
grants 100% deduction to an undertaking, which has begun or begins to
manufacture or produce articles or things or computer software as per Sub
clause (i) of Sub Section 2 of Section 10A of the Act. The dates mentioned
therein show the conditions regarding the year of manufacture for the
purpose of reckoning the exemption/ deduction for ten consecutive years
with reference to the undertaking set up in different locations viz., for the
industries in free trade zone, units in electronic hardware technology park
or software technology park, units in special economic zone. The second
requirement under Sub Section 2 of Section 10A of the Act is that it is not
formed by splitting up or the reconstruction of a business already in
existence and Sub clause (iii) of Sub Section 2 of Section 10A of the Act
states that it is not formed by the transfer of machinery or plant previously
used for any purpose to a new business.
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18. As far as the present case is concerned, the assessee is in Software
Technology Park. The assessee took advantage of the scheme notified by
the Government of India in the Ministry of Commerce and Industry of the
"software technology park" and sought for registration as STPI on 2002. In
so getting the registration, the question that arises for consideration is as
to whether the claim of the assessee would be covered by Clause (b) of
Sub clause (i) of Sub Section 2 of Section 10A of the Act. A reading of the
above Sub Section shows that in order to claim deduction, an undertaking
in hardware technology park or software technology park must be in
existence commencing its production on or after the 1st day of April, 1994.
Given the fact that the assessee is not formed by splitting up or transfer to
a new business and got registration even since 2002, the fact that it has
been in existence ever since 1999, does not militate against the
applicability of Section 10A of the Act. The case on hand falls under
Section 10A(2)(b) of the Act. As already pointed out, even the cursory
reading of Section 10A(2)(i) of the Act shows that it has relevance to
industry that has begun to manufacture or produce articles or things or
computer software on or after the 1st day of April, 1994. Thus, the moment
the assessee satisfies this clause and it goes for the second requirement
namely, registration as a Software Technology Park in accordance with
the scheme of Government of India, the assessee stands benefited by the
provisions of Section 10A of the Act.
19. Learned Standing counsel appearing for the Revenue however pointed
out to the second proviso to Section 10A(1) of the Act and submitted that
the Section will have relevance to the industry.
20. We do not think it so. The second proviso to Section 10A(1) of the Act
states that where the undertaking located in any free trade zone or export
processing zone is subsequently located in a special economic zone by
reason of conversion of such free trade zone or export processing zone
into a special economic zone, the period of ten consecutive assessment
years referred to in this sub-section shall be reckoned from the
assessment year relevant to the previous year in which it had started
manufacture or produce such articles or things or computer software in the
free trade zone or the export processing zone or otherwise, and clarifies
that the benefit would continued to be available to the balance of period
available to the free trade zone which has been subsequently got
converted into special economic zone.
21. Given the scope of the scheme formulated by the Government of India,
Ministry of Commerce and Industry in locating the Software Technology
Park, which either may be done by the Government itself or by the
individual unit, we do not find any conditions in the Section, throwing the
assessee out of benefit of Section 10A of the Act solely by reason of it
being in existence already but became STPI subsequently. In the
circumstances, we have no hesitation in rejecting the Revenue's appeal,
thereby confirming the order of the Income Tax Appellate Tribunal."
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10. Since the view taken by the Ld CIT(A) is in accordance with the view
expressed by Hon'ble Madras High Court in the case of Nagesh Chundur
(supra), we do not find any reason to interfere with his order on this issue.
Accordingly, we uphold the order of Ld CIT(A) on this issue.
11. In AY 2008-09, the revenue is agitating on one more issue, viz., the Ld
CIT(A) was not justified in deleting the addition of Rs.29,75,853/- relating to Work
in Progress. The facts relating to the same are discussed in brief. The AO
noticed that the assessee did not disclose any "Work in Progress" in its Profit and
Loss account even though it claimed operating expenses to the tune of
Rs.2,29,16,769/-. The AO further noticed that the assessee has raised invoices
to the extent of Rs.29,75,853/- on 30.4.2008, i.e., during the first month of
succeeding year. Hence, the AO took the view that the expenses relating to the
above said invoices would have been incurred during the year under
consideration. Accordingly he treated the above said amount of Rs.29,75,853/-
as "Work in progress" as on 31.3.2008 and added the same to the total income of
the assessee.
12. Before Ld CIT(A), the assessee contended that the work of digitization
does not involve more than 4 hours of work and almost all the work are
completed within 12 hours. Accordingly, it was contended that the AO was not
justified in presuming that the work relating to the bills raised on 30.4.2008 was
done in March 2008. It was also contended that the AO has made the impugned
addition without calling for explanations from the assessee.
13. The Ld CIT(A) accepted the above said contentions and accordingly
directed the AO to delete the addition. The Ld CIT(A) also noted that his
predecessor has considered identical issues in AY 2006-07 and 2007-08 and has
deleted identical additions made in those years. The revenue is aggrieved by the
said decision of Ld CIT(A).
14. According to revenue, the AO did not make any such addition in AY 2006-
07 and 2007-08 and hence there was no occasion for the Ld CIT(A) to consider
those issues in the above said two years. We have also gone through the order
passed by Ld CIT(A) in AY 2006-07 and 2007-08 and we find that the Ld CIT(A)
9 I.T.A. No.4485 and 4486/Mum/2011
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did not adjudicate any such issue in those years. Hence, we find merit in the
contentions of the revenue. Further we notice that the Ld CIT(A) has accepted
the contentions of the assessee that the work is normally completed within 12
years without causing any verification of the said claim. Further, it is also the
contention of the assessee before Ld CIT(A) that the assessing officer has made
the impugned addition without providing an opportunity to the assessee. Under
these circumstances, in our view, this issue requires fresh examination at the end
of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and
restore the same to the file of the Assessing Officer with the direction to examine
this issue afresh after affording necessary opportunity of being heard to the
assessee and decide the same in accordance with the law.
15. In the result, the appeals filed by the revenue for AY 2005-06 to 2007-08
are dismissed and the appeal filed for AY 2008-09 is treated as partly allowed for
statistical purposes.
The above order was pronounced in the open court on 12th Sept Aug, 2014.
12th Sept, 2014
Sd sd
( /SANJAY GARG) ( .. / B.R. BASKARAN)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
Mumbai: 12th Sept,2014.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
True copy
(Asstt. Registrar)
, /ITAT, Mumbai
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