ITO, Bangalore v. M/s Expert Outsource Pvt. Ltd.,, Bangalore

ITA 896/BANG/2009 | 2005-2006
Pronouncement Date: 17-03-2010 | Result: Dismissed

Appeal Details

RSA Number 89621114 RSA 2009
Bench Bangalore
Appeal Number ITA 896/BANG/2009
Duration Of Justice 6 month(s) 13 day(s)
Appellant ITO, Bangalore
Respondent M/s Expert Outsource Pvt. Ltd.,, Bangalore
Appeal Type Income Tax Appeal
Pronouncement Date 17-03-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 17-03-2010
Date Of Final Hearing 11-03-2010
Next Hearing Date 11-03-2010
Assessment Year 2005-2006
Appeal Filed On 03-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE DR. O.K. NARAYANAN VICE PRESIDENT AND SHRI GEORGE GEORGE K JUDICIAL MEMBER ITA NOS.896 & 897(BNG)/09 (ASSESSMENT YEARS : 2005-06 & 2006-07) THE INCOME TAX OFFICER WARD 11(1) BANGALORE. VS. M/S. EXPERT OUTSOURCE (P) LTD. NO.20/2 17 TH CROSS BETWEEN 6 TH & 8 TH MAIN MALLESWARAM BANGALORE. APPELLANT. RESPONDENT. APPELLANT BY : SMT. V.S. SREELEKHA ADDL. CIT. RESPONDENT BY : NONE. O R D E R PER SHRI GEORGE GEORGE K : THESE APPEALS BY THE REVENUE ARE DIR ECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I BANGALORE D T.24.6.2009 FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. 2. THE GROUNDS RAISED IN THESE APPEALS AR E IDENTICAL. ALL THE GROUNDS RELATE TO THE SOLITARY ISSUE WHETHER THE CIT(A) IS JUSTIFIED IN HOLDING THAT THE ASSESSEE COMPANY IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTIO N 10A OF THE INCOME TAX ACT 1961. SINCE COMMON ISSUE IS INVOLVED IN THESE APP EALS THEY ARE HEARD TOGETHER AND DISPOSED OF BY THIS CONSOLIDATED ORDER. : 3. THE FACTS IN BRIEF ARE AS FOLLOWS : 3.1 THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IT WAS INCORPORATED ON 17.12.2003. IT IS ENGAGED IN THE BUSINESS OF RENDER ING SOFTWARE DEVELOPMENT SERVICES. THE ASSESSEE ENTERED INTO AN AGREEMENT W ITH ITS PARENT COMPANY ON 20.10.2003 FOR PROVIDING SOFTWARE DEVELOPMENT SERVI CES. THE FIRST INVOICE WAS RAISED BY THE ASSESSEE ON 29.12.2003. THE ASSESSEE SECURED THE STPI REGISTRATION ITA NOS.896 & 897(BNG)/09 - 2 - ON 4.8.2004. FOR THE A.Y. 2005-06 THE ASSESSEE CL AIMED DEDUCTION UNDER SECTION 10A OF THE INCOME TAX ACT 1961. THE ASSESSEE HAD ENCLOSED FORM 56F ALONG WITH THE RETURN OF INCOME IN SUPPORT OF THE CLAIM OF DED UCTION UNDER SECTION 10A. THEREAFTER SCRUTINY ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 28.9.2007. IN THE ORDER THE LEARNED ASSESSING OFFICER HAS DIS ALLOWED THE DEDUCTION CLAIMED UNDER SECTION 10A FOR THE FOLLOWING REASONS : I) THE COMPANY WAS INCORPORATED AND STARTED BUSINES S ACTIVITIES PRIOR TO OBTAINING APPROVAL OF STPI. HENCE THE CONDITIONS LAID DOWN UNDER SECTION 10A(2)(I)(B) AND (C) OF THE INCOME TAX ACT 1961 ARE NOT SATISFIED. II) IN VIEW OF THE FACT THAT THE APPLICATION OF THE ASSESSEE SOUGHT PERMISSION FROM STPI AUTHORITIES FOR ESTABLISHMENT OF A NEW ST P UNIT AND DID NOT CHOOSE THE AVAILABLE OPTION OF CONVERSION OF THE DT A UNIT TO STP UNIT AND BASED ON THE APPROVAL OF THE STPI AUTHORITIES TO SE T UP A NEW STP UNIT IT IS TO BE TREATED THAT THE ASSESSEE HAS ESTABLISHED A NEW UNIT. THE PLANT AND MACHINERY PREVIOUSLY USED FOR THE BUSINESS HAVI NG BEEN TRANSFERRED TO THE STP UNIT TO THE EXTENT OF RS.2 80 154 WHICH IS MORE THAN 20% OF THE TOTAL PLANT AND MACHINERY THE CONDITION LAID DOWN UNDER SECTION 10A(2)(III) OF THE IT ACT ARE NOT SATISFIED. III) THE DEDUCTION UNDER SECTION 10A CANNOT BE GRAN TED EVEN IF IT IS HELD THAT THE ASSESSEE DID NOT SET UP A NEW UNIT ON SECURING STP REGISTRATION BECAUSE AS STATED IN THE MARGINAL HEADING OF SECTI ON 10A THE DEDUCTION IS AVAILABLE FOR UNDERTAKINGS NEWLY ESTABLISHED IN FRE E TRADE ZONE ETC. IT CANNOT BE SAID THAT ON OBTAINING REGISTRATION FROM STPI AUTHORITIES THE ASSESSEES UNIT HAS BEEN NEWLY SET UP. ITA NOS.896 & 897(BNG)/09 - 3 - THUS THE TOTAL INCOME FOR A.Y. 2005-06 WAS ASSESSE D AT RS.37 57 030. INTEREST UNDER SECTION 234B WAS LEVIED AT RS.4 12 440 AND TO TAL AMOUNT OF TAX PAYABLE HAS BEEN DETERMINED AT RS.17 84 963. 3.2 SIMILARLY FOR A.Y. 2006-07 THE ASSES SEES CLAIM FOR DEDUCTION UNDER SECTION 10A WAS REJECTED BY THE A.O. VIDE HIS ORDER PASSED UNDER SECTION 143(3) DT.26.12.2008. THE REASON STATED FOR REJECTING THE ASSESSEES CLAIM U/S.10A IS IDENTICAL FOR BOTH THE ASSESSMENT YEARS 2005-06 & 2 006-07. 3.3 ON APPEAL THE ASSESSEE CONTENDED BEFORE THE CI T(A) THAT IT HAD COMPLIED WITH ALL THE CONDITIONS FOR BEING ELIGIBLE FOR DEDU CTION UNDER SECTION 10A OF THE ACT. IT WAS FURTHER SUBMITTED WHEN AN EXISTING UNIT GETS CO NVERTED INTO STP UNIT THERE COULD BE NO FORMATION OF NEW UNIT BUT ONLY A CHANGE IN THE STATUS OF AN EXISTING UNIT FROM A NON-STP UNIT TO STP UNIT. IN OTHER WORDS IT WAS SUBMITTED THAT THERE WOULD BE NO TRANSFER OF ASSETS OF AN EXISTING UNIT BUT ONLY A TRANSFORMATION IN THE NATURAL AND CHARACTER OF AN EXISTING UNIT. IT WAS ALSO CONTENDED THAT THE LEARNED ASSESSING OFFICER ERRED IN DISREGARDING THE ORDERS PASSED BY THE JURISDICTIONAL ITAT IN THE CASE OF M/S. FORESEE INFORMATION SYSTEMS (P ) LTD. (ITA NOS.3014/BANG/04 1363 & 1364/BANG/05 DT.16.3.2007) WHEREIN ON IDENTI CAL FACTS IT WAS HELD THAT DEDUCTION UNDER SECTION 10A WOULD BE ELIGIBLE TO AN ALREADY EXISTING AND FUNCTIONAL UNIT IF IT SECURES REGISTRATION AS STP UNIT. 3.4 THE CIT(A) FOLLOWING THE DECISION OF THE HON'BL E PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. MAHAVIR SPINNING MILLS LTD. (303 ITR 353) AND THE ORDER OF THE TRIBUNAL IN CASE OF FORESEE INFORMATION SYST EMS (P) LTD.(SUPRA) HELD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION UNDER SECTION 10A OF THE ACT. ITA NOS.896 & 897(BNG)/09 - 4 - 3.5 AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US R AISING THE FOLLOWING EFFECTIVE GROUNDS : THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASS ESSEE COMPANY IS ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10A WI THOUT APPRECIATING THAT THE ASSESSEE COMPANYS BUSINESS ACTIVITIES COMMENCE D PRIOR TO OBTAINING OF APPROVAL FROM STPI AND THEREFORE THE CONDITION LAID DOWN IN SECTION 10(2)(I)(B) AND 10(2)((I)(C) WERE NOT FU LFILLED IN THE ASSESSEES CASE. THE LEARNED CIT(A) HAS NOT TAKEN INTO ACCOUNT THE FACT THAT PLANT AND MACHINERY PREVIOUSLY USED BY THE NON-STP UNIT A GGREGATING TO RS.2 80 154 HAVE BEEN TRANSFERRED TO THE STP UNIT W HICH IS MORE THAN 20% OF THE TOTAL PLANT AND MACHINERY OF STP UNIT T HEREBY NOT FULFILLING THE CONDITIONS LAID DOWN IN SECTION 10A(2)(III) OF THE IT ACT. THE CIT(A) ERRED IN RELYING UPON BOARDS CIRCULAR NO.1 OF 2005 DEALING WITH BENEFITS GRANTED TO UNITS UNDER SECTI ON 10B WHILE DIRECTING THE ASSESSING OFFICER TO ALLOW THE DEDUCTION CLAIME D UNDER SECTION 10A OF THE IT ACT 1961. 4. THE LEARNED DEPARTMENTAL REPRESENTATI VE STATED THAT THE ORDER OF TRIBUNAL IN THE CASE OF M/S. FORESEE INFORMATION SY STEM (P) LTD. (SUPRA) HAS NOT BEEN ACCEPTED BY DEPARTMENT AND APPEAL HAS BEEN PREFERRED TO THE HON'BLE HIGH COURT UNDER SECTION 260A OF THE ACT. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE HON'BLE PUNJAB & HARYANA HIGH COURT I N THE CASE OF MAHAVIR SPINNING MILLS LTD (SUPRA) HELD THAT DEDUCTION UNDER SECTIO N 10B WOULD BE AVAILABLE ON CONVERSION OF EXISTING UNIT INTO AN EXPORT ORIENTED UNIT (EOU). THE CONTENTIONS OF THE REVENUE AUTHORITIES THAT PROVISIONS OF SECTION 10B( 2) WERE NOT FULFILLED ON CONVERSION ITA NOS.896 & 897(BNG)/09 - 5 - OF EXISTING UNIT INTO EOU WERE NEGATIVE BY THE HIGH COURT. THE TRIBUNAL IN THE CASE OF M/S. FORESEE INFORMATION SYSTEMS (P) LTD. (SUPRA ) HAD HELD THE BENEFIT OF SECTION 10A WOULD BE AVAILABLE EVEN WHEN AN EXISTING UNIT G ETS CONVERTED INTO A STP UNIT. RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL IS RE PRODUCED BELOW : 6. WE HAVE HEARD BOTH THE SIDES. IT APPEARS THA T LEARNED CIT(A) HAS PASSED A VERY DETAILED ORDER IN THE ASSESSMENT YEAR 2002-03 AND RIGHTLY CAME TO THE CONCLUSION THAT THE ASSESSEE IS ENTITLED TO EXEMPTION UNDER SECTION 10A OF THE IT ACT. FROM THE ASSESSME NT ORDER WE FIND THAT ACCORDING TO THE ASSESSING OFFICER IT IS NOT A NEW UNDERTAKING FOR THE PURPOSE OF EXEMPTION UNDER SECTION 10A OF THE IT AC T. FACTUALLY IT IS ALSO CORRECT THAT THE UNDERTAKING WAS ALREADY ENGAG ED IN EXPORTING SOFTWARE BEFORE IT BECAME A STP UNIT. THE STP WAS NOTIFIED IN MARCH 1993 BUT NOT IN SOFTWARE TECHNOLOGY PARK. IN THE Y EAR 2001 A COMPANY WAS FORMED BY CONVERSION OF THE FIRM AND IT STARTED PRODUCTION IN STP UNIT AFTER GETTING APPROVAL. THEREAFTER ONLY THE U NDERTAKING CLAIMED EXEMPTION UNDER SECTION 10A OF THE IT ACT. THE CLA IM OF THE ASSESSEE IS SUPPORTED BY BOARD CIRCULAR NO.1/2005 WHERE IT HAS BEEN CLEARLY HELD THAT UNDERTAKING SET UP IN DOMESTIC TARIFF AREA (DT A) WHICH IS SUBSEQUENTLY APPROVED AS 100% EXPORT ORIENTED IS E NTITLED TO RELIEF UNDER SECTION 10B OF THE IT ACT PROVIDED THE UNDERT AKING SHALL GET RELIEF ONLY FOR THE REMAINING PERIOD OF TEN CONSECUTIVE YE ARS BEGINNING WITH ASSESSMENT YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE COMPUTER SOFTWARE AS A DTA UNIT. RESPECTFULLY FOLLOWING THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF MAHAVIR SPINNING MILLS LTD. (SUPRA) AND THE ORDE R OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. FORESEE INFORMATION SY STEMS (P) LTD. (SUPRA) WE REJECT THE GROUNDS RAISED BY THE REVENUE. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 17 TH MARCH 2010. SD/- SD/- (O.K.NARAYANAN) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER BANGALORE DT. 17-03-2010. ITA NOS.896 & 897(BNG)/09 - 6 - COPY TO : 1. THE ASSESSEE. 2. THE ASSESSING OFFICER. 3. CIT(APPEALS) 4. CIT 5. DEPARTMENTAL REPRESENTATIVE ITAT BANGALORE. 6. GUARD FILE ITAT BANGALORE. 7. GUARD FILE ITAT NEW DELHI. * GPR BY OR DER ASSISTANT REGISTRAR ITAT BANGALORE.