ITO 1(1)(2), MUMBAI V. DIGITISE IT ( INDIA) P.LTD, MUMBAI

ITA 4486/MUM/2011

• Counselvise Citation: 448619914 RSA 2011
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 17-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 10B

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) .. , , ./I.T.A. NO.4485 AND 4486/MUM/2011 ( / ASSESSMENT YEAR : 2006-07 AND 2007-08) INCOME TAX OFFICER 1(1)(2) ROOM NO.579, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. / VS. M/S DIGITISE IT (INDIA) PVT. LTD., 6, ST. JAMES COURT, 206, MARINE DRIVE, MUMBAI-400002 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ./I.T.A. NO.6875 AND 6877/MUM/2011 ( / ASSESSMENT YEARS : 2005-06 & 2008-09) ASSTT. COMMISSIONER OF INCOME TAX-1(1), ROOM NO.579, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. / VS. M/S DIGITISE IT (INDIA) PVT. LTD., 6, ST. JAMES COURT, 206, MARINE DRIVE, MUMBAI-400002 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AABCD1860F !' & / REVENUE BY : SHRI DURGA DUTT #$!' ' & /ASSESSEE BY : SHRI NI RAJ SHETH ( ) ' *+ / DATE OF HEARING : 17.7.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 12.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE FOUR APPEALS, FILED AT THE INSTANCE OF THE REVENUE, ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A)-I, MUMBAI AN D THEY RELATE TO THE ASSESSMENT YEARS 2005-06 TO 2008-09. SINCE IDENTIC AL ISSUES ARE AGITATED IN THESE APPEALS, THEY WERE HEARD TOGETHER AND ARE BEI NG DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 2 2. THE COMMON ISSUE URGED IN ALL THE FOUR APPEALS R ELATES TO THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 10A OF THE ACT. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE D ISCUSSED IN BRIEF. THE ASSESSEE COMPANY WAS INCORPORATED ON 24.4.2000 AND IS ENGAGED IN THE BUSINESS OF SCANNING, CONVERTING, DIGITALIZING, COL LATING, STORING, TRANSFERRING, SORTING AND MODIFYING DOCUMENTS /DATA/ DRAWINGS INT O ELECTRONIC FORMAT. IT OBTAINED SOFTWARE TECHNOLOGY PART (STP) REGISTRATIO N FROM 16.6.2004. HENCE, THE ASSESSEE COMPANY STARTED CLAIMING DEDUCTION U/S 10A OF THE ACT FROM ASSESSMENT YEAR 2005-06 ONWARDS, I.E., FROM THE YEA R IN WHICH IT OBTAINED REGISTRATION AS STP. THE AO HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT FOR THE FOLLOWING REASONS:- (A) THE ASSESSEE IS NOT A NEW UNDERTAKING, I.E., T HE ASSESSEE IS CARRYING OUT ITS ACTIVITY SINCE AY 2001-02. (B) IT HAS NOT SET UP ANY SEPARATE OR NEW UNIT AFT ER GETTING REGISTRATION AS SOFTWARE TECHNOLOGY PARK. IT HAS C ONTINUED TO USE OLD BUSINESS SET UP AFTER GETTING STP REGISTRATION ALSO. (C) AS PER THE AGREEMENT ENTERED WITH STP AUTHORIT IES, THE UNIT WAS SUPPOSED TO BE 100% EXPORT ORIENTED UNIT. BUT THE ASSESSEE HAS NOT SET UP ANY SEPARATE NEW UNIT. (D) MERELY REGISTERING WITH SOFTWARE TECHNOLOGY PA RK DOES NOT ENTITLE THE ASSESSEE TO GET DEDUCTION U/S 10A. (E) ASSESSEE HAS NOT DEMARCATED THE ELIGIBLE UNDER TAKING AND NON-ELIGIBLE UNDERTAKING. (F) ASSESSEE HAS UTILIZED OLD PLANT AND MACHINERY, WHICH WERE USED PREVIOUSLY, IN EXCESS OF 20% OF THE TOTAL PLAN T AND MACHINERY USED IN THE BUSINESS. (G) THE ASSESSEE HAS NOT BROUGHT INTO INDIA THE T OTAL SALES PROCEEDS IN CONVERTIBLE FOREIGN EXCHANGE ON OR BEFO RE 30.09 OF THE RELEVANT YEAR. ACCORDINGLY, THE AO REJECTED THE CLAIM OF DEDUCTION U/S 10A OF THE ACT MADE BY THE ASSESSEE IN ALL THE FOUR YEARS UNDER CONSIDERAT ION. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT AND ACCOR DINGLY REVERSED THE DECISION OF I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 3 THE AO IN ALL THE FOUR YEARS. AGGRIEVED, THE REVEN UE HAS FILED THESE APPEALS BEFORE US. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE MAIN REASON ON WHICH THE AO HAS REJECTED THE CLAIM FOR DEDUCTION U /S 10A WAS THAT THE ASSESSEE HAS NOT SET UP A NEW UNIT AFTER OBTAINING REGISTRAT ION AS SOFTWARE TECHNOLOGY PARK. SINCE THE ASSESSEE HAS OBTAINED STP REGISTRA TION FOR THE EXISTING UNIT, IT AMOUNTS TO USING OF OLD PLANT AND MACHINERY. WE NO TICE THAT THE LD CIT(A) HAS PLACED RELIANCE ON THE CIRCULAR NO. 1 OF 2005 ISSUE D BY THE CBDT IN THE CONTEXT OF DEDUCTION U/S 10B OF THE ACT, WHEREIN IT WAS CLA RIFIED THAT AN UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFI T FROM EXPORT OF COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS S UBSEQUENTLY CONVERTED INTO EOU, SHALL BE ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. IT WAS FURTHER C LARIFIED THAT THE DEDUCTION, IN SUCH TYPE OF CASES, SHALL BE AVAILABLE ONLY FROM TH E YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FO R THE REMAINING PERIOD. 6. ACCORDING TO THE ASSESSEE HEREIN, IT HAS STARTED CLAIMING DEDUCTION U/S 10A OF THE ACT ONLY FOR THE PERIOD COMMENCING FROM THE DATE OF APPROVAL AS STP. THE LD CIT(A) HAS ACCEPTED THE CONTENTION OF THE AS SESSEE THAT THE RATIO OF THE CIRCULAR NO.1 OF 2005 (REFERRED SUPRA) SHALL EQUALL Y APPLY TO THE DEDUCTION CLAIMED U/S 10A OF THE ACT. HOWEVER, THE CONTENTIO N OF THE LD D.R IS THAT THE CIRCULAR (REFERRED SUPRA) WAS ISSUED IN THE CONTEXT OF DEDUCTION ALLOWABLE U/S 10B OF THE ACT AND HENCE THE SAID CIRCULAR SHALL NOT HA VE APPLICATION TO THE DEDUCTION CLAIMED U/S 10A OF THE ACT. 7. THUS, THE CONTENTIONS OF THE LD D.R ARE TH AT THE ASSESSEE, IN ORDER TO BECOME ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT, S HOULD HAVE SET UP A NEW UNIT AND SHOULD NOT HAVE BROUGHT IN OLD PLANT AND MACHIN ERY IN EXCESS OF 20% OF TOTAL VALUE. SINCE THE ASSESSEE HAS CONTINUED TO CARRY O N THE BUSINESS IN THE EXISTING UNIT, ACCORDING TO LD D.R THE ASSESSEE IS NOT ELIGI BLE FOR DEDUCTION U/S 10A OF THE ACT. I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 4 8. BEFORE US, THE LD A.R PLACED RELIANCE ON THE FOLLOWING CASE LAW TO CONTEND THAT THE DEDUCTION U/S 10A IS AVAILABLE TO THE EXIS TING UNIT ALSO FROM THE DATE OF OBTAINING APPROVAL AS STP. (A) CIT VS. EDS ELECTRONICS DATA SYSTEMS (INDIA) (P) LTD (2013) (89 DTR (DEL) 182) (B) NAGESH CHUNDUR VS. CIT (2013)(358 ITR 521)(MA D) (C) CIT VS. MAXIM INDIA INTEGRATED CIRCUIT DESIGN (P) LTD (2011)(202 TAXMAN365)(KAR) (D) CIT VS. EXPERT OUTSOURCE (P) LTD (2011)(59 DT R 86). 9. WE HAVE GONE THROUGH THE ABOVE SAID DECISION S. WE NOTICE THAT THE FACTS PREVAILING IN THE INSTANT CASE ARE IDENTICAL WITH T HE FACTS PREVAILING IN THE CASE OF NAGESH CHUNDUR (SUPRA) CONSIDERED BY HONBLE MADRAS HIGH COURT. IN THE SAID CASE, THE ASSESSEE THEREIN WAS IN BUSINESS FROM 199 4 ONWARDS. IT WAS APPROVED AS STP BY GOVERNMENT OF INDIA (AS 100% EXPORT ORIEN TED UNIT FOR COMPUTER SOFTWARE) ON 27.3.2002. THE ASSESSEE CLAIMED DEDUC TION U/S 10A OF THE ACT FOR AY 2003-04. THE ITAT ALLOWED THE CLAIM OF THE ASSE SSEE BY FOLLOWING THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CAS E OF EXPERT OUTSOURCE (P) LTD (SUPRA). THE HONBLE MADRAS HIGH COURT UPHELD THE VIEW TAKEN BY THE TRIBUNAL WITH THE FOLLOWING OBSERVATIONS:- 11. LEAVING THIS ASIDE, IN CONSIDERING THE CLAIM OF TH E ASSESSEE, THE INCOME TAX APPELLATE TRIBUNAL POINTED OUT TO THE DE CISION OF THE KARNATAKA HIGH COURT IN THE CASE OF CIT V. EXPERT OUTSOURCE (P.) LTD. [2012] 20 TAXMANN.COM 481 , WHEREIN, THE KARNATAKA HIGH COURT HELD THAT THE PURPOSE OF THE SOFTWARE TECHNOLOGY PARK SCHEME WAS TO ENCOURAGE EXPORTS AND GAIN VALUABLE FOREIGN EXCHANGE FOR THE COUNTRY; EVEN THOUGH THE ASSESSEE HAD BEGUN OPERATIONS ON 17.12.2003, IT HAD ITS REGISTRATION ON 04.08.2004; THAT THE SOFTWARE TECHNOLOGY PARK AU THORITIES COULD ALSO PERMIT THE CONVERSION OF AN EXISTING UNIT INTO A ST PI UNIT. THUS, BASED ON THE DECISION OF THE KARNATAKA HIGH COURT, THE INCOM E TAX APPELLATE TRIBUNAL ALLOWED THE ASSESSEE'S CLAIM, THAT, THE FA CT OF THE ASSESSEE BEING IN THE BUSINESS PRIOR TO THE DATE OF THE REGISTRATI ON OF THE STPI WOULD NOT STAND IN THE WAY OF GRANTING RELIEF TO THE ASSESSEE . 12. LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE TOOK US THROUGH THE PROVISIONS UNDER SECTION 10A OF THE ACT AND SEC TION 10B OF THE ACT AND SUBMITTED THAT THE RELIANCE PLACED ON BY THE AS SESSEE ON THE DECISION OF THE KARNATAKA HIGH COURT HAS NO RELEVANCE, BECAU SE IT OPERATED ON A DIFFERENT FIELD; THE RELIEF UNDER SECTION 10A OF TH E ACT HAS TO BE SEEN IN THE CONTEXT OF THE PROVISIONS CONTAINED THEREIN. 13. REITERATING THE STAND TAKEN BEFORE THE INCOME TAX APPELLATE TRIBUNAL AS WELL AS THE ORDER PASSED AGAINST THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDINGS, LEARNED STANDING COUNSEL AP PEARING FOR THE I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 5 REVENUE SUBMITTED THAT THE ADMITTED FACT IS THAT TH E ASSESSEE COMMENCED ITS BUSINESS EVEN BEFORE THE DATE OF REGI STRATION I.E., ON 27.03.2002 AND WHEN THE SECTION CONTEMPLATES DEDUCT ION ONLY IN RESPECT OF INDUSTRIES WHICH HAVE COMMENCED PRODUCTION AFTER THE DATES MENTIONED IN SECTION 10A(2) OF THE ACT AND REGISTERED AS TECH NOLOGY PARK FROM THEREIN, THE CLAIM OF THE ASSESSEE COULD NOT BE SUS TAINED AS PER THE PROVISIONS CONTAINED IN SECTION 10A OF THE ACT. 14. IN SHORT, THE CONTENTION OF THE REVENUE IS THAT TH E ASSESSEE, WHICH IS ALREADY IN EXISTENCE CANNOT TAKE THE BENEFIT OF SEC TION 10A OF THE ACT AND ONLY SUCH OF THOSE ASSESSEES, WHO HAVE COMMENCED PR ODUCTION WITH THE REGISTRATION AS SOFTWARE TECHNOLOGY PARK AS GIVEN T HEREIN UNDER SECTION 10A(2) OF THE ACT ALONE CAN CLAIM TO BENEFIT OF SEC TION 10A OF THE ACT. CONSEQUENTLY, ACCORDING TO THE LEARNED STANDING COU NSEL APPEARING FOR THE REVENUE, THE INCOME TAX APPELLATE TRIBUNAL COMM ITTED SERIOUS ERROR IN APPLYING THE DECISION OF THE KARNATAKA HIGH COUR T IN THE CASE OF EXPERT OUTSOURCE (P) LTD. ( SUPRA ). 15. WE DO NOT AGREE WITH THE SAID LINE OF REASONING OF LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE. AT THE OUTSET, W E MAY SAY THAT WE ARE IN RESPECTFUL AGREEMENT WITH THE KARNATAKA HIGH COU RT DECISION IN THE CASE OF EXPERT OUTSOURCE (P) LTD. ( SUPRA ) . POINTING OUT TO THE PURPOSE OF THE STP SCHEME TO ENCOURAGE EXPORTS AND GAIN VALUAB LE FOREIGN EXCHANGE FOR THE COUNTRY, THE KARNATAKA HIGH COURT HELD THAT 'THE STP SCHEME PROVIDES THE BENEFIT OF CONVERTING A DTA UNI T INTO A STPI UNIT AND THE SAME SHOULD ALSO HOLD GOOD FOR TAX PURPOSES.' R EFERRING TO CIRCULAR NO.1 OF 2005 DATED 06.01.2005, THE KARNATAKA HIGH C OURT POINTED OUT THAT THE SAID CIRCULAR GRANTS CERTAIN BENEFITS UNDER SEC TION 10B OF THE ACT; THOUGH THIS WAS IN THE CONTEXT OF SECTION 10B OF TH E ACT, THE RATIO OF THE CIRCULAR NO.1 OF 2005 DATED 06.01.2005 WOULD APPLY TO SECTION 10A OF THE ACT TOO. THUS IT HELD THAT THE MERE FACT THAT THE A SSESSEE WAS IN EXISTENCE PRIOR TO ITS DATE OF REGISTRATION ON 04.08.2004 AS SOFTWARE TECHNOLOGY PARK WOULD NOT DISENTITLE THE ASSESSEE FROM CLAIMING DED UCTION UNDER SECTION 10A OF THE ACT. 16. AS FAR AS THE PRESENT CASE IS CONCERNED, THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE IS IN BUSINESS RIGHT FROM 1999-20 00. IT GOT ITS REGISTRATION AS STPI ON 27.03.2002. THE DEPARTMENT ACCEPTED THE CLAIM OF THE ASSESSEE FOR TWO ASSESSMENT YEARS 2003-04 AND 2004- 05 AND THE ASSESSMENT HAD BECOME FINAL. IT IS NOT AS THOUGH TH E FACTS RELATING TO THE ASSESSEE'S EXISTENCE PRIOR TO ITS REGISTRATION ON 2 7.03.2002 IS NOT A FACT THAT THE DEPARTMENT DID NOT KNOW AND BY MISTAKE IT ALLOWED THE BENEFIT FOR THE YEAR 2003-04 AND 2004-2005. IN THE CIRCUMSTANCES, WITH THE ORDERS THUS BECOMING FINAL, PRINCIPALLY STATING, WE DO NOT FIND ANY JUSTIFIABLE GROUND FOR THE REVENUE TO QUESTION THE CLAIM OF THE ASSESSEE FROM THE ASSESSMENT YEAR 2005-06. 17. EVEN OTHERWISE, WE FIND THAT THE CLAIM OF THE REVE NUE COULD NOT BE SUSTAINED. THE PROVISIONS CONTAINED IN SECTION 10A OF THE ACT GRANTS 100% DEDUCTION ON PROFITS AND GAINS DERIVED BY AN U NDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE F OR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASS ESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAK ING BEGINS TO I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 6 MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE. SECTION 10A(2) OF THE ACT REFERS TO THE UNDERTAKING WHICH ARE ENTITLED TO THE BENEFIT OF SECTION 10A OF THE ACT. THE SECTION READS AS UNDER: 'SECTION 10A(2): THIS SECTION APPLIES TO ANY UNDER TAKING WHICH FULFILS ALL THE FOLLOWING CONDITIONS, NAMELY : ( I ) IT HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE AR TICLES OR THINGS OR COMPUTER SOFTWARE DURING THE 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 RECONS TRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : PROVIDED THAT THIS CONDITION SHALL NOT APPLY IN RES PECT OF ANY UNDERTAKING WHICH IS FORMED AS A RESULT OF THE RE-ESTAB LISHMENT, RECONSTRUCTION OR REVIVAL BY THE ASSESSEE OF THE BUSINESS OF ANY SUCH UNDERTAKINGS AS IS REFERRED TO IN SECTION 33B, IN THE CIRCUMSTANCES AN D WITHIN THE PERIOD SPECIFIED IN THAT SECTION; ( III ) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE.' EXPLANATION 2-(VII) DEFINES SOFTWARE TECHNOLOGY PAR K AS FOLLOWS: '( VII ) 'SOFTWARE TECHNOLOGY PARK' MEANS ANY PARK SET UP IN ACCORDANCE WITH THE SOFTWARE TECHNOLOGY PARK SCHEME NOTIFIED BY THE GOV ERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY.' A READING OF THE PROVISIONS REFERRED TO ABOVE POINT OUT THAT THE SECTION GRANTS 100% DEDUCTION TO AN UNDERTAKING, WHICH HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUT ER SOFTWARE AS PER SUB CLAUSE (I) OF SUB SECTION 2 OF SECTION 10A OF THE A CT. THE DATES MENTIONED THEREIN SHOW THE CONDITIONS REGARDING THE YEAR OF M ANUFACTURE FOR THE PURPOSE OF RECKONING THE EXEMPTION/ DEDUCTION FOR T EN CONSECUTIVE YEARS WITH REFERENCE TO THE UNDERTAKING SET UP IN DIFFERE NT LOCATIONS VIZ., FOR THE INDUSTRIES IN FREE TRADE ZONE, UNITS IN ELECTRONIC HARDWARE TECHNOLOGY PARK OR SOFTWARE TECHNOLOGY PARK, UNITS IN SPECIAL ECONO MIC ZONE. THE SECOND REQUIREMENT UNDER SUB SECTION 2 OF SECTION 10A OF T HE ACT IS THAT IT IS NOT FORMED BY SPLITTING UP OR THE RECONSTRUCTION OF A B USINESS ALREADY IN EXISTENCE AND SUB CLAUSE (III) OF SUB SECTION 2 OF SECTION 10A OF THE ACT STATES THAT IT IS NOT FORMED BY THE TRANSFER OF MAC HINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE TO A NEW BUSINESS. I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 7 18. AS FAR AS THE PRESENT CASE IS CONCERNED, THE ASSES SEE IS IN SOFTWARE TECHNOLOGY PARK. THE ASSESSEE TOOK ADVANTAGE OF THE SCHEME NOTIFIED BY THE GOVERNMENT OF INDIA IN THE MINISTRY OF COMMERCE AND INDUSTRY OF THE 'SOFTWARE TECHNOLOGY PARK' AND SOUGHT FOR REGISTRAT ION AS STPI ON 2002. IN SO GETTING THE REGISTRATION, THE QUESTION THAT ARIS ES FOR CONSIDERATION IS AS TO WHETHER THE CLAIM OF THE ASSESSEE WOULD BE COVER ED BY CLAUSE (B) OF SUB CLAUSE (I) OF SUB SECTION 2 OF SECTION 10A OF T HE ACT. A READING OF THE ABOVE SUB SECTION SHOWS THAT IN ORDER TO CLAIM DEDU CTION, AN UNDERTAKING IN HARDWARE TECHNOLOGY PARK OR SOFTWARE TECHNOLOGY PARK MUST BE IN EXISTENCE COMMENCING ITS PRODUCTION ON OR AFTER THE 1ST DAY OF APRIL, 1994. GIVEN THE FACT THAT THE ASSESSEE IS NOT FORMED BY S PLITTING 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 MILITAT E AGAINST THE APPLICABILITY OF SECTION 10A OF THE ACT. THE CASE O N HAND FALLS UNDER SECTION 10A(2)(B) OF THE ACT. AS ALREADY POINTED OU T, EVEN THE CURSORY READING OF SECTION 10A(2)(I) OF THE ACT SHOWS THAT IT HAS RELEVANCE TO INDUSTRY THAT HAS BEGUN TO MANUFACTURE OR PRODUCE A RTICLES OR THINGS OR COMPUTER SOFTWARE ON OR AFTER THE 1ST DAY OF APRIL, 1994. THUS, THE MOMENT THE ASSESSEE SATISFIES 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 STA NDS BENEFITED BY THE PROVISIONS OF SECTION 10A OF THE ACT. 19. LEARNED STANDING COUNSEL APPEARING FOR THE REVENUE HOWEVER POINTED OUT TO THE SECOND PROVISO TO SECTION 10A(1) OF THE ACT AND SUBMITTED THAT THE SECTION WILL HAVE RELEVANCE TO THE INDUSTRY. 20. WE DO NOT THINK IT SO. THE SECOND PROVISO TO SECTI ON 10A(1) OF THE ACT STATES THAT WHERE THE UNDERTAKING LOCATED IN ANY FR EE TRADE ZONE OR EXPORT PROCESSING ZONE IS SUBSEQUENTLY LOCATED IN A SPECIA L ECONOMIC ZONE BY REASON OF CONVERSION OF SUCH FREE TRADE ZONE OR EXP ORT PROCESSING ZONE INTO A SPECIAL ECONOMIC ZONE, THE PERIOD OF TEN CON SECUTIVE ASSESSMENT YEARS REFERRED TO IN THIS SUB-SECTION SHALL BE RECK ONED FROM THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH IT HAD STARTED MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS OR C OMPUTER SOFTWARE IN THE FREE TRADE ZONE OR THE EXPORT PROCESSING ZONE OR OT HERWISE, AND CLARIFIES THAT THE BENEFIT WOULD CONTINUED TO BE AVAILABLE TO THE BALANCE OF PERIOD AVAILABLE TO THE FREE TRADE ZONE WHICH HAS BEEN SUB SEQUENTLY GOT CONVERTED INTO SPECIAL ECONOMIC ZONE. 21. GIVEN THE SCOPE OF THE SCHEME FORMULATED BY THE GO VERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY IN LOCATING THE S OFTWARE TECHNOLOGY PARK, WHICH EITHER MAY BE DONE BY THE GOVERNMENT IT SELF OR BY THE INDIVIDUAL UNIT, WE DO NOT FIND ANY CONDITIONS IN T HE SECTION, THROWING THE ASSESSEE OUT OF BENEFIT OF SECTION 10A OF THE ACT S OLELY BY REASON OF IT BEING IN EXISTENCE ALREADY BUT BECAME STPI SUBSEQUE NTLY. IN THE CIRCUMSTANCES, WE HAVE NO HESITATION IN REJECTING T HE REVENUE'S APPEAL, THEREBY CONFIRMING THE ORDER OF THE INCOME TAX APPE LLATE TRIBUNAL. I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 8 10. SINCE THE VIEW TAKEN BY THE LD CIT(A) IS IN A CCORDANCE WITH THE VIEW EXPRESSED BY HONBLE MADRAS HIGH COURT IN THE CASE OF NAGESH CHUNDUR (SUPRA), WE DO NOT FIND ANY REASON TO INTERFERE WIT H HIS ORDER ON THIS ISSUE. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT(A) ON TH IS ISSUE. 11. IN AY 2008-09, THE REVENUE IS AGITATING ON ONE MORE ISSUE, VIZ., THE LD CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION O F RS.29,75,853/- RELATING TO WORK IN PROGRESS. THE FACTS RELATING TO THE SAME ARE DI SCUSSED IN BRIEF. THE AO NOTICED THAT THE ASSESSEE DID NOT DISCLOSE ANY WOR K IN PROGRESS IN ITS PROFIT AND LOSS ACCOUNT EVEN THOUGH IT CLAIMED OPERATING EXPEN SES TO THE TUNE OF RS.2,29,16,769/-. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS RAISED INVOICES TO THE EXTENT OF RS.29,75,853/- ON 30.4.2008, I.E., DURING THE FIRST MONTH OF SUCCEEDING YEAR. HENCE, THE AO TOOK THE VIEW THAT THE EXPENSES RELATING TO THE ABOVE SAID INVOICES WOULD HAVE BEEN INCURRED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY HE TREATED THE ABOVE SA ID AMOUNT OF RS.29,75,853/- AS WORK IN PROGRESS AS ON 31.3.2008 AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 12. BEFORE LD CIT(A), THE ASSESSEE CONTENDED TH AT THE WORK OF DIGITIZATION DOES NOT INVOLVE MORE THAN 4 HOURS OF WORK AND ALMO ST ALL THE WORK ARE COMPLETED WITHIN 12 HOURS. ACCORDINGLY, IT WAS CON TENDED THAT THE AO WAS NOT JUSTIFIED IN PRESUMING THAT THE WORK RELATING TO TH E BILLS RAISED ON 30.4.2008 WAS DONE IN MARCH 2008. IT WAS ALSO CONTENDED THAT THE AO HAS MADE THE IMPUGNED ADDITION WITHOUT CALLING FOR EXPLANATIONS FROM THE ASSESSEE. 13. THE LD CIT(A) ACCEPTED THE ABOVE SAID CONTE NTIONS AND ACCORDINGLY DIRECTED THE AO TO DELETE THE ADDITION. THE LD CIT (A) ALSO NOTED THAT HIS PREDECESSOR HAS CONSIDERED IDENTICAL ISSUES IN AY 2 006-07 AND 2007-08 AND HAS DELETED IDENTICAL ADDITIONS MADE IN THOSE YEARS. T HE REVENUE IS AGGRIEVED BY THE SAID DECISION OF LD CIT(A). 14. ACCORDING TO REVENUE, THE AO DID NOT MAKE A NY SUCH ADDITION IN AY 2006- 07 AND 2007-08 AND HENCE THERE WAS NO OCCASION FOR THE LD CIT(A) TO CONSIDER THOSE ISSUES IN THE ABOVE SAID TWO YEARS. WE HAVE ALSO GONE THROUGH THE ORDER PASSED BY LD CIT(A) IN AY 2006-07 AND 2007-08 AND W E FIND THAT THE LD CIT(A) I.T.A. NO.4485 AND 4486/MUM/2011 I.T.A. NO.6875 AND 6877/MUM/2011 9 DID NOT ADJUDICATE ANY SUCH ISSUE IN THOSE YEARS. HENCE, WE FIND MERIT IN THE CONTENTIONS OF THE REVENUE. FURTHER WE NOTICE THAT THE LD CIT(A) HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE THAT THE WORK IS NO RMALLY COMPLETED WITHIN 12 YEARS WITHOUT CAUSING ANY VERIFICATION OF THE SAID CLAIM. FURTHER, IT IS ALSO THE CONTENTION OF THE ASSESSEE BEFORE LD CIT(A) THAT TH E ASSESSING OFFICER HAS MADE THE IMPUGNED ADDITION WITHOUT PROVIDING AN OPPORTUN ITY TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THIS ISSUE REQUIR ES FRESH EXAMINATION AT THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFIC ER WITH THE DIRECTION TO EXAMINE THIS ISSUE AFRESH AFTER AFFORDING NECESSARY OPPORTU NITY OF BEING HEARD TO THE ASSESSEE AND DECIDE THE SAME IN ACCORDANCE WITH THE LAW. 15. IN THE RESULT, THE APPEALS FILED BY THE REV ENUE FOR AY 2005-06 TO 2007-08 ARE DISMISSED AND THE APPEAL FILED FOR AY 2008-09 I S TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12 TH SEPT AUG , 2014. ,- ( ./ 0 1 12TH SEPT, 2014 - ' ) 2 SD SD ( /SANJAY GARG) ( .. / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER . ( ) MUMBAI: 12TH SEPT,2014. . . ./ SRL , SR. PS ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. # $!' / THE RESPONDENT. 3. ( 4* ( ) / THE CIT(A)- CONCERNED 4. ( 4* / CIT CONCERNED 5. 56 #* 7 , + 7 , . ( ) / DR, ITAT, MUMBAI CONCERNED 6. 8) / GUARD FILE. 9 ( / BY ORDER, TRUE COPY : (ASSTT. REGISTRAR) + 7 , . ( ) /ITAT, MUMBAI