NETMAGIC IT SERVICES P.LTD, MUMBAI V. ITO 9(2)(3), MUMBAI

ITA 1399/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0851 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Assessee Lawyers: ANUJ KISHADWALA
• Keywords: Scheme of amalgamation
• Section: 10B; 10

Judgement Text

ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND PAW AN SINGH, JUDICIAL MEMBER ./ I.T.A. NO. 1399/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) NETMAGIC IT SERVICES PVT. LTD. 2 ND FLOOR,(NORTH SIDE), BLOCK B-2, PHASE-1, NIRLON KNOWLEDGE PARK, WESTERN EXPRESS HIGHWAY, GOREGAON (EAST), MUMBAI 400063 VS INCOME TAX OFFICER 9(2)(3) MUMBAI ./ ./ PAN/GIR NO. AACCN2366D (APPELLANT) RESPONDENT / APPELLANT BY : SHRI. ANUJKISHADWALA (AR) / RESPONDENT BY : SHRI. SUMAN KUMAR ( DR) / DATE OF HEARING : 26/04/2017 / DATE OF PRONOUNCEMENT : 26 /04/2017 / O R D E R PER PAWAN SINGH, JUDICIAL MEMBER THIS APPEAL UNDER SECTION 253 OF INCOME-TAX IS DIR ECTED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-20, MUMBAI DATED 12.11.2012 FOR ASSESSMENT YEAR 2009-10, THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL:- THE APPELLANT SUBMITS THE FOLLOWING GROUNDS, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER: ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 2 1. RE DISALLOWANCE OF CLAIM OF EXEMPTION U/S. 10A R S.1,68,06,317/-: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER R EFERRED TO AS THE CIT (A)] ERRED IN DISALLOWING DEDUCTION U/S 10A BY RELYING O N THE OBSERVATIONS OF THE THEN LD. CIT(A) ORDER FOR THE AY 2007-2008 DATED 15 TH OCTOBER 2010 AS ORDER IN EARLIER YEAR WAS PASSED BY THE THEN CIT(A) WITHOUT GIVING AN OPPORTUNITY TO THE APPELLANT TO PRESENT ITS CASE ON THE AFOREMENTIONED ISSUE AND HENCE DECISIONS OF VARIOUS JUDICIAL AUTHORITIES, DECIDING THE SAID ISS UE IN FAVOUR OF THE ASSESSEE WERE NOT CONSIDERED. 1.2 THE CIT(A) GROSSLY ERRED IN STATING THAT THE AP PELLANT HAS NOT BEGUN TO MANUFACTURE OR PRODUCE COMPUTER SOFTWARE IN ANY SOF TWARE TECHNOLOGY PARK OF INDIA AND HENCE PROVISIONS OF S. 10A(2) ARE NOT COM PILED WITH. 1.3 THE CIT(A) GROSSLY ERRED IN NOT APPRECIATING TH AT THE DEDUCTION U/S. 10A ATTACHES TO THE UNDERTAKING AS CLAIMED BY THE APPEL LANT. THE CIT(A) ALSO ERRED IN HOLDING THAT AS PER S. 10A(7A), TRANSFER OF ELIGIBL E UNDERTAKING ONLY IN CASES OF AMALGAMATION AND DEMERGER ARE ENTITLED TO THE DEDUC TION U/S. 10A. 2. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AME ND OR DELETE ANY GROUND OF APPEAL. 2. AT THE OUTSET OF THE HEARING THE LD. A.R. THAT T HE ASSESSEE ARGUED THAT THE GROUNDS OF APPEAL RAISED IN THE PRESENT APPEAL ARE ENTIRELY COVERED IN HIS FAVOUR BY THE DECISION OF TRIBUNAL IN ASSESSEE OWN FOR AY- 2007-08. THE LD AR FOR ASSESSEE ARGUED THAT THE LD. CIT(A) IN THE IMPUGNED ORDER FOLLOWED THE ORDER OF LD CIT(A) FOR ASSESSMENT YEAR 2007-08. THE LD. AR FURTHER ARGUED THE ORDER THAT T HE LD. CIT(A) ASSESSMENT YEAR 2007- 08 HAS BEEN SET ASIDE BY THE TRIBUNAL IN ITA NO. 88 10/M/2010 DATED 06.04.2016 AND THE MATTER WAS RESTORED TO THE FILE OFTHE ASSESSING OFF ICER. ON THE OTHER HAND LD. A.R FOR THE REVENUE NOT DISPUTED THE DECISION OF TRIBUNAL IN TH E EARLIER YEARS HOWEVER LD. D.R. SUBMITTED THAT HE HAS NO OBJECTION, IF THE GROUND OF APPEAL RAISED IN THE PRESENT APPEAL IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFI CER WITH THE SIMILAR DIRECTIONS. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD REPRESENTATIVES OF THE PARTIES AND WITH THEIR ASSISTANCE PERUSED THE ORDER OF TRIB UNAL FOR A.Y. 2007-08 IN ITA NO. 8810/M/2010 DATED 16.04.2016. THE COORDINATE BENCH OF THE TRIBUNAL PASSES THE FOLLOWING ORDER. ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 3 6. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE NOTICED THAT THE AO HAS REJECTED THE CLAIM ON THE R EASONING THAT IT WAS A CASE OF RECONSTRUCTION OF BUSINESS. THE SAID REASON ING HAS BEEN SET ASIDE BY LD. CIT(A) AND THE REVENUE HAS ACCEPTED THE ORDE R OF LD. CIT(A) IN THAT REGARD HOWEVER, THE LD. CIT(A) HAS CONFIRMED THE DI SALLOWANCE ON CERTAIN NEW GROUNDS. 7. THE LD. CIT(A) HAS TAKEN THE VIEW THAT THE PAREN T COMPANY ITSELF SHOULDHAVE SET UP THE UNDERTAKING IN A SOFTWARE TEC HNOLOGY PARK AS AN ELIGIBLE UNDERTAKING (ELIGIBLE FUR DEDUCTION U/S 10 A OF THE ACT) AND SHOULD HAVE TRANSFERRED AN ELIGIBLE UNDERTAKING. IN THAT C ASE, THE ASSESSEE SHALL CONTINUE TO ENJOY THE BENEFIT GIVEN U/S 10A OF THE ACT. FOR THE REMAINING UNEXPIRED PERIOD ELIGIBLE FOR DEDUCTION FROM THE DA TE OF SETTING UP OF THE UNDERTAKING. WE NOTICE THAT THE SAID REASONING GIVE N BY LD. CIT(A) IS AGAINST THE BOARD CIRCULAR NO. 1/2005 DATED 06-01-2 003). FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT CIRCULAR :- 'CERTAIN CLARIFICATION REGARDING TAX HOLIDAY UNDER SECTION 10B OF THE INCOME-TAX ACT TO 100% EXPORT ORIENTED UNDERTA KING CIRCULAR NO, 1/2005, DATED 6-1-2005 1. SECTION 10B OF THE INCOME-TAX ACT PROVIDES FOR 100% DEDUCTION OF PROFITS DERIVED BY A HUNDRED PER CENT EXPORT ORIENTED UNDERTAKING FROM E XPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT. THE DEDUCT ION IS AVAILABLE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE. HOWEVER, NO DEDUCTION UNDER SECT ION 10B IS AVAILABLE AFTER ASSESSMENT YEAR 2009-10. 2. THE DEDUCTION UNDER SECTION 10B IS AVAILABLE TO AN UNDERTAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS:- (I) IT MANUFACTURES OR PRODUCES ANY ARTICLE OR THIN G OR COMPUTER SOFTWARE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OR A BUSINESS ALREADY IN EXISTENCE EXCEPT IN THE CIRCUMSTANCES SP ECIFIED UNDER SECTION 33B OF THE IT ACT. (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 3. REPRESENTATIONS HAVE BEEN RECEIVED FROM VARIOUS QUA RTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREAS WHICH IS SUBSEQUENTLY A PPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT, 19 51, IS ELIGIBLE FOR DEDUCTION UNDER SECTION. 10B OF THE INCOME- TAX ACT. 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLAR IFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFFAREA (DTA) AND DERIVING PROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, W HICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE IT ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. IN SUCH A CASE , THE DEDUCTION SHALL BE AVAILABLE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 1 00% EOU AND SHALL BE AVAILABLE3 ONLY ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 4 FOR THE REMAINING PERIOD OF TEN CONSECUTIVE ASSESSM ENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OR APPROVAL, THE DEDUCTION SHALL BE RESTRI CTED TO THE PROFITS DERIVED FROM EXPORTS FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOVER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NOT BE AVA ILABLE AFTER ASSESSMENT YEAR 2009-10. 5. TO CLARIFY THE ABOVE POSITION, CERTAIN ILLUSTRATION S ARE GIVEN AS UNDER, (I) UNDERTAKING A IS SET UP IN DOMESTIC TARIFF AR EA AND STARTS MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IN FINANCIAL YEAR 1999-2000 RELEV ANT TOASSESSMENT YEAR 2000-01. IT GETS APPROVAL AS 100% EOU ON 10 TH SEPTEMBER, 2004 IN THE FINANCIAL YEAR 2004-05 RELE VANT TO ASSESSMENT YEAR 2005-06. ACCORDINGLY, IT SHALL BE E LIGIBLE FOR DEDUCTION UNDER SECTION 10B FROM ASSESSMENT YEAR 2005-06 I.E., THE YEAR IN WHIC H IT FULFILS THE BASIC CONDITION OF BEING A 100% EOU. FURTHER, THE DEDUCTION SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN YEARS I.E. FROM ASSESSMENT YEAR 2005-06 TO ASSESSME NT YEAR 2009-10. THIS DEDUCTION UNDER SECTION 10B FOR ASSESSMENT YEAR 2005-06 SHALL BE RE STRICTED TO THE PROFITS DERIVED FROM EXPORTS, FROM AND AFTER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. (II) UNDERTAKING B SET UP IN DOMESTIC TARIFF AREA , BEGINS TO MANUFACTURE OR PRODUCE COMPUTER SOFTWARE IN FINANCIAL YEAR 1996-97 RELEVAN T TO ASSESSMENT YEAR 1997-98. IT GETS APPROVED AS 100% EOU IN FINANCIAL YEAR 2007-08 RELE VANT TO ASSESSMENT YEAR 2008-09. NO DEDUCTION UNDER SECTION 10B SHALL BE ADMISSIBLE TO UNDERTAKING B AS THE PERIOD OF 10 YEARS EXPIRES IN FINANCIAL YEAR 2005-06 RELEVANT TO ASSES SMENT YEAR 2006-07, PRIOR TO ITS APPROVAL AS 100% EOU. (III) UNDERTAKING C IS SET UP IN DOMESTIC TARIFF AREA IN THE FINANCIAL YEAR 2000-01 RELEVANT TO ASSESSMENT YEAR 2001-02 AND ENGAGED IN THE BUSINESS OF PROVIDING COMPUTER RELATED SERVICES, OTHER THAN THOSE NOTIFIED BY THE BOARD FO R THE PURPOSES OF SECTION 10B. IN FINANCIAL YEAR 2002-03, IT ACQUIRES MORE THAN 20% O F OLD PLANT AND MACHINERY AND STARTS MANUFACTURING COMPUTER SOFTWARE. IT ALSO GETS APPRO VAL AS 100% EOU IN FINANCIAL YEAR 2002-03. UNDERTAKING C SHALL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B, AS THERE HAS BEEN TRANSFER OF OLD PLANT AND MACHINERY. (IV) UNDERTAKING D IS SET UP AND STARTS PROVIDING COMPUTER SOFTWARE IN FINANCIAL YEAR 2003-04 RELEVANT TO ASSESSMENT YEAR 2004-05. IT GETS APPROV AL AS 100% EOU IN FINANCIAL YEAR 2006- 07 RELEVANT TO ASSESSMENT YEAR 2007-08. IT SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B FORM ASSESSMENT YEAR 2007-08. HOWEVER, THE DEDU CTION SHALL NOT BE AVAILABLE AFTER ASSESSMENT YEAR 2009-10. (V) UNDERTAKING E IS SET UP AND STARTS PRODUCING COMPUTER SOFTWARE PRIOR TO 31.03.1994. IT GETS APPROVAL AS 100% EOU IN FINANCIAL YEAR 2004-05 RELEVANT TO ASSESSMENT YEAR 2005-06. UNDERTAKING E SHALL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B AS THE PERIOD OF DEDUCTION OF 10 YEARS EXPIRES PRIOR TO ASSESSMENT Y EAR 2005-06. A PERUSAL OF VARIOUS ILLUSTRATIONS GIVEN IN THE CIR CULAR WOULD SHOW THAT THE BOARD HAS CLARIFIED THAT THE UNDERTAKING NEED NOT R EGISTER ITSELF AS 100% EOU IN THE YEAR IN WHICH IT IS SET UP. IF IT IS SO REGISTERED IN ANY OF THE SUBSEQUENTYEARS ALSO, THEN THE DEDUCTION U/S 10B SH ALL BE AVAILABLE TO THE REMAININGUNEXPIRED PERIOD PRESCRIBED IN THAT SECTIO N. IN OUR VIEW, THE CIRCULAR, EVEN THOUGH GIVEN FOR SEC. 10B OF THE ACT , YET IT CAN BE EQUALLY APPLIED TO THE DEDUCTION CLAIMED U/S 10A OF THE ACT , SINCE THE OBJECTIVE OF SEC. 10A AND SEC. L0B ARE IDENTICAL. HENCE, WE ARE UNABLE TO AGREE WITH THE REASONING GIVEN BY THE LD. CIT(A) THAT THE PARENT C OMPANY SHOULD HAVE ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 5 TRANSFERRED AN ELIGIBLE UNDERTAKING TO THE ASSESSEE . AFTER ACQUIRING THE UNDERTAKING IN A SLUMP SALE AS A GOING CONCERN, THE ASSESSEE HEREIN HAS REGISTERED THE SAME UNDER SOFTWARE TECHNOLOGY PARK SCHEME. HENCE, AS STATED IN THE BOARD CIRCULAR, REFERRED ABOVE, THE A SSESSEE SHOULD BE ELIGIBLE TO CLAIM DEDUCTION U/S 10A INRESPECT OF TH E REMAINING YEARS OF THE PRESCRIBED PERIOD CALCULATED FROM THE DATE OF ORIGI NAL SET UP OF THE UNDERTAKING. 8. THE NEXT REASONING GIVEN BY LD. CIT(A) IS THAT T HE ASSESSEE WOULD HAVEBEEN ELIGIBLE TO GET DEDUCTION IF THE TRANSFER HAD TAKEN PLACE AS CONTEMPLATED IN SEC. 10A(7) (SIC. 10A (7A)) OF THE ACT. THE SAID SECTION READS AS UNDER:- WHERE ANY UNDERTAKING OF AN INDIAN COMPANY WHICH I S ENTITLED TO THE DEDUCTION UNDER THIS SECTION IS TRANSFERRED BEFORE EXPIRY OF THE PERIOD SPECIFIED IN THIS SECTION, TO ANOTHER INDIAN COMPAN Y IN A SCHEME OF AMALGAMATION OR DEMERGER:- (A) NO DEDUCTION SHALL BE ADMISSIBLE UNDER THIS SEC TION TO THE AMALGAMATING OR THE DEMERGED COMPANY FOR THE PREVIOUS YEAR IN WHICH THE AMALGAMATION OR THE DEMERGER TAKES PLACE; AND (B) THE PROVISIONS OF THIS SECTION SHALL, AS FAR AS MAY BE, APPLY TO THE AMALGAMATED OR THE RESULTING COMPANY AS THEY WOULD HAVE APPLIED TO THE AMALGAMATING OR THE DEMERGED COMPANY IF THE AMALGAM ATION OR DEMERGER HAD NOT TAKEN PLACE. IN OUR CONSIDERED VIEW, THE ABOVE SAID SECTION ONLY CLARIFIES AS TO WHO SHOULD CLAIM DEDUCTION U/S. 10A OF THE ACT IF AN EL IGIBLE UNDERTAKING IS TRANSFERRED BY WAY OF AMALGAMATION OR DEMERGER. IN THE INSTANT CASE, THE TRANSFER HAS TAKEN PLACE IN A SLUMP SALE AS A GOING CONCERN AND NOT UNDER A SCHEME OF AMALGAMATION OR DEMERGER. FURTHER, IT I S ALSO PERTINENT TO NOTE THAT SEC. 10A CONTAINED PROVISIONS OF SUB SEC. 9 WH ICH PROVIDED THAT THE DEDUCTION U/S 10A SHALL NOT BE ALLOWED IF THE OWNER SHIP OR BENEFICIAL INTEREST IS TRANSFERRED BY ANYMEANS. THE FINANCE AC T, 2003 HAS OMITTED SUB, SEC. (9) W.E.F. 1.4.2004, MEANING THEREBY, THE TRANSFER OF OWNERSHIP OR BENEFICIAL INTEREST IS NOT PROHIBITED AFTER 1.4.200 4. HENCE, WE ARE OF THE OPINION THAT THE VIEW TAKEN BY THE LD. CIT(A) THAT THE TRANSFER OF AN ELIGIBLE UNDERTAKING SHOULD TAKE PLACE ONLY BY WAY OF AMALGA MATION OR DEMERGER ITA N O. 1399/M/2013 NET MAGIC IT SERVICES 6 AND THEN ONLY THE DEDUCTION U/S 10A SHALL BE CONTIN UED TO BE GIVEN TO THE SUCCEEDING COMPANY, IS NOT IN ACCORDANCE WITH THE P ROVISIONS OF THE ACT. 9. BEFORE US, THE ID. A.R PLACED RELIANCE ON HOST O F CASE LAWS. SINCE WE HAVE PLACED RELIANCE ON A CIRCULAR ISSUED BY CBDT A S WELL AS THE PROVISIONS OF THE ACT, WE DO NOT FIND IT NECESSARY TO DISCUSS ABOUT THEM. 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE ASSESSEE SHALL BE ELIGIBLE TO CLAIM DEDUCTION U/S 1 0A OF THE ACT FOR THE UNEXPIRED PERIOD OF THE ELIGIBLE PERIOD. ACCORDINGL Y, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE DEDUCT ION SUBJECT TO THE ASSESSEE SATISFYING OTHER CONDITIONS PRESCRIBED U / S 10A OF THE ACT. 4. CONSIDERING THE DECISION OF THE TRIBUNAL IN ASSE SSEES OWN CASE FOR A.Y. 2007- 08, WHERE THE SIMILAR GROUNDS OF APPEAL RAISED FOR THAT YEAR UNDER HAS BEEN RESTORED TO THE FILE OF AO, THUS RESPECTIVELY FOLLO WING THE ORDER OF TRIBUNAL IN THE A.Y. 2007-08 THE GROUND OF APPEAL RAISED IN THE PRESENT APPEAL IS ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER TO PA SS THE ORDER AS PER THE DIRECTION CONTAINED IN ORDER DATED 06.04.2016 ITA NO. 8810/M/ 2008 DATED 06.04.2016. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26/04/2017 SD/- SD/- (SHAMIMYAHYA) (PAWAN SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 26.04.2017 PS ROHIT KUMAR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. '#$% &' , )&' * , / DR, ITAT, MUMBAI 6. %+,- / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) !, / ITAT, MUMBAI