ITO 9(2)(2), MUMBAI V. CANDOR INDIA P.LTD, MUMBAI

ITA 4718/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0077 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 20-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Depreciation; Onus to prove
• Section: 143(3); 142(1); 10AA; 10B; 68; 69

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH , JM AND SHRI RAJESH KUMAR, AM ITA NO. 4718 AND 4719 / MUM/ 20 1 5 ( / ASSESSMENT YEA S R: 20 10 - 11 AND 2011 - 12 ) INCOM E TAX OFFICER - 9(2)(2), ROOM NO.601A, 6 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400020 / VS. M/S CANDOR INDIA PVT LTD., SINDHI BUILDING, 15 TH ROAD, KHAR WEST, MUMBAI - 400098 ( / APPELLANT) : ( / RESPONDENT ) ./ PA N : AADCC3264A ( / APPELLANT) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAJAT MITTAL /R E SPONDENT BY : SHRI HARI RAHEJA / DATE OF HEARING : 11.5.2017 / DATE OF PRONO UNCEMENT : 21. 6 . 201 7 / O R D E R PER RAJESH KUMAR, A. M: THE CAPTIONED APPEAL S BY THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - 16, MUMBAI , DATED 2 9.5.2015 , PERTAINING TO THE ASSESSMENT YEAR S 20 10 - 11 AND 2011 - 12 WHICH IN TURN HA VE ARISEN FROM THE ORDER PASSED BY THE ASSESSING OFFICER DATED 25.2.2014 UNDER SECTION 143(3) R.W.S. 90A O F THE INCOME TAX ACT, 1961(IN SHORT THE ACT). SINCE THESE APPEALS PERTAIN TO THE SAME ASSESSEE, WE HAVE CLUBBED THESE APPEALS 2 ITA NO. 4718 AND 4719 9 /MUM/201 5 TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMBINE D ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE SHALL DECIDE THE APPEAL FOR THE ASSESSMENT YEAR 2010 - 011 . BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING SOFTWARE SERVICES AND ALLIED ACTIVITIES. THE ASSESSEE FILED RETURN OF INCOME ON 2 0.9.201 0 DECLARING A TOTAL INCOME OF RS. 20,00,000 / - WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE ACT AND THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDER SECTION 143(2), DATED 25.8.2012 AND SUBSEQUENTLY NOTICE U/S 142(1) WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT NOTICED THAT THE ASSESSEE HAS SHOWN A TURNOVER OF RS.2,53,28,130/ - AND THE ASSESSEE CLAIMED DEDUCTION U/S 10A OF THE ACT TO THE TUNE OF RS.51,40,950/ - ON ACCOUNT OF EXPORT SALES MADE FROM ITS STP I UNIT LOCATED AT GDP HOUSE. 3RH FLOOR,88 - C, OLD PRABHADEVI, MUMBAI - 400025. ACCORDINGLY, THE AO ASKED THE ASSESSEE TO FILE C OMPLETE DETAILS IN RESPECT OF ITS CLAIM OF EXEMPTION U/S 10A OF THE ACT, WHICH WAS DULY SUBMITTED BY THE ASSESSEE. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO OBSERVED THAT THE ASSESSEE HAS NOT FULFILLED THE NECESSARY CONDITIONS QUA CLAIMING THE BENEFIT U/S 10A OF THE ACT. THEREAFTER, THE ASSESSEE AGAIN REPLIED TO THE QUERIES RAISED BY THE AO WHICH HAS BEEN INCORPORATED BY THE AO AT PAGES 2 TO 6 OF THE ASSESSMENT ORDER. ACCORDING TO THE AO , THE ASSESSEE HAS NOT FULFILLED T HE NECESSARY CONDITIO NS AS STIPULATED IN THE LETTER DATED 11.1.2012 OF STPI , 3 ITA NO. 4718 AND 4719 9 /MUM/201 5 THAT THE ASSESSEE HAS NOT COMMENCED ITS OPERATION AND COULD NOT SUBMIT ANY INSPECTION REPORT . THE SAID LETTER REPORTED BY STPI VIDE LETTER DATED 28.6.2012 ON THE BASIS OF DETAILS FURNISHED BY THE A SSESSEE ON 11.11.2012 AND ASSESSEE CLAIMED THAT IT HAS COMMENCED ITS OPERATION FROM THE ASSESSMENT YEAR 2008 - 09. THE AO OBSERVED THA T THE LETTER OF STPI CERTIFIED THAT THE ASSESSEE COMMENCED IT S EXPORT OPERATION DUR ING THE YEAR 2008 - 09 COULD NOT BE RELIE D UPON FOR THE PURPOSE OF INCOME TAX ACT. THE AO ALSO REPRODUCED LETTER DATED 2.12.2008 WHICH IS AT PAGES 7 AND 8 OF THE ASSESSMENT ORDER AND FINALLY THE AO REJECTED THE CLAIM OF THE ASSESSEE U/S 10A OF THE ACT AND DISALLOWED THE TOTAL CLAIM OF RS.5 1,40,950/ - . 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, WHO ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER: 3.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE A.O. AND THE SUBMISSION OF THE A.R. THE APPELLANT HAS CONSTITUTED A UNIT IN STPI WHICH HAS BEEN NOTIFIED BY THE GOVERNMENT. IN SUPPORT OF THE SAME, THE APPELLANT HAS SUBMITTED THE REGISTRATION CERTIFICATE FROM THE STPI COMMISSIONER. THE' CERTIFICATE CLEARLY SHOWS THA T THE APPELLANT HAS CONSTITUTED A UNIT IN STPI AND HAS COMMENCED THE OPERATIONS. THE SAME IS PLACED AT PAGE S NO. 20 TO 22 OF THE PAP.ERBOOK. FURTHER, THE APPELLANT AT PAGE NOS. 23 TO 27 OF THE PAPERBOOK HAS SUBMITTED COPIES OF CERTIFICATE OF FOREIGN INWARD REMITTAI1CES IN RESPECT OF RECEIPT OF FOREIGN CURRENCY. ON PERUSAL OF THE SAME IT IS SEEN THE APPELLANT HAS RECEIVED THE FOREIGN CURRENCY BY THE PROVISIONS OF SECTION 10(A)(3). THE COPY OF AUDIT REPORT IN FROM NO.56F SUBMITTED BY THE APPELLANT IN SUPPOR T OF ITS CLAIM OF EXEMPTION U/S 10A IS ALSO PLACED AT PAGE 28 TO 30 OF THE PAPER BOOK. THE AUTHORITIES OF THE STPI HAVE ALSO CERTIFIED THAT THE APPELLANT HAS MADE EXPORTS IN THE IT ENABLED SERVICES BY EMPLOYING THE REQUISITE TECHNICAL STAFF WHICH 4 ITA NO. 4718 AND 4719 9 /MUM/201 5 IS EVIDEN T FROM THE POINT NO (C) OF PARA 4.4.6 ON THE PAGE NO 6 OF THE ASSESSMENT ORDER PASSED U/S 143(3) R.W.S.90A R.W.S. 90A OF THE INCOME TAX ACT, 1961 DATED 25/02/2014 WHICH IS REPRODUCED AS UNDER: - 'DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE A. Y.2 009 - 10 VIDE LETTER DATED 11.01.2012, THE STPI INFORMED THAT THE UNIT HAS NOT COMMENCED ITS OPERATION AND NOT SUBMITTED ANY EXPORTS SINCE R EGISTRATION . THIS WAS LATER RETRACTED BY STPI VIDE ITS LETTER DATED 28.6.2012 ON THE BASIS OF DETAILS FURNISHED BY THE ASSESSEE ON 11.11.2012, ENDORSING THE ASSESSEE'S CLAIM THAT IT COMMENCED ITS OPERATION AND THE UN IT IS EXPORTING SINCE 2008 - 09.' 3.5 THE OBSERVATIONS OF THE A.O. HAVE BEEN CONSIDERED CAREFULLY. HOWEVER, IT MAY BE NOTED THAT THE ON PERUSAL OF THE DO CUMENTS SUBMITTED BY THE APPELLANT IT IS CLEAR THAT THE APPELLAN T HAS CONSTITUTED AN UNIT IN STPI AND HAS COMMENCED OPERATIONS . ALSO THE STPI AUTHORITIES H AVE ACKNOWLEDGED AND CERTIFIED THE WORK PERFORMED BY THE APPELLANT IN ITS STPI. THE APPELLANT HAS DUL Y COMPLIED WITH ALL THE CONDITIONS OF THE PROVISIONS OF SECTION 10 A OF THE ACT. ALSO, THE A.O. HAS NOT BROUGHT ANY CONCRETE FINDINGS TO DISALLOW THE CLAIM OF THE APPELLANT. ACCORDINGLY, I HOLD THAT THE APPELLANT IS DULY ELIGIBLE FOR EXEMPTION U/S 10A OF T HE ACT. FURTHER AS REGARDS THE CONTENTION OF THE A O THAT THE SALES MADE TO M /S VIRAJ PROFILES LIMITED, A 100% EOU DOES NOT QUALIFY AS EXPORTS FOR CLAIMING EXEMPTION U/S 10A OF THE ACT THE AR VEHEMENTLY STATED THAT IT IS ELIGIBL E FOR E XEMPTION U /S 10A O F THE ACT WITH REGARD TO THAT PART OF THE TURNOVER AL SO IN VIEW OF THE EXIM POLICY. LD AR. PLACING STRONG RELIANCE ON EXIM POLICY SUBMITTED THA T AS PER T HE EXIM POLICY SINCE SALE TO ANOTHER 100% EOU IS ALSO TREATED AS EXPORT SALES, APPELLANT SHOULD NOT BE DENIED EXEMPTION U /S 10A OF THE A CT ON THAT PART OF THE TURNOVER, WHICH WAS SOLD TO 100% EOU. LEARNED AR SUBMITTED UNLIKE SECTION IOBA OF THE ACT, WHICH USES THE EXPRE SSION 'EXPORT OUT OF INDIA', NO SUCH EXPRESSION HAS BEEN USED U/S 1 OA OF THE ACT. LEARN ED AR, THEREFORE, URGED THAT APPELLANT'S CLAIM OF EXEMPTION U/S 10B SHOULD BE ALLOWED. FURTHER, THE APPELLANT HAS SUBMITTED COPY OF PRINTOUT OF STPI HAND BOOK. PAGE 8 OF HAND BOOK SPECIFIES THE ELIGIBILITY OF DT A SALES FOR EXPORT OBLIGATION BENEFITS. A RE FERENCE TO THE SAME SHOULD SHOW THAT SUPPLIES TO OTHER STP /100%EOU/EFTP UNITS ARE ELIGIBLE FOR EXPORT BENEFIT (PLACES AT PAGE NO.31 - 38 OF THE PAPER BOOK). 5 ITA NO. 4718 AND 4719 9 /MUM/201 5 3.6 I HAVE PERUSED THE MATERIAL AND SUBMISSION ON RECORD. THE AO HAS NOT D ISPUTED THE FACT THAT M /S VIRAJ PROFILES LIMITED IS A 100% EOU. T HE SALES MADE TO 100% EOU ARE DEEMED TO BE AN EXPORT SALES AND THE SAME IS EVIDENT FROM THE STPI RULES. F URTHER ALSO CONSIDERING THE INTENTION OF THE LAW IN GRANTING AN EXEMPTION U /S 10A WITH AN INTENTION TO RECEI VE FOREIGN CURRENCY IT IS STATED THAT THE APPELLANT HAS RECEIVED THE SALES IN FOREIGN CURRENCY. THEREFORE, THE SALES MADE TO A 100% EOU SHALL BE DEEMED TO BE EXPORT SALES. ACCORDINGLY , THE GROUND OF APPEAL IS ALLOWED 3 . AFTER HEARING BOTH THE PARTIES AN D ON PERUSAL OF THE RECORD FILED BEFORE US, WE F IND TH A T THE LD. CIT(A) HAS PASSED VERY DETAILED AND REASONED ORDER CITING THE FIGURES AND F A CTS WHICH WAS WRONGLY APPRECIATED BY THE AO AND THUS REACHED A WRONG CONCLUSION . FROM THE FACTS BEFORE US WE FI ND THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT BUSINESS AND FULFILLED ALL THE NECESSARY CONDITIONS FOR CLAIMING EXEMPTION U/S 10A OF THE ACT . THE ASSESSEE HAS RECEIVED FOREIGN CURRENCY PROCEEDINGS WITHIN SIX MONTH AT THE END OF THE FINANCIAL YEA R AS REQUIRED UNDER THE PROVISIONS OF SECTION 10A(3) AND FILED AUDIT REPORT UNDER SECTION 56F IN SUPPORT OF HIS CLAIM OF EXEMPTION U/S 10A. MOREOVER, STPI HAS ACKNOWLEDGED AND CERTIFIED THE WORK PERFORMED BY THE ASSESSEE AND ALSO EMPLOYED REQUISITE STAFF. T HE STPI HAS ALSO CERTIFIED THAT THE ASSESSEE COMMENCED ITS OPERATION AND STARTED EXPORT FROM FINANCIAL YEAR 2008 - 09. IN VIEW OF THE FACTS, WE FIND THAT THE LD.CIT(A) HAS GIVEN REASONED FINDINGS ON THE ISSUE WHICH IN OUR VIEW REQUIRE D NO INTERFERENCE ON OUR PART . AS REGARD THE CONTENTION OF THE AO THAT THE SALES MADE TO M / VIRAJ PROFILES LIMITED, THE SAME WERE NOT QUALIFY FOR EXPORT EXEMPTION , T HE LD. CIT(A) CLEARLY HELD THAT AS PER EXIM POLICY THE SA LES E TO 100% EOU IS ALSO CONSIDERED AS 6 ITA NO. 4718 AND 4719 9 /MUM/201 5 EXPORT SAL ES AND EXEMPTION SHOULD NOT BE DENIED. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINED TO UPHOLD THE ORDER OF LD. CIT(A) ON ALLOWING THE CLAIM THE EXEMPTION U/S 10A OF THE ACT BY DISMISSING THE APPEAL OF THE REVENUE ON THIS ISSUE. 5 . THE ISSUE RAISED IN GROUND NO.3 IS IN RESPECT OF PARTIALLY UPHOLDING THE DISALLOWANCE OUT OF INCENTIVE AND SCHEME EXPENSES IGNORING THE FACT THAT THE ASSESSEE HAV E FAILED TO BRING ON RECORD ANY EVIDENCE THAT SUCH EXPENSE S WE RE GENUINE AND WERE INCURRE D IN CONNECTION WITH TOUR OF SPOUSE OF DIRECTOR OF THE COMPANY WHICH WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS COMPLETELY FAILED TO PROVE THAT THE EXPENSE S WERE INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. T HE AO NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.5,27,582/ - UNDER THE HEAD TRAVELLING EXPENSES AND CALLED FOR THE DETAILS FROM THE ASSESSEE AND ALSO ISSUED NOTICED U/S 1 33(6) TO THE PERSONS TO WHOM THE PAYMENTS WERE MADE ON ACCOUNT OF TRAVELLING EXPENSES. THE AO DISALLOWED A SUM OF RS.3,22,886/ - CONSISTING OF RS. 44,651/ - PAID TO VIJAY TRAVELS PRIVATE LIMITED. RS.1,43,868/ - PAID TO SILVER SKIES, RS.96,062/ - PAID TO VINE ET MITTAL AND RS.39,305/ - PAID TO TIRUPATI TRAVEL NETWORK PVT LTD AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND REPLIES IN RESPONSE TO NOTICE U/S 13396) OF THE ACT . THE AO NOTICED THAT ALL THESE EXPENSE WERE INCURRED ON TRAVELLING OF MR.VINEET MI TTAL WHO IS NEITHER EMPLOYEE NOR THE DIRECTOR OF THE COMPANY AND TH US CAME TO THE 7 ITA NO. 4718 AND 4719 9 /MUM/201 5 CONCLUSION THAT THE EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR T HE BUSINESS PURPOSE . FINALLY, THE SAME WERE RS. 3,22,886/ - DISALLOWED AND ADDED BACK TO T HE TOTAL IN COME OF THE ASSESSEE. SIMILARLY, THE AO NOTED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.8,06,814/ - UNDER THE HEAD ENTERTAINMENT EXPENSES. T HE AO REQUIRED THE ASSESSEE TO FURNISH DOCUMENTARY EVIDENCES TO PROVE THE CLAIM. THE AO FURTHER FOUND THAT OUT OF THESE EXPENSES A SUM OF RS.3,00,000/ - WERE SPENT VIDE CHEQUE NO.001152 DATED 16.4.2009 ON THE FUNCTION OF GET - TOGETHER OF EMPLOYEES AND FOR BUSINESS DEVELOPMENT AND THE BALANCE OF THE EXPENSES WERE INCURRED FROM THE CREDIT CARD OF MR.VINEET RAJKUMA R MITTAL AND H A S BEEN SPEND FOR HIS PERSONNEL PURPOSES IN INDIA AND ABROAD. ACCORDINGLY, THE AO CAME TO THE CONCLUSION THAT ONLY RS.3 LAKHS WERE INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND REST OF THE EXPENSES OF RS.5,06,814 / - WERE OF PERSO NAL IN NATURE AND ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE . 6. IN THE APPELLANT PROCEEDINGS, THE LD.CIT(A) PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BY SUSTAINING ONLY RS.1,61,943/ - BY H OLDING THAT THE AO HAS FAILED TO ESTABLISH THAT THE EXPENSES INCURRED ON FOREIGN TRAVEL OF THE SPOUSE OF THE DIRECTOR WERE NOT WHOLLY INCURRED FOR THE PURPOSE OF B USINESS AND THE ASSESSEE HAS ALSO FAILED TO FURNISH THE REQUISITE DETAILS AND THUS P ARTL Y ALLOWED THE APPEAL OF THE ASSESSEE. THE LD. CIT(A) FINDING 8 ITA NO. 4718 AND 4719 9 /MUM/201 5 MERIT IN THE ARGUMENTS OF THE ASSESSEE THAT THE AO HAS FAILED TO PROVE THE TRAVELLING EXPENSES INCURRED WERE FOR THE PERSONAL PURPOSES AND ACCORDINGLY PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY RESTRICTING THE EXPENSES TO THE TUNE OF RS.2,53,407/ - . 5 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS; WE FIND THAT THE AO HAS COMPLETELY FAILED TO PROVE THAT THE EXPENDITURES WERE WHOLLY AND EXCLUSIVELY INCURRED FOR THE TRAVELLING OF THE WIFE OF THE DIRECTOR . ON THE OTHER HAND THE LD.CIT(A) HAS TAKEN BALANCE D AND REASONED VIEW OF THE ISSUE AND ALLOWED PART RELIEF. UNDER THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE ORDER PASSED BY THE FAA IS FAIR AND REASONABLE ONE AND DOES NOT REQUIRE ANY INTERFERENCE ON OUR PART. ACCORDINGLY, WE UPHOLD THE ORDER PASSED BY THE FAA BY DISMISSING THE APPEAL OF THE REVENUE. 6 . THE ISSUE RAISED IN THE FOURTH GROUND OF APPEAL IS PARTLY ALLOWING THE INCENTIVES SCHEME EXPENSES BY IGNORING THE FACT THAT SUCH EXPENSE S WERE NOT BE GENUINE AND NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. 7 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED AND THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.12,69,300/ - UNDER THE HEAD INCENTIVE AND S CHEMES EXPENSES AND ACCORDINGLY CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS THEREOF WHICH WAS SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 19.11.2012 BY FILING THE NECESSARY DETAILS . THE AO FOUND THAT THE ASSESSEE HAS SUBMITTED THE DETAILS ONLY OF RS .8,82,300/ - OUT OF 9 ITA NO. 4718 AND 4719 9 /MUM/201 5 RS.12,69,300/ - . MOREOVER, NO TDS HAS BEEN DEDUC T ED ON THE PAYMENT MADE. THE AO CAME TO THE CONCLUSION THAT THE SAME WERE NOT INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE BY DI SMISSING THE SAME. 8 . IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY OBSERVING AND HOLDING AS UNDER : 9. GROUND NO 7 IS IN RESPECT OF DISALLOWANCE OF INCENTIVES & SCHEMES EXPENSES OF RS.12,05,140/ - . 9.1. THE A .O. IN THE ASSESSMENT HAS DISALLOWED THE INCENTIVES & SCHEMES EXPENSES OF RS.12,05,140/ - ON THE GROUND THAT THE APPELLANT HAS NOT SUBMITTED THE ENTIRE VOUCHERS. THE APPELLANT ALSO SUBMITTED THAT THE SAID EXPENSES HAVE NOT BEEN PAID TO ITS EMPLOYEE. 9.2 TH E APPELLANT HAS PAID AMOUNTS TO VARIOUS PERSONS FOR WHO WERE ON A TEMPORARY BASIS FOR THEIR SERVICES RENDERED. THE APPELLANT BEING IN THE BUSINESS OF IMPLEMENTATION OF SOFTWARE REQUIRE VARIOUS SKILLED AND SEMI SKILLED PERSONS IN ORDER TO COMPLETE THE CONTR ACTS . THE SAID SKILLED AND SEMI SKILLED PERSONS ARE APPOINTED FOR A SPECIFIC TIME PERIOD AND THEY LEAVE ONCE THE RELEVANT WORK/ PROJECT IS COMPLETED. THE APPELLANT HAS SUBMITTED THE MAJORITY OF THE SUPPORTING DOCUMENTS TO PROVE THE VERACITY OF THE EXPENDI TURE. THE APPELLANT SUBMIT THAT THE DETAILS SUBMITTED BY IT ARE JUST AND SUFFICIENT TO PROVE THE CLAIM OF INCENTIVES & SCHEMES PAID TO ITS EMPLOYEES. THE COPY OF THE SAME IS ENCLOSED AT PAGE NOS. 60 TO 74 OF THE PAPER BOOK. THE LD. A.O. FURTHER SUBMITS THA T THE SAID AMOUNTS HAVE NOT BEEN PAID TO ITS EMPLOYEES AND THEREFORE ARE NOT RELATED TO BUSINESS. IN THIS RESPECT, IT IS SUBMITTED THAT THE VERY FACT OF BOOKING THE ABOVE EXPENDITURE UNDER THE HEAD 'INCENTIVES & SCHEMES' AND NOT UNDER THE HEAD 'SALARY' SHO WS THAT THE SAID EXPENDITURE IS DIFFERENT FROM SALARY AS THE SAME IS PAID TO VARIOUS OTHER TEMPORARY PERSONS. 9.3. I HAVE CONSIDERED THE OBSERVATIONS OF THE A.O. AND THE SUBMISSION OF THE A.R. THE APPELLANT HAS CLAIMED AN AMOUNT OF RS.12, 05,140/ - ON A CCOUNT OF INCENTIVES AND SCHEMES. THE 10 ITA NO. 4718 AND 4719 9 /MUM/201 5 APPELLANT HAS SUBMITTED THAT THE SAID EXPENSES HAVE BEEN INCURRED ON THE PAYMENTS MADE TO VARIOUS TEMPORARY TECHNICIANS AND OTHER STAFF WHICH ARE DULY SUPPORTED BY THE VOUCHERS. THE A.O. HAS DISALLOWED THE SAME ON THE SOLE GROUND THAT THE SAID PERSONS DO NOT REFLECT IN THE LIST OF THE EMPLOYEES WHICH HAS DULY COUNTERED BY THE APPELLANT IN ITS SUBMISSION. ALSO THE APPELLANT HAS NOT FULLY FURNISHED THE VOUCHERS BEFORE THE A.O FOR VERIFICATION OF THE SAME. AS HELD EARLIER DISALLOWANCE OF AN EXPENDITURE DEPENDS WHOLLY AND EXCLUSIVELY UPON THE FACTS OF THE CASE. THOUGH THE CONTENTION OF THE APPELLANT IS ACCEPTABLE THE FACT THAT THE A PPELLANT FAILED TO PRODUCE COMPLETE SET OF VOUCHERS FOR VERIFICATION BEFORE THE AO CANNOT BE D ENIED. THUS IN ORDER THE MEET THE ENDS OF JUSTICE I DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 1/3RD OF THE EXPENDITURE CLAIMED. THUS DISALLOWANCE OF RS.4,01,713 / - IS UPHELD. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. 9 . WE HAVE CAREFULLY CONSIDER ED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD INCLUDING THE IMPUGNED ORDERS ON THE ISSUE. WE FIND FROM THE RECORD THAT THE SAID PAYMENTS WERE PAID TO TECHNICAL AND OTHER STAFF. WE ALSO FIND THAT THE ASSESSEE FAILED TO PRODUCE BILLS AN D VOUCHERS BEFORE THE AO FOR VERIFICATION. THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE BY UPHOLDING THE DISALLOWANCE TO THE TUNE OF 1/3 OF THE TOTAL EXPENSES I.E. RS.4,01,713/ - FOR THE REASONS THAT T HE ASSESSEE HAS NOT FURNISHED DETAILS OF THIS CLAIM FOR VERIFICATION BEFORE THE AO. THE LD. CIT(A) TOOK A VERY FAIR AND BALANCE D VIEW OF THE MATTER BY SUSTAINING THE DISALLOWANCE OF RS.4,01,713/ - DOES NOT REQUIRE ANY INTERFERENCE F ROM OUR SIDE. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) BY DI SMISSING THE APPEAL OF THE REVENUE. 11 ITA NO. 4718 AND 4719 9 /MUM/201 5 REVENUES APPEAL FOR THE ASSESSMENT Y EAR 2011 - 12 10 . FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENUE: I) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)ERRED IN HOLDING THAT THE SALES M ADE TO M/ S VIRAJ PROFILES LTD BEING AS 100 % EOU ARE DEEMED TO BE EXPORT SALES ELIGIBLE FOR DEDUCTION U/S 10A OF THE ACT. II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN NOT CONSIDERING THE VARIOUS GROUNDS SPECIF IED IN THE ASSESSMENT ORDER FOR THE DISALLOWANCE OF DEDUCTION U/S 10A OF THE ACT'. III) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE IN RESPECT OF PURPORTED SALES TO M/S INFOTEL ON THE GROUND THAT THE AO HAD NOT DISPUTED THE ADDRESS AT SINGAPORE WAS ACTUALLY RENTED BY M/ S INFOTEL IGNORING THE OBSERVATION MADE IN THE ASSESSMENT ORDER THAT THE SAI PREMISES AT SINGAPORE WAS TENANTED TO SOME OTHER PARTY'. IV) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ADDRESS OF M/S INFOTEL PROVIDED WAS INCORRECT AND THEREFORE THE ASSESSEE CANNOT BE SAID TO HAVE ESTABLISHED THE IDENTITY OF THE PARTY'. V) 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION U/S 10AA OF ACT IN RESPECT OF NEW UNITS SEEPZ - SEZ, MUMBAI IGNORING THE EVIDENCES BROUGHT ON RECORD BY THE AO WHICH INDICATE CONTR AVENTION OF THE PROVISION OF THE SECTION 10AA(4)(III) OF THE ACT'. 11 . THE ISSUE RAISED IN GROUND NO.1 ABS 2 ARE SAME AS DECIDED BY US IN GROUND NO.1 AND 2 OF REVENUES APPEAL FOR THE ASSESSMENT YEAR 2010 - 11 AND THEREFORE OUR FINDINGS ON THE SAID GROUN D WOULD , MUTATIS MUTANDI , APPLY TO THESE TWO GROUNDS AS WELL. ACCORDINGLY, THE GROUND NO.1 AND 2 ARE DISMISSED. 12 ITA NO. 4718 AND 4719 9 /MUM/201 5 12 . GROUND NO.3 AND 4 ARE AGAINST THE ADDITION OF DISALLOWANCE IN RESPECT OF SALES TO M/S INFOTEL ON THE GROUND THAT : A) THE ASSESSEE MADE EX PORT AMOUNTING TO RS.41,62,500/ - AND THEREAFTER THE SALE CONSIDERATION WAS ALSO RECEIVED. THE ASSESSEE CLAIMED EXEMPTION U/S 10A ON THE EXPORT SALES. THE AO VERIFIED THE SAID TRANSACTIONS ON THE BASIS OF FT&TR INFORMATION AND FOUND THAT THE SAID PARTY WAS NOT REGISTERED IN THE COUNTRY ON THE ADDRESS AS PROVIDED BY THE ASSESSEE AND ACCORDINGLY THE AO MADE DISALLOWANCE U/S 68 OF THE ACT AS THE A S SESS E E HAS NOT SATISFIED THREE INGREDIENT S SUCH AS GENUINENESS OF TRANSACTIONS, CREDITWORTHINESS AND THE I DENTI T Y OF THE CREDITORS. IN THE APPELLATE PROCEEDINGS , THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE B Y OBSERVING AND HOLDING AS UNDER : 5.3 I HAVE PERUSED THE SUBMISSION OF THE APPELLANT. IT IS OBSERVED THAT THE APPELLANT HAS MADE AN EXPORT TO M/ S. INFOTEL FOR IT ENABLED SERVICES. IN SUPPORT OF THE SAME, THE APPELLANT. HAS SUBMITTED THE COPY OF THE INVOICES, FIRC AND BANKS STATEMENT SHOWING THE CREDIT. IT IS ALSO OBSERVED THAT THE APPELLANT HAS DULY SUBMITTED THAT THE SAID COMPANY HAS A BRANCH OFF ICE AT SINGAPORE AND IS REGISTERED IN THE BRITISH VIRGIN ISLANDS. THE A.O. WHILE VERIFYING THE SAID TRANSACTIONS HAS OBSERVED THAT THE SAID PARTY IS NOT REGISTERED IN SINGAPORE AND THE ADDRESS GIVEN BY THE APPELLANT IS ACTUALLY OWNED BY SOME ELSE. THE APPE LLANT SUBMITTED THAT THE A.O. HAS NOWHERE DISPUTED THE FACT THAT THE ADDRESS OF THE SINGAPORE IS ACTUALLY RENTED BY M/ S. INFOTEL. FURTHER, THE APPELLANT HAS DULY DISCHARGED ITS ONUS BY PROVING THE IDENTITY, GENUINENESS AND CREDITWORTHINESS OF THE SAID PAR TY BY SUBMITTING THE VARIOUS DOCUMENTS. THE A.O. HAS NOWHERE DISPUTED THE SAID DOCUMENTS. I OBSERVE THAT EVEN AFTER HAVING THE EXACT INFORMATION OF THE REGISTERED COUNTRY, THE A.O. HAS FAILED TO VERIFY THE SAID ADDRESS AND PROVE THE INFORMATION PROVIDED BY THE APPELLANT FALSE. 13 ITA NO. 4718 AND 4719 9 /MUM/201 5 IT IS NOW WELL SETTLED INTER ALIA BY THE FOLLOWING DECISIONS OF THE HON'BLE SUPREME RE ME COURT AND OTHER DECISIONS INCLUDING THOSE OF THE HON'BIE BOMBAY COURT, THAT IF A PERSON ACKNOWLEDGES THAT A LOAN GIVEN BY HIM TO AN ASSESSEE IN FACT BELONGS TO HIM, IT CANNOT BE TREATED AS THE ASSESSEE'S INCOME MERELY BECAUSE SUCH PERSON'S EXPLANATION ABOUT HIS SOURCE OF SUCH LOAN IS UNACCEPTABLE , UNLESS A CONNECTION, RELATION OR LINK IS SHOWN TO EXIST BETWEEN THAT AND THE CREDITOR, WHICH CON NECTION OR RELATION HAS NOT BEEN ESTABLISHED OR EVEN ALLEGED IN THE PRESENT CASE: I ) CIT R VS. DAULAT RAM RAWATMAL 87 ITR 349 (S C .) II ) CIT VS. ORIENT TRADING CO. LTD. 49 ITR 723 (BORN.) III ) ITO V/S SURESH KALMADI 32 TTJ 300 (PUNE) B.S. CORPORATION VS. ACIT 112 T AXMAN 111 (AHD.) THE LAST MENTIONED CASE IS OF PARTICULAR SIGNIFICANCE BECAUSE IN THAT CASE THE ASSESSEE'S CREDITORS HAD MADE A DISCLOSURE UNDER THE VDIS AND THE ITAT HELD THAT EVEN THOUGH THE INCOME HAD BEEN ESTABLISHED TO BE UNDISCLOSED INCOME, YET IN THE ABSENCE OF ANY LINK BETWEEN THE CREDITORS AND THE ASSESSEE THE AMO UNT COULD NOT BE TREATED AS THE INCOME OF THE ASSESSEE. IT IS FURTHER SUBMITTED THAT IN THE CASE OF A COMPANY THE FOLLOWING ARE PROPOSITIONS OF THE LAW U/S 68. THE ASSESSEE HAS TO PRIMA - FACIE PROVE (1) THE IDENTITY OF THE CREDITORS (2) THE GENUINENESS OF THE TRANSACTIONS, NAMELY, WHETHER IT HAS BEEN TRANSMIT TED THROUGH BANKING OR OTHER INDISPUTABLE CHANNELS; (3) THE CREDIT WORTHINESS OR FINANCIAL STRENGTH OF THE CREDITOR (4) IF REL EVANT DETAILS OF THE ADDRESS OR P AN IDENTITY OF THE CREDITOR ARE FURNISHED TO THE DEPARTMENT IT WOULD CONSTIT UTES ACCEPTABLE PROOF OR ACCEPTABLE EXPLANATION BY THE ASSESSEE; (5) THE DEPARTMENT WOULD NOT BE JUSTIFIED IN DRAWING AN ADVERSE INFERENCE ONLY BEC AUSE THE CRED ITOR : FAILS OR NEGLECTS TO RESPOND TO ITS NOTICES; A DELICATE BALANCE MUST BE MAINTA INED WHILE WALKING THE TIGHTROPE OF SECTIONS 68 & 69 OF THE INCOME TAX ACT, 1961. THE BURDEN OF PROOF CAN SELDOM BE DISCHARGED TO THE HILT BY THE ASSESSEE; IF THE ASSESSING OFFICER HARBOURS DOUBTS OF THE LEGITIMACY OF ANY TRANSACTION, H E IS EMPOWERED TO CARRY OUT THOROUGH INVESTIGATIONS. BUT IF THE ASSESSING OFFI CER FAILS TO UNEARTH ANY WRONG OR ILLEGAL DEALINGS, HE CANNOT ADHERE TO HIS SUSPICIONS IN TREATING TH E TRANSACTION AS THE UNDISCLOSED INCOME OF THE COMPANY. IN GIVEN CASE THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SHAM TRANSACTION INVOLVEMENT/ ROTATION OF .CASH ELEMENT. 14 ITA NO. 4718 AND 4719 9 /MUM/201 5 THEREFORE, IN MY CONSIDERED VIEW, THE ADDITION MADE BY THE A.O. IN INCORRECT AND THE SAME IS DELETED. ACCORDINGLY, THIS GROUND IS ALLOWED. 13 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE IM PUGNED ORDER. WE FIND THAT THE ORDER PASSED BY THE LD. CIT(A) WAS AFTER EXAMINA TION OF THE DETAILS AND FACTS AND GAVE DETAILED FINDING S. W E ARE IN AGREEMENT WITH THE FINDINGS OF THE LD.CIT(A) THAT MERE MAKING THE ADDITION UNDER SECTION 68 OF THE ACT ONLY ON THE GROUND THAT THE CREDITORS FAILED TO REPLY TO THE CORRESPONDENCE S BY THE DEPARTMENT IS NOT CORRECT A ND NO ADVERSE INFERENCE CAN BE DRAWN. THE LD. CIT(A ) HAS ALSO OBSERVED THA T THE AO HAS COMPLETELY ACTED ON MERE SURMISE S AND CONJUNCTURE AND SUSP ICION AND THEREFORE ANY ADDITION ON THE BASIS OF PRESUMPTION CAN NOT BE SUS TAINED . THEREFORE, WE FIND NO MERIT IN THE SUBMISSIONS OF THE REVENUE . ACCORDINGLY DISMISS T HE GROUND RAISE D B Y T HE REVENUE. 14 . THE ISSUE RAISED IN THE GROUNDS OF APPEAL NO.5 IS AGAINST THE HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR EXEMPTION U/S 10AA OF THE ACT . DURING THE YEAR THE ASSESSEE HAS SET UP A NEW UNIT AT SEEPZ - SEZ, MUMBAI FOR T HE PURPOSE OF IT ENABLED SERVICES AND ALSO MADE EXPORT TO THE VARIOUS FOREIGN CLIENTS. THE ASSESSEE CLAIMED EXEMPTION U/S 10AA OF THE ACT TO THE TUNE OF RS.1,47,95,607/ - FOR WHICH A REPORT IN THE FORM NO. 56G WAS FILED BY T HE ASSESSEE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS REJECTED THE CLAIM OF T HE ASS ESSEE ON T HE G ROUND THAT ASSESSEE FAILED TO FURNISH THE 15 ITA NO. 4718 AND 4719 9 /MUM/201 5 DETAILS CALLED FOR SUCH AS COP IES OF CONTRACT WITH THE CLIENT S, MASTER AGREEMENT S , STATEMENT S OF WORK, ENTRY PASSES OF ALL THE EMPLOYEES ISSUED BY SEEPZ DURING THE YEAR. THE AO ALSO FOUND THAT THE STAFF MEMBERS OF T HE EARLIER STPI UNIT WERE SHOWN TO BE THE EMPLOYEES OF THE SEEPZ UNIT FOR CLAIMING DEDU CTION U/S 10AA OF T HE ACT AND FINALLY CAME TO THE CONCLUSION THAT THE UNIT WAS SET UP BY SPLITTING THE EARLIER BUSINESS . THE AO REJECTED THE CLAIM OF THE ASSESSEE AS UNDER : THE A.O AT PAGE NO 12 HAS LISTED OUT FOLLOWING REASONS FOR NOT GRANTING EXEM PTION U/S 10AA A. THE ASSESSEE HAS FAILED TO FURNISH THE COPY OF CONTRACT BETWEEN CLIENT AND THE ELIGIBLE UNIT B.THE ASSESSEE HAS FAILED TO FURNISH MASTER SERVICE AGREEMENT. C.THE ASSESSEE HAS FAILED TO FURNISH THE STATEMENT OF WORKS. D.THE ASSESSEE HAS FAILED TO FURNISH THE ENTRY PASSES OF ALL THE EMPLOYEES ISSUED BY SEEPZ DURING THE YEAR. E.ON GOING THROUGH THE RECORDS IT IS SEEN THAT STAFF MEMB~RS OF THE EARLIER STPI UNIT HAS BEEN SHOWN TO BE THE EMPLOYEES OF THE SEEPZ UNIT CLAIMING DEDUCTION U/ S 10AA OF THE ACT, WHICH SHOWS THAT THE NEW BUSINESS HAS BEEN SET UP FROM THE SPLITTING OF EARLIER BUSINESS. F. THE FIXED ASSETS SHOWN AS PER THE BALANCE SHEET OF THE EARLIER YEAR ARE CARRIED FORWARD TO THE NEW UNIT. THIS REVEALS THAT THE ASSETS OF THE EXISTING BUSINESS HAS BEEN TRANSFERRED. G. THE INFORMATION RECEIVED FROM THE FT & TR DIVISION OF THE CBDT, NEW DELHI REVEALS THAT THE AGREEMENT WITH RESPECT TO THE SOFTWARE IMPLEMENTATION AND CONSULTATION FEES HAS BEEN ENTERED INTO BY THE ASSESSEE AND M/ S GOLD MATRIX RESOURCES PTE. ON 25/08/2001 WHICH IS, NOT DURING THE F.Y. RELEVANT TO THE ASSESSMENT YEAR 2011 - 12. THE COPY OF AGREEMENT ALSO SAYS THAT M/S CANDOR INDIA PVT. LTD., DGP HOUSE, 88 - C, OLD PRABHADEVI ROAD, PRABHADEVI, MUMBAI - 400025, INDIA AND N OT M/ S CANDOR INDIA PVT. LTD., UNIT NO - 304, SEEPZ, SEZ ANDHERI EAST, MUMBAI - 400069. OR M/ S CANDOR INDIA PVT. LTD., 16 ITA NO. 4718 AND 4719 9 /MUM/201 5 SIDDHI BUILDING, 15, KHAR ROAD, KHAR WEST, MUMBAI - 400052.FURTHER THE TERMS AND CONDITIONS OF CONSULTING AGREEMENT STATES THAT 11 THIS AGR EEMENT SHALL BE DEEMED TO HAVE COMMENCED FROM THE 1ST DAY OF SEPT, 2009 AND SHALL BE IN FORCE FRO A PERIOD OF 1 YEAR UNLESS TERMINATED BY GOLD MATRIX WITHOUT ASSIGNING ANY REASONS WHATSOEVER AND WITHOUT ANY PLANNED NOTICE. THE FIRST YE AR CHARGES INCLUDE SA P IMPLEMENTATION SERVICES STARTING NEXT YEAR, THIS RATE WOULD BE REVISED. IT MAY FURTHER BE NOTED THAT AS PER FORM 56F, THE FIRS T YEAR OF C LAIM OF DEDUCTION U / S 10AA IS F.Y. 2010 - 11 RELEVANT TO THE ASSESSMENT YEAR 2011 - 12. THIS REVEALS THAT THE ALLEGED B USINESS HAS BEEN SE T UP FROM SPLITTING THE EARLIER ONE. H. THE CAPITAL WORK IN PROGRESS OF THE EARLIER - UNIT HAS BEEN CARRIED FORWARD, N O DEPRECIATION HAS BEEN CLAIMED WHICH INDICATES THAT THE WORK HAS NOT BEER STARTED THEREIN AND THE ASSETS IS STILL SHOW N AS WORK IN PROGRESS. FROM THE ABOVE FINDING, IT IS EVIDENT THAT THE UNIT AT SEEPZ IS NOT AN INTEGRATED UNIT BY ITSELF AND IT IS FORMED. BY SPLITTING UP OR RESTRUCTURING OF A BUSINESS ALREADY IN EXISTENCE AND IT IS FORMED BY THE TRANSFER OF MACHINERY OR P LANT ALREADY IN EXISTENCE. I. THE FACTS ALSO STRENGTHENS THAT THE ASSESSEE HAS SHOWN EXPORT SALES HAVING MADE TO VIRAJ PROFILES LTD., WHEREAS THE SAME WERE OF THE AY 2010 - 11, WHICH PROVES THAT THE ASSESSEE WAS CONTINUING TO CLAIM THE PROFITS U / S 10AA OF THE ACT BY MERE TAKING APPROVAL OF THE SEZ UNIT. 6 .2 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE A. O . OBSERVED THAT THE EXISTING ASSETS AND EMPLOYEES HAVE BEEN TRANSFERRED FROM THE EXISTING UNIT TO THE NEW UNIT. FURTHER, THE A. O . ALSO CONTENDED THAT THE SAME SERVICES ARE BEING RENDERED IN THE NEW UNIT AS THAT OF THE OLD UNIT. THUS, THE A. O . HELD THAT THE NEW UNIT FORMED BY THE APPELLANT IN SEEPZ UNIT WAS OUT OF RESTRUCTURING AND SPLITTING UP OF AN EXISTING UNIT. ACCORDINGLY, THE A. O . DISALLOWED T HE CLAIM OF THE APPELLANT 15 . DURING THE APPEAL PROCEEDINGS, THE ASSESSEE SUBMITTED AS UNDER : 6.3 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE AR OF THE APPELLANT SUBMIT THAT THE NEW UNIT FORMED IS NOT FORMED OUT OF RESTRUCTURING AND THE SAID UNIT COMPLIES WITH ALL THE CONDITIONS OF THE PROVISIONS OF SECTION 10AA OF THE ACT. THE SUBMISSION OF THE APPELLANT IS REPRODUCED AS UNDER: - 17 ITA NO. 4718 AND 4719 9 /MUM/201 5 'DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT STARTED A UNIT IN THE SEEPZ- SEZ MUMBAI. THE UNIT WAS FORMED FOR P ROVIDING IT ENABLED SERVICES TO ITS OVERSEAS CUSTOMERS. THE SAID UNIT WAS FORMED WITH PRIOR APPROVAL BY DEVELOPMENT COMMISSION, SEEPZ - SEZ, ANDHERI (EAST), MUMBAI VIDE LETTER NO. SEEPZ- SEZ/IA - I/APL/SW - 33/08 - 09 DATED 04.05.2009 FOR RENDERING SERVICES IN 'IT & IT ENABLED SERVICES'. THE COPY OF THE SAID LETTER IS PLACED AT PAGE NOS. 24 - 26 OF THE PAPER BOOK. THE APPELLANT ACQUIRED TWO GALAS NOS. 304 & 402 THROUGH PROPER APPROVAL PROCESS VIDE ORDER DATED 25.05.2009 (PLACED AT PAGE NOS. 27 - 29 OF THE PAPER B OOK) A ND THE APPROVED UNIT WAS SET UP OF THE SAID GALAS. THE COPY OF POSSESSION LETTERS ARE PLACED AT PAGE NOS. 30 - 35 OF THE PAPER BOOK. A CCORDINGLY, THE APPELLANT COMMENCED ITS IT OPERATION FROM THE SAID UNIT FROM A UGUST, 2010 AND MADE EXPORT SALES FOR IT SERVI CES TO ITS OVERSEAS CLIENTS AND CLAIMED AN EXEMPTION U/E 10AA OF THE ACT AMOUNTING TO RS.1,47,95,607/ - . THE SALES MADE ALONG WITH THE SALE AMOUNT ARE REPRODUCED AS UNDER : - S NO. NAME OF THE PARTY AMOUNT IN INR 1 VIRAJ PROFILES LIMITED, NEW YORK, U SA 41,11,491/ - 2. GOLD MATRIX RESOURCES PTE., SINGAPORE 1,31,91,000/ - 3 INFOTEL, SINGAPORE 41,62,500/ - THE ABOVE FACT IS CORROBORATED FROM THE COMMENCEMENT CERTIFICATE RECEIVED FROM ASST. DEVELOPMENT COMMISSIONER, SEEPZ - SEZ VIDE LETTER DATED 22.04.2015 RECENTLY (PLACED AT PAGE NO. 36). THE LD. A. O . IN THE ASSESSMENT ORDER HAS RAISED AN ISSUE REGARDING THE ALLOWABIL ITY OF THE EXEMPTION U/S 10AA OF THE ACT. THE SOLE REASON FOR THE SAID DISALLOWANCE IS THAT THE BUSINESS IS FORMED AFTER RECONSTR UCTION AND SPLITTING UP OF THE OLD BUSINESS ON THE GROUND THAT THE UNIT IS CONTINUING THE SAME BUSINESS AS THAT OF THE OLD UNIT. THE A. O . HAS OBSERVED THAT THE APPELLANT HAS TRANSFERRED THE FIXED ASSETS FROM THE OLD BUSINESS TO THE NEW BUSINESS. ALSO, THE LD. A.D. CONTENDED THAT SOME OF THE EMPLOYEES WERE TRANSFERRED FROM OLD BUSINESS TO NEW UNIT . IN THIS RESPECT, AT THE OUTSET IT IS NECESSA RY TO EXPLAIN THE MEANING OF RESTRUCTURING. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS GANGA SUGAR CO - OP LTD. E XPLAINED THE TERM RESTRUCTURING AS UNDER - 18 ITA NO. 4718 AND 4719 9 /MUM/201 5 'WE HAVE GIVEN THE MATTER. OUR EARNEST CONSIDERATION AND ARE OF THE VIEW THAT IN THE . RECONSTRUCTION OF A BUSINESS, AS IN THE RECONSTRUCTION OF A COMPANY - THERE IS AN ELEMENT OF TRANSFER OF ASSETS AND OF THE SO ME CHANGES, HOWEVER, PARTIAL OR RESTRICTED IT MAY BE, OF THE OWNERSHIP OF THE ASSETS. THE TRANSFER, HOWEVER, NEED NOT BE OF ALL THE ASSETS. IT IS NONETHELESS IMPERATIVE THAT THERE SHOULD BE CONTINUITY AND PRESERVATION OF THE OLD UNDERTAKING THOUGH IN AN AL TERED FORM. THE CONCEPT OF RECONSTRUCTION OF THE BUSINESS WOULD NOT BE ATTRACTED WHEN A COMPANY WHICH ALREADY RUNNING ONE INDUSTRIAL UNIT SETS UP ANOTHER INDUSTRIAL UNIT. THE NEW INDUSTRIAL UNIT WOULD NOT LOSE ITS SEPARATE AND INDEPENDENT IDENTITY EVEN THO UGH IT HAS BEEN SET UP BY A COMPANY WHICH IS ALREADY RUNNING AN INDUSTRIAL UNIT BEFORE THE SETTING UP OF THE NEW UNIT.' THUS, THE APEX COURT HELD THAT THE EVEN IF A UNIT IS OPENED BY AN ASSESSEE WHICH CONTINUES THE S AME BUSINESS IN THE NEW UNIT AS THAT OF THE OLD BUSINESS, THE S AME WOULD NOT AFFECT THE ELIGIBILITY OF THE NEW UNIT. FURTHER, THE SUPREME COURT IN THE CASE OF ALUMINIUM COMPANY LTD (108) ITR 367, HAS HELD THAT EVEN IF HE NEW UNIT MANUFACTURES THE SAME COMMODITY AS THE OLD UNIT, IT WILL B E AN ELIGIBLE UNDERTAKING. THEREFORE, THE MERE CONTINUANCE OF THE OLD BUSINESS IN THE NEW UNIT WOULD BE LEAD TO DISALLOWANCE OF THE EXEMPTION U/S 10AA IN THE CA S E OF THE APPELLANT. FURTHER, IT IS SUBMITTED THAT AS ALREADY MENTIONED ABOVE, THE APPELLANT HA S PURCHASED A NEW UNIT IN THE SEEPZ SEZ, MUMBAI AND COMMENCED ITS OPERATI ONS THE APPELLANT HAS PAID THE VALUE IN ACCORDANCE WITH THE APPROVAL ORDER FROM THE SEEPZ AUTHORITY AND THE SAME IS DULY REFLECTED IN THE FIXED ASSET SCHEDULE. THE SAID NEW UNIT IS SI TUATED IN THE SEEPZ AREA AND THEREFORE THE QUESTION OF TRANSFERRING THE SAID UNIT DOESN'T ARISES. THEREFORE, THE CONTENTION OF THE LD. A O . OF THE TRA NSFER OF OLD AND USED ASSETS TO THE NEW UNIT IS BASELESS. FURTHER, THE LD.A O . HAS CONTENDED THAT THE AP PELLANT HAS TRANSFERRED ITS EMPLOYEES TO THE NEW UNIT AND THEREFORE THE SAME WILL AMOUNT TO RESTRUCTURING THIS RESPECT, IT IS IMPORTANT TO CONSIDER THE INSTRUCTION NO. 70 DATED 9 NO VEMBER 2010 BY THE MINISTRY OF COMMERCE (SEZ) WHICH STATES THAT THERE IS NO BA R ON TRANSFER OF MANPOWER TO SEZ UNITS. ALSO, THERE IS A SPECIFIC PROHIBITION ON TRANSFER OF PLANT OR MACHINERY FROM AN EXISTING UNIT TO A NEW SEZ UNIT UNDER SEC TION 10AA, SUBJECT TO A CEILING OF 20 PER CENT BUT NO SUCH BAR ON TRANSFER/REDEPLOY MENT OF MANPOWER HAS BEEN EXPLICITLY LAID DOWN IN 19 ITA NO. 4718 AND 4719 9 /MUM/201 5 THE SECTION. FURTHER, THE SAID ISSUE HAS BEEN CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IT THE CASE OF METROPOLI TAN SPRINGS P. LTD. [58 TAXMAN 72 ] WHEREIN THE COURT HELD THAT EVEN IF COME MEM BERS . OF THE STAFF WER E COMMON TO THE OLD AND NEW UNIT, IT WILL NOT BE BAR ON THE ELIGIB ILITY OF DEDUCTION UNDER SECTION 80J OF THE ACT. FURTHER, THE SAID ISSUE HAS BEEN ELABORATELY DEALT BY THE HON 'BLE CHENNAI TRIBUNAL IN THE CASE 'OF DSM SOFT P .LTD [115 ITD 1} AND IT WAS HE LD THAT TRANSFERRING EXISTING EMPLOYEES BY THEMSE LVES WOULD NOT MAKE THE UNIT INELIGIBLE FOR TAX RELIEF UNDER SECTION 10A OF THE ACT. THEREFORE, THE CONTENTION OF THE LD. A. O . THAT DISALLOWANCE OF EXEMPTION U/E 10 ON THE GROUND THAT SOME OF EMPLOYEES HAV E BEEN TRANSFERRED FROM THE OLD UNIT TO NEW UNIT IS INCORRECT. IN VIEW OF THE ABOVE DISCUSSION, IT IS SUBMITTED THAT THE CONTENTION OF THE LD. A THAT THE NEW UNIT HAS BEEN FORMED AFTER RESTRUCTURING AND SPLITTING UP OF BUSINESS IS BASELESS AND NO IN ACCO RDANCE WITH LAW. FURTHER, THE APPELLANT HAS DULY COMMENCED ITS BUSINESS AND MADE EXPORTS TO OVERSEAS CLIENTS. IN SUPPORT OF THE SAME, THE APPELLANT HAS DULY SUBMITTED THE F IRC DURING THE COURSE OF ASSESSMENT PROCEEDINGS (PLACED AT PAGE NO. 37 - 39 OF THE P APER BOOK). THE SAID EXPORTS ARE DULY REFLECTED IN THE ANNUAL RETURN FILED BY THE APPELL ANT ( LACED AT PAGE NO. 47 - 52 OF THE P APER BOOK). THEREFORE, THERE IS NO DOUBT THAT THE APPELLANT HA ACTUALLY MA D E EXPORTS AND RECEIVED THE SALE CONSIDERATION IN FOREI GN CURRENCY. FURTHERMORE, IT PERTINENT TO MENTION THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT SUBMITTED THE DETAILS IN THE FORM OF WATER CHARGES AND MAINTENANCE MIDC AND SEEPZ IN ORDER TO SUBSTANTIATE THE ESTABLISHMENT OF SAID UNIT (PL ACED AT PAGE NOS. 45 - 46 OF THE PAPER BOOK). THEREFORE, THE COMMENCEMENT OF THE BUSINESS IN THE UNIT CANNOT BE DOUBTED. FURTHER, THE LD. A.O. HAS ALSO RAISED THE VARIOUS QUERIES 'WITH REGARD TO THE MASTER AGREEMENT, , ENTRY PASSES OF T~ EMPLOYEES, ETC. IN ORDER TO DISALLOW THE EXEMPTION U/S 1 OAA. IT IS SUBMITTED THAT THE SAID QUERIES ARE QUITE IRRELEVANT WITH RESPECT TO THE PROVISIONS OF SECTION 1 OAA AS THE SECTION IS ITSELF A SELF DEFINING CODE AND THERE IS NO REQUIREMENT OF SUCH CONDITIONS. IN VIEW OF T HE ABOVE EXPLANATIONS AND JUDICIAL PRECEDENTS, IT IS SUBMITTED THAT THE APPELLANT HAS COMPLIED WITH ALL THE CONDITIONS OF 20 ITA NO. 4718 AND 4719 9 /MUM/201 5 SECTION LOAA AND THEREFORE THE EXEMPTION OF RS.1.43 CRORES IS DULY ALLOWABLE UNDER THE ACT.' 16 . AFTER HEARING THE CONTENTIONS OF BO TH THE PARTIES AND ON PERUSAL OF T HE RECORD ON THE ISSUE, THE LD.CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING AND OBSERVING AS UNDER : 6.4 I HAVE CONSIDERED THE OBSERVATIONS OF THE A.O. AND THE SUBMISSION OF THE A.R AND CAREFULLY PERUSED THE COND ITIONS LAID DOWN IN SECTION 10AA OF THE INCOME TAX ACT 1961 AND THE PAPERBOOK FILED BY THE ASSESSEE. THE APPELLANT HAS CONSTITUTED A UNIT IN SEEPZ - SEZ MUMBAI WHICH HAS BEEN NOTIFIED BY THE GOVERNMENT. IN SUPPORT OF THE SAME, THE APPELLANT HAS SUBMITTED T HE REGISTRATION CERTIFICATE FROM THE SEEPZ - SEZ AUTHORITY. THE CERTIFICATE CLEARLY SHOWS THAT THE APPELLANT HAS CONSTITUTED A UNIT IN SEEPZ - SEZ AND HAS COMMENCED THE OPERATIONS. FURTHER, THE APPELLANT HAS ALSO RECEIVED THE FOREIGN CURRENCY WITHIN THE ST IPULATED TIME AND THE COPIES OF THE FIRC HAVE BEEN SUBMITTED BY THE APPELLANT. THE AUTHORITIES OF THE SEEPZ - SEZ HAVE ALSO CERTIFIED THAT THE APPELLANT HAS COMMENCED THE OPERATION IN THE IT ENABLED SERVICES BY EMPLOYING THE REQUISITE TECHNICAL STAFF. 6. 5 THE OBSERVATIONS OF THE A.O. IS RELATED TO THE SOLE GROUND THAT THE UNIT HAS BEEN FORMED OUT OF RESTRUCTURING OF THE EXISTING UNIT. WITH REGARD TO THE TRANSFER OF ASSETS IS CONCERNED, IT IS OBSERVED THAT THE APPELLANT HAS DULY BEEN ALLOTTED A SEPARATE UN IT NOS 304 & 402 IN SEZ THROUGH PROPER ALLOTMENT PROCESS. THE DOCUMENTS RELATED TO THE SAME ARE PLACED AT PAGE NOS 24 TO 26 OF THE PAPERBOOK. THE PERMISSION IS DATED 04.05.2009. ALSO THE LETTER OF ALLOTMENT OF GALA BY MIDC HAS BEEN PLACED AT PAGE NO. 30 - 35 . THE COMMENCEMENT CERTIFICATE FROM STPI STATING THAT THE UNIT HAS BEEN COMMENCED W.E.F AUGUST 2010 IS ON RECORD PLACED AT PAGE NO.36 OF THE PAPER BOOK. THE DOCUMENTS ISSUED BY THE APPROPRIATE AUTHORITIES CANNOT BE IGNORED. THE AO HAS ALSO NOT POINTED OUT ANY SPECIFIC DISCREPANCY. ALSO THE APPELLANT HAS FILED BALANCE SHEET FOR THE RELEVANT ASSESSMENT YEAR WHICH IS PLACED AT PAGE NUMBER 1 TO 17 OF THE PAPERBO OK WHEREIN AND THEREFORE THE CONTENTION OF TRANSFER OF OLD ASSET TO NEW UNIT CAN NOT BE UPHELD. FURT HER, THE A. O HAS OBSERVED THAT THE APPELLANT HAS TRANSFERR ED SOME EMPLOYEES FROM THE OLD UNIT TO THE NEW UNIT. I HAVE CONSIDERED THE ABO VE OBSERVATION OF THE A. O . SECTION 10AA(4) READS AS UNDER: 21 ITA NO. 4718 AND 4719 9 /MUM/201 5 THIS SECTION APPLIES TO ANY UNDERTAKING BEING THE UNIT, WHI CH FULFILLS ALL T HE FOLLOWING CONDITIONS, NAMELY - . (III) IT IS NOT FORMED BY THE TRANSFER TO A NEW BUSINESS, OF MACHINERY OR PLA NT PREVIOUSLY USED FOR ANY PURPOSE. THE APPELLANT HAS NOT TRANSFERRED ANY PLANT AND MACHINERY TO THE NEW UNIT NEITHER T HE A. O HAS POINTED OUT ANY INSTANCES OF SUCH TRANSFER AS PER T HE PROVISIONS OF SECTION 10AA, THERE IS ONLY A BAR ON TRANSFER OF ASSET AND NOT THE EMPLOYEES. THE A. O IN PARA 4.12 OF THE ASSESSMENT ORDER HAS MENTIONED THE LIST OF THE EMPLOYEES TRANSFERRED TO THE NEW UNIT. FURTHER, DECISIONS RELIED ON BY THE APPELLANT IN THE CASE OF METROPOLITAN SPRIN GS P. LTD. [58 TAXMAN 721 WHEREIN THE COURT HELD THAT EVEN IF COME MEMBERS OF THE ST AFF . WERE COMMON TO THE OLD AND NEW UNIT, IT WILL NOT BE BAR ON THE ELIGIBIL IT Y OF DEDUCTION UNDER SECTION 80J OF THE ACT. FURTHER, THE SAID ISSUE HAS BEEN ELABORATELY DEALT BY T HE HON'BLE CHENNAI TRIBUNAL IN THE CASE OF DSM SOFT P. LTD. [115 ITD 11 AND IT WAS HE LD THAT TRANSFERRING EXISTING EMPLOYEES BY THEMSELVES WOULD NOT MAKE THE UNIT INELIGIBLE FOR TAX RELIEF UNDER SECTION 10A OF THE ACT ACCORDINGLY, I HOLD THAT THE TRANSFER OF SOME EMPLOYEES FROM OLD UNIT TO NEW UNIT CANNOT BE A BASE FOR REJECTING THE EXEMPTION U/S 10AA. 6.6 FURTHER, THE A. O . HAS NOTED THAT THE NEW UNIT IS ALSO RENDERING THE SAME SERVIC E AS THAT OF THE EXISTING UNIT. THIS OBSERVATION HAS BEEN DEALT BY THE HON'B LE MADRAS HIGH COURT IN. THE CASE OF PREMIER COTTON MILLS LTD. [240 ITR 43 4] WHEREIN IT WAS HELD THAT WHILE DECIDING WHETHER THERE IS SPLITTING UP RECONSTRUCTION OF AN UNDERTAKING, IT IS NOT NECESSARY TO SEE WHETHER THE NE W UNDERTAKING HAS PRODUCED A DIFFERENT ARTICLE THAN THAT PRODUCED BY THE OLD UNDERTAKING. ALSO, THE' DECISION RELIED UPON BY THE APPELLANT OF THE HON'B LE SUPREME COURT IN ALUMINUM COMPANY LTD. [108 ITR 367] ALSO UPHOLDS THE SAME VIEW. THEREFORE, IN MY CONSIDERED VIEW, THE CONTENTION OF THE A. O . IS REJECTED. 6.7 ALSO, IT IS IMPORTANT TO NOTE THAT THE HONBLE SUPREME COURT IN THE CASE OF TEXTILE MACHINERY CORPORATION (107 ITR 195) HAS HELD THAT A NEW UNIT SHOULD BE SET UP FROM NEW INVESTMENTS, THE NEW UNIT MUST BE SET UP FOR PRODUCING EITHER THE SAME COMMODITIES OR SOME DISTINCT COMMODITIES. 22 ITA NO. 4718 AND 4719 9 /MUM/201 5 THE APPELLANT HAS MADE A SUBSTANTIAL INVESTMENT IN THE NEW UNIT AMOUNTING TO RS.7.50 CRO RES AND PROVIDING TH E SAME SERVICES CANNOT BE A - GROUND TO DISALLOW THE EXEMPTION U/ S 10AA. THEREFORE, I HOLD THAT THE EXEMPTION U/ S 10AA AS CLAIMED BY THE APPELLANT IS DULY ALLOWABLE TO THE APPELLANT. ACCORDINGLY, THIS GROUND IS ALLOWED. 6.8 FURTHE R, THE APPELLANT HAS RAISED A CONTENTION THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD. A.O. HAS NOT ALLOWED EXEMPTION U/ S 10AA ON THE ADDITIONAL INCOME FROM M/S. VIRAJ PROFILES LIMITED AMOUNTING TO RS .4 ,64,216/ - . 6.9 I HAVE PERUSED THE CON TENTION OF THE APPELLANT. AS ALREADY HELD IN GROUND NO. 1, THE SALE MADE TO M/S. VIRAJ PROFILES LIMITED IS ELIGIBLE FOR EXPORT TURNOVER AS PER SECTION 10AA. THEREFORE, THE ADDITIONAL INCOME OFFERED FROM M/ S. VIRAJ PROFILES LIMITED IS LIABLE TO THE EXEMPTI ON U/ S 10AA OF THE ACT. ACCORDINGLY, THE A.O. IS DIRECTED TO ALLOW THE EXE MPTION ON THE ADDITIONAL INCOME OFFERED. 17 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD, WE FIND THAT THE LD.CIT(A) HAS GIVEN DETAILED FINDINGS AND RECORDED COMPREHENSIVE REASONS AND CONSIDERED TH E ACTION OF THE AO TO BE WRONG AS THE AO FAILED TO APPRECIATE THE FACTS IN CORRECT PERSPECTIVES AND THUS ALLOWED THE APPEAL OF THE ASSESSEE. DURING THE COURSE OF HEARING, T HE LD DR HAS FAILED TO BRING ANY MATERIALS BEFORE US TO CONTROVERT THE FINDINGS GIVEN BY THE LD CIT(A) WHICH IN OUR VIEW IS CORRECT AND JUSTIFIED . UNDER THESE CIRCUMSTANCES WE ARE IN AGREEMENT WITH THE CONCLUSION DRAWN BY THE LD.CIT(A) THAT THE ASSESSEE IS ENTITLED TO CLAI M EXEMPTION U/S 10AA OF THE ACT. THUS, APPEAL OF THE REVENUE STANDS DISMISSED. 23 ITA NO. 4718 AND 4719 9 /MUM/201 5 18 . IN THE RESULT, BOTH THE APPEAL OF T H E REVENUE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21ST JUNE , 2017. SD SD ( MAHAVIR SINGH ) (RAJESH KUMAR) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 21. 6 .2017 SRL,SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, TRUE COPY / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI