ACIT, CHENNAI V. Changepond Technologies P. Ltd., CHENNAI

ITA 1408/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68838 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-11-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 24-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN IRS
• Assessee Lawyers: H PADAMCHAN D KHINCHA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENTAND SHRI V, DURGA RAO, JUDICIAL MEMBER ITA NO. 1408(MDS)/2013 ASSESSMENT YEAR : 2009-10 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI - 600 034. V. M/S CHANGEPOND TECHNOLOGIES P. LTD., PLOT NO.112, 2 ND ROAD, SIPCOT I PARK 2, OLD MAHABALIPURAM ROAD, SIRUSERI, CHENNAI - 600 103. PAN : AABCC 3252 G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. MADHAVAN , IRS, JCIT RESPONDENT BY: SHRI H. PADAMCHAND KHINCHA, CA DATE OF HEARING : 20 TH NOVEMBER, 2013 DATE OF PRONOUNCEMENT : 20 TH NOVEMBER, 2013 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2009-10. THE APPEAL IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APP EALS)-IX AT CHENNAI, ON 28.3.2013. THE APPEAL ARISES OUT OF TH E ASSESSMENT 2 I.T.A. NO. 1408/MDS/13 COMPLETED UNDER SECTION 143(3) R/W SECTION 144A OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT APPEAL IS A PRIVATE LIMITED COMPANY, ENGAGED IN THE BUSINESS OF DEVELOPING AND EXPORTING COMPUTER SOFTWARE. THE ASSESSEE-COMPANY HAS SET UP SOFTWARE DEVELOPMENT UNITS UNDER STPI SCHEME, WHICH ARE ELIG IBLE FOR DEDUCTION OF THEIR PROFIT AS PROVIDED UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961. IN THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD TWO STPI UNITS, ONE AT ADYAR AND THE OTHER AT SIRUSERI. THE ASS ESSEE-COMPANY REPORTED ITS PROFITS ON THE BASIS OF THE INCOME GEN ERATED IN THE ABOVE STATED STPI UNITS. AS THE ENTIRE INCOME WAS GENERATED OUT OF THE OPERATIONS CARRIED OUT BY THE TWO STPI UNITS, T HE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 10A IN THE RETURN O F INCOME FILED BY IT. 3. THE ASSESSEE-COMPANY FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 28.9.2009 ADMITTING AN INCOME OF ` 1,64,63,800/-. THIS IS AFTER CLAIMING DEDUCTION AV AILABLE UNDER SECTION 10A. BUT, THE ASSESSING OFFICER REJECTED T HE INCOME RETURNED BY THE ASSESSEE AND DETERMINED THE INCOME IN THE HANDS OF THE ASSESSEE-COMPANY AT ` 7,17,98,546/-. THE ASSESSING OFFICER 3 I.T.A. NO. 1408/MDS/13 HELD THAT THE STPI UNIT SET UP BY THE ASSESSEE AT S IRUSERI IS NOT AN ALTOGETHER A NEW UNIT, BUT IT IS ONLY A SPLIT-UP AN D RECONSTRUCTION OF ALREADY EXISTING ADYAR UNIT. THEREFORE, HE WAS OF THE OPINION THAT THE INCOME REPORTED FROM SIRUSERI UNIT IS NOT ELIGI BLE FOR DEDUCTION PROVIDED UNDER SECTION 10A. THE ASSESSING OFFICER DENIED THE EXEMPTION UNDER SECTION 10A IN RESPECT OF THE PROFI TS REPORTED IN THE ACCOUNTS OF SIRUSERI UNIT. IT IS HOW HE HAS AS SESSED THE INCOME AT ` 7,17,98,546/-. 4. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IT IS NOT POSSIBLE TO HOLD THAT SIRUSERI UNIT WAS SET UP BY SPLITTING-UP AND RECONSTRUCTING THE ADYAR UNIT. AF TER GOING THROUGH THE FACTS OF THE CASE IN A DETAILED MANNER, INCLUDI NG THE DETAILS OF INVESTMENTS MADE BY THE ASSESSEE IN ADYAR UNIT AND SIRUSERI UNIT, AND THE MANPOWER DISTRIBUTION BETWEEN TWO UNITS, TH E COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT SIRU SERI UNIT IS AN INDEPENDENT AND A NEW STPI UNIT SET UP BY THE ASSES SEE-COMPANY AND THEREFORE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTI ON ON THE INCOME GENERATED FROM THE SIRUSERI UNIT ON ITS EXPORT OF S OFTWARE, UNDER SECTION 10A OF INCOME-TAX ACT, 1961. THE COMMISSIO NER OF INCOME TAX (APPEALS) DELETED THE ADDITION MADE BY THE ASSE SSING OFFICER ON THE GROUND OF DISALLOWANCE OF DEDUCTION UNDER SE CTION 10A. 4 I.T.A. NO. 1408/MDS/13 5. REVENUE IS AGGRIEVED BY THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) GRANTING RELIEF TO THE ASSESSE E-COMPANY UNDER SECTION 10A IN RESPECT OF SIRUSERI UNIT AND H AS COME IN APPEAL BEFORE US. 6. THE QUESTION OF DEDUCTION UNDER SECTION 10A IN R ESPECT OF SIRUSERI UNIT IS THE FIRST ISSUE RAISED BY THE REVE NUE IN THE PRESENT APPEAL FILED BEFORE US. THE RELEVANT GROUNDS ARE E XTRACTED BELOW: 2. THE CIT(A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 10A CLAIMED IN RESPECT OF SIRUSERI UNIT. 2.1 IT IS SUBMITTED THAT IN THE RELIED UPON ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION (107 ITR 195) (SC), THE WORD RECONSTRUCTION IS DEFINED AS IT I S NONETHELESS IMPERATIVE THAT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UNDERTAKING THOUGH IN AN ALTERED FORM. FURTHER, THE COURT HELD THAT AS IN THE RECONSTRUCTION OF A COMPANY THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OF SOME CHANGE HOWEVER PARTIAL OR RESTRICTED IT MAY BE OF OWNERSHIP OF THE ASSETS. 2.2 THE CIT(A) FAILED TO APPRECIATE THAT THE MANPOWER OF ADYAR UNIT WAS SHIFTED TO THE SIRUSERI UNIT. SIMILARLY, THE ENTIRE CONTRACT AND CLIENTELE OF THE ADYAR UNIT WAS ALSO SHIFTED TO SIRUSERI UNIT AN D THIS TANTAMOUNTS ONLY TO RECONSTRUCTION AS DEFINED ABOVE BY THE HONBLE SUPREME COURT. 2.3 THE CIT(A) FAILED TO APPRECIATE THAT WHILE THE ETO OF THE SIRUSERI UNIT HAS EXPONENTIALLY INCREASED MANIFOLD FROM THE FY 2007-08 TO 2008- 09, THE ETO OF ADYAR UNIT NOSE-DIVED SHARPLY, WHICH CLEARLY SHOWS THAT THE WORK HAS BEEN SHIFTED FROM THE ADYAR UNIT TO SIRUSERI UNIT. 5 I.T.A. NO. 1408/MDS/13 2.4 THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT THE ADYAR UNIT WAS FINALLY CLOSED BY 31/03/2009 WHICH PROVES TO THE SATISFACTION THAT THE SIRUSERI UNIT WAS FORMED OUT OF RECONSTRUCTION OF THE ASSETS HOWEVER PARTIALLY FROM THE ADYAR UNIT AND THERE IS NO CONTINUITY OF THE BUSINESS ON BY BOTH THE UNDERTAKINGS. 2.5 THE CIT(A) OUGHT TO HAVE FURTHER APPRECIATED THAT THE SIRUSERI UNIT IS NOT AN EXPANSION OF THE EXISTING UNDERTAKING BUT A NEW UNDERTAKING WHICH ABSORBED BUSINESS AND MANPOWER OF THE OLD UNDERTAKING AND OUGHT TO HAVE HELD THAT IT DOES NOT FULFILL THE CONDTIONS LA ID DOWN IN 10A(2)(II) & 10A(2)(III). 7. SO ALSO, AMONG OTHER THINGS, THE ASSESSING AUTHO RITY HAS EXCLUDED FOREIGN CURRENCY EXPENSES INCURRED BY THE ASSESSEE FROM THE EXPORT TURNOVER CONSIDERED FOR DEDUCTION UNDER SECTION 10A. THE FOREIGN CURRENCY EXPENSES RELATED TO FOREIGN TR AVEL, FOREIGN BRANCH, APPLICATION HOSTING AND DEVELOPMENT CONSULT ING. IN FIRST APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) HE LD THAT IN VIEW OF THE DECISION OF ITAT, CHENNAI, SPECIAL BENC H IN THE CASE OF INCOME TAX OFFICER V. SAK SOFT LTD. (30 SOT 55) (CH ENNAI) (SB), IT IS NOT PERMISSIBLE TO REDUCE SUCH EXPENSES FROM THE EXPORT TURNOVER OF THE ASSESSEE. ALTERNATIVELY, THE COMMISSIONER O F INCOME TAX (APPEALS) HELD THAT IF THOSE EXPENSES ARE REDUCED F ROM THE EXPORT TURNOVER, THEY SHOULD BE REDUCED FROM THE TOTAL TUR NOVER AS WELL. HE ALLOWED THIS POINT ARGUED BY THE ASSESSEE. 6 I.T.A. NO. 1408/MDS/13 8. REVENUE IS AGGRIEVED ON THIS POINT AS WELL AND R AISED THE SAME AS THE SECOND ISSUE IN THE APPEAL FILED BEFORE US. THE RELEVANT GROUNDS RAISED BY THE REVENUE ON THIS POIN T ARE EXTRACTED BELOW:- 3. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DEDUCTION U/S. 10A BY EXCLUDING FREIGHT, TELECOMMUNICATION CHARGES ETC. INCURRED IN FOREIGN CURRENCY BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER FOR COMPUTATION OF DEDUCTION U/S 10-A. 3.1 IT IS SUBMITTED THAT THE DECISION OF THE SPECIAL BENCH OF THE JURISDICTIONAL ITAT IN THE CASE OF M/S SAKSOFT LTD. RELIED UPON BY THE CIT(A) HAS NOT BECOME FINAL AND THE DEPARTMENT HAS PREFERRED APPEAL U/S.260A. 3.2 IT IS SUBMITTED THAT THE DECISION OF THE ITAT IN ASSESSEE'S OWN CASE FOR THE ASST. YEAR 2003- 04 RELIED UPON IN THIS ORDER HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND AN APPEAL TO HONBLE HIGH COURT HAS BEEN PREFERRED. 9. WE HEARD SHRI N. MADHAVAN, THE LEARNED JOINT COMMISSIONER OF INCOME TAX, APPEARING FOR THE REVEN UE AND SHRI H. PADAMCHAND KHINCHA, THE LEARNED CHARTERED ACCOUN TANT, APPEARING FOR THE RESPONDENT-ASSESSEE. 10. THE ASSESSING OFFICER HAS RELIED ON THE FOLLOWI NG GROUNDS TO HOLD THAT SIRUSERI UNIT IS NOT A SEPARATE STPI UNIT , SET UP BY THE ASSESSEE-COMPANY: 7 I.T.A. NO. 1408/MDS/13 (1) THE ENTIRE MANPOWER OF THE ADYAR UNIT WAS SHIFTED TO THE SIRUSERI UNIT. (2) THE ENTIRE CONTRACTS AND THE CLIENTELE OF THE ADYAR UNIT WERE SHIFTED TO SIRUSERI UNIT. (3) THE NATURE OF SOFTWARE DEVELOPED AND THE PLATFORM ON WHICH IT IS DEVELOPED ALSO THE SAME. (4) AFTER THE TRANSFER OF THE CLIENTELE AND THE BUSINESS TO THE SIRUSERI UNIT, THE ADYAR UNIT HAS FINALLY BEEN CLOSED BY 31 ST MARCH, 2009. 11. BUT, ON AN EXAMINATION OF THE FACTS OF THE CASE , THE COMMISSIONER OF INCOME TAX (APPEALS) MADE THE FOLLO WING FINDINGS:- (1) THE SIRUSERI UNIT WAS SET UP IN THE FINANCIAL YEAR 2006-07 AND THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR IS ITS THIRD YEAR OF OPERATION. SIRUSERI UNIT IS LOCATED 4 KMS AWAY FROM ADYAR UNIT AND IT IS SEPARATELY 8 I.T.A. NO. 1408/MDS/13 REGISTERED AS A STPI UNIT WITH INDEPENDENT AND SEPARATE FUNCTIONAL STATUS. THE ENTIRE INFRASTRUCTURE OF SIRUSERI UNIT HAS BEEN SET UP ANEW FOR THAT UNIT AND NOTHING HAS BEEN BROUGHT FROM ADYAR UNIT BY SPLITTING-UP. THE ASSESSING OFFICER HIMSELF HAS CONFIRMED THE FACT THAT THE ENTIRE INFRASTRUCTURE OF SIRUSERI UNIT IS INDEPENDENT OF THE ADYAR UNIT. (2) REGARDING MANPOWER DEPLOYMENT, 40% OF THE TECHNICAL PERSONNEL OF SIRUSERI UNIT WERE RECRUITED BY THAT UNIT INDEPENDENTLY. AS ON 31 ST MARCH, 2009, THERE WERE 221 TECHNICAL MANPOWER AT SIRUSERI UNIT, OUT OF WHICH, 88 PERSONS WERE RECRUITED BY THE SAID UNIT SEPARATELY IN THE EARLIER YEARS. THE BALANCE OF 133 PERSONS WERE RECRUITED IN THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR AND THEY CAME FROM ADYAR UNIT OF THE ASSESSEE. ADYAR UNIT HAD 235 TECHNICAL PERSONNEL. ONLY 133 PERSONS HAVE JOINED SIRUSERI UNIT. THE BALANCE OF THE PERSONNEL LEFT THE SERVICE OF THE ASSESSEE-COMPANY FOR 9 I.T.A. NO. 1408/MDS/13 EVER. THE TURNOVER OF TECHNICAL MANPOWER IN THIS LINE OF SOFTWARE INDUSTRY IS VERY HIGH AND THEREFORE, THERE IS NOTHING NEW FOR TECHNICAL PERSONNEL COMING AND GOING TO AND FROM DIFFERENT STPI UNITS. THE OBSERVATION OF THE ASSESSING OFFICER THAT ENTIRE MANPOWER OF THE ADYAR UNIT WAS SHIFTED TO SIRUSERI UNIT IS FACTUALLY INCORRECT. (3) THE NATURE OF BUSINESS, THE PLATFORM ON WHICH THE ASSESSEES SOFTWARE IS DEVELOPED AND THE ASSIGNMENT OF CLIENTELE CANNOT DECIDE THE NEW UNIT IS A SPLIT-UP/RECONSTRUCTION UNIT OR AN INDEPENDENT UNIT. THE MAIN INTENTIONS OF THE LEGISLATURE IN INTRODUCING SECTION 10A/10B ARE TO CREATE A NEW INFRASTRUCTURE AND GENERATE FRESH EMPLOYMENT. IN THE PRESENT CASE, THE ASSESSEE-COMPANY HAS CREATED NEW INFRASTRUCTURE AT SIRUSERI UNIT AND HAS OFFERED FRESH EMPLOYMENT. THE TOTAL INVESTMENT IN THE INFRASTRUCTURE AT SIRUSERI UNIT IS ` 19.37 CRORES AS AGAINST THE TOTAL INVESTMENT IN THE INFRASTRUCTURE OF ADYAR UNIT 10 I.T.A. NO. 1408/MDS/13 AT ` 5.07 CRORES. AS FRESH INVESTMENTS HAVE BEEN MADE TO SET UP SIRUSERI UNIT, THERE IS NO REASON FOR ASSESSING OFFICER TO HOLD A VIEW THAT THE SIRUSERI UNIT WAS SET UP BY SPLITTING- UP THE EXISTING ADYAR UNIT. 12. ON THE BASIS OF THE ABOVE FINDINGS, THE COMMISS IONER OF INCOME TAX (APPEALS) HELD THAT THE ASSESSEE-COMPANY IS ENTITLED FOR BENEFIT OF SECTION 10A IN RESPECT OF INCOME GEN ERATED BY SIRUSERI UNIT ALSO. HE HELD THAT THERE IS NO RECON STRUCTION OR SPLITTING-UP IN THE PRESENT CASE AS ALLEGED BY THE ASSESSING OFFICER. THE COMMISSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TEXTILE MAC HINERY CORPORATION LTD. V. COMMISSIONER OF INCOME TAX (107 ITR 195) AND HELD THAT ALL THE PARAMETERS SPECIFIED BY HONBLE S UPREME COURT IN THE SAID JUDGMENT HAVE BEEN SATISFIED IN ASSESSEES CASE. 13. ON GOING THROUGH THE ORDERS OF THE LOWER AUTHOR ITIES, THE SUBMISSIONS MADE BY THE ASSESSEE-COMPANY AND OTHER MATERIALS AVAILABLE ON RECORD, WE FIND THAT THIS IS A CASE WH ERE THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS THE CORRECT VIEW. AS POINTED OUT BY THE COMMISSIONER OF INCOME TAX (A PPEALS), THE ASSESSING AUTHORITY HIMSELF HAS CONFIRMED IN HIS OR DER THAT THE 11 I.T.A. NO. 1408/MDS/13 INFRASTRUCTURE AT SIRUSERI UNIT HAS BEEN NEWLY AND INDEPENDENTLY SET UP. THIS POSITION IS CLEAR FROM THE FACT THAT THE TOTAL INVESTMENT MADE BY THE ASSESSEE-COMPANY IN SETTING UP THE INFR ASTRUCTURE OF SIRUSERI UNIT AMOUNTED TO ` 19.37 CRORES, WHEREAS, THE TOTAL INVESTMENT MADE IN THE INFRASTRUCTURE OF THE EXISTI NG ADYAR UNIT WAS ` 5.07 CRORES. IN SUCH CIRCUMSTANCES, THERE IS NO G ROUND FOR THE ASSESSING OFFICER TO TAKE A VIEW THAT SIRUSERI UNIT HAS BEEN SET UP BY SPLITTING-UP THE EXISTING ADYAR UNIT AND SIRUSER I UNIT IS ONLY A CASE OF RECONSTRUCTION. WE HAVE NO HESITATION TO HOLD T HAT THE ABOVE FINDING OF THE ASSESSING OFFICER IS AGAINST THE FAC TS OF THE CASE. THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHIN ERY CORPORATION LTD. V. COMMISSIONER OF INCOME TAX (107 ITR 195) HAS HELD THAT IN THE RECONSTRUCTION OF A COMPANY, THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OF SOME CHANGE, HOWEVER PART IAL OR RESTRICTED IT MAY BE, OF OWNERSHIP OF THE ASSETS. THE TRANSFE R, HOWEVER, NEED NOT BE OF ALL THE ASSETS, IT IS NONETHELESS IMPERAT IVE THAT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UN DERTAKING THOUGH IN AN ALTERED FORM. THE CONCEPT OF RECONSTRUCTION OF BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHICH IS ALREADY RU NNING ONE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. 14. IN THE PRESENT CASE, THE FACTS SPEAK FOR THEMSE LVES TO LEAD TO THE CONCLUSION THAT THE ASSESSEE-COMPANY HAS SET UP A NEW STPI 12 I.T.A. NO. 1408/MDS/13 UNIT AT SIRUSERI WHILE IT WAS RUNNING ITS EXISTING UNIT AT ADYAR. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) IS JUSTIFIED IN RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COUR T IN THE CASE OF TEXTILE MACHINERY CORPORATION LTD. V. COMMISSIONER OF INCOME TAX (107 ITR 195). 15. IT IS EQUALLY UNACCEPTABLE THE CONTENTION OF TH E ASSESSING AUTHORITY THAT THE ENTIRE MANPOWER OF ADYAR UNIT WA S SHIFTED TO SIRUSERI UNIT. IT IS CLEAR FROM THE RECORDS OF THE CASE THAT WHILE SIRUSERI UNIT WAS SET UP IN THE FINANCIAL YEAR 2006 -07, IT HAD MADE ITS OWN RECRUITMENT AND 88 PERSONS WERE THUS WORKIN G IN SIRUSERI UNIT. THOSE PERSONS HAVE NOT COME FROM THE ADYAR U NIT OF THE ASSESSEE. THEREAFTER, 133 PERSONS JOINED THE SERVI CE OF SIRUSERI UNIT, WHO WERE WORKING EARLIER IN ADYAR UNIT. THIS MIGRATION OF MANPOWER FROM ADYAR TO SIRUSERI ACTUALLY HAPPENED A T A TIME WHEN THE ASSESSEE WAS PLANNING TO CLOSE DOWN THE ACTIVIT IES OF ADYAR UNIT. THE ADYAR UNIT AT THAT POINT OF TIME HAD 234 EMPLOYEES. IT WAS FREE FOR THOSE EMPLOYEES TO DECIDE THEMSELVES WHERE THEY SHOULD GO AND JOIN AFTER ADYAR UNIT IS CLOSED DOWN. 133 P ERSONS OPTED TO REMAIN UNDER THE EMPLOYMENT OF THE ASSESSEE-COMPANY AND MIGRATED TO SIRUSERI UNIT. THE REMAINING 122 PERSO NS LEFT THE SERVICE OF THE ASSESSEE AS A WHOLE. THEREFORE, THE RE IS NO QUESTION OF SIRUSERI UNIT BEING OPERATED BY DEPLOYING THE MA NPOWER OF ADYAR 13 I.T.A. NO. 1408/MDS/13 UNIT. AS POINTED OUT BY THE COMMISSIONER OF INCOME TAX (APPEALS), THE LABOUR TURNOVER IN SOFTWARE INDUSTRY IS VERY HI GH AND THAT FIGURE ALONE CANNOT DECIDE THE CRUCIAL QUESTION WHETHER A UNIT WAS NEWLY SET UP OR IT WAS ONLY A SPLIT-UP OF EXISTING UNIT. 16. REGARDING THE OBJECTION OF THE ASSESSING OFFICE R ON TRANSFERRING CONTRACTS AND CLIENTELE FROM ADYAR UNI T TO SIRUSERI UNIT, WE AGREE WITH THE FINDING OF THE COMMISSIONER OF IN COME TAX (APPEALS). THE ASSESSEE-COMPANY IS RUNNING BOTH TH E UNITS, NAMELY, ADYAR UNIT AND SIRUSERI UNIT. SO ALSO THE ASSESSEE- COMPANY WAS CONTEMPLATING THE CLOSING DOWN OF ADYAR UNIT. THEREFORE, NATURALLY, THE ASSESSEE-COMPANY, FOR THE PURPOSE OF RETAINING THE CONTRACTS AND CLIENTELE, WAS ASSIGNIN G THEM TO ITS OTHER WORKING UNIT. THIS IS NOTHING BUT A PRUDENT BUSINE SS DECISION. THIS BUSINESS DECISION DOES NOT DETRIMENT THE INDEPENDEN T STATUS OF SIRUSERI UNIT. 17. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE SIRUSERI UNIT SET UP BY THE ASSESSEE IS AN INDEPEND ENT STPI UNIT ELIGIBLE FOR CLAIMING DEDUCTION AVAILABLE UNDER SEC TION 10A OF THE INCOME-TAX ACT, 1961. THEREFORE, THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN DENYING THE EXEMPTION UNDER SECTION 10 A IN RESPECT OF THE INCOME GENERATED FROM SIRUSERI UNIT. WE UPHOLD THE ORDER OF 14 I.T.A. NO. 1408/MDS/13 COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. THE RELEVANT GROUNDS ARE ACCORDINGLY DISMISSED. 18. FROM ANOTHER POINT OF VIEW, THE WHOLE CONTROVER SY BUILT UP BY THE REVENUE IS JUST TECHNICAL. IT SHOULD BE SEEN T HAT ASSESSEE IS HAVING ONLY TWO STPI UNITS ONE AT ADYAR AND THE O THER AT SIRUSERI. BOTH THE UNITS ARE INDEPENDENTLY REGISTERED AS A SE PARATE STPI UNIT. BOTH THE UNITS ARE CARRYING ON SOFTWARE ACTIVITIES AND GENERATING INCOME FROM EXPORTS. THE ASSESSEE IS NOT HAVING AN Y OTHER UNIT, WHICH IS NOT ENTITLED FOR THE BENEFITS CONFERRED TO THE STPI UNITS. IF SIRUSERI UNIT IS NOT TREATED AS AN INDEPENDENT, NEW UNIT, THE SAID UNIT SHOULD BE TREATED AS AN EXTENSION OR PART OF ADYAR UNIT. SIRUSERI UNIT HAS WORKED DURING THE PREVIOUS YEAR AND MADE EXPORT S OF SOFTWARE. THEREFORE, WE CANNOT IGNORE THOSE OPERATIONS CARRIE D AT SIRUSERI UNIT. IF THE SIRUSERI UNIT IS NOT TREATED AS INDEP ENDENT, ACCORDING TO THE ARGUMENT OF THE ASSESSING OFFICER ITSELF, SIRUS ERI UNIT BECOMES PART OF ADYAR UNIT. IF SO, THE ENTIRE TURNOVER OF EXPORT GENERATED BY THE ASSESSEE SHOULD BE ACCOUNTED IN THE HANDS OF AD YAR UNIT. THE ENTIRE INCOME ARISING OUT OF SUCH EXPORTS IS ELIGIB LE FOR DEDUCTION UNDER SECTION 10A IN THE HANDS OF ADYAR UNIT ITSELF FOR THE REASON THAT ADYAR UNIT AS WELL AS SIRUSERI UNIT ARE REGIST ERED AS STPI UNITS. THEREFORE, EVEN IF WE IGNORE THE SEPARATE IDENTITY OF SIRUSERI UNIT, WE HAVE TO SAY THAT THE ADYAR UNIT OF THE ASSESSEE REMAINS INTACT. 15 I.T.A. NO. 1408/MDS/13 THE ENTIRE TURNOVER AND INCOME OF THE ASSESSEE FROM SOFTWARE EXPORT HAVE TO BE ATTRIBUTED IN THE HANDS OF THE AD YAR UNIT. THE INCOME IS STILL ENTITLED FOR DEDUCTION UNDER SECTIO N 10A. THEREFORE, THESE CONTROVERSIES ARE JUST ACADEMIC. 19. NOW COMING TO THE SECOND ISSUE RAISED BY THE RE VENUE, ITAT, CHENNAI, SPECIAL BENCH IN THE CASE OF INCOME TAX OFFICER V. SAK SOFT LTD. (30 SOT 55) (CHENNAI) (SB) HAS HELD T HAT FOREIGN CURRENCY EXPENSES NEED NOT BE REDUCED FROM THE EXPO RT TURNOVER AND IF SO REDUCED, THOSE EXPENSES SHOULD BE REDUCED FROM THE TOTAL TURNOVER AS WELL. THE SPECIAL BENCH UPHELD THE PRI NCIPLE OF PARITY BETWEEN NOMINATOR AND DENOMINATOR. THE DECISION OF SPECIAL BENCH IS NATURALLY BINDING ON THE COMMISSIONER OF I NCOME TAX (APPEALS). THE ABOVE VIEW TAKEN BY THE SPECIAL BEN CH HAS BEEN APPROVED BY HONBLE KARNATAKA HIGH COURT IN THE CAS E OF COMMISSIONER OF INCOME TAX AND ANOTHER V. TATA ELXS I LTD. (349 ITR 98). MOREOVER, IN ASSESSEE'S OWN CASE FOR THE E ARLIER ASSESSMENT YEAR, ITAT, CHENNAI, HAS HELD THAT THE F OREIGN CURRENCY EXPENSES NEED NOT BE REDUCED FROM THE EXPORT TURNOV ER. IT MEANS THAT IF SO REDUCED, CORRESPONDING DEDUCTION MUST BE MADE FROM TOTAL TURNOVER AS WELL. AS THE ISSUE NOW STANDS CO VERED IN FAVOUR OF THE ASSESSEE, WE FIND THAT THERE IS NO REASON TO IN TERFERE IN THE DECISION OF COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 16 I.T.A. NO. 1408/MDS/13 20. THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEAL S) IS UPHELD ON BOTH THE ISSUES RAISED IN THE PRESENT APP EAL. 21. IN RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF HEARING ON WEDNESDAY, THE 20 TH OF NOVEMBER, 2013 AT CHENNAI. SD/- SD/- (V. DURGA RAO) (DR. O. K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED, THE 20 TH NOVEMBER, 2013. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT-I, CHENNAI-34 (4) CIT(A)-IX, CHENNAI-34 (5) DR (6) GF