M/s. Accurate Data Convertors P. Ltd., Coimbatore V. ITO, Coimbatore

ITA 2514/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4526 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 14-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 29-08-2016
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: K RAGHU
• Keywords: Business income; Wrong claim; Difference of opinion; Competent authority; Change of opinion; Revenue expenditure
• Section: 147; 68; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI . . . , '.. % , * BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2514/MDS/2016 + + /ASSESSMENT YEAR: 2009-10 M/S.ACCURATE DATA CONVERTORS P. LTD., 130, RAMALINGAM ROAD (WEST), R.S.PURAM, COIMBATORE-641 002. VS. THE INCOME TAX OFFICER, CORPORATE WARD-1, COIMBATORE. [PAN: AACCA 4803 C ] ( . /APPELLANT) ( /0. /RESPONDENT) . 1 / APPELLANT BY : MR.K.RAGHU, CA /0. 1 /RESPONDENT BY : MR.SUPRIYO PAL, JCIT 1 /DATE OF HEARING : 14.03.2017 1 /DATE OF PRONOUNCEMENT : 26.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 24.06.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHENNAI, IN ITA NO.47/15-16 FOR THE AY 2009-10. 2.0 GROUND NOS.1 & 5 ARE GENERAL IN NATURE WHICH DO NOT REQUIRE SPECIFIC ADJUDICATION. ITA NO.2514/MDS/2016 :- 2 -: 3.0 GROUND NOS.2 & 3 ARE RELATED TO THE VALIDITY OF RE-ASSESSMENT U/S.147 OF INCOME TAX ACT (IN SHORT THE ACT). THE ASSESSEE FILED RETURN OF INCOME FOR THE AY 200 9-10 ON 11.08.2009 ADMITTING TOTAL INCOME OF RS.NIL AND THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S.143(3 ) ON 04.10.2011 ACCEPTING THE INCOME RETURNED. LATER ON, THE ASSES SING OFFICER (IN SHORT AO) NOTICED THAT THE ASSESSEE HAS MADE WRONG CLAI M U/S.10A AND REOPENED THE ASSESSMENT U/S 147 AND ACCORDINGLY ISS UED THE NOTICE U/S.148 ON 18.03.2014 AND COMPLETED THE ASSESSMENT U/S.143(3) R.W.S. 147 BY AN ORDER DATED 23.03.2015 ON TOTAL INCOME OF RS.3,11,69,970/-. IN THE RE-ASSESSMENT MADE U/S.147. THE AO HAS WITH DRAWN THE DEDUCTION CLAIMED U/S.10A OF THE ACT. 3.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) UPHELD THE ISSU E OF NOTICE U/S.148. HENCE, THE ASSESSEE IS ON APPEAL BEFORE THIS TRIBUN AL. 4.0 DURING THE APPEAL, THE LD.AR OF THE ASSESSEE AR GUED THAT, IN THIS CASE THE ASSESSMENT WAS COMPLETED U/S.143(3) AND IN ORIGINAL ASSESSMENT PROCEEDINGS, THE ASSESSEE HAS FURNISHED ALL THE RELEVANT DETAILS TO THE AO AND AFTER EXAMINATION OF ALL THE DETAILS, THE AO HAS ALLOWED THE DEDUCTION U/S.10A, HENCE THE THE AR CON TENDED THAT REVISITING THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO THE D EDUCTION CLAIMED U/S.10A TANTAMOUNT TO DIFFERENCE OF OPINION AND THE AO IS NOT PERMITTED TO RESORT TO RE-OPENING OF ASSESSMENT U/S.148 BECAU SE IT IS A MERE CHANGE OF OPINION. THE LD.AR RELIED ON THE FOLLOWI NG DECISIONS: ITA NO.2514/MDS/2016 :- 3 -: 1. 34 CAPGEMINI INDIA PVT. LTD. V. ACIT [2015] 232 TAXM ANN.COM 175 (BOMBAY) 2. 35 CIT V. ARAVIND REMEDIES LTD. [2015] 378 ITR 547 ( MAD) 3. 36 CIT V. MARUTHI SUZUKI INDIA LTD. IN ITA NO.1232/2 009 DATED 18.10.2012. 5.0 ON THE OTHER HAND, THE LD.DR ARGUED THAT THE AS SESSMENT IS RE- OPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEAR AND THE ASSESSEE HAS CLAIMED THE DEDUCTION U/S.10A STATING THAT IT WAS 10 TH YEAR OF CLAIM AND THE AUDIT REPORT FILED BY THE A SSESSEE IN 56-F COLUMN NO.8 IT WAS ALSO CERTIFIED THAT THE CLAIM WA S MADE FOR 10 TH YEAR. THE AO RELIED ON THE AUDIT REPORT AND ALLOWED THE D EDUCTION BELIEVING THAT THE CLAIM WAS MADE GENUINELY FOR 10 TH YEAR. WHEREAS THE DATE OF COMMENCEMENT OF MANUFACTURE/PRODUCTION OF ARTICLES/ THINGS WAS WAY BACK TO THE DATE OF 03.10.1997 AND CONSIDERING THE DATE OF COMMENCEMENT OF MANUFACTURING THE YEAR UNDER CONSID ERATION FOR WHICH THE CLAIM MADE WAS 11 TH YEAR AND THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.10A FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS FURNISHED THE WRONG STATEMENT FOR CLAIMING THE DEDU CTION AS 10 TH YEAR. THEREFORE, THE LD.DR ARGUED THAT THE ASSESSEE HAS M ADE THE WRONG CLAIM U/S.10A FOR WHICH IT WAS NOT ELIGIBLE FOR DEDUCTIO N. THEREFORE, THE LD.DR ARGUED THAT NOTICE ISSUED U/S.148 IS VALID AND NO I NTERFERENCE IS CALLED FOR. 6.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEES AUDIT REPORT FOR THE AY 2009-10, IN FORM-56F, THE ASSESSEE HAS MENTIONED THAT THE CLAIM FOR THE CONSE CUTIVE YEAR FOR WHICH DEDUCTION CLAIMED WAS 10 TH YEAR. THE ASSESSEE HAS COMMENCED THE PRODUCTION/MANUFACTURE OF ARTICLES/THINGS ON 03.10 .1997 AND TILL THE END ITA NO.2514/MDS/2016 :- 4 -: OF THE PREVIOUS YEAR RELEVANT TO THE AY 2009-10, T HE ASSESSEE HAS COMPLETED 11 YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION/MANUFACTURE OF ARTICLES/THINGS. AS PER THE PROVISIONS OF SEC.10A, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S .10A ONLY FOR 10 YEARS FROM THE END OF THE RELEVANT AY FROM THE YEAR IN WH ICH PRODUCTION/MANUFACTURE OF ARTICLES/THINGS HAVE BEEN COMMENCED. THE PERIOD OF 10 YEARS WAS COMPLETED BY THE FY 2007-08. THEREFORE, THE CLAIM OF THE ASSESSEE FOR THE A.Y. 2009-10 WOULD BE 11 TH CONSECUTIVE A.Y AND THE PRIMA FACIE CASE IT IS INCORRECT OR WRONG CLAIM WHICH IS NOT ALLOWABLE. THE AO HAS ISSUED NOTICE U/S.148 WITHIN FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND THE INFORMA TION FILED BY THE ASSESSEE IN FORM NO.56F GIVES MISLEADING FACTS ON T HE BASIS OF WHICH THE ASSESSMENT WAS COMPLETED. THE AUDITOR HAS CERTIFIED THAT IT WAS 10 TH YEAR OF CLAIM AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTION THOUGH THE CLAIM WAS MADE FOR 11 TH YEAR FROM THE DATE OF COMMENCEMENT OF PRODUCTION/MANUFACTURE OF ARTICLES/THINGS. THE ASS ESSEE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CAPEGEMINI INDIA (P) LTD. V. ACIT REPORTED IN 58 TAXMANN.COM 1 75 (BOMBAY) AND ARGUED THAT RE-OPENING OF ASSESSMENT ON THE GROUND THAT DEDUCTION U/S.10A WAS WRONGLY ALLOWED WOULD BE A CASE OF REVI SITING THE CLAIM WHICH WAS IMPERMISSIBLE. IN THE CASE LAW RELIED UPON BY THE ASSESSEE A SPECIFIC QUESTION REGARDING DEDUCTION WAS RAISED BY THE AO IN THE QUESTIONNAIRE AND THE ASSESSMENT WAS COMPLETED AFTER CONSIDERING THE REPLY OF THE ASSESSEE. FURTHER THE FACTS OF THE CASE IN CAPEGEMI NI INDIA WAS AS FOLLOWS: ITA NO.2514/MDS/2016 :- 5 -: IT FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2 007 -08 AND DECLARED INCOME OF RS 2.76 CRORES. WHILE FILING RETURN, ASSESSEE CLAIMED DEDUC TION UNDER SECTION 10A WITH RESPECT TO PROFITS DERI VED FROM TWO UNITS. THE ASSESSEE POINTED OUT THAT THE D EDUCTION UNDER SECTION 10A WAS ELABORATED IN SCHEDULE 10A. THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED. FURTHER, THE ASSESSEE POINTED OUT THAT DURING THE C OURSE OF ASSESSMENT PROCEEDINGS, THERE WAS A QUESTIONNAIRE THAT RAISED A SPECIFIC QUERY IN RELAT ION TO THE DEDUCTION CLAIMED UNDER SECTION 10A. THE ASSESSING OFFICER ISSUED REASSESSMENT NOTICE IN MAR CH, 2014, CLAIMING THAT THE INCOME HAD ESCAPED ASSESSMENT AND THE DEDUCTION UNDER SECTION 10A WAS WRONGLY ALLOWED. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTI ON 10A WITHOUT SETTING OFF THE LOSSES OF THE OTHER UNITS FROM THE PROFITS DERIVED FROM ELIGIBLE UNITS AND, THUS, THERE EXISTED VALID REASONS TO BELIEVE T HAT ASSESSEE FAILED TO DISCLOSE FULL AND TRUE MATERIAL FACTS. IN THE CASE LAW CITED, THE FACTS REGARDING THE PROF ITS OF THE 10A UNITS AND THE LOSSES WERE DECLARED BY THE ASSESSEE AND THE AO AFTER CALLING FOR THE INFORMATION COMPLETED THE ASSESSESMENT. THE ASSESSE E HAS NOT FURNISHED ANY WRONG OR MISLEADING INFORMATION. IN THE INSTANT CASE THE ASSESSEE HAS MADE THE WRONG CLAIM AND FURNISHED THE MISLEADING I NFORMATION AND INCORRECT CERTIFICATE ISSUED BY THE ACCOUNTANT. THEREFORE, THE HONBLE JURISDICTIONAL HIGH COURT DECISION IS NOT APPLICABL E IN ASSESSEES CASE. IN THE INSTANT CASE, THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE TO SHOW THAT THE AO HAS EXAMINED THE CLAIM OF THE ASSE SSEE WITH RESPECT TO THE NUMBER OF YEARS. THERE WAS NO DISCUSSION IN TH E ASSESSMENT ORDER. THEREFORE, WE ARE OF THE CONSIDERED PINION THAT THE FACTS OF THE CASE LAW RELIED UPON BY THE ASSESSEE ARE NOT APPLICABLE IN T HIS CASE. IN THE CASE OF CIT V. ARAVIND REMEDIES LTD., RELIED UPON BY THE AS SESSEE, THE AY INVOLVED WAS 1996-97 AND THE NOTICE WAS ISSUED U/S. 148 ON 04.02.2003 WHICH IS BEYOND THE PERIOD OF FOUR YEARS AND THE IS SUE WAS WHETHER THE EXPENDITURE WAS REVENUE EXPENDITURE OR THE DEDUCTIO N U/S 35D AMORTIZATION OF PRELIMINARY EXPENSES. SIMILARLY IN THE CASE OF CIT V. MARUTI SUZUKI INDIA LTD. CITED SUPRA ALSO THE NOTIC E U/S.148 WAS ISSUED BEYOND FOUR YEARS AND THE ISSUE WAS REVENUE EXPENDI TURE OR CAPITAL ITA NO.2514/MDS/2016 :- 6 -: EXPENDITURE. IN BOTH THE CASES INFERENCES CAN BE DR AWN ON BOTH SIDE I.E CAPITAL OR REVENUE. IN BOTH THE CASES THERE WAS NO FORM 56-F GIVING MISLEADING INFORMATION FOR CLAIMING WRONG DEDUCTION OF SECTION 10A, THEREFORE, THE CASE LAWS RELIED UPON BY THE ASSESSE E ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IN THE INSTANT CASE THE ASSESSMENT WAS RE- OPENED WITHIN FOUR YEARS FROM THE END OF THE RELEVA NT AY AND THERE WAS A PRIMA FACIE CASE OF WRONG DEDUCTION CLAIMED BY THE ASSESSEE. THIS FACT WAS NOT BROUGHT TO THE NOTICE OF THE AO BY THE ASSE SSEE AT THE TIME OF ORIGINAL ASSESSMENT PROCEEDINGS U/S.143(3) AND THE AO ALSO HAS NOT EXAMINED THE ELIGIBILITY OF ENTITLEMENT OF DEDUCTIO N U/S.10A. THEREFORE, WE HOLD THAT THE NOTICE ISSUED U/S.148 IS VALID AND THE ORDER OF THE CIT(A) IS UPHELD. THE ASSESSEES APPEAL ON THIS GROUND IS DISMISSED. 7.0 GROUND NO.4 IS RELATED TO THE DISALLOWANCE OF C LAIM MADE BY THE ASSESSEE U/S.10A. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE U/S.10 A STATING THAT THE PERIOD OF 10 YEARS FROM THE DATE OF THE COMMENCEMEN T OF MANUFACTURING/PRODUCTION WAS COMPLETED BY THE AY 20 07-08 AND THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION FOR THE A.Y 2009-10. THE DEDUCTION WAS COVERED FOR THE PERIOD FROM 1998-99 TO 2007-08 AND COMPLETED THE PERIOD OF 10 YEARS AND NO DEDUCTION IS PERMISSIBLE BEYOND THE PERIOD OF 10 YEARS. ACCORDINGLY, THE AO HAS WITHDRAWN THE I NCORRECT/WRONG CLAIM MADE BY THE ASSESSEE. THE LD.CIT(A) CONFIRMED THE ORDER OF THE AO ITA NO.2514/MDS/2016 :- 7 -: HOLDING THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTIO N U/S.10A FROM THE COMMENCEMENT OF PRODUCTION/MANUFACTURE OF ARTICLES/ THINGS AND IN THE ASSESSEES CASE THE DATE OF COMMENCEMENT OF PRODUCT ION/MANUFACTURE WAS 06.10.1997 AND FIRST OF YEAR HAPPENS TO BE 1998 -99 AND THE 10 YEARS PERIOD FOR EXEMPTION ENDED ON 2007-08 AND HENCE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S.10A IN THE RELEVANT A.Y. 200-09.THE RELEVANT PART OF THE LD.CIT(A) IS EXTRACTED AS UNDER: 6. AS REGARDS TO THE FACTS OF THE CASE, I HAVE CONS IDERED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS OF THE ASSESSEE. THE ISSUE TO B E DECIDED IS WHETHER THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.10A FOR TEN YEARS FROM ASS T. YEAR 1998-99, RELEVANT TO PREVIOUS YEAR 1997-98 I.E. WHEN THE ASSESSEE BEGAN TO MANUFA CTURE OR PRODUCE SUCH ARTICLE OR THING OR COMPUTER SOFTWARE OR THE YEAR FROM WHICH THE ASSESSEE WAS GRANTED STPI REGISTRATION I.E. FROM ASST. YEAR 2000-01, CONSIDERING THAT THE ASSESSEE WAS GRANTED STPI REGISTRATION ON 27.03.2000. 7. IN THIS REGARD THE CONTENTION OF THE ASSESSEE IS THAT THE DATE OF COMMENCEMENT WAS WRONGLY MENTIONED IN THE AUDIT REPORT AS 03.10.1997 , WHEREAS IT WAS INCORPORATED ONLY ON 06.10.1997. IT IS SUBMITTED THAT EVEN IF THE DATE W AS WRONGLY MENTIONED AS 03.10.1997 (I.E. 3 DAYS PRIOR TO DATE OF ACTUAL INCORPORATION) IN THE AUDIT REPORT, IT DOES NOT HAVE ANY EFFECT ON THE MERITS OF THE CASE AS THE FIRST YEAR OF BUSINESS ANYWAY HAPPENS TO BE ONLY THE A.Y. 1998-99. THIS IS ACKNOWLEDGED BY THE ASSESSEE AS WELL AS EVIDENCED BY THE COPY OF THE COVERING LETTER TO THE RETURN OF INCOME FILED B Y THE ASSESSEE FOR THAT ASSESSMENT YEAR, A COPY OF WHICH IS ENCLOSED IN ANNEXURE-A. 8. IT IS THE CONTENTION OF THE ASSESSEE THAT THE 1 ST PROVISO TO SECTION 10A IS NOT APPLICABLE TO THEM. IRONICALLY, DURING THE COURSE OF THE ASSES SMENT PROCEEDINGS, THE ASSESSEE HAD RELIED ON THE VERY SAME PROVISO IN THEIR SUPPORT. 9. THE ASSESSEE FURTHER SEEKS TO PLACE RELIANCE ON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF M/S.CIT VS SOFFIA SOFTWARE LTD. (2015) 370 ITR 146. IN THIS REGARD, IT MAY BE POINTED OUT THAT THE ISSUE FOR CONSIDERATION IN THAT CASE WAS WHETHER THE EXEMPTION U/S.10A WOULD BE AVAILABLE ONLY FOR THE PERIOD OF TH E FINANCIAL YEAR AFTER THE DATE OF APPROVAL AS 100% EOU OR FOR THAT ENTIRE PREVIOUS YE AR. THEREFORE, THE PORTIONS OF THE ORDER SOUGHT TO BE EMPHASIZED BY THE ASSESSEE ARE FOUND T O BE QUOTED TOTALLY OUT OF CONTEXT. HENCE, THE SAID DECISION DOES NOT COME TO THEIR AID . 10. AS REGARDS, THE OTHER CASE LAW CITED BY THEM VI Z. CIT VS FORESEE INFORMATION SYSTEMS (P) LTD. 365 ITR 335 (KAR.), RATHER THAN ADVANCING T HEIR CASE, IT ONLY GOES TO BUTTRESS THE STAND OF THE REVENUE THAT THE TEN YEAR PERIOD IS TO BE RECKONED FROM THE DATE OF COMMENCEMENT OF THE BUSINESS AND NOT FROM THE DATE OF REGISTRATION IN A STP. 11. CONSIDERING THE ABOVE LEGAL ISSUES IN FAVOUR OF THE REVENUE, AS WELL AS CBDT CIRCULAR NO.1/2005 DATED 06.01.2005, IT IS TO BE HELD THAT 10 YEARS RECKONED FROM ASST. YEAR 1998- 99 AND THEREFORE THE ASSESSEE IS NOT ENTITLED TO CL AIM THE DEDUCTION U/S.10A I.E. FOR THE CURRENT YEAR I.E. A.Y. 2009-10. ITA NO.2514/MDS/2016 :- 8 -: APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE ASSESSEE HAD SET UP 100% EOU UNDER THE STPI SCHEME DURING THE P REVIOUS YEAR RELEVANT TO THE AY 2000-01 AND AS SUCH THE AY 2009- 10 WAS 10 TH YEAR OF DEDUCTION AND THE ASSESSEE IS ELIGIBLE FOR DEDUCTIO N U/S.10A OF THE ACT WHICH RIGHTLY ALLOWED IN THE REGULAR ASSESSMENT. T HE LD.AR ARGUED THAT THE PERIOD FOR EXEMPTION SHOULD BE RECKONED FROM TH E AY 2000-01 BUT NOT FORM THE A.Y 1998-99. THEREFORE, THE LD.AR CONTEND ED THAT THE AO HAS WRONGLY DISALLOWED THE DEDUCTION CLAIMED BY THE ASS ESSEE AND HENCE THE ORDERS OF THE LOWER AUTHORITIES REQUIRED TO BE SET A SIDE. ON THE OTHER HAND, THE LD.DR ARGUED THAT IT IS EVIDENT FROM THE AUDIT REPORT THAT THE ASSESSEE HAS COMMENCED PRODUCTION ON 03.10.1997 AND THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.10A FOR 10 YEARS UP TO A Y 2007-08 AND THE CLAIM OF DEDUCTION U/S.10A FOR THE AY 2009-10 IS A WRONG CLAIM MADE BY THE ASSESSEE WHICH IS WITHDRAWN BY THE AO CORRECTL Y AND NO INTERFERENCE IS CALLED FOR. 8.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. IN THIS CASE, AS PER THE AUDIT REPORT FURNISHED BY THE ASSESSEE UNDER FROM-56F, THE COMMENCEMENT OF PRODUCTION/MANU FACTURE WAS 03.10.1997 AND THE DATE OF INITIAL REGISTRATION WIT H THE SEZ WAS 27.03.2000. THOUGH, THE ASSESSEE ARGUED THAT THE C OMPANY WAS INCORPORATED ON 06.10.1997, NO EVIDENCE HAS BEEN PR ODUCED BY THE ASSESSEE TO ESTABLISH THAT THE COMPANY HAS NOT COMM ENCED THE ITA NO.2514/MDS/2016 :- 9 -: PRODUCTION ON 06.10.1997. THE ASSESSEE ALSO NOT PR ODUCED THE EVIDENCE IN THE FORM OF INCOME TAX RETURNS FILED FOR THE AY 1998-99 TO 2000-01 EVIDENCING THAT THE COMPANY HAS NOT COMMENCED ITS M ANUFACTURING ACTIVITIES. PRIOR TO 2000, THE COMPANY WAS IN A FR EE TRADE ZONE BUT NOT IN SOFTWARE TECHNOLOGY PARK. AS PER THE MATERIAL PLAC ED BEFORE US, THE COMPANY HAS FILED ITS RETURN OF INCOME FOR THE AY 1 998-99 AND THE COMPANYS INCOME FOR THE AYS 1998-99 & 1999-2000 AR E TAXED UNDER THE NORMAL PROVISIONS OF THE ACT AS THE DEDUCTION U/S SEC.10A WAS NOT AVAILABLE TO THE ASSESSEE. AS PER THE LETTER DATED 27.11.2012 FILED BY S.KRIS HNA MURTHY, CA, THE COMPANY WAS IN EXISTENCE ,COMMENCED THE PRODUCT ION AND THE FILED RETURNS OF INCOME FOR THE AYS 1998-99 & 1999-2000. THE RELEVANT PART OF THE LETTER FROM THE S. KRISHNA MURTHY,CA DATED 27.1 1.2012 IS RE-PRODUCED AS UNDER: THE PROVISO UNDER SUB SECTION (I) OF SECTION 10A I F THE UNDERTAKING HAD EXISTED IN SOFTWARE TECHNOLOGY PARK, IMMEDIATELY BEFORE THE SU BSTITUTION OF SUBSECTION (I) OF SECTION 10A BY THE FINANCE ACT, 2000, THEN THE UNDERTAKING SHALL BE ENTITLED TO DEDUCTION REFERRED TO IN SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID 10 CONSECUTIVE ASST. YEARS. IT IS NOT IN DISPUTE, THAT IN COMPUTING THE TOTAL I NCOME AS UNDERTAKING FOR THE ASST YEARS 1998-99 AND 1999-2000, ITS PROFITS AND GAINS WAS IN CLUDED IN THE COMPUTATION OF TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT, AS T HE APPLICATION FOR PROVISION TO SECTION 10A WAS NOT AVAILABLE, AS THE UNDERTAKING WAS NOT I N A SOFTWARE TECHNOLOGY PARK. IT IS THEREFORE, SUBMITTED THAT IN THE AUDIT REPORT FILED UNDER SECTION 10A, THE ASST YEARS 2008-09 AND 2009-10 ARE MENTIONED AS 9 TH AND 10 TH YEAR FROM THE DATE OF COMMENCEMENT OF PRODUCTION OF COMPUTER SOFTWARE IN SOFTWARE TECH NOLOGY PARK. THE YEAR OF PRODUCTION REFERRED TO IN YOUR LETTER I S THAT OF THE ASSESSEES BUSINESS AND NOT THAT OF THE UNDERTAKING IN A SOFTWARE TECHNOLOGY P ARK. THE ERROR THEREFORE, IN THE AUDIT REPORT IS TO BE R ECTIFIED AND THE ASSESSEE IS RIGHTLY ENTITLED AND ELIGIBLE FOR CLAIMING ITS PROFITS FROM ITS UNDE RTAKING UNDER SECTION 10A AS EXEMPT IN RESPECT OF THE ASST YEARS 2008-09 AND 2009-10. ITA NO.2514/MDS/2016 :- 10 -: FROM THE ABOVE FACTS, IT IS CLEAR THAT THE COMPANY WAS INCORPORATED AND COMMENCED PRODUCTION/MANUFACTURE OF ARTICLES/TH INGS ON 06.10.1997 AND THE CHARTERED ACCOUNTANT IN FORM NO.56F HAS RI GHTLY CERTIFIED THE DATE OF COMMENCEMENT . THE LD.AR OF THE ASSESSEE D ID NOT FURNISH ANY EVIDENCE DISPUTING THE FACTS. THEREFORE, THERE WAS NO DISPUTE IN THE DATE OF COMMENCEMENT OF PRODUCTION/MANUFACTURE OF ARTIC LES/THINGS ON 06.10.1997. NOW, THE QUESTION IS WHETHER THE ASSES SES CLAIM FOR DECTION U/S.10A HAS TO BE RECKONED FROM 2000-01 OR FROM 19 97-98. THE COMPANY HAS STARTED ITS EXISTENCE IN SOFTWARE TECHN OLOGY PARK BY COMPLETING ALL THE FORMALITIES FROM THE AY 2000-01. THEREFORE, THE ASSESSEE CONTENDED THAT, FOR THE PURPOSE OF DEDUCTI ON U/S.10A THE YEAR OF COMMENCEMENT SHOULD BE RECKONED FROM THE AY 2000-0 1 BUT NOT FROM THE AY 1998-99. 8.1 NOW, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS COMMENCED THE PRODUCTION IN PREVIOUS YEAR RELEVANT TO THE A.Y. 1 998-99 AND RELOCATED IN SEZ FROM A.Y. 2000-01. THEREFORE, THE ASSESSEE ARG UED THAT PERIOD FOR RECKONING U/S.10A DEDUCTION SHOULD BE FROM THE DATE OF RE-LOCATION OF THE UNIT IN STPI ZONE. THE ASSESSEE HAS COMMENCED ITS PRODUCTION IN THE FY 1997-98 AND SECTION 10A FOR THE RELEVANT FY 1997-98 IS EXTRACTED AS UNDER 64 [SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED INDUSTRIAL UNDERTAKINGS IN FREE TRADE ZONES. 65 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, ANY PROFITS AND GAINS DERIVED BY AN ASSESSEE FROM AN INDUSTRIAL UNDERTAKING TO WHICH THIS SECTION APP LIES SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF T HE ASSESSEE. (2) THIS SECTION APPLIES TO ANY INDUSTRIAL UNDERTAK ING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY: 66 [(I) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODU CE ARTICLES OR THINGS DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR (A) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 19 81, IN ANY FREE TRADE ZONE; OR ITA NO.2514/MDS/2016 :- 11 -: (B) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 19 94, IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK OR, AS THE CASE MAY BE, SOFTWARE TECHNOLOGY PARK;] 67 [(IA) IN RELATION TO AN UNDERTAKING WHICH BEGINS TO MANUFACTURE OR PRODUCE ANY ARTICLE OR THING ON OR AFTER THE 1ST DAY OF APRIL, 1995, ITS EXPORTS OF SU CH ARTICLES OR THINGS ARE NOT LESS THAN SEVENTY-FIV E PER CENT OF THE TOTAL SALES THEREOF DURING THE PREVIOUS YEAR;] (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE R ECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE: PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF ANY INDUSTRIAL UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUC H INDUSTRIAL UNDERTAKING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUS INESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION.THE PROVISIONS OF EXPLANATION 1 AND EX PLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE (III) OF THI S SUB-SECTION AS THEY APPLY FOR THE PURPOSES OF CLA USE (II) OF THAT SUB-SECTION. 68 [(3) THE PROFITS AND GAINS REFERRED TO IN SUB-SECTI ON (1) SHALL NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF ANY FIVE CONSECUTIVE ASS ESSMENT YEARS, FALLING WITHIN A PERIOD OF EIGHT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE INDUSTRIAL UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICL ES OR THINGS, SPECIFIED BY THE ASSESSEE AT HIS OPTION : PROVIDED THAT NOTHING IN THIS SUB-SECTION SHALL BE CONSTRUE D TO EXTEND THE AFORESAID FIVE ASSESSMENT YEARS TO COVER ANY PERIOD AFTER THE EXPIRY OF THE S AID PERIOD OF EIGHT YEARS.] AS PER THE PROVISIONS OF SEC.10A FOR THE PERIOD FR OM 1997-98 TO 1999-2000, THE ASSESSEE IS NOT ENTITLED FOR DEDUCT ION U/S.10A SINCE THE ASSESSEES ACTIVITY IS NOT COVERED BY SEC.10A OF TH E ACT. HOWEVER, AS PER SEC.10A(3) THE ELIGIBLE PERIOD FOR DEDUCTION U/S.10 A WAS FIVE CONSECUTIVE AYS WITHIN A PERIOD OF 8 YEARS BEGINNING WITH THE AY, RELEVANT TO THE PREVIOUS YEAR IN WHICH THE INDUSTRIAL UNDERTAKING H AS COMMENCED THE PRODUCTION/MANUFACTURE OF ARTICLES/THINGS. THE PRO VISIONS OF SEC.10A WAS AMENDED BY FINANCE ACT, 2000 EXTENDING THE BENIFIT TO THE ASSESSEE. IN THE AMENDMENT, THE ASSESSEES BUSINESS ACTIVITY WAS ALSO COVERED FOR DEDUCTION U/S.10A AND THE PERIOD OF EIGHT YEARS HAS BEEN EXTENDED TO 10 YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION/M ANUFACTURE OF ARTICLES/THINGS. FOR READY REFERENCE, WE RE-PRODUC E HEREUNDER THAT THE PROVISIONS OF SEC.10A AS AMENDED BY THE FINANCE ACT , 2000. [ SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED U NDERTAKINGS IN FREE TRADE ZONE, ETC. ITA NO.2514/MDS/2016 :- 12 -: 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DE DUCTION 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 CONSECUTIVE A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE P REVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MAN UFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE , AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : PROVIDED THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDE RTAKING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAI NS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISI ONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE IT S SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDERTAKING SHALL BE ENT ITLED TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY FOR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE A SSESSMENT YEARS : PROVIDED FURTHER THAT WHERE AN UNDERTAKING INITIALLY LOCATED IN ANY FREE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIAL ECONOMIC ZONE BY R EASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXPO RT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SU B-SECTION SHALL BE RECKONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE 70A [ UNDERTAKING BEGAN TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTW ARE ] IN SUCH FREE TRADE ZONE OR EXPORT PROCESSING ZONE : 70B [PROVIDED ALSO THAT THE PROFITS AND GAINS DERIVED FROM SUCH DOMESTIC SALES OF ARTICLES OR THINGS OR COMPUTER SOFTWARE AS DO NOT EXCEED TWENTY-FIVE PER CENT OF T OTAL SALES SHALL BE DEEMED TO BE THE PROFITS AND GAI NS DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWAR E : ] PROVIDED ALSO THAT NO DEDUCTION UNDER THIS SECTION SHALL BE ALLOW ED TO ANY UNDERTAKING FOR THE ASSESSMENT YEAR BEGINNING ON THE 1ST DAY OF APRIL, 2010 AND SUBSEQU ENT YEARS. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH F ULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : ( I ) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUC E ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR ( A ) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1981 , IN ANY FREE TRADE ZONE; OR ( B ) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 1994 , IN ANY ELECTRONIC HARDWARE TECHNOLOGY PARK, OR, AS THE CASE MAY BE, SOFTWARE TECHNOLOGY PARK; ( C ) COMMENCING ON OR AFTER THE 1ST DAY OF APRIL, 2001 IN ANY SPECIAL ECONOMIC ZONE; ( II ) IT IS NOT FORMED BY THE SPLITTING UP, OR THE REC ONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RESPECT OF A NY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTABLISHMENT, RECONSTRUCTION OR REVIVAL B Y THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAK ING AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANC ES AND WITHIN THE PERIOD SPECIFIED IN THAT SECTION; ( III ) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINE SS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. EXPLANATION. THE PROVISIONS OF EXPLANATION 1 AND EXPLANATION 2 TO SUB-SECTION (2) OF SECTION 80-I SHALL APPLY FOR THE PURPOSES OF CLAUSE ( III ) OF THIS SUB-SECTION AS THEY APPLY FOR THE PURPOSE S OF CLAUSE ( II ) OF THAT SUB-SECTION. (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SO FTWARE EXPORTED OUT OF INDIA ARE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHANGE, WITH IN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN S UCH FURTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALL OW IN THIS BEHALF. FROM THE PLAIN READING AMENDED SECTION OF S EC.10A, IT IS CLEAR THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.10A FOR THE PERIOD OF 10 YEARS FROM THE DATE OF COMMENCEMENT OF PRODUCTION/MANUFAC TURE OF ARTICLES/THINGS FOR 10 CONSECUTIVE AYS. IT WAS ALSO MADE IT CLEAR IN SECTION THAT WHERE IN COMPUTING THE TOTAL INCOME OF THE UNDERTAK ING FOR ANY ASSESSMENT YEAR, ITS PROFITS AND GAINS HAD NOT BEEN INCLUDED BY APPLICATION OF THE PROVISIONS OF THIS SECTION AS IT STOOD IMMEDIATELY BEFORE ITS SUBSTITUTION BY THE FINANCE ACT, 2000, THE UNDE RTAKING SHALL BE ENTITLED ITA NO.2514/MDS/2016 :- 13 -: TO DEDUCTION REFERRED TO IN THIS SUB-SECTION ONLY F OR THE UNEXPIRED PERIOD OF THE AFORESAID TEN CONSECUTIVE ASSESSMENT YEARS. THE ASSESSEE IS IN EXISTENCE FROM 1997-98 WHICH HAD COMMENCED PRODUCTI ON/MANUFACTURE OF ARTICLES/THINGS DURING THE FY 1997-98 AND EXEMPTION PERIOD OF 10 YEARS WAS ENDED WITH THE AY 2007-08 AND THEREFORE FOR THE AY UNDER CONSIDERATION, THE ASSESSEE IS NOT ELIGIBLE FOR DED UCTION U/S.10A AS HELD BY THE LD.CIT(A) IN HIS ORDER. ACCORDINGLY, THE ORDER OF THE LD.CIT(A) IS UPHELD AND THE APPEAL OF THE ASSESSEE IS DISMISSED. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH MAY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . % ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 26 TH MAY, 2017. TLN 1 /%7 87 /COPY TO: 1. . /APPELLANT 4. 9 /CIT 2. /0. /RESPONDENT 5. 7 / /DR 3. 9 ( ) /CIT(A) 6. + /GF