ITO Ward-17 (3), V. Vidya Tech Solutions Pvt. Ltd,

ITA 813/DEL/2008

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9763 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 18-08-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 03-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Assessee Lawyers: M GANESAN
• Keywords: Depreciation; Procedural lapse; Set aside
• Section: 10B; 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I DELHI BEFORE SHRI K.G. BANSAL AND SHRI GEORGE MATHAN I.T.A. NOS. 813, 3455 & 3456(DEL)/2008 ASSTT. YEARS : 2003-04, 2004-05 & 2005-06 INCOME-TAX OFFICER, M/S VIDYA TECH SOLUTIONS PVT. WARD 17(3), NEW DELHI. VS. LTD., A-30, 2 ND FLOOR, KAILASH COLONY, NEW DELHI. PAN-AABCV 1724E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. K. CHAND, DR RESPONDENT BY: SHRI M. GANESAN, C.A. ORDER PER K.G. BANSAL: AM THESE THREE APPEALS OF THE REVENUE, FOR THRE E DIFFERENT YEARS, RAISE SIMILAR GROUNDS. THEREFORE, THESE APPEA LS WERE ARGUED IN A CONSOLIDATED MANNER BY THE LD. DR AND THE LD. C OUNSEL FOR THE ASSESSEE. IN VIEW THEREOF, WE FIND IT CONVENIENT TO PASS A CONSOLIDATED ORDER ON THESE APPEALS. THE GROUNDS TAKEN IN ITA NO. 813(DEL)/2008 FOR ASSESSMENT YEAR 2003-04 IS THAT ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN A LLOWING THE DEDUCTIONS CLAIMED UNDER SECTION 80HHE OF THE INCOME-TAX ACT, 1961, TO THE EXTENT OF RS. 5,61,437/- AND U/S 10A TO THE EXTENT OF RS. 7,35,998/- IN ITA NOS. 813, 3455 & 3456(DEL)/2008 2 THE SAME YEAR, WHICH IS IN CONTRAVENTION OF T HE PROVISION CONTAINED IN SECTION 80HHE(5). 2. ON PERUSAL OF THE ASSESSMENT ORDER, PASSED B Y THE INCOME-TAX OFFICER, WARD 17(3), NEW DELHI, (AO FOR SHORT) ON 30.3.2006, IT IS FOUND THAT THE ASSESSEE FILED NIL RETURN ON 8.9.2003. THE RETURN WAS PROCESSED U/S 143(1) ON 17.9.2003. THEREAFTER, A NOTICE U/S 143(2) WAS ISSUED AND SERVED ON THE ASSESSEE BY REG ISTERED POST. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 7.11.2000. IT WAS CONDUCTING BUSINESS IN THE FIELD OF INFORMATION TECHNOLOGY AND IT OF FERED HIGH QUALITY AND COST EFFECTIVE PRODUCTS, CUSTOMS MADE SOLUTIONS AND SERVICES TO VARIOUS CLIENTS IN THE AREAS OF KNOWLEDGE AND MANAGEME NT. IT WAS FURTHER NOTICED THAT THE ASSESSEE CLAIMED DEDUCTION U /S 80HHE AT RS 5,61,437/- FOR THE PERIOD 1.4.2002 TO 13.1.2003; AND A DEDUCTION OF RS. 7,25,998/- U/S 10A FOR THE PERIOD 14.1.2003 TO 31.3.2003. IT WAS ALSO NOTICED THAT THE ASSESSEE WAS REGISTERED WITH STPI, NOID A, ON 14.1.2003 AND UPON SUCH REGISTRATION, EXEMPTION WAS CLAIMED U/S 10A IN RESPECT OF THE PROFITS FROM 14.1.2003 TO 31.3.2003. FOR PERIOD UP TO 13.1.2003, THE ASSESSEE CLAIMED DEDUCTION U/S 80HHE. THE BASI S OF CLAIMS UNDER BOTH ITA NOS. 813, 3455 & 3456(DEL)/2008 3 THE SECTIONS HAS BEEN MENTIONED ON PAGE 2 OF THE ASSESSMENT ORDER. ON PERUSAL OF THE BASIS OF THE CLAIMS, IT WAS M ENTIONED THAT THE ASSESSEE DETERMINED THE PROFITS FOR THE TWO PERIODS. HO WEVER, THE PROFITS OF A BUSINESS ACCRUE AT THE END OF THE ACCOUNTING YEAR. THEREFORE, IT WAS HELD THAT THE CLAIMS UNDER THE TWO PROVISIONS WE RE BASED ON WRONG PREMISES, WHICH WERE UNTENABLE IN LAW. THE PRO VISION CONTAINED IN SECTION 80HHE(5) WAS ALSO PRESSED INTO SERVICE . IN THIS CONNECTION, IT WAS MENTIONED THAT AN ASSESSEE CANNOT CLAIM A NY DEDUCTION IN RESPECT OF THE PROFIT UNDER ANY OTHER PROVISION FOR THE SAME YEAR. THEREFORE, IT WAS HELD THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 10A ON THE PROFITS WHICH WERE MATTER OF DEDUCTION U/S 80H HE. 3. THE MATTER WAS AGITATED IN APPEAL AND IT WAS SUBMITTED THAT THE ASSESSEE WAS SITUATED AT A-30, KAILASH COLONY, NEW DELHI, WHICH WAS REGISTERED WITH STPI, NOIDA. THIS UNIT STA RTED PRODUCTION WITH EFFECT FROM 14.1.2003. THEREFORE, DEDUCTION U/S 10A WAS CLAIMED IN RESPECT OF PROFITS OF THIS UNIT FOR THE PERIOD 14.1.200 3 TO 31.3.2003. IT WAS FURTHER SUBMITTED THAT THE DEDUCTIONS UNDER SE CTIONS 80HHE AND 10A WERE CLAIMED IN RESPECT OF THE PROFITS FOR THE TWO DIFFERENT PERIODS AND, THEREFORE, IT CANNOT BE SAID THAT IN RESPECT O F THE SAME PROFITS, ITA NOS. 813, 3455 & 3456(DEL)/2008 4 DEDUCTION WAS CLAIMED UNDER SECTIONS 80HHE A ND 10A. AGAINST THE CLAIMS OF THE ASSESSEE, THE AO DENIED DEDUCTION U/S 10A BUT ALLOWED U/S 80HHE ON THE PROFITS FOR THE ENTIRE PERIOD. IN DOING SO, HE IGNORED THE REGISTRATION OF THE UNIT WITH STPI, NOIDA , WITH EFFECT FROM 14.1.2003. AFTER CONSIDERING THE FACTS OF THE CASE, SUBMISSIONS OF THE ASSESSEE, BOARD INSTRUCTION NO. 1/2006 DATED 31. 3.2006 AND THE CASE DECIDED BY THE TRIBUNAL, REPORTED AT 93 TTJ 8 28, IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 80HHE UP TO 13.1.2003 AND DEDUCTION U/S 10A THEREAFTER. THE AO WAS DIRECTED TO RE-COMPUTE THE INCOME ACCORDINGLY. 4. BEFORE US, THE LD. DR FURNISHED BACKGROUND F ACTS THAT THE ASSESSEE COMPANY WAS INCORPORATED ON 7.11.2000, AS SEEN FROM PAGE 59 OF THE PAPER BOOK, BEING THE ACKNOWLEDGEMENT OF THE RETURN. THUS, THE INITIAL YEAR OF THE OPERATION OF THE BUSINESS WAS ASSESSMENT YEAR 2001- 02. HOWEVER, A DEDUCTION OF RS. 7,25,998/- W AS CLAIMED U/S 10A FOR THE FIRST TIME IN ASSESSMENT YEAR 2003-04. THE ASSESSEE HAD APPLIED TO THE STPI FOR ITS REGISTRATION, WHO ISSUED A L ETTER DATED 26.3.2001 TO THE ASSESSEE, PLACED ON PAGES 42 AND 43 OF THE PAPER BOOK, UNDER WHICH FACILITIES AND PRIVILEGES ADMISSIBLE UNDER TH E STP SCHEME FOR SETTING ITA NOS. 813, 3455 & 3456(DEL)/2008 5 UP HUNDRED PER CENT EXPORT ORIENTED UNIT IN THE STATE OF DELHI FOR MANUFACTURE OF COMPUTER SOFTWARE WERE EXTENDE D TO THE ASSESSEE, SUBJECT TO CONDITIONS MENTIONED THEREIN. THESE CONDITIONS WERE LISTED IN PARAGRAPH 2 OF THE AFORESAID LETTER AND THE ANNEXURE APPENDED THERETO. THE REGISTRATION WAS VALID FOR THRE E YEARS FROM THE DATE OF ISSUE, DURING WHICH THE UNIT WAS REQUIRED TO BE IMPLEMENTED AND COMMERCIAL PRODUCTION TO BE STARTED. THE ASSES SEE WAS ALSO REQUIRED TO INTIMATE THE DATE OF COMMERCIAL PRODUCTION AS SOON AS IT STARTED. THE COMMERCIAL PRODUCTION HAD STARTED IN ASSESSMEN T YEAR 2001-02. THUS, A UNIT, CARRYING ON THE BUSINESS OF PRODUCTION OF SOFTWARE, HAD COME INTO EXISTENT IN ASSESSMENT YEAR 2001-02. TH EREFORE, NO NEW UNIT HAD BEEN SET UP IN THIS YEAR, WHICH COULD BE SAID TO BE ENTITLED TO DEDUCTION OF ITS PROFITS U/S 10A. IT WAS A LSO SUBMITTED THAT ALTHOUGH SUCH A PLEA WAS NOT TAKEN IN THIS YEAR BY THE AO, HE HAD MENTIONED IN THE ORDER FOR ASSESSMENT YEAR 2004-05 ( ITA NO. 3455(DEL)/2008) THAT THE DEPRECIATION CHART FILED ALONG WITH THE RETURN OF INCOME SHOWS THAT OLD OFFICE EQUIPMENTS WERE USED FOR THE P RODUCTION OF SOFTWARE AND NO NEW MACHINERY WAS INSTALLED. THUS, THE PROVIS ION CONTAINED IN SECTION 10A(2)(II) REGARDING ITS FORMATION BY NOT SPLITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTEN CE, WAS NOT SATISFIED. AS ITA NOS. 813, 3455 & 3456(DEL)/2008 6 THE COMPANY HAD CONDUCTED BUSINESS IN EARLIE R YEARS AND IT WAS IN EXISTENCE IN THOSE YEARS, ITS CLAIM OF DEDUCT ION U/S 10A WAS NOT TENABLE IN LAW. THIS ARGUMENT WAS NOT ACCEP TED BY THE LEARNED CIT(APPEALS) IN THAT YEAR. IT WAS MENTIONED T HAT ON PERUSAL OF THE SCHEDULE FOR FIXED ASSETS, IT WAS FOUND THAT COMPUTERS AND EQUIPMENTS OF THE WRITTEN DOWN VALUE OF RS. 17.43 LAKH WAS BR OUGHT FORWARD, TO WHICH COMPUTERS AND EQUIPMENTS WORTH RS. 9.05 LAKH W ERE ADDED IN THIS YEAR. THE ASSESSEE COMPANY HAD BEEN IN THE PROCESS OF ESTABLISHING THE STPI UNIT FROM THE DAY ONE OF ITS OPERATION, WHICH W AS 15.3.2001. ON THAT DATE THERE WAS NO CONTROVERSY REGARDING OLD V ERSUS NEW MACHINERY. THE NEW UNIT WAS BEING SET UP AS A STPI UN IT FOR GETTING DEDUCTION U/S 10A. HOWEVER, THERE WERE DELAYS IN G ETTING THIS STATUS DUE TO PROCEDURAL LAPSE. ON THESE FACTS, IT WAS HELD THAT IT WAS A CASE OF SETTING UP A NEW STPI UNIT, THE PROFITS OF WHICH WE RE ENTITLED TO DEDUCTION U/S 10A. IN THIS CONNECTION, THE LD. DR DREW OUR ATTENTION TO PAGE 49 OF THE PAPER BOOK, BEING A LETTER WRITTEN BY THE ASSESSEE COMPANY TO THE DIRECTOR, STPI, ENCLOSING CERTAIN DOCUMENTS REQUIRED FOR THE PURPOSE OF REGISTRATION. OUR ATTENTION WAS ALSO DRA WN TOWARDS PAGE 54 OF THE PAPER BOOK, BEING THE LETTER DATED 14.1.2003 FROM THE STPI TO THE ASSESSEE MENTIONING THAT THE LEGAL AGREEMENT FOR EXPORT OBLIGATION HAS ITA NOS. 813, 3455 & 3456(DEL)/2008 7 BEEN SUBMITTED AND ACCEPTED AND THE SAME IS TAKEN ON RECORD SUBJECT TO THE CONDITION INTER-ALIA THAT THE UNIT SHAL L INTIMATE THE DATE OF COMMENCEMENT OF PRODUCTION FOR HUNDRED PER CENT EXPORT WITHIN ONE MONTH OF SUCH DATE. THE AGREEMENT DATED 9.1. 2003 IS PLACED IN THE PAPER BOOK ON PAGES 55 TO 58. PAGE 62 OF THE PAPER BOOK, BEING ANNEXURE-A TO FORM NO. 10CCAF CONTAINS REMARKS IN COLUMN 10 THAT SINCE THE COMPANY WAS REGISTERED AS A STPI UNIT WITH E FFECT FROM 14.1.2003, THEREFORE, DEDUCTION U/S 80HHE IS CALCULATED UP TO 13.1.2003 AND THEREAFTER DEDUCTION IS CLAIMED U/S 10A. FOR THIS PURPOSE, THE EXPORT TURNOVER HAS BEEN TAKEN ON ACTUALS AND THE EX PENSES HAVE BEEN TAKEN ON APPROPRIATE ALLOCATION. 4.1 THE ARGUMENT OF THE LD. DR WAS THAT THE A SSESSEE SET UP THE UNIT IN ASSESSMENT YEAR 2001-02 AND DEDUCTION U/S 80HHE WAS CLAIMED FOR ASSESSMENT YEARS 2001-02, 2002-03 AND FOR A PAR T PERIOD OF ASSESSMENT YEAR 2003-04. THE REGISTRATION OF THE UNIT FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 10A WAS OBTAINED AFTER SETTING UP OF THE BUSINESS OF THE UNIT. THAT IS WHY, THE PROFITS OF THE PREVIOUS Y EAR RELEVANT TO ASSESSMENT YEAR 2003-04 WERE SPLIT UP INTO TWO PERIODS, ONE PRIOR TO ITS REGISTRATION AND THE OTHER ON REGISTRATION AND THEREAFTER. THUS, IT WAS ITA NOS. 813, 3455 & 3456(DEL)/2008 8 NOT A CASE OF SETTING UP A NEW UNIT IN A SSESSMENT YEAR 2003-04. IT WAS MERELY A CASE OF RECONSTRUCTION OF BUSINE SS IN ASSESSMENT YEAR 2003-04. THUS, THE CONDITIONS MENTIONED IN SECTION 10A(2) WERE NOT SATISFIED. THAT IS WHY, THE AO DID NOT ALLOW DEDUCTION U/S 10A BUT ALLOWED DEDUCTION U/S 80HHE ON THE PROFITS OF TH E WHOLE OF THE PERIOD OF THE PREVIOUS YEAR. IT WAS FURTHER ARGUED THA T THE LD. CIT(APPEALS) WRONGLY RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF LEGATO SYSTEMS INDIA (P) LTD. VS. ITO IN ITA NOS. 526 AND 527(DEL)/2004 FOR ASSESSMENT YEARS 2000-01 AND 2001-02 (2005) 93 TTJ 828. THAT COMPANY WAS REGISTERED AS A NEW UNDERTAKING WITH STPI WITH EFFECT FROM 6.7.1995. DEDUCTION WAS CLAIMED U/S 10A IN RESPECT OF EXPORT OF COMPUTER SOFTWARE FOR THESE YEARS. THE AO NOT ED THAT FOR AND UP TO ASSESSMENT YEAR 1999-00, THE ASSESSEE WAS CLA IMING DEDUCTION U/S 80HHE. IN THIS YEAR, IT CHANGED ITS STAND AND C LAIMED DEDUCTION U/S 10A. IT WAS HELD THAT SUCH A CHANGE IN STAND WAS SIMPLY FOR AVOIDING PAYMENT OF INCOME-TAX. IT WAS ALSO NOTED THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION U/S 10A ON THE OLD UNIT. THE REASON FOR CLAIMING DEDUCTION U/S 10A WAS STATED TO BE THAT THE PRO DUCTION OF SOFTWARE STARTED IN THIS YEAR IN THE APPROVED SOFTWA RE TECHNOLOGY PARK. IT WAS HELD THAT THE WORDS SUCH PROFITS USED IN SECT ION 80HHE(5) REFER TO THE ITA NOS. 813, 3455 & 3456(DEL)/2008 9 PROFITS OF A PARTICULAR YEAR ON WHICH A DEDU CTION U/S 80HHE HAD BEEN CLAIMED. THIS PROVISION WAS INTRODUCED TO AVOID DOUBLE DEDUCTION UNDER TWO PROVISIONS IN RESPECT OF THE SAME PROFITS. HOWEVER, SUCH WAS NOT THE CASE HERE. THEREFORE, IT WAS HELD THAT THE A SSESSEE WAS ENTITLED TO DEDUCTION U/S 10A OF THE ACT. IT WAS HIS CAS E THAT THE FACTS OF THE TWO CASES ARE DISTINGUISHABLE IN AS MUCH AS THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTIONS 10A AND 80HHE FOR THE SAME ASSESSMENT YEAR. IT WAS ALSO HIS CASE THAT SINCE NO M ATERIAL CHANGE TOOK PLACE ON 14.1.2003, THE ASSESSEE CONTINUED TO BE ENTITLE D TO DEDUCTION U/S 80HHE. HOWEVER, IT WAS NOT ENTITLED TO DEDUCTI ON U/S 10A AS NO NEW UNIT WAS SET UP IN THIS YEAR. 4.2 IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT RIGHT FROM THE BEGINNING, THE ASSESSEE WANTED TO SET UP A STPI UNIT, AS CAN BE SEEN FROM PAGES 75 AND 76 OF THE PAPER BOOK NO. 2, BEING LETTER DATED 26.3.2001 RECEIVED FROM THE STPI. THE SAME BE COMES CLEAR FROM PAGE 87 OF THE PAPER BOOK ALSO AS THE DEDUCTION WAS CLAIMED IN ASSESSMENT YEAR 2003-04 ON THE BASIS OF THE FIN AL APPROVAL RECEIVED ON 14.1.2003. THE DELAY WAS ON ACCOUNT OF FINANCI AL DIFFICULTIES AND COMPLIANCE IN PROCEDURE. HOWEVER, THE APPROVAL GRANTED ON 26.3.2001 ITA NOS. 813, 3455 & 3456(DEL)/2008 10 WAS RECOGNIZED ON 14.1.2003. IN FACT, THERE WAS ONLY ONE UNIT AND, THEREFORE, THERE COULD NOT HAVE BEEN ANY QUES TION OF RECONSTRUCTION OF THE OLD BUSINESS. IT WAS FURTHER SUBMITTED T HAT THE QUESTION REGARDING THE DETERMINATION OF INITIAL YEAR WAS NOT RAISE D IN THE PROCEEDINGS BEFORE THE LOWER AUTHORITIES. SINCE DEDUCTION U/S 10A WAS GRANTED FOR THE FIRST TIME IN ASSESSMENT YEAR 2003-04, THIS YEAR SHOULD BE TAKEN AS INITIAL YEAR FOR THE DEDUCTION. IN THIS CONNECT ION, RELIANCE WAS PLACED ON BOARD CIRCULAR NO. 1/2005 DATED 6.1.2005, ISSUED U/S 10B. IN PARAGRAPH 4, IT IS MENTIONED THAT AN UNDERTAKING SET U P IN DOMESTIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT OF ARTIC LES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED BY IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DED UCTION U/S 10B ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. THUS, IT WAS ARGUED THAT SINCE SECTIONS 10A AND 10B CONTAIN ANALOGOUS LAW, THE ASSESSEE WILL BE ENTITLED TO DEDUCTION U/S 10A IN THE YEAR IN WH ICH IT HAD OBTAINED APPROVAL AS AN 100% EXPORT ORIENTED UNIT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE WAS UNDER THE BONA FIDE BELIEF THAT WIT HOUT TAKING ON RECORD THE AGREEMENT, DEDUCTION U/S 10A CANNOT BE CLA IMED. THAT IS WHY, THE DEDUCTION WAS CLAIMED IN THIS YEAR WITH EFFECT FROM 14.1.2003. THUS, IT WAS ARGUED THAT THERE WAS NO ERROR IN THE OR DER OF THE LEARNED ITA NOS. 813, 3455 & 3456(DEL)/2008 11 CIT(APPEALS) WHEN HE GRANTED DEDUCTION U/S 10A IN RESPECT OF THE PROFITS FOR THE PERIOD 14.1.2003 TO 31.3.200 3. 4.3 IN THE REJOINDER, THE LD. DR SUBMITTED THA T THE INTENTION OF THE ASSESSEE IS NOT RELEVANT WHEN THE STATUTORY PROV ISION IS CLEAR, WHICH REQUIRES THE ASSESSEE TO SET UP A NEW STPI UNIT. THAT WAS NOT DONE BY THE ASSESSEE IN THIS YEAR. FURTHER, IT W AS SUBMITTED THAT THE ASSESSEE HAS BEEN EARNING PROFITS RIGHT FROM THE BEGINN ING AND, THUS, THERE APPEARS TO BE NO FORCE IN THE ARGUMENT OF THE LD . COUNSEL THAT THE DELAY IN APPROVAL WAS INTER-ALIA ON ACCOUNT OF FINANCIAL DIFFICULTIES. IT WAS ALSO SUBMITTED THAT SINCE THE LANGUAGE OF THE PROVISI ON IS CLEAR REGARDING SETTING UP OF A NEW UNIT, THE RULE OF STATUTO RY INTERPRETATION, NAMELY, THE CAUSUS OMMISUS CANNOT BE INVOKED EXCEPT IN T HE CASE OF A CLEAR NECESSITY. THERE IS NO NECESSITY IN THE CASE AT HAND. THUS, IT WAS ARGUED THAT THE ORDER OF THE LEARNED CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE AO MAY BE RESTORED. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS ARE THAT THE ASSESSEE SE T UP A UNIT AT A-30, KAILASH COLONY, NEW DELHI, FOR WHICH IN-PRINCIPLE APPR OVAL WAS GRANTED BY ITA NOS. 813, 3455 & 3456(DEL)/2008 12 STPI, NOIDA, ON 26.3.2001, SUBJECT TO FULFILLM ENT OF CERTAIN CONDITIONS. IT APPEARS THAT THERE WERE DELAYS IN FULFI LLING THE CONDITIONS AND THE REGISTRATION WAS FINALLY OBTAINED ON 14 .1.2003. SINCE THE ASSESSEE HAD SET UP THE UNIT IN FINANCIAL YEA R 2000-01 AND EARNED PROFITS THEREFROM, DEDUCTION U/S 80HHE WAS CL AIMED FOR ASSESSMENT YEARS 2001-02, 2002-03 AND A PART OF THE PRE VIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003-04. ON RECEIPT OF THE AP PROVAL ON 14.1.2003, DEDUCTION WAS ALSO CLAIMED U/S 10A FROM 14.1.2 003 TO 31.3.2003. THE CASE OF THE AO IN THIS YEAR WAS THAT THE A SSESSEE HAS CLAIMED DEDUCTION UNDER TWO PROVISIONS IN RESPECT OF THE SAME PROFITS, WHICH ACCRUED AT THE END OF THE YEAR. THE SAME W AS NOT ALLOWABLE AS PER LAW. IN A SUBSEQUENT YEAR, THE APPEAL FOR W HICH IS PENDING BEFORE US, IT WAS ALSO HELD THAT THE ASSESSEE DID NO T SET UP ANY NEW UNIT IN THIS YEAR AND, THEREFORE, IT WAS A CASE OF RECON STRUCTION OF THE OLD BUSINESS. THE LEARNED CIT(APPEALS) DID NOT ACCEPT THE FIRS T LINE OF ARGUMENT BY REFERRING TO THE ORDER OF THE TRIBUNAL IN THE CA SE OF LEGATO SYSTEMS INDIA (P) LTD. (SUPRA). HE DID NOT ACCEPT THE SECON D LINE OF ARGUMENT ALSO BY OBSERVING THAT THE ASSESSEE HAD SET UP ONLY ONE UNIT. ALTHOUGH IT WAS SET UP IN PREVIOUS YEAR RELEVANT TO A SSESSMENT YEAR 2001-02, BUT THE INTENTION WAS TO OBTAIN DEDUCTION U/S 10A RIGHT FROM THE BEGINNING, ITA NOS. 813, 3455 & 3456(DEL)/2008 13 WHICH BECOMES EVIDENT FROM IN-PRINCIPLE APPRO VAL OBTAINED ON 26.3.2001. THUS, HE CAME TO THE CONCLUSION THAT ON OBTAINING APPROVAL, THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 10 A FROM 14.1.2003 TO 31.3.2003. FROM THE FACTS NARRATED ABOVE, IT I S CLEAR THAT THE ASSESSEE HAD SET UP ONLY ONE UNIT. THEREFORE, THERE IS NO QUESTION OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTE NCE. SUB-SECTION (1) OF SECTION 10A CONTAINS A PROVISION FOR DEDUCTIO N OF PROFITS AND GAINS DERIVED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF 10 CONSECUTIV E ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT T O THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR P RODUCE SUCH ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE . SUB-SECTION (2) INTER- ALIA CONTAINS A CONDITION THAT THE DEDUCTI ON AS AFORESAID SHALL NOT BE ALLOWED IF THE UNDERTAKING IS FORMED BY SPL ITTING UP OR RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE OR THA T IT IS FORMED BY THE TRANSFER TO THE NEW BUSINESS OF MACHINERY OR PLANT PR EVIOUSLY USED FOR ANY PURPOSE. AS MENTIONED EARLIER, THE ASSESSEE SET UP ONLY ONE UNIT, WHICH STARTED THE PRODUCTION OF SOFTWARE IN TH E PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2001-02. THEREFORE, IT C ANNOT BE A CASE OF THE FORMATION OF THE UNDERTAKING BY SPLITTING UP OR RECONSTRUCTION OF THE ITA NOS. 813, 3455 & 3456(DEL)/2008 14 BUSINESS ALREADY IN EXISTENCE. IT IS ALSO NO T A CASE WHERE THE UNDERTAKING IS FORMED BY TRANSFER OF MACHINERY OR PLANT PREVIOUSLY USED FOR ANY OTHER PURPOSE. THUS, WE ARE N OT IN AGREEMENT WITH THE ARGUMENT OF THE LD. DR THAT THE UNDERTAKING WAS FORMED BY RE- CONSTRUCTION ETC. OF THE BUSINESS ALREADY IN E XISTENCE. SINCE THE UNDERTAKING CONTINUED AS IT WAS IN ASSESSMEN T YEAR 2001-02 AND IN SUBSEQUENT YEARS, IT CANNOT BE SAID IN ASS ESSMENT YEAR 2003-04 THAT ANY OF THE AFORESAID CONDITIONS WAS NOT SATI SFIED IN THIS YEAR. THUS, IT IS HELD THAT THE ASSESSEE SET UP ONLY ONE UNIT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2001-02, WHICH CONTINUED TO EXIST IN THIS AND SUBSEQUENT YEARS. THEREFORE, THE PROFITS OF THIS UNIT WERE ENTITLED TO DEDUCTION ONCE OTHER CONDITIONS MENTIONED IN SE CTION 10A WERE SATISFIED. 5.1 AS MENTIONED EARLIER, THERE WERE DELAYS I N REGISTRATION OF THE UNDERTAKING AFTER OBTAINING IN-PRINCIPLE APPR OVAL. THE REASONS FOR DELAY ARE NOT ASCERTAINABLE FROM RECORD AND WHICH WERE ALSO NOT SPECIFICALLY STATED BEFORE US. THE REASON OF FINANCIAL DIFFICULTIES IS NOT CORRECT IN VIEW OF THE ARGUMENT OF THE LEARNED DR THAT THE UNDERTAKING EARNED PROFITS IN ALL THE YEARS. HOWEVER, THE REASONS FOR DELAY ARE NOT ITA NOS. 813, 3455 & 3456(DEL)/2008 15 OF ANY CONSEQUENCE IN OUR CONSIDERED VIEW. W HAT IS IMPORTANT IS THAT THE APPROVAL WAS OBTAINED ON 14.1.2003 IN RESPECT OF THE EXISTING BUSINESS FOR WHICH IN-PRINCIPLE APPROVAL HAD B EEN OBTAINED ON 26.3.2001. THE AO OR THE LEARNED DR HAS NOT POINTED OUT ANY LEGALLY TENABLE CIRCUMSTANCE WHICH PREVENTED THE ASSES SEE FROM OBTAINING THE DEDUCTION WITH EFFECT FROM 14.1.2003. THE CASE OF THE AO WAS THAT THE PROFITS OF A BUSINESS ACCRUE AT THE END OF THE YEAR AND, THEREFORE, EXEMPTION U/S 10A COULD NOT HAVE BEEN GRANTED F OR THE PERIOD 14.1.2003 TO 31.3.2003. HE ALLOWED DEDUCTION U/S 80HHE FOR THE WHOLE PERIOD AND MENTIONED THAT SUB-SECTION (5) OF SECTION 80 HHE CAME IN THE WAY OF GRANT OF DEDUCTION UNDER BOTH THE PROVISIONS I N THE SAME YEAR. WE ARE OF THE VIEW THAT THIS ARGUMENT IS NOT TENABLE. THE PRINCIPLE OF APPORTIONMENT OF INCOME OR EXPENDITURE IS WELL ENTRENCHED IN THE TAXATION LAWS. THE ASSESSEE COMPUTED PROFITS FOR THE TWO PERIODS ON A REASONABLE BASIS BY TAKING RECEIPT ON ACTUALS AND EXPENDITURE ON A PROPORTIONATE BASIS. THE AO HAS NOT FOUND ANY FAULT WITH THE ALLOCATION OF PROFIT IN THE TWO PERIODS. IT IS SETTLED THAT IN LAW, THE PROFITS OF A BUSINESS ACCRUE ON THE LAST DATE OF THE PREV IOUS YEAR. HOWEVER, THAT DOES NOT MEAN THAT ALLOCATION OF PROFITS OF TH E YEAR IN TWO DIFFERENT PERIODS IS AN IMPOSSIBILITY BECAUSE OF THE AFORESAID PRINCIPLE OF LAW. ITA NOS. 813, 3455 & 3456(DEL)/2008 16 SUCH AN APPORTIONMENT WAS NECESSARY AS THE ASSESSEE BECAME ENTITLED TO DEDUCTION UNDER TWO DIFFERENT PROVISIONS FOR THE TWO PERIODS. TO OUR MIND, THE PRINCIPLE OF ACCRUAL OF PROFIT DOES NOT COME IN THE WAY OF ALLOCATION OF PROFIT IN THE TWO PERIODS. WHAT CAN BE DONE AT BEST IS TO ENSURE THAT THE ALLOCATION IS MADE ON A PROPER BASIS SO AS TO AVOID EXCESSIVE CLAIM OF DEDUCTION UNDER ONE OR THE OTHER PROVISION. HOWEVER, AS STATED EARLIER, NO FAULT HAS BEE N FOUND BY THE AO WITH THE ALLOCATION MADE BY THE ASSESSEE. HIS OTHER ARGUMENT THAT DEDUCTION UNDER TWO PROVISIONS HAS BEEN CLAIMED IN RESPEC T OF THE SAME PROFITS IS ALSO NOT CORRECT AS THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHE ON THE PROFITS FOR THE PERIOD 1.4.2002 TO 13.1 .2003 AND DEDUCTION U/S 10A ON THE PROFITS FOR THE PERIOD STARTING ON 14.1. 2003 AND ENDING ON 31.3.2003. THE PROFITS OF THESE PERIODS ARE NO T THE SAME BUT THEY ARE DIFFERENT. THE ORDER IN THE CASE OF LEGATO SYS TEMS INDIA (P) LTD. (SUPRA) SUPPORTS THE CASE OF THE ASSESSEE THAT DEDU CTIONS UNDER DIFFERENT SECTIONS CAN BE ALLOWED ON DIFFERENT PROFITS, IF THE SAME ARE ADMISSIBLE. WE ALSO DO NOT FIND ANY FORCE IN THE ARGUMEN T OF THE LD. DR THAT THE FACTS OF THE CASE OF LEGATO SYSTEMS INDIA (P) LTD. ARE DISTINGUISHABLE BECAUSE IN THAT CASE THE DEDUCTION U/S 10A WAS CLAIMED ON THE PROFITS OF THE WHOLE YEAR IN RESPECT OF THE UNDERTAKING WHICH WAS ESTABLISHED ITA NOS. 813, 3455 & 3456(DEL)/2008 17 IN AN EARLIER YEAR. THE REASON IS THAT SUB-S ECTION (5) USES THE EXPRESSION SAME PROFITS AND PROFITS OF THE T WO PERIODS ARE DIFFERENT. IN COMING TO THIS CONCLUSION, WE ARE RELYING O NLY ON THE STATUTORY LANGUAGE CONTAINED IN SECTIONS 10A AND 80-HH E(5), WITHOUT SUPPLYING ANY WORDS FOR ANY OMISSION IN THE LANGUAGE. THUS, THE ARGUMENT THAT THE PRINCIPLE OF STATUTORY INTERPRETATION, NAMEL Y, THE CAUSUS OMMISUS CANNOT BE INVOKED EXCEPT IN A CASE OF CLEAR NECESSITY, ALTHOUGH TRUE, HAS NOT BEEN INVOKED IN COMING TO THE AFORESAID CONCLUSION. THE CASE OF THE ASSESSEE IS ALSO SUPPORTED BY BOARD C IRCULAR NO. 1/2005 DATED 6.1.2005, CLARIFYING THE PROVISION CONTAINED IN SECTION 10B, CONTAINING ANALOGOUS LAW. IT IS MENTIONED THAT WHERE A N UNDERTAKING IS SET UP IN DTA AND DERIVES PROFITS FROM EXPORT OF A RTICLES, THINGS OR COMPUTER SOFTWARE, WHICH IS SUBSEQUENTLY CONVERTED INTO AN EOU SHALL BE ELIGIBLE FOR DEDUCTION U/S 10B OF THE INCOME-TAX ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UNDERTAKING. THUS, WHERE A DTA IS CONVERTED INTO AN EOU, THE EXEMPTION U/S 10B IS ADMISSI BLE ON GETTING APPROVAL AS 100% EOU. IN THE CASE AT HAND ALSO, TH E APPROVAL AS AN STPI UNIT HAS BEEN OBTAINED ON 14.1.2003. BY USING THE ANALOGY, THE ASSESSEE BECOMES ENTITLED TO GET DEDUCTION U/S 10A ON GETTING APPROVAL AS ITA NOS. 813, 3455 & 3456(DEL)/2008 18 AFORESAID, I.E., IN RESPECT OF THE PROFITS OF TH E UNDERTAKING FOR THE PERIOD 14.1.2003 TO 31.3.2003. 5.2 THE QUESTION REGARDING THE INITIAL YEAR OF DEDUCTION U/S 10A WAS ALSO DISCUSSED IN THE COURSE OF HEARING BEFORE US. THE CASE OF THE LD. COUNSEL WAS THAT DEDUCTION U/S 10A WAS GRANTE D FOR THE FIRST TIME ON THE PROFITS OF ASSESSMENT YEAR 2003-04. THER EFORE, THIS IS THE INITIAL YEAR FOR DEDUCTION U/S 10A. HOWEVER, WE FIND THAT THE AFORESAID CIRCULAR OF THE BOARD U/S 10B MENTIONS THAT THE DEDUCTION SHALL BE AVAILABLE FOR THE REMAINING PERIOD OF 10 CONSE CUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE AS A DTA UNIT. FOR THE SAKE OF READY REFERENCE, THIS PARAGRAPH IS REPRODUCED BELOW:- 4. THE MATTER HAS BEEN EXAMINED AND IT IS HEREBY CLARIFIED THAT AN UNDERTAKING SET UP IN DOMES TIC TARIFF AREA (DTA) AND DERIVING PROFIT FROM EXPORT OF AR TICLES OR THINGS OR COMPUTER SOFTWARE MANUFACTURED OR PRODUCED B Y IT, WHICH IS SUBSEQUENTLY CONVERTED INTO A EOU, SHALL BE ELIGIBLE FOR DEDUCTION UNDER SECTION 10B OF T HE IT ACT, ON GETTING APPROVAL AS 100% EXPORT ORIENTED UN DERTAKING. IN SUCH A CASE, THE DEDUCTION SHALL BE AVAILAB LE ONLY FROM THE YEAR IN WHICH IT HAS GOT THE APPROVAL AS 100% EOU AND SHALL BE AVAILABLE ONLY FOR THE REMAINING PERIOD OF TEN ITA NOS. 813, 3455 & 3456(DEL)/2008 19 CONSECUTIVE ASSESSMENT YEARS, BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS A DTA UNIT. FURTHER, IN THE YEAR OF APPROVAL, THE DEDUCTION SHALL B E RESTRICTED TO THE PROFITS DERIVED FROM EXPORTS, FROM AND AF TER THE DATE OF APPROVAL OF THE DTA UNIT AS 100% EOU. MOREOV ER, THE DEDUCTION TO SUCH UNITS IN ANY CASE WILL NO T BE AVAILABLE AFTER ASSESSMENT YEAR 2009-10. THE LD. COUNSEL HAS RELIED ON THIS VERY PARAGRA PH FOR CLAIMING DEDUCTION OF PROFITS FOR THE PERIOD 14.1.2003 TO 31.3.2003. THE PARAGRAPH ALSO GRANTS A KIND OF CONCESSION T O THE ASSESSEE WHEN A UNIT OF A PARTICULAR KIND IS APPROVED AS A UNIT OF ANOTHER KIND. THEREFORE, WHILE GRANTING BENEFIT UNDER SUCH A CONCESSION, THE PARAGRAPH WILL HAVE TO BE READ AS A WHOLE. THE ASSESSEE CANNOT CHOOSE A PART WHICH IS BENEFICIAL TO IT AND IGNORE THE OTHER WHICH IS DETRIMENTAL TO IT. FURTHER, EVEN THE LANGUA GE OF SECTION 10A(1) USES THE WORDS FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREV IOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SU CH ARTICLES OR THINGS OR COMPUTER SOFTWARE. THESE WORDS ARE THE SAM E AS USED IN SECTION 10B. THEREFORE, THE INITIAL YEAR WILL BE THE Y EAR DURING WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE COM PUTER SOFTWARE. SUCH YEAR IS ASSESSMENT YEAR 2001-02 IN THE CASE OF THE ASSESSEE. ITA NOS. 813, 3455 & 3456(DEL)/2008 20 THUS, WE DO NOT FIND ANY CONTRADICTION WHEN IT IS HELD THAT THE UNDERTAKING STARTED PRODUCTION IN A.Y. 2001-02 , BUT IT IS ENTITLED TO DEDUCTION OF PROFITS FROM 14.1.2003, A DATE FALLING IN ASSESSMENT YEAR 2003-04. THEREFORE, IT IS HELD THAT THE YEAR AT H AND WILL BE THE THIRD YEAR OF DEDUCTION U/S 10A. ITA NO. 3455(DEL)/2008-A.Y. 2004-05 6. THE ONLY GROUND TAKEN BY THE REVENUE IS THA T ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APP EALS) ERRED IN ALLOWING EXEMPTION U/S 10A AMOUNTING TO RS. 62 ,76,458/-, IGNORING THE PROVISIONS CONTAINED IN SECTION 80HHE(5) OF THE IN COME-TAX ACT, 1961. 6.1 THE GROUND TAKEN BY THE REVENUE IN THIS YEAR IS NARROWER THAN THE GROUND TAKEN IN ASSESSMENT YEAR 2003-04 I N ITA NO. 813(DEL)/2008 (SUPRA). IN THAT YEAR, DEDUCTIONS UNDER TWO DI FFERENT PROVISIONS WERE CLAIMED IN RESPECT OF PROFITS OF THE UNDERTAKI NG OF THE TWO PERIODS, NECESSITATED BY THE APPROVAL OF THE UNDERTAKING BY THE STPI ON 14.1.2003. IN THIS YEAR, EXEMPTION IS CLAIMED IN RESPECT OF PROFITS OF THE WHOLE YEAR U/S 10A. THE PROVISION CONTAINED IN SUB-SECTION (5) OF SECTION 80HHE IS INVOKED, AS SUCH DEDUCTION U NDER SECTION 80HHE WAS CLAIMED IN ASSESSMENT YEARS 2001-02 TO 2003-04. LOOKING TO THE ITA NOS. 813, 3455 & 3456(DEL)/2008 21 DISCUSSION REGARDING THE WORDS SUCH PROFITS I N THE ORDER FOR ASSESSMENT YEAR 2003-04 (SUPRA), IT BECOMES CLEA R THAT IT IS NOT A CASE OF DEDUCTION ON SAME PROFITS UNDER TWO PROVISIONS. RELYING ON THAT ORDER, IT IS HELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S 10A ON THE PROFITS OF THE WHOLE YEAR, BEING THE FOURTH YE AR OF THE DEDUCTION. ITA NO. 3456(DEL)/2008- A.Y. 2005-06 7. THE GROUND TAKEN IN THIS YEAR IS SIMILAR TO THE GROUND TAKEN IN ASSESSMENT YEAR 2004-05 IN ITA NO. 3455(DEL)/2 008 (SUPRA). THE DEDUCTION CLAIMED U/S 10A IN THIS YEAR AMOUNTS T O RS. 1,93,34,188/- AS AGAINST RS. 62,76,458/- IN THAT YEAR. OTHERWISE, THE FACTS OF THE CASE ARE SIMILAR. RELYING ON OUR ORDER FOR THAT YEAR, I T IS HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10A IN RESPECT OF TH E PROFITS OF THE WHOLE YEAR, BEING THE 5 TH YEAR OF THE DEDUCTION. 8. IN THE RESULT, ALL THE APPEALS ARE DISMISSED . THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 11TH SEPT., 2009. SD/- SD/- (GEORGE MATHAN) ( K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 11TH SEPT., 2009. SP SATIA ITA NOS. 813, 3455 & 3456(DEL)/2008 22 COPY OF THE ORDER FORWARDED TO: VIDYATECH SOLUTIONS PVT. LTD., NEW DELHI. ITO, WARD 17(3), NEW DELHI. CIT(A) CIT, NEW DELHI. THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.