ITO 31 (2)(1), MUMBAI V. I.T.GURU SOFTWARE, MUMBAI

ITA 3737/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0263 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-04-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 17-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3737 / MUM/20 15 ASSESSMENT YEAR: 2011 - 12 ITO 31 (2)(1) VS. M/S. I.T. GURU SOFTWARE R. NO. 708, C - 11, 7 TH FLOOR UNIT NO. 424 TO 428 ORCHARD RD. MALL BKC, BANDRA (E) ROYAL PALMS, SURVEY NO. 169 MUMBAI 400051 AAREY MILK COLONY, GOREGAON (E) MUMBAI 400065 PAN NO. AACFI9533Q (APPELLANT) (RESPONDENT) REVENUE BY: MR. B.S. BIST, DR ASSESSEE BY : MR. ASHOK MEHTA, AR DATE OF HEARING : 03/04/2017 DATE OF PRONOUNCEMENT: 22/06/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE R EVENUE . THE RELEVANT ASSESSMENT YEAR IS 2011 - 12 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 42, MUMBAI AND ARISES OUT OF ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE GROUND OF APPEAL FILED BY THE R EVENUE READ S AS UNDER : - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONCLUDING THAT THE ASSESSEE HAS SATISFIED ALL THE CONDITIONS LAID DOWN UNDER SECTION 10A ALTHOUGH ASSESSING OFFICER FOUND THAT THERE IS A RECONSTRUCTION OF AN EXISTING B USINESS AND CONDITIONS UNDER SECTION 10A(2)(II) HAVE NOT BEEN SATISFIED. ITA NO. 3737 /MUM/201 5 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) OBSERVED DURING THE COURSE OF ASSESSMENT PROCEE DINGS THAT AS PER THE SOFTWARE TECHNOLOGY PARK S OF INDIA (STPI), THE ASSESSEE WAS PERMITTED COMMENCEMENT OF BUSINESS W.E.F. 07.04.2010. HE FOUND FROM THE RECORDS THAT THE ASSESSEE HA D FILED RETURN OF INCOME FOR THE AY 2010 - 11 FROM THE SAME ADDRESS CLAIMING DEDUCTION U/S 10(2A) AND ALSO HAD CONDUCTED B USINESS FROM THE SAME ADDRESS . THUS IN VIEW OF SECTION 10A (2)(II) OF THE ACT , THE BUSINESS WAS EXISTING IN AY 2010 - 11. THE AO THUS INFERRED THAT THE ASSESSEE WAS CLAIMING 10A DEDUCTION FOR A BUSINESS UNDERTAKING WHICH WAS ALREADY EXISTING AND SINCE IT WA S NOT A NEWLY ESTABLISHED UNDERTAKING IN THE STPI, THE SAID UNDERTAKING WAS NOT ELIGIBLE FOR 10A DEDUCTION. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE FILED A REPLY STATING THAT IN THE INSTANT CASE, THE UNDERTAKING OF THE ASSESSEE WAS NOT FORMED BY SPLITTING UP OF THE BUSINESS. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE REPLY OF THE ASSESSEE AND HE HELD THAT THE ASSESSEE - FIRM ALREADY EXISTED BEFORE RECEIVING THE APPROVAL FROM STPI FOR COMMENCEMENT UNDER STPI S CHEME. THE AO HELD THAT THE PRO VISIONS OF SECTION 10A (2)(I)(B), 10A(2)(II) AND 10A(2)(III) WERE NOT COMPLIED WITH AND THEREFORE, THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S 10A AS IT WAS RE - CONSTRUCTION OF THE EARLIER ESTABLISHMENT AND ALL THE PLANT AND MACHINERY ALREADY AVAILABLE I N THE OLD ESTABLISHMENT WERE UTILIZED FOR MANUFACTURING IN THE STPI UNIT AND FURTHER THE EARLIER ORGANIZATION WAS CLOSED AND THE ASSESSEE - FIRM WAS MANUFACTURING SINCE THE YEAR 2009 BUT NOT IN STPI. THEREFORE, THE AO DISALLOWED THE CLAIM OF EXEMPTION OF RS. 2,16,65,461/ - U/S 10A OF THE ACT AND ADDED IT BACK TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 3737 /MUM/201 5 3 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) . W E FIND THAT THE LD. CIT(A) HAS HELD THAT NOTHING HAS CHANGED IN THE ASSESSEE - FIRM BEFORE AND AFTER THE RECEIPT OF STPI PERMISSION ON 07.04.2010. THE PARTNERSHIP DEED, BANK ACCOUNT, PAN, OFFICER ADDRESS AND INFRASTRUCTURE ARE SAME. THERE IS A PROCEDURAL TIME LAG BETWEEN THE FORMATION OF ASSESSEE - FIRM AND THE GRANT STPI PERMISSION, AND IN THE MEANTIME, THE ASSESSEE HAS CARRIED OUT CERTAIN SMALL WORK. THE PROFIT FROM SUCH SMALL BUSINESS ACTIVITY IS DULY OFFERED TO TAX WITHOUT CLAIMING THE EXEMPTION U/S 10A, WHICH IS BUT NATURAL SINCE THE ASSESSEE IS NOT ENTITLED TO SUCH EXEMPTION BEFO RE THE OFFICIAL PERMISSION IS GRANTED. THIS ITSELF WOULD NOT MAKE THE ASSESSEES ONGOING BUSINESS AS CLOSED AND STARTED AGAIN ON RECEIPT OF STPI PERMISSION. THUS THE LD. CIT(A) HAS HELD THAT THE INFERENCE DRAWN BY THE AO THAT THE ASSESSEES NON - STPI BUSINE SS IS CLOSED SEEMS FAR FETCHED AND CANNOT BE SUSTAINED WITHOUT ANY EVIDENCE ON RECORD TO PROVE THE SAME. THE LD. CIT(A) FOLLOWED THE DECISION BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. M/S QUANTUM CODERS LTD. IN ITA NO. 542/2013 DATED 04.02.2014 ; THE ORDER OF THE ITAT CHENNAI IN THE CASE OF NAGESH CHUNDUR VS. DCIT IN ITA NO. 83 & 729/MDS/2011 AND CBDT CIRCULAR NO. 149/194/2004 - TPL DATED 06.01.2005 AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO. HE SUBMITS THAT IT IS A CLEAR CASE WHERE THE ASSESSEE HAS NOT SATISFIED THE CONDITIONS LAID DOWN U/S 10A AND THERE IS A RE - CONSTRUCTION ON AN EXISTING BUSINESS. ITA NO. 3737 /MUM/201 5 4 6. PER CONTRA , THE LD. COUNSEL OF THE ASSESSEE FILES A PAPER BOOK ENCLOSING (I) DATE CHART GIVING SUMMARY, (II) LETTER FILED TO STPI FOR COMMENCEMENT OF PRODUCTION, (III) LETTER FROM STPI ABOUT CHARGES, (IV) PERMISSION LETTER FROM STPI ( H INDI), (V) PERMISSION LETTER FROM STPI (ENGLISH), (VI) REGISTRATION CERTIFICATE OF PARTNERSHIP FIRM, (VII) P ARTNERSHIP DEED, (VIII) LEAVE LICENSE AGREEMENT , (VIIII) LEDGER OF COMPUTER SOFTWARE, (X) BILLS FOR PURCHASE OF COMPUTER AND (XI) SUBMISSION MADE TO CIT(A) DATED 05.12.2014. RELIANCE WAS PLACED BY HIM ON THE DECISION IN M/S QUANTUM CODERS LTD. (SUPRA) ; CIT VS. SONATA SOFTWARE LTD . (2012) 3 43 ITR 397 (BOM), NAGESH CHUNDUR VS. CIT (2013) 358 ITR 521 (MAD) AND THE CBDT CIRCULAR NO. 1/2005 DATED 06.01.2005. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND THE PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THE FOLL OWING FACTS : (I) DATE OF ENTERING INTO A PARTNERSHIP 06.11.2009, (II) APPLICATION FOR REGISTRATION OF PARTNERSHIP 19.11.2009, (III) APP LICATION FOR STPI REGISTRATION MADE - 15.03.2010 AND (I V ) DATE OF RECEIPT OF PERMISSION FOR STPI 07.04.2010. IN THE CASE OF NAGESH CHUNDU R (SUPRA) , THE ASSESSEE WAS ENGAGED IN ELECTRONIC DATA TRANSMISSION (DATA PROCESSING). THE ASSESSEES UNIT WAS IN OPERATION EVER SINCE 1994. THE ASSESSEES UNIT WAS APPROVED AS SOFTWARE TECHNOLOGY PARK BY THE GOVERNMENT OF INDI A AS 100% EXPORT ORIENTED UNIT FOR COMPUTER SOFTWARE ON 27.03.2002. CONSIDERING ITS STATUS AS 100% EXPORT ORIENTED UNIT, THE ASSESSEE CLAIMED THE BENEFIT OF DEDUCTION U/S 10A OF THE ACT, PARTICULARLY FOR THE ASSESSMENT YEAR 2003 - 04. ADMITTEDLY, THE ASSESSE E HAD HAD THE BENEFIT OF 100% DEDUCTION ITA NO. 3737 /MUM/201 5 5 U/S 10A OF THE ACT FOR THE ASSESSMENT YEARS 2003 - 04 & 2004 - 05. FOR THE AY 2005 - 06, THE COMMISSIONER OF INCOME TAX INITIATED PROCEEDINGS U/S 263 ON THE GROUND THAT THE ASSESSEE GOT REGISTRATION AS SOFTWARE TECHNOLOGY PARK ONLY ON 27.03.2002, WHEREAS, IT HAD COMMENCED PRODUCTION IN THE FINANCIAL YEAR 1999 - 2000 ITSELF; AS SUCH, THE ASSESSEE UNIT WAS AN EXISTING UNIT WHEREIN THE PLANT AND MACHINERY WERE USED FOR SUCH PURPOSES; BY GETTING PERMISSION FROM AUTHORITY AS SOFTW ARE TECHNOLOGY PARK ON 27.03.2002, THE ASSESSEE HAD TRANSFERRED THE PLANT AND MACHINERY PREVIOUSLY USED TO THE SOFTWARE TECHNOLOGY PARK AND THE ASSESSEE HAD NOT REGISTERED EVER SINCE IT COMMENCED PRODUCTION IN THE FINANCIAL YEAR 1999 - 2000; IN VIEW OF THE A BOVE, THE DEDUCTION GRANTED WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THUS HOLDING, THE ASSESSMENT WAS SOUGHT TO BE REVISED. IN APPEAL THE HONBLE HIGH COURT HELD AS UNDER: IN THE CASE OF CIT AND OTHERS VS. M/S. EXPERT OUTSOURCE (P) LTD. (2011) 243 CTR (KAR) 411, POINTING OUT TO THE PURPOSE OF THE STP SCHEME TO ENCOURAGE EXPORTS AND GAIN VALUABLE FOREIGN EXCHANGE FOR THE COUNTRY, THE HIGH COURT HELD THAT 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. REFERRING TO CIRCULAR NO.1 OF 2005 DATED 06.01.2005, IT WAS POINTED OUT THAT THE SAID CIRCULAR GRANTS CERTAIN BENEFITS U/S 10B; THOUGH THIS WAS IN THE CONTEXT OF SECTION 10B, THE RATIO OF THE CIRCULAR NO.1 OF 2 005 DATED 06.01.2005 WOULD APPLY TO SECTION 10A TOO. THUS IT HELD THAT THE MERE FACT THAT THE ASSESSEE WAS IN EXISTENCE PRIOR TO ITS DATE OF REGISTRATION AS SOFTWARE TECHNOLOGY PARK WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING DEDUCTION U/S 10A. IN THE PRESENT CASE THERE WAS NO DENIAL OF THE FACT THAT THE ASSESSEE WAS IN BUSINESS RIGHT FROM 1999 - 2000. IT GOT ITS REGISTRATION AS STPI IN 2002. THE DEPARTMENT ACCEPTED THE CLAIM OF THE ASSESSEE FOR TWO AYS 2003 - 04 AND 2004 - 05 AND THE ASSESSMENT HAD BECOME FI NAL. IT WAS NOT AS THOUGH THE FACTS RELATING TO THE ITA NO. 3737 /MUM/201 5 6 ASSESSEE'S EXISTENCE PRIOR TO ITS REGISTRATION WERE NOT A FACT THAT THE DEPARTMENT DID NOT KNOW AND BY MISTAKE IT ALLOWED THE BENEFIT FOR THE EARLIER YEARS. IN THE CIRCUMSTANCES, WITH THE ORDERS THUS BECO MING FINAL, PRINCIPALLY STATING, NO JUSTIFIABLE GROUND WAS FOUND FOR THE REVENUE TO QUESTION THE CLAIM OF THE ASSESSEE FROM THE AY 2005 - 06 CIT AND OTHERS VS. M/S. EXPERT OUTSOURCE (P) LTD. (2011) 243 C7R (KAR) 411: RELIED. (PARA 15 & 16) EVEN OTHERWISE, TH E CLAIM OF THE REVENUE COULD NOT BE SUSTAINED. THE PROVISIONS CONTAINED IN SECTION 10A GRANTS 100% DEDUCTION ON PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TERN CONSECUTIVE AYS BEGI NNING WITH THE AY RELEVANT TO THE PY IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE. SECTION 10A(2) REFERS TO THE UNDERTAKING WHICH ARE ENTITLED TO THE BENEFIT OF SECTION 10A. IN THE PRESENT CASE, THE ASSESSEE WAS IN SOFTWARE TECHNOLOGY PARK. TH E ASSESSEE TOOK ADVANTAGE OF THE SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA AND SOUGHT FOR REGISTRATION AS STPI ON 2002. IN SO GETTING THE REGISTRATION, THE QUESTION THAT ARISES FOR CONSIDERATION WAS AS TO WHETHER THE CLAIM OF THE ASSESSEE WOULD BE COVERED BY CLAUSE (B) OF SUB CLAUSE (I) OF SUB SECTION 2 OF SECTION 10A. A READING OF THE ABOVE SUB SECTION SHOWED THAT IN ORDER TO CLAIM DEDUCTION, AN UNDERTAKING IN HARDWARE TECHNOLOGY PARK OR SOFTWARE TECHNOLOGY PARK MUST BE IN EXISTENCE COMMENCING ITS PRODUCT ION ON OR AFTER THE 1 ST DAY OF APRIL, 1994. GIVEN THE FACT THAT THE ASSESSEE WAS NOT FORMED BY SPLITTING UP OR TRANSFER TO A NEW BUSINESS AND GOT REGISTRATION EVEN SINCE 2002, THE FACT THAT IT HAS BEEN IN EXISTENCE EVER SINCE 1999, DOES NOT MILITATE AGAINS T THE APPLICABILITY OF SECTION 10A. THE CASE ON HAND FALLS U/S 10A(2)(B). EVEN THE CURSORY READING OF SECTION 10A(2)(I) SHOWS THAT IT HAD RELEVANCE TO INDUSTRY THAT HAD BEGUN TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE ON OR AFTER THE 1ST DAY OF APRIL, 1994. THUS, THE MOMENT THE ASSESSEE SATISFIED THIS CLAUSE AND IT GOES FOR THE SECOND REQUIREMENT NAMELY, REGISTRATION AS A SOFTWARE TECHNOLOGY PARK IN ACCORDANCE WITH THE SCHEME OF GOVERNMENT OF INDIA, THE ASSESSEE STANDS BENEFITED BY TH E PROVISIONS OF SECTION 10A. (PARA 17& 18) ITA NO. 3737 /MUM/201 5 7 GIVEN THE SCOPE OF THE SCHEME FORMULATED BY THE GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY IN LOCATING THE SOFTWARE TECHNOLOGY PARK, WHICH EITHER MAY BE DONE BY THE GOVERNMENT ITSELF OR BY THE INDIVIDUAL UNIT, NO CONDITIONS WAS FOUND IN THE SECTION, THROWING THE ASSESSEE OUT OF BENEFIT OF SECTION 10A SOLELY BY REASON OF IT BEING IN EXISTENCE ALREADY BUT BECAME STPI SUBSEQUENTLY. IN THE CIRCUMSTANCES, THE REVENUES APPEAL WAS REJECTED. THE ORDER O F THE ITAT WAS CONFIRMED. 7.1. TO SUM UP THE HONBLE MADRAS HIGH COURT IN THE CASE OF NAGESH CHUNDUR (SUPRA) HAS HELD THAT THE MERE FACT THAT THE ASSESSEE WAS IN EXISTENCE PRIOR TO ITS DATE OF REGISTRATION AS SOFTWARE TECHNOLOGY PARK WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING DEDUCTION U/S 10A. FACTS BEING SIMILAR, WE FOLLOW THE ABOVE DECISIONS AND UPHOLD THE ORDER OF THE LD. CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/2017 . SD/ - SD/ - ( MAHAVIR SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : DATED: 22/06/2017 RAHUL SHARMA , SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI