SONATA SOFTWARE LTD, MUMBAI v. ASST CIT RG 7(2), MUMBAI

ITA 4338/MUM/2012 | 2007-2008
Pronouncement Date: 31-07-2015

Appeal Details

RSA Number 433819914 RSA 2012
Assessee PAN AABCS8459D
Bench Mumbai
Appeal Number ITA 4338/MUM/2012
Duration Of Justice 3 year(s) 1 month(s) 5 day(s)
Appellant SONATA SOFTWARE LTD, MUMBAI
Respondent ASST CIT RG 7(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Bench Allotted E
Tribunal Order Date 31-07-2015
Date Of Final Hearing 18-06-2015
Next Hearing Date 18-06-2015
Assessment Year 2007-2008
Appeal Filed On 25-06-2012
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH MUMBAI . . BEFORE SHRI R.C.SHARMA A M & SHRI SANJAY GARG J M ./ ITA NO . 4678 / MUM/20 1 2 ( / ASSESSMENT YEAR : 200 7 - 08 ) ACIT - 7(2) MUMBAI VS. M/S SONATA SOFTWARE LTD. 208 T.V.INDUSTRIAL ESTATE S.K.AHIRE MARG MUMBAI - 30 ./ ./ PAN/GIR NO. : A A B CS 8459 D ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO. 4338 / MUM/20 12 ( / ASSESSMENT YEAR :2007 - 08 ) M/S SONATA SOFTWARE LTD. 208 T.V.INDUSTRIAL ESTATE S.K.AHIRE MARG MUMBAI - 30 VS. ACIT - 7(2) MUMBAI ./ ./ PAN/GIR NO. : A ABCS 84 59 D ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : MS. MANJUNATHA SWAMY /ASSESSEE BY : SHRI VIJAY MEHTA / DATE OF HEARING : 25 /0 6 / 2015 / DATE OF PRONOUNCEM ENT 31/07 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH ESE ARE THE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE AGAINST THE ORDER OF CIT(A) MUMBAI FOR THE ASSESSMENT YEAR 200 7 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT . ITA NO. 4678 &4338 /1 2 2 2. THE ASSESSEE IN ITS APPEAL I.E. ITA NO. 4338/MUM/2012 HAS TAKEN FOLLOWING GROUNDS : - GROUND NO. 1: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HON'BLE CIT(A) ERRED IN HOLDING THAT 8 SEPARATE UNDERTAKINGS NAMELY 1NW 3SW 4FL 5SW LSW 5NW BG2 AND 3NW WERE TO BE CONSIDERED AS ONE UNDERTAKING AND NOT SEPARATE UNDERTAKINGS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 10A OF THE ACT AND ACCORDINGLY COMPUTED THE DEDUCTION U/S 10A OF THE ACT AT RS.42 94 03 993/ - . FURTHER THE HON'BLE CIT (A) ALSO ERRED IN NOT CONSIDERING THE INCOME AS WELL AS THE EXPENDITURE IN RELATION TO THE SAID 8 SEPARATE UNDERTAKINGS WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HO N'BLE CIT(A) ERRED IN HOLDING THAT AN AMOUNT OF RS.38 24 955/ - IS DISALLOWED U/S 40(A)(IA) OF THE ACT IN RESPECT OF DEPRECIATION CLAIMED ON SOFTWARE PURCHASED BY THE APPELLANT ON AND AFTER 13.07.2006 AND TREATING THE SAME AS BEING IN THE NATURE OF 'ROYALTY ' U/S 9(I)(VI) OF THE ACT. EACH OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES LEAVE TO ADD OMIT OR ALTER GROUNDS OF APPEAL BEFORE OR DURING THE HEARING OF THE APPEAL. THE REVENUE IN ITS APPEAL I.E. ITA NO.4678/ MUM/2012 HAS TAKEN THE FOLLOWING GROUNDS : - 1 . 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE DEDUCTION U/S.10A IGNORING THE FACTS THAT THE MAJOR CLAIM OF DEDUCTION IN RESPECT OF TWO UNITS WHICH CAME INT O EXISTENCE IN A.Y.2005 - 06 FOR EXPANSION OF BUSINESS AND ARE NOT NEW UNDERTAKING OF THE COMPANY.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) ERRED IN ALLOWING THE GROUND OF RECOMPILATION OF DEDUCTION U/ S. 10 A IGNORIN G THE FACT THAT THERE WERE INTERLACING OF FUNDS AND INTERDEPENDENCE OF FUNDS BETWEEN THE UNDERTAKING.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE GROUND THAT SERVICE CHARGES DEPUTATION CHARGES AND OTHER INCOME RECOVERED FROM ITS 100% SUBSIDIARY COMPANY I.E. SITL IS ELIGIBLE FOR DEDUCTION U / S. 10 A ITA NO. 4678 &4338 /1 2 3 IGNORING THE FACT THAT THE ISSUE FOR A.Y. 2001 - 02 TO A.Y. 2005 - 06 IS PENDING BEFORE HON'BLE COURT FOR DISPOSAL.' 4. 'ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 3 79 26 594/ - IN RESPECT OF UNBILLED SOFTWARE INCOME IGNORING THE FACT THAT THE DECISION OF HON'BLE ITAT FOR A.Y. 2002 - 03 WAS NOT ACCEPTED BY THE DEPARTMENT AND APPEAL IS PEN DING IN THE HON'BLE HIGH COURT.' 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES OF RS.91 84 717/ - U/S. 40(A)(IA) IGNORING THE FACT THAT APPEAL AGAINST THIS ISSUE IN EARLIER YEARS IS PE NDING IN BOMBAY HIGH COURT.' 6. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE U/S. 10 A IN COMPUTATION OF BOOK PROFIT U/S 115JB IGNORING THE FACT THAT THE DECISION OF DELETING THE DISALLOWAN CE U/S. 10 A WAS NOT ACCEPTED BY THE DEPARTMENT.' 7. 'THE LD. CIT(A)'S ORDER IS PERVERSE IN LAW AND ON FACTS AND DESERVES TO BE SET ASIDE. 8. 'THE APPELLANT PRAYS THAT THE ORDER OF CIT (A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE AO RESTORED. T HE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND THAT MAY BE NECESSARY.' 3. AT THE OUTSET LD. AR PLACED ON RECORD THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2006 - 07 WHEREIN ALL THE GROUNDS TAKEN BY THE ASSESSE E AND REVENUE ARE COVERED IN FAVOUR OF THE ASSESSEE. 4. ON THE OTHER HAND LD. DR RELIED ON THE ORDER OF THE AO. 5. WE HAVE CONSIDERED RIVAL CONTENTIONS CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM THE RECORD THAT ASSESSEE I S ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT A ND TRADING IN HARDWARE/SOFTWARE. 6. DURING THE COURSE OF SCRUTINY ASSESSMENT THE AO MADE ADDITION BY DISALLOWING THE ASSESSEES CLAIM FOR DEDUCTION U/S.10A. THE AO ALSO ITA NO. 4678 &4338 /1 2 4 MADE ADDITION IN RESPECT OF OWN BUI LT SOFTWARE AND DISALLOWED ASSESSEES CLAIM OF DEPRECIATION ON SOFTWARE. 7. BY THE IMPUGNED ORDER THE CIT(A) PARTLY ALLOWED THE ASSESEES CLAIM AGAINST WHICH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 8. WE HAD CAREFULLY GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006 - 07. THE GROUND TAKEN BY THE ASSESSEE WITH REGARD TO TREATING 8 SEPARATE UNDERTAKING AS ONE UNDERTAKING AND NOT SEPARATE UNDERTAKING FOR THE PURPOSE OF CLAIMING DEDUCTION U/S.10A OF THE ACT HA S BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR VIDE PARA 2 TO 5.4 AT PAGE 2 TO 7 OF THE ORDER WHICH READS AS UNDER : - 2. THE ASSESSEE IS AGGRIEVED ON TWO GROUNDS. THE FIRST GROUND RELATES TO THE DENIAL OF DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961 (THE ACT) IN RESPECT OF EIGHT SEPARATE UNDERTAKINGS BEING CONSIDERED AS ONE UNDERTAKING AND NOT SEPARATE UNDERTAKING. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF RS.6 17 901/ - UNDER SECTION 40(A) (I) OF THE ACT IN RESPECT OF DEPRECI ATION CLAIM ON SOFTWARE PURCHASED BY THE ASSESSEE. 2.1 THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT AND TRADING OF SOFTWARES AND HARDWARES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 27/11/2006 DECLARING TOTAL LOSS OF RS.20.9 8 CRORES. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. A REFERENCE UNDER SECTION 92CA(1) WAS MADE TO THE TPO. THE TPO PASSED AN ORDER UNDER SECTION 92CA(3) ON 22/10/2009 WI THOUT MAKING ANY ADJUSTMENT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10A AT RS.42 94 66 344/ - IN RESPECT OF FIVE UNITS. THE FURTHER OBSERVED THAT THE DEDUCTION UNDER SE CTION 10A WAS DISALLOWED IN A.Y 1998 - 99 AND 1999 - 2000 ON THE GROUND THAT UNDERTAKING WAS FORMED BY SPLITTING OR RECONSTRUCTION OF BUSINESS 1999 - 2000. IT IS FURTHER OBSERVED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND IN SUBSEQUENT ORDER ASSESSMENT ORDERS OF A.Y 1998 - 99 AND 1999 - 2000 WERE FOLLOWED BY THE AO AND THE TRIBUNAL FOLLOWED ITS OWN ORDER. THE AO PROCEEDED BY FOLLOWING HIS OWN ORDER FOR A.Y 1998 - 99 AND 1999 - 2000. THE AO ITA NO. 4678 &4338 /1 2 5 FURTHER OBSERVED THAT IN THE PRESENT YEAR THE DEDUCTION UNDER SECTION 10A IS DISALLOWED FOR TWO ADDITIONAL GROUND; (A) 10A ELIGIBILITY OF THREE UNITS WHICH CAME INTO EXISTENCE AFTER A.Y.1999 - 2000. THE MAJOR CLAIM OF DEDUCTION IS IN RESPECT OF TWO UNITS WHICH CAME INTO EXISTENC E IN A.Y 2005 - 06; (B) TREATING BUSINESS OF THE ASSESSEE AS SINGLE INTEGRATED UNIT WITH COMPLETE INTER DEPENDENCE AND INTER - LEASING OF FUNDS RESOURCES MANAGEMENT AND CONTROL. 2.2 THEREFORE THE PRESENT YEAR IS NOT COVERED BY THE ORDERS OF THE TRIBU NAL IN EARLIER YEARS AS THESE ISSUES WERE NOT THERE BEFORE THE APPELLATE AUTHORITIES IN EARLIER YEARS. THE AO FURTHER OBSERVED THAT THREE UNITS WHICH CAME INTO EXISTENCE AFTER 1999 - 2000 OUT OF WHICH DEDUCTION UNDER SECTION 10A HAS BEEN CLAIMED FOR TWO UNITS AT RS. 41 78 00 213/ - . THESE UNITS CAME INTO EXISTENCE IN A.Y 2005 - 06 ONLY AND DEDUCTION UNDER SECTION 10A CLAIMED IS 97% ON TOTAL DEDUCTION. THE BUSINESS FROM THESE TWO UNITS IS 67% OF TOTAL REVENUE WHICH MEANS THAT THE ASSESSEE IS TRANSFERRING BUSINESS FROM OLDER UNITS TO NEW UNITS WHICH IS NOTHING BUT RECONSTRUCTION OF BUSINESS ALREADY IN EXISTENCE. THEREFORE EVEN IF THE ORDER OF TRIBUNAL IN A.Y 1998 - 99 AND 1999 - 2000 IS FOLLOWED THESE THREE UNITS ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTI ON 10A. THE AO CONCLUDED BY OBSERVING THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A ON THE GROUNDS THAT ALL 10 UNITS ARE AN INTEGRATED WHOLE THAT IS NOT NEW UNITS AND WITHOUT PREJUDICE TO THE SAME THREE NEW UNITS ARE SIMPLE REST RUCTURING / RECONSTRUCTION BUSINESS FOR TRANSFERRING BUSINESS TO NEW UNITS TO OLD UNITS AND THESE ISSUES ARE NOT COVERED BY THE DECISION OF THE TRIBUNAL IN A.Y 1998 - 99 AND 1999 - 2000. THE AO ULTIMATELY DENIED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF T HE ACT. AGGRIEVED BY THIS THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). 2.3 IT WAS CONTENDED BEFORE LD. CIT(A) THAT THE ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 199 8 - 99 AND 1999 - 2000 AND ALSO BY THE ORDERS OF THE TRIBUNAL FOR A.Y 2000 - 01 TO 2004 - 05. IT WAS BROUGHT TO THE NOTICE OF LD.CIT(A) THAT IN ALL THESE YEARS THE LD. CIT(A) HAS HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE LD. CIT(A) OBSERVED THAT THE CUSTOMS AUTHORITIES HAVE RECOGNIZED ONLY THREE UNDERTAKINGS AND SUB - UNITS SHOWN BY THE ASSESSEE HAVE NOT BEEN RECOGNIZED AS SEPARATE UNDERTAKINGS BY CUSTOM AUTHORITIES /STP. LD. CIT(A) FURTHER OBSERVED THAT ALL THESE FACTS WERE NOT EARLIER BEFORE AO/APPELLATE AUTHORITIES. THEREFORE EARLIER FINDING SHALL BE NOT APPLICABLE TO THE FACTS OF THE CASE. LD. CIT(A) FINALLY ALLOWED THE CLAIM OF DEDUCTION IN RES PECT OF THREE UNITS. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE FIRST APPELLATE AUTHORITY. LD. COUNSEL STRONGLY SUBMITTED THAT IN EARLIER YEARS TRIBUNAL HAS ALLOWED THE CLAIM OF DEDUCTION AND ITA NO. 4678 &4338 /1 2 6 THEREFORE LD. CIT(A) HAS ERRED IN DENYING THE CLAIM OF DEDUCTION IN RESPECT OF ALL THE UNITS ON FRIVOLOUS GROUNDS. THE LD. COUNSEL POINTED OUT THAT IN RESPECT OF FIVE UNITS THE YEAR OF DEDUCTION IS 9TH YEAR. IN RESPECT OF TWO UNITS TH E YEAR OF DEDUCTION IS SECOND YEAR. OUT OF FIVE UNITS THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF THREE UNITS ONLY. IT IS THE SAY OF THE LD. COUNSEL THAT IT IS A SETTLED PROPOSITION OF LAW THAT WITHOUT DISTURBING THE CLAIM OF DEDUCTION IN THE INITIA L YEAR OF CLAIM THE REVENUE AUTHORITIES CANNOT DENY THE CLAIM OF DEDUCTION IN SUBSEQUENT YEARS. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. 123 ITR 669 (GUJ) AN D ALSO ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PAUL BROTHERS 216 ITR 548 (BOM). 4. PER CONTRA LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. DR THAT THE AO HAS SPECIFICALLY POI NTED OUT THE DISTINGUISHING FACTS. LD. CIT(A) HAS ALSO ELABORATELY DISCUSSED THE DISTINGUISHING FACTS AND THEREFORE FINDINGS OF EARLIER YEARS CANNOT BE TAKEN INTO CONSIDERATION FOR THE YEAR UNDER CONSIDERATION. 5. WE HAVE CAREFULLY PERUSED THE ORD ERS OF THE AUTHORITIES BELOW AND THE DECISIONS BROUGHT TO OUR NOTICE. LET US FIRST SEE HOW THE CLAIM HAS BEEN MADE BY THE ASSESSEE. UNIT NAME ADDRESS 10A 10A PROFIT/LOSS FOR THE YEAR 10A DEDUCTION PROFIT/LOSS AFTER 10A DEDN. YEAR OF DEDN. U/S.10A 1 NW APS TRUST BLDG. BULL TEMPLE RD. N.R. COLONY BANGALORE 560019 NO N.A. 5806476 - 5806476 PERIOD EXPIRED. 3SW - DO - YES YES 8218399 8218399 - 9 TH YEAR 4FL - DO - YES NO (29315948) - (29315948) 9 TH YEAR 5SW - DO - YES NO (2812701) - (2812701) 9 TH YEAR 1SW - DO - YES YES 1345589 1345589 - 9 TH YEAR 5NW - DO - YES YES 2102143 2102143 - 9 TH YEAR 3NW - DO - YES NO (22652254) - (22652254) 8 TH YEAR BG2 NO.193 R.V.RD. NEXT TO VIJAYA COLLEGE BASAVANAGUDI BANGALORE 560004 YES NO (142604698) - (142604698) 7 TH YEAR BG3 NO.6 RICHMOND RD. BANGALORE 560 025 YES YES 340679999 340679999 - 2 ND YEAR HYD #1 - 10 - 176 G REEN TOWERS OPP. HYDERABAD PUBLIC SCHOOL BEGUMPET HYDERABAD 500 016 YES YES 77120214 77120214 - 2 ND YEAR 5.1 THUS IT CAN BE SEEN THAT IN RESPECT OF THREE UNITS NAMELY 3SW 1SW AND 5NW THE YEAR OF DEDUCTION IS 9TH YEAR WHICH MAKES INITIAL YEAR TO BE ASSESSMENT YEAR 1998 - 99. IN THE FIRST YEAR OF CLAIM OF ITA NO. 4678 &4338 /1 2 7 DEDUCTION I.E. A.Y 1998 - 99 THE MATTER TRAVELLED UPTO THE HONBLE BOMBAY HIGH COURT AND THE HONBLE COURT IN INCOME TAX APPEAL NO.311 OF 2004 HAD AN OCCASION TO CONSIDER INTER - ALIA THE FOLL OWING QUESTION OF LAW: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO AN EXEMPTION IN RESPECT OF THE PROFIT DERIVED FROM THE STP UNDERTAKING ON THE BASIS OF THAT T HE CONDITION OF SECTION 10A(2) ARE FULFILLED. AND AFTER CONSIDERING THE FACTS HONBLE HIGH COURT AT PARA - 13 OF ITS ORDER HELD THAT THE FIRST QUESTION OF LAW WOULD HAVE TO BE ANSWERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE. IN RESPECT OF CLAIM OF DEDUCTION FOR UNITS BG3 & HYD THE YEAR OF DEDUCTION IS SECOND YEAR WHICH MAKES INITIAL ASSESSMENT YEAR 2005 - 06. THE CLAIM OF DEDUCTION IN THE INITIAL ASSESSMENT YEAR WAS ALLOWED BY THE TRIBUNAL VIDE ITA NO. 3514/MUM/2010. 5.2 THUS IT CAN BE SEEN THAT THE CLAIM OF DEDUCTION IN RESPECT OF EACH UNIT WHERE SECTION 10A DEDUCTION HAS BEEN CLAIMED AS PER CHART MENTIONED HEREIN ABOVE. THE ASSESSEE WAS ALLOWED THE DEDUCTION IN THE INITIAL ASSESSMENT YEAR WHICH MAKE FACT OF THE CASE SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS LTD. (SUPRA) WHEREIN HONBLE COURT HAS MADE THE FOLLOWING OBSERVATIONS: THE NEXT QUESTION TO WHICH THE TRIBUNAL ADDRESSED ITSELF AND IN OUR OPINION RIGHTLY WAS WHETHER THE ITO WAS JUSTIFIED IN REFUSING TO CONTINUE THE RELIEF OF TAX HOLIDAY GRANTED TO THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 1968 - 69 IN THE ASSESSMENT YEAR UNDER REFERENCE THAT IS 1969 - 70 WITHOUT DISTURBING THE R ELIEF GRANTED FOR THE INITIAL YEAR. IT SHOULD BE STATED THAT THERE IS NO PROVISION IN THE SCHEME OF S. 80 J SIMILAR TO THE ONE WHICH WE FIND IN THE CASE OF DEVELOPMENT REBATE WHICH COULD BE WITHDRAWN IN SUBSEQUENT YEARS FOR BREACH OF CERTAIN CONDITIONS. NO DOUBT THE RELIEF OF TAX HOLIDAY UNDER S. 80J CAN BE WITHHELD OR DISCONTINUED PROVIDED THE RELIEF GRANTED IN THE IN THE INITIAL YEAR OF ASSESSMENT IS DISTURBED OR CHANGED ON VALID GROUNDS. BUT WITHOUT DISTURBING THE RELIEF GRANTED IN THE INITIAL YEA R THE ITO CANNOT EXAMINE THE QUESTION AGAINST AND DECIDE TO WITHHOLD OR WITHDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRANTED. 5.3 SIMILARLY IN THE CASE OF PAUL BROTHERS (SUPRA) HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: HELD THAT (I) SINCE THE ASSESSMENT ORDER FOR THE YEAR 1981 - 82 HAD MERGED IN THE APPELLATE ORDER REVISIONAL JURISDICTION COULD NOT BE EXERCISED; (II) THE ASSESSING OFFICERS ORDER ITA NO. 4678 &4338 /1 2 8 BASED ON A BINDING DECISION OF THE HIGH COURT COULD NOT BE INTERFERED WITH IN REVISIONAL JURIS DICTION; (III) UNLESS DEDUCTIONS ALLOWED FOR THE ASSESSMENT YEAR 1980 - 81 ON THE SAME GROUND WERE WITHDRAWN THEY COULD NOT BE DENIED FOR THE SUBSEQUENT YEARS. EITHER IN SECTION 80 HH OR IN SECTION 80J THERE IS NO PROVISION FOR WITHDRAWAL OF SPECIAL DEDUC TION FOR BREACH OF CERTAIN CONDITIONS. 5.4 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE JUDICIAL DECISION CITED HEREIN ABOVE IN OUR CONSIDERED OPINION THE CLAIM OF DEDUCTION CANNOT BE DENIED UNLESS CLAIM IS WITHDRAWN RIGHT FROM THE INITIAL ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT AND HONBLE GUJARAT HIGH COURT WE SET ASIDE THE FINDINGS OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION AS MADE BY THE ASSESSEE UNDER SECTION 10A OF THE ACT. GROUND NO.1 IS ALLOWED. 9. GROUND NO.2 TAKE N BY THE ASSESSEE IS WITH REGARD TO DISALLOWANCE OF CLAIM U/S. 40 ( A ) (I) AMOUNTING TO RS. 38 24 955/ - HAS BEEN DEALT BY THE AO AT PARA 20 PAGE 14 - 16. THE CIT( A) HAS GIVEN HIS FINDING AT PARA 9 TO 9.6 A T PAGE 30 TO 58 OF HIS ORDER. THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIBUNAL VIDE PARA 6 TO 9.1 AT PAGE 7 TO 9 WHICH READS AS UNDER : - 6. GROUND NO.2 IS AGAINST DISALLOWANCE OF RS.6 17 901/ - UNDER SECTION 40(A)(I) OF THE ACT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SOFTWARE PURCHASES EXPENSES OF RS.4 28 65 714/ - WHICH INCLUDES PURCHASES OF RS.20 59 671/ - CLAIMED TO BE PURCHASED BY FOREIGN BRANCHES OF THE ASSESSEE. THE AO FOUND THAT NO TDS H AS BEEN MADE ON THIS AMOUNT ON THE GROUND THAT THE PURCHASES ARE OUTSIDE INDIA FOR OUTSIDE INDIA. IN THE LIGHT OF THE PROVISIONS OF SECTION 195(2) OF THE ACT THE AO DISALLOWED A SUM OF RS.20 59 671/ - UNDER SECTION 40(A)(I) OF THE ACT. 6.1 AGGRIEVE D ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A). IT WAS POINTED OUT TO THE LD. CIT(A) THAT THE ASSESSEE HAS CAPITALIZED THE SAID AMOUNT OF RS.20 59 619/ - AND HAS CLAIMED ONLY DEPRECIATION OF RS.6 17 901/ - . THEREFORE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE NOT APPLICABLE FOR CLAIMING OF DEDUCTION UNDER SECTION 32 OF THE ACT. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS LD. CIT(A) OBSERVED THAT THE AO IS INCORRECT IN HOLDING THAT THE ASSESSEE HAS CLAIMED THE ENTIRE EXPENDITURE OF RS.20 59 671/ - AS A REVENUE. LD. CIT(A) THEREFORE RESTRICTED THE DISALLOWANCE ONLY TO THE CLAIM OF DEPRECIATION OF RS.6 17 901/ - . AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. ITA NO. 4678 &4338 /1 2 9 7. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE DISALLOWANCE HAVE BEE N MADE UNDER SECTION 40(A)(I) OF THE ACT WHICH IS NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND THEREFORE NO DISALLOWANCE NEED TO BE MADE. THE LD. COUNSEL FURTHER POINTED OUT THAT TDS ON ROYALTY WAS MADE APPLICABLE FROM 13/07/2006 AND THE ASSESSMENT YEAR IS ASSESSMENT YEAR 2006 - 07 THEREFORE THERE WAS NO TDS LIABILITY EVEN IF ENTIRE AMOUNT IS TREATED AS ROYALTY. LD. COUNSEL REFERRED TO THE NON - DISCRIMINATORY CLA USE IN INDO - US TREATY AND SUBMITTED THAT IF THE DOMESTIC TRANSACTION WOULD NOT HAVE ATTRACTED ANY TAX LIABILITY A SIMILAR INTERNATIONAL TRANSACTION CANNOT BE SUBJECT TO TDS LIABILITY. 7.1 LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TR IBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) LTD. ITA NO.3636/DELHI/2008 A.Y. 2000 - 01. 8. PER CONTRA LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 9. HAVING PERUSED THE ORDERS CAREFULLY WE AGREE WITH THE SUBMISSIONS MAD E BY LD. COUNSEL. FIRSTLY IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND NOT THE ENTIRE EXPENDITURE. THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) SUPRA) HAS HELD THAT PROVISIONS OF SECTION 40(A) (I) ARE NOT APP LICABLE FOR CLAIM OF DEDUCTION OF DEPRECIATION UNDER SECTION 32 OF THE ACT. PAYMENTS FOR PURCHASE OF SOFTWARE WITHOUT DEDUCTION TAX WILL NOT BE SUBJECT TO THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 9.1 FURTHER IF A SIMILAR DOMESTIC TRANSACTION WAS MADE DURING THE YEAR UNDER CONSIDERATION IT WOULD NOT HAVE ATTRACTED THE LIABILITY FOR TDS. THEREFORE IN THE LIGHT OF THE NON - DISCRIMINATORY CLAUSE IN THE TREATY A SIMILAR INTERNATIONAL TRANSACTION WOULD ALSO NOT ATTRACT LIABILITY OF THE TDS. C ONSIDERING THE FACTS IN THE LIGHT OF THE JUDICIAL DECISIONS AND OUR OBSERVATIONS MADE HEREIN ABOVE THE FINDINGS OF LD. CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.6 17 901/ - . GROUND NO.2 IS ACCORDINGLY ALLOWED. 10. THE GRO UND TAKEN BY THE REVENUE WITH REGARD TO CIT(A) S ACTION FOR ALLOWING DEDUCTION U/S.10A WITH RESPECT TO EXPANSION OF BUSINESS ARE COVERED IN FAVOUR OF THE ASSESSEE BY A SERIES OF ORDER OF THE TRIBUNAL FOR A.Y. 1998 - 99 & 1999 - 2000 VIE PARA 12 - 30 FOR AY.2000 - 01 TO 2001 - 02 VIDE PARA 2 AND 2.5 RESPECTIVELY FOR A.Y.2002 - 03 & 2003 - 04 VIDE PARA 3 - 4.1 FOR A.Y.2004 - 05 2005 - 06 & 2006 - 07 VIDE PARA 9 - 13 4 - 5 AND 2 - 5.4. ITA NO. 4678 &4338 /1 2 10 IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. AY 2006 - 07 THE ISSUE HAS BEEN DEALT BY THE TR IBUNAL IN PARA 2 TO 5.4 WHICH READS AS UNDER : - 2. THE ASSESSEE IS AGGRIEVED ON TWO GROUNDS. THE FIRST GROUND RELATES TO THE DENIAL OF DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961 (THE ACT) IN RESPECT OF EIGHT SEPARATE UNDERTAKINGS BEING C ONSIDERED AS ONE UNDERTAKING AND NOT SEPARATE UNDERTAKING. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF RS.6 17 901/ - UNDER SECTION 40(A) (I) OF THE ACT IN RESPECT OF DEPRECIATION CLAIM ON SOFTWARE PURCHASED BY THE ASSESSEE. 2.1 THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT AND TRADING OF SOFTWARES AND HARDWARES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 27/11/2006 DECLARING TOTAL LOSS OF RS.20.98 CRORES. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. A REFERENCE UNDER SECTION 92CA(1) WAS MADE TO THE TPO. THE TPO PASSED AN ORDER UNDER SECTION 92CA(3) ON 22/10/2009 WITHOUT MAKING ANY ADJUSTMENT. DURING THE COURSE OF SCRUTINY ASSESSMENT PRO CEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 10A AT RS.42 94 66 344/ - IN RESPECT OF FIVE UNITS. THE FURTHER OBSERVED THAT THE DEDUCTION UNDER SECTION 10A WAS DISALLOWED IN A.Y 1998 - 99 AND 1999 - 2000 ON THE GROUND THAT U NDERTAKING WAS FORMED BY SPLITTING OR RECONSTRUCTION OF BUSINESS 1999 - 2000. IT IS FURTHER OBSERVED THAT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND IN SUBSEQUENT ORDER ASSESSMENT ORDERS OF A.Y 1998 - 99 AND 1 999 - 2000 WERE FOLLOWED BY THE AO AND THE TRIBUNAL FOLLOWED ITS OWN ORDER. THE AO PROCEEDED BY FOLLOWING HIS OWN ORDER FOR A.Y 1998 - 99 AND 1999 - 2000. THE AO FURTHER OBSERVED THAT IN THE PRESENT YEAR THE DEDUCTION UNDER SECTION 10A IS DISALLOWED FOR TWO ADDITIONAL GROUND; (A) 10A ELIGIBILITY OF THREE UNITS WHICH CAME INTO EXISTENCE AFTER A.Y.1999 - 2000. THE MAJOR CLAIM OF DEDUCTION IS IN RESPECT OF TWO UNITS WHICH CAME INTO EXISTENCE IN A.Y 2005 - 06; (B) TREATING BUSINESS OF THE ASSESSEE AS SINGLE INTEGRA TED UNIT WITH COMPLETE INTER DEPENDENCE AND INTER - LEASING OF FUNDS RESOURCES MANAGEMENT AND CONTROL. 2.2 THEREFORE THE PRESENT YEAR IS NOT COVERED BY THE ORDERS OF THE TRIBUNAL IN EARLIER YEARS AS THESE ISSUES WERE NOT THERE BEFORE THE APPELLATE A UTHORITIES IN EARLIER YEARS. THE AO FURTHER OBSERVED THAT THREE UNITS WHICH CAME INTO EXISTENCE AFTER 1999 - 2000 OUT OF WHICH DEDUCTION UNDER SECTION 10A HAS BEEN CLAIMED FOR TWO UNITS AT RS. 41 78 00 213/ - . THESE UNITS CAME INTO EXISTENCE IN A.Y 2005 - 06 ONLY AND DEDUCTION UNDER SECTION 10A CLAIMED IS 97% ON TOTAL DEDUCTION. THE BUSINESS FROM THESE TWO UNITS IS 67% OF TOTAL REVENUE WHICH MEANS THAT THE ASSESSEE IS TRANSFERRING BUSINESS FROM OLDER UNITS TO NEW UNITS WHICH IS NOTHING BUT RECONSTRUCTI ON OF BUSINESS ALREADY IN EXISTENCE. THEREFORE EVEN IF THE ORDER OF TRIBUNAL IN A.Y 1998 - 99 AND 1999 - 2000 IS FOLLOWED THESE THREE ITA NO. 4678 &4338 /1 2 11 UNITS ARE NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. THE AO CONCLUDED BY OBSERVING THAT THE ASSESSEE IS NOT ELIGIBLE F OR DEDUCTION UNDER SECTION 10A ON THE GROUNDS THAT ALL 10 UNITS ARE AN INTEGRATED WHOLE THAT IS NOT NEW UNITS AND WITHOUT PREJUDICE TO THE SAME THREE NEW UNITS ARE SIMPLE RESTRUCTURING / RECONSTRUCTION BUSINESS FOR TRANSFERRING BUSINESS TO NEW UNIT S TO OLD UNITS AND THESE ISSUES ARE NOT COVERED BY THE DECISION OF THE TRIBUNAL IN A.Y 1998 - 99 AND 1999 - 2000. THE AO ULTIMATELY DENIED THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT. AGGRIEVED BY THIS THE ASSESSEE CARRIED THE MATTER BEFORE LD. CIT( A). 2.3 IT WAS CONTENDED BEFORE LD. CIT(A) THAT THE ISSUE WAS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1998 - 99 AND 1999 - 2000 AND ALSO BY THE ORDERS OF THE TRIBUNAL FOR A.Y 2000 - 01 TO 2004 - 05. IT WAS BROUGHT TO THE NOTICE OF LD.CIT(A) THAT IN ALL THESE YEARS THE LD. CIT(A) HAS HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS MADE BY THE ASSESSEE LD. CIT(A) OBSERVED THAT THE CUSTOMS AUTHORITIES HAVE RECOGNIZED ONLY THREE UNDERTAKINGS AND SUB - UNITS SHOWN BY THE ASSESSEE HAVE NOT BEEN RECOGNIZED AS SEPARATE UNDERTAKINGS BY CUSTOM AUTHORITIES /STP. LD. CIT(A) FURTHER OBSERVED THAT ALL THESE FACTS WERE N OT EARLIER BEFORE AO/APPELLATE AUTHORITIES. THEREFORE EARLIER FINDING SHALL BE NOT APPLICABLE TO THE FACTS OF THE CASE. LD. CIT(A) FINALLY ALLOWED THE CLAIM OF DEDUCTION IN RESPECT OF THREE UNITS. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 3. LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE FIRST APPELLATE AUTHORITY. LD. COUNSEL STRONGLY SUBMITTED THAT IN EARLIER YEARS TRIBUNAL HAS ALLOWED THE CLAIM OF DEDUCTION AND THEREFORE LD. CIT(A) HAS ERRED IN DENYING THE CLAIM OF DEDUCTION IN RESPECT OF ALL THE UNITS ON FRIVOLOUS GROUNDS. THE LD. COUNSEL POINTED OUT THAT IN RESPECT OF FIVE UNITS THE YEAR OF DEDUCTION IS 9TH YEAR. IN RESPECT OF TWO UNITS THE YEAR OF DEDUCTION IS SECOND YEAR. OUT OF FIVE UNITS THE ASSESSEE HAS CL AIMED DEDUCTION IN RESPECT OF THREE UNITS ONLY. IT IS THE SAY OF THE LD. COUNSEL THAT IT IS A SETTLED PROPOSITION OF LAW THAT WITHOUT DISTURBING THE CLAIM OF DEDUCTION IN THE INITIAL YEAR OF CLAIM THE REVENUE AUTHORITIES CANNOT DENY THE CLAIM OF DEDUCTIO N IN SUBSEQUENT YEARS. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. 123 ITR 669 (GUJ) AND ALSO ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PAUL BROTHERS 216 ITR 548 (BOM). 4. PER CONTRA LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. IT IS THE SAY OF THE LD. DR THAT THE AO HAS SPECIFICALLY POINTED OUT THE DISTINGUISHING FACTS. LD. CIT(A) HAS ALSO ELABORATELY DISCU SSED THE DISTINGUISHING FACTS AND THEREFORE FINDINGS OF EARLIER YEARS CANNOT BE TAKEN INTO CONSIDERATION FOR THE YEAR UNDER CONSIDERATION. ITA NO. 4678 &4338 /1 2 12 5. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE DECISIONS BROUGHT TO OUR NOTICE. LET US FIRST SEE HOW THE CLAIM HAS BEEN MADE BY THE ASSESSEE. UNIT NAME ADDRESS 10A 10A PROFIT/LOSS FOR THE YEAR 10A DEDUCTION PROFIT/LOSS AFTER 10A DEDN. YEAR OF DEDN. U/S.10A 1 NW APS TRUST BLDG. BULL TEMPLE RD. N.R. COLONY BANGALORE 560019 NO N.A. 5806476 - 5806476 PERIOD EXPIRED. 3SW - DO - YES YES 8218399 8218399 - 9 TH YEAR 4FL - DO - YES NO (29315948) - (29315948) 9 TH YEAR 5SW - DO - YES NO (2812701) - (2812701) 9 TH YEAR 1SW - DO - YES YES 1345589 1345589 - 9 TH YEAR 5NW - DO - YES YES 2102143 2102143 - 9 TH YEAR 3NW - DO - YES NO (22652254) - (22652254) 8 TH YEAR BG2 NO.193 R.V.RD. NEXT TO VIJAYA COLLEGE BASAVANAGUDI BANGALORE 560004 YES NO (142604698) - (142604698) 7 TH YEAR BG3 NO.6 RICHMOND RD. BANGALORE 560 025 YES YES 340679999 340679999 - 2 ND YEAR HYD #1 - 10 - 176 GREEN TOWERS OPP. HYDERABAD PUBLIC SCHOOL BEGUMPET HYDERABAD 500 016 YES YES 77120214 77120214 - 2 ND YEAR 5.1 THUS IT CAN BE SEEN THAT IN RESPECT OF THREE UNITS NAMELY 3SW 1SW AND 5NW THE YEAR OF DEDUCTION IS 9TH YEAR WHICH MAKES INITIAL YEAR TO BE ASSESSMENT YEAR 1998 - 99. IN THE FIRST YEAR OF CLAIM OF DEDUCTION I. E. A.Y 1998 - 99 THE MATTER TRAVELLED UPTO THE HONBLE BOMBAY HIGH COURT AND THE HONBLE COURT IN INCOME TAX APPEAL NO.311 OF 2004 HAD AN OCCASION TO CONSIDER INTER - ALIA THE FOLLOWING QUESTION OF LAW: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO AN EXEMPTION IN RESPECT OF THE PROFIT DERIVED FROM THE STP UNDERTAKING ON THE BASIS OF THAT THE CONDITION OF SECTION 10A(2) ARE FULFILLED. AND AFTER CONSIDERING TH E FACTS HONBLE HIGH COURT AT PARA - 13 OF ITS ORDER HELD THAT THE FIRST QUESTION OF LAW WOULD HAVE TO BE ANSWERED IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN RESPECT OF CLAIM OF DEDUCTION FOR UNITS BG3 & HYD THE YEAR OF DED UCTION IS SECOND YEAR WHICH MAKES INITIAL ASSESSMENT YEAR 2005 - 06. THE CLAIM OF DEDUCTION IN THE INITIAL ASSESSMENT YEAR WAS ALLOWED BY THE TRIBUNAL VIDE ITA NO. 3514/MUM/2010. 5.2 THUS IT CAN BE SEEN THAT THE CLAIM OF DEDUCTION IN RESPECT OF EACH UN IT WHERE SECTION 10A DEDUCTION HAS BEEN CLAIMED AS PER ITA NO. 4678 &4338 /1 2 13 CHART MENTIONED HEREIN ABOVE. THE ASSESSEE WAS ALLOWED THE DEDUCTION IN THE INITIAL ASSESSMENT YEAR WHICH MAKE FACT OF THE CASE SQUARELY COVERED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS LTD. (SUPRA) WHEREIN HONBLE COURT HAS MADE THE FOLLOWING OBSERVATIONS: THE NEXT QUESTION TO WHICH THE TRIBUNAL ADDRESSED ITSELF AND IN OUR OPINION RIGHTLY WAS WHETHER THE ITO WAS JUSTIFIED IN REFUSING TO CO NTINUE THE RELIEF OF TAX HOLIDAY GRANTED TO THE ASSESSEE COMPANY FOR THE ASSESSMENT YEAR 1968 - 69 IN THE ASSESSMENT YEAR UNDER REFERENCE THAT IS 1969 - 70 WITHOUT DISTURBING THE RELIEF GRANTED FOR THE INITIAL YEAR. IT SHOULD BE STATED THAT THERE IS NO P ROVISION IN THE SCHEME OF S. 80 J SIMILAR TO THE ONE WHICH WE FIND IN THE CASE OF DEVELOPMENT REBATE WHICH COULD BE WITHDRAWN IN SUBSEQUENT YEARS FOR BREACH OF CERTAIN CONDITIONS. NO DOUBT THE RELIEF OF TAX HOLIDAY UNDER S. 80J CAN BE WITHHELD OR DISCON TINUED PROVIDED THE RELIEF GRANTED IN THE IN THE INITIAL YEAR OF ASSESSMENT IS DISTURBED OR CHANGED ON VALID GROUNDS. BUT WITHOUT DISTURBING THE RELIEF GRANTED IN THE INITIAL YEAR THE ITO CANNOT EXAMINE THE QUESTION AGAINST AND DECIDE TO WITHHOLD OR WI THDRAW THE RELIEF WHICH HAS BEEN ALREADY ONCE GRANTED. 5.3 SIMILARLY IN THE CASE OF PAUL BROTHERS (SUPRA) HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: HELD THAT (I) SINCE THE ASSESSMENT ORDER FOR THE YEAR 1981 - 82 HAD MERGED IN THE APPELLATE ORDE R REVISIONAL JURISDICTION COULD NOT BE EXERCISED; (II) THE ASSESSING OFFICERS ORDER BASED ON A BINDING DECISION OF THE HIGH COURT COULD NOT BE INTERFERED WITH IN REVISIONAL JURISDICTION; (III) UNLESS DEDUCTIONS ALLOWED FOR THE ASSESSMENT YEAR 1980 - 81 ON THE SAME GROUND WERE WITHDRAWN THEY COULD NOT BE DENIED FOR THE SUBSEQUENT YEARS. EITHER IN SECTION 80 HH OR IN SECTION 80J THERE IS NO PROVISION FOR WITHDRAWAL OF SPECIAL DEDUCTION FOR BREACH OF CERTAIN CONDITIONS. 5.4 CONSIDERING THE FACTS OF THE CASE IN THE LIGHT OF THE JUDICIAL DECISION CITED HEREIN ABOVE IN OUR CONSIDERED OPINION THE CLAIM OF DEDUCTION CANNOT BE DENIED UNLESS CLAIM IS WITHDRAWN RIGHT FROM THE INITIAL ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE BOMB AY HIGH COURT AND HONBLE GUJARAT HIGH COURT WE SET ASIDE THE FINDINGS OF LD. CIT(A) AND DIRECT THE AO TO ALLOW THE CLAIM OF DEDUCTION AS MADE BY THE ASSESSEE UNDER SECTION 10A OF THE ACT. GROUND NO.1 IS ALLOWED. 1 1 . WE ALSO FOUND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF HON BLE HIGH COURT IN ASSESSEES OWN CASE FOR THE AY 1998 - 99 1999 - 2000 2002 - 03 & 2004 - 05. ITA NO. 4678 &4338 /1 2 14 1 2 . GROUND TAKEN BY THE REVENUE WITH REGARD TO RECOMP UTATION OF DEDUCTION U/S.10A OF THE ACT IS COVERED IN FA VOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL FOR THE A.Y.2006 - 07 VIDE PARA 20 WHICH READS AS UNDER : - 20. GROUND NO. 6 RELATES TO THE RECOMPILATION OF DEDUCTION UNDER SECTION 10A OF THE ACT. THIS ISSUE IS DIRECTLY RELATED TO OUR DECISION IN ASSES SEES APPEAL ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10A. AS WE HAVE ALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 10A THIS GROUND IS DISMISSED. 1 3 . THE GROUND TAKEN BY THE REVENUE WITH REGARD TO ALLOWING SERVICE CHARGES DEPUTATION CHARGES AND OTHER INCOME RECOVERED FROM ITS 100% SUBSIDIARY COMPANY U/S. 10A HAS BEEN DEALT BY THE TRIBUNAL IN ASSESSEES OWN CAS E FOR THE A.Y.20 06 - 07 VIDE PARA 21 OF ITS ORDER AND SAME WAS DECIDED IN ASSESSEES FAVOUR. WE ALSO FOUND THAT THE ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL FOR THE A.Y.2002 - 03 AND 2003 - 04 2001 - 02 2004 - 05 AND 2005 - 06. THE RELEVANT OBSERVATION OF THE TRIBUNAL IN THE A.Y.2006 - 07 ARE AT PARA 21 WHICH READS AS UNDER : - 21. GROUND NO.7 RELATES TO DELETION OF THE ADDIT ION ON ACCOUNT OF SERVICE CHARGES RECOVERED FROM 100% SUBSIDIARY. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE TRIBUNAL FROM A.Y 2001 - 02 TO 2005 - 06. LD. CIT(A) HAS DECIDED THIS ISSUE AT PARA 7.4 OF HIS OR DER WHEREIN HE HAS FOLLOWED THE FINDING OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A .Y 2001 - 02 TO 2006 - 07. SINCE LD. CIT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS WE DO NOT FIND IT NECESSARY TO INTERFERE WI TH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY GROUND NO.7 IS DISMISSED. 1 4 . THE NEXT GRIEVANCE OF THE REVENUE RELATES TO DELETING THE ADDITION OF RS. 3.79 CRORES IN RESPECT OF UNBILLED SOFTWARE INCOME IS ALSO COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDE R OF THE TRIBUNAL FOR A.Y.2002 - 03 AND 2003 - 04 2001 - 02 2004 - 05 2005 - 06 & 2006 - 07 . THE RELEVANT ITA NO. 4678 &4338 /1 2 15 OBSERVATION S OF THE TRIBUNAL IN A.Y.2006 - 07 ARE AT PARA 17 & 18 WHICH READ AS UNDER : - 17. GROUND NO.4 IS IN RELATION TO THE DELETION OF THE ADDITION OF RS. 8 15 75 087/ - IN RESPECT OF UNBILLED SOFTWARE INCOME. 18. AT THE OUTSET LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE TRIBUNAL FOR A.Y 2002 - 03. THE AO HAS CONSIDERED THIS ISSUE AT PARA 20 OF HIS ORDER. LD. CIT(A) HAS CONSIDERED THE GRIEVANCE AT PARA 8 OF HIS ORDER AND AT PARA 8.3 FOLLOWING THE DECISION OF THE TRIBUNAL THE LD. CIT(A) HAS DELETED THE ADDITION OF RS.8 15 75 087/ - . AS THE LD. C IT(A) HAS FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS NO INTERFERENCE IS CALLED FOR. GROUND NO.4 IS ACCORDINGLY DISMISSED. 1 5 . GROUND TAKEN BY THE REVENUE WITH REGARD TO FOR DELETING DISALLOWANCE OF RS.91.84 LAKHS U/S .40(A)(IA) IS COVERED IN FAVOUR OF THE ASSESSEE VIDE PARA 6 TO 9.1 OF TRIBUNAL FOR THE A.Y.2006 - 07 WHICH READS AS UNDER : - 6. GROUND NO.2 IS AGAINST DISALLOWANCE OF RS.6 17 901/ - UNDER SECTION 40(A)(I) OF THE ACT DURING THE COURSE OF THE ASSESSMENT PRO CEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED SOFTWARE PURCHASES EXPENSES OF RS.4 28 65 714/ - WHICH INCLUDES PURCHASES OF RS.20 59 671/ - CLAIMED TO BE PURCHASED BY FOREIGN BRANCHES OF THE ASSESSEE. THE AO FOUND THAT NO TDS HAS BEEN MADE ON THIS AMOUNT ON THE GROUND THAT THE PURCHASES ARE OUTSIDE INDIA FOR OUTSIDE INDIA. IN THE LIGHT OF THE PROVISIONS OF SECTION 195(2) OF THE ACT THE AO DISALLOWED A SUM OF RS.20 59 671/ - UNDER SECTION 40(A)(I) OF THE ACT. 6.1 AGGRIEVED ASSESSEE CARRIED T HE MATTER BEFORE LD. CIT(A). IT WAS POINTED OUT TO THE LD. CIT(A) THAT THE ASSESSEE HAS CAPITALIZED THE SAID AMOUNT OF RS.20 59 619/ - AND HAS CLAIMED ONLY DEPRECIATION OF RS.6 17 901/ - . THEREFORE THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE NOT AP PLICABLE FOR CLAIMING OF DEDUCTION UNDER SECTION 32 OF THE ACT. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS LD. CIT(A) OBSERVED THAT THE AO IS INCORRECT IN HOLDING THAT THE ASSESSEE HAS CLAIMED THE ENTIRE EXPENDITURE OF RS.20 59 671/ - AS A REVENUE. LD. CIT(A) THEREFORE RESTRICTED THE DISALLOWANCE ONLY TO THE CLAIM OF DEPRECIATION OF RS.6 17 901/ - . AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US. 7. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE DISALLOWANCE HAVE BEEN MADE UNDER SECTION 40(A)(I) OF THE ACT WHICH IS NOT AT ALL APPLICABLE ON THE FACTS OF THE CASE. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION ITA NO. 4678 &4338 /1 2 16 AND THEREFORE NO DISALLOWANCE NEED TO BE MADE. THE LD. COUNSEL FURTHER POINTED OUT THAT TDS ON ROYALTY WAS MADE APPLICABLE FROM 13/07/2006 AND THE ASSESSMENT YEAR IS ASSESSMENT YEAR 2006 - 07 THEREFORE THERE WAS NO TDS LIABILITY EVEN IF ENTIRE AMOUNT IS TREATED AS ROYALTY. LD. COUNSEL REFERRED TO THE NON - DISCRIMINATORY CLAUSE IN INDO - US TREATY AND SUBMITTED THAT IF THE DOMESTIC TRANSACTION WOULD NOT HAVE ATTRACTED ANY TAX LIABILITY A SIMILAR INTERNATIONAL TRANSACTION CANNOT BE SUBJECT TO TDS LIABILITY. 7.1 LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) LTD. ITA NO.3636/DELHI/2008 A.Y. 2000 - 01. 8. PER CONTRA LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE REVENUE AUTHORITIES. 9. HAVING PERUSED THE ORDERS CAREFULLY WE AGREE WITH THE SUBMISSIONS MADE BY LD. COUNSEL. FI RSTLY IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ONLY CLAIMED DEPRECIATION AND NOT THE ENTIRE EXPENDITURE. THE TRIBUNAL DELHI BENCH IN THE CASE OF SMG DEMAG (P) SUPRA) HAS HELD THAT PROVISIONS OF SECTION 40(A)(I) ARE NOT APPLICABLE FOR CLAIM OF D EDUCTION OF DEPRECIATION UNDER SECTION 32 OF THE ACT. PAYMENTS FOR PURCHASE OF SOFTWARE WITHOUT DEDUCTION TAX WILL NOT BE SUBJECT TO THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 9.1 FURTHER IF A SIMILAR DOMESTIC TRANSACTION WAS MADE DURING THE YE AR UNDER CONSIDERATION IT WOULD NOT HAVE ATTRACTED THE LIABILITY FOR TDS. THEREFORE IN THE LIGHT OF THE NON - DISCRIMINATORY CLAUSE IN THE TREATY A SIMILAR INTERNATIONAL TRANSACTION WOULD ALSO NOT ATTRACT LIABILITY OF THE TDS. CONSIDERING THE FACTS I N THE LIGHT OF THE JUDICIAL DECISIONS AND OUR OBSERVATIONS MADE HEREIN ABOVE THE FINDINGS OF LD. CIT(A) IS SET ASIDE AND THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.6 17 901/ - . GROUND NO.2 IS ACCORDINGLY ALLOWED. 1 6 . THE GROUND TAKEN BY THE REVEN UE WITH REGARD TO DELETING THE DISALLOWANCE U/S.10A IN COMPUTATION OF BOOK PROFIT U/S.115JB IGNORING THE FACT THAT THE DECISION OF DELETING THE DISALLOWANCE U/S.10A WAS NOT ACCEPTED BY THE REVENUE HAS BEEN DEALT BY THE TRIBUNAL VIDE ITS ORDER FOR THE A.Y .2006 - 07 AT PARA 19 WHICH READS AS UNDER : - 19. GROUND NO.5 RELATES TO THE COMPUTATION OF THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IN OUR CONSIDERED OPINION THIS ISSUE IS CONSEQUENTIAL TO OUR FINDING ALLOWING THE CLAIM OF DEDUCTION UNDER SECT ION 10A OF THE ACT. THE A.O IS DIRECTED TO RECOMPUTE THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT AFTER GIVING APPEAL EFFECT TO OUR ORDER. THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 4678 &4338 /1 2 17 ON A CAREFUL PERUSAL OF THE FINDINGS RECORDED B Y THE TRIBUNAL IN THIS REGARD WE FOUND THAT WHILE DEALING WITH THE ISSUE THE TRIBUNAL OBSERVED THAT THE ISSUE IN REGARD TO DEDUCTION U/S.10A HAS ALREADY BEEN ALLOWED THEREFORE THE ISSUE OF COMPUTATION OF BOOK PROFIT AS HAS BEEN RAISED BY THE REVENUE U/ S.115JB OF THE ACT IS CONSEQUENTIAL AND DIRECTED THE AO TO RECOMPUTE THE BOOK PROFIT CLAIMED UNDER SECTION 115JB OF THE ACT AFTER GIVING EFFECT TO THE TRIBUNALS ORDER. ACCORDINGLY WE DIRECT THE AO TO RECOMPUTE THE BOOK PROFIT AS HAS BEEN CLAIMED BY THE A SSESSEE U/S.115JB. 17. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR UNDER CONSIDERATION ARE SAME RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. 2006 - 07 AS WELL AS EARLIER ASSES SMENT YEARS AND ALSO THE DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN CASE OF ASSESSEE ITSELF AS DISCUSSED ABOVE WE ALLOW THE APPEAL OF THE ASSESSEE. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED WHEREAS APPEAL OF THE REVENUE IS ALLOWED PARTL Y FOR STATISTICAL PURPOSES. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 31/07 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCO UNTANT MEMBER MUMBAI ; DATED 31/07 /201 5 . . /PKM . / PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT ITA NO. 4678 &4338 /1 2 18 / BY ORDER / ( ASSTT. REGISTRAR) / ITAT MUMBAI 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) MU MBAI. 4. / CIT 5. / DR ITAT MUMBAI 6. / GUARD FILE. //TRUE COPY//