Conexant System (PB)Pvt. Ltd, Pune v. ACIT,Cir.-4,, Pune

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI D. KARUNAKARA RAO (AM) ITA NO S . 12 /PN/200 7 1805/PN/2005 & 1047/PN/2006 (ASSTT. YEARS : 2001 - 02 2002 - 03 & 2003 - 04) CONEXANT SYSTEMS (PB) PVT. LTD. (FORME RLY KNOWN AS PAXONET COMMUNICATIONS (INDIA) PRIVATE LIMITED) WESTEND CENTER III 4 TH FLOOR S.NO. NO. 169/1 SECTOR II D.P. ROAD AUNDH PUNE 411 0 07 PAN : AABCC 3455 F .. APPELLANT V. A SSTT CIT / DY CIT CIRCLE 4 PUNE . RESPONDENT ITA NO. 552 /PN/200 8 (ASSTT. YEAR : 200 4 - 05 ) CONEXANT SYSTEMS P RI V A T E L IMI T E D (FORMERLY KNOWN AS CONEXANT SYSTEMS (PB) PRIVATE LIMITED) WESTEND CENTER THREE 4 TH FLOOR S.NO. NO. 169/1 SECTOR II D.P. ROAD AUNDH PUNE 411 007 PAN : AABCC 3455 F .. APPELLANT V. ASSTT CIT CIRCLE 4 PUNE . RESPONDENT APPELLANT BY : S/ SHRI KANCHAN KAUSHAL DANESH BAFNA & A. DESHMUKH RESPONDENT BY : SHRI R. KAUSHAL & MS. M. MADHUSMITA ORDER PER I.C. SUDH IR J M IN ALL THESE APPEALS THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER MAINLY ON THE GROUND THAT THE LD CIT(A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION MADE U/S. 10B OF THE ACT. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 2 2. THE LD. A.R. PREFERRED TO ADDRESS ITA NO. 1805/PN/ 2005 I.E. FOR THE A.Y. 2002 - 03 FIRST . THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON THE FOLLOWING GROUNDS : 1 DISALLOWANCE OF DEDUCTION UNDER SECTION 10B OF THE ACT RS. 1 02 22 071 THE CIT(A) HAS BASED ON THE FACTS OF THE CASE AND IN LAW ERR ED IN DISALLOWING YOUR APPELLANTS CLAIM FOR DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.1 02 22 071 YOUR APPELLANT PRAYS THAT THE SAID CLAIM IN COMPUTING THE TOTAL INCOME OF YOUR APPELLANT SHOULD BE ALLOWED. 2 T REATMENT OF THE COMPANYS UN DERTAKING AS FORMED BY THE RECONSTRUCTION OF A BUSINESS IN EXISTENCE THE CIT(A) HAS BASED ON THE FACTS OF THE CASE AND IN LAW ERRED IN HOLDING THAT THE COMPANY IS NOT A NEW UNDERTAKING BUT A RECONSTRUCTION OF ANOTHER COMPANY. ON THE BASIS OF VARIOUS CONTENTIONS MENTIONED IN THE CIT(A)S ORDER NONE OF WHICH ARE CORRECT THE CIT(A) HAS COME TO AN ERRONEOUS INFERENCE THAT YOUR APPELLANT IS A RECONSTRUCTION OF THE BUSINESS OF CG - COREL LOGIC SYSTEMS LTD. YOUR APPELLANT PRAYS THAT THE COMPANYS UNDERTAKIN G BE CONSIDERED AS BEING ELIGIBLE TO THE DEDUCTION UNDER SECTION 10B OF THE ACT AS IT IS NOT FORMED BY THE RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. 3 . HOLDING THAT THE COMPANY WAS SET UP AS A COLOURABLE DEVICE TO EXTEND THE PERIOD OF DEDUCTION AVAILABLE TO CORE EL LOGIC SYSTEMS LTD ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 3 THE CIT(A) HAS BASED ON THE FACTS OF THE CASE AND IN LAW ERRED IN HOLDING THAT THE COMPANY WAS SET UP AS A COLOURABLE DEVICE TO EXTEND THE PERIOD OF DEDUCTION AVAILABLE TO CG - CORE EL LOGIC SYSTEMS LTD. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IN VIEW OF THE FACTS OF THE CASE AND IN LAW YOUR APPELLANT COULD NOT BE SAID TO BE SET UP AS A COLOURABLE DEVICE TO ENHANCE THE PERIOD OF DEDUCTION AVAILABLE TO CG - COREEL LOGIC SYSTEMS LTD. THE CIT(A) OUGHT TO HAVE A PPRECIATED THAT THERE WAS NO EVIDENCE ON RECORD TO SUBSTANTIATE THE ABOVEMENTIONED CONTENTION AND THAT THE SAID CONTENTION HAS BEEN MADE ONLY ON THE BASIS OF SURMISES MADE BY THE AO WHICH WERE MECHANICALLY CONFIRMED BY THE CIT(A). 4 INITIATION OF PENALT Y PROCEEDINGS THE CIT(A) HAS BASED ON THE FACTS OF THE CASE AND IN LAW ERRED IN INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C ) OF THE ACT. 3. BESIDES ABOVE THE ASSESSEE HAS MOVED APPLICATION SEEKING PERMISSION TO RAISE FOLLOWING ADDITIONAL GRO UNDS OF APPEAL : GROUND NO.6: THAT THE APPELLANT PRAYS THAT THE DEDUCTION BE CONSIDERED UNDER SECTION 10A OF THE ACT RATHER THAT UNDER SECTION 10B OF THE ACT. GROUND NO.7: THAT THE BANGALORE UNIT AND PUNE UNIT ARE REGISTERED WITH SEPARATE STP AUTHORITIE S HAVE SEPARATE RESPONSIBILITIES TOWARDS EARNING FOREIGN EXCHANGE HAVE SEPARATE EMPLOYEES AND HAVE OPERATIONS AT DIFFERENT LOCATIONS AND SHOULD BE CONSIDERED AS SEPARATE UNDERTAKING FOR THE PURPOSES OF SECTION 10A OF THE ACT. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 4 4. IN SUPPORT OF ABOVE A PPLICATION THE LD. A.R. SUBMITTED THAT THE DEDUCTION CLAIMED BE CONSIDERED U/S. 10A RATHER THAN SECTION 10B OF THE ACT FOR THE UNITS SITUATED IN PUNE AND BANGALORE WHICH ARE SEPARATELY REGISTERED BY THE STPI AUTHORITIES. HE SUBMITTED THAT THE A.O. IN I TS ASSESSMENT ORDER ITSELF OBSERVED THAT THE DEDUCTION CLAIMED U/S. 10B SHOULD BE READ AS SECTION 10A AND ACCORDINGLY HE HAS MADE DISALLOWANCE UPHELD BY THE LD CIT(A). HE SUBMITTED THAT PROVISIONS OF BOTH THE SECTIONS BEING VERY SIMILAR WILL NOT ALTER ANY AMOUNTS AND STATED POSITIONS. THE ASSESSEE BY WAY OF THE PRESENT APPLICATION SEEKS TO RAISE ADDITIONAL GROUNDS STATING THAT SECTION 10A OF THE ACT IS CORRECT SECTION IN LAW FOR STPI REGISTERED UNITS. ON THE ADMISSIBILITY OF AFORESAID ADDITIONAL GROUN DS THE LD. A.R. PLACED RELIANCE ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL CORPORATION LTD. V/S. CIT 229 ITR 383 (SC) WHEREIN IT IS HELD THAT AN APPELLAT E AUTHORITY HAS ALL POWERS WHICH THE ORIGINAL AUTHORITY HAD IN DECIDIN G ANY QUESTION BEFORE IT. HE SUBMITTED FURTHER THAT THE ISSUE RAISED IN THE ADDITIONAL GROUNDS IS PURELY LEGAL IN NATURE AND ALL THE FACTS IN REGARD TO THE AFORESAID ADDITIONAL GROUNDS ARE ALREADY ON RECORD AND ADJUDICATION OF THESE ADDITIONAL GROUNDS DOE S NOT REQUIRE ANY FURTHER INVESTIGATION OF FACTS. 5. THE LD. D.R. ON THE OTHER HAND OPPOSED THE APPLICATION WITH THE SUBMISSION THAT SUCH ISSUE WAS NOT RAISED BEFORE THE AUTHORITIES BELOW AND EVEN BEFORE THE TRIBUNAL THE ASSESSEE HAS RAISED THE ISSUE IN THE ADDITIONAL GROUNDS AT A VERY BELATED STAGE THAT TOO WITHOUT ASSIGNING ANY REASON FOR DELAY. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 5 6. CONSIDERING THE ABOVE SUBMISSION ESPECIALLY THE ISSUE RAISED IN THE ABOVE ADDITIONAL GROUND IS LEGAL IN NATURE AND FOR ADJUDICATION OF WHICH NO FRESH M ATERIAL OUTSIDE THE RECORD IS REQUIRED TO BE CONSIDERED WE ALLOW THE ABOVE STATED ADDITIONAL GROUNDS FOR OUR ADJUDICATION. WE WILL HOWEVER DECIDE THE ISSUE RAISED IN THE ADDITIONAL GROUNDS CONSEQUENTLY WHILE DISPOSING OF THE MAIN GROUNDS IN THE APPEA L AS THE ISSUE RAISED IN THE ADDITIONAL GROUNDS IS CONNECTED WITH THE MAIN GROUNDS. 7. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVANCED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW MATERIAL AVAILABLE ON RECORD AND THE DECISIONS RELIE D UPON. GROUND NO. 1 2 & 3 8. THE RELEVANT FACTS IN BRIEF ARE THAT THE APPELLANT ASSESSEE A 100% EXPORT ORIENTED SOFTWARE TECHNOLOGY PARK UNIT CLAIMED DEDUCTION U/S. 10B OF THE ACT OF RS. 1 02 22 071/ - IN ITS RETURN OF INCOME FOR THE YEAR. IT CLAIMED THAT IT HAS FULFILLED ALL THE CONDITIONS LAID DOWN U/S. 10B OF THE ACT TO BE ELIGIBLE FOR THE DEDUCTION UNDER THE SAID SECTION. AS PER THE AUDIT REPORT THE ASSESSEE IS IN THE BUSINESS OF DESIGN AND DEVELOPMENT CENTRE FOR COMPUTER HARDWARE AND COMPUTER S OFTWARE. IT WAS SUBMITTED THAT ASSESSEE HAD EXERCISED ITS OPTION FOR THE ENTITLEMENT TO CLAIM DEDUCTION U/S. 10B FROM THE A.Y. 2001 - 02 AS PRIOR TO THAT THERE WAS NO PROFIT. ASSESSEE COMPANY STARTED IN F.Y. 1999 - 2000. IT WAS SUBMITTED THAT ASSESSEE WAS EARLIER KNOWN BY THE NAME CORE EL LABS PVT. LTD. ON 21 ST DECEMBER 2000 ASSESSEE CHANGED ITS NAME TO PAXONET COMMUNICATION (INDIA) PVT. LTD. (IN SHORT P). NOW ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 6 ITS KNOWN AS CONEXANT SYSTEMS (PB) PVT. LTD. THE A.O DISALLOWED THE CLAIMED DEDUCTION U/S. 10B OF THE ACT AT RS.1 02 22 071/ - ON THE GROUND THAT THE ASSESSEE IS FORMED BY RECONSTRUCTION OF THE BUSINESS OF C.G. CORE EL LOGIC SYSTEMS LTD BY HOLDING THAT - (A) THE BUSINESS OF THE APPELLANT IS THE SAME AS THAT OF CGCLS (B) THE UNDERTAKING OF THE A PPELLANT WAS FORMED WITH FIVE EMPLOYEES OF CGCLS AND EVEN AS ON 31 - 3 - 2000 A MAJORITY OF APPELLANTS EMPLOYEES WERE EMPLOYED BY CGCLS. (C) THE DIRECTORS OF THE P AND CGCLS ARE COMMON. (D) THE TURNOVER OF CGCLS HAS DRASTICALLY GONE DOWN SINCE THE BEGINNING OF APPE LLANTS BUSINESS. (E) THE APPELLANT IS USING ASSETS PURCHASED FROM CGCLS 9. BEFORE LD CIT(A) THE ASSESSEE TRIED TO EXPLAIN THE ABOVE OBJECTIONS RAISED BY THE A.O REGARDING ITS ELIGIBILITY FOR THE CLAIMED DEDUCTION. THE LD CIT(A) DID NOT AGREE AND UP HELD THE ACTION OF THE A.O IN REJECTING THE CLAIMED DEDUCTION. FOR READY REFERENCE PARA NO. 2.3 AND 2.4 OF THE FIRST APPELLATE ORDER IS BEING REPRODUCED HEREUNDER : 2.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE MATERIA L ON RECORD. A PERUSAL OF RECORDS SHOWS THAT CG CORE EL LOGIC SYSTEMS LTD. WAS OWNED BY CROMPTON GREAVES LTD. AND CHETAN SANGHVI BOTH HAVING 50% SHARE IN THIS COMPANY. THE CONCLUSION OF THE ASSESSING OFFICER IS THAT THE APPELLANT COMPANY IS NOT AN INDEP ENDENTLY ESTABLISHED UNDERTAKING BUT HAS BEEN FORMED AS A RESULT OF RECONSTRUCTION OF THE EARLIER COMPANY CG CORE EL LABS PVT. LTD. AND NOW KNOWN AS PAXONET COMMUNICATIONS (INDIA) PVT. LTD. WHICH IS 100% SUBSIDIARY OF CORE EL MICROSYSTEMS INC. USA WH ICH IS OWNED EQUALLY BY CROMPTON GREAVES LTD. & CHETAN SANGHVI. THUS IN EFFECT THE ULTIMATE OWNERSHIP OF THE COMPANY REMAINS WITH THE SAME PERSONS OF BOTH THE COMPANIES. HOWEVER IT IS A FACT THAT CG CORE EL LOGIC SYSTEMS LTD WAS DIRECTLY OWNED BY CROMP TON GREAVES LTD. AND CHETAN SANGHVI HAVING SHARES OF 50% EACH WHEREAS THE APPELLANT COMPANY IS 100% SUBSIDIARY OF CORE EL MICROSYSTEMS INC. USA (NOW KNOWN AS PAXONET COMMUNICATIONS ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 7 INC.). CORE EL MICROSYSTEMS INC. USA IN TURN OWNED BY CROMPTON GREAVES LTD. & CHETAN SANGHVI BOTH HAVING 50% SHARES EACH. THUS IT IS A FACT THAT THE ULTIMATE OWNERSHIP OF THE APPELLANT COMPANY AS WELL AS CG CORE EL LOGIC SYSTEMS LTD. CONTINUES TO BE WITH CROMPTON GREAVES LTD. AND CHETAN SANGHVI. AS REGARDS SUBMISSION OF THE APPELLANT COMPANY THAT IT IS A PRODUCT COMPANY WHEREAS CG CORE EL LOGIC SYSTEMS LTD. WAS A SERVICE COMPANY AND THEREFORE THE NATURE OF BUSINESS OF THE TWO COMPANIES IS DIFFERENT IT MAY BE MENTIONED THAT THIS SUBMISSION OF THE APPELLANT IS FOUND TO BE WRONG ON FACTS. A PERUSAL OF THE FIRST ANNUAL REPORT FOR THE FINANCIAL YEAR 1999 - 2000 IN CASE OF THE APPELLANT COMPANY CONTAINING SCHEDULE - 12 WHICH DEALS WITH NOTE ON ACCOUNTS AT SR.NO 9 SHOWS THE FOLLOWING DECRIPTION AT SUBSERIAL NO.V: - GENERI C NAMES OF PRINCIPAL PRODUCTS SERVICES (ITEM CODE) OF COMPANY DESIGN OF INTEGRATED CIRCUITS N.A. THE ANNUAL REPORT FOR THE FINANCIAL YEAR 2001 - 2002 WHICH IS RELEVANT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION CONTAINS SCHEDULE - 13 DEALING WITH NOTES ON ACCOUNTS AND THEREIN ITEM NO. 10(SUBITEM - V) SHOWS GENERIC NAMES OF PRINCIPAL PRODUCTS SERVICES OF THE COMPANY AND IN THE RELEVANT COLUMN THE DESCRIPTION IS GIVEN AS DESIGN OF INTEGRATED CIRCUITS AS IS THE CASE IN ANNUAL REPORT FOR THE YEAR 1999 - 2000. IT MAY BE MENTIONED THAT THE ASSESSMENT RECORD OF CG COREL EL LOGIC SYSTEMS LTD. FOR THE ASSESSMENT YEAR 2000 - 01 SHOW ANNUAL ACCOUNTS FOR THE COMPANIES ACT AND SCHEDULE - 16 OF THIS ACCOUNTS WHICH DEALS WITH NOTES ON ACCOUNTS SHOWS AT ITEM NO . 10(V) GENERIC NAMES OF PRINCIPAL PRODUCERS/SERVICES OF THE COMPANY WHICH IS DESCRIBED AS DESIGN OR INTEGRATED CIRCUITS . THIS CLEARLY SHOWS THAT THE PRODUCT OF CG CORE EL LOGIC SYSTEMS LTD. AND THE APPELLANT COMPANY BEARS THE SAME GENERIC NAMES. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 8 IT MAY ALSO BE MENTIONED THAT EVEN DURING THE COURSE OF HEARING OF THE APPEAL IT WAS THE SUBMISSION OF THE APPELLANT THAT EARLIER THE COMPANY WAS CARRYING OUT THE BUSINESS AS A SERVICE COMPANY. IT MAY FURTHER BE MENTIONED THAT A LOOK AT THE OBJECT & ANCILLAR Y OBJECT OF BOTH THE COMPANIES SHOWS THAT THE BUSINESS OF BOTH THE COMPANIES IS THE SAME. A PERUSALS OF THE ASSESSMENT RECORDS OF THE APPELLANT COMPANY SHOWS THAT IT HAS SUBMITTED NATURE OF BUSINESS OF THE TWO COMPANIES VIDE LETTER DATED 17 - 3 - 2005 WHICH WAS RECEIVED IN THE ASSESSING OFFICERS OFFICE ON 18 - 3 - 2005. THE OPERATIVE PORTION OF THIS LETTER IS REPRODUCED AS UNDER : - 1. CG CORE EL LOGIC SYSTEMS LTD. (CGCLSL) WAS THE JOINT VENTURE IN INDIA BETWEEN CROMPTON GREAVES LTD. AND MR. CHETAN SANGHVI. EI THER OF THEM HELD 50% OF THE EQUITY IN CGCLSO. CGCLSL WAS WORKING ON DEVELOPMENT OF PRODUCTS FOR TELECOM APPLICATIONS. IT WAS ALSO IN TRAINING AND DISTRIBUTION OF FPGAS. 2. CORE EL MICROSYSTEMS INC.(CMS) WAS A COMPANY REGISTERED IN THE U.S.A. IT TOO W AS A JOINT VENTURE BETWEEN CROMPTON GREAVES LTD. AND MR. CHETAN SANGHVI. EITHER OF THEM 50% OF THE EQUITY IN CMS. 3. IN 1999 THE PROMOTERS CROMPTON GREAVES LTD. AND0 MR.CHETAN SANGHVI DECIDED THAT THE FOCUS BE SHIFTED TO DEVELOPMENT OF IP CORES AND DEV ELOPMENT OF SEMICONDUCTOR CHIPS FOR TELECOM APPLICATIONS AND ALSO TO SEEK VENTURE FINDING FOR THE SAME. AS A RESULT CORE EL LABS WAS INCORPORATED IN THE U.S. THIS WAS FOLLOWED BY INCORPORATION OF COREEL LABS PVT LTD IN INDIA AS A WHOLLY OWNED SUBSIDIARY OF COREEL LABS INC. THE NAME OF THE PARENT COMPANY AS ALSO THE INDIAN SUBSIDIRY WAS RESPECTIVELY CHANGED TO PAXONET COMMUNICATIONS INC. AND PAXONET COMMUNICATIONS PVT. LTD. IN 2000. ALMOST ALL EMPLOYEES OF CGCLSL RESIGNED IN 1999/2000 AND JOINED COREEL LAB S PVT LTD. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 9 THE DISCUSSION IN PARA - 1 AND PARA - 3 OF THE AFORESAID LETTER SHOWS THAT THE PRODUCTS OF BOTH THE COMPANIES WERE IN RESPECT OF TELECOM APPLICATIONS. THUS THE DESCRIPTION OF THE BUSINESS AS CONTAINED IN APPELLANTS LETTER AND ALSO AS CONTAINED IN THE ANNUAL ACCOUNTS OF BOTH THE COMPANIES MAKE IT ABSOLUTELY CLEAR THAT THE BUSINESS OF CG COREL EL LOGIC SYSTEMS LTD. AND THE APPELLANT COMPANY IS THE SAME. DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS SUBMITTED BY THE APPELLANT THAT THE EARLI ER COMPANY VIZ. CG CORE EL LOGIC SYSTEMS LTD. WAS A SERVICE COMPANY WHEREAS THE APPELLANT IS A PRODUCT COMPANY. IN THIS REGARD IT MAY BE MENTIONED THAT THE APPELLANT IS ENGAGED INTO SEMANTICS BY SAYING THAT THE BUSINESS OF THE TWO COMPANIES IS DIFFEREN T. IN FACT CG CORE EL LOGIC SYSTEMS LTD. WAS MAKING THE SAME PRODUCT ON OR ON BEHALF OF THIRD PARTIES WHEREAS THE APPELLANT COMPANY IS PRODUCING SIMILAR ITEMS OF PRODUCT ON ITS OWN AND MARKETING THE SAME TO DIFFERENT CUSTOMERS. THIS SHIFT IN FOCUS FRO M CAPTIVE CUSTOMERS TO CUSTOMERS AT LARGE IN MY CONSIDERED VIEW DOES NOT CHANGE THE NATURE OF BUSINESS OF THE APPELLANT COMPANY BECAUSE THE PRODUCT OF THE COMPANY REMAINS THE SAME. 2.4 IT IS A FACT THAT THE APPELLANT COMPANY HAS TAKEN OVER THE ENTIRE ASSETS OF CG CORE EL LOGIC SYSTEMS LTD. EXCEPT THE FOLLOWING ASSETS : - (A) ELECTRICAL INSTALLATIONS. (B) FURNITURE & FIXTURES ( C) PART OF VEHICLES. A PERUSAL OF THE RECORDS SHOWS THAT ALL PLANT & MACHINERY & COMPUTER SOFTWARES OF CG CORE EL LOGIC SY STEMS LTD. WERE TRANSFERRED TO THE APPELLANT COMPANY ON WDV AS PER COMPANIES ACT. THIS TRANSFER IT IS CLAIMED HAS TAKEN PLACE IN JUNE FOLLOWING THE FINANCIAL YEAR 1998 - 99 WHERE THE APPELLANT COMPANY CAME INTO EXISTENCE. THE APPELLANT COMPANY MADE ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 10 ON LY ONE SALE IN MARCH 2000. THUS IN FACT THE BUSINESS OF THE COMPANY HAS STARTED ONLY IN THE FINANCIAL YEAR 2000 - 01 THOUGH TECHNICALLY ONE SALE HAS TAKEN PLACE IN MARCH 2000. THEREFORE THE BUSINESS OF THE APPELLANT COMPANY IN TECHNICAL TERMS STARTED I N THE FINANCIAL YEAR 1999 - 2000. IT IS TRITE LAW THAT THE REVENUE AUTHORITIES ARE ENTITLED TO LOOK INTO THE SURROUNDING CIRCUMSTANCES OF THE ISSUE INVOLVED. WHAT HAS BEEN DONE IN THE PRESENT CASE AMOUNTS TO PLANNING THE THINGS IN SUCH A WAY THAT THE PROVI SIONS RELATING TO SPLITTING OR RECONSTRUCTION IS MADE INAPPLICABLE BY TAKING PREMEDITATED STEPS IN CASE OF TWO COMPANIES WHERE THE CONTROL REMAINS IN THE SAME HANDS. AS MENTIONED EARLIER IN SUBSTANCE & IN EFFECT THE APPELLANT COMPANY AS WELL AS THE EARL IER COMPANY CC CORE EL LOGIC SYSTEMS LTD. WERE OWNED BY CROMPTON GREAVES LTD. AND MR. CHETAN SANGHVI BECAUSE EXEMPTION IN CASE OF CG CORE EL LOGIC SYSTEMS LTD WAS COMING TO AN END AFTER EXPIRY OF FIVE YEARS PERIOD THE APPELLANT COMPANY HAS BEEN ESTABL ISHED. ON GIVEN FACTS I HAVE NO HESITATION IN HOLDING THAT TAKING INTO ACCOUNT THE NATURE OF THE BUSINESS TRANSFER OF ASSETS AND OTHER RELEVANT FACTS & CIRCUMSTANCES OF THE CASE AS ALSO TAKING INTO ACCOUNT THE JUDICIAL PRONOUNCEMENTS RELEVANT ON THE ISS UE AND ALSO FOR REASONS GIVEN BY THE ASSESSING OFFICER IT IS A CASE WHERE THE COMPANY WHICH THE APPELLANT COMPANY HAS BEEN BROUGHT INTO EXISTENCE BY SPLITTING UP OR RECONSTRUCTING THE BUSINESS OF CG CORE EL LOGIC SYSTEMS LTD. THEREFORE IT IS HELD THAT THE APPELLANT IS NOT ENTITLED FOR DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT 1961 AND THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE SAME. 10. THE LD. A.R. BEFORE US TRIED TO MEET OUT THE OBJECTIONS RAISED BY THE AUTHORITIES BELOW REGARDING THE ELIGIBILITY OF THE ASSESSEE FOR THE CLAIMED DEDUCTION. HE FIRST SUBMITTED ABOUT THE BACKGROUND OF CORE EL MICRO STAMPS INC AND EMERGENCE OF OTHER CONCERNS INCLUDING THE ASSESSEE. IN THIS REGARD THE LD. A.R HAS ALSO FURNISHED BRIEF NOTE WITH ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 11 COPY TO THE OTHER SIDE. WE REPRODUCED HEREUNDER THOSE BRIEF BACKGROUND AND FACTS OF THE CASE AS PER THE SAID BRIEF NOTE : A. BRIEF BACKGROUND AND FACTS OF THE CASE 1. BACKGROUND OF CMS 1. COREEL MICROSYSTEMS INC (CMS) A US COMPANY IS A 100% HOLDING COMPANY OF THE APPELLANT. THE NAME OF CMS WAS SUBSEQUENTLY CHANGED FROM COREEL MICROSYSTEMS INC TO PAXONET COMMUNICATION INC. IN 2001. PRIOR TO 1999 CMS WAS INVOLVED IN THE BUSINESS OF DESIGN SERVICES OF SEMI - CONDUCTORS. 2. DURING THE PERIOD FROM 1996 TO 1999 CMS DERIVED ITS REVENUE APPROX. AS FOLLOWS: FROM XILINX INC (DESIGN SERVICE AND DISTRIBUTION REVENUE) - 45% DESIGN SERVICE & INTELLECTUAL PROPERTY BUSINESS FROM OKI SEMICONDUCTOR AND EXAR CORPORATION 26% LOCAL CONSULTING - 10% OTHER INTELLECTUAL PROPERT Y DISTRIBUTION & DESIGN SERVICE BUSINESS 19% 3. CMS PERFORMED CERTAIN SERVICES AND USED TO OUTSOURCE SOME OF ITS ACTIVITIES TO CG CORE EL LOGIC SYSTEMS LTD. (CGCLS OR LOGIC) TASKS OUTSOURCED INVOLVED FPGA (FIELD PROGRAMMABLE GATE ARRAY) DESIGN VLSI DESIGN VERIFICATION ASSISTANCE IN VERIFYING INTELLECTUAL PROPERTY DESIGN AND ASSISTANCE IN SUPPORTING FPGA CUSTOMERS IN INDIA WHEREAS CMS ITSELF PERFORMED INTELLECTUAL PROPERTY ARCHITECTURE AND KEY TECHNOLOGY CRITICAL DESIGN. 4. IN 1999 MAJOR CHANGES OCCURRED IN THE BUSINESS ACTIVITY OF CMS DUE TO THE FOLLOWING: ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 12 ITS MAIN CUSTOMER XILINX INC WHICH ACCOUNTED FOR 45% OF THE REVENUE DISCONTINUED ITS BUSINESS WITH CMS. CMSS MAJOR CUSTOMER OKI SEMICONDUCTOR DECIDED TO CLOSE ITS DEVELOPMENT SUBSIDIARY IN U SA IN 1999. IN ADDITION THE PROJECT OF OTHER MAJOR CUSTOMER EXAR CORPORATION WAS COMPLETED IN 1999. DESIGN AGREEMENTS WITH OTHER MAJOR CUSTOMERS WERE EITHER TERMINATED OR CAME TO AN END AS MORE AND MORE CUSTOMERS INCORPORATED CMS IP BLOCKS IN THEIR OWN SE MI CONDUCTORS. 5. AS EVIDENT FROM ABOVE IN 1999 THERE WAS DRASTIC SET BACK IN THE BUSINESS OF CMS. AT THIS POINT CMS HAD NO THIRD PARTY JOBS TO OUTSOURCE TO LOGIC. THIS CONSEQUENTLY EFFECTED THE BUSINESS EXECUTED BY CGCLS FOR CMS. 6. DUE TO ABOVE CMS HAD ONLY TWO OPTIONS IT COULD EITHER CLOSE ITS OPERATIONS OR START AFRESH BY RAISING ADDITIONAL FUNDING AND RECRUIT A NEW ENGINEERING TEAM. CMS WAS ABLE TO RAISE A SMALL ROUND OF FUNDING FROM VENTURE CAPITALISTS ON THE CONDITION THAT IT WOULD NOT BE DE PENDENT ON LOGIC (WHICH WAS NOT OWNED BY CMS) AND GET OUT OF ALL IP AND DESIGN SERVICE BUSINESS IN WHICH IT WAS ENGAGED DURING THE PERIOD 1996 TO 1999 AND FOCUS ON DEVELOPING ITS OWN PRODUCT. THEREFORE CMS TOOK STEPS TO BECOME AN OPTICAL SEMICONDUCTOR C OMPANY. CONSEQUENTLY TARGET CUSTOMERS OF CMS CHANGED FROM EXISTING SET OF CUSTOMERS. (II) BACKGROUND OF C LABS OR THE APPELLANT 7. CGCLS WAS A COMPANY REGISTERED IN INDIA WITH ITS REGISTERED OFFICES IN PUNE. CGCLS WAS NOT A RESEARCH & DEVELOPMENT ARM O F CMS AT ANY POINT OF TIME. IT SIMPLY PERFORMED POINT TO POINT TASKS ASSIGNED TO THEM BASED ON VERY SPECIFIC REQUIREMENT OF THE CUSTOMERS OF CMS. TASKS PERFORMED BY CGCLS SPECIFICALLY INVOLVED. TASKS UNDER CONTRACT FROM CMS WHICH INVOLVED DESIGN VER IFICATION AND PREPARING TEST CRITERIA. TASKS UNDER CONTRACT FROM CROMPTOM GREAVES LTD. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 13 TASKS UNDER CONTRACT FROM THIRD PARTIES IN INDIA WHICH INVOLVED HARDWARE DESIGN SERVICES AND CONSULTING AND FPGA DESIGNS. IT WAS INVOLVED IN THE DEVELOPMENT OF CERTA IN TELEPHONY INTELLECTUAL PROPERLY TARGETED FOR THE INDIAN MARKET. AFTER 1999 LOGIC OVER THE YEARS HAS BUILD ON THIS BUSINESS AND CONTINUES TO BE IN OPERATION TODAY EMPLOYING CLOSE TO 35 EMPLOYEES. (III) BACKGROUND OF C LABS OR THE APPELLANT 8. IN 1999 IN LIGHT OF THE FACTS STATED IN PARA 4 & 5 ABOVE CMS DECIDED TO DO DESIGNING AND DEVELOPMENT OF ITS OWN PRODUCTS (I.E. OWN SEMICONDUCTORS AS MARKETABLE PRODUCTS) WHICH IS CLEARLY DISTINCT FROM THE BUSINESS OF RENDERING DESIGN SERVICES TO OTHER COMPANIES ) AND FOR THAT PURPOSE A NEW COMPANY WAS INCORPORATED IN INDIA ON DECEMBER 1 1999 AS COREEL LABS P. LTD (C LABS) I.E. THE APPELLANT. 9. APPELLANT WAS FORMED SPECIFICALLY TO ENGAGE IN THE RESEARCH AND DEVELOPMENT FOR THE DESIGN AND DEVELOPMENT OF SEMI - CONDUCTOR STATE - OF - ART OPTICAL NETWORKING IC (INTEGRATED CIRCUITS) TO BE COMMERCIALLY MARKETED AND SUPPORTING HARDWARE AND SOFTWARE PRODUCTS PARTICULARLY FOR COMMUNICATIONS INDUSTRY. 10. APPELLANT HAS TWO STPI UNDERTAKINGS ONE IN PUNE (APPROVED BY STPI ON MAY20 2000) 11. IN THE YEAR OF FORMATION APPELLANT HAD A CAPITAL BASE OF RS 2 CRORE AND HAD MADE AN INVESTMENT OF APPROX. 1.23 CRORES IN PLANT & MACHINERY FIXED ASSETS ETC. 12. DURING THE YEARS UNDER CONSIDERATION THE APPELLANT HAD CLAIMED DE DUCTION UNDER SECTION 10A (INADVERTENTLY MENTIONED AS 10B) OF THE INCOME - TAX ACT 1961 (THE ACT) ON THE PROFITS DERIVED FROM THE STP I UNITS. HOWEVER IN THE FIRST YEAR OF OPERATION OF THE APPELLANT I.E. 1999 - 00 IN VIEW OF LOSSES NO DEDUCTION UNDER SECTI ON 10A OF THE ACT WAS CLAIMED WITH RESPECT TO PUNE UNIT. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 14 DETAILS OF UNDERTAKING WISE DEDUCTION CLAIMED U/S 10A OF THE ACT BY THE COMPANY IS AS BELOW : ASSESSMENT YEAR TOTAL DEDUCTION PUNE UNIT BANGALORE UNIT REMARKS 2001 - 02(REVISED RETURN) 33 288 36 7 25 999 879 7 288 489 ORIGINAL RETURN OF INCOME WAS FILED ALONG WITH CONSOLIDATED FORM 56G. LATER ON REVISED RETURN WAS FILED ALONG WITH FORM 56F CLAIMING 10A DEDUCTION SEPARATEY FOR PUNE A ND B A N GALORE UNIT. 2002 - 03(ORIGINAL RETURN 10 222 071 9 528 607 7 89.911 ORIGINAL RETURN OF INCOME WAS FILED ALONGWITH CONSOLIDATED FORM 56G 2003 - 04 (REVISED RETURN) 15 115 116 15 0 44 086 71 030 ORIGINAL RETURN OF INCOME WAS FILED ALONG WITH CONSOLIDATED FORM 56G.LATER ON REVISED RETURN WAS FILED ALONG WITH FORM 56F CL AIMING 10A DEDUCTION SEPARATELY FOR PUNE AND BANGALORE UNIT. 2004 - 05(REVISED RETURN) 18 016 525 18 016 525 (1 012 289) ORIGINAL RETURN OF INCOME WAS FILED ALONG WITH CONSOLIDATED FORM 56G. LATER ON REVISED RETURN WAS FILED ALONG WITH FORM 56F CLAIMING 10 A DEDUCTION SEPARATELY FOR PUNE AND BANGALORE UNIT. DATE OF STPI APPROVALS JANUARY 7 2000 MAY 20 2000 ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 15 11. THE LD. A.R. ALSO MADE DETAILED SUBMISSIONS AS TO HOW THE ASSESSEE IS ENTITLED FOR CLAIMED DEDUCTION. HE TRIED TO MEET OUT THE OBJECTIONS RAISE D BY THE AUTHORITIES BELOW AGAINST THE CLAIMED DEDUCTION. WE REPRODUCE HEREUNDER THE SUBMISSIONS OF THE LD. A.R. REGARDING THE ENTITLEMENT OF CLAIMED DEDUCTION. C. SUBMISSIONS AT THE OUTSET IT IS RESPECTFULLY SUBMITTED THAT THE APPELLANT IS NOT FORMED AS A RECONSTRUCTION OF CGCLS AS THE WORDS USED IN SECTION 10A/10B (WHICH IS PARI MATERIA WITH ERSTWHILE SECTION 80J SECTION 80 - IA ETC) I.E. SPLITTING UP OR RECONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE NECESSARILY SUGGESTS THE SPLITT ING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS OF THE ASSESSEE. THE WORDS OF THE ASSESSEE HAVE NECESSARILY TO BE READ INTO THE SUB - SECTION. IN THE INSTANT CASE THE APPELLANT AND CGCLS ARE TWO DISTINCT ENTITIES AND CANNOT BE TERMED TO BE FORMED AS A RESULT O F SPLITTING UP OR RECONSTRUCTION OF THE EXISTING BUSINESS OF THE ASSESSEE. IN SUPPORT OF THE ABOVE PROPOSITION RELIANCE IS PLACED ON THE FOLLOWING DECISIONS : SR.NO. PARTICULARS CITATIONS 1. ELECTRONICS CORPORATION OF INDIA LTD VS CIT 151 ITR 381 (A.P. ) 2. CIT VS SUESSIN TEXTILE BEARING LTD. 135 ITR 443(GUJ) FURTHER THE AO / CIT(A) DISALLOWED THE APPELLANTS CLAIM FOR DEDUCTION UNDER SECTION 10A OF THE ACT AND HELD THAT THE APPELLANT IS NOT A NEW UNDERTAKING BUT A RECONSTRUCTION OF ANOTHER COMPANY CGCLS ON THE FOLLOWING GROUNDS. (I) THAT THE ULTIMATE SHAREHOLDERS OF BOTH THE COMPANIES WERE SAME IN THIS RGARD IT IS SUBMITTED THAT IN THE YEAR OF FORMATION THE APPELLANT HAD A CAPITAL BASE OF RS. 2 CRORE WHICH WAS BROUGHT IN BY WAY OF REMITTANCE OF F UNDS FROM ITS HOLDING COMPANY. WHEREAS CGCLS HAD A CAPITAL BASE OF ONLY 1.05 CRORES IN THE FIFTH YEAR OF ITS OPERATIONS. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 16 FURTHER IT IS RESPECTFULLY SUBMITTED THAT THE ULTIMATE SHAREHOLDERS OF BOTH THE COMPANIES WERE NOT SAME AT THE TIME OF INCORPORTION OF APPELLANT AND SUBSEQUENT PERIOD THERETO. PLEASE REFER TO THE DULY CERTIFIED STATEMENT ISSUED BY THE CORPORATE COUNSEL FILED ALONG WITH THE APPLICATION FOR ADMITTING THE ADDITIONAL EVIDENCE STATING THE EXACT NUMBER AND PERCENTAGE OF SHARES HELD BY THE SHAREHOLDERS IN CMS WHICH WOULD DULY SUBSTANTIATE THE FACT THAT IN THE VERY YEAR OF FORMATION OF THE APPELLANT ITSELF THE ULTIMATE SHAREHOLDING OF CGCLS AND THAT OF CMS WAS DIFFERENT. IT SHOULD ALSO BE NOTED THAT A SIGNIFICANT PERCENTAGE OF HOLDING IN C MS WAS BY INDIVIDUALS OR COMPANIES THAT WERE NOT CITIZENS OF INDIA OR PERSONS OF INDIAN ORIGIN OR HAD ANY PREVIOUS AFFILIATIONS WITH INDIAN COMPANIES. THE SHAREHOLDING PATTERN OF BOTH THE COMPANIES IN AY 2000 - 01 (FIRST YEAR OF OPERATIONS OF THE APPEL LANT) WAS AS UNDER ( PLEASE REFER PAPER BOOK OF A.Y. 2002 - 03 PAGE 37): SHAREHOLDERS IN CMS (%) IN CGCLS (%) IN APPELLANT (%) CHETAN SANGHAVI 29.8 50 .1% CROMPTON GREAVES 28.9 50 OTHERS 41.3 - CMS NA - 99.8% T A RAMASWAMY .1% TOTAL 100 100 100 WI THOUT PREJUDICE IT IS RESPECTFULLY SUBMITTED THAT THE FACT THAT THE OWNERS/MANAGEMENT OF THE NEWLY FORMED UNDERTAKING / COMPANY ARE THE SAME AS THE OLD UNDERTAKING / COMPANY CANNOT BE THE BASIS FOR DENYING THE BENEFIT OF SECTION 10A ON THE ALLEGED GROUN D THAT THE NEW UNDERTAKING IS FORMED BY WAY OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 17 SR.NO. PARTICULARS CITATIONS 3. CIT VS. PREMIER COTTON MILLS LTD 240 ITR 434 (MAD) 4. CIT VS. HINDUSTAN MALLABLES & FORGINS LTD. 191 ITR 70 (PAT) 5. CIT VS MAHESH CHAND GUPTA 279 ITR 396 (ALL) 6. CIT V ELECTRIC CONSTRUCTION & EQUIPMENT CO. LTD 104 ITR 101 (CAL) 7. CIT VS. INDIAN ALUMINIUM CO.LTD. 108 ITR 367(SC) 8. CIT VS. METROPOLITAN SPRINGS (P)LTD. 191 ITR 288 (BOM) 9. CIT VS. GEDORE TOOLS INDIA PVT . LTD. 126 ITR 673(DEL) 10. CIT VS AMBUR COOP. SUGAR MILLS 127 ITR 495 (MAD) 11. ITO VS. DSM SOFT (P) LTD. 115 TTJ 469 (CHENNAI) 12. INTERNATIONAL INSTRUMENTS (P.) LTD. VS CIT 123 ITR 11 (KAR) 13. COMMISSIONER OF INCOME - TAX VS ROHTAS INDUSTRIES LTD. 1 20 ITR 110 (CAL HC) 14. MAHINDRA SINTERED PRODUCTS LTD. VS COMMISSIONER OF INCOME - TAX R 111 (BOM HC) ( II ) THAT THE DIRECTORS OF BOTH COMPANIES WERE THE SAME IT IS RESPECTFULLY SUBMITTED THAT THE DIRECTORS OF BOTH THE COMPANIES WERE NOT SAME ( PLEASE RE FER PAPER BOOK FOR A.Y. 2002 - 03 PAGE NO. 33 & 55). THE LIST OF DIRECTORS AS ON 31 ST MARCH 2000 OF BOTH THE COMPANIES WAS AS UNDER: CGCLS APPELLANT K.K. KOHRI T.A. RAMASWAMY B.M. SURI S. JAYARAM MR.CHETAN V. SANGHAVI MRS. CHAMPA V. SANGHAVI V.M. SANGH AVI ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 18 WITHOUT PREJUDICE TO THE SAME IT IS HEREBY SUBMITTED THAT THE FACT THAT THE UNIT HAS COMMON DIRECTORS OF EXISTING BUSINESS IS NOT RELEVANT FOR DENYING THE BENEFIT OF SECTION 10A ON THE ALLEGED GROUND THAT THE NEW UNDERTAKING IS MERE COLOURABLE DEV ICE ADOPTED TO EXCEED THE DEDUCTION U/S 10B (TO BE READ AS 10A) OF THE ACT FOR A PROLONGED PERIOD WHICH WAS GETTING OVER IN AY 2001 - 02. SR. NO. PARTICULARS CITATIONS 4. CIT VS. HINDUSTAN MALLEABLES & FORGINGS LTD. 191 ITR 70 (PAT) 9. INTERNATIONAL INSTRU MENTS VS. CIT 123 ITR 11 (KAR) (III) THAT THE BUSINESS/PRODUCT OF THE APPELLANT IS SAME IT IS RESPECTFULLY SUBMITTED THAT THE BUSINESS/PRODUCT OF THE APPELLANT IS ABSOLUTELY DIFFERENT THAN CGCLS. CGCLS WAS A DESIGN SERVICE COMPANY. IT USED TO ACCEPT DESIGNING WORK (TYPICALLY REFERRED AS JOB WORK IN THE SOFTWARE INDUSTRY) FROM CMS WHICH IN TURN USED TO DO DESIGNING WORK FOR XILINX INC. AND NEXGEN INC. (USA BASED COMPANIES). IN CONTRACT APPELLANT DESIGNED & DEVELOPS PRODUCTS COMPLETE SEMI - CONDUCTOR PR ODUCTS (CHIPS) FOR CMS. THE APPELLANT WAS A PRODUCT DEVELOPMENT COMPANY WHILE CGCLS WAS A SERVICE COMPANY. THE DIFFERENCE IN THE AFORESAID BUSINESS ACTIVITY IS SIMILAR TO DIFFERENCE IN THE BUSINESS ACTIVITY OF INTEL & WIPRO. INTEL AND WIPRO ARE INVOLV ED IN THE DESIGNING WORK HOWEVER INTEL DESIGNS FOR ITS OWN PRODUCTS WHEREAS WIPRO DESIGNS FOR THIRD PARTIES THAT CONTROL WHAT KIND OF DESIGN WIPRO MAKES. IN INTELS CASE ALL THE INTELLECTUAL PROPERTY BELONGS TO INTEL WHILE IN WIPROS CASE THE INTELLECT UAL PROPERTY BELONGS TO THE CUSTOMER. THE APPELLANT WAS RESEARCH AND DEVELOPMENT ARM OF CMS AND WAS TASKED TO DEVELOP A COMPLETE SEMICONDUCTOR PRODUCT STARTING FROM CONCEPT ARCHITECTURE TO DELIVERING THE PRODUCT WITH ALL THE REQUIRED APPLICATION SUPPORT . THE APPELLANT PERFORMED THE RESEARCH AND DEVELOPMENT ACTIVITY ONLY FOR CMS WHILE LOGIC PERFORMED DESIGN SERVICE FOR VARIOUS THIRD PARTIES APART FROM CMC AND ALSO DEVELOPED ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 19 CERTAIN TELEPHONY INTELLECTUAL PROPERTY THAT CMS DID NOT HAVE ANY RIGHT TO. DIFFERENCE BETWEEN APPELLANTS BUSINESS AND BUSINESS OF CGCLS: - THE SPECIFIC TASKS UNDERTAKEN BY THE APPELLANT CAN BE BROKEN DOWN AS : (L) PRODUCTS REQUIREMENTS STUDY (II) SYSTEM LEVEL ARCHITECTURE (III) DETAILED IC ARCHITECTURE (IV) DETAILED IC DESIGN BR OKEN INTO MULTIPLE SEMI INDEPENDENT BLOCK (V) BLOCK LEVEL RTL DESIGN (VI) BLOCK LEVEL RTL TEST BENCH (VII) BLOCK LEVEL RTL SIMULATION AND VALIDATION (VIII)BLOCK LEVEL SYNTHESIS (IX) BLOCK LEVEL PRE - LAYOUT AND TIMING VALIDATION (X) SYSTEM LEVEL TEST BENCH (XI) FULL CHIP SIMULATION AND VALIDATION (XII) FULL CHIP LEVEL SYNTHESIS (XIII) SCAN CHAIN DESIGN AND FAULT COVERAGE VECTOR GENERATION (XIV) FUNCTIONAL VECTOR GENERATION (XV) FULL SCHIP PLACEMENT (XVI) HIERARCHICAL CHIP ROUTING (XVII)TIMING CLOSURE AND FI XING VARIOUS RACE CONDITIONS (XVIII)FORMAL NETLIST VALIDATIONWITH RTL (XIX) DESIGN RULE CHECKING (XX) METAL MIGRATION ANTENNAS AND OTHER CROSSTALK CHECKS (XXI) METAL FILL AND FINAL BACK END GDS2 DATABASE GENERATION (XXII)INTERFACE WITH FOUNDRY FOR PROTOTY PE RUN ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 20 (XXIII)PACKAGE DESIGN AND ELECTRICAL INTERFACE VALIDATION (XXIV) DEVELOPMENT OF SYSTEM LEVEL VALIDATION TEST BOARD AND ASSOCIATED SOFTWARE (XXV) PROTOTYPE TESTING FOR FAULT COVERAGE (TESTER PROGRAM DEVELOPMENT) (XXVI) SYSTEM LEVEL VALIDATION (XX VII) APPLICATION NOTE AND ENGINEERING. OUT OF THE ABOVE LISTED 27 STEPS CGCLS PERFORMED ONLY 6 STEPS (5 6 7 8 10 11) CONSIDERED MOSTLY LABOUR INTENSIVE COMPARED TO THE OTHER TASKS THAT REQUIRED IN - DEPTH SEMICONDUCTOR DESIGN KNOWLEDGE AND EXPERIENCE. ON THE OTHER HAND APPELLANT WAS INVOLVED IN ALL 27 DESIGN AND DEVELOPMENT STEPS. THE SECOND POINT TO NOTE IS THE COMPLEXITY OF THE DESIGNS INVOLVED. THE COMPLEXITY OF DESIGNS UNDERTAKEN BY CGCLS VARIED FROM 200 THOUSAND TO 800 THOUSAND GATES AND THE TECHNOL OGY WAS TYPICALLY IMPLEMENTED USING FPGA WHILE THE COMPLEXITY OF DESIGNS OF THE APPELLANT RANGED FROM 3 MILLION TO 10 MILLION GATES AND IMPLEMENTED ON CUTOM 130NM SILICON (OVER 10 FOLD INCREASE IN COMPLEXITY AND USE OF STATE - OF - ART PROCESS TECHNOLOGY. FU RTHER THE APPELLANT WAS NOT INVOLVED IN ROUTINE FPGA DESIGN FPGA SUPPORT DESIGN CONSULTING FOR ANY INDIAN CUSTOMERS OR DESIGN OF ANY COMPUTER TELEPHONE OR VOICE PRODUCT LIKE CGCLS. THUS THE REASON FOR THE LOWER AUTHORITIES TO DISALLOW THE APPELLANTS C LAIM OF DEDUCTION U/S 10A OF THE ACT BY ONLY RELYING ON THE GENERIC NAMES BEING SAME DOES NOT IMPLY THAT THE ACTIVITIES AND PRODUCTS ARE SAME. TELECOM INDUSTRY IS HUGE AND THERE ARE DIFFERENT PRODUCTS WHICH ARE MADE BUT WHICH MAY HAVE SAME GENERIC NAME S. FURTHER THE VERY PRESS RELEASE REFERRED TO BY THE AO /CIT(A) TALKS ABOUT THE NEW PRODUCTS DEVELOPMENT BY THE APPELLANT IN THE AREA SUPPORTING OPTICAL NETWORKING AND INTERNET BANDWIDTH WHICH IS VERY DIFFERENT THAN THE CONVENTIONAL TELEPHONY THAT LOG IC WAS INVOLVED IN. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 21 IN VIEW OF THE ABOVE IT IS RESPECTFULLY SUBMITTED THAT THE ACTIVITY OF CGCLS AND APPELLANT CANNOT BE CONSIDERED TO BE SAME AND NO CONCRETE REASONS IS GIVEN BY THE DEPARTMENT FOR HOLDING THAT THE PRODUCTS ARE SAME. WITHOUT PREJUDICE IT IS RESPECTFULLY SUBMITTED THAT THE FACT THAT: THE NEWLY FORMED UNDERTAKING DEALT WITH THE SAME OR SIMILAR PRODUCT; OR CARRIED ON SIMILAR BUSINESS ACTIVITIES AS OF THE OLD UNDERTAKING CAN NOT BE THE BASIS FOR DENYING THE BENEFIT OF SECTION 10A ON THE ALLEGED GROUND THAT THE NEW UNDERTAKING IS FORMED BY WAY OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. SR.NO. PARTICULARS CITATIONS 1. ITO VS. SERVION GLOBAL SOLUTIONS LTD. 308 ITR 375 (CHENNAI) 2. CIT VS. PREMIER COTTON MILLS LTD 240 ITR 434 (M AD) 3. CIT V ELECTRIC CONSTRUCTION & EQUIPMENT CO.LTD. 104 ITR 101(CAL) (IV) THAT CGCLS HAS TRANSFERRED ITS ENTIRE P&M AND COMPUTER SOFTWARE TO THE APPELLANT IT IS RESPECTFULLY SUBMITTED THAT AO HAS WRONGLY OBSERVED THAT CGCLS HAS TRANSFERRED ITS ENTIRE ASSETS TO THE APPELLANT WHERE THE FACT IS THAT CGCLS HAS NOT TRANSFERRED ITS ENTIRE PLANT AND MACHINERY AND COMPUTER SOFTWARE TO THE APPELLANT INFACT CERTAIN ADDITIONS WERE MADE TO THE FIXED ASSETS. (REFERENCE MAY BE MADE TO THE FINANCIALS OF CGCLS AS O N 31 ST MARCH 2001). FURTHER THERE WAS NO TRANSFER FROM CGCLS IN THE YEAR OF FORMATION I.E. IN AY 2000 - 01 AND THE LIMIT OF 20% SHOULD BE SEEN IN THE YEAR OF FORMATION I.E. THE FIRST YEAR OF OPERATION. FURTHER IN THE YEAR OF FORMATION PUNE UNIT HAS PURCHASE D PLANT AND MACHINERY AMOUONTING TO RS.43 17 918 AND THERE WAS CAPITAL WORK - IN - PROGRESS OF RS.6 533 628. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 22 FURTHER IN AY 2001 - 02 THOUGH CGCLS TRANSFERRED ITS FIXED ASSETS TO APPELLANT HOWEVER SUCH ADDITIONS CONSTITUTED LESS THAN 20% OF TOTAL ADDITIONS O F THE FIXED ASSETS BY APPELLANT. WITHOUT PREJUDICE TO THE ABOVE EVEN IF LIMIT OF 20% IS TO BE SEEN EVERY YEAR THEN ALSO THE APPELLANT HAVE MET THIS CRITERIA YEAR OVER YEAR. SAME IS EVIDENT FROM THE DETAILS OF THE ADDITIONS MADE UNDER THE HEAD PLANT AN D MACHINERY / COMPUTERS AS BELOW (DERIVED FROM SUBMISSION FILED BEFORE THE ASSESSING OFFICER. PARTICULARS OPENING GROSS BLOCK TRANSFERRED FROM CGCLS NEW ADDITION CLOSING GROSS BLOCK RATIO(%) A.Y.2000 - 01 - - 4 317 918 4 317 918 AY 2001 - 02 4.317 918 6 1 51 871 22 388 788 32 858 567 19:81 AY 2002 - 03 32 858 567 - 3 508 287 36 366 854 AY 2003 - 04 36 366 854 - 4 404 748 40 771 602 AY 2004 - 05 40 771 602 - 1 244 811 42 016 413 WITHOUT PREJUDICE IT IS RESPECTFULLY SUBMITTED THAT THE ASSETS TRANSFERRED FR OM CGCLS ARE LESS THAN 20% OF TOTAL ASSETS OF APPELLANT AND THEREFORE THE BENEFIT IF S. 10A CANNOT BE DENIED TO THE APPELLANT. IN SUPPORT OF THE ABOVE PROPOSITION RELIANCE IS PLACED ON THE FOLLOWING DECISIONS : SR.NO. PARTICULARS CITATIONS 11. BAJAJ TEM PO LTD V CIT 196 ITR 188(SC) 5. CIT VS MAHESH CHAND GUPTA 279 ITR 396 (ALL) 12. CIT V MAHAAN FOODS LTD. 216 CTR 148 (DEL) 6. CIT VS ELECTRIC CONSTRUCTION & EQUIPMENT CO. LTD. 104 ITR 101 (CAL) (V) THAT 58% OF THE EMPLOYEES OF THE APPELLANT WERE FROM C GCLS ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 23 IT IS RESPECTFULLY SUBMITTED THAT THERE IS NO LEGAL REQUIREMENT FOR CLAIMING DEDUCTION U/S 10A/B THAT UNDERTAKING SHOULD NOT EMPLOY PERSONS PREVIOUSLY EMPLOYED BY ANY OTHER PERSON. THE AO HAS ALLEGED THAT THERE IS NO EMPLOYMENT OF NEW MANPOWER IN TH E APPELLANT COMPANY AS IN AY 2000 - 01 THERE WERE FIVE EMPLOYEES ONLY WITH THE APPELLANT WHO WERE EARLIER WORKING WITH CGCLS AND 58% OF THE EMPLOYEES EMPLOYED IN AY 2001 - 02 WERE EARLIER WORKING CGCLS. IT IS RESPECTFULLY SUBMITTED THAT THE EMPLOYEES WHO WER E EARLIER WORKING WITH CGCLS RESIGNED FROM THEIR JOBS AND TOOK UP NEW EMPLOYMENT WITH APPELLANT COMPANY. CGCLS NEVER SECONDED OR DEPUTED THEIR EMPLOYEES TO APPELLANT. IF THERE IS REQUIREMENT OF EXPERIENCED PERSONNEL OBVIOUSLY THE PERSONNEL WOULD HAVE WORKED SOMEWHERE BEFORE. FURTHER CERTAIN EMPLOYEES OF CGCLS DECIDED TO QUIT INSTEAD OF TAKING UP NEW EMPLOYMENT WITH THE APPELLANT AND JOINED OTHER MULTI - NATIONALS IN INDIA. HENCE IT WAS NOT A CASE OF TRANSFER OF EMPLOYEES FROM ONE COMPANY TO ANOTHER RATHER THE EMPLOYEES WERE GIVEN COMPLETE CHOICE EITHER TO JOIN THE APPELLANT OR TO LEAVE THE ORGANISATION DUE TO ACUTE BUSINESS CONDITIONS WHERE THE BUSINESS OF CGCLS WAS FACING DOWNTURN. FURTHER IT IS RESPECTFULLY SUBMITTED THAT IN SUBSEQUENT YEARS OVE R 400 EMPLOYEES WERE EMPLOYED BY THE APPELLANT WHO HAD NO AFFILIATION WITH LOGIC. WITHOUT PREJUDICE IT IS RES PECTFULLY SUBMITTED THAT THE MERE FACT THAT SOME OF THE EMPLOYEES OF THE NEW UNDERTAKING ARE FROM THE OLD UNDERTAKING CANNOT BE THE BASIS FOR DEN IAL OF BENEFIT U/S 10A ON THE ALLEGED GROUND THAT THE NEW UNDERTAKING ARE FROM THE OLD UNDERTAKING CANNOT BE THE BASIS FOR DENIAL OF BENEFIT U/S 10A ON THE ALLEGED GROUND THAT THE NEW UNDERTAKING IS FORMED BY WAY OF RECONSTRUCTION OF A BUSINESS ALREADY IN EXISTENCE. SR.NO. PARTICULARS CITATIONS 7. CIT VS. METROPOLITAN SPRINGS (P) LTD. 191 ITR 288 (BOM) 10. ITO VS. SERVION GLOBAL SOLUTIONS LTD. R 375 (CHENNAI) (VI) PRESS NOTED DATED APRIL 28 2000 ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 24 AS PER THE PRESS NOTE DATED APRIL 28 2000 WHICH STATED THAT COREEL MICROSYSTEMS INC. A DELAWARE COMPANY HEADQUARTERED IN FREMONT CA USA HAS FORMED ITS WHOLLY OWNED SUBSIDIARY IN PUNE INDIA: COREEL LABS PVT. LTD. COREEL LABS WILL BE THE RESEARCH & DEVELOPMENT ARM OF COREEL MICROSYSTEMS INC. E ARLIER CG - COREEL LOGIC SYSTEMS LTD. PERFORMED SOME OF THESE DESIGN TASKS. CG - COREEL LOGIC SYSTEMS WILL REFOCUS ITS ACTIVITIES TO DEVELOP NEXT - GENERATION COMPUTER TELEPHONE AND VOICE OVER IP COMMUNICATION SYSTEMS.. COREEL LABS HAS UNDERTAKEN ALL THE R&D ACTIV ITY OF THE PARENT COMPANY AT ITS FACILITIES IN PUNE AND BANGALORE. THE AO HAS PRESUMED THAT THE WORD PARENT REFERRED TO IN THE PRESS NOTE REFERS TO CGCLS AS CMS DID NOT HAVE ANY FACILITIES IN PUNE AND BANGALORE : IT IS RESPECTFULLY SUBMITTED THAT THE AO HAS TOTALLY MISUNDERSTOOD THE PRESS NOTE AND HELD THAT CGCLS IS THE PARENT OF THE APPELLANT. PLEASE REFER TO PAPER BOOK FOR A.Y 2002 - 03 PAGE NO. 97 CLEARLY EVIDENCING THAT CMS IS THE PARENT OF THE APPELLANT AND NOT CGCLS. (VII) THAT STPI APPROVAL IS IN THE NAME OF CMS THE AO OBSERVED THAT THE APPROVAL ISSUED BY MINISTRY OF INDUSTRY NO. STP PER : 89 (1999)/EOP/97/1999 DATED 17 JANUARY 2000 WAS IN THE NAME OF CMS AND NOT IN THE NAME OF THE APPELLANT: IT IS RES PECTFULLY SUBMITTED THAT THE APPROVAL WAS IN THE NAME OF THE APPELLANT ONLY (PLEASE REFER TO PAPER BOOK FOR A.Y 2002 - 03 PAGE NBOS. 2 4 & 9) (VIII) THE AO OBSERVED THAT THE SALES OF CGCLS HAVE DRASTICALLY GONE DOWN ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 25 IT IS RESPECTFULLY SUBMITTED THAT PRIOR TO 1999 CMS WAS ITS MAJOR CLIENT AND DUE T O LOSS OF MAIN CLIENT SERVED BY CMS VIZ. XILINX INC AND NEXTGEN INC SALES OF CGCLS HAD GONE DOWN. REDUCTION IN SALES OF CGCLS CANNOT BE A GROUND TO DENY BENEFIT U/S 10A OF THE ACT. IN THIS REGARD KINDLY REFER PARA A(I) 4 (BACKGROUD OF CMS) ABOVE. IT M AY BE NOTED THAT CGCLS IS STILL AN UP AND RUNNING BUSINESS AND PERFORMING THE FUNCTION FOR WHICH IT WAS ORIGINALLY FOUNDED WITH CAPITAL ASSET WORTH 1.2 CRORES (APPROX.) DURING AY 2005 - 06. AS PER ANNUAL REPORT OF 2005 - 06 CGCLS HAS BAGGED ORDERS WORTH 98 LACS AND HAS BEEN ELECTED AS AN AGENCY FOR DEVELOPMENT OF REMOTE SURVEILLANCE SYSTEM BY MILITARY COLLEGE OF ELECTRICAL AND MECHANICAL ENGINEERING HYDERABAD. FURTHER CGCLS HAS ESTABLISHED CG LOGIC EMPLOYEE STOCK OPTION TRUST ON FEBRUARY 20 2001. (IX) T HAT IT IS A DEVICE TO EXTEND PERIOD OF DEDUCTION: AS SELF EVIDENT FROM THE ABOVE FACTS THERE IS NO DEVICE AS ALLEGED BY THE AO. WITHOUT PREJUDICE IT IS RESPECTF ULLY SUBMITTED THAT AN ACT OTHERWISE VALID IN LAW CANNOT BE TREATED AS NON - EST MERELY ON THE BASIS OF SOME UNDERLYING MOTIVE SUPPOSEDLY RESULTING IN SOME ECONOMIC DETRIMENT OR PREJUDICE TO THE NOTIONAL INTEREST. SR.NO. PARTICULARS CITATIONS A. UNION OF INDIA V. AZADI BACHAO ANDOLAN & ANR. 263 ITR 706 (SC) B. BANYAN & BERRY V. CIT 222 ITR 831( GUJ) C. CIT V. MRS.SARITA P. SHIRKE & ANR. 280 ITR 325(BOM) D. INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. CIT 268 ITR 130(ORI) E. CIT V. GEORGE WILLIAMSON (ASSAM) LTD. 265 ITR 626 (GAU) ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 26 (X) THAT IN SUBSTANCE THE APPELLANT WAS FORMED IN AY 2001 - 02 THE AO OBSERVED THAT IN SUBSTANCE THE APPELLANT WAS FORMED IN AY 2001 - 02 AS IN AY 2000 - 01 THERE WAS ONLY ONE SALE BY THE ASSESSEE IN THE MONTH OF MARCH 2000 (REFER PARA 18.3 OF THE ASSESSMENT ORDER FOR AY 2003 - 04): IT IS RESPECTFULLY SUBMITTED THAT T HE APPELLANT WAS INCORPORATED ON DECEMBER 1 1999 AND COMMENCED ITS OPERATIONS ON OBTAINING THE STPI APPROVAL IN RESPECT OF PUNE UNIT ON JANUARY 17 2000. THE APPELLANT HAD CAPITAL BASE OF 2 CRORES AND INVESTED 1.23 CRORES IN PLANT AND MACHINERY IN THE FIR ST YEAR ITSELF. FURTHER THE APPELLANT HAD ALSO MADE EXPORT TO CMS IN VERY FIRST YEAR I.E. AY 1999 - 2000. WITHOUT PREJUDICE TO THE ABOVE IT IS RESPECTFULLY SUBMITTED THAT EVEN IF ELIGIBILITY FOR DEDUCTION UNDER SECTION 10A OF THE ACT IS TO BE SEEN EVERY YEAR THE APPELLANT HAVE MET THE CRITERIA LAID DOWN IN SECTION 10A OF THE ACT AND TRANSFER OF PLANT AND MACHINERY FROM CGCLS TO THE APPELLANT IS WITHIN THE PARAMETERS LAID DOWN UNDER THE ACT. (XI) THAT UNDERTAKING IN BANGALORE IS NOT A SEPARATE UNIT THE AO OBSERVED THAT BANGALORE UNIT IS NOT A SEPARATE UNDERTAKING FOR THE PURPOSE OF DEDUCTION U/S 10A OF THE ACT AS THE APPELLANT IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNTS THERE IS ONLY ONE FIXED ASSETS REGISTER AND PF OF ALL THE EMPLOYEES IS PAID IN MA HARASHTRA. FURTHER THE CLAIM IS ADMITTEDLY NOT BEEN MADE IN THE ORIGINAL RETURN OF INCOME AND IT HAD ALSO NOT BEEN CLAIMED ALONG WITH THE PROPER FORM. HOWEVER CIT(A) FOR AY 2004 - 05 HAS ALLOWED THE CLAIM FOR BANGALORE UNIT ON THE FOLLOWING BASIS: B ANGALORE UNIT IS SEPARATELY REGISTERED AS STP UNIT VIDE REGISTRATION NO. EIG/COREEL LABS/GEN/1961 DATED MAY 20 2000. THE CERTIFICATE WAS GRANTED ON THE BASIS OF A SEPARATE NET FOREIGN EXCHANGE COMMITMENT FOR THE STAND ALONE UNIT. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 27 UNIT WAS CREATED OUT OF F RESH IN FLOW OF FUNDS RESULTING IN PARCHAS E OF MEW ASSETS. BUSINESS OF BANGALORE UNIT DID NOT EFFECT THE BUSINESS OF ANY OTHER UNIT. THOUGH THESE TWO UNITS BELONG TO THE SAME COMPANY. HENCE THERE WAS ONE SERIAL FOR INVOICES RAISED AND ACCOUNTING / PAYRO LL WAS CENTRALIZED. FURTHER THERE IS NO SUCH STIPULATION TO AVAIL DEDUCTION UNDER SECTION 10A/10B AS THESE ARE COMPLIANCES UNDER OTHER STATUES AND NOT UNDER THE ACT. BANGALORE UNIT DIDNT SUFFER FROM THE PURPORTED DEFECTS POINTED OUT FOR PUNE UNIT THE FOR M 56F WAS FILED WITH THE REVISED ROI. THE REVISED ROI FOR AY 2004 - 05 WAS FILED WITHIN THE PRESCRIBED TIME LIMIT. SECTION 10A(5) OF THE ACT NO WHERE REQUIRES TO FILE FORM 56F BEFORE THE EXPIRY OF THE TIME FOR FILING ORIGINAL ROI INSTEAD IT REQUIRES TO FIL E IT ALONG WITH THE ROI. SINCE THE FORMS WERE FILED ALONG WITH THE REVISED ROI WITHIN TIME THEREFORE THE FORM 56F SUBMITTED ALONG WITH THE REVISED ROI IS ADMISSIBLE. THE DESCRIPTIONS OF ACTIVITIES HAVE BEEN BROADLY CLASSIFIED AS DESIGN OF INTEGRATED CIR CUITS UNDER WHICH NUMEROUS ACTIVITIES MAY BE CONDUCTED BY THE UNITS. DESCRIBING THE ACTIVITIES OF BOTH THE UNITS IT WAS HELD THAT THE ACTIVITIES ARE DIFFERENT AND ONLY A BROAD CATEGORY IS ASSIGNED TO THE ACTIVITIES. HENCE EVEN IN PRINCIPLE THE BANGAL ORE UNIT SHOULD BE REGARDED AS A SEPARATE UNIT. HENCE IT IS RES PECTFULLY SUBMITTED THAT THE CLAIM OF BANGALORE UNIT TO BE CONSIDERED AS SEPARATE UNDERTAKING FOR THE PURPOSES OF DEDUCTION U/S 10A OF THE ACT AS THE APPELLANT HAS FULFILLED ALL THE CONDITIONS FOR CLAIMING THE DEDUCTION U/S. 10A OF THE ACT. FURTHER THERE IS NO STIPULATION UNDER THE ACT WHEREIN DIFFERENT BOOKS OF ACCOUNTS FOR DIFFERENT UNDERTAKINGS ARE REQUIRED TO BE KEPT OR INVOICE RAISED AND ACCOUNTING / PAYROLL CANNOT BE CENTRALIZED TO CLAI M THE DEDUCTION UNDER SECTION 10A OF THE ACT. WITHOUT PREJUDICE IT IS RESPECTFULLY SUBMITTED THAT DEDUCTION U/S. 10A FOR SEPARATE UNITS CANNOT BE DENIED EVEN IF NO SEPARATE BOOKS OF ACCOUNTS ARE MAINTAINED. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 28 SR.NO. PARTICULARS CITATIONS 13. MAHINDRA SINTERED PRODUCTS LTD. VS COMMISSIONER OF INCOME - TAX 177 ITR 111 (BOM) 14. COMMISSIONER OF INCOME - TAX VS ROHTAS INDUSTRIES LTD. 120 ITR 110(CAL HC) 15. DCIT VS. ARABIAN EXPORTS LTD. 109 TTJ 440(BOM) 12. THE LD. D.R. ON THE OTHER HAND REITERATED THE OBSERVATIONS OF THE AUTHORITIES BELOW THAT ASSESSEE IS NOT A NEW UNDERTAKING BUT A RE - CONSTRUCTION OF ANOTHER COMPANY I.E. CGCLS. IN THIS REGARD HE REFERRED ASSESSMENT ORDER AND FIRST APPELLATE ORDER . HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : 1) TEXTILE MACHINERY CORPORATION LTD. V/S. CIT 107 ITR 195 2) CIT V/S. GAEKWAR FORM & RUBBER CO. LTD. 35 ITR 662 (BOM) 3) KHODE INDUSTRIES PVT. LTD. 163 ITR 646 4) CHEMBRA PEAK ESTATES LTD. V/S. CIT 85 ITR 401 (KER.) 5) CANARA WIRE AND WIRE PRODUCTS LTD. V/S. CIT 196 ITR 426 13. LD. D.R. ALSO REFERRED CBDT CIRCULAR NO. 1/2005 DT. JANUARY 1 2005. 14. CONSIDERING THE ABOVE SUBMISSIONS WE FIND THAT THE A.O HAS DENIED THE CLAIMED DEDUCTION MERELY ON THE BASIS THAT THE ASSESSEE IS NOT A NEW UNDERTAKING BUT A RE - CONSTRUCT ION OF ANOTHER COMPANY CGCLS. HE ARRIVED AT ON THIS CONCLUSION ON THE BASIS THAT THE ULTIMATE SHAREHOLDERS OF BOTH THE COMPANIES WERE SAME; THE DIRECTORS OF BOTH THE COMPANIES WERE THE SAME; THE BUSINESS/PRODUCT OF THE ASSESSEE IS THE SAME; CGCLS HAS TRAN SFERRED ITS ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 29 ENTIRE PLANT AND MACHINERY AND COMPUTER SOFTWARE TO THE ASSESSEE IN A.Y. 2001 - 02 I.E. SECOND YEAR OF OPERATION OF THE ASSESSEE; AND THAT IN THE FIRST YEAR OF FORMATION ALL THE 5 EMPLOYERS OF THE ASSESSEE WERE EARLIER WORKING WITH CGCLS; AN D 58% OF THE EMPLOYEES OF THE ASSESSEE WERE FROM CGCLS IN A.Y. 2001 - 02 I.E. SECOND YEAR OF OPERATION OF THE ASSESSEE. THE OTHER OBSERVATIONS/OBJECTIONS OF TH E A.O FOR DENIAL OF THE CLAIM REMAINED THAT AS PER THE PRESS NOTE DT. APRIL 20 2000 WHICH STATED THAT CORE EL LABS HAS UNDERTAKEN ALL OF THE RESEARCH DEVELOPMENT AND APPLICATION ENGINEERING FUNCTIONS OF THE APPELLANT COMPANY AS ITS FACILITIES IN PUNE AND BANGALORE; THE APPROVED ISSUED BY MINISTRY OF INDUSTRY NO. STP PER : 89(1999)/POP/97/1999 DT. 17 TH JANUARY 2000 WAS IN THE NAME OF CMS AND NOT IN THE NAME OF THE ASSESSEE; THE SALES OF CGCLS HAS GONE DOWN; IT IS DEVICE TO EXTEND PERIOD OF DEDUCTION; IN SUBSTANCE THE ASSESSEE WAS FORMED IN A.Y. 2001 - 02 AS IN A.Y. 2000 - 01 THERE WAS ONLY ONE SALE BY ASSESSEE IN THE MONTH OF MARCHY 2000; UNDERTAKING IN BANGALORE IS NOT A SEPARATE UNIT AS ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT; THERE IS ONLY ONE FIXED ASSET REGISTERED AND PF OF ALL EMPLOYEES IS PAID IN MAHARASHTRA; THE CLAIM HAS ADMIT TEDLY NOT BEEN MADE IN THE ORIGINAL RETURN OF INCOME NOR HAS IT BEEN CLAIMED ALONG WITH THE PROPER FORM. THE LD CIT(A) HAS UPHELD THE ACTION OF THE A.O. ON SIMILAR BASIS. 15. AFTER HAVING GONE THROUGH THE ABOVE SUBMISSIONS WE FIND THAT BEFORE US THE LD. A.R. HAS TRIED TO MEET OUT THE ABOVE STATED OBJECTIONS RAISED BY THE AUTHORITIES BELOW WHILE DENYING THE CLAIMED DEDUCTION U/S. 10B OF THE ACT. THE LD. A.R. SUPPORTING THE ADDITIONAL GROUND HAS ALSO SUBMITTED THAT THE ASSESSEE IS ACTUALLY ELIGIBLE FOR THE DEDUCTION U/S. 10A OF THE ACT BUT HAS MISTAKENLY CLAIMED DEDUCTION U/S. 10B OF THE ACT. WE PRIMA FACIE FIND SUBSTANCE IN THE ABOVE SUBMISSION OF THE LD. A.R. IN SUPPORT OF THE CLAIMED ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 30 DEDUCTION. AT THE SAME TIME WE ARE OF THE VIEW THAT THE RELAT ED FACTS REGARDING THE FULFILMENT OF THE CLAIMED DEDUCTION AS SUBMITTED BY THE LD. A.R HEREINABOVE IN DETAIL NEEDS FRESH VERIFICATION TO TEST THE ENTITLEMENT OF ASSESSEE TO CLAIMED DEDUCTION IN QUESTION. WE THUS IN THE INTEREST OF JUSTICE SET ASIDE TH E MATTER TO THE FILE OF THE LD CIT(A) FOR FRESH CONSIDERATION AND ADJUDICTION OF THE ISSUE AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE PARTIES AND CONSIDERING THE MATER IAL ALREADY AVAILABLE ON RECORD. GROUND NOS. 1 2 & 3 ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 16. SO FAR AS ISSUE RAISED IN ADDITIONAL GROUND AS TO WHETHER THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 10B OR 10A OF THE SECTION IS CONCERNED WE ARE OF THE VIEW THAT ENTITLEMENT OF DEDUCTION UNDER THE PROPER PROVISIONS OF LAW IS EXAMINED BY THE A.O. AS PER THE ESTABLISHED PROPOSITION OF LAW AND IT DOES NOT MATTER UNDER WHICH PROVISION ASSESSEE HAS CLAIMED DEDUCTION. EVEN IN THOSE CASES WHERE ASSESSEE HAS FAILED TO CLAIM RELIEF FOR WHICH IT IS LEGALLY ENTITLED TO WITHIN TH E PROVISIONS OF THE INCOME TAX ACT 1961 IT IS THE DUTY OF THE A.O TO CONSIDER THOSE RELIEF WHILE MAKING THE ASSESSMENT. THE REQUIREMENT OF LAW IS FOR MAKING JUST AND PROPER ASSESSMENT BY THE A.O. WE SET ASIDE THIS ISSUE FOR CONSIDERATION OF THE LD CIT( A) IN VIEW OF HIS FINDING ON THE ISSUE RAISED IN GROUND NOS. 1 2 AND 3 HEREINABOVE. THE ADDITIONAL GROUNDS ARE TH U S ALLOWED FOR STATISTICAL PURPOSES. GROUND NO. 4 17. IN THIS GROUND THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER UPHOLDING THE INITIATION OF PENALTY U/S. 271(1)(C ) OF THE ACT BY THE A.O. HAVING GONE THROUGH THE FIRST APPELLATE ORDER IN THIS REGARD WE FIND THAT SIMILAR GROUND RAISED BEFORE THE LD. CIT(A) HAS BEEN REJECTED BY THE LD ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 31 CIT(A) ON THE BASIS THAT THE GROUND I S PRE - MATURE AS TH ERE IS NO PROVISION FOR FILING APPEALS AGAINST MERE INITIATION OF PENALTY PROCEEDINGS. WE FULLY AGREE WITH THIS ACTION OF THE LD CIT(A). THE SAME IS UPHELD. THE GROUND NO. 4 IS ACCORDINGLY REJECTED. 18. IN THE RESULT APPEAL IS PARTLY ALLOWED. ITA NO . 12/PN/2007 (ASSTT.YEAR 2001 - 02) 19. BESIDES OTHER GROUNDS RAISED IN THE A.Y. 2001 - 02 THE ASSESSEE HAS ALSO QUESTIONED VALIDITY OF NOTICE ISSUED U/S. 148 OF THE ACT VIDE GROUND NO. 5 OF THE MEMO OF THE APPEAL. THE LD. A.R. SUBMITTED THAT CHANGE OF OPINI ON CANNOT BE BASIS FOR RE - OPENING OF ASSESSMENT U/S 148 OF THE ACT. MERE CHANGE OF OPINION DOES NOT CONFIRM JURISDICTION TO RE - OPEN A COMPLETED ASSESSMENT ON THE INTERPRETATION OF A PARTICULAR PROVISION EARLIER ADOPTED BY THE A.O. THE SCOPE OF SEC. 148 O F THE ACT DOES NOT EXTEND TO REVIEWING ITS EARLIER ORDERS SUO MOTTO IRRESPECTIVE OF THER E BEING ANY MATERIAL TO COME TO A DIFFERENT CONCLUSION APART FROM JUST HAVING SECOND THOUGHT ABOUT THE INFERENCE DRAWN EARLIER. THE CLAIM OF THE ASSESSEE WAS LOOKE D INTO BY THE A.O DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS AND THE A.O HAD CONFIRMED AN OPINION ON THE ISSUE AND HAD ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. A.R. SUBMITTED FURTHER THAT THE RE - ASSESSMENT IS TO BE CONFINED TO POINTS OF RE - AS SESSMENT AND NOT TO THE WHOLE ASSESSMENT. A.O. ASKED FOR THE DETAILS VIDE NOTICE DT. OCTOBER 21 ST 2005 ALONG WITH THE REASONS FOR RE - OPENING THE ASSESSMENT U/S. 147 OF THE ACT. THE DETAILS CALLED FOR IN THE NOTICE ARE NOT RELATED TO THE REASONS FOR RE - O PENING OF ASSESSMENT AND HENCE A NOTICE IS NOT VALID AS THE A.O IS NOT EMPOWERED TO DO THE ASSESSMENT ALL OVER AGAIN. HE SUBMITTED THAT RE - ASSESSMENT BASED ON THE ORDER OF THE SUBSEQUENT ASSESSMENT YEAR IS NOT VALID AS NO NEW FACTS HAVE ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 32 COME INTO PICTU RE AND A.O IS NOT COMPETENT TO MAKE FISHING ENQUIRIES ON CONCLUDED MATTERS. LD. A.R. PLACED RELIANCE ON THE FOLLOWING DECISIONS : SR.NO. CASE CITATION 1. CIT V. KELVINATOR OF INDIA LTD. 2010 - TIOL - 06 - SC - IT - LB 2. CIT V. KELVINATOR OF INDIA LTD. 256 ITR 1(DEL)(FB) 3. ASIAN PAINTS LIMITED V.DCIT AND ANR. 308 ITR 195 (BOM.) 4. ASTEROIDS TRADING & INVESTMENTS VS.DCIT 308 ITR 190 (BOM) 5. CIT V EICHER LTD 294 ITR 310(DEL) 20. THE LD. A.R. SUBMITTED FURTHER THAT LD CIT(A) HAS ALSO ERRED IN NOT TAKING ANY ACTION ON THE REVISED RETURN ON THE BASIS THAT THE SAME WAS REVISED AFTER THE PRESCRIBED TIME LIMIT. HE HAS ERRED IN NOT TAKING INTO CONSIDERATION THE REVISION OF THE RETURN FILED PURSUANT TO NOTICE U/S. 148 OF THE ACT AS THE REVISED RETURN REPLACES THE ORIGINAL RETURN. 21. THE LD. D.R. ON THE OTHER HAND TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW ON THE ISSUE. HE ALSO REFERRED THE PROVISIONS OF SECTION S 139 147 AND 148 OF THE ACT PREVAILING DURING THE YEAR. 22. HAVING CONSIDERED THE ARGUM ENTS ADVANCED BY THE PARTIES WE DO NOT FIND SUBSTANCE IN THE ABOVE CONTENTIONS OF THE LD. A.R. AS PER EXPLANATION 2 (C ) TO SEC. 147 AS AMENDED W.E.F. 1.4.1989 THE EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THE ACT FOR THE PURPOSE OF SEC. 147 SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IT COULD BE RE A LIZED DURING THE ASSESSMENT PROCEEDINGS FOR THE A.Y . 2002 - 03 IN THE CASE OF THE PRESENT ASSESSEE . THUS THERE WAS SUFFICIENT MATE RIAL TO FORM REASONS TO BELIEVE THAT INCOME ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 33 CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THUS IT CANNOT BE SAID THAT THERE WAS NO MATERIAL BEFORE THE A.O TO FORM REASONS TO BELIVE THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT DURING THE YEAR. UNDER THE AMENDED PROVISIONS OF SECTION 147 OF THE ACT THE A.O IS EMPOWERED TO ASSESS OTHER ESCAPED INCOME AS WELL WHICH C O ME S TO HIS NOLTICE DURING THE COURSE OF RE - ASSESSMENT PROCEEDINGS BESIDES THE INCOME I.E. SUBJECT MATTER OF THE RE - OPENING . SO FAR AS TH E GRIEVNCE OF THE LD. A.R. THAT LD CIT(A) SHOULD HAVE TAKEN INTO CONSIDERATION THE REVISED RETURN FILED IN RESPONSE TO NOTICE U/S. 148 OF THE ACT IS CONCERNED WE DO NOT FIND SUBSTANCE THEREIN AS IT WAS NOT A SIMPLE CASE THAT THE RETURN OF INCOME WAS FILE D IN RESPONSE TO A NOTICE ISSUED U/S. 148 OF THE ACT. IT APPEARS FROM THE ASSESSMENT ORDER THAT NOTICE U/S. 148 FOR THE RE - OPENING OF THE ASSESSMENT FOR A.Y. 2001 - 02 WAS ISSUED ON 21.10.2005 AND AS PER THE FIRST APPELLATE ORDER IT WAS SERVED UPON THE A SSESSEE ON 24.10.2005. IN THE SAID NOTICE U/S. 148 THE ASSESSEE WAS ASKED TO FILE RETURN WITHIN 30 DAYS. THE ASSESSEE HOWEVER FILED RETURN ON 28.11.2005 I.E. BEYOND THE PRESCRIBED TIME LIMIT OF 30 DAYS. IN THE RETURN OF INCOME FILED ON 28.11.2005 T HE ASSESSEE HAD DECLARED TOTAL INCOME OF RS. 34 470/ - . A RETURN OF INCOME DECLARING SAME INCOME WAS AGAIN FILED ON 31 ST MARCH 2006 ON WHICH THE A.O DID NOT TAKE ANY ACTION TREATING THE SAME AS BEYOND TIME LIMIT. UNDER THESE CIRCUMSTANCES WE FULLY AGR EE WITH THE FINDING OF THE LD CIT(A) HOLDING THAT AS PER AMENDED PROVISIONS OF SECTION 148 BY FINANCE ACT 2006 WITH RETROS PECTIVE EFFECT FROM 1.10.1991 PROVISIONS OF SECTION 139 WOULD BE APPLICABLE WHERE A RETURN HAS BEEN FILED U/S. 148 IN SO FAR AS MAY BE APPLICABLE. UNDISPUTEDLY THERE IS NO PROVISION TO FILE REVISED RETURN U/S. 148 OF THE ACT. HOWEVER AS PER PROVISIONS OF SECTION 139(5) A RETURN CAN BE REVISED ONLY WHERE THE ASSESSEE HAS FURNISHED A RETURN UNDER SUB - SECTION (1) OF SECTION 139 OR I N PURSUANCE OF A NOTICE U/S. 142(1). THUS EVEN IF IT IS TREATED THAT RETURN OF ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 34 INCOME FILED IN RESPONSE TO NOTICE U/S. 148 IS AS IF RETURN FILED U/S. 139(1) OF THE ACT THE SAME BENEFIT IS NOT AVAILABLE IN THE CASE OF ASSESSEE SINCE THE ASSESSEE HAD NOT FILED RETURN OF INCOME UNDER THE PRESCRIBED TIME LIMIT IN RESPONSE TO NOTICE ISSUED U/S. 148 OF THE ACT. THUS THE ASSESSEE WAS NOT IN A POSITION TO AVAIL THE BENEFIT OF PROVISIONS OF SECTION 139(5) OF THE ACT IN THE PRESENT CASE. WE ARE THUS OF THE V IEW THAT THE A.O WAS RIGHT IN NOT ENTERTAINING THE RETURN OF INCOME FILED ON 31 ST MARCH 2006. WE HOWEVER IN VIEW OF OUR ABOVE FINDING ON THE ISSUE RAISED IN ADDITIONAL GROUND NO. 6 IN A.Y. 2002 - 03 (ITA NO. 1805/PN/2005) REITERATE THAT IT DOES NOT MATTER WHETHER THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 10A OR SECTION 10B OF THE ACT. THE A.O IS ALWAYS REQUIRED TO MAKE JUST AND PROPER ASSESSMENT. IF ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE THE A.O WAS OF THE VIEW THAT THE ASSESSEE SHOULD HAVE CL AIMED DEDUCTION U/S. 10A OF THE ACT INSTEAD OF 10B OF THE ACT THE A.O SHOULD HAVE ALLOWED PROPER DEDUCTION FOR WHICH ASSESSEE WAS LEGALLY ENTITELD TO. THE GROUND NO. 5 IS ACCORDINGLY REJECTED. 23. THE ISSUE RAISED IN GROUND NOS. 1 TO 4 IS IDENTICAL AS THAT RAISED IN GROUND NOS. 1 TO 3 AND ADDITIONAL GROUND NOS. 6 & 7 RAISED IN THE A.Y. 2003 - 04 WE FOLLOWING THE DECISION TAKEN THEREIN DIRECT THE LD CIT(A) TO DECIDE THE ISSUE AFRESH ACCORDINGLY. THE GROUND NOS. 1 TO 4 OF THE APPEAL ARE THUS ALLOWED FOR STATISTICAL PURPOSES. ITA N O . 12/PN/2007 IS THUS PARTLY ALLOWED. ITA NO. 1407/PN/2006 ( A.Y. 2003 - 04) 24. GROUND NOS. 1 TO 3 ARE ON THE ISSUE OF ELIGIBILITY OF DEDUCTION CLAIMED U/S. 10A OF THE ACT. WE FOLLOWING OUR DECISION ON AN IDENTICAL ISSUE IN THE A.Y. 2002 - 03 SET ASIDE THE MATTER TO THE FILE OF THE LD CIT(A) TO DECIDE THE ISSUE AFRESH AS DIRECTED HEREIN - ABOVE BY US IN THE A.Y. 2002 - 03. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 35 GROUND NO. 4 25. IN THIS GROUND THE GRIEVANCE OF THE ASSESSEE IS THAT THE LD CIT(A) HAS ERRED IN HOLDIN G THAT THE UNIT IN BANGALORE IS A PART OF UNIT IN PUNE ONLY FOR THE REASON THAT THE CLAIM WAS NOT MADE IN THE ORIGINAL RETURN OF INCOME. AN ALTERNATIVE PLEA HAS ALSO BEEN RAISED IN THIS GROUND THAT THE LD CIT(A) OUGHT TO HAVE CONSIDERED THE FACT THAT THE UNIT IN BANGALORE DOES NOT SUFFER FROM THE PURPORTED DEFECTS POINTED OUT FOR UNIT IN PUNE. WE FIND THAT THE LD CIT(A) HAS DEALT WITH THE ISSUE IN PARA NO. 2.3 OF THE FIRST APPELLATE ORDER AS UNDER : 2.3 I HAVE GONE THROUGH THE FACTS OF THE CASE. TH E ASSESSING OFFICER HAD DISALLOWED THE DEDUCTION ON THE BASIS THAT NO SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED NO SEPARATE SERIAL NUMBER FOR INVOICES RAISED FROM BANGALORE WERE FOLLOWED. THE PF OF THE EMPLOYEES BASED IN BANGALORE WAS PAID IN MAHARASHTRA AND THERE WAS ONLY ONE ASSET REGISTER. THE CLAIM IS ADMITTEDLY NOT BEEN MADE IN THE ORIGINAL RETURN OF INCOME. IT HAD ALSO NOT BEEN CLAIMED ALONG WITH THE PROPER FORM. THE UNIT WISE FINANCIAL STATEMENTS NOW BEING PRODUCED HAVE NEVER BEEN PRODUCED BEFORE THE ASSESSING OFFICER AND NO REASONS; WHATSOEVER HAVE BEEN GIVEN FOR NOT FILING SUCH DETAILS EVEN WHEN SPECIFICALLY ASKED TO SUBMIT THE UNIT WISE WORKING AS PER NOTICE U/S. 142 IT IS NOT POSSIBLE TO ADMIT SUCH BELATED CLAIM OF THE APPELLANT. THE GROUND S OF APPEAL NO.1 2 AND 3 ARE THEREFORE DISMISSED. THE CONTENTION OF THE LD. A.R. REMAINED THAT IN THE A.Y. 2004 - 05 THE LD. CIT(A) HAS ALLOWED THE CLAIM OF BANGALORE UNIT. WE THUS REMAND THE MATTER TO THE FILE OF LD. CIT(A) TO CONSIDER THE ISSUE AFRE SH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE PARTIES IN VIEW OF THE FINDING OF FIRST APPELLATE AUTHORITY IN THIS REGARD IN A.Y. 2004 - 05. THE GROUND NO. 4 IS THUS ALLOWED FOR STATISTICAL PURPOSE. 26. IN GROUND NO.5 THE ASSESSEE HAS QUESTIONED FI RST APPELLATE ORDER WHEREBY THE LD CIT(A) HAS UPHELD INITIATION OF PENALTY PROCEEDINGS U/S. ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 36 271(1)(C ) OF THE ACT. THE LD CIT(A) HAS REJECTED THE GROUND TREATING THE SAME AS PREMATURE SINCE ASSESSEE WILL HAVE OPPORTUNITY TO QUESTION THE PENALTY IN APPEAL WHEN IT IS LEVIED BY THE A.O. WE FULLY AGREE WITH THE VIEW OF THE LD CIT(A) THAT ISSUE IS PREMATURE. THE SAME IS UPHELD. GROUND NO. 5 IS ACCORDINGLY REJECTED. 27 . IN RESULT ITA NO. 1047/PN/2006 IS PARTLY ALLOWED . ITA NO. 552/PN/2008 (A.Y. 2004 - 0 5) 28. IN GROUND NOS. 1 AND 1.1 OF THE APPEAL THE ISSUE RAISED IS REGARDING THE ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S. 10A OF THE ACT. WE HAVE ALREADY DECIDED AN IDENTICAL ISSUE HEREINABOVE IN GROUND NOS. 1 TO 3 HEREINABOVE FOR THE A.Y. 20 02 - 03. FOLLOWING THE DECISION TAKEN THEREIN WE SET ASIDE THE MATTER TO THE FILE OF LD CIT(A) FOR FRESH CONSIDERATION AS DIRECTED THEREIN IN THE A.Y. 2002 - 03. THESE GROUNDS ARE THUS ALLOWED FOR STATISTICAL PURPOSES. GR OUND NO.2 2.1 AND 2.3 29. THE GR IEVANCE OF THE ASSESSEE IS THAT DEDUCTION U/S. 10A SHOULD HAVE BEEN SEPARARATELY CONSIDERED FOR BANGALORE UNIT AND PUNE UNIT. THE CONTENTION OF THE LD. A.R. IN THIS REGARD REMAINED THAT THE LD CIT(A) HAS FAILED TO APPRECIATE THAT DEDUCTION U/S. 10A IN RES PECT OF BOTH THE UNITS HAS BEEN CLAIMED AS PER THE REVISED RETURN ALONG WITH THE REVISED CHARTERED ACCOUNTANTS REPORT IN FORM 56F SEPARATELY DISCLOSING THE AMOUNT OF DEDUCTION ALLOWABLE IN RESPECT OF THE PUNE AND BANGALORE AS TP UNITS. HAVING GONE THRO UGH THE ORDERS OF THE AUTHORITIES BELOW WE FIND THAT THE LD CIT(A) HAS ALREADY DIRECTED THE A.O ON THE ISSUE TO VERIFY THE DEDUCTION U/S. 10A ALLOWABLE TO THE BANGALORE UNIT ON THE GROUND OF OVERLAP OF RECEIPTS AND ITA NO S. 1047/PN/2006 1805/PN/2005 12/PN/2007 & 552 /PN/200 8 CONEXANT SYSTEMS (PB) PVT LTD. ETC.. A.Y. 2001 - 02 & 2002 - 03 2003 - 04 &2004 - 05 PAGE OF 37 37 EXPENDITURE IN THE PUNE AND BANGALORE UN ITS. WE HOWEVER ARE OF THE VIEW THAT INSTEAD OF SE T TING ASIDE THE MATTER TO THE FILE OF THE A.O THE LD CIT(A) SHOULD HAVE DECIDED THE ISSUE HIMSELF ON VERIFICATION OF THE RELEVANT FACTS BY THE A.O. THE ISSUE IS THUS RESTORED TO THE FILE OF THE LD CIT( A) TO DECIDE THE SAME HIMSELF AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE PARTIES. THESE GROUNDS ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 30. IN RESULT ITA NO. 552/PN/2008 IS ALLOWED FOR STATISTICAL PURPOSES. 31. TO SUM UP THE RESULTS ITA NO . 1805/PN/2005 1047/PN/2006 AND ITA NO. 12/PN/2007 ARE PARTLY ALLOWED AND REMAINING APPEAL ITA NO. 552/PN/2008 IS ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 9TH FEBRUARY 201 1 . SD/ - SD / - ( D. KARUNAKARA RAO ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 09TH FEBRUARY 20 1 1 US COPY OF THE ORDER IS FORWARDED TO : 1. THE A PPELLANT 2. THE RESPONDENT 3. THE CIT II PUNE 4. THE CIT(A) - I I PUNE 5. THE D.R. B BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE