HINDUJA VENTURES LTD, MUMBAI V. DCIT CIR 8(2), MUMBAI

ITA 6394/MUM/2014

• Counselvise Citation: 639419914 RSA 2014
• Duration Of Justice: 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: K
• Next Hearing Date: 29-10-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 16-10-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: S M LALA SH HARSH SHAH
• Keywords: Business income; Transfer pricing; International transaction
• Section: 143(3); 10

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL K , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M & SHRI VIVEK VARMA , J M ITA NO. 6394 / MUM/20 1 4 ( ASSESSMENT YEAR : 20 0 5 - 20 06 ) HINDUJA VENTURES LTD., 49/50, IN CENTRE, MIDC, 12 TH ROAD, MAROL, ANDHERI (EAST), MUMBAI - 400 093 VS. DCIT, CIR - 8(2), MUMBAI PAN/GIR NO. : A A ACH 2058 N ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI S.M.LALA, SH.HARSH SHAH & SHRI PARAS SAVLA /REVENUE BY : SHRI KISHAN VYAS DATE OF HEARING : 2 9 TH OC T . 201 4 DATE OF PRONOUNCEMENT : 21/01/2015 O R D E R PER R.C.SHARMA ( A .M.) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A ) , DATED 25 - 8 - 2014 FOR ASSESSMENT YEAR 20 0 5 - 06 , IN THE MATTER OF O RDER PASSED U/S. 143(3) R.W.S.254 OF THE I.T. ACT . 2. THE GRIEVANCE OF THE ASSESSEE RELATES TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S.10A IN RESPECT OF UNIT NO. 2 & 3 . THE ASSESSEE IS ALSO AGGRIEVED FOR THE DISALLOWANCE MADE U/S.14A. 3. RIVAL CONTENTIONS H AVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT IN THE RETURN OF INCOME, THE ASSESSEE CLAIMED THAT IT HAS FOUR UNITS ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY (IT) AND I.T. ENABLED SERVICES. IN RESPECT OF INCOME OF UNIT - I AND UNIT - IV, TH E ASSESSEE DID NOT CLAIM ANY . DEDUCTION U/S.10A OF THE ACT WHEREAS IT' HAS CLAIMED ITA NO. 6394 / 1 4 2 DEDUCTION U/S.10A OF THE ACT IN RESPECT OF INCOME OF UNIT - II & III. THE ASSESSEE CLAIMED THAT UNIT - I IS ENGAGED IN IT SERVICES. UNIT - II IS ENGAGED IN IT ENABLED BUSINESS O F INSURANCE CLAIM PROCESSING, UNIT- III IS ENGAGED IN THE BUSINESS OF CALL CENTER AND UNIT - IV IS ENGAGED IN DOMESTIC CALL CENTER . AS PER AUDIT REPORT IN FORM NO.56F UNDER RULE 160 RELATING TO UNIT - II IS STATED TO BE SET UP AT 1ST & 2ODFLOOR, HTMT HOUSE, 614 , VAJPAYEE' NAGAR, BOMMANAHALLI, HOUSR ROAD. BANGALORE - 50 068. THE DATE OF INITIAL REGISTRATION WITH THE SOFTWARE TECHNOLOGY. PARK IS STATED TO BE ON 22.07.1992 WHEREAS THE DATE OF COMMENCEMENT OF MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IS CLAIMED T O BE IN JUNE 2000 .. FURTHER. AS PER AUDIT REPORT IN FORM NO.56F RELATING TO UNIT - III, UNIT - III IS STATED TO BE SET UP AT GROUND AND 3RD FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BORNMANAHATTI, HOSUR ROAD, BANGALORE - 560 068. THE DATE OF INITIAL REGISTRATION WITH THE SOFTWARE TECHNOLOGY PARK IS 'STATED TO BE ON 22.07.1992 WHEREAS THE DATE OF COMMENCEMENT OF MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IS CLAIMED TO BE ON 19.11.2001. 4. THE FACTS AS REPORTED IN THE AUDIT REPORT FOR UNIT - II ARE AS UNDER: . IT IS CLAIMED THAT 'UNIT +IL' IS SET UP AT 1ST & 2 ND FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BOMMANAHALLI, HOSUR ROAD, BANGALORE - 560068. IT IS CERTIFIED THAT UNIT - II IS REGISTERED WITH SOFTWARE TECHNOLOGY PARKS OF INDIA, BANGALORE AND QUANTIFIED THE A DMISSIBLE DEDUCTION U/S. 10 A OF THE ACT AT A SUM OF RS. 12, 41,79, 095/ - . NATURE OF THE BUSINESS OF THE UNIT IS STATED TO BE INSURANCE CLAIM PROCESSING. THE DATE OF INITIAL REGISTRATION WITH THE SOFTWARE TECHNOLOGY PARK IS STATED TO BE ON 22.07.1992. IT IS CLAIMED THAT THE UNIT STARTED THE MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE IN JUNE 2000 AND IT IS 5TH YEAR OF THE DEDUCTION U/S 10 A. THE TOTAL TURNOVER OF THE UNDERTAKING/UNIT WAS QUANTIFIED AT A SUM OF RS. 55. 96 CR AND THE TOTAL TURNOVER OF THE BUS INESS WAS QUANTIFIED AT A SUM OF RS. 166.13 CR. THE TOTAL PROFITS DERIVED BY THE UNDERTAKING / UNIT WAS QUANTIFIED AT A SUM OF RS. 13.24 CR AND THE TOTAL PROFIT DERIVED BY THE BUSINESS WAS QUANTIFIED AT A SUM OF RS. 74 CR. ITA NO. 6394 / 1 4 3 3.3 THE FACTS AS REPORTED IN TH E AUDIT REPORT IN RESPECT OF UNIT - III ARE AS UNDER: IT IS CLAIMED THAT UNIT - III WAS SET UP AT GROUND & 3RD FLOOR, HTMT HOUSE, 614, VAJPAYEE NAGAR, BOMMANAHALLI, ROSUR ROAD, BANGALORE - 560068. IT IS CERTIFIED THAT UNIT - III IS REGISTERED WITH SOFTWARE T ECHNOLOGY PARKS INDIA, BANGALORE AND QUANTIFIED THE ADMISSIBLE DEDUCTION AT A SUM OF RS. 38,32,05,319/ - . U/S LOA OF THE ACT. NATURE OF THE BUSINESS OF THE UNDERTAKING IS STATED TO BE A CALL CENTER. THE DATE OF INITIAL REGISTRATION IN THE SOFTWARE TECHNOLOG Y PARK IS STATED TO BE ON 22.07.1992. IT IS CLAIMED THAT THE UNIT STARTED THE MANUFACTURE OR PRODUCTION OF COMPUTER SOFTWARE ON 19TH NOVEMBER 2001 AND IT IS 4H YEAR OF THE DEDUCTION U/S 10 A. THE TOTAL TURNOVER OF THE UNDERTAKING / UNIT WAS QUANTIFIED AT A SUM OF RS. 69. 87 CR AND THE TOTAL TURNOVER OF THE BUSINESS WAS QUANTIFIED AT A SUM OF RS. 166.13 CR. THE TOTAL PROFITS DERIVED BY THE UNDERTAKING WAS QUANTIFIED AT A SUM OF RS.38.86 CRORES AND THE TOTAL PROFITS DERIVED BY THE BUSINESS WAS QUANTIFIED AT A SUM OF RS.74 CR. THE TOTAL EXPORT TURNOVER OF THE BUSINESS WAS A SUM OF RS.118.98 CR. FROM THE AUDIT REPORT IT CAN BE SEEN THAT THE ASSESSEE HAD OBTAINED THE INITIAL REGISTRATION OF UNIT - II & UNIT - III UNDER THE STP SCHEME ON 22. 7.1992. 5. THE AO OBSERVE D THAT INITIALLY, ASSESSEE'S NAME WAS HINDUJA FINANCE CORPORATION LTD. LATER ON CHANGED ITS NAME INTO HINDUJA TMP LTD AND PRESENTLY KNOWN AS HINDUJA VENTURES LTD. THE ASSESSEE HAS DEMERGED ITS IT BUSINESS TO HTMT GLOBAL SOLUTIONS LTD. WITH EFFECT FROM 1.10 .2006. THERE WAS AN ASSOCIATED COMPANY WITH THE NAME ASHOK LEYLAND INFORMATION TECHNOLOGY LTD. (HEREIN AFTER KNOWN AS ALIT). THAT THIS COMPANY WAS AMALGAMATED WITH HINDUJA FINANCE CORP N. LTD W.E.F. 1ST JULY,1999. THE AO FURTHER STATED THAT CLAIM O F ASSESSEE IS THAT UNIT NO. II AND UNIT NO. III HAVE BEGUN THE PRODUCTION OF COMPUTER SOFTWARE IN JUNE, 2000 AND NOVEMBER, 2001 RESPECTIVELY. THE AO STATED THAT LETTER DT. 25.11.2008 WAS ADDRESSED TO THE DIRECTOR, SOFT W ARE TECHNOLOGY PARKS OF INDIA, BANGALORE (HEREA FTER KNOWN AS STPI). THE DIRECTOR OF STPI FURNISHED VARIOUS DETAILS AND DOCUMENTS RELEVANT TO DEDUCTION U/ S.10 A VIDE LET TER DT. 10.12.2008. IT WAS STAT ED THAT INITIALLY STPI ACCORDED ITA NO. 6394 / 1 4 4 PERMISSION IN THE NAME OF AL INFORMATION TECH LTD. VIDE APPROVAL NUMBER 1 5(63)/92SDA DT. 22.7.1992. ON THE APPLICATION OF ALIT UNDER SOFTWARE TECHNOLOGY PARK SCHEME, INTER MINISTERIAL STANDING COMMITTEE OF DEPARTMENT OF ELECTRONICS HAD APPROVED THE SETTING UP OF 'UNIT' AT A TOTAL FOREIGN EXCHANGE OUTFLOW OF US$ 81.76 LAKHS OVER THE FIVE YEARS OF PROJECT. ALIT HAD EXECUTED A LEGAL UNDERTAKING OF ITS UNIT WITH STPI ON 28TH SEPTEMBER, 1992 WHICH IS VALID FOR A PERIOD OF 10 YEARS I.E. UPTO 21.7.2002 FOR CARRYING OUT DEVELOPMENT AND 100% EXPORT OF SOFTWARE USING DATA COMMUNICATION LI NK OR IN THE FORM OF PHYSICAL EXPORT. THE UNIT OF ALIT HAD STATED OPERATING UNDER CUSTOMS BONDED WAREHOUSE LICENCE NO. 10/93 (CUSTOMS) DT. 22.4.1993, WHICH WAS VALID UPTO 22.7.2002. THE AO FURTHER STATED THAT IN RESPONSE TO LETTER DT. 25TH NOVEMBER, 2008, DIRECTOR STPI VIDE HER LETTER DT. 10.12.2008 HAS CATEGORICALLY STATED THAT UNIT - II & III ARE NOT SEPARATE UNITS UNDER THE STP SCHEME AND THEY WERE ONLY THE EXPANDED LOCATIONS OF THE INITIAL LETTER OF PERMISSION DT. 22.7.1992 AND NO SEPARATE STPI REGISTRATI ON WAS ACCORDED . THE A O HAS STATED THAT DIRECTO R, STPI, CATEGORICALLY STATED THAT ASSESSEE HAS MADE OR CONVERTED THE INITIAL UNIT AS UNIT - II & III FOR THE 'OPERATIONAL EASE' AND SUCH BIFURCATION BY ASSESSEE AS UNIT - II & III SHOULD NOT BE CONSTRUED AS TWO S EPARATE UNITS. A O STATED THAT DIRECTOR, STPI ALSO CLARIFIED THAT ASSESSEE EXPANDED ITS EXISTING STPI FACILITY AND THEREFORE NO SEPARATE REGISTRATION UNDER STPI SCHEME IS REQUIRED FOR THE EXPANDED LOCATIONS, UNLESS IT CLAIMS THAT A SEPARATE UNIT IS FORMED. CONSIDERING THESE FACTS, THE AO HELD THAT ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.10A OF THE ACT IN RESPECT OF UNIT - II & III AND ACCORDINGLY DISALLOWED CLAIM OF ASSESSEE. 6. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE ACTION OF THE AO. ITA NO. 6394 / 1 4 5 7. WE HAVE CON SIDERED RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING IT AND IT ENABLED SERVICES, FINANCE/INVESTMENT ACTIVITIES AND CONSULTANCY SERVICES. THE ASSESSEE EXECUTES A BPO (INSURANCE CLAIM PROCESSING) P ROJECT HANDLING VARIOUS TYPES OF CLAIMS. THE ASSESSEE HAS ALSO DIVERSIFIED INTO CALL CENTRE BUSINESS AND HANDLES BILLING AND MARKETING RELATED CALLS AND SERVICE CALLS. BESIDES HAVING IT AS ITS CORE BUSINESS IT HAS DIFFERENT SUBSIDIARIES IN MEDIA AND TELECO M BUSINESS. THE ASSESSEE FILED ITS RETURN OF INCOME ON 31 - 10 - 2005 DECLARING TOTAL INCOME OF RS.99,81,560/ - . THE AO FRAMED ASSESSMENT U/S.143(3) OF THE ACT DETERMINING INCOME OF THE ASSESSEE AT RS.74,30,55,780/ - . .THEREAFTER, THE ASSESSEE FILED AN APPEAL BE FORE CIT(APPEALS) WHER E THE ASSESSEE GOT RELIEF ON TWO GROUNDS OF CAPITAL GAINS FROM SALE OF SHARES WRONGLY TREATED AS BUSINESS INCOME AND' ADJUSTMENTS IN INTERNATIONAL TRANSACTIONS B UT DID NOT SUCCEED IN RESPECT OF THE OTHER TWO GROUNDS OF CLAIMING EXEMPT ION U/S 10 A & DISALLOWANCE U/S 14A. AGAINST THE ORDER OF CIT(APPEAL ) , BOTH THE ASSESSEE COMP A N Y AND THE DEPARTMENT FI LED AN APPEAL BEFORE HON'BLE IT AT AND ITAT HAS DISPOSED BOT H THE APPEALS UNDER COMBINED ORDER DATED 31ST JANUARY 2012. THE TRIBUNAL HAS DIS M ISSED THE APPEAL FILED BY THE DEPARTMENT ON THE GROUNDS OF CAPITAL GAIN ON SALE OF SHAR E S AND ADJUSTMENT IN INTERNATIONAL TRANSACTIONS, AND SENT THE MATTER BACK TO THE FILES OF AO IN REGARD TO THE APPEAL FILED BY THE ASSESSEE COMPANY, WITH THE DIRECTIO N T O RE - EXAMINE THE IS SUES PERTAINING TO EXEMPTION U/ S 10 A AND DISALLOWANCE U / S 14A. THE MAIN ISS U E IN APPEAL WAS REJECTION OF THE CLAIM OF THE ASSESSEE U/S.10A OF THE INCOME - TAX A CT ON THE GROUND THAT THE TWO UNITS BEING UNIT II AND UNIT III WERE NOT INDEPEN DENT UNITS BUT WERE ITA NO. 6394 / 1 4 6 UNITS CONSTRUED AS SPLIT UP OF THE EXISTING UNIT 1 BASED ON THE CORRESPONDENCE RAISED BY THE AO FROM STPI WHICH USED THE WORD EXPANSION IN THE LETTER SUBMITTED TO THE AO DATED 10/12/2008. WE FOUND THAT T HE TRIBUNAL IN ITS ORDER A FTER OB SERVING THAT THERE IS A SUBSTANCE IN THE SUBMISSION OF LD. AR THAT AO HAS NOT EXAMINED AS TO WHETHER UNIT NOS. II & III SET UP BY ASSESSEE ARE INDEPENDENT UNITS OR EXPANSION OF EXISTING UNDERTAKING OF ASSESSEE, SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THE MATTER TO FILE OF AO FOR THE LIMITED PURPOSE TO RE - EXAMINE AS TO WHETHER UNIT NOS. II & III SET UP BY ASSESSEE ARE INDEPENDENT UNITS TO THE EXISTING UNDERTAKING OR MERELY AN EXPANSION OF THE EXISTING UNDERTAKING IN THE LIGHT OF PRINCIPLES LAID DOWN BY CO- ORDINATE BENCH DECISION IN THE CASE OF PATNI COMPUTERS LTD. (SUPRA) AND ALSO IN THE LIGHT OF LETTERS INCLUDING LETTER DT. 10.12.2008 ISSUED BY DIRECTOR STPI AND ALSO ON THE BASIS OF SUCH EVIDENCES AS MAY BE FILED BY ASSESSEE AFTER GIVING DUE OP PORTUNITY OF HEARIN G. 8. IN THE SET ASIDE PROCEEDINGS, THE ASSESSEE FILED COMPLETE DETAIL BEFORE THE AO AND ALSO RELIED ON THE DECISION OF M/S MARA OVERSEAS LTD. AND M/S JAYANT AGRO ORGANIC LTD. HOWEVER, THE AO HAS NOT CONSIDERED THE SAME AND AFTER REPROD UCING THE DECISION OF HIS PREDECESSOR CAME TO THE CONCLUSION THAT ASSESSEE WAS NOT ENTITLED DEDUCTION U/S.10A IN RESPECT OF UNIT NO.II & III. WE FOUND THAT ON THE EVIDENCE AVAILABLE ON RECORD AND AS CALLED FOR BY THE LD.AO DURING THE COURSE OF THE EXAMINA TION OF THE FACTS, THE LD.AO OBSERVED THAT UNIT - IL AND III HAVE BEEN SET UP WITH FRESH INVESTMENT IN PLANT AND MACHINERY, FURNITURE AND FIXTURES, ETC. AS CAN BE SEEN FROM THE TAX AUDIT REPORTS FOR FINANCIAL YEARS 2000 - 01 AND 2001 - 02. SEPARATE BOOKS OF ACCO UNTS HAVE BEEN MAINTAINED ITA NO. 6394 / 1 4 7 BY EACH UNIT. THE ACTIVITIES CARRIED OUT BY ALL THE UNITS OF THE APPELLANT IS A DIFFERENT FROM EACH OTHER, THE CUSTOMER OF EACH UNITS ARE COMPLETELY DIFFERENT OR UNRELATED AND THE EMPLOYEES OF EACH UNIT ARE ALSO DIFFERENT. THE LD. AO ALSO EXAMINED THE VARIOUS LETTERS ADDRESSED BY THE APPELLANT TO THE DIRECTOR, STPI ,VIZ; LETTER DATED 20 - 07 - 2000 ADDRESSED VIDE WHICH THE APPELLANT INTIMATED THAT IT HAD ENTERED INTO AN AGREEMENT TO PROCESS INSURANCE CLAIMS IN INDIA AND THE PROCESSING O F THE CLAIM WILL BE CARRIED OUT AT UNIT II. FURTHER, IN RESPECT OF UNIT III, FILED LETTER DATED 31 - 08 - 2000 ADDRESSED TO DIRECTOR, STPI, THE APPELLANT INTIMATED THAT IT HAD ENTERED INTO AN AGREEMENT TO SET UP A CALL CENTRE KNOWN AS UNIT III. THE APPELLANT SUBMITTED COPY OF THE STPL LETTER DATED 24 - 12 - 2008 RECORDING THE ESTABLISHMENT ACCORDING THE ESTABLISHMENT OF UNIT II& III. THE LD.AO OBSERVED THAT IT IS THEREFORE, EVIDENT THAT THE APPELLANT HAS COMMENCED BUSINESS ACTIVITY IN RESPECT OF UNIT II & III DURI NG THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON OR AFTER THE FIRST DAY OF APRIL, 1994. THEREFORE, THE FIRST CONDITION WAS FULFILLED . AFTER OBTAINING PERMISSION FROM THE STPI AUTHORITIES VIDE LETTER DATED 12.09.2001, UNIT NO.3 WAS STARTED AT BANGALORE FOR CARRYING ON THE BUSINESS OF AN INTERNATIONAL CALL CENTRE. THE NAME OF THE ASSESSEE THEREAFTER CHANGED TO HTMT LTD AND IT IS NOW KNOWN AS HINDUJA VENTURES LTD. ON DEMERGER. THE COMPANY HINDUJA TMT LTD. W.E. F . 01.10.2006 DEMERGED THE IT / L TES BUSINESS UNDERTAKINGS TO HINDUJA GLOBAL SOLUTIONS LTD (FORMERLY HTMT GLOBAL SOLUTIONS LTD). THE COMPANY HAS INTIMATED STP I ON 19/03/2007 FOR TRANSFER OF THE LICENSE AND CHANGE OF NAME TO HTMT GLOBAL SOLUTIONS LIMITED, WHICH IS CONFIRMED BY STPI ON 09/0 4/2007 AND THE SAME HAS BEEN CHANGED ON GREEN CARD ALSO ON 04/09/2007. VIDE LETTER DATED ITA NO. 6394 / 1 4 8 19.07.2000 PERMISSION WAS SOUGHT TO START UNIT NO.2 AT BANGALORE FOR CARRYING OUT THE BUSINESS OF PROCESSING INSURANCE CLAIMS. VIDE LETTER DATE 26.07.2000 THE STPI AUT HORITIES AT BANGALORE GRANTED THE SAID PERMISSION TO START A BPO FOR CLAIM PROCESSING. UNIT 3 WAS GRANTED PERMISSION VIDE LETTER DATED 12.09.2001 TO DO THE BUSINESS OF INTERNATIONAL CALL CENTRE. THE COMPANY HAS FROM TIME TO TIME TAKEN SPECIFIC PERMISSION F OR ADDITIONAL PREMISES (TERMED AS EXPANSION) FOR UNIT - IL AND TAKEN APPROVAL FOR CUSTOM BONDING OF THESE LOCATIONS, AS UNDER: A) NO. A206, 1ST FLOOR, KSSIDC COMPLEX, BLOCK NO.3, ELECTRONIC CITY, BANGALORE - 561229 - UNIT II B) NO. 614, FIRST FLOOR & SECOND FLOOR, VAJPAYEE NAGAR, BOMANNHALLI, HOSUR ROAD, BANGALORE - 68 - UNIT 11 C) NO. 115, FIRST, SECOND AND THIRD FLOOR, 11TH MILE, GARVEBHAVI PALYA, BEGUR HOBLI, HONGASANDRA, BANGALORE. - UNIT II D) NO. 614, GROUND FLOOR & THIRD FLOOR, VAJPAYEE NAGAR, BOMAN NHALLI, HOSUR ROAD, BANGALORE - 68 - UNIT III E) 49/50, MIDC, 12TH ROAD, MAROL, ANDHERI (E), MUMBAI - 400 093 9. FROM THE RECORD WE FOUND THAT ON 28/10/2003 THE COMPANY I.E HINDUJA TMT LIMITED HAS TAKEN A SEPARATE REGISTRATION WITH STPI, MUMBAI FOR BPO CA LL PROCESSING ACTIVITY AT BANGALORE FOR THE PURPOSE OF BACK END DATA BACKUP. THE FIRST YEAR OF THE CLAIM OF THE APPELLANT WAS FOR THE ASST. YEAR 2001 - 02 WHICH WAS ALLOWED AFTER A SCRUTINY ASSESSMENT. SIMILARLY THE CLAIMS FOR THE ASST. YEARS 2003 - 04 AND 200 4 - 05 WERE ALSO ALLOWED AFTER A SCRUTINY ASSESSMENT. FOR THE ASST. YEAR 2005 - 06 THE ASSESSING OFFICER HOWEVER TOOK A DIFFERENT STAND AND REJECTED THE CLAIM AND THEREAFTER REOPENED THE ASSESSMENTS OF THE PREVIOUS YEAR AS WELL. FROM THE RECORD WE FOUND THAT A SSESSEE IS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICES. IN ITS COMPUTATION OF TOTAL INCOME FOR THE ASST. YEAR ITA NO. 6394 / 1 4 9 2005 - 06, THE IT HAD CLAIMED THE EXEMPTION UNDER SECTION 10 A OF RS 124,179,095 FOR UNIT II AND OF RS 383,205,319 FOR UNIT III. NO EXEMPTION HAS BEEN CLAIMED IN RESPECT OF UNIT 1. UNIT - 2 IS ENGAGED IN NON - VOICE BPO BUSINESS (INSURANCE CLAIM PROCESSING) WHEREAS UNIT - 3 IS ENGAGED IN VOICE BPO (CALL CENTER). UNITS 2 AND 3 WERE SET - UP IN JUNE 2000 AND NOVEMBER 2001 RESPECTIVELY AND ACCORDINGLY THE ASSE SSEE STARTED CLAIMING EXEMPTION UNDER SECTION 10 A IN RESPECT OF EACH OF THESE UNITS FROM AYS 2001 - 02 AND 2002 - 03 RESPECTIVELY. WE ALSO FOUND THAT DURING THE APPELLATE PROCEEDINGS, THE CIT(A) HAS CALLED A REMAND REPORT FROM THE AO, WHEREIN THE AO HAS CATEGO RICALLY OBSERVED THAT ASSESSEE WAS ENGAGED IN ITS BUSINESS ACTIVITY IN RESPECT OF ITS UNITS NO.2 & 3 DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR COMMENCING ON OR AFTER 1 ST APRIL, 1994, THEREFORE, THE CONDITION WAS FULFILLED. THE AO ALSO OBSERVED THAT THE UNIT NO. II & III HAVE NOT BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS AND ARE NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. IT IS CRYSTAL CLEAR FROM THE REMAND REPORT OF AO THAT THE UNITS II AND III FULFILL ED ALL THE CONDITIONS PRESCRIBED UNDER THE RELEVANT PROVISIONS OF SECTION 10A OF THE ACT. THE PRECISE CONCLUSION OF THE AO IN HIS REMAND REPORT DATED 7 - 6 - 2014 WAS AS UNDER : - 4.4 IN VIEW OF THE ABOVE, IT IS NOTICED THAT U NITS II AND III HAVE BEEN SET UP WITH FRESH INVESTMENTS IN PLANT AND MACHINERY, FURNITURE AND FIXTURES, ETC. AS CAN BE SEEN FROM THE TAX AUDIT REPORTS FOR F.Y.RS. 2000 - 01 AND 2001 - 02. SEPARATE BOOKS OF ACCOUNT HAVE BEEN MAINTAINED BY EACH UNIT. THE ACTIVIT IES CARRIED OUT BY ALL THE UNITS OF THE ASSESSEE ARE DIFFERENT FROM EACH OTHER. THE CUSTOMERS OF EACH UNIT ARE COMPLETELY DIFFERENT OR UNRELATED AND THE EMPLOYEES OF EACH UNIT ARE ALSO DIFFERENT. 4.5 AS PER THE PROVISIONS OF SECTION 10A(2) OF THE ACT, IN O RDER TO CLAIM EXEMPTION U/S.10A OF THE ACT, ANY UNDERTAKING HAS TO FULFILL THE FOLLOWING CONDITIONS : - ITA NO. 6394 / 1 4 10 (I) I T HAS BEGUN OR BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE DURING TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR (A ) COMMENCING ON OR AFTER THE 1 ST DAY OF APRIL , 1981 IN ANY FREE TRADE ZONE; OR (B) COMMENCING ON OR AFTER 1 ST DAY OF APRIL , 1994 IN ANY ELECTRONIC H ARDWARE T ECHNOLOGY P ARK OR S OFTWARE T ECHNOLOGY P ARK; OR (C) COMMENCING ON OR AFTER 1 ST DAY OF APRIL,2001 , IN ANY SPECIAL ECONOMIC ZONE; (II) IT IS NOT FORMED BY THE SPLITTING UP OR THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE EXCEPT IN THE CIRCUMSTANCES AND WITHIN THE PERIOD SPECIFIED IN SECTION 33B OF THE INCOME - TAX ACT; (II) IT IS NOT FORMED BY THE TRA NSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. 4.6 AS DISCUSSED ABOVE PARAGRAPHS, VIDE L ETTER DATED 20.07.2000 ADDRESSED TO DIRECTOR, STPI THE ASSESSEE INTIMATED THAT IT HAD ENTERED INTO AN AGREEMENT TO PROCESS. THE INSURAN CE CLAIMS IN INDIA AND THE PROCESSING OF THE CLAIMS WILL BE CARRIED OUT AS UNI T - LL FURTHER. IN RESPECT OF UNIT - III. VIDE LETTER DATED 3108.2000 ADDRESSED TO DIRECTOR. STPI, THE ASSESSEE INTIMATED THAT IT HAD ENTERED INTO AN AGREEMENT TO SET UP A CALL CENTR E KNOWN AS UNIT - III. THE ASSESSEE SUBMITTED COPY OF STPI LETTER DATED 24.12.2008 RECORDING THE ESTABLISHMENT OF UNITS II AND III. THUS, IT IS EVIDENT THAT THE ASSESSEE HAS COMMENCED ITS BUSINESS ACTIVITY IN RESPECT OF UNITS II AND I II DURING THE PREVIOUS Y EAR RELEVANT TO THE ASSES SMENT YEAR COMMENCING ON OR AFTER 1 ST DAY OF APRIL, 1994. THEREFORE , TH E CONDITION WAS FULFILLED. FURTHER, PERUSAL OF THE DOCUMENTS FILED BY THE ASSESSEE AS ENUMERATED IN 43 ABOVE THAT THE UNIT NOS. I I & III HAVE NOT BEEN FORMED BY SPLITTING UP OR RECONSTRUCTION OF AN EXISTING BUSINESS AND ARE NOT FORMED BY THE TRANSFER TO A NEW BUSINESS OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY PURPOSE. THUS, THE UNITS II AND III FULFILL ALL THE CONDITIONS PRESCRIBED UNDER THE RELEVANT PROVISION S OF SECTION 10A OF THE ACT . 10. WE HAVE CAREFULLY GONE THROUGH THE LETTER FROM DIRECTOR, STPI ISSUED TO THE AO DATED 10 - 12 - 2010; LETTER TO DIRECTOR, STPI INTIMATING FORMATION OF UNIT II; LETTER TO DIRECTOR, STPI SEEKING PERMISSION FOR BONDING FACILITY F OR UNIT II; APPROVAL FROM DIRECTOR, STPI FOR UNIT II ; LETTER TO DIRECTOR, STPI INTIMATING FORMATION OF UNIT III; LETTER TO DIRECTOR STPI SEEKING PERMISSION FOR BONDING FACILITY FOR UNIT III AND APPROVAL FROM DIRECTOR, STPI FOR UNIT III AS PLACED ON RECORD. AFTER CONSIDERING THE CORRESPONDENCE THROUGH ABOVE LETTERS WITH DIRECTOR STPI AND CONCLUSION DRAWN BY THE AO IN HIS REMAND REPORT AND AFTER APPLYING THE PROPOSITION OF LAW LAID DOWN IN ITA NO. 6394 / 1 4 11 THE JUDICIAL PRONOUNCEMENTS REFERRED BY LD. AR DURING THE COURSE OF HE ARING BEFORE US, THE IRRESISTIBLE CONCLUSION IS THAT ASSESSEE IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S.10A IN RESPECT OF UNIT II & II. ACCORDINGLY, WE DIRECT THE AO TO ALLOW ASSESSEES CLAIM FOR DEDUCTION U/S.10A(2) OF THE ACT IN RESPECT OF UNIT II AND III. 11. THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF EXPENSES U/S.14A. THE CONTENTION OF LD. AR WAS THAT TOTAL EXPENDITURE CLAIMED BY ASSESSEE WAS RS.13 LAKHS, HOWEVER, THE AO HAS MADE DISALLOWANCE OF ABOUT RS.16 LAKHS. HE FURTHER CONTENDED THAT RULE 8D IS NO T APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, HE REQUESTED FOR MODIFYING THE DIRECTION GIVEN BY THE CIT(A) WITH REGARD TO COMPUTATION OF DISALLOWANCE U/S.14A OF THE ACT. 12. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE DIRE CT THE AO TO COMPUTE THE DISALLOWANCE U/S.14A, IN TERMS OF DIRECTIONS ISSUED BY THE TRIBUNAL IN ASSESSEES OWN CASE VIDE ORDER DATED 31 - 1 - 2012, WHEREIN THE TRIBUNAL HAS DIRECTED THE AO TO CONSIDER ALL THE MATERIALS PLACED BY THE ASSESSEE BEFORE IT WHILE CO MPUTING DISALLOWANCE U/S.14A OF THE ACT. WE DIRECT ACCORDINGLY. 13 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 / 01 / 201 5 . / 01 / 201 5 SD/ - SD/ - ( ) ( VIVEK VARMA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 21 / 01 /201 5 /PKM , PS ITA NO. 6394 / 1 4 12 COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, M UMBAI 6. GUARD FILE. //TRUE COPY//