ITO 8(3)(4), MUMBAI V. ZEDO (I) P. LTD, MUMBAI

ITA 5333/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55836 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 31-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: V G GINDE
• Section: 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER, A ND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 5333/MUM./2010 (ASSESSMENT YEAR : 2007-08 ) INCOME TAX OFFICER WARD-8(3)(4), AAYAKAR BHAVAN M.K. ROAD, MUMBAI 400 020 .. APPELLANT V/S ZEDO (INDIA) P. LTD. CITI POINT, TELLI GALLI ANDHERI (E), MUMBAI 400 061 PAN AAACZ1588P .... RESPONDENT REVENUE BY : MR. A.K. NAYAK ASSESSEE BY : MR. V.G. GINDE DATE OF HEARING 31.10.2011 DATE OF ORDER 23.11.2011 O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE REVENUE, IS DIRECTED AGAI NST THE IMPUGNED ORDER DATED 22 ND APRIL 2010, PASSED BY THE COMMISSIONER (APPEALS)-X VIII, MUMBAI, FOR ASSESSMENT YEAR 2007-08. 2. BRIEF FACTS, AS BROUGHT OUT BY THE COMMISSIONER (AP PEALS) IN HIS IMPUGNED ORDER VIDE PARAS-3.1 AND 3.2, ARE AS FOLLO WS:- 3.1 THE FACTS OF THE CASE ARE, THE APPELLANT IS ENG AGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF COMPUTER SOFT WARE. IT WAS INCORPORATED DURING THE YEAR 2002. THE COMPANY STAR TED ITS OPERATION IN F.Y. 2002-03, AND WAS CLAIMING DEDUCTION UNDER S ECTION 80HHE ON THE INCOME DERIVED FROM SOFTWARE EXPORT. SUBSEQUENT LY, THE APPELLANT ZEDO (I) PVT. LTD. ITA NO. 5333/MUM./2010 2 COMPANY WAS REGISTERED IN STPI ON 23.02.3006. DURIN G FR 2006-07, THE APPELLANT RELOCATED THE STP UNIT TO ANDHERI (E) , MUMBAI, AFTER OBTAINING THE PERMISSION FROM STPI AND CUSTOMS. FOR A.Y. 2007-08, FOR THE FIRST TIME THE APPELLANT CLAIMED 10A DEDUCTION WHICH WAS DENIED BY THE A.O. 3.2 THE REASONS GIVEN BY THE A.O. FOR DENYING DEDUC TION UNDER SECTION 10A ARE AS UNDER:- (A) THAT, THE ASSESSEE WAS DOING THE SAME BUSINESS IN A.Y. 2005- 06 AND 2006-07 ALSO, HOWEVER, NO DEDUCTION UNDER SE CTION 10A WAS CLAIMED FOR THESE YEARS. (B) THAT, THE ASSESSEE DID NOT ESTABLISH THE BUSINE SS UNDERTAKING IN THE YEAR 2007-08. (C) THAT, THE CONDITIONS PRESCRIBED IN SEC. 10A(II) AND 10A(III) ARE NOT FULFILLED. THE CONDITIONS PRESCRIBED ARE, THAT THE UNIT IS NOT FORMED BY SPLITTING OR RECONSTRUCTION OF BUSINESS ALREADY EXISTENCE AND IT IS NOT FORMED BY THE TRANSFER PLANT AND MACHINERY PREVIOUS LY USED TO THE NEW BUSINESS. 3. THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST AP PELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPEALS) HELD THAT THE AS SESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE T RIBUNAL ON THE FOLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN ALLOWING THE EXEMPTION U/S 1OA A MOUNTING TO RS. 71,26,383/- WITHOUT APPRECIATING THE FACTS THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW EXEM PTION U/S 10A WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM EXEMPTION U/S 10A AS THE PLANT AND MACHINERY WERE A LREADY EARLIER UTILIZED AND ARE NOT THE NEW ONE. 4. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE, MR. A.K. NAIK, ON BEHALF OF THE REVENUE, SUBMITTED THAT THE ASSESSING OFFICER HAS BASED HIS REJECTION OF THE CLAIM ON THE GROUND THAT THERE IS A DISCREPANCY IN THE QUANTUM OF DEDUCTION CLAIMED UNDER SECTION 10A ORIG INALLY AND, THEREAFTER, BY FILING OF A REVISED COMPUTATION; (II) THAT THE A SSESSEE HAS NOT FULFILLED CLAUSE (III) OF SECTION 10A. HIS CASE IS THAT, THE ASSESSEE IS ALREADY RUNNING AN ESTABLISHMENT FROM FINANCIAL YEAR 2002-03 AND TH AT DURING THE FINANCIAL ZEDO (I) PVT. LTD. ITA NO. 5333/MUM./2010 3 YEAR 2006-07, HE RE-LOCATED THE UNIT TO ANDHERI. TH E SAME MANPOWER AND MACHINERIES WERE UTILISED AND, HENCE, IT IS A CASE OF RE-CONSTRUCTION OF BUSINESS WHICH WAS ALREADY IN EXISTENCE; (III) THAT CIRCULAR NO.1/2005, DATED 6 TH JANUARY 2005, RELATES TO EXEMPTION UNDER SECTION 1 0B AND CANNOT BE EXTENDED TO SECTION 10A; (IV) THAT THE CLAIM WAS NO T MADE EARLIER AND IS MADE FOR THE FIRST TIME. FOR THE PROPOSITION THAT W HEN THE SAME STAFF OF THE OLD UNIT ARE USED, THEN THE ASSESSEE CAN BE SAID TO HAVE FORMED THE BUSINESS BY RE-CONSTRUCTION. IN SUPPORT OF HIS ARGUMENTS, HE RELIED ON THE MUMBAI BENCH DECISION IN EXPORT OUTSOURCE PVT. LTD., 25 SO T 432 (MUM.) 5. LEARNED COUNSEL, MR. V.G. GINDE, ON BEHALF OF THE A SSESSEE, SUBMITTED BEFORE US THAT THE CLAIM OF THE ASSESSEE WAS ONLY F OR REMAINING UNEXPIRED PERIOD OF TEN YEARS, WHICH COMMENCED FROM ASSESSMEN T YEAR 2003-04. HE SUBMITTED THAT IT IS NOT THE CASE OF THE ASSESSEE T HAT THE UNIT IS A NEW UNIT IN THE YEAR 2007-08 AND THAT THE NEW UNIT WAS FORMED I N THE YEAR 2003-04 AND THE ASSESSEE CHOSE TO CLAIM DEDUCTION UNDER SECTION 10A FROM THE ASSESSMENT YEAR 2007-08, CONSEQUENT TO IT BEING NOT IFIED AS STPI. THE PROPOSITION CANVASSED WAS THAT WHEN A UNIT IS A NON -STP UNIT AND IS LATER CONVERTED INTO STP UNIT, THE ASSESSEE IS ELIGIBLE F OR DEDUCTION UNDER SECTION 10A FOR UNEXPIRED PERIOD. IN SUPPORT OF HIS SUBMISS IONS, HE RELIED ON THE FOLLOWING CASE LAWS:- ITO V/S M/S. GIGNEXT SOLUTIONS INDIA PVT. LTD., ITA NO.466/BANG. /2009 DATED 24 TH JULY 2009; ITO V/S M/S. E 4 E APPLICATION SERVICES P. LTD., IT A NO.470 AND 471/BANG./2009, DATED 31 ST JULY 2009; ITO V/S M/S. FORESEE INFORMATION SYSTEMS (P) LTD., ITA NO. 30141/BANG./2004, ETC., DATED 16 TH MARCH 2007; ITO V/S M/S. EXPERT OUTSOURCE (P) LTD., ITA NO.896 & 897/BANG. /2009, DATED 17 TH MARCH 2010; CIT V/S EXPERT OUTSOURCE (P) LTD., 59 DTR (KAR.) 86 . 6. HE POINTED OUT THAT THE HONBLE KARNATAKA HIGH COUR T HAS UPHELD THE DECISION OF THE TRIBUNAL ON THIS ISSUE IN THE CASE OF EXPORT OUTSOURCE PVT. LTD. ON THE ISSUE OF DISCREPANCY IN THE CLAIM, HE S UBMITTED THAT THE ASSESSEE ZEDO (I) PVT. LTD. ITA NO. 5333/MUM./2010 4 HAD, IN FACT, REDUCED THE QUANTUM OF CLAIM FROM ` 71,26,383 TO ` 67,86,922 AND THIS HAS BEEN EXPLAINED. HE SUBMITTED THAT NO R EVISED RETURN OF INCOME NEEDS TO BE FILED WHEN THE ASSESSEE REDUCED ITS CLA IM. ON THE ISSUE AS TO WHETHER RELOCATION OF UNITS ENTITLES THE ASSESSEE F OR EXEMPTION UNDER SECTION 10A, HE RELIED ON THE CHANDIGARH BENCH DECISION OF THE TRIBUNAL IN SRA SYSTEMS LTD. V/S DCIT, 24 DTR 633 (CHANDI.). 7. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- 8. THE ISSUE IN QUESTION IS COVERED IN FAVOUR OF THE A SSESSEE BY A NUMBER OF DECISIONS OF THE TRIBUNAL CITED BEFORE US. IN EXPERT OUTSOURCE (P) LTD. (SUPRA), THE TRIBUNAL HELD AS FOLLOWS:- 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE HON'BLE PUNJAB & HARYANA H IGH COURT, IN THE CASE OF MAHAVIR SPINNING MILLS LTD (SUPRA), HELD TH AT DEDUCTION UNDER SECTION 10B WOULD BE AVAILABLE ON CONVERSION OF EXI STING UNIT INTO AN EXPORT ORIENTED UNIT (EOU). THE CONTENTIONS OF THE REVENUE AUTHORITIES THAT PROVISIONS OF SECTION 10B(2) WERE NOT FULFILLE D ON CONVERSION OF EXISTING UNIT INTO EOU WERE NEGATIVE BY THE HIGH CO URT. THE TRIBUNAL, IN THE CASE OF M/S. FORESEE INFORMATION SYSTEMS (P) LTD. (SUPRA) HAD HELD THE BENEFIT OF SECTION 10A WOULD BE AVAILABLE EVEN WHEN AN EXISTING UNIT GETS CONVERTED INTO A STP UNIT. RELEV ANT PORTION OF THE ORDER OF THE TRIBUNAL IS REPRODUCED BELOW:- 6. WE HAVE HEARD BOTH THE SIDES. IT APPEARS THAT L EARNED CIT(A) HAS PASSED A VERY DETAILED ORDER IN THE ASSESSMENT YEAR 2002-03 AND RIGHTLY CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENTITLED TO EXEMPTI ON UNDER SECTION 10A OF THE IT ACT. FROM THE ASSESSMEN T ORDER WE FIND THAT ACCORDING TO THE ASSESSING OFFIC ER, IT IS NOT A NEW UNDERTAKING FOR THE PURPOSE OF EXEMPTION UNDER SECTION 10A OF THE IT ACT. FACTUALLY, IT IS A LSO CORRECT THAT THE UNDERTAKING WAS ALREADY ENGAGED IN EXPORTING SOFTWARE BEFORE IT BECAME A STP UNIT. THE STP WAS NOTIFIED IN MARCH, 1993 BUT NOT IN SOFTWARE TECHNOLOGY PARK. IN THE YEAR 2001, A COMPANY WAS FORMED BY CONVERSION OF THE FIRM AND IT STARTED PRO DUCTION IN STP UNIT AFTER GETTING APPROVAL. THEREAFTER ONLY THE UNDERTAKING CLAIMED EXEMPTION UNDER SECTION 10A OF THE IT ACT. THE CLAIM OF THE ASSESSEE IS SUPPORTED BY B OARD CIRCULAR NO.1/2005, WHERE IT HAS BEEN CLEARLY HELD THAT UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DTA), W HICH IS SUBSEQUENTLY APPROVED AS 100% EXPORT ORIENTED, IS ZEDO (I) PVT. LTD. ITA NO. 5333/MUM./2010 5 ENTITLED TO RELIEF UNDER SECTION 10B OF THE IT ACT PROVIDED THE UNDERTAKING SHALL GET RELIEF ONLY FOR THE REMAI NING PERIOD OF TEN CONSECUTIVE YEARS BEGINNING WITH ASSESSMENT YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE COMPUTER SOFTWARE AS A DTA UNIT. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MAHAVIR SPINNING MILLS LTD. (S UPRA) AND THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF M/S. FORESEE INFORMATION SYSTEMS (P) LTD. (SUPRA), WE REJECT THE GROUNDS RAISED BY THE REVENUE. 9. THE HONBLE KARNATAKA HIGH COURT HAS UPHELD THIS OR DER BY OBSERVING THAT, CIRCULAR-1 OF 2005, DATED 6 TH JANUARY 2005, THOUGH ISSUED IN THE CONTEXT OF SECTION 10B, THE RATIO EQUALLY APPLIES T O SECTION 10A ALSO. THE ASSESSEE IS ENTITLED TO CLAIM EXEMPTION FOR THE BAL ANCE PERIOD OF 10 YEARS COMMENCING FROM THE ASSESSMENT YEAR 2003-04. IT IS NOT THE CASE OF THE ASSESSEE THAT IT HAD STARTED A NEW UNIT DURING THE ASSESSMENT YEAR 2006-07. THUS, THE QUESTION OF SPLITTING OR RE-CONSTRUCTION OF EXISTING BUSINESS DOES NOT ARISE. SHIFTING OF THE BUSINESS PLACE FOR ONE P REMISE TO ANOTHER DOES NOT RESULT IN THE ASSESSEE LOSING ITS CLAIM FOR BENEFIT UNDER SECTION 10A. THE CHANDIGARH C BENCH OF THE TRIBUNAL IN SRA SYSTEMS PVT. LTD. (SUPRA) HELD THAT SHIFTING OF EXISTING BUSINESS PLACE FROM A DOM ESTIC TARIFF TO STP DOES NOT AMOUNT TO FORMING A BUSINESS BY SPLITTING OR RE-CON STRUCTION OR BY TRANSFER OF PLANT AND MACHINERY PREVIOUSLY USED SO AS TO DISQUA LIFY RELIEF UNDER SECTION 10A. THUS, WE FIND NO INFIRMITY IN THE ORDER OF PAS SED BY THE COMMISSIONER (APPEALS). 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD NOVEMBER 2011 SD/- V. DURGA RAO JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 23 RD NOVEMBER 2011