Asstt. CITCir.-4,Pune, Pune V. Conexant Systems (PB) Pvt. Ltd., Pune

ITA 510/PUN/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49790 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KANCHAN KAUSHALDHARMESH BA FNA
• Assessee Lawyers: A S SINGH
• Keywords: Revised return
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I.C.SUDHIR, JM AND SHRI D. KARUNAKARA RAO, AM ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) ASSTT.CIT, CIR.-4, PUNE APPELLANT VS. CONEXANT SYSTEMS (PB) PVT.LTD. [FORMERLY KNOWN AS PAXONET COMMUNICATIONS (I) PVT. LTD.] WESTEND CENTER III, 4 TH FLOOR, S.NO.169/1, SECTOR II, D.P.ROAD, AUNDH, PUNW 411007S PAN AABCC3455F . RESPONDENT APPELLANTS BY : SMT.KANCHAN KAUSHAL/DHARMESH BA FNA RESPONDENT BY : SHRI A.S.SINGH ORDER PER I.C.SUDHIR, JM THE REVENUE HAS QUESTIONED COMMON FIRST APPELLATE O RDER ON FOLLOWING GROUNDS. 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, A ND IN LAW, THE LD.CIT(A) ERRED IN HOLDING THE ASSESSEE COMPANY IS ELIGIBLE FOR CLAIMING DEDUCTION U/S. 10B (OR 10A) FOR ITS BANGALORE UNIT. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE AO, TO REALLOCATE INCOME AND EXPENDITURE FOR PUNE AND BANGALORE UNIT, AND ACCORDINGLY ALLOWED DEDUCTION U/S 10B (OR 10A) FOR ITS BANGALORE UNIT. ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 2 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE HONBLE LD.CIT(A) ERRED IN HOLDING THAT TH E FUNCTIONING OF BANGALORE UNIT AND PUNE UNIT ARE, DISTINCT . 2. AT THE OUTSET OF HEARING LEARNED AR POINTED OUT ISSUE RAISED IN GROUND NO.2 WERE RELATING TO ELIGIBILITY OF CLAIMED DEDUCTION U/S. 10B OR 10A PUNE UNIT IN THE A.Y. 2001-02 AND 2003-04 H AS BEEN SET ASIDE BY THE TRIBUNAL IN THE CASE OF ASSESSEE TO THE FILE OF THE LEARNED CIT(A) FOR FRESH CONSIDERATION. HE ACCORDINGLY RE QUESTED THAT THE ISSUE RAISED IN GROUND NO.2 FOR THE A.Y. 2004-05 UN DER CONSIDERATION MAY ALSO BE SET ASIDE FOR FRESH CONSIDERATION. R EGARDING REMAINING GROUND NOS. 1 & 3, HE SUBMITTED THAT ISSUE RAISED T HEREIN IS REGARDING ELIGIBILITY FOR CLAIMING DEDUCTION U/S.10B (OR 10A) FOR ITS BANGALORE UNIT OF ASSESSEE WHICH IS AN INDEPENDENT ISSUE AND THE S AME IS TO BE ADJUDICATED UPON BY THE TRIBUNAL. 3. REGARDING GROUND NO.1 & 3 RELEVANT FACTS ARE THA T THE ASSESSEE IS IN HARDWARE ENGINEERING AND DESIGNING BUSINESS . THE A.O. DENIED CLAIM DEDUCTION U/S. 10A FOR BANGALORE UNIT ON THE BASIS THAT IN THE RETURN OF INCOME FILED BY THE ASSESSEE NO SEPARATE COMPUTATION OF TAXABLE INCOME GIVING UNIT-WISE BREAKUP FOR TWO SE PARATE UNITS I.E. BANGALORE & PUNE UNDERTAKING WAS GIVEN; IT IS ONLY IN THE REVISED RETURN OF ASSESSMENT 2004-05 FILED BY THE ASSESSEE ON 31 MARCH, 2006, THE SEPARATE COMPUTATION OF PUNE UNIT AND BAN GALORE UNIT HAS BEEN SHOWN FOR THE FIRST TIME; IN RESPECT OF REVISE D RETURN FILED ON 31 ST MARCH 2006 FOR A.Y. 2004-05; AND TWO CERTIFICATES I N FORM NO. 56F IN RESPECT OF PUNE UNIT AND BANGALORE UNIT ARE DATED 28/03/2006. THUS, THE AUDIT REPORT TO BE FILED IN SUPPORT OF THE DEDU CTION WAS NOT FILED WITH THE ORIGINAL RETURN; AND THE NATURE OF BOTH TH E UNITS IS HARDWARE ENGINEERING AND DESIGNING, THEREFORE THESE CANNOT BE TREATED AS SEPARATE UNITS AS THE ACTIVITY OF BOTH THE UNITS IS THE SAME. THE ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 3 LEARNED CIT(A) HAS FURTHER ALLOWED THE CLAIMED DEDU CTION U/S.10A TO THE BANGALORE UNIT AGAINST WHICH REVENUE IS IN APPE AL. 4. IN SUPPORT OF THE GROUNDS THE LEARNED DR PLACED RELIANCE ON THE ASSESSMENT ORDER WITH THESE FURTHER SUBMISSIONS THA T ALL ALONG THE ASSESSEE HAS BEEN CLAIMING DEDUCTION U/S.10B ONLY A ND THIS IS THE FIRST TIME THAT THE DEDUCTION IS CLAIMED U/S.10A IN THE R EVISED RETURN OF INCOME WHICH IS FILED BEYOND THE TIME LIMIT. THE LEARNED DR FURTHER SUBMITTED THAT ASSESSEE IS SEEKING SHELTER U/S.10A ONLY BECAUSE IT APPARENTLY ALLOWS DEDUCTION UNIT-WISE THUS ASSESSEE S TRYING TO DISTINGUISH SEPARATE TWO UNITS WHEREAS THE ACTIVITY OF BOTH THE UNITS ARE THE SAME AND TO THAT EXTENT THIS IS NOT A SEPA RATE UNIT. 5. THE LEARNED AR ON THE OTHER HAND TRIED TO JUSTIF Y THE FIRST APPEAL ORDER ON THE ISSUE AND REFERRED THE CONTENTS IN PAR A NO.4.2 AND 4.3 OF THE FIRST APPEAL ORDER I.E. FINDING OF LEARNED CIT( A) IN THIS REGARD. 6. FINDINGS IT APPEARS FROM THE ORDER DATED 09/02/2011 OF THE T RIBUNAL IN ITA NO. 552/PN/08 THAT THE ASSESSEE HAS QUESTIONED THE FIRS T APPELLATE ORDER FOR THE SAME A.Y. 2004-05 ON TWO ISSUES. IN GROUND S 1 & 1.1 THERETO ISSUE RAISED WAS REGARDING ELIGIBILITY OF THE ASSES SEE TO CLAIM THE DEDUCTION U/S. 10A OF THE ACT. THE ISSUE WAS SET ASIDE BY THE TRIBUNAL TO THE FILE OF THE LEARNED CIT(A) TO DECID E THE SAME AFRESH IN VIEW OF OBSERVATIONS MADE BY THE TRIBUNAL IN GROUND NO.1 TO 3 FOR THE A.Y. 2002-03 IN ITA NO. 1805/PN/2005. THE TRIBUNAL OBSERVED VIDE PARA NO.16 THEREIN IN A.Y.2002-03 THAT IT IS THE DU TY OF THE A.O. TO MAKE JUST AND PROPER ASSESSMENT AS PER REQUIREMENT OF THE LAW. SIMILAR ISSUE HAS BEEN RAISED IN THE CROSS APPEAL P REFERRED BY THE REVENUE FOR THE SAME ASSESSMENT YEAR 2004-05 IN GRO UND NOS.1 & 2. IN GROUND NO.1 THE REVENUE HAS QUESTIONED THE ACTIO N OF THE LEARNED CIT(A) IN HOLDING THE ASSESSEE COMPANY ELIGIBLE FOR CLAIMING DEDUCTION U/S.10B(OR 10 A) FOR ITS BANGALORE UNIT. IN GROUN D NO.2 THE REVENUE HAS QUESTIONED FIRST APPELLATE ORDER IN DIRECTING T HE A.O. TO REALLOCATE THE INCOME AND EXPENDITURE FOR PUNE AND BANGALORE U NITS AND ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 4 ACCORDINGLY ALLOW THE DEDUCTION U/S. 10B (OR 10A) F OR ITS BANGALORE UNIT. THE ELIGIBILITY OF THE ASSESSES TO CLAIM DE DUCTION U/S. 10A OF THE ACT QUESTIONED BY THE ASSESSEE IN ITS APPEAL FOR TH E A.Y.2004-05 VIDE GROUND NO.1 & 1.1 HAS BEEN SET ASIDE FOR FRESH CONS IDERATION OF THE LEARNED CIT(A) KEEPING IN MIND THE BACKGROUND OF TH E ASSESSEE FOR THE CLAIM DISPUTED IN EARLIER ASSESSMENT YEARS. WE THUS FOLLOWING THE DECISION TAKEN IN GROUND NO.1 AND 1.1 IN THE AP PEAL OF THE ASSESSEE SET ASIDE THE ISSUE RAISED IN GROUND NO.1 HEREIN REGARDING THE ELIGIBILITY OF DEDUCTION OF THE ASSESSEE AS TO WHETHER U/S.10B OR 10A IN ITS BANGALORE UNIT FOR FRESH CONSIDERATION A S DIRECTED IN GROUND NO.1 AND 1.1 IN APPEAL OF THE ASSESSEE FOR THE SAME ASSESSMENT YEAR. IN THE OTHER GROUND NO.2, 2.1 & 2.3 RAISED IN THE APPEAL OF THE ASSESSEE FOR THE SAME ASSESSMENT YEAR 2004-05, THE ISSUE REMAINED AS TO WHETHER THE ASSESSEE IS ENTITLE TO CLAIM DEDU CTION U/S.10A SEPARATELY FOR BANGALORE UNIT AND PUNE UNIT. THE G RIEVANCES OF THE ASSESSEE THEREIN REMAINED THAT LEARNED CIT(A) INSTE AD OF DECIDING THE ISSUE ITSELF HAS DIRECTED THE A.O. TO DECIDE TH E ISSUE AFTER VERIFICATION OF THE CLAIMED DEDUCTION U/S. 10A ALLO WABLE TO THE BANGALORE UNIT ON EXAMINING THE OVERLAPING OF RECEI PTS AND EXPENDITURE IN THE PUNE AND BANGALORE UNITS. THE T RIBUNAL FOUND SUBSTANCE IN THE GRIEVANCE OF THE ASSESSEE. ACCORDINGLY, THE MATTER WAS SET ASIDE TO FILE OF THE LEARNED CIT(A) WITH TH E DIRECTION TO DECIDE THE ISSUE HIMSELF ON CALLING REPORT ON VERIFICATION OF RELEVANT FACTS FROM THE A.O. SIMILAR ISSUE HAS BEEN RAISED IN THE CROS S APPEAL PREFERRED BY THE REVENUE IN THE SAME ASSESSMENT YEAR VIDE GRO UND NO.2 HEREIN. SINCE WE HAVE ALREADY SET ASIDE THE MATTER TO THE F ILE OF THE LEARNED CIT(A) TO DECIDE THE ISSUE AFTER VERIFICATION OF RE LEVANT FACTS BY THE A.O. THERE IS NO NEED TO PASS DIFFERENT ORDER IN GROUND NO.2 HEREIN. IT IS ACCORDINGLY, ALLOWED FOR STATISTICAL PURPOSES . 7. SO FAR AS THE GROUND NO.3 IN THE PRESENT APPEAL IS CONCERNED THE ACTION OF THE LEARNED CIT(A) HAS BEEN QUESTIONE D IN HOLDING THAT FUNCTIONING OF BANGALORE UNIT AND PUNE UNIT IS DIST INGUISHED. FOR READY REFERENCE FIRST APPELLATE ORDER ON THE ISSUE IS BEING REPRODUCED HEREINUNDER : ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 5 4.2 I HAVE GONE THROUGH THE FACTS OF THE CASE. IT IS UNDISPUTED THAT THE BANGALORE UNIT WAS REGISTERED A ND RECEIVED RECOGNITION AS A STP UNIT VIDE NO. EIG/COR EEI LABS/GEN/1961 DATED 20-05-2000 FROM STPI, BANGALORE . THE CERTIFICATE WAS GRANTED ON THE BASIS OF SEPARAT E NET FOREIGN EXCHANGE COMMITMENT FOR THAT STAND ALONE UN IT. IT IS ALSO NOT IN DISPUTE THAT THE UNIT WAS CREATED OUT OF A FRESH INFLOW OF FUNDS RESULTING IN PURCHASES OF NEW ASSETS FOR THE BANGALORE UNIT. THE BUSINESS OF BANGALORE UNIT ALSO DID NOT ADVERSELY AFFECT ANY BUSINESS OF THE E XISTING UNIT AND THEREFORE, CANNOT BE TERMED AS RESTRUCTUR ED UNIT. IN NUTSHELL, THE BANGALORE UNIT DOES NOT SU FFER FROM ANY OF THE PURPORTED DETECTS POINTED OUT FOR THE PU NE UNIT FOR WHICH DEDUCTION U/S. 10B WAS DISALLOWED. 4.3 THE REVISED RETURN FOR THE ASSESSMENT YEAR 2004-05 WAS FILED BY THE APPELLANT ON 31-03-2006, WITHIN TIME, IN WHICH A SEPARATE COMPUTATION OF PUNE AND BANGALORE UNITS WAS SHOWN. THE ASSESSING OFFICER HAS TAKEN THIS REVISED RETURN INTO CONSIDERATION WHILE FRAMING THE ASSESSMENT. THE PROVISIONS OF SECTION 10A(5) LAY D OWN THAT THE DEDUCTION UNDER THIS SECTION SHALL NOT BE ADMISSIBLE FOR ANY ASSESSMENT YEAR BEGINNING ON OR AFTER THE FIRST DAY OF APRIL, 2001 UNLESS THE ASSESSEE F URNISHES IN THE PRESCRIBED FORM ALONGWITH THE RETURN OF INCO ME THE REPORT OF THE ACCOUNTANT AS DEFINED IN THE EXPLANAT ION BELOW SUB-SECTION(2) OF SECTION 288, CERTIFYING THA T THE DEDUCTION HAS BEEN CORRECTLY CLAIMED IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION. FORM NO. 56F UNDER RULE 16D OF THE INCOME TAX RULES WAS FILED ALONGWITH THE RETURN OF INCOME. NOWHERE DOES SECTION 10A(5) ENJO IN THAT FORM NO.56 F SHOULD BE FILED BEFORE THE TIME F OR FILING THE ORIGINAL RETURN HAD EXPIRED. FURTHER, THOUGH T HE ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 6 ACTIVITIES OF THE PUNE AND BANGALORE UNITS HAVE BEE N BROADLY CLASSIFIED DESIGN OF INTERGRATED CIRCUITS , VARIOUS ACTIVITIES ARE CONDUCTED UNDER THE BROAD HEAD. THE ACTIVITIES OF PUNE UNIT INCLUDE SPECIFICATION DEVEL OPMENT, MICRO ARCHITECTURE, LOGIC DESIGN, TEST ENVIRONMENT CREATION, VERIFICATION, LAYOUT, TIM ING CLOSURE ETC., WHEREAS BANGALORE UNIT IS ENGAGED IN PROVIDING PRE-SILICON VALIDATION OF THE CORES ON FPGA BOARDS, BOARD DESIG N AND REFERENCE BOARD DESIGNS. DURING THE COURSE OF APPE LLATE PROCEEDINGS SHRI JEEVAN KUMAR AND SHRI SACHIN INAMD AR, TECHNICIAN FROM THE COMPANY, ALSO ATTENDED ALONGWIT H THE PRODUCT TO STATE AS TO THE FUNCTIONS WHICH WERE BEI NG DONE IN PUNE UNIT AND THE FUNCTIONS WHICH WERE SUBSEQUENTLY DONE IN THE BANGALORE UNIT. ON THE B ASIS OF THE ABOVE, IT IS HELD THAT THE BANGALORE UNIT BEING A SEPARATE UNIT WITH SEPARATE STPI CERTIFICATE DEDUCT ION U/S.10B (OR 10A) IS ALLOWABLE. HOWEVER, THE ASSESS ING OFFICER IS DIRECTED TO VERIFY THE COMPUTATION OF DE DUCTION U/S.10B(OR 10A) OF THE BANGALORE UNIT AS THERE IS OVERLAPPING OF THE RECEIPTS AND EXPENDITURE IN PUNE AND BANGALORE UNITS WHICH HAVE TO BE PROPERLY ALLOCATED TO THE 2 UNITS. THE GROUND OF APPEAL NO.3 IS PARTLY ALLOW ED. 8. THE LEARNED CIT(A) HAS NOTED CERTAIN MATERIAL A SPECT OF THE FACT WHILE ACCEPTING THE CLAIMED DEDUCTION. FIRSTLY TH E BANGALORE UNIT WAS REGISTERED AND RECEIVED RECOGNITION STP UNIT VIDE L ETTER NO.EIG/COREEL LABS/GEN/1961 DATED 20/05/2000 ; THE BANGALORE UNI T WAS CREATED OUT FRESH INFLOW OF FUNDS RESULTING IN PURCHASES OF NEW ASSETS FOR THE UNIT AND FURTHER THAT REVISED RETURN FOR THE ASSESS MENT YEAR 2004-05 WAS FILED BY THE ASSESSEE ON 31 MARCH 2006 WITHIN TIME IN WHICH SEPARATE COMPUTATION OF PUNE AND BANGALORE UNIT WAS SHOWN WHICH WAS TAKEN INTO CONSIDERATION BY THE A.O. WHILE FRAM ING THE ASSESSMENT. LEARNED CIT(A) FURTHER OBSERVED THAT FORM NO.56F UNDER RULE 16D OF THE INCOME-TAX RULES WAS FILED AL ONGWITH THE RETURN ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 7 OF INCOME AND THAT NOWHERE DOES SECTION 10A(5) ENJO IN THAT FORM NO.56F SHOULD BE FILED BEFORE THE TIME FOR FILING T HE ORIGINAL RETURN HAD EXPIRED. REGARDING THE ACTIVITIES OF PUNE AND BANG ALORE UNITS THE LEARNED CIT(A) HAS OBSERVED THAT THESE UNITS HAVE B EEN BROADLY CLASSIFIED AS DESIGN OF INTEGRATED CIRCUITS, VARI OUS ACTIVITIES ARE CONDUCTED UNDER THE BROAD HEAD. HE OBSERVED FURTH ER THAT THE ACTIVITIES OF PUNE UNIT INCLUDING SPECIFICATION DEV ELOPMENT, MICRO ARCHITECTURE, LOGIC DESIGN, TEST ENVIRONMENT CREATI ON, VERIFICATION, LAYOUT, TIMING CLOSURE ETC., WHEREAS BANGALORE UNIT IS ENGAGED IN PRE- SILICON VALIDATION OF CORES ON FPGA BOARDS, BOARD D ESIGN AND REFERENCE BOARD DESIGNS. HOWEVER, FOR PRECAUTIONARY MEASURE S THE LEARNED CIT (A) DIRECTED THE A.O. TO VERIFY THE COMPUTATION OF DEDUCTION U/S. 10B (OR 10A) OF THE BANGALORE UNIT AS THERE WAS OVERLAP PING OF THE RECEIPTS AND EXPENDITURE IN PUNE AND BANGALORE UNITS WHICH H AVE TO BE PROPERLY ALLOCATED TO THE TWO UNITS. IN ABSENCE O F REBUTTAL OF THE ABOVE OBSERVATIONS OF THE LEANED CIT(A) ON THE BASI S OF WHICH LEARNED CIT(A) HAS ACCEPTED THE CLAIM OF DEDUCTIO N, WE PRIMA-FACIE FIND THAT THE FIRST APPELLATE ORDER ON THE ISSUE IS REASONED ONE. WE HOWEVER FIND FROM PARA NO.29 OF THE ORDER DATED 09/ 02/2011 OF THE TRIBUNAL IN THE CASE OF ASSESSEE AN IDENTICAL ISSUE WAS RAISED IN T HE GROUND NO. 2 TO 2.1 TO 2.3 IN ITA NO. 552/PN/08 FOR THE SAME A.Y. 2004-05. THE TRIBUNAL AFTER CONSIDERING THE CASES OF THE PARTIES HAS SET ASIDE THE MATTER TO THE FILE OF THE LEARNED CIT(A) TO DECIDE THE ISSUE HIMSELF AFTER VERIFICATION OF THE ELIGIBILITY OF CLAIMING DEDUCTION U/S.10A IN BANGALORE UNIT ON THE BASIS OF RECEIPTS AND EXPENDITURE IN PUNE AND BANGALORE UNITS. IN THE PRESENT APPEAL THE SIMILAR ACTION OF LEARNED CIT(A) HAS BEEN QUESTIONED BY THE REVENUE I N GROUND NO.2. THUS THE ISSUE RAISED IN GROUND NO.3 CANNOT BE SEEN IN ISOLATION OF GROUND 1 & 2. THUS, FOLLOWING EARLIER ORDER OF THE TRIBUNAL IN TH E CASE OF ASSESSEE, IN ITA NO 552/PN/08, THE GROUND 3 IS A LLOWED FOR STATISTICAL PURPOSES BY SETTING ASIDE THE SAME TO T HE FILE OF THE LEARNED CIT(A) FOR FRESH CONSIDERATION IF IT IS SO REQUIRED TO DO, IN VIEW OF THE OUTCOME OF THE COMPLIANCE OF THE ORDER DATED 09/02/ 2011 OF THE TRIBUNAL IN THE CASE OF ASSESSEE. ITA NO. 510/PN/2008 (ASSTT. YEAR 2004-05) CONEXANT SYSTEMS (PB) PVT.LTD., 8 10. IN THE RESULT, THE APPEALS ARE ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 3 RD DAY OF JUNE, 2011. SD/- SD/- (D.KARUNAKARA RAO) (I.C.SUDHIR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 3 RD JUNE, 2011 ASHWINI COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE AS MENTIONED IN THE CAUSE TITLE 2. ASSTT.CIT, CIRCLE-4, PUNE 3. CIT (A)-II, PUNE. 4. ADDL.CIT,R-4, PUNE 5. D.R. ITAT B BENCH, PUNE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE