Zen Test Labs, Pune V. Deputy Commissioner of Income-tax,

ITA 2287/PUN/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9542 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 26-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMRAT RAHI
• Assessee Lawyers: ARVIND SONDHE
• Keywords: Depreciation; Retrospective amendment
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUNE . , , , BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO . 2287 /PUN/201 4 / ASSESSMENT YEAR : 20 10 - 11 ZEN TEST LABS, OFFICE NO. 1, FLOOR NO. 2, ABJA PAVILLION, ABOVE COTTTON KINGS, D.P. ROAD, AUNDH, PUNE - 411007 PAN : AAAFZ4433A ....... / APPELLANT / V S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4 , PUNE / RESPONDENT ASSESSEE BY : S /S HRI ARVIND SONDHE & KETAN VED REVENUE BY : S HRI SA M RAT RAHI / DATE OF HEARING : 08 - 05 - 2017 / DATE OF PRONOUNCEMENT : 12 - 0 5 - 2017 / ORDER PER VIKAS AWASTHY, JM : TH IS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - II, PUNE DATED 19 - 08 - 2014 FOR ASSESSMENT YEAR 2010 - 11. 2 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 2. THE ASSESSEE IN APPEAL HAS RAISED SIX GROUNDS OF APPEAL RELATING TO SO LITARY ISSUE OF DISALLOWANCE OF CLAIM OF DEDUCTION RS.2,27,48,053/ - U/S. 10A O F THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORDS ARE: THE ASSESSEE IS A PARTNERSHIP FIRM AND IS ENGAGED IN COMPUTER SOFTWARE TESTING SERVICES. THE ASSESSEE RECEIVED STPI PERMISSION ON 26 MARCH, 2009 AND ENTERED INTO LEGAL AGREEMENT WITH STPI ON 31 MARCH, 2009. ON 26 - 05 - 2009 THE ASSESSEE RECEIVED PERMISSION OF RELOCATION O F STP UNIT FROM STPI. ACCORDINGLY, THE ASSESSEE RELOCATED ITS OFFICE PREMISES FROM GAIKWAD HEIGHTS, AUNDH , PUNE TO ABJA PAVILION, DP ROAD, AUNDH, PUNE. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR ON 15 - 10 - 2010 DECLARING TOTA L INCOME AS RS.58,33,670/ - AFTER CLAIMING DEDUCTION OF RS.2,27,48,053/ - U/S. 10A OF THE ACT. THE DEDUCTION CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS: I . THE STP UNIT HAS BEEN SET UP WITH THE OLD MACHINERY ON WH ICH THE ASSESSEE HAS CLAIMED DEPRECIATION IN EARLIER YEARS. II . STP UNIT HAS BEEN SET UP BY SPLITTING UP OR RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. III . EXPORT DIVISION WAS SET UP WITH MEAGER CAPITAL INVESTMENT AND THE RETURN ON INVESTMENT IS FAR IN EXCE SS OF THE RETURN THAT SHOULD BE COMMEN SURATE WITH THE INVESTMENT IN BUSINESS. IV . IN THE STP UNIT SAME BUSINESS IS BEING CARRIED ON IN THE SAME FORM AN D IN THE MANNER , PREDOMINANTLY USING THE SAME WORK FORCE AND THE SAME SET OF ACTIVITIES AS WAS DONE IN THE OLD UNIT. 3 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 AGGRIEVED BY THE ASSESSMENT ORDER DATED 28 - 03 - 2013, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE FINDINGS OF ASSESSING OFFICER AND REJECTED THE APPEAL OF THE ASSESSEE . NOW, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL ASSAILING THE ORDER OF FIST APPELLATE AUTHORITY. 4. SHRI ARVIND SONDHE AND SHRI KETAN VED APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE PARTNERSHIP FIRM WAS FORMED ON 1 ST APR IL, 2006. THE ASSESSEE IS MAINLY ENGAGED IN COMPUTER SOFTWARE TESTING SERVICES. THEREAFTER, THE ASSESSEE DECIDED TO VENTURE INTO INTERNATIONAL MARKET. THE ASSESSEE APPLIED FOR PERMISSION UNDER STP SCHEME IN RESPECT OF ITS 100% EOU AND RECEIVED PERMISSIO N FROM CONCERN ED AUTHORIT Y ON 26 - 03 - 2009. THE PERMISSION LETTER IS AT PAGES 15 AND 16 OF THE PAPER BOOK. INITIALLY, THE ASSESSEE WAS HAVING ITS OFFICE AT GAIKWAD H EIGHTS, AUNDH, PUNE. AFTER OBTAINING STPI PERMISSION THE ASSESSEE DECIDED TO SHIFT ITS OF FICE TO NEW LOCATION AT ABJA PAVILION, PARIHAR CHOWK, AUNDH, PUNE. THE SAME WAS ALLOWED. THE LETTER PERMITTING RELOCATION OF STP UNIT IS AT PAGE 86 OF THE PAPER BOOK. THE AUTHORITIES BELOW HAVE ERRED IN COMING TO THE CONCLUSION THAT THE ASSESSEE HAS EST ABLISHED STP UNIT BY SPLITTING UP OF EXISTING BUSINESS. IN FACT, IT IS THE SAME UNIT FROM WHERE THE ASSESSEE WAS CARRYING ON ITS BUSINESS ACTIVITIES FROM INCEPTION ON WHICH THE ASSESSEE HAS BEEN GRANTED STPI PERMISSION. THERE IS NO SPLITTING UP OR RECONS TRUCTION OF THE BUSINESS. THE LD. AR REFERRED TO CBDT CIRCULAR NO. 1/2005 DATED 06 - 01 - 2005 . THE LD. AR POINTED THAT ALTHOUGH THE CIRCULAR RELATES TO SECTION 10B OF THE ACT , HOWEVER, THE SAME APPLIE S EQUALLY TO THE PROVISIONS OF SECTION 10A OF THE ACT , AS THE PROVISIONS OF BOTH THE SECTIONS ARE PARI MATERIA. THE LD. AR TO BUTTRESS HIS SUBMISSIONS THAT CBDT 4 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 CIRCULAR NO. 1/2005 WHICH RELATES TO SECTION 10B, EQUALLY APPLIES TO SECTION 10A PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EXPERT OUTSOURCE (P.) LTD. REPORTED AS 358 ITR 518. 4.1 THE LD. AR CONTENDED THAT THE AFORESAID CBDT CIRCULAR HAS CLARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EXPORT ORIENTED UNIT ( EOU ) , SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE ACT , ON GETTING APPROVAL AS 100% EXPORT O RIENTED U NDERTAK ING. THE DEDUCTION 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 OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEA R IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. 4.2 THE LD. AR FURTHER CONTENDED THAT ALTHOUGH THE CIRCULAR STATES THAT THE DEDUCTION TO SUCH UNITS WILL NOT BE AVAILABLE AFTER ASSES SMENT YEAR 2009 - 10, HOWEVER, PROVISO TO SECTIONS 10B AND 10A HAVE BEEN AMENDED FROM TIME TO TIME AND THE DATES HAVE BEEN EXTENDED. THE LD. AR POINTED THAT AS PER AMENDMENT BROUGHT IN BY FINANCE (NO. 2) ACT, 2009 THE DATE HAS BEEN EXTENDED TO 1 ST DAY OF AP RIL, 2012. THUS, TO THE ASSESSMENT YEAR UNDER APPEAL THE CIRCULAR WOULD APPLY. THE LD. AR TO STRENGTHEN HIS ARGUMENTS DRAWS SUPPORT FROM THE DECISION OF LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. E - SOFT TECHNOLOGIES LTD. IN ITA NOS. 5 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 251 & 895/LKW/2014 FOR THE ASSESSMENT YEARS 20091 - 0 AND 2010 - 11 DECIDED ON 14 - 08 - 2015. 5. ON THE OTHER HAND SHRI SANRAT RAHI REPRESENTING THE DEPARTMENT VEHEMENTLY DEFENDED THE FINDINGS OF ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS). THE LD. DR SUBMITTED THAT THE CIRCULAR NO. 1/2005 ON WHICH THE ASSESSEE HAS PLACED RELIANCE IS NOT APPLICABLE TO THE ASSESSEE AS THE ASSESSEE IS NOT 100% EXPORT ORIENTED UNIT. THE LD. DR CONTENDED THAT THE CIRCULAR IS APPLICABLE TO 100% EXPORT ORIENTED UNIT , WHE REAS THE ASSESSEE HAS COMMENCED ITS EXPORT ACTIVITIES AFTER MAY, 2009. 6. CONTROVERTING THE SUBMISSIONS OF LD. DR, THE LD. AR POINTED THAT THE ENTIRE TURNOVER OF THE ASSESSEE ON WHICH DEDUCTION U/S. 10A HAS BEEN CLAIMED IS FROM EXPORTS. THE LD. AR REFERR ED TO FORM NO. 56F AT PAGES 13 AND 14 OF THE PAPER BOOK . THE LD. AR POINTED THAT THE TOTAL TURNOVER OF THE ASSESSEE UNDERTAKING IS RS.3,23,54,141/ - AND THE SAID TURNOVER IS FROM EXPORT BUSINESS ONLY. 7. W E HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESE NTATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED VARIOUS DOCUMENTS AND DECISIONS ON WHICH THE LD. AR OF THE ASSESSEE HAS PLACED RELIANCE. THE ONLY ISSUE RAISED IN THE APPEAL BY THE ASSESSEE IS DISALLOWANCE OF DEDUCTION RS.2,27,48,053/ - CLAIMED U/S. 10A OF THE ACT IN RESPECT OF PROFIT EARNED BY THE ASSESSEE FROM ITS STP UNIT. 8. THE ASSESSEE IS ENGAGED IN COMPUTER SOFTWARE TESTING SERVICES. THE ASSESSEE FIRM IS IN EXISTENCE FROM 01 - 04 - 2006. UNDISPUTEDLY, THE ASSESSEE RECEIVED PERMISSION FROM STPI ON 26 - 03 - 2009. THE ASSESSEE STARTED ITS 6 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 EXPORT BUSINESS FROM MAY, 2009 ONWARDS. THE ASSESSEE CLAIMED DEDUCTION U/S. 10A OF THE ACT IN RESPECT OF EXPORT TURNOVER FROM STP UNIT. THE AUTHORITIES BELOW DENIED THE CLAIM OF ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS ALLEGEDLY FORMED I TS STP UNIT AFTER SPLITTING UP/RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE AND THAT THE ASSESSEE HAS TRANSFERRED OLD MACHINERY FROM EXISTING UNIT TO THE STP UNIT. 9. A PERUSAL OF THE CIRCULAR NO. 1/2005 DATED 06 - 01 - 2005 MAKES IT CLEAR THAT THE UNIT A LREADY SETUP IN DOMESTIC TARIFF AREA SUBSEQUENTLY CONVERTED INTO EOU SHALL BE ELIGIBLE FOR DEDUCTION U/S. 10B OF THE ACT, AFTER GETTING APPROVAL AS 100% EXPORT ORIENTED UNIT. THE RELEVANT PROVISIONS OF THE CIRCULAR READS AS UNDER : 3 . REPRESENTATIONS HAV E BEEN RECEIVED FROM VARIOUS QUARTERS AS TO WHETHER AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA, WHICH IS SUBSEQUENTLY APPROVED AS 100% EOU BY THE BOARD APPOINTED BY THE CENTRAL GOVERNMENT IN EXERCISE OF POWERS CONFERRED UNDER SECTION 14 OF THE INDUSTRIE S (DEVELOPMENT AND REGULATION) ACT, 1951, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF THE INCOME - TAX ACT. 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPOR T OF ARTICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH 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 CA SE, THE DEDUCTION 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 OF TEN CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL BE RESTRICTED 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 AVAILABLE AFTER ASSESSMENT YEAR 2009 - 10. 7 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 10. ANOTHER ISSUE THAT HAS BEEN POINTED BY LD. AR IS THAT ABOVE CIRCULAR IS IN RESPECT OF SECTION 10B, WHERE AS THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10A. IT IS NO MORE RES - INTEGRA THAT PROVISIONS FOR CLAIMING DEDUCTION U/S. 10A AND 10B ARE PARI MATERIA. T HUS, THE CIRCULAR UNDER REFERENCE WHICH APPLIES TO SECTION 10B EQUALLY APPLIES TO SECTION 10A OF THE ACT. 11. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. EXPERT OUTSOURCE (P.) LTD. (SUPRA) HAS HELD THAT WHERE THE ASSES SEE HAS BEGAN OPERATION PRIOR TO DATE OF REGISTRATION WITH STPI BUT EXPORT OF GOODS COMMENCED AFTER REGISTRATION WITH STPI, THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S. 10A AND THE RATIO OF CBDT CIRCULAR NO. 1/2005 EQUALLY APPLIES TO THE PROVISIONS OF SECT ION 10A OF THE ACT. THE RELEVANT EXTRACT OF THE FINDINGS OF HONBLE HIGH COURT READS AS UNDER : 4. IN THE INSTANT CASE, THE ASSESSEE BEGAN OPERATIONS ON 17 TH DEC., 2003 WHEREAS THE STPI WAS REGISTERED ON 4 TH AUG., 2004. THE STP AUTHORITIES COULD ALSO PERMIT THE CONVERSION OF AN EXISTING UNIT INTO A STPI UNIT. THE PURPOSE OF THE STP SCHEME IS TO ENCOURAGE EXPORTS AND GAIN VALUABLE FOREIGN EXCHANGE FOR THE COUNTRY. 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. CBDT CIRCULAR NO. 1/2005 DATED 6 TH JAN, 2005 GRANTS CERTAIN BENEFITS UNDER SECTION 10B. THOUGH THE CIRCULAR IS IN THE CONTEXT OF SECTION 10B, THE RATIO OF THE CIRCULAR EQUALLY APPLIES TO SECTION 10A ALSO . IN FACT, T HE COMMISSIONER OF APPEALS HAS REFERRED TO VARIOUS JUDGMENTS ON THE POINT AND HAD COME TO THE CONCLUSION THAT THE BENEFIT OF SECTION 10A WOULD ALSO BE AVAILABLE EVEN WHEN AN EXISTING UNIT GETS CONVERTED INTO A STPI UNIT. IN FACT, THE MATERIAL ON RECORD DIS CLOSES THAT NO EXPORT OF COMPUTER SOFTWARE WAS MADE BEFORE 4 - 8 - 2004. THE EXPORT COMMENCED ONLY AFTER 4 TH AUG., 2004. THE INVOICES PRODUCED IN THE CASE CLEARLY ESTABLISH THE SAID FACT. IN THESE CIRCUMSTANCES, THE APPELLATE AUTHORITY AS WELL AS THE TRIBUNAL WERE JUSTIFIED IN EXTENDING THE BENEFIT OF SECT ION 10A TO THE UNIT IN QUESTION [EMPHASIZED BY US] 8 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 SIMILAR VIEW HAS BEEN TAKEN BY THE LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. E - SOFT TECHNOLOGIES LTD. (SUPRA). THUS, WE DO NOT FIND ANY MERIT IN THE CONTENTIONS OF THE REVENUE THAT THE ASSESSEE HAS FORMED STP UNIT AFTER SPLITTING UP/RECONSTRUCTION OF EXISTING UNIT. THE UNIT ALREADY EXISTING IN DOMESTIC TARIFF AREA WAS CONVERTED INTO EXPORT ORIENTED UNIT AFTER NECESSARY PERMISSIONS WERE OBTAINED FROM STPI. 12. THE DOCUMENTS ON RECORD SHOW THAT THE ENTIRE TURNOVER OF THE UNDERTAKING IS FROM EXPORT. THE LD. AR OF THE ASSESSEE HAS STATED AT THE BAR THAT THE STP UNIT COMMENCED ITS BUSINESS ACTIVITIES AFTER RELOCATING ITS OFFICE AT NEW PREMISES IN MAY, 2009. DURING THE FINANCIAL YEAR 2009 - 10, EXCEPT FOR EXPORT TURNOVER THERE WAS NO OTHER GENERATION OF INCOME FROM STP UNIT. 13. IN SO FAR AS THE APPLICABILITY OF THE CIRCULAR AFTER ASSESSMENT YEAR 2009 - 10 IS CONCERNED , WE FIND THAT PROVISO TO SECTIONS 10A AND 10B HA VE BEEN AMENDED FROM TIME TO TIME AND THE DATE OF ALLOWABILITY OF DEDUCTION HAS BEEN EXTENDED. FINANCE (NO. 2) ACT, 2009 HAS MADE AMENDMENT WITH RETROSPECTIVE EFFECT FROM 01 - 04 - 2009 BY SUBSTITUTING THE YEAR 2011 WITH 2012. NOW, THE AMENDED PROVISO TO SEC TION 10A READS AS UNDER : PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOWED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1 ST DAY OF APRIL, 2012 AND SUBSEQUENT YEARS. ALTHOUGH, CORRESPONDING AMENDMENT HAS NOT BEEN MADE IN THE CIRCULAR , HOWEVER, IN VIEW OF AMENDMENT MADE TO THE PROVISIONS OF SECTION 9 ITA NO . 2287/PUN/2014, A.Y. 2010 - 11 10 A, THE CIRCULAR WOULD APPLY TO THE ASSESSMENT YEAR UNDER APPEAL , AS WELL . 14. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE DECISION OF HONBLE KARNATAKA HIGH COURT , WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. ACCORDINGLY, THE SAME IS ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 12 TH DAY OF MAY, 201 7 . SD/ - SD/ - ( . /D. KARUNAKARA RAO ) ( / VIKAS AWASTHY) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 12 TH MAY, 2017 RK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - II , PUNE 4. / THE CIT - II , PUNE 5. , , , / DR, ITAT, B BENCH, PUNE. 6. / GUARD FILE. / / // TRUE COPY// / BY ORDER, / ASSISTANT REGISTRAR , , / ITAT, PUNE