DCIT, circle-12(1), New Delhi V. Infrasoft Technologies Ltd., Mumbai

ITA 1761/DEL/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7670 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 28-02-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Additional evidence
• Section: 271(1)(c); 143(3); 73; 13

Judgement Text

Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C”: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER (Through Video Conferencing) ITA No. 1761/Del/2019 (Assessment Year: 2007-08) DCIT, Circle-12(1), New Delhi Vs. Infrasoft Technologies Ltd, Unit No. 86 & 87, SDF III, Seepz Midc, Andheri East, Mumbai PAN: AAACB2817R (Appellant) (Respondent) Revenue by : Shri Ramesh Kumar, Sr. DR Assessee by: Shri Vijay Mehta, CA Date of Hearing 15/09/2021 Date of pronouncement 25/11/2021 O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the learned Commissioner of income tax, Circle 12 (1), New Delhi (the learned AO) against order passed by the Commissioner of income tax (appeals) – 4, New Delhi dated 28/12/2018 for assessment year 2007 – 08. 2. The revenue has raised the grounds of appeal:- “1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 4,97,09,121/- made by the AO by disallowing the assessee's claim of deduction u/s 10A of the Income Tax Act, 1961 ('the Act'). 1.a) Whether the Ld. CIT(A) has erred in holding that a new independent undertaking, eligible for benefit u/s 10A had been set up by the assessee on 28.03.2000, not appreciating the findings of the AO that unit for which the deduction u/s 10A was claimed was converted from the existing unit and therefore, the business being already in existence, the assessee was not entitled for deduction u/s 10A of the Act for the Assessment Year under consideration. 2.b) Whether the Ld. CIT(A) has erred in not appreciating the fact that Hon'ble ITAT, in AY 2002-03, after duly considered the submission/arguments made by the assessee, had given a Page | 2 finding of fact that the unit for which STPI approval was received by the assessee was an existing unit and not a new unit. Though the Hon'ble ITAT, while restoring the matter to the AO for examination of the additional evidence in the year under consideration, had observed that the AO shall consider the same without being constrained by order of ITAT for A Y 2002-03, the said observation, by necessary implication, was limited to examining the effect of the some documents ( agreement with the foreign party, advance received from the said party, project report, resolution passed by the board of the assessee company etc.) and could not have been constructed as overturning the aforesaid finding of fact rendered in A Y 2002-03 by a co- ordinate bench, particularly since most of the aspects were considered by the ITAT in the said year after re-hearing the matter as discussed at page 10.1 of the order (viz., the declarations made by the assessee itself in the application for STPI approval, the terms of the bonded warehouse license granted by Customs' Department, rationale behind purchase of new computers, the assessee having claimed deduction 80HHE in earlier years in respect of the same unit which amounted to admission that it was a case of conversion of existing domestic unit to export unit, the actual motive for the assessee to switch- over from section 80HHE to section 10A was to artificially extend the duration of deduction beyond 10 years of account of phasing out of the benefits u/s 80HHE etc.) 1.b) Whether the Ld. CIT(A) was correct in holding that the export unit had been freshly set at the second floor of the premise unit and that the said existing /domestic unit at the second floor was wrapped up and shifted to the ground floor, despite categorically admitting himself in para 6.1.17 that there was no direct evidence to prove physical shifting of the assets from second floor to the ground floor. 1.c) Whether the Ld CIT(A) has failed to appreciate that the following contentions made by the assessee before him [ reproduced at page 27 of Ld CIT(A)'s order ] were factually incorrect or amounted to concealment of material facts related to the assessment history of the case: i) assessee's contention to the effect that the assessee's claim for deduction u/s 10A had been allowed in A Y 2004-05 was factually incorrect as the deduction in the said year was allowed on alternative ground, viz. that even if the unit is held to have been converted from existing domestic unit to an STPI unit, it would still be eligible for deduction u/s 10A from the date of conversion as the said A Y was within the unexpired period of 10 years starting from A Y 1996-97. ii) assessee's deliberate omission to disclose that the Hon'ble ITAT had decisively held in A Y 2002-03 that the assessee had only converted the existing unit established in A Y 1996-97 into STP unit.” Page | 3 3. 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 ₹ 5,182,846/–. The assessment u/s 143 (3) was passed on 30/12/2010 at an income of ₹ 107,054,310/– wherein disallowance u/s 10 A of ₹ 49,709,121/– and disallowance of depreciation on computer necessary is of ₹ 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/–. The learned assessing officer dealt with the above disallowance as Under:- “5. During the course of assessment proceedings, assessee was required to substantiate and file relevant details with regard to its claim u/s 10A of the IT Act, 1961 involving amount of Rs. Rs. 4,97,09,121/-. In this connection assessee furnished its submissions vide letter dated 17.10.2016 and further details were filed on 20.12.2017. 5.2 In its letter dated 17.10.2016 the assessee demonstrated the events of occurrence in tabular form and furnished the evidences which stated to have also placed before ITAT which is produced as under. S.No Nature of Document Relevance of Document Pages 1 Chart showing bifurcation of income of various years i) STPI authorities permit domestic sales only to the extent of 50% of export sale cannot be made from export unit. This chart demonstrated that the assessee has made domestic sales exceeding the said limit from its domestic unit. If department’s view about conversion of domestic sale beyond permissible limit and violated STPI condition. This is not correct, ii) In the STPI application form the assessee has ticked the option of conversion of existing export unit to STPI. There was no export in F.Y. 1999-00. It is mitted that existing domestic it was not converted to STPI unit. 1 2 Covering letter of application filed with STPI Covering letter filed along with the application to demonstrate the total documents filed with the STPI application in addition to the application form. 2 3 Project report for setting up STPI unit It is evident from project that the assessee wanted to set up a new export unit and is taking all steps to make its mark in the international market. The assessee has also got and export order from Direct Exchange Ltd and had also received advance 3-8 Page | 4 money from them. 4 Board Resolution dated 14.03.2000 Resolution passed by company authorizing certain people to sign documents in connection with registration of export unit. 9 5 Power of attorney dated 16.03.2000 Letter to STPI authorizing Mr. Haresh to sign application papers in connection with registration of export unit. 10 6 Agreement with Direct Credit Exchange Ltd Dated 23.09.1999 Agreement entered into with assessee for creating new software. This shows steps taken by assessee to establish new export unit. 11-13 7 Board Resolution dated 06.08.1999 Resolution stating that the existing premises (2 nd Floor) used by the assessee should be used for the new export unit and the domestic unit of the assessee should be shifted on ground floor of the same building. 14-17 8 Ledger A/c of Direct Credit Exchange (London) Advance was received by the assessee from Direct Credit Exchange Ltd, UK Company 18 9 Profit and Loss account and balance sheet for the year ended 31.03.2000 i) On page 139 of P.B Schedule of fixed assets for the year ended 31.03.00 shows that there is huge addition of computer equipments and furniture and fixtures which also supports the fact that new export unit was started in F.Y. 1999-00. ii) On page 141 of P.B. it can be seen that there is substantial increase in salaries since a new export unit was started by the assessee. 19-25 10 FAQ for STPI Scheme download from website of STPI This shows the condition of 50% of export sale of preceeding year and the domestic sale cannot be made from export unit. 26-29 11 Guidelines for sale of goods in Domestic Tariff Area (DTA) issued by STPI It states that if a STPI unit wants to make domestic sales, an application has to be submitted prior to making such sale. The assessee has not requested for any such permission. This strengthens the argument of the assessee that local sales were being made from a separate domestic unit and the new export unit was set up and approval was obtained from STPI for the export unit. 30-32 Further, it has been claimed by the assessee that the documents mentioned in the table establishes the fact that a new establishment has been set up and registered with “Software Technology Park of India” (hereinafter STPI). 5.3 In the submission filed on 20.12.2017 the assessee has given a brief overview of the company from its inception regarding its nature of business and journey towards expansion of business. With regard to relevant justification regarding its claim for allowance u/s 10A of the Act it has been stated as under: “.............. Infrasofttech for its newly ventured line of export business of Services wanted to set up a STP unit. The Company reviewed the conditions for setting up a STP unit which in addition to the application and project report were as follows: 1. It is preferable to have export order in hand at the stage of STP registration, and if available submit a copy of the Export Order/ Agreement singed with the foreign Client with the application. 2. An enterprise which is operating both as domestic unit as well as STP unit, it is not necessary to be a separate legal entity but shall have two distinct identities. 3. Proof of two separate rental premises- 2nd Floor and Ground Floor. (Refer annexure 1) 4. a) Approval of Custom Bonding of the premises dated 30>h March 2000. (Refer Annexure 2) b) Supplementary Terms and Conditions with Customs. (Refer Annexure 2) 5. a) Approval of STPI dated 28th March 2000 ( Refer Annexure 3) Page | 5 b) Agreement with STPI dated 28th March 2000 (Refer Annexure 4) c) Allotment of Green card dated 29th March 2000( Refer Annexure 5) lnfrasoft Tech won its first international contract in the month of Sep 1999 from Direct Credit Exchange (DCE), an affiliate of Citibank, for an e- commerce financial solutions project (Copy of the DCE Order attached as annexure6) On receipt of the first export order, company started looking for space in closer vicinity for ease of managing and to avoid administration issues. The Company signed up a lease agreement with M/s. Polymer Chemical Pvt. Ltd. for Ground floor Karamyog Building Parsi Panchayat road, Andheri (E) Mumbai on IIth December 1999 (Copy of the Ground floor agreement attached as Annexure 1). The Domestic business of products was shifted to Ground Floor of the Karamyog Buildine. All the employees who were part of the domestic business along with their computers and machines were shifted to the Ground Floor. The company raised its First Export Invoice on Direct Credit Exchange Limited, London for GBP 100,000 as part of advance payment for commencement of Operation Software on successful completion of the Demonstrator Software. The income was not taken in March 2000 accounts on conservative accounting norms of revenue recognition as the partial work done and the same was not satisfactory and required major changes. The invoice was raised as it was pre-requisite and as per terms of the agreement for the customer to remit money. The amount was received in newly opened EEFC account on 7th Feb 2000 (Copy of invoice & FIRC attached as Annexure 7). The Company received approval from STPI for setting up 100% Export Oriented Unit vide letter no STPl/MUM/VIII(A)(214)/20000(03)/2868 dated March 28,2000. The company received approval of Custmos and the agreement. Infusion of equity capital of Rs. 3 crores during the period October 1999 to March 2000. From the above details it is clear that the company is satisfying all the norms which entitle it to claim the exemption under section 10A of the Income Tax Act on the exports of new unit.  The STP unit was set up at 2nd Floor Karmayog building, Parsi Panchayat Road, Andheri (E) Mumbai which is a separate unit itself.  The said unit was Custom Bonded.  The unit was set up after the receipt of export order in hand.  The unit has started its development of software and received the advance amount in Feb 2000, but the final invoice was not raised because the development was still in trail phase.  The work done in the newly settled unit was exported and was not sold in the domestic market. Page | 6  Separate Bank Account is maintained.  Separate books of account is maintained in the sense that the profitability of the units can be worked out separately as all the items of profit and loss are captured with cost centre in the computer. Attached please find herewith the audited accounts with split of both the units (Refer Annexure 8)  Fixed Assets Schedule for both the units (Refer Annexure 9)  Renewal of STPI license for further five years as the company being compliant of all the STPI regulations (Refer Annexure 10) We trust the above all will meet your requirement for allowing us to claim deduction under section 10A, however we are ready to submit any further explanations/information’s required by your honor.” 6. The submission of the assessee has been considered however found to be not justifiable. It is evident fact the issue under consideration has been examined on earlier occasion as well. During the scrutiny assessment completed for earlier AYs, considering the all available facts and after detailed analysis claim for allowance u/s 10A was rejected while observing as under: a. The assessee company continues to drive income from the business of development and sale of software products. The assessee company has been registered with the Software Technology Park of India (STPI). Assessee has submitted the STPI initial registration certificate dated 28.03.2000, STPI extension letter dated 19.03.2005 for further extension of next years. Also assessee has submitted Green Card for STPI valid upto 31.03.2010. The same has been perused. b. In earlier years i.e. from A. Y. 2001-02 onwards, the claim of the assessee is not being allowed. The issue of non- allowance of deduction u/s 10A has been discussed in detail in the assessment order passed u/s 143(3) (ii) of the Act for A.Y. 2001-02 as under: “The principal object of the provision of section 10A is to encourage setting up of new industrial undertakings by offering tax incentives. It is most essential to give fillip to trade and industry and this is the background for the enactment of these provisions. In the instant case, the principal object of section 10A is getting defeated as no new industrial undertaking has been set up, as the old industrial undertaking on which the assessee company was hitherto claiming deduction u/s 80HHE, has been used for the purpose of claim of section 10A, by taking undue advantage of the provisions/notification of the Act. ” Sub-section (1) of 10A not satisfied: It would be pertinent to reproduce here the provisions of section 10A (1), which are as under :- “Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten 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 manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee. ” Page | 7 Sub-section (1) clearly provides that deduction is for 10 consecutive years, beginning from the assessment year, when manufacturing was started. In the instant case, manufacturing started in AY 1996-97, hence the claim of deduction u/s 10A should have been made from AY 1996-97 itself Since, the assessee company did not claim deduction u/s 10A in AY 1996-97, hence, it is not permitted to claim deduction u/s 10A in any subsequent year also, as sub- section (1) clearly provides that deduction u/s 10A is to commence from the very first year in which manufacturing started. Business already in existence: Section 10A (2) (ii) clearly specifies that deduction u/s 10A will not be allowed to the assessee company if its business is already in existence. In the instant case, the business of the assessee company was already in existence since AY 1996-97. It would be pertinent to cite here the case of CIT Vs. Babu Ramesh Chand [(1991) 190 ITR 535, 539 (All)], wherein, the assessee company purchased a fresh piece of land, a new factory was established and new machinery was installed apart from new cold storage rooms, refrigeration units, cold drying chambers and other infrastructure. All these were installed in the new premises and the manufacturing process was also different. On these facts, the Tribunal was held justified in coming to the conclusion that the industrial undertaking was a new one and the same was not formed by splitting up or reconstruction of a business already in existence or by transfer of machinery or plant previously used for any purpose within the meaning of section 8044)(i) or section 80J(4)(ii). In the instant case, no new land was purchased and neither any new factory was established. Simply, the old and existing infrastructure is being used and there has been no creation of a new establishment/undertaking, which is imperative to claim deduction u/s 10A." c For A. Y.2005-06, the assessee has also made claim of deduction u/s 10A of the I.T. Act. The assessee was asked to justify the claim because in earlier years, the assessee had made claim u/s 80HHE of the IT. Act. As per provisions of sub-section (5) of section 80HHE of the I. T. Act, once the deduction is claimed under this section, no deduction can be allowed for the same or any other year. Hence, the assessee was' provided an opportunity to show cause why the claim of deduction u/s 10A of the IT. Act should not be disallowed. The assessee repeated the arguments which were put up during the course of assessment proceedings for A.Y.2001-02. The arguments put forth have been considered but the same are not acceptable for the reasons discussed in the order of A. Y. 2001-02. Further, this is to be pointed that the claim of deduction u/s 10A of the IT Act is not bona fide for the reasons discussed below. Why switched over to deduction u/s 10A of the I.T. Act: d. The assessee had been claiming deduction u/s 80HHE of the I. T. Act upto A. Y. 2000-01 i.e. upto six years from the establishment of the company. Sub-section (IB) was introduced by the Finance Act, 2000 to Section 80HKE w.ef 1.4.2001 wherein the extent of deduction out of profit of the business was to be reduced from 100% and no deduction shall be allowable in respect of the assessment year beginning on 1st day of April, 2005. For sake of proper appreciation the relevant sub-section is reproduced as below: Page | 8 "For the purposes of sub-sections (1) and (1A), the extent of deduction of profits shall be an amount equal to I. eighty per cent of such profits for an assessment year beginning on the 1st day of April, 2001; II. seventy per cent thereof for an assessment year beginning on the 1st day of April, 2002; III. fifty per cent thereof for an assessment year beginning on the 1st day of April, 2003; IV. thirty per cent thereof for an assessment year beginning on the 1st day of April, 2004." e. Simultaneously, the provision of section 10A of the l.T. Act were amended to the effect that deduction would be available for 10 assessment years. With the introduction of said sub-section, to section 80HHE of the Act, the deduction available to the assessee was to be decreased year after year and no deduction would have been allowable from A.Y. 2005-06. However, the deduction u/s 10A of the I.T. Act was made available for 10 assessment years. f In view of the introduction of sub-section (IB) in section 80HHE of the IT. Act by Finance Act, 2000, the assessee thought of a plan to switch over to deduction u/s 10A of the Act because only then the assessee would be entitled to claim the 100% profits as exempt. The switch over of the assessee from the deduction u/s 80HHE to sec.lOA is not incidental or normal but it has been done with a specific motive to claim excess deduction and avoid payment of taxes. It has been held by the Honourable Supreme Court in the case ofMcDowel & Co. Ltd v/s Commercial Tax Officer 154ITR 148 SC. "Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods." g The claim of the assessee i.e. deduction of 100% instead of reduced deduction from A.Y. 2001-02 onwards is not bonafide or genuine but has been made merely with an intention to defraud the revenue. h. The deduction u/s 10A is available only in respect of new industrial undertaking where as the assessee company was established in 1995 and claiming deduction u/s 80HHE in earlier years. i. The deduction u/s 80HHE would be available to the assessee only up to assessment year 2004-05 that also not 100% from assessment year 2002- 03. It is to be pointed out that against the disallowance of deduction u/s 10A of the I.T. Act for AY 2001-02, the assessee filed appeal before CIT (A). The CIT (A)-XIV, New Delhi has confirmed the disallowance u/s 10A of the I.T. Act for AY 2001-02. 7. During the year under consideration the assessee claimed exemption u/s 10A of the Act of Rs. 4,97,09,121/- and during the assessment proceedings u/s 143(3) assessee did not furnished any evidence so as to deviate from the stand already taken by the Department on the issue. Page | 9 8. Without prejudice to the above, the facts and the additional evidences as submitted by the assessee during the fresh assessment in hand which stated to have also filed before Hon’ble Tribunal is being considered and perused. In its submission, assessee has tried to justify that it was in the process of set up of a new export unit and it had got the contract order from Direct Credit Exchange Ltd. and got approval from STPI authority in the FY 2000-01. Subsequently, started to export its services overseas from FY 2000-01 onwards. Revenue from export sen/ices has been shown from the FY 2001-02. However, it is evident from the facts discussed in the order passed u/s 143(3) of the Act in earlier years as well as in the AY 2007-08 on 30,12.2010 that all the above contention of the assessee stands covered and hence for the sake of convenience the same is not produced . here. Further, from the above it emerged out that though the approval for STPI has "been taken however, the requisite conditions 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 fresh assessment. Further, on perusal of the details submitted by the assessee it is evident from the application form for STP registration, assessee converted an existing export unit to SIP unit with the same office premises, computers and staff. The bonded warehouse certificate granted to the assessee by the customs Department was only for keeping imported capital goods and not for storing the goods manufactured by the STP unit. Mere purchase of new equipments / computers and employing more staff will not prove the contention that a new unit was set up. Since existing unit was converted to STP unit and no new unit was set up, assessee is not eligible for deduction u/s 10A. 9. From the detailed discussion as above and facts and circumstances of the case, it is crystal clear that the assessee does not satisfy the conditions for allowance of deduction u/s 10A of the I.T. Act. The claim u/s 10A of the I.T. Act made by the assessee is, therefore, disallowed. For the reasons discussed above, penalty proceedings for furnishing inaccurate particulars of income are initiated under section 271(1)(c) of the Act separately.” 4. Assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT – A who allowed the claim of the assessee 5. Aggrieved by the order of the learned CIT – A the learned AO preferred an appeal before us. The learned departmental representative took us to the order of the learned assessing officer and submitted that even after despite the admission of additional evidences by the learned assessing officer is directed by the coordinate bench the learned assessing officer has disallowed the claim. He referred to the various paragraphs of the order of the learned assessing officer and submitted that the claim of the assessee is not admissible. He therefore supported the order of the learned assessing officer. 6. The learned authorised representative referred to the paper book filed before us containing 149 pages. He first took us to the order passed by the Page | 10 learned assessing officer in the first round of appeal dated 30/12/2010. He further referred to the order of the learned CIT – A passed in the first round of appeal on 26/10/2012. He further referred to the order of the coordinate bench dated 3/05/2016. He extensively referred to the paragraph number 7.2 of the order of the coordinate bench where the additional evidences were laid before the coordinate bench and therefore admitted and the matter was sent back to the file of the learned assessing officer. He further stated that the assessee is unit was recognized as STPI on 28 th of March 2000. He referred to page number 73 – 74 of the paper book and stated that the entire hundred percent productions shall be exported against the hard currency except the sales in the domestic tariff area admissible as per the entitlement. He further stated that the only issue involved in this appeal is whether it is a setting up of a new unit or it was splitting up or reconstruction of the already existing unit. He further submitted that up to assessment year 1996 – 97 assessee is in the business catering to the domestic client. He further took us to the rent agreement in respect of the second floor of the building dated 20/3/1998 placed at page number 27 – 36 of the paper book and submitted that assessee has acquired a new premises admeasuring 4548 ft². He further referred to the resolution of the board of directors of the company dated 14/3/2000 placed at page number 67 of the paper book wherein there was an authority given for signature of an application document in connection with the registration of the export unit with software technology Parks of India. He further referred to page number 38 of the paper book which is been of the meeting of the board of directors dated 6 August 1999 wherein as per serial number six there were an approval for change in the name of the company. He also referred to page number 39 of the same resolution where at serial number 8 there was a registration of the export-oriented unit with the software technology Park of India. According to that resolution, the domestic business of the assessee was shifted to another place. He further took us to the page number 41 of the paper book which is an export order given to the assessee company by direct credit exchange Ltd (London). He further referred to the lever license agreement placed at page number 44 of the paper book wherein in para number 1 the ground on the first floor of the building was to be taken on Page | 11 rent. The lease agreement was dated 11/12/1999. He further took us to the page number 51 of the paper book which is the invoice prepared by the assessee on 18/1/2000 for 1 lakh UK Sterling Pound. He also referred to page number 52 of the paper book, which is a foreign in order it and certificate dated 11/2/2000 with respect to the receipt of GBP 1 lakh. He further referred page number 53 of the paper book, which is a ledger account of the direct credit exchange (London) for 1 April 1999 to 31 March 2000 from the books of the assessee where the credit of Rs. 6,973,230 was received. He further referred to page number 54, which is an application for registration of export unit Under STPI scheme where the new address of the assessee was available. He also referred to the brief background of the applicant where the project report was enclosed. He further stated that it was a proposal for conversion of an existing software export unit to STPI unit. He submitted that it was a mistake in the application filed. To show that it is a mistake, He further referred to page number 105 of the paper book where the year -wise breakup of the gross income with respect to the years 1996-97 to 2010-11 was provided. He submitted that the income of the export started from assessment year 2001-02. He further referred to page number 121 of the paper book, which is a database of employees as on 31 st of March 2000 for export unit u/s 10A. He further referred to the designation of such employees and the salary structure. He further referred to page number 123 – 124 of the paper book, which is a separate database of employees of the domestic unit as on 31 st of March 2000 therefore; he submitted that these are distinct employees then the employees employed by the export unit. He submitted that in the domestic unit there were 89 employees employed. He further referred to the distinct business segment of the existing unit as well as the new unit. He further referred to the decision of the honourable Bombay High Court in case of Hinduja ventures Ltd and Patni computers Ltd. He extensively relied on the decision of the learned CIT – A. Accordingly he is argument was the denial of deduction u/s 10 A of the income tax act to the assessee by the learned assessing officer is unjustified and the learned CIT – A after careful consideration of all the facts and circumstances of the case has granted the deduction to the assessee and there is no infirmity in his order. Page | 12 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 28 th 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 Page | 13 accounts for the year ending March 31, 2000; Auditors certificate in Form 56F for AY 2007-08; Audited spiitted 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. Page | 14 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 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 1999-2000 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.” Page | 15 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. 9. Accordingly, appeal filed by the learned assessing officer is dismissed. Order pronounced in the open court on 25/11/2021. -Sd/- -Sd/- (AMIT SHUKLA) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 25/11/2021 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi